<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 1998
REGISTRATION NOS. 333-51825 AND 333-51825-01
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
AMENDMENT No.1
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)
<TABLE>
<S> <C> <C>
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.
------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE
OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1)
- ------------------------------------------------------------------------------------------------------------------------------
Common Stock, $1.00 par value, of the Company, including
Preferred Stock Purchase Rights(2)........................
Debentures(3)..............................................
FELINE PRIDES, consisting of:
Income PRIDES(4).......................................
Growth PRIDES(5).......................................
Capital Securities of KBHC Financing I(6)..................
Guarantee of Capital Securities(7).........................
Total...................................................... $345,000,000 100%(8) $345,000,000
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<CAPTION>
<S> <C>
TITLE OF EACH CLASS AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTRATION FEE
- ----------------------------------------------------------------------------------------------
Common Stock, $1.00 par value, of the Company, including
Preferred Stock Purchase Rights(2)........................
Debentures(3)..............................................
FELINE PRIDES, consisting of:
Income PRIDES(4).......................................
Growth PRIDES(5).......................................
Capital Securities of KBHC Financing I(6)..................
Guarantee of Capital Securities(7).........................
Total...................................................... $101,775(9)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
(2) Subject to note (8) below, there are being registered hereunder an
indeterminate number of shares of Common Stock as shall be issuable upon
settlement of the Purchase Contracts that are components of the Income
PRIDES and Growth PRIDES registered hereby. The Preferred Stock Purchase
Rights are not presently exercisable and do not trade separately from the
Common Stock.
(3) Subject to note (8) below, there are being registered hereunder an
indeterminate principal amount of Debentures which will be issued and sold
by the Company to the Trust, which may later be distributed to the holders
of Capital Securities upon a dissolution of the Trust and a distribution of
the assets thereof
(4) Subject to note (8) below, there are being registered hereunder an
indeterminate number of Income PRIDES.
(5) Subject to note (8) below, there are being registered hereunder an
indeterminate number of Growth PRIDES.
(6) Subject to note (8) below, there are being registered hereunder an
indeterminate amount of Capital Securities.
(7) Includes the rights of holders of the Capital Securities under the Guarantee
and back-up undertakings, consisting of obligations by the Company to
provide certain indemnities in respect of, and pay and be responsible for
certain expenses, costs, liabilities, and debts of, KBHC Financing I, as set
forth in the Amended and Restated Declaration of Trust, the Indenture and
the Supplemental Indenture thereto and as further described in the
Registration Statement. No separate consideration will be received for the
Guarantee or any back-up undertakings.
(8) In no event will the aggregate initial offering price of all securities
issued pursuant to this Registration Statement exceed $345,000,000. Any
securities registered hereunder may be sold separately or as units with
other securities registered hereunder.
(9) All of the Registration Fee has been previously paid.
================================================================================
<PAGE> 2
PROSPECTUS SUBJECT TO COMPLETION, DATED JUNE 12, 1998
15,000,000 FELINE PRIDES(SM)
(CONSISTING OF INCOME PRIDES(SM) AND GROWTH PRIDES(SM))
KAUFMAN AND BROAD
HOME CORPORATION
,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 trading % 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 24 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 will be 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 such exchange on which the
Income PRIDES and Growth PRIDES are then listed, including, if applicable, the
NYSE. On June 11, 1998, the last reported sale price of the Common Stock of the
Company on the NYSE was $26 7/16 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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<S> <C> <C>
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UNDERWRITING PROCEEDS TO
COMMISSION(2) COMPANY(3)
- ------------------------------------------------------------------------------------------------------------------------
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 $ ;
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.
- ---------------
(SM)Service mark of Merrill Lynch & Co., Inc.
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.
<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
2
<PAGE> 4
liquidation amount per annum. Such quarterly distributions on the Capital
Securities will constitute all, or a portion, of the quarterly distribution 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, compounded quarterly until paid at 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 (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 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 or
subordinate in right of payments 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 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
Company) at a price not less than 100% of their aggregate stated liquidation
amount plus accrued and unpaid
3
<PAGE> 5
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; and
2. Quarterly Report on Form 10-Q of the Company for the quarter ended
February 28, 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 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
anticipates that the acquisitions in aggregate will produce incremental unit
deliveries and revenues in fiscal 1998 of approximately 1500 and $175 million,
respectively, and will be accretive to earnings per share, subject to the
assumptions set forth in "The Company -- Recent Developments."
Company-wide net orders for the second quarter of 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 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
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<PAGE> 10
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.
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<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 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 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 such 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), to repay outstanding
indebtedness under the Company's unsecured
revolving credit facility (the "Credit Facility")
and for other general corporate purposes, including
potential future acquisitions. 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.
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<PAGE> 12
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 Company and The First
National Bank of Chicago, as agent for the holders
of
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<PAGE> 13
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 through
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 Contract Adjustment Payments, if any, payable
by the Company at the
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<PAGE> 14
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 accumulate quarterly
and would accrue interest thereon 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 period of such deferral. If
a Tax Event
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<PAGE> 15
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 exceeding 50 basis
points (.50%) of the aggregate stated liquidation
amount of
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<PAGE> 16
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 Interest of the Treasury
Portfolio, as applicable, when paid at maturity,
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<PAGE> 17
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 right
thereunder to receive accrued or Deferred Contract
Adjustment
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<PAGE> 18
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
distribution rate on the Capital Securities and the
interest rate on the Debentures 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 Settlement Date, provided, that the
Company may limit such Reset Rate to be no
17
<PAGE> 19
higher than the rate on the Two-Year Benchmark
Treasury plus 300 basis points (3%). 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%. 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
accumulate quarterly and would accrue interest,
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 accumulate 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 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
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<PAGE> 20
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 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
19
<PAGE> 21
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."
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<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.
21
<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.
24
<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
26
<PAGE> 28
listing securities on the NYSE that at least 1,000,000 Income PRIDES or Growth
PRIDES be outstanding at any time.
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."
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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 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 accumulate 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."
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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 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 repurchased by the Company on the Purchase Contract Settlement Date,
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.
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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 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, certain
events of bankruptcy, insolvency and reorganization of the Company and certain
events of dissolution of the Trust. 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.
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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 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 "Certain Federal Income
Consequences -- Capital Securities -- Interest Income and Original Issue
Discount" and "-- Sales, Exchanges or Other Taxable Dispositions of Capital
Securities."
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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 set forth in the following paragraph.
Company-wide net orders for the second quarter of 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 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. Assuming stable or
improving business
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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 recent acquisitions. 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"-Recent Developments" and elsewhere under this
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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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), to repay outstanding indebtedness under the Credit
Facility and for other general corporate purposes, including potential future
acquisitions. 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 11, 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 June11,1998)......................... 26 3/4 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
Paid-in capital................................ 187.7 187.7
Retained earnings.............................. 165.1 165.1
Cumulative foreign currency translation
adjustments................................. (3.7) (3.7)
-------- ------ --------
Total stockholder's 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 $200.7 million were outstanding under the
Credit Facility on June 11, 1998. The Company currently anticipates using
substantially all the net proceeds from the sale of the FELINE PRIDES and of
the Capital Securities to repay outstanding indebtedness under the Credit
Facility and for other general corporate purposes (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.
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<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 the 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 initially 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 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 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 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 accumulate
quarterly and would accrue interest thereon 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 such 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
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Applicable Market Value is measured but such market price is less 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 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 of
the related Purchase Contracts and the Pledge Agreement 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 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 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
(and the related appropriate Applicable Ownership Interest of the Treasury
Portfolio) 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 the Stated Amount times the number of Purchase Contracts
being settled. 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 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
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Tax Event Redemption has occurred) and 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.
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
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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 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 the Company 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).
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
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 the 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
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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.
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 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
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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.
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
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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, 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.
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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 39,849,767 shares were outstanding as of June 11, 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. At June 11, 1998, there were 1,769
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. Generally all matters to be voted on by
stockholders 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, subject to any voting rights of holders of outstanding Preferred
Stock, if any, 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 or other subscription or conversion
rights and there are no redemption provisions with respect to such shares. All
the outstanding shares of Common Stock are fully paid and nonassessable, the
shares 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, 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 distributed with respect to
Common Stock and only shares of Special Common Stock shall be paid or
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.
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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.
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.
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 Series A Participating Cumulative
Preferred Stock of the Company (the "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
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 Common Stock certificates 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 constitutes a transfer of the Rights associated with the Common
Stock represented by such certificate. The Rights will separate from the 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, 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.
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As soon as practicable after the Rights Distribution Date, Rights
Certificates will be mailed to holders of record of the 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
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
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, 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 is subject to adjustment from time to time in the event of a stock
dividend on, or a subdivision or combination of, Common Stock.
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 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.
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
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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 any individual, corporation, partnership 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, except or (i) any 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 its subsidiaries 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 decisions), 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 (except for the rights of
holders of Income PRIDES to substitute Treasury Securities for the related
Capital Securities or Treasury Portfolio, as the case may be, or the rights of
holders of Growth PRIDES to substitute Capital Securities or Treasury Portfolio,
as the case may be, for the related Treasury 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, (e) reduce the amount of
Common Stock purchasable under such Purchase Contract, increase the price to
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purchase Common Stock on settlement of such Purchase Contract, change the
Purchase Contract Settlement Date or 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 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 in
the performance of any of its 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.
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,
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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
with interest thereon, to the extent permitted by law, compounded quarterly 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. 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 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 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 date
shall be one Business Day prior to the relevant payment date. 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
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.
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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 applicable quarterly distribution rate on the Capital Securities and
the interest rate on the related Debentures 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,
which will be equal to the sum of the Reset Spread and the rate 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%). Such market value may be less than 100.75%, including where
the Reset Spread is limited to the maximum of 3%. 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 Announcement Date and of the procedures that must be
followed if any owner of FELINE PRIDES wishes to settle the related Purchase
Contract with cash on the Business Day immediately preceding the Purchase
Contract Settlement Date.
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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 price equal to the
principal amount, plus accrued and unpaid interest (including deferred
interest), if any, thereon.
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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. 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 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.
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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 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.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary dissolution of the Trust
(unless a Tax Event Redemption has occurred), then 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 accrued and unpaid interest
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.
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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, (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 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 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.
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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) exercise the remedies available
under the Indenture with respect to the Debentures, (ii) waive any past
Indenture Event of Default 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 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 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 United States federal income tax purposes.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required 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 cancel
Capital Securities or distribute Debentures in accordance with the Declaration.
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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.
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 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
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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 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.
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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 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.
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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 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, 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, 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), 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.
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
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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 (in which case no vote will be required), the
Guarantee may be amended only with the prior approval of the 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.
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 Date. 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.
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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 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) 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, (iii) any securities issued pursuant to a merger or
acquisition and (iv) 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.
103
<PAGE> 105
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.
104
<PAGE> 106
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>
105
<PAGE> 107
<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>
106
<PAGE> 108
======================================================
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........ 69
Description of the Capital Securities....... 72
Description of the Guarantee................ 84
Description of the Debentures............... 86
Effect of Obligations under the Debentures
and the Guarantee......................... 93
Federal Income Tax Consequences............. 94
ERISA Considerations........................ 101
Underwriting................................ 102
Experts..................................... 104
Legal Opinions.............................. 104
Index of Certain Terms for Prospectus....... 105
</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> 109
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Registration fee............................................
NYSE listing fee............................................
NASD filing fee.............................................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Blue sky fees and expenses..................................
Printing and engraving expenses.............................
Trustee and Agent fees......................................
Rating Agencies.............................................
Miscellaneous...............................................
-------
Total.......................................................
=======
</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> 110
(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> 111
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> 112
ITEM 17. UNDERTAKINGS
The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made of
the securities registered hereby, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8 and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering;
(4) That, for the purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's Annual Report pursuant
to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is
incorporated by reference in the Registration Statement shall be deemed to be a
new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(5) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and
(6) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
KBHC Financing I hereby undertakes to provide to the underwriters, at the
closing specified in the applicable underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the provisions specified in Item 15 of this Registration
Statement or otherwise, the Registrants have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in said Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrants of expenses incurred or paid by a director, officer
or controlling person of the Registrants in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrants will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act, and
will be governed by the final adjudication of such issue.
II-4
<PAGE> 113
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 registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Los Angeles, California, on the 12th day of June, 1998.
KAUFMAN AND BROAD HOME CORPORATION
/s/ MICHAEL F. HENN
By:
--------------------------------------
Name: Michael F. Henn
Title: Senior Vice President and
Chief Financial Officer
II-5
<PAGE> 114
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Michael F. Henn, Barton P. Pachino and
Kimberly N. King, and each of them, his or her true and lawful attorney-in-fact
and agent, with full power of substitution, for him or her and in his or her
name, and in any and all capacities, to sign all amendments (including
post-effective amendments) to the Registration Statement to which this power of
attorney is attached and all subsequently filed registration statements,
including any amendments thereto, for the same offering that are to be effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to
file all such amendments, registration statements and all exhibits to them and
other documents to be filed in connection with them, with the Securities and
Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been duly signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* Chairman and Chief Executive Officer June 12, 1998
- --------------------------------------------- (Principal Executive Officer)
Bruce Karatz
/s/ MICHAEL F. HENN Senior Vice President and June 12, 1998
- --------------------------------------------- Chief Financial Officer
Michael F. Henn
/s/ WILLIAM R. HOLLINGER Vice President and Controller June 12, 1998
- --------------------------------------------- (Principal Accounting Officer)
William R. Hollinger
* Director June 12, 1998
- ---------------------------------------------
Steve Bartlett
* Director June 12, 1998
- ---------------------------------------------
Ronald W. Burkle
* Director June 12, 1998
- ---------------------------------------------
Jane Evans
Director June 12, 1998
- ---------------------------------------------
Dr. Ray R. Irani
* Director June 12, 1998
- ---------------------------------------------
James A. Johnson
Director June 12, 1998
- ---------------------------------------------
Guy Nafilyan
* Director June 12, 1998
- ---------------------------------------------
Luis G. Nogales
* Director June 12, 1998
- ---------------------------------------------
Charles R. Rinehart
* Director June 12, 1998
- ---------------------------------------------
Sanford C. Sigoloff
*By /s/ MICHAEL F. HENN
----------------------------------------
Michael F. Henn,
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 115
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, KBHC Financing
I certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Los Angeles, California, on the 12th day of June, 1998.
KBHC FINANCING I
/s/ BARTON P. PACHINO
By:
--------------------------------------
Name: Barton P. Pachino
Title: Trustee
/s/ DENNIS WELSCH
By:
--------------------------------------
Name: Dennis Welsch
Title: Trustee
II-7
<PAGE> 116
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------------- -----------
<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
<PAGE> 1
Exhibit 4.9
FORM OF
AMENDED AND RESTATED DECLARATION
OF TRUST
KBHC Financing I
Dated as of ______, 1998
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TABLE OF CONTENTS
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ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 DEFINITIONS................................................... 1
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 TRUST INDENTURE ACT; APPLICATION..............................10
SECTION 2.2 LISTS OF HOLDERS OF SECURITIES................................10
SECTION 2.3 REPORTS BY THE INSTITUTIONAL TRUSTEE..........................11
SECTION 2.4 PERIODIC REPORTS TO INSTITUTIONAL TRUSTEE.....................11
SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT..............11
SECTION 2.6 EVENTS OF DEFAULT; WAIVER.....................................11
SECTION 2.7 EVENT OF DEFAULT; NOTICE......................................13
ARTICLE III
ORGANIZATION
SECTION 3.1 NAME..........................................................13
SECTION 3.2 OFFICE........................................................14
SECTION 3.3 PURPOSE.......................................................14
SECTION 3.4 AUTHORITY.....................................................14
SECTION 3.5 TITLE TO PROPERTY OF THE TRUST................................14
SECTION 3.6 POWERS AND DUTIES OF THE REGULAR TRUSTEES.....................14
SECTION 3.7 PROHIBITION OF ACTIONS BY THE TRUST AND THE TRUSTEES..........17
SECTION 3.8 POWERS AND DUTIES OF THE INSTITUTIONAL TRUSTEE................18
SECTION 3.9 CERTAIN DUTIES AND RESPONSIBILITIES OF THE INSTITUTIONAL
TRUSTEE.......................................................19
SECTION 3.10 CERTAIN RIGHTS OF INSTITUTIONAL TRUSTEE.......................21
SECTION 3.11 DELAWARE TRUSTEE..............................................23
SECTION 3.12 EXECUTION OF DOCUMENTS........................................23
SECTION 3.13 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES........23
SECTION 3.14 DURATION OF TRUST.............................................23
SECTION 3.15 MERGERS.......................................................23
ARTICLE IV
SPONSOR
SECTION 4.1 SPONSOR'S PURCHASE OF COMMON SECURITIES.......................25
SECTION 4.2 RIGHTS AND RESPONSIBILITIES OF THE SPONSOR....................25
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SECTION 4.3 RIGHT TO PROCEED..............................................26
SECTION 4.4 EXPENSES......................................................26
ARTICLE V
TRUSTEES
SECTION 5.1 NUMBER OF TRUSTEES............................................27
SECTION 5.2 DELAWARE TRUSTEE..............................................27
SECTION 5.3 INSTITUTIONAL TRUSTEE; ELIGIBILITY............................27
SECTION 5.4 CERTAIN QUALIFICATIONS OF REGULAR TRUSTEES AND
DELAWARE TRUSTEE GENERALLY....................................28
SECTION 5.5 REGULAR TRUSTEES..............................................28
SECTION 5.6 APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEES..............29
SECTION 5.7 VACANCIES AMONG TRUSTEES......................................30
SECTION 5.8 EFFECT OF VACANCIES...........................................30
SECTION 5.9 MEETINGS......................................................30
SECTION 5.10 DELEGATION OF POWER...........................................31
SECTION 5.11 MERGER, CONVERSION. CONSOLIDATION OR SUCCESSION TO
BUSINESS......................................................31
ARTICLE VI
THE SECURITIES
SECTION 6.1 DESIGNATION AND NUMBER........................................31
SECTION 6.2 DISTRIBUTIONS.................................................32
SECTION 6.3 LIQUIDATION DISTRIBUTION UPON DISSOLUTION. ...................33
SECTION 6.4 REDEMPTION AND DISTRIBUTION...................................34
SECTION 6.5 REDEMPTION OR DISTRIBUTION PROCEDURES.........................35
SECTION 6.6 REPAYMENT AT OPTION OF HOLDERS................................36
SECTION 6.7 VOTING RIGHTS - CAPITAL SECURITIES............................37
SECTION 6.8 VOTING RIGHTS - COMMON SECURITIES.............................38
SECTION 6.9 AMENDMENTS TO DECLARATION AND INDENTURE. .....................39
SECTION 6.10 REFERENCE TO PRO RATA.........................................40
SECTION 6.11 RANKING.......................................................40
SECTION 6.12 ACCEPTANCE OF SECURITIES GUARANTEE AND INDENTURE. ............40
SECTION 6.13 NO PREEMPTIVE RIGHTS..........................................40
SECTION 6.14 MISCELLANEOUS.................................................40
SECTION 6.15 PAYING AGENT..................................................41
ARTICLE VII
TERMINATION OF TRUST
SECTION 7.1 TERMINATION OF TRUST..........................................42
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ARTICLE VIII
TRANSFER OF INTERESTS
SECTION 8.1 TRANSFER OF SECURITIES........................................42
SECTION 8.2 TRANSFER OF CERTIFICATES......................................43
SECTION 8.3 DEEMED SECURITY HOLDERS.......................................43
SECTION 8.4 BOOK ENTRY INTERESTS..........................................43
SECTION 8.5 NOTICES TO CLEARING AGENCY....................................44
SECTION 8.6 APPOINTMENT OF SUCCESSOR CLEARING AGENCY......................44
SECTION 8.7 DEFINITIVE CAPITAL SECURITY CERTIFICATES......................44
SECTION 8.8 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES.............45
ARTICLE IX
LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 9.1 LIABILITY.....................................................46
SECTION 9.2 EXCULPATION...................................................46
SECTION 9.3 FIDUCIARY DUTY................................................46
SECTION 9.4 INDEMNIFICATION...............................................47
SECTION 9.5 OUTSIDE BUSINESSES............................................49
ARTICLE X
ACCOUNTING
SECTION 10 1 FISCAL YEAR...................................................50
SECTION 10 2 CERTAIN ACCOUNTING MATTERS....................................50
SECTION 10 3 BANKING.......................................................50
SECTION 10 4 WITHHOLDING...................................................51
ARTICLE XI
AMENDMENTS AND MEETINGS
SECTION 11 1 AMENDMENTS....................................................51
SECTION 11 2 MEETINGS OF THE HOLDERS OF SECURITIES; ACTION BY WRITTEN
CONSENT.......................................................53
ARTICLE XII
REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND DELAWARE TRUSTEE
SECTION 12 1 REPRESENTATIONS AND WARRANTIES OF INSTITUTIONAL
TRUSTEE.......................................................54
SECTION 12 2 REPRESENTATIONS AND WARRANTIES OF DELAWARE TRUSTEE............55
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ARTICLE XIII
MISCELLANEOUS
SECTION 13 1 NOTICES.......................................................55
SECTION 13 2 GOVERNING LAW.................................................56
SECTION 13 3 INTENTION OF THE PARTIES......................................57
SECTION 13 4 HEADINGS......................................................57
SECTION 13 5 SUCCESSORS AND ASSIGNS........................................57
SECTION 13 6 PARTIAL ENFORCEABILITY........................................57
SECTION 13 7 COUNTERPARTS..................................................57
SECTION 13 8 REMARKETING...................................................57
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FORM OF AMENDED AND RESTATED
DECLARATION OF TRUST
OF
KBHC Financing I
________, 1998
FORM OF AMENDED AND RESTATED DECLARATION OF TRUST (the "Declaration")
dated and effective as of ________, 1998, by the Trustees (as defined herein),
the Sponsor (as defined herein) and by the Holders (as defined herein), from
time to time, of the securities representing undivided beneficial interests in
the assets of the Trust to be issued pursuant to this Declaration;
WHEREAS, certain of the Trustees and the Sponsor established KBHC
Financing I (the "Trust"), a trust under the Business Trust Act (as defined
herein) pursuant to a declaration of trust dated as of April 30, 1998 (the
"Original Declaration"), and a Certificate of Trust filed with the Secretary of
State of the State of Delaware on April 30, 1998, for the sole purpose of
issuing and selling certain securities representing undivided beneficial
interests in the assets of the Trust and investing the proceeds thereof in
certain Debentures of the Debenture Issuer (as defined herein);
WHEREAS, all of the Trustees and the Sponsor, by this Declaration, amend
and restate each and every term and provision of the Original Declaration;
NOW, THEREFORE, it being the intention of the parties hereto to continue
the Trust as a business trust under the Business Trust Act and that this
Declaration constitute the governing instrument of such business trust, the
Trustees declare that all assets contributed to the Trust will be held in trust
for the benefit of the Trust and the Holders, from time to time, of the
securities representing undivided beneficial interests in the assets of the
Trust issued hereunder, subject to the provisions of this Declaration.
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 DEFINITIONS
Unless the context otherwise requires:
(a) capitalized terms used in this Declaration but not defined in the
preamble above have the respective meanings assigned to them in this Section
1.1;
(b) a term defined anywhere in this Declaration has the same meaning
throughout;
(c) all references to "the Declaration" or "this Declaration" are to this
Declaration as modified, supplemented or amended from time to time;
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(d) all references in this Declaration to Articles and Sections and
Annexes and Exhibits are to Articles and Sections of and Annexes and Exhibits to
this Declaration unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning when
used in this Declaration unless otherwise defined in this Declaration or unless
the context otherwise requires; and
(f) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405
of the Securities Act or any successor rule thereunder.
"Agent" means any Paying Agent.
"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 ________ 15, 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.
"Applicable Principal Amount" means either (i) if the Tax Event
Redemption Date occurs prior to _______ 16, 2001, 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 _______
16, 2001, 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.
"Authorized Newspaper" means a daily newspaper, in the English
language, customarily published on each day that is a Business Day in The City
of New York, whether or not published on days that are Legal Holidays, and of
general circulation in The City of New York. The Authorized Newspaper for the
purposes of the Reset Announcement Date, is currently anticipated to be The Wall
Street Journal.
"Authorized Officer" of a Person means any Person that is
authorized to bind such Person.
"Book Entry Interest" means a beneficial interest in a Global
Certificate, ownership and transfers of which shall be maintained and made
through book entries by a Clearing Agency as described in Section 9.4.
"Business Day" means any day other than Saturday, Sunday or any 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.
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware
Code, 12 Del. Code ss.3801 et seq., as it may be amended from time to time, or
any successor legislation.
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"Certificate" means a Common Security Certificate or a Capital
Security Certificate.
"Clearing Agency" means an organization registered as a "Clearing
Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary
for the Capital Securities and in whose name or in the name of a nominee of that
organization shall be registered a Global Certificate and which shall undertake
to effect book entry transfers and pledges of the Capital Securities.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time the Clearing
Agency effects book entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means the "Closing Time" and each "Date of Delivery"
under the Underwriting Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor legislation.
"Commission" means the Securities and Exchange Commission.
"Common Security" means the __% Common Securities.
"Common Security Certificate" means a definitive certificate in
fully registered form representing a Common Security substantially in the form
of Exhibit A-2.
"Company Indemnified Person" means (a) any Regular Trustee; (b) any
Affiliate of any Regular Trustee; (c) any officers, directors, shareholders,
members, partners, employees, representatives or agents of any Regular Trustee;
or (d) any officer, employee or agent of the Trust or its Affiliates.
"Corporate Trust Office" means the office of the Institutional
Trustee at which the corporate trust business of the Institutional Trustee
shall, at any particular time, be principally administered, which office at the
date of execution of this Declaration is located at One First National Plaza,
Suite 0126, Chicago, IL 60670-0126.
"Covered Person" means: (a) any officer, director, shareholder,
partner, member, representative, employee or agent of (i) the Trust or (ii) the
Trust's Affiliates; and (b) any Holder of Securities.
"Debenture Issuer" means Kaufman and Broad Home Corporation, a
Delaware corporation, in its capacity as issuer of the Debentures under the
Indenture.
"Debenture Trustee" means The First National Bank of Chicago, as
trustee under the Indenture until a successor is appointed thereunder, and
thereafter means such successor trustee.
"Debentures" means the series of ___% Debentures to be issued by
the Debenture Issuer under the Indenture.
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"Debenture Repayment Price" means, with respect to any Debentures
put to the Sponsor on _______, 2001, an amount per Debenture equal to $10, plus
accumulated and unpaid interest (including deferred interest, if any).
"Definitive Capital Security Certificates" has the meaning set
forth in Section 8.4.
"Delaware Trustee" has the meaning set forth in Section 5.2.
"Direction" by a Person means a written direction signed:
(a) if the Person is a natural person, by that Person; or
(b) in any other case, in the name of such Person by one or
more Authorized Officers of that Person.
"Direct Action" has the meaning specified in Section 3.8(e).
"Distribution" means a distribution payable to Holders of
Securities in accordance with Section 6.2.
"DTC" means The Depository Trust Company, the initial Clearing
Agency.
"Event of Default" in respect of the Securities means an Event of
Default (as defined in the Indenture) has occurred and is continuing in respect
of the Debentures.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor legislation.
"Exchange Agent" shall mean the Person acting as Institutional
Trustee.
"Failed Remarketing" has the meaning specified in Section 5.4(b) of
the Purchase Contract Agreement.
"FELINE PRIDES"(SM) means (A) _______ units referred to as Income
PRIDES(SM) with a Stated Amount, per Income PRIDES, of $10 and (B) _______ units
referred to as Growth PRIDES(SM) with a face amount, per Growth PRIDES, of $10.
"Fiduciary Indemnified Person" has the meaning set forth in Section
9.4(b).
"Global Certificate" has the meaning set forth in Section 8.4.
"Growth PRIDES" has the meaning specified in Section 1.1 of the
Purchase Contract Agreement.
"Guarantee" means the guarantee agreement to be dated as of
_______, 1998 of the Sponsor in respect of the Common Securities and the Capital
Securities.
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"Holder" or "holder" means a Person in whose name a Certificate
representing a Security is registered, such Person being a beneficial owner
within the meaning of the Business Trust Act.
"Income PRIDES" has the meaning specified in Section 1.1 of the
Purchase Contract Agreement.
"Indemnified Person" means a Company Indemnified Person or a
Fiduciary Indemnified Person.
"Indenture" means the Indenture dated as of ______, 1998, among the
Debenture Issuer and the Debenture Trustee, and any indenture supplemental
thereto pursuant to which the Debentures are to be issued.
"Institutional Trustee" means the Trustee meeting the eligibility
requirements set forth in Section 5.3.
"Institutional Trustee Account" has the meaning set forth in
Section 3.8(c).
"Investment Company" means an investment company as defined in the
Investment Company Act.
"Investment Company Act" means the Investment Company Act of 1940,
as amended from time to time, or any successor legislation.
"Investment Company Event" means that the Regular Trustees shall
have received an opinion of independent counsel experienced in practice under
the Investment Company Act (an "Investment Company Event Opinion") 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 the Prospectus, there is a 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.
"Legal Action" has the meaning set forth in Section 3.6(g).
"Majority in liquidation amount of the Securities" means, except as
provided in the terms and conditions of the Capital Securities set forth in
Article VI hereto or by the Trust Indenture Act, Holder(s) of outstanding
Securities voting together as a single class or, as the context may require,
Holders of outstanding Capital Securities or Holders of outstanding Common
Securities voting separately as a class, who are the record owners of more than
50% of the aggregate liquidation amount (including the stated amount that would
be paid on redemption, liquidation or otherwise, plus accrued and unpaid
Distributions to the date upon which the voting percentages are determined) of
all outstanding Securities of the relevant class.
"Ministerial Action" means the taking of an action, such as filing
a form or making an election, or pursuing some other similar reasonable measure
that will have no adverse effect on the Trust, the Debenture Issuer, the Sponsor
or the Holder of the Securities and will involve no material cost.
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"Officer's Certificate" means, with respect to any Person, a
certificate of such Person signed by an Authorized Officer of such Person. Any
Officer's Certificate delivered with respect to compliance with a condition or
covenant provided for in this Declaration shall include:
(a) a statement that the officer signing the Officer's Certificate
has read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by the officer in rendering the Officer's Certificate;
(c) a statement that such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(d) a statement as to whether, in the opinion of such officer, such
condition or covenant has been complied with.
"Paying Agent" has the meaning specified in Section 6.15.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Pledge Agreement" means the Pledge Agreement dated as of ________,
1998 among the Sponsor, The Bank of New York, as collateral agent (the
"Collateral Agent") and Custodial Agent (the "Custodial Agent") and securities
intermediary (the "Securities Intermediary"), and The First National Bank of
Chicago, as purchase contract agent (the "Purchase Contract Agent").
"Pricing Agreement" means the pricing agreement between the Trust,
the Debenture Issuer, and the underwriters designated by the Regular Trustees
with respect to the offer and sale of the Capital Securities.
"Primary Treasury Dealer"means a primary U.S. government securities
dealer in The City of New York.
"Purchase Contract Agreement" means the Purchase Contract Agreement
dated as of ________, 1998 among The First National Bank of Chicago, as Purchase
Contract Agent, and the Sponsor.
"Purchase Contract Settlement Date" means _________ 16, 2001.
"Put Option" has the meaning specified in Section 6.6.
"Quorum" means a majority of the Regular Trustees or, if there are
only two Regular Trustees, both of them.
"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 Sponsor
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shall substitute therefor another Primary Treasury Dealer and (ii) any other
Primary Treasury Dealer selected by the Sponsor.
"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.
"Redemption Price" means the redemption price per security equal to
the Redemption Amount plus any accrued and unpaid distributions to the date of
redemption.
"Regular Trustee" has the meaning set forth in Section 5.1.
"Related Party" means, with respect to the Sponsor, any direct or
indirect wholly owned subsidiary of the Sponsor or any other Person that owns,
directly or indirectly, 100% of the outstanding voting securities of the
Sponsor.
"Remarketing Agent" means Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
"Remarketing Agreement" means the Remarketing Agreement among the
Debenture Issuer, the Trust and The First National Bank of Chicago as Purchase
Contract Agent.
"Remarketing Date" shall have the meaning set forth in the
Remarketing Agreement.
"Remarketing Underwriting Agreement" means the agreement to be
dated as of the third Business Day immediately preceding the Purchase Contract
Settlement Date among the Company, the Trust, The First National Bank of
Chicago, and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
"Reset Agent" means a nationally recognized investment banking firm
chosen by the Sponsor to determine the Reset Rate. It is currently anticipated
that Merrill Lynch & Co. will act in such capacity.
"Reset Announcement Date" means the tenth (10) Business Day
immediately preceding the Purchase Contract Settlement Date.
"Reset Rate" means the distribution rate per annum (to be
determined by the Reset Agent), equal to the sum of (X) the Reset Spread and (Y)
the rate of interest on the Two-Year Benchmark Treasury in effect on the third
Business Day immediately preceding the Purchase Contract Settlement Date that
the Capital Securities should bear in order for the Capital Securities to have
an approximate market value of 100.75% of their aggregate stated liquidation
amount on the third Business Day immediately preceding the Purchase Contract
Settlement Date; provided, that the Sponsor may limit such Reset Spread to be no
higher than 300 basis points (4.00%).
"Reset Spread" means a spread amount to be determined by the Reset
Agent on the tenth (10) Business Day immediately preceding the Purchase Contract
Settlement Date.
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"Responsible Officer" means, with respect to the Institutional
Trustee, any officer within the Corporate Trust Office of the Institutional
Trustee, including, without limitation, any vice-president, any assistant
vice-president, any assistant secretary, the treasurer, any assistant treasurer
or other officer of the Corporate Trust Office of the Institutional Trustee
assigned by the Institutional Trustee to administer its corporate trust matters
and also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of that officer's knowledge of
and familiarity with the particular subject.
"Rule 3a-5" means Rule 3a-5 under the Investment Company Act.
"Securities" means the Common Securities and the Capital
Securities.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, or any successor legislation.
"Sponsor" means Kaufman and Broad Home Corporation, a Delaware
corporation, or any successor entity in a merger or consolidation, in its
capacity as sponsor of the Trust.
"Super Majority" has the meaning set forth in Section 2.6(a)(ii).
"Tax Event" means the receipt by the Regular Trustees on behalf of
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, or change (including any announced proposed change) in, the laws (or any
regulations thereunder) of the United States or any political 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 date the Securities are issued, which amendment or change is effective or
which interpretation or pronouncement is announced on or after the date of
issuance of the Securities under the Declaration, there is more than an
insubstantial risk that (i) interest payable by the Debenture Issuer on the
Debentures would not be deductible, in whole or in part, by the Debenture Issuer
for federal income tax purposes or (ii) the Trust would be subject to more than
a de minimis amount of other taxes, duties or other governmental charges.
"Tax Event Redemption" means, if a Tax Event shall occur and be
continuing, the redemption of the Debentures, at the option of the Debenture
Issuer, in whole but not in part, on not less than 30 days nor more than 60 days
notice.
"Tax Event Redemption Date" means the date upon which a Tax Event
Redemption is to occur.
"10% in liquidation amount of the Securities" means, except as
provided in the terms of the Capital Securities or by the Trust Indenture Act,
Holder(s) of outstanding Securities voting together as a single class or, as the
context may require, Holders of outstanding Capital Securities or Holders of
outstanding Common Securities voting separately as a class, who are the record
owners of 10% or more of the aggregate liquidation amount (including the stated
amount that would be paid on repayment, liquidation
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or otherwise, plus accrued and unpaid Distributions to the date upon which the
voting percentages are determined) of all outstanding Securities of the relevant
class.
"Termination Event" has the meaning set forth in Section 1.1 of
the Purchase Contract Agreement.
"Treasury Portfolio" means, with respect to the Applicable
Principal Amount of Debentures (a) if the Tax Event Redemption Date occurs prior
to _______ 16, 2001, 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 ________ 15, 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,
principal or interest 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 _________
16, 2001, 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 ________ 15, 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, principal or
interest 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.
"Treasury Portfolio Purchase Price" means the lowest aggregate
price quoted by the 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.
"Treasury Regulations" means the income tax regulations, including
temporary and proposed regulations, promulgated under the Code by the United
States Treasury, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Treasury Securities" has the meaning set forth in Section 1 of the
Purchase Contract Agreement.
"Capital Security" means the _______% CapitalSecurities.
"Capital Security Beneficial Owner" means, with respect to a Book
Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of a
Person maintaining an account with such Clearing Agency (directly as a Clearing
Agency Participant or as an indirect participant, in each case in accordance
with the rules of such Clearing Agency).
"Capital Security Certificate" means a certificate representing a
Capital Security substantially in the form of Exhibit A-1.
"Trustee" or "Trustees" means each Person who has signed this
Declaration as a trustee, so long as such Person shall continue in office in
accordance with the terms hereof, and all other Persons who may from time to
time be duly appointed, qualified and serving as Trustees in accordance with the
provisions
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hereof, and references herein to a Trustee or the Trustees shall refer to such
Person or Persons solely in their capacity as trustees hereunder.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended from time to time, or any successor legislation.
"Two-Year Benchmark Treasury" means 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 Trust
Securities, as agreed upon by the Sponsor 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 Sponsor) 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 Sponsor) 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 Sponsor) (which may include the Reset Agent or an
Affiliate thereof).
"Underwriting Agreement" means the Underwriting Agreement for
the offering and sale of Capital Securities.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 TRUST INDENTURE ACT; APPLICATION.
(a) This Declaration is subject to the provisions of the Trust Indenture
Act that are required to be part of this Declaration and shall, to the extent
applicable, be governed by such provisions.
(b) The Institutional Trustee shall be the only Trustee which is a Trustee
for the purposes of the Trust Indenture Act.
(c) If and to the extent that any provision of this Declaration limits,
qualifies or conflicts with the duties imposed by " 310 to 317, inclusive, of
the Trust Indenture Act, such imposed duties shall control.
(d) Any application of the Trust Indenture Act to this Declaration shall
not affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
SECTION 2.2 LISTS OF HOLDERS OF SECURITIES.
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(a) Each of the Sponsor and the Regular Trustees, on behalf of the Trust,
shall provide the Institutional Trustee (i) within 14 days after each record
date for payment of Distributions, a list, in such form as the Institutional
Trustee may reasonably require, of the names and addresses of the Holders of the
Securities ("List of Holders") as of such record date, provided that neither the
Sponsor nor the Regular Trustees, on behalf of the Trust, shall be obligated to
provide such List of Holders at any time the List of Holders does not differ
from the most recent List of Holders given to the Institutional Trustee by the
Sponsor and the Regular Trustees on behalf of the Trust, and (ii) at any other
time, within 30 days of receipt by the Trust of a written request by the
Institutional Trustee for a List of Holders as of a date no more than 14 days
before such List of Holders is given to the Institutional Trustee. The
Institutional Trustee shall preserve, in as current a form as is reasonably
practicable, all information contained in the Lists of Holders given to it or
which it receives in the capacity as Paying Agent (if acting in such capacity),
provided that the Institutional Trustee may destroy any List of Holders
previously given to it on receipt of a new List of Holders.
(b) The Institutional Trustee shall comply with its obligations under
ss.ss.311(a), 310(b) and 312(b) of the Trust Indenture Act.
SECTION 2.3 REPORTS BY THE INSTITUTIONAL TRUSTEE.
Within 60 days after May 15 of each year, commencing May 15, 1999, the
Institutional Trustee shall provide to the Holders of the Trust Securities such
reports as are required by ss.313 of the Trust Indenture Act, if any, in the
form and in the manner provided by ss.313 of the Trust Indenture Act. The
Institutional Trustee shall also comply with the requirements of ss.313(d) of
the Trust Indenture Act.
SECTION 2.4 PERIODIC REPORTS TO INSTITUTIONAL TRUSTEE.
Each of the Sponsor and the Regular Trustees, on behalf of the Trust,
shall provide to the Institutional Trustee such documents, reports and
information as required by ss.314 (if any) and the compliance certificate
required by ss.314 of the Trust Indenture Act in the form, in the manner and at
the times required by ss.314 of the Trust Indenture Act.
SECTION 2.5 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT.
Each of the Sponsor and the Regular Trustees, on behalf of the Trust,
shall provide to the Institutional Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Declaration that relate to
any of the matters set forth in ss.314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to ss.314(c)
(1) may be given in the form of an Officer's Certificate.
SECTION 2.6 EVENTS OF DEFAULT; WAIVER.
(a) The Holders of a Majority in liquidation amount of Capital Securities
may, by vote, on behalf of the Holders of all of the Capital Securities, waive
any past Event of Default in respect of the Capital Securities and its
consequences, provided that, if the underlying Event of Default under the
Indenture:
(i) is not waivable under the Indenture, the Event of Default under
this Declaration shall also not be waivable; or
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(ii) requires the consent or vote of greater than a majority in
principal amount of the holders of the Debentures (a "Super Majority") to
be waived under the Indenture, the Event of Default under this Declaration
may only be waived by the vote of the Holders of at least the proportion
in liquidation amount of the Capital Securities that the relevant Super
Majority represents of the aggregate principal amount of the Debentures
outstanding.
The foregoing provisions of this Section 2.6(a) shall be in lieu of ss.316(a)
(1)(B) of the Trust Indenture Act and such ss.316(a) (1) (B) of the Trust
Indenture Act is hereby expressly excluded from this Declaration and the Capital
Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such
default shall cease to exist, and any Event of Default with respect to the
Capital Securities arising therefrom shall be deemed to have been cured, for
every purpose of this Declaration, but no such waiver shall extend to any
subsequent or other default or an Event of Default with respect to the Capital
Securities or impair any right consequent thereon. Any waiver by the Holders of
the Capital Securities of an 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 Event of Default with respect to the Common
Securities for all purposes of this Declaration without any further act, vote,
or consent of the Holders of the Common Securities.
(b) The Holders of a Majority in liquidation amount of the Common
Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences, provided that, if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, except where the Holders
of the Common Securities are deemed to have waived such Event of Default
under this Declaration as provided below in this Section 2.6(b), the Event
of Default under this Declaration shall also not be waivable; or
(ii) requires the consent or vote of a Super Majority to be waived,
except where the Holders of the Common Securities are deemed to have
waived such Event of Default under this Declaration as provided below in
this Section 2.6(b), the Event of Default under this Declaration may only
be waived by the vote of the Holders of at least the proportion in
liquidation amount of the Common Securities that the relevant Super
Majority represents of the aggregate principal amount of the Debentures
outstanding;
provided further, each Holder of Common Securities will be deemed to have waived
any such Event of Default and all Events of Default with respect to the Common
Securities and its consequences until all Events of Default with respect to the
Capital Securities have been cured, waived or otherwise eliminated, and until
such Events of Default 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 in accordance with the
terms of the Securities. The foregoing provisions of this Section 2.6(b) shall
be in lieu of ss.ss. 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act
and such ss.ss. 316(a)(1)(A) and 316(a)(1)(B) of the Trust Indenture Act are
hereby expressly excluded from this Declaration and the Securities, as permitted
by the Trust Indenture Act. Subject to the foregoing provisions of this Section
2.6(b), upon such waiver, any such default shall cease to exist and any Event of
Default with respect to the Common Securities arising therefrom shall be deemed
to have been cured for every purpose of this Declaration, but no such waiver
shall extend to any
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subsequent or other default or Event of Default with respect to the Common
Securities or impair any right consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the
Institutional Trustee at the direction of the Holders of the Capital Securities
constitutes a waiver of the corresponding Event of Default with respect to the
Capital Securities under this Declaration. Any waiver of an Event of Default
under the Indenture by the Institutional Trustee at the direction of the Holders
of the Capital Securities shall also be deemed to constitute a waiver by the
Holders of the Common Securities of the corresponding Event of Default under
this Declaration with respect to the Common Securities for all purposes of this
Declaration without further act, vote or consent of the Holders of the Common
Securities. The foregoing provisions of this Section 2.6(c) shall be in lieu of
ss.316(a)(1)(B) of the Trust Indenture Act and such ss.316(a)(1)(B) of the Trust
Indenture Act is hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act.
SECTION 2.7 EVENT OF DEFAULT; NOTICE.
(a) The Institutional Trustee shall, within 90 days after the occurrence
of an Event of Default, actually known to a Responsible Officer of the
Institutional Trustee, transmit by mail, first class postage prepaid, to the
Holders of the Securities, notices of all such defaults with respect to the
Securities, unless such defaults have been cured before the giving of such
notice (the term "defaults" for the purposes of this Section 2.7(a) being hereby
defined to be an Event of Default as defined in the Indenture, not including any
periods of grace provided for therein and irrespective of the giving of any
notice provided therein); provided that, except for a default in the payment of
principal of (or premium, if any) or interest on any of the Debentures, the
Institutional Trustee shall be protected in withholding such notice if and so
long as a Responsible Officer of the Institutional Trustee in good faith
determines that the withholding of such notice is in the interests of the
Holders of the Securities.
(b) The Institutional Trustee shall not be deemed to have knowledge of any
default except:
(i) a default under Sections 501 and 503 of the Indenture; or
(ii) any default as to which the Institutional Trustee shall have
received written notice or of which a Responsible Officer of the
Institutional Trustee charged with the administration of this Declaration
shall have actual knowledge.
ARTICLE III
ORGANIZATION
SECTION 3.1 NAME.
The Trust is named "KBHC Financing I," as such name may be modified from
time to time by the Regular Trustees following written notice to the Holders of
the Securities. The Trust's activities may be conducted under the name of the
Trust or any other name deemed advisable by the Regular Trustees.
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SECTION 3.2 OFFICE.
The address of the principal office of the Trust is c/o Kaufman and Broad
Home Corporation, 10990 Wilshire Boulevard, Los Angeles, California 90024 Attn:
. On ten Business Days written notice to the Institutional Trustee and
Holders of the Securities, the Regular Trustees may designate another principal
office.
SECTION 3.3 PURPOSE.
The exclusive purposes and functions of the Trust are (a) to issue and
sell the Securities and use the gross proceeds from such sale to acquire the
Debentures, and (b) except as otherwise set forth herein, to engage in only
those other activities necessary, appropriate, convenient or incidental thereto.
The Trust shall not borrow money, issue debt or reinvest proceeds derived from
investments, pledge any of its assets, or otherwise undertake (or permit to be
undertaken) any activity that would cause the Trust not to be classified for
United States federal income tax purposes as a grantor trust. It is the intent
of the parties to this Declaration for the Trust to be classified as a grantor
trust for United States federal income tax purposes under Subpart E of
Subchapter J of the Code, pursuant to which the beneficial owners of the Capital
Securities and the Common Securities will be the owners of the Trust for United
States federal income tax purposes, and such owners will include directly in
their gross income the income, gain, deduction or loss of the Trust as if the
Trust did not exist. By the acceptance of this Trust, neither the Trustees, the
Sponsor nor the Holders of the Capital Securities or Common Securities will take
any position for United States federal income tax purposes which is contrary to
the classification of the Trust as a grantor trust.
SECTION 3.4 AUTHORITY.
Subject to the limitations provided in this Declaration and to the
specific duties of the Institutional Trustee, the Regular Trustees shall have
exclusive and complete authority to carry out the purposes of the Trust. An
action taken by the Regular Trustees in accordance with their powers shall
constitute the act of and serve to bind the Trust and an action taken by the
Institutional Trustee on behalf of the Trust in accordance with its powers shall
constitute the act of and serve to bind the Trust. In dealing with the Trustees
acting on behalf of the Trust, no Person shall be required to inquire into the
authority of the Trustees to bind the Trust. Persons dealing with the Trust are
entitled to rely conclusively on the power and authority of the Trustees as set
forth in this Declaration.
SECTION 3.5 TITLE TO PROPERTY OF THE TRUST.
Except as provided in Section 3.8 with respect to the Debentures and the
Institutional Trustee Account or as otherwise provided in this Declaration,
legal title to all assets of the Trust shall be vested in the Trust. A Holder
shall not have legal title to any part of the assets of the Trust, but shall
have an undivided beneficial interest in the assets of the Trust.
SECTION 3.6 POWERS AND DUTIES OF THE REGULAR TRUSTEES.
The Regular Trustees shall have the exclusive power, duty and authority to
cause the Trust to engage in the following activities:
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(a) to issue and sell the Capital Securities and the Common Securities in
accordance with this Declaration; provided, however, that the Trust may issue no
more than one series of Capital Securities and no more than one series of Common
Securities, and, provided further, that there shall be no interests in the Trust
other than the Securities, and the issuance of Securities shall be limited to a
simultaneous issuance of both Capital Securities and Common Securities on the
Closing Date;
(b) in connection with the issue and sale of the Capital Securities to:
(i) assist in filing with the Commission the registration statement
and the prospectus relating to the registration statement on Form S-3
prepared by the Sponsor, including any amendments or supplements, thereto,
pertaining to the Capital Securities and to take any other action
requested by the Sponsor relating to the registration and sale of the
Capital Securities under federal and state securities laws;
(ii) execute and assist in filing any documents prepared by the
Sponsor, or take any acts as determined by the Sponsor to be necessary in
order to qualify or register all or part of the FELINE PRIDES in any State
in which the Sponsor has determined to qualify or register such FELINE
PRIDES for sale;
(iii) assist in filing an application, prepared by the Sponsor, to
the New York Stock Exchange, Inc. or any other national stock exchange or
the Nasdaq Stock National Market for listing upon notice of issuance of
any Capital Securities;
(iv) assist in filing with the Commission a registration statement
on Form 8-A, including any amendments thereto, prepared by the Sponsor,
relating to the registration of the Capital Securities under Section 12(b)
of the Exchange Act; and
(v) execute and enter into the Remarketing Agreement and
Remarketing Underwriting Agreement providing for the sale of the FELINE
PRIDES;
(c) to acquire the Debentures with the proceeds of the sale of the Capital
Securities and the Common Securities; provided, however, that the Regular
Trustees shall cause legal title to the Debentures to be held of record in the
name of the Institutional Trustee for the benefit of the Trust and the Holders
of the Capital Securities and the Holders of Common Securities;
(d) to give the Sponsor and the Institutional Trustee prompt written
notice of the occurrence of a Tax Event or an Investment Company Event; provided
that the Regular Trustees shall consult with the Sponsor before taking or
refraining from taking any Ministerial Action in relation to a Tax Event or
Investment Company Event;
(e) to establish a record date with respect to all actions to be taken
hereunder that require a record date be established, including and with respect
to, for the purposes of ss.316(c) of the Trust Indenture Act, Distributions,
voting rights, repayments, redemptions and exchanges, and to issue relevant
notices to the Holders of Capital Securities and Holders of Common Securities as
to such actions and applicable record dates;
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(f) to take all actions and perform such duties as may be required of the
Regular Trustees pursuant to the terms of the Securities and this Declaration;
(g) to bring or defend, pay, collect, compromise, arbitrate, resort to
legal action, or otherwise adjust claims or demands of or against the Trust
("Legal Action"), unless pursuant to Section 3.8(e) the Institutional Trustee
has the exclusive power to bring such Legal Action;
(h) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors, and
consultants and pay reasonable compensation for such services;
(i) to cause the Trust to comply with the Trust's obligations under the
Trust Indenture Act;
(j) to give the certificate required by ss.314(a)(4) of the Trust
Indenture Act to the Institutional Trustee, which certificate may be executed by
any Regular Trustee;
(k) to incur expenses that are necessary, appropriate, convenient or
incidental to carry out any of the purposes of the Trust;
(l) to act as, or appoint another Person to act as, registrar and transfer
agent for the Securities;
(m) to give prompt written notice to the Holders of the Securities of any
notice received from the Debenture Issuer of its election to defer payments of
interest on the Debentures by extending the interest payment period under the
Indenture;
(n) to take all action that may be necessary or appropriate for the
preservation and the continuation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of the
State of Delaware and of each other jurisdiction in which such existence is
necessary to protect the limited liability of the Holders of the Capital
Securities or to enable the Trust to effect the purposes for which the Trust was
created;
(o) to take any action, not inconsistent with this Declaration or with
applicable law, that the Regular Trustees determine in their discretion to be
necessary or desirable in carrying out the activities of the Trust, including,
but not limited to:
(i) causing the Trust not to be deemed to be an Investment Company
required to be registered under the Investment Company Act;
(ii) causing the Trust to be classified for United States federal
income tax purposes as a grantor trust; and
(iii) cooperating with the Debenture Issuer to ensure that the
Debentures will be treated as indebtedness of the Debenture Issuer for
United States federal income tax purposes, provided that such action
relating to this clause (iii) does not adversely affect the interests of
Holders;
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(p) to take all action necessary to cause all applicable tax returns and
tax information reports that are required to be filed with respect to the Trust
to be duly prepared and filed by the Regular Trustees, on behalf of the Trust;
(q) to execute all documents or instruments, perform all duties and
powers, and do all things for and on behalf of the Trust in all matters
necessary, appropriate, convenient or incidental to the foregoing; and
(r) if applicable, to solicit holders of Securities which form a part of
the Income PRIDES to timely instruct the Purchase Contract Agent in order to
enable the Purchase Contract Agent to vote such Securities.
The Regular Trustees must exercise the powers set forth in this Section
3.6 in a manner that is consistent with the purposes and functions of the Trust
set out in Section 3.3, and the Regular Trustees shall not take any action that
is inconsistent with the purposes and functions of the Trust set forth in
Section 3.3.
Subject to this Section 3.6, the Regular Trustees shall have none of the
powers or the authority of the Institutional Trustee set forth in Section 3.8.
No permissive power or authority available to the Regular Trustees shall be
construed to be a duty.
Any expenses incurred by the Regular Trustees pursuant to this Section 3.6
shall be reimbursed by the Sponsor.
SECTION 3.7 PROHIBITION OF ACTIONS BY THE TRUST AND THE TRUSTEES.
(a) The Trust shall not, and the Trustees (including the Institutional
Trustee) shall cause the Trust not to, engage in any activity other than as
required or authorized by this Declaration. In particular, the Trust shall not
and the Trustees (including the Institutional Trustee) shall cause the Trust not
to:
(i) invest any proceeds received by the Trust from holding the
Debentures, but shall distribute all such proceeds to Holders of
Securities pursuant to the terms of this Declaration and of the
Securities;
(ii) acquire any assets other than the Debentures and any cash
proceeds received with respect thereto;
(iii) possess Trust property for other than a Trust purpose;
(iv) make any loans or incur any indebtedness for borrowed money,
other than loans represented by the Debentures;
(v) possess any power or otherwise act in such a way as to vary the
assets of the Trust or the terms of the Securities in any way whatsoever;
(vi) issue any securities or other evidences of beneficial
ownership of, or beneficial interest in, the Trust other than the
Securities; or
(vii) other than as provided in this Declaration, (A) direct the
time, method and place of exercising any trust or power conferred upon the
Debenture Trustee with respect to the
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Debentures, (B) waive any past default that is waivable under the
Indenture, (C) exercise any right to rescind or annul any declaration that
the principal of all the Debentures shall be due and payable, or (D)
consent to any amendment, modification or termination of the Indenture or
the Debentures unless the Trust shall have received an opinion of counsel
to the effect that such modification will not cause the Trust to be
classified as other than a grantor trust for United States federal income
tax purposes.
SECTION 3.8 POWERS AND DUTIES OF THE INSTITUTIONAL TRUSTEE.
(a) The legal title to the Debentures shall be owned by and held of record
in the name of the Institutional Trustee in trust for the benefit of the Trust
and the Holders of the Securities. The right, title and interest of the
Institutional Trustee to the Debentures shall vest automatically in each Person
who may hereafter be appointed as Institutional Trustee in accordance with
Section 5.6. Such vesting and cessation of title shall be effective whether or
not conveyancing documents with regard to the Debentures have been executed and
delivered.
(b) The Institutional Trustee shall not transfer its right, title and
interest in the Debentures to the Regular Trustees or to the Delaware Trustee
(if the Institutional Trustee does not also act as Delaware Trustee).
(c) The Institutional Trustee shall:
(i) establish and maintain a segregated non-interest bearing trust
account (the "Institutional Trustee Account") in the name of and under the
exclusive control of the Institutional Trustee on behalf of the Trust and
the Holders of the Securities and, upon the receipt of payments of funds
made in respect of the Debentures held by the Institutional Trustee,
deposit such funds into the Institutional Trustee Account and make
payments to the Holders of the Capital Securities and Holders of the
Common Securities from the Institutional Trustee Account in accordance
with Section 6.1. Funds in the Institutional Trustee Account shall be held
uninvested until disbursed in accordance with this Declaration. The
Institutional Trustee Account shall be an account that is maintained with
a banking institution the rating on whose long-term unsecured indebtedness
is rated at least "A" or above by a "nationally recognized statistical
rating organization", as that term is defined for purposes of Rule
436(g)(2) under the Securities Act;
(ii) engage in such ministerial activities as shall be necessary,
appropriate, convenient or incidental to effect the repayment of the
Capital Securities and the Common Securities to the extent the Debentures
mature or are redeemed or the Put Option is exercised; and
(iii) upon written notice of distribution issued by the Regular
Trustees in accordance with the terms of the Securities, engage in such
ministerial activities as shall be necessary, appropriate, convenient or
incidental to effect the distribution of the Debentures to Holders of
Securities upon the occurrence of certain special events (as may be
defined in the terms of the Securities) arising from a change in law or a
change in legal interpretation or other specified circumstances pursuant
to the terms of the Securities.
(d) The Institutional Trustee shall take all actions and perform such
duties as may be specifically required of the Institutional Trustee pursuant to
the terms of the Securities and this Declaration.
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(e) The Institutional Trustee shall take any Legal Action which arises out
of or in connection with an Event of Default of which a Responsible Officer of
the Institutional Trustee has actual knowledge or the Institutional Trustee's
duties and obligations under this Declaration, the Business Trust Act or the
Trust Indenture Act; provided, however, that if the Institutional Trustee fails
to enforce its rights under the Debentures after a Holder of Capital Securities
has made a written request, such Holder of Capital Securities may, to the
fullest extent permitted by applicable law, institute a legal proceeding against
the Debenture Issuer without first instituting any legal proceeding against the
Institutional Trustee or any other person or entity. Notwithstanding the
foregoing, if an Event of Default has occurred and is continuing and such event
is attributable to the failure of the Debenture Issuer to pay interest on or
principal of the Debentures on the date such interest or principal is otherwise
payable (or in the case of redemption, on the redemption date), then 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 liquidation amount of the Capital
Securities of such holder (a "Direct Action") on or after the respective due
date specified in the Debentures. In connection with such Direct Action, the
rights of the Holders of Common Securities will be subrogated to the rights of
such Holders of Capital Securities. In connection with such Direct Action, the
Debenture Issuer shall be subrogated to the rights of such Holder of Capital
Securities with respect to payments on the Capital Securities under this
Declaration to the extent of any payment made by the Debenture Issuer to such
Holder of Capital Securities in such Direct Action. Except as provided in the
preceding sentences, the Holders of Capital Securities will not be able to
exercise directly any other remedy available to the Holders of the Debentures.
(f) The Institutional Trustee shall continue to serve as a Trustee until
either:
(i) the Trust has been completely liquidated and the proceeds of
the liquidation distributed to the Holders of Securities pursuant to the
terms of the Securities; or
(ii) a Successor Institutional Trustee has been appointed and has
accepted that appointment in accordance with Section 5.6.
(g) The Institutional Trustee shall have the legal power to exercise all
of the rights, powers and privileges of a holder of Debentures under the
Indenture and, if an Event of Default actually known to a Responsible Officer of
the Institutional Trustee occurs and is continuing, the Institutional Trustee
shall, for the benefit of Holders of the Securities, enforce its rights as
holder of the Debentures subject to the rights of the Holders pursuant to the
terms of such Securities and this Declaration.
(h) Subject to this Section 3.8, the Institutional Trustee shall have none
of the duties, liabilities, powers or the authority of the Regular Trustees set
forth in Section 3.6.
The Institutional Trustee must exercise the powers set forth in this
Section 3.8 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Institutional Trustee shall not take
any action that is inconsistent with the purposes and functions of the Trust set
out in Section 3.3.
SECTION 3.9 CERTAIN DUTIES AND RESPONSIBILITIES OF THE INSTITUTIONAL TRUSTEE.
(a) The Institutional Trustee, before the occurrence of any Event of
Default and after the curing or waiver of all Events of Default that may have
occurred, shall undertake to perform only such duties as are
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specifically set forth in this Declaration and no implied covenants shall be
read into this Declaration against the Institutional Trustee. In case an Event
of Default has occurred (that has not been cured or waived pursuant to Section
2.6) of which a Responsible Officer of the Institutional Trustee has actual
knowledge, the Institutional Trustee shall exercise such of the rights and
powers vested in it by this Declaration, and use the same degree of care and
skill in their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs.
(b) No provision of this Declaration shall be construed to relieve the
Institutional Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after the
curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Institutional Trustee
shall be determined solely by the express provisions of this
Declaration and the Institutional Trustee shall not be liable
except for the performance of such duties and obligations as are
specifically set forth in this Declaration, and no implied
covenants or obligations shall be read into this Declaration
against the Institutional Trustee; and
(B) in the absence of bad faith on the part of the
Institutional Trustee, the Institutional Trustee may conclusively
rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon any certificates or opinions
furnished to the Institutional Trustee and conforming to the
requirements of this Declaration; but in the case of any such
certificates or opinions that by any provision hereof are
specifically required to be furnished to the Institutional Trustee,
the Institutional Trustee shall be under a duty to examine the same
to determine whether or not they conform to the requirements of
this Declaration;
(ii) the Institutional Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Institutional
Trustee, unless it shall be proved that the Institutional Trustee was
negligent in ascertaining the pertinent facts;
(iii) the Institutional Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in accordance
with the direction of the Holders of not less than a Majority in
liquidation amount of the Securities relating to the time, method and
place of conducting any proceeding for any remedy available to the
Institutional Trustee, or exercising any trust or power conferred upon the
Institutional Trustee under this Declaration;
(iv) no provision of this Declaration shall require the
Institutional Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in
the exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that the repayment of such funds or liability is not
reasonably assured to it under the terms of this Declaration or indemnity
reasonably satisfactory to the Institutional Trustee against such risk or
liability is not reasonably assured to it;
(v) the Institutional Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Debentures and the
Institutional Trustee Account shall be to deal with
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such property in a similar manner as the Institutional Trustee deals with
similar property for its fiduciary accounts generally, subject to the
protections and limitations on liability afforded to the Institutional
Trustee under this Declaration, the Business Trust Act and the Trust
Indenture Act;
(vi) the Institutional Trustee shall have no duty or liability for
or with respect to the value, genuineness, existence or sufficiency of the
Debentures or the payment of any taxes or assessments levied thereon or in
connection therewith;
(vii) the Institutional Trustee shall not be liable for any
interest on any money received by it except as it may otherwise agree with
the Sponsor. Money held by the Institutional Trustee need not be
segregated from other funds held by it except in relation to the
Institutional Trustee Account maintained by the Institutional Trustee
pursuant to Section 3.8(c)(i) and except to the extent otherwise required
by law; and
(viii) the Institutional Trustee shall not be responsible for
monitoring the compliance by the Regular Trustees or the Sponsor with
their respective duties under this Declaration, nor shall the
Institutional Trustee be liable for any default or misconduct of the
Regular Trustees or the Sponsor.
SECTION 3.10 CERTAIN RIGHTS OF INSTITUTIONAL TRUSTEE.
(a) Subject to the provisions of Section 3.9:
(i) the Institutional Trustee may conclusively rely and shall be
fully protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and
to have been signed, sent or presented by the proper party or parties;
(ii) any direction or act of the Sponsor or the Regular Trustees
contemplated by this Declaration shall be sufficiently evidenced by a
Direction or an Officer's Certificate;
(iii) whenever in the administration of this Declaration, the
Institutional Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting any action hereunder, the
Institutional Trustee (unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on its part, request and
conclusively rely upon an Officer's Certificate which, upon receipt of
such request, shall be promptly delivered by the Sponsor or the Regular
Trustees;
(iv) the Institutional Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any
financing or continuation statement or any filing under tax or securities
laws) or any rerecording, refiling or registration thereof;
(v) the Institutional Trustee may consult with counsel or other
experts and the advice or opinion of such counsel and experts with respect
to legal matters or advice within the scope of such experts' area of
expertise shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder in good
faith and in accordance with such
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advice or opinion. Such counsel may be counsel to the Sponsor or any of
its Affiliates, and may include any of its employees. The Institutional
Trustee shall have the right at any time to seek instructions concerning
the administration of this Declaration from any court of competent
jurisdiction;
(vi) the Institutional Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Declaration at
the request or direction of any Holder, unless such Holder shall have
provided to the Institutional Trustee security and indemnity, reasonably
satisfactory to the Institutional Trustee, against the costs, expenses
(including attorneys' fees and expenses and the expenses of the
Institutional Trustee's agents, nominees or custodians) and liabilities
that might be incurred by it in complying with such request or direction,
including such reasonable advances as may be requested by the
Institutional Trustee provided, that, nothing contained in this Section
3.10(a)(vi) shall be taken to relieve the Institutional Trustee, upon the
occurrence of an Event of Default, of its obligation to exercise the
rights and powers vested in it by this Declaration;
(vii) the Institutional Trustee shall be under no obligation to
conduct an investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other evidence
of indebtedness or other paper or document, but the Institutional Trustee,
in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit;
(viii) the Institutional Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or by or
through agents, custodians, nominees or attorneys and the Institutional
Trustee shall not be responsible for any misconduct or negligence on the
part of any agent or attorney appointed with due care by it hereunder;
(ix) any action taken by the Institutional Trustee or its agents
hereunder shall bind the Trust and the Holders of the Securities, and the
signature of the Institutional Trustee or its agents alone shall be
sufficient and effective to perform any such action and no third party
shall be required to inquire as to the authority of the Institutional
Trustee to so act or as to its compliance with any of the terms and
provisions of this Declaration, both of which shall be conclusively
evidenced by the Institutional Trustee's or its agent's taking such
action;
(x) whenever in the administration of this Declaration the
Institutional Trustee shall deem it desirable to receive instructions with
respect to enforcing any remedy or right or taking any other action
hereunder, the Institutional Trustee (i) may request instructions from the
Holders of the Securities which instructions may only be given by the
Holders of the same proportion in liquidation amount of the Securities as
would be entitled to direct the Institutional Trustee under the terms of
the Securities in respect of such remedy, right or action, (ii) may
refrain from enforcing such remedy or right or taking such other action
until such instructions are received, and (iii) shall be protected in
conclusively relying on or acting in accordance with such instructions;
and
(xi) except as otherwise expressly provided by this Declaration,
the Institutional Trustee shall not be under any obligation to take any
action that is discretionary under the provisions of this Declaration.
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(b) No provision of this Declaration shall be deemed to impose any duty or
obligation on the Institutional Trustee to perform any act or acts or exercise
any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Institutional Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Institutional
Trustee shall be construed to be a duty.
SECTION 3.11 DELAWARE TRUSTEE.
Notwithstanding any other provision of this Declaration other than Section
5.2, the Delaware Trustee shall not be entitled to exercise any powers, nor
shall the Delaware Trustee have any of the duties and responsibilities of the
Trustees (except as required under the Business Trust Act) described in this
Declaration. Except as set forth in Section 5.2, the Delaware Trustee shall be a
Trustee for the sole and limited purpose of fulfilling the requirements of ss.
3807 of the Business Trust Act.
SECTION 3.12 EXECUTION OF DOCUMENTS.
Unless otherwise determined by the Regular Trustees, and except as
otherwise required by the Business Trust Act, a majority of or, if there are
only two, any Regular Trustee or, if there is only one, such Regular Trustee is
authorized to execute on behalf of the Trust any documents that the Regular
Trustees have the power and authority to execute pursuant to Section 3.6.
SECTION 3.13 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained in this Declaration shall be taken as the
statements of the Sponsor, and the Trustees do not assume any responsibility for
their correctness. The Trustees make no representations as to the value or
condition of the property of the Trust or any part thereof. The Trustees make no
representations as to the validity or sufficiency of this Declaration or the
Securities.
SECTION 3.14 DURATION OF TRUST.
The Trust, unless dissolved pursuant to the provisions of Article VIII
hereof, shall dissolve on ____, 2005.
SECTION 3.15 MERGERS.
(a) 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 body, except as
described in Section 3.15(b) and (c) or Section 6.3
(b) The Trust may, with the consent of the Regular Trustees or, if there
are more than two, a majority of the Regular Trustees and without the consent of
the Holders of the Securities, the Delaware Trustee or the Institutional
Trustee, consolidate, amalgamate, merge with or into, or be replaced by a trust
organized as such under the laws of any State; provided that if the Trust is not
the surviving entity:
(i) such successor entity (the "Successor Entity") either:
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(A) expressly assumes all of the obligations of the Trust
under the Securities; or
(B) substitutes for the Capital Securities other securities
having substantially the same terms as the Capital Securities (the
"Successor Securities"), so long as the Successor Securities rank
the same as the Capital Securities rank with respect to
Distributions and payments upon liquidation, redemption, repayment
and otherwise and substitutes for the Common Securities other
securities having substantially the same terms as the Common
Securities (the "Successor Common Securities"), so long as the
Successor Common Securities rank the same as the Common Securities
rank with respect to Distributions and payments upon liquidation,
redemption, repayment and otherwise;
(ii) the Debenture Issuer expressly acknowledges a trustee of the
Successor Entity that possesses the same powers and duties as the
Institutional Trustee as the holder of the Debentures;
(iii) if necessary, the Capital Securities or any Successor
Securities will be listed, or 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 Securities (including any Successor Securities and any Successor
Common Securities) in any material respect (other than with respect to any
dilution of such Holders' interests in the successor 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 Sponsor 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 Securities (including any Successor Securities
and Successor Common Securities) in any material respect (other
than with respect to any dilution of the Holders' interest in the
successor entity);
(B) following such merger, consolidation, amalgamation or
replacement, neither the Trust nor the Successor Entity will be
required to register as an Investment Company; 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 United States federal income
tax purposes; and
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(viii) the Sponsor guarantees the obligations of such Successor
Entity under the Successor Securities and Successor Common Securities at
least to the extent provided by the Guarantee.
(c) Notwithstanding Section 3.15(b), the Trust shall not, except with the
consent of Holders of 100% in liquidation amount of the 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
Successor Entity to be classified as other than a grantor trust for United
States federal income tax purposes.
ARTICLE IV
SPONSOR
SECTION 4.1 SPONSOR'S PURCHASE OF COMMON SECURITIES.
On the Closing Date the Sponsor will purchase all of the Common Securities
issued by the Trust, in an amount at least equal to 3.0% of the total capital of
the Trust, at the same time as the Capital Securities are sold.
SECTION 4.2 RIGHTS AND RESPONSIBILITIES OF THE SPONSOR.
In connection with the issue, sale and, if necessary, the remarketing of
the Capital Securities, the Sponsor shall have the exclusive right and
responsibility to engage in the following activities:
(a) to prepare, execute and file with the Commission a registration
statement on Form S-3 in relation to the Capital Securities, including any
amendments thereto;
(b) if necessary, to determine the States in which to take appropriate
action to qualify or register for sale all or part of the FELINE PRIDES and to
do any and all such acts, other than actions which must be taken by the Trust,
and advise the Trust of actions it must take, and prepare for execution and
filing any documents to be executed and filed by the Trust, as the Sponsor deems
necessary or advisable in order to comply with the applicable laws of any such
States;
(c) if necessary, to prepare, execute and file an application to the New
York Stock Exchange or any other national stock exchange or the Nasdaq National
Market for listing upon notice of issuance of any Capital Securities;
(d) if necessary, to prepare, execute and file with the Commission of a
registration statement on Form 8-A relating to the registration of the Capital
Securities under Section 12(b) of the Exchange Act, including any amendments
thereto;
(e) to negotiate the terms of the Remarketing Agreement, the Remarketing
Underwriting Agreement, the Underwriting Agreement and the Pricing Agreement
providing for the sale of the FELINE PRIDES; and
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(f) execute and enter into the Underwriting Agreement and Pricing
Agreement.
SECTION 4.3 RIGHT TO PROCEED.
The Sponsor acknowledges the rights of Holders to institute a Direct
Action as set forth in Section 3.8(e) hereto.
SECTION 4.4 EXPENSES.
In connection with the offering, sale and issuance of the Debentures to
the Institutional Trustee and in connection with the sale of the Securities by
the Trust, the Debenture Issuer, in its capacity as borrower with respect to the
Debentures, is required under Section 5.1 of the First Supplemental Indenture
to:
(a) pay all costs and expenses relating to the offering, sale and issuance
of the Debentures, including commissions to the underwriters payable pursuant to
the Underwriting Agreement and Pricing Agreement and compensation of the
Debenture Trustee under the Indenture in accordance with the provisions of
Section 6.01 of the Indenture;
(b) be responsible for and shall pay all debts and obligations (other than
with respect to the Securities) and all costs and expenses of the Trust
(including, but not limited to, costs and expenses relating to the organization,
maintenance and dissolution of the Trust, the offering, sale and issuance of the
Securities (including commissions to the underwriters in connection therewith),
the fees and expenses (including reasonable counsel fees and expenses) of the
Institutional Trustee, the Delaware Trustee and the Regular Trustees (including
any amounts payable under Article IX of this Declaration), the costs and
expenses relating to the operation of the Trust, including, without limitation,
costs and expenses of accountants, attorneys, statistical or bookkeeping
services, expenses for printing and engraving and computing or accounting
equipment, paying agent(s), registrar(s), transfer agent(s), duplicating, travel
and telephone and other telecommunications expenses and costs and expenses
incurred in connection with the acquisition, financing, and disposition of Trust
assets and the enforcement by the Institutional Trustee of the rights of the
Holders of the Securities;
(c) be primarily liable for any indemnification obligations arising under
Section 9.4 with respect to this Declaration; and
(d) pay any and all taxes (other than United States withholding taxes
attributable to the Trust or its assets) and all liabilities, costs and expenses
with respect to such taxes of the Trust.
The Sponsor's obligations under this Section 4.4 shall be for the benefit
of, and shall be enforceable by, any person to whom such debts, obligations,
costs, expenses and taxes are owed (a "Creditor") whether or not such Creditor
has received notice hereof. Any such Creditor may enforce the Sponsor's
obligations under this Section 4.4 directly against the Sponsor and the Sponsor
irrevocably waives any right or remedy to require that any such Creditor take
any action against the Trust or any other Person before proceeding against the
Sponsor. The Debenture Issuer agrees to execute such additional agreements as
may be necessary or desirable in order to give full effect to the provisions of
this Section 4.4.
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ARTICLE V
TRUSTEES
SECTION 5.1 NUMBER OF TRUSTEES.
The number of Trustees initially shall be four (4), and:
(a) at any time before the issuance of any Securities, the Sponsor may, by
written instrument, increase or decrease the number of Trustees; and
(b) after the issuance of any Securities, the number of Trustees may be
increased or decreased by vote of the holders of a majority in liquidation
amount of the Common Securities voting as a class at a meeting of the Holders of
the Common Securities; provided, however, that, the number of Trustees shall in
no event be less than two (2), provided further that (1) one Trustee, shall meet
the requirements of Section 5.2 (a) or (b); (2) there shall be at least one
Trustee who is an employee or officer of, or is affiliated with the Sponsor (a
"Regular Trustee"); and (3) one Trustee shall be the Institutional Trustee for
so long as this Declaration is required to qualify as an indenture under the
Trust Indenture Act, and such Institutional Trustee may also serve as Delaware
Trustee if it meets the applicable requirements.
SECTION 5.2 DELAWARE TRUSTEE.
If required by the Business Trust Act, one Trustee (the "Delaware
Trustee") shall be:
(a) a natural person who is a resident of the State of Delaware; or
(b) if not a natural person, an entity which has its principal place of
business in the State of Delaware, and otherwise meets the requirements of
applicable law, provided that, if the Institutional Trustee has its principal
place of business in the State of Delaware and otherwise meets the requirements
of applicable law, then the Institutional Trustee shall also be the Delaware
Trustee and Section 3.11 shall have no application.
(c) The initial Delaware Trustee shall be:
First Chicago Delaware Inc.
300 King Street
Wilmington, DE 19801
SECTION 5.3 INSTITUTIONAL TRUSTEE; ELIGIBILITY.
(a) There shall at all times be one Trustee which shall act as
Institutional Trustee for so long as this Declaration is required to qualify as
an indenture under the Trust Indenture Act, which shall:
(i) not be an Affiliate of the Sponsor; and
(ii) be a corporation organized and doing business under the laws of
the United States of America or any State or Territory thereof or of the
District of Columbia, or a Person permitted by
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the Commission to act as an institutional trustee under the Trust
Indenture Act, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least 750 million U.S.
dollars ($750,000,000), and subject to supervision or examination by
Federal, State, Territorial or District of Columbia authority. If such
corporation publishes reports of condition at least annually, pursuant to
law or to the requirements of the supervising or examining authority
referred to above, then for the purposes of this Section 5.3(a)(ii), the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published.
(b) If at any time the Institutional Trustee shall cease to be eligible to
so act under Section 5.3(a), the Institutional Trustee shall immediately resign
in the manner and with the effect set forth in Section 5.6(c).
(c) If the Institutional Trustee has or shall acquire any "conflicting
interest" within the meaning of ss.310(b) of the Trust Indenture Act, the
Institutional Trustee and the Holder of the Common Securities (as if it were the
obligor referred to in ss.310(b) of the Trust Indenture Act) shall in all
respects comply with the provisions of ss.310(b) of the Trust Indenture Act.
(d) The Guarantee and the Indenture shall be deemed to be specifically
described in this Declaration and the Indenture for purposes of clause (i) of
the first proviso contained in Section 310(b) of the Trust Indenture Act.
(e) The initial Institutional Trustee shall be:
The First National Bank of Chicago
One First National Plaza
Suite 0126
Chicago, IL 60670-0126
Attention: Corporate Trust Services Division
SECTION 5.4 CERTAIN QUALIFICATIONS OF REGULAR TRUSTEES AND DELAWARE TRUSTEE
GENERALLY.
Each Regular Trustee and the Delaware Trustee (unless the Institutional
Trustee also acts as Delaware Trustee) shall be either a natural person who is
at least 21 years of age or a legal entity that shall act through one or more
Authorized Officers.
SECTION 5.5 REGULAR TRUSTEES.
The initial Regular Trustees shall be:
Barton P. Pachino
Dennis Welsch
(a) Except as expressly set forth in this Declaration and except if a
meeting of the Regular Trustees is called with respect to any matter over which
the Regular Trustees have power to act, any power of the Regular Trustees may be
exercised by, or with the consent of, any one such Regular Trustee.
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(b) Unless otherwise determined by the Regular Trustees, and except as
otherwise required by the Business Trust Act or applicable law, any Regular
Trustee is authorized to execute on behalf of the Trust any documents which the
Regular Trustees have the power and authority to cause the Trust to execute
pursuant to Section 3.6; and
(c) a Regular Trustee may, by power of attorney consistent with applicable
law, delegate to any other natural person over the age of 21 his or her power
for the purposes of signing any documents that the Regular Trustees have power
and authority to cause the Trust to execute pursuant to Section 3.6.
SECTION 5.6 APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEES.
(a) Subject to Section 5.6(b), Trustees may be appointed or removed
without cause at any time:
(i) until the issuance of any Securities, by written instrument
executed by the Sponsor; and
(ii) after the issuance of any Securities, by vote of the Holders of
a Majority in liquidation amount of the Common Securities voting as a
class at a meeting of the Holders of the Common Securities.
(b) (i) The Trustee that acts as Institutional Trustee shall not be
removed in accordance with Section 5.6(a) until a successor Institutional
Trustee possessing the qualifications to act as Institutional Trustee
under Sections 5.2 and 5.3 (a "Successor Institutional Trustee") has been
appointed and has accepted such appointment by written instrument executed
by such Successor Institutional Trustee and delivered to the Regular
Trustees and the Sponsor; and
(ii) The Trustee that acts as Delaware Trustee shall not be removed
in accordance with Section 5.6(a) until a successor Trustee possessing the
qualifications to act as Delaware Trustee under Sections 5.2 and 5.4 (a
"Successor Delaware Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Delaware
Trustee and delivered to the Regular Trustees and the Sponsor.
(c) A Trustee appointed to office shall hold office until such Trustee's
successor shall have been appointed or until such Trustee's death, bankruptcy,
dissolution, termination, removal or resignation. Any Trustee may resign from
office (without need for prior or subsequent accounting) by an instrument in
writing signed by the Trustee and delivered to the Sponsor and the Trust, which
resignation shall take effect upon such delivery or upon such later date as is
specified therein; provided, however, that:
(i) no such resignation of the Trustee that acts as the
Institutional Trustee shall be effective:
(A) until a Successor Institutional Trustee has been
appointed and has accepted such appointment by instrument executed
by such Successor Institutional Trustee and delivered to the Trust,
the Sponsor and the resigning Institutional Trustee; or
(B) until the assets of the Trust have been completely
liquidated and the proceeds thereof distributed to the holders of
the Securities; and
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(ii) no such resignation of the Trustee that acts as the Delaware
Trustee shall be effective until a Successor Delaware Trustee has been
appointed and has accepted such appointment by instrument executed by such
Successor Delaware Trustee and delivered to the Trust, the Sponsor and the
resigning Delaware Trustee.
(d) The Holders of the Common Securities shall use all reasonable efforts
to promptly appoint a Successor Delaware Trustee or Successor Institutional
Trustee, as the case may be, if the Institutional Trustee or the Delaware
Trustee delivers an instrument of resignation in accordance with this Section
5.6.
(e) If no Successor Institutional Trustee or Successor Delaware Trustee
shall have been appointed and accepted appointment as provided in this Section
5.6 within 60 days after delivery to the Sponsor and the Trust of an instrument
of resignation, the resigning Institutional Trustee or Delaware Trustee, as
applicable, may petition any court of competent jurisdiction for appointment of
a Successor Institutional Trustee or Successor Delaware Trustee. Such court may
thereupon, after prescribing such notice, if any, as it may deem proper and
prescribe, appoint a Successor Institutional Trustee or Successor Delaware
Trustee, as the case may be.
(f) No Institutional Trustee or Delaware Trustee shall be liable for the
acts or omissions to act of any Successor Institutional Trustee or Successor
Delaware Trustee, as the case may be.
SECTION 5.7 VACANCIES AMONG TRUSTEES.
If a Trustee ceases to hold office for any reason and the number of
Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is
increased pursuant to Section 5.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by the Regular Trustees or, if there
are more than two Regular Trustees, a majority of the Regular Trustees shall be
conclusive evidence of the existence of such vacancy. The vacancy shall be
filled with a Trustee appointed in accordance with Section 5.6.
SECTION 5.8 EFFECT OF VACANCIES.
The death, resignation, retirement, removal, bankruptcy, dissolution,
liquidation, incompetence or incapacity to perform the duties of a Trustee shall
not operate to annul, dissolve or terminate the Trust or terminate this
Declaration. Whenever a vacancy among the Regular Trustees shall occur, until
such vacancy is filled by the appointment of a Regular Trustee in accordance
with Section 5.6, the Regular Trustees in office, regardless of their number,
shall have all the powers granted to the Regular Trustees and shall discharge
all the duties imposed upon the Regular Trustees by this Declaration.
SECTION 5.9 MEETINGS.
If there is more than one Regular Trustee, meetings of the Regular
Trustees shall be held from time to time upon the call of any Regular Trustee.
Regular meetings of the Regular Trustees may be held at a time and place fixed
by resolution of the Regular Trustees. Notice of any in-person meetings of the
Regular Trustees shall be hand delivered or otherwise delivered in writing
(including by facsimile, with a hard copy by overnight courier) not less than 48
hours before such meeting. Notice of any telephonic meetings of the Regular
Trustees or any committee thereof shall be hand delivered or otherwise delivered
in writing (including by facsimile, with a hard copy by overnight courier) not
less than 24 hours before a meeting. Notices shall contain a brief statement of
the time, place and anticipated purposes of the meeting. The
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presence (whether in person or by telephone) of a Regular Trustee at a meeting
shall constitute a waiver of notice of such meeting except where a Regular
Trustee attends a meeting for the express purpose of objecting to the
transaction of any activity on the ground that the meeting has not been lawfully
called or convened. Unless provided otherwise in this Declaration, any action of
the Regular Trustees may be taken at (i) a meeting by vote of a majority of the
Regular Trustees present (whether in person or by telephone) and eligible to
vote with respect to such matter, provided that a Quorum is present, or (ii)
without a meeting by the unanimous written consent of the Regular Trustees. In
the event there is only one Regular Trustee, any and all action of such Regular
Trustee shall be evidenced by a written consent of such Regular Trustee.
SECTION 5.10 DELEGATION OF POWER.
(a) Any Regular Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purpose of executing any documents contemplated in Section
3.6; and
(b) the Regular Trustees shall have power to delegate from time to time to
such of their number or to officers of the Trust the doing of such things and
the execution of such instruments either in the name of the Trust or the names
of the Regular Trustees or otherwise as the Regular Trustees may deem expedient,
to the extent such delegation is not prohibited by applicable law or contrary to
the provisions of the Trust, as set forth herein.
SECTION 5.11 MERGER, CONVERSION. CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Institutional Trustee or the Delaware
Trustee, as the case may be, may be merged or converted or with which either may
be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Institutional Trustee or the Delaware Trustee, as the
case may be, shall be a party, or any corporation succeeding to all or
substantially all the corporate trust business of the Institutional Trustee or
the Delaware Trustee, as the case may be, shall be the successor of the
Institutional Trustee or the Delaware Trustee, as the case may be, hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto.
ARTICLE VI
THE SECURITIES
SECTION 6.1 DESIGNATION AND NUMBER.
(a) Capital Securities. Capital Securities, with an aggregate liquidation
amount with respect to the assets of the Trust of $____ and a liquidation amount
with respect to the assets of the Trust of $10 per Capital Security will be
issued by the Trust. The Capital Security Certificates evidencing the Capital
Securities shall be substantially in the form of Exhibit A-1 to the Declaration,
with such changes and additions thereto or deletions therefrom as may be
required by applicable law or the rules of any stock exchange on which the
Capital Securities are listed or to conform to ordinary usage, custom or
practice.
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(b) Common Securities. Common Securities with an aggregate liquidation
amount with respect to the assets of the Trust of $____ and a liquidation amount
with respect to the assets of the Trust of $10 per common security will be
issued by the Trust. The Common Security Certificates evidencing the Common
Securities shall be substantially in the form of Exhibit A-2 to the Declaration,
with such changes and additions thereto or deletions therefrom as may be
required by applicable law or to conform to ordinary usage, custom or practice.
SECTION 6.2 DISTRIBUTIONS.
(a) Distributions payable on each Security will be fixed initially at a
rate per annum of ___% (the "Coupon Rate") of the stated liquidation amount of
$10 per Security until _____ 15, 2001, and at the Reset Rate thereafter, such
rates being the rates of interest payable on the Debentures to be held by the
Institutional Trustee. Distributions in arrears for more than one quarter will
accumulate and compound quarterly at the rate of ___% until ______ 15, 2001, and
at the Reset Rate thereafter (to the extent permitted by applicable law). The
term "Distributions" as used herein includes such cash distributions and any
such accumulated distribution that are payable unless otherwise stated. A
Distribution is payable only to the extent that payments are made in respect of
the Debentures held by the Institutional Trustee and to the extent the
Institutional Trustee has funds available therefor. The amount of Distributions
payable for any period will be computed for any full quarterly Distribution
period on the basis of a 360-day year consisting 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.
(b) Distributions on the Securities will be cumulative, will accrue from
________, 1998, and will be payable quarterly in arrears, on February 16, May
16, August 16 and November 16 of each year, commencing on _________ 16, 1998,
except as otherwise described below. The Debenture Issuer has the right under
the Indenture to defer payments of interest by extending the interest payment
period from time to time on the Debentures for a period not extending, in the
aggregate, beyond the maturity date of the Debentures (each an "Extension
Period"). During such Extension Period no interest shall be due and payable on
the Debentures. As a consequence of such deferral, Distributions will also be
deferred. Despite such deferral, quarterly Distributions will continue to
accumulate at the rate of ___% until ________ 15, 2001, and at the Reset Rate
thereafter, compounded quarterly during any such Extension Period (to the extent
permitted by applicable law). Payments of accrued Distributions will be payable
to Holders as they appear on the books and records of the Trust on the first
record date after the end of the Extension Period. Upon the termination of any
Extension Period and the payment of all amounts then due, the Debenture Issuer
may commence a new Extension Period; provided that such Extension Period
together with all such previous and further extensions thereof may not exceed
beyond the maturity date of the Debentures.
(c Distributions on the Securities will be payable to the Holders thereof
as they appear on the books and records of the Trust at the close of business on
the Business Day immediately preceding each of the relevant payment dates on the
Securities. Subject to any applicable laws and regulations and the provisions of
the Declaration, each such payment in respect of the Capital Securities will be
made as described under the heading "Description of the Capital Securities --
Book Entry Only Issuance -The Depository Trust Company" in the Prospectus dated
_________, 1998 (collectively, the "Prospectus") of the Trust relating to the
Registration Statement on Form S-3 (file nos. 333-51825 and 333-51825-01) of
the Sponsor and the Trust. The relevant record dates for the Common Securities
shall be the same record date as for the Capital Securities. If the Capital
Securities shall not continue to remain in book-entry only form or are not in
book-
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entry only form at issuance, the relevant record dates for the Capital
Securities, shall conform to the rules of any securities exchange on which the
securities are listed and, if none, as shall be selected by the Regular
Trustees, which dates shall be at least more than one, but less than 60 Business
Days before the relevant payment dates, which payment dates correspond to the
interest payment dates on the Debentures. Distributions payable on any
Securities that are not punctually paid on any Distribution payment date, as a
result of the Debenture Issuer having failed to make a payment under the
Debentures, will cease to be payable to the Person in whose name such Securities
are registered on the relevant record date, and such defaulted Distribution will
instead be payable to the Person in whose name such Securities are registered on
the special record date or other specified date determined in accordance with
the Indenture. If any date on which Distributions are payable on the Securities
is not a Business Day, then payment of the Distribution 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, 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. So long as the Holder of any Capital Securities
is the Collateral Agent, the payment of Distributions on such Capital Securities
held by the Collateral Agent will be made at such place and to such account as
may be designated by the Collateral Agent.
(d) The Coupon Rate on the Securities (as well as the interest rate on the
Debentures) will be reset on the third Business Day immediately preceding the
Purchase Contract Settlement Date to the Reset Rate (which Reset Rate will be in
effect on and after the Purchase Contract Settlement Date). On the Reset
Announcement Date, the Reset Spread and the Two-Year Benchmark Treasury to be
used to determine the Reset Rate will be announced by the Sponsor. On the
Business Day immediately following the Reset Announcement Date, the Holders of
Securities will be notified of such Reset Spread and Two-Year Benchmark Treasury
by the Sponsor. Such notice shall be sufficiently given to Holders of Securities
if published in an Authorized Newspaper.
(e) Not later than seven calendar days nor more than 15 calendar days
prior to the Reset Announcement Date, the Sponsor will notify DTC or its nominee
(or any successor Clearing Agency or its nominee) by first-class mail, postage
prepaid, to notify the Capital Security Beneficial Owners or Clearing Agency
Participants holding Capital Securities, Income PRIDES or Growth PRIDES, of such
Reset Announcement Date and the procedures to be followed by such Holders of
Income PRIDES who intend to settle their obligation under the Purchase Contract
with separate cash.
(f) In the event that there is any money or other property held by or for
the Trust that is not accounted for hereunder, such property shall be
distributed Pro Rata (as defined in Section 6.10 of this Agreement) among the
Holders of the Securities.
SECTION 6.3 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 Securities on
the date of the dissolution 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
such Securities, with an interest rate equal to the rate of ___%, if on or prior
to __________ 15, 2001, and the Reset Rate thereafter, and bearing accrued and
unpaid interest in an amount equal to the accrued and unpaid Distributions on
such Securities and which shall be distributed on a Pro Rata basis to the
Holders of the Securities in exchange for such Securities (such amount being a
"Liquidation Distribution").
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If, upon any such dissolution, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then, except as otherwise provided in
Section 6.11 hereof, the amounts payable directly by the Trust on the Securities
shall be paid on a Pro Rata basis.
SECTION 6.4 REDEMPTION AND DISTRIBUTION.
(a) Upon the redemption of the Debentures in whole (but not in part), at
maturity, the proceeds from such redemption shall, after satisfaction of
liabilities to creditors, be simultaneously applied to redeem Securities (on a
Pro Rata basis) having an aggregate liquidation amount equal to the aggregate
principal amount of the Debentures so redeemed at a redemption price of $10 per
Security plus an amount equal to accrued and unpaid Distributions thereon at the
date of the repayment, payable in cash.
(b) If an Investment Company Event shall occur and be continuing the
Regular Trustees shall dissolve the Trust and, after satisfaction of liabilities
to creditors, cause Debentures held by the Institutional Trustee, having an
aggregate principal amount equal to the aggregate stated liquidation amount of,
with an interest rate the rate of ___%, if on or prior to ________ 15, 2001, and
the Reset Rate thereafter, and accrued and unpaid interest equal to accrued and
unpaid Distributions on, and having the same record date for payment as the
Securities, to be distributed to the Holders of the 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 (the "90 Day Period");
provided, however, that, if at the time there is available to the Trust the
opportunity to eliminate, within the 90 Day Period, the Investment Company Event
by taking some Ministerial Action, the Regular Trustees will pursue such
Ministerial Action in lieu of dissolution.
(c) If a Tax Event shall occur and be continuing, the Debentures are, at
the option of the Debenture Issuer, redeemable pursuant to a Tax Event
Redemption. If the Debenture Issuer redeems the Debentures upon the occurrence
and continuance of a Tax Event, the proceeds from such redemption shall
simultaneously be applied by the Institutional Trustee to redeem the Securities
(on a Pro Rata basis) having an aggregate stated liquidation amount equal to the
aggregate principal amount of the Debentures so redeemed at the Redemption
Price. If, following the occurrence of a Tax Event, the Debenture Issuer
exercises its option to redeem the Debentures prior to ____________ 15, 2001,
the Debenture Issuer shall appoint the Quotation Agent to assemble the Treasury
Portfolio in consultation with the Company. The Institutional Trustee will
distribute, to the record Holder of the Securities the Redemption Price payable
in liquidation of such Holder's interests in the Trust.
On and from the date fixed by the Regular Trustees for a Tax Event
Redemption or any distribution of Debentures and dissolution of the Trust: (i)
the Securities will no longer be deemed to be outstanding and (ii) DTC or its
nominee (or any successor Clearing Agency or its nominee) or 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 any certificates representing Securities, except for certificates
representing Capital Securities held by DTC or its nominee (or any successor
Clearing Agency 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 $10, with an interest rate of ___% if on
or prior to ____________ 15, 2001, and at the Reset Rate thereafter, and accrued
and unpaid interest equal to accrued and unpaid Distributions on such Securities
until such certificates are presented to the Debenture Issuer or its agent for
transfer or reissue.
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SECTION 6.5 REDEMPTION OR DISTRIBUTION PROCEDURES.
(a) Notice of any redemption (other than in connection with the maturity
of the Debentures) of, or notice of distribution of Debentures in exchange for,
the Securities (a "Redemption/Distribution Notice") will be given by the Trust
by mail to each Holder of Securities to be redeemed or exchanged not fewer than
30 nor more than 60 days before the date fixed for redemption or exchange
thereof which, in the case of a redemption, will be the Tax Event Redemption
Date. For purposes of the calculation of the date of redemption or exchange and
the dates on which notices are given pursuant to this Section 6.5(a), a
Redemption/Distribution Notice shall be deemed to be given on the day such
notice is first mailed by first-class mail, postage prepaid, to Holders of
Securities. Each Redemption/Distribution Notice shall be addressed to the
Holders of Securities at the address of each such Holder appearing in the books
and records of the Trust. No defect in the Redemption/Distribution Notice or in
the mailing of either thereof with respect to any Holder shall affect the
validity of the redemption or exchange proceedings with respect to any other
Holder.
(b) If Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice, which notice may only be issued if the
Debentures are redeemed as set out in this Section 6.5(a) (such notice will be
irrevocable), then (A) while the Capital Securities are in book-entry only form,
with respect to the Capital Securities, by 12:00 noon, New York City time, on
the redemption date, provided that the Debenture Issuer has paid the
Institutional Trustee a sufficient amount of cash in connection with the related
redemption or maturity of the Debentures, the Institutional Trustee will deposit
irrevocably with DTC or its nominee (or any successor Clearing Agency or its
nominee) funds sufficient to pay the applicable Redemption Price with respect to
the Capital Securities and will give DTC irrevocable instructions and authority
to pay the Redemption Price to the Holders of the Capital Securities so called
for redemption, and (B) with respect to Capital Securities issued in definitive
form and Common Securities, provided that the Debenture Issuer has paid the
Institutional Trustee a sufficient amount of cash in connection with the related
redemption or maturity of the Debentures, the Institutional Trustee will pay the
relevant Redemption Price to the Holders of such Securities by check mailed to
the address of the relevant Holder appearing on the books and records of the
Trust. Notwithstanding the foregoing, so long as the Holder of any Capital
Securities is the Collateral Agent or the Purchase Contract Agent, the payment
of the Redemption Price in respect of such Capital Securities held by the
Collateral Agent or the Purchase Contract Agent shall be made no later than
12:00 noon, New York City time, on the Tax Event Redemption Date by check or
wire transfer in immediately available funds at such place and to such account
as may be designated by the Collateral Agent or the Purchase Contract Agent. If
a Redemption/Distribution Notice shall have been given and funds deposited as
required, if applicable, then immediately prior to the close of business on the
date of such deposit, or on the redemption date, as applicable, distributions
will cease to accrue on the Securities so redeemed and all rights of Holders of
such Securities so called for redemption will cease, except the right of the
Holders of such Securities to receive the Redemption Price, but without interest
on such Redemption Price. Neither the Regular Trustees nor the Trust shall be
required to register or cause to be registered the transfer of any Securities
that have been so called for redemption. If any date fixed for redemption of
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, in each case with the same force
and effect as if made on such date fixed for repayment. If payment of the
Redemption Price in respect of any Securities is improperly withheld or refused
and not paid either by the Institutional Trustee or by the Sponsor as guarantor
pursuant to the relevant Securities Guarantee, Distributions on such Securities
will continue to accrue from the original
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redemption date to the actual date of payment, in which case the actual payment
date will be considered the date fixed for repayment for purposes of calculating
the Redemption Price.
(c) Redemption/Distribution Notices shall be sent by the Trust to (A) in
respect of the Capital Securities, DTC or its nominee (or any successor Clearing
Agency or its nominee) if the Global Certificates have been issued or, if
Definitive Capital Security Certificates have been issued, to the Holders
thereof, and (B) in respect of the Common Securities, to the Holder thereof.
(d) Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws) the Sponsor or any of its
subsidiaries may at any time and from time to time purchase outstanding Capital
Securities by tender, in the open market or by private agreement.
SECTION 6.6 REPAYMENT AT OPTION OF HOLDERS.
(a) If a Failed Remarketing (as described in Section 5.4(b) of the
Purchase Contract Agreement and incorporated herein by reference) has occurred,
each holder of Securities who holds such Securities on the day immediately
following the Purchase Contract Settlement Date, shall have the right on the
Business Day immediately following ___________ 16, 2001 to require the Trust to
distribute their pro rata share of the Debentures to the Exchange Agent and to
require the Exchange Agent to put such Debentures to the Company on behalf of
such holders on _________, 2001, upon at least three Business Days' prior notice
(the "Put Option Exercise Date"), at a repayment price of $10 per Security plus
an amount equal to the accrued and unpaid Distributions (including deferred
distributions if any) thereon to the date of payment (the "Put Option Repayment
Price"). Pursuant to such Put Option.
(b) The Exchange Agent shall obtain funds to pay the Put Option Repayment
Price of Securities being repaid under the Put Option through presentation by it
to the Debenture Issuer of Debentures in an aggregate principal amount equal to
the aggregate stated liquidation amount of such Securities for repayment on the
Put Option Exercise Date at the Debenture Repayment Price.
(c) In order for the Securities to be repaid on the Put Option Exercise
Date, the Trust must receive on or prior to 4:00 p.m. on the third Business Day
immediately preceding the Put Option Exercise Date, at the Corporate Trust
Office of the Institutional Trustee (who will in turn notify the Exchange
Agent), the Securities to be repaid with the form entitled "Option to Elect
Repayment" on the reverse thereof or otherwise accompanying such Security duly
completed. Any such notice received by the Trust shall be irrevocable. All
questions as to the validity, eligibility (including time of receipt) and
acceptance of the Securities for repayment shall be determined by the Trust,
whose determination shall be final and binding.
(d) Payment of the Put Option Repayment Price to Holders of Securities
shall be made at the Corporate Trust Office of the Exchange Agent, provided that
the Debenture Issuer has paid the Exchange Agent a sufficient amount of cash in
connection with the related repayment of the Debenture no later than 1:00 p.m.,
New York City time, on the Put Option Exercise Date by check or wire transfer in
immediately available funds at such place and to such account as may be
designated by such Holders. If the Exchange Agent holds immediately available
funds sufficient to pay the Put Option Repayment Price of such Securities, then,
immediately prior to the close of business on the Put Option Exercise Date, such
Securities will cease to be outstanding and distributions thereon will cease to
accrue, whether or not Securities are delivered to the Institutional Trustee,
and all other rights of the Holder in respect of the Securities, including the
Holder's right to require the Trust to repay such Securities, shall terminate
and lapse (other than the right to receive the Put
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Option Repayment Price but without interest on such Put Option Repayment Price).
Neither the Regular Trustees nor the Trust shall be required to register or
cause to be registered the transfer of any Securities for which repayment has
been elected. If payment of the Put Option Repayment Price in respect of
Securities is (i) improperly withheld or refused and not paid either by the
Exchange Agent or by the Sponsor as guarantor pursuant to the Securities
Guarantee, or (ii) not paid by the Exchange Agent as the result of an Event of
Default with respect to the Debentures presented for repayment as described in
Section 6.6(b), Distributions on such Securities will continue to accrue, from
the original Put Option Exercise Date to the actual date of payment, in which
case the actual payment date will be considered the Put Option Exercise Date for
purposes of calculating the Put Option Repayment Price.
(e) The Debenture Issuer will request, not later than seven nor more than
15 calendar days prior to _______ 16, 2001 (the date on which some or all of the
Capital Securities could be remarketed in the manner described in Section 5.4(b)
of the Purchase Contract Agreement and incorporated herein by reference) that
DTC notify the Capital Securities Beneficial Owner as well as the Income PRIDES
and Growth PRIDES holders of such remarketing and of the procedures that must be
followed if a Capital Securities Beneficial Owner wishes to exercise such
holder's rights with respect to the Put Option.
SECTION 6.7 VOTING RIGHTS - Capital Securities.
(a) Except as provided under Sections 6.7(b) and 6.9 and as otherwise
required by law and the Declaration, the Holders of the Capital Securities will
have no voting rights.
(b) Subject to the requirements set forth in this paragraph, the Holders
of a Majority in liquidation amount of the Capital Securities, voting separately
as a class may direct the time, method, and place of conducting any proceeding
for any remedy available to the Institutional Trustee, or the exercise of any
trust or power conferred upon the Institutional Trustee under the Declaration,
including (i) directing the time, method and place of conducting any proceeding
for any remedy available to the Debenture Trustee, or exercising any trust or
power conferred on the Debenture Trustee with respect to the Debentures, (ii)
waiving any past default and its consequences that is waivable under the
Indenture, (iii) exercising any right to rescind or annul a declaration that the
principal of all the Debentures shall be due and payable, or (iv) consenting to
any amendment, modification or termination of the Indenture or the Debentures
where such consent shall be required, provided, however, that, where a consent
under the Indenture would require the consent or act of the Holders of greater
than a Super Majority, the Institutional Trustee may only give such consent or
take such action at the written direction of the Holders of at least the
proportion in liquidation amount of the Capital Securities which the relevant
Super Majority represents of the aggregate principal amount of the Debentures
outstanding. The Institutional Trustee shall not revoke any action previously
authorized or approved by a vote of the Holders of the Capital Securities. Other
than with respect to directing the time, method and place of conducting any
remedy available to the Institutional Trustee or the Debenture Trustee as set
forth above, the Institutional Trustee shall not take any action in accordance
with the directions of the Holders of the Capital Securities under this
paragraph unless the Institutional Trustee has obtained an opinion of tax
counsel to the effect that for the purposes of United States federal income tax
the Trust will not be classified as other than a grantor trust on account of
such action. If the Institutional Trustee fails to enforce its rights under the
Debentures after a Holder of Capital Securities has made a written request, such
Holder of Capital Securities may, to the fullest extent permitted by applicable
law, institute a legal proceeding directly against the Debenture Issuer to
enforce the Institutional Trustee's rights under the Debentures without first
instituting a legal proceeding against the Institutional Trustee or any other
Person. Notwithstanding the foregoing, if an Event of Default has occurred and
is continuing and such event is attributable to the failure
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of the Debenture Issuer to pay interest or principal on the Debentures on the
date such interest or principal is otherwise payable (or in the case of
redemption, on the redemption date), then 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 liquidation amount of the Capital Securities of such Holder on or
after the respective due date specified in the Debentures. Except as provided in
the preceding sentence, the Holders of Capital Securities shall not exercise
directly any other remedy available to the holders of the Debentures.
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 Securities in the Trust 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 (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 the Capital Securities will be
required for the Trust to repay and cancel Capital Securities or to distribute
the Debentures in accordance with the Declaration and the terms of the
Securities. 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 by the Sponsor or any Affiliate of the Sponsor
shall not be entitled to vote or consent and shall, for purposes of such vote or
consent, be treated as if they were not outstanding.
SECTION 6.8 VOTING RIGHTS - COMMON SECURITIES.
(a) Except as provided under Sections 6.8(b) and (c) and Section 6.9 and
as otherwise required by law and the Declaration, the Holders of the Common
Securities will have no voting rights.
(b) The Holders of the Common Securities are entitled, in accordance with
Article V hereof, to vote to appoint, remove or replace any Trustee or to
increase or decrease the number of Trustees.
(c) Subject to Section 2.6 hereof and only after any Event of Default with
respect to the Capital Securities has been cured, waived, or otherwise
eliminated and subject to the requirements of the second to last sentence of
this paragraph, the Holders of a Majority in liquidation amount of the Common
Securities, voting separately as a class, may direct the time, method, and place
of conducting any proceeding for any remedy available to the Institutional
Trustee, or exercising any trust or power conferred upon the Institutional
Trustee under the Declaration, including (i) directing the time, method, and
place of conducting any proceeding for any remedy available to the Debenture
Trustee, or exercising any trust or power conferred on the Debenture Trustee
with respect to the Debentures, (ii) waive any past default and its consequences
that is waivable under the Indenture, or (iii) exercise any right to rescind or
annul a declaration that the principal of all the Debentures shall be due and
payable, provided that, where a consent or action under the Indenture would
require the consent or act of the Holders of a Super Majority, the Institutional
Trustee may only give such consent or take such action at the written direction
of the Holders of at least the proportion in liquidation amount of the Common
Securities which the relevant Super Majority represents of the aggregate
principal amount of the Debentures outstanding. Pursuant to this Section 6.8(c),
the Institutional Trustee shall not
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revoke any action previously authorized or approved by a vote of the Holders of
the Common Securities. Other than with respect to directing the time, method and
place of conducting any remedy available to the Institutional Trustee or the
Debenture Trustee as set forth above, the Institutional Trustee shall not take
any action in accordance with the directions of the Holders of the Common
Securities under this paragraph unless the Institutional Trustee has obtained an
opinion of tax counsel to the effect that for United States federal income tax
purposes the Trust will not be classified as other than a grantor trust on
account of such action. If the Institutional Trustee fails to enforce its rights
under the Declaration, any Holder of Common Securities may institute a legal
proceeding directly against any Person to enforce the Institutional Trustee's
rights under the Declaration, without first instituting a legal proceeding
against the Institutional Trustee or any other Person.
Any approval or direction of Holders of Common Securities may be given at
a separate meeting of Holders of Common Securities convened for such purpose, at
a meeting of all of the Holders of Securities in the Trust or pursuant to
written consent. The Regular Trustees will cause a notice of any meeting at
which Holders of Common 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 Common Securities. Each such notice will include a
statement setting forth (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 the Common Securities will be
required for the Trust to redeem and cancel Common Securities or to distribute
the Debentures in accordance with the Declaration and the terms of the
Securities.
SECTION 6.9 AMENDMENTS TO DECLARATION AND INDENTURE.
(a) In addition to any requirements under Section 11.1 hereof, if any
proposed amendment to the Declaration provides for, or the Regular Trustees
otherwise propose to effect, (i) any action that would materially adversely
affect the powers, preferences or special rights of the Securities, whether by
way of amendment to the Declaration or otherwise, or (ii) the dissolution of the
Trust, other than as described in Section 7.1 or Section 3.14 hereof, then the
Holders of outstanding Securities as a class will be entitled to vote on such
amendment or proposal (but not on any other amendment or proposal) and such
amendment or proposal shall not be effective except with the approval of the
Holders of at least a Majority in liquidation amount of the Securities, voting
together as a single class; provided, however, if any amendment or proposal
referred to in clause (i) above would adversely affect only the Capital
Securities or only 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 liquidation
amount of such class of Securities.
(b) 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 on the Indenture or the Debentures, the
Institutional Trustee shall request the written direction of the Holders of the
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 liquidation amount of the Securities voting together as a single
class; provided, however, that where a consent under the Indenture would require
a Super Majority, the Institutional Trustee may only give such consent at the
direction of the Holders of at least the
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proportion in liquidation amount of the Securities which the relevant Super
Majority represents of the aggregate principal amount of the Debentures
outstanding; provided, further, that the Institutional Trustee shall not take
any action in accordance with the directions of the Holders of the Securities
under this Section 6.9(b) unless (i) the Institutional Trustee has obtained an
opinion of tax counsel to the effect that for United States federal income tax
purposes, the Trust will not be classified as other than a grantor trust on
account of such action or (ii) such action would not reduce or otherwise
adversely affect powers of the Institutional Trustee or cause the Trust to be
deemed an "investment company" which is required to be registered under the
Investment Company Act of 1940.
SECTION 6.10 REFERENCE TO PRO RATA.
A reference in these terms of the Securities to any payment, distribution
or treatment as being "Pro Rata" shall mean pro rata to each Holder of
Securities according to the aggregate liquidation amount of the Securities held
by the relevant Holder in relation to the aggregate liquidation amount of all
Securities outstanding unless, in relation to a payment, an Event of Default
under the Indenture has occurred and is continuing, in which case any funds
available to make such payment shall be paid first to each Holder of the Capital
Securities pro rata according to the aggregate liquidation amount of Capital
Securities held by the relevant Holder relative to the aggregate liquidation
amount of all Capital Securities outstanding, and only after satisfaction of all
amounts owed to the Holders of the Capital Securities, to each Holder of Common
Securities pro rata according to the aggregate liquidation amount of Common
Securities held by the relevant Holder relative to the aggregate liquidation
amount of all Common Securities outstanding.
SECTION 6.11 RANKING.
The Capital Securities rank pari passu and payment thereon shall be made
Pro Rata with the Common Securities except that, where an Event of Default
occurs and is continuing under the Indenture in respect of the Debentures held
by the Institutional Trustee, the rights of Holders of the Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption
and otherwise are subordinated to the rights to payment of the Holders of the
Capital Securities.
SECTION 6.12 ACCEPTANCE OF SECURITIES GUARANTEE AND INDENTURE.
Each Holder of Capital Securities and Common Securities by the acceptance
thereof, agrees to the provisions of the Indenture and the Guarantee,
respectively.
SECTION 6.13 NO PREEMPTIVE RIGHTS.
The Holders of the Securities shall have no preemptive rights to subscribe
for any additional securities.
SECTION 6.14 MISCELLANEOUS.
(a) The Sponsor will provide a copy of the Declaration, the
Guarantee and the Indenture to a Holder without charge on written request to the
Sponsor at its principal place of business.
(b) The Trust shall issue no securities or other interests in the
assets of the Trust other than the Capital Securities and the Common Securities.
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(c) The Certificates shall be signed on behalf of the Trust by a
Regular Trustee. Such signature shall be the manual or facsimile signature of
any present or any future Regular Trustee. In case any Regular Trustee who shall
have signed any of the Securities shall cease to be such Regular Trustee before
the Certificates so signed shall be delivered by the Trust, such Certificates
nevertheless may be delivered as though the person who signed such Certificates
had not ceased to be such Regular Trustee; and any Certificate may be signed on
behalf of the Trust by such persons who, at the actual date of execution of such
Certificate, shall be the Regular Trustees of the Trust, although at the date of
the execution and delivery of the Declaration any such person was not such a
Regular Trustee. Certificates shall be printed, lithographed or engraved or may
be produced in any other manner as is reasonably acceptable to the Regular
Trustees, as evidenced by their execution thereof, and may have such letters,
numbers or other marks of identification or designation and such legends or
endorsements as the Regular Trustees may deem appropriate, or as may be required
to comply with any law or with any rule or regulation of any stock exchange on
which Securities may be listed, or to conform to usage.
(d) The consideration received by the Trust for the issuance of the
Securities shall constitute a contribution to the capital of the Trust and shall
not constitute a loan to the Trust.
(e) Upon issuance of the Securities as provided in this
Declaration, the Securities so issued shall be deemed to be validly issued,
fully paid and non-assessable.
Every Person, by virtue of having become a Holder or a Capital Security
Beneficial Owner in accordance with the terms of this Declaration, shall be
deemed to have expressly assented and agreed to the terms of, and shall be bound
by, this Declaration.
SECTION 6.15 PAYING AGENT.
In the event that the Capital Securities are not in book-entry only form,
the Trust shall maintain in the Borough of Manhattan, City of New York, State of
New York, an office or agency where the Capital Securities may be presented for
payment ("Paying Agent"), and any such Paying Agent shall comply with Section
317(b) of the Trust Indenture Act. The Trust may appoint the Paying Agent and
may appoint one or more additional paying agents in such other locations as it
shall determine. The term "Paying Agent" includes any additional paying agent.
The Trust may change any Paying Agent without prior notice to any Holder. The
Trust shall notify the Institutional Trustee of the name and address of any
Paying Agent not a party to this Declaration. If the Trust fails to appoint or
maintain another entity as Paying Agent, the Institutional Trustee shall act as
such. The Trust or any of its Affiliates (including the Sponsor) may act as
Paying Agent. The First National Bank of Chicago shall initially act as Paying
Agent for the Capital Securities and the Common Securities.
ARTICLE VII
TERMINATION OF TRUST
SECTION 7.1 TERMINATION OF TRUST.
(a) The Trust shall dissolve:
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(i) upon a Termination Event;
(ii) upon the filing of a certificate of dissolution or its
equivalent with respect to the Sponsor; or the revocation of the Sponsor's
charter and the expiration of 90 days after the date of revocation without
a reinstatement thereof;
(iii) upon the entry of a decree of judicial dissolution of the
Holder of the Common Securities, the Sponsor or the Trust;
(iv) upon the occurrence and continuation of an Investment Company
Event pursuant to which the Trust shall have been dissolved in accordance
with the terms of the Securities and all of the Debentures endorsed
thereon shall have been distributed to the Holders of Securities in
exchange for all of the Securities;
(v) when all the Securities shall have been called for redemption
and the amounts necessary for redemption thereof shall have been paid to
the Holders in accordance with the terms of the Securities; or
(vi) with the consent of all of the Regular Trustees and the
Sponsor.
(b) As soon as is practicable after the occurrence of an event referred to
in Section 7.1(a) or a dissolution pursuant to Section 3.14 and upon completion
of the winding-up of the Trust, the Trustees shall file a certificate of
cancellation with the Secretary of State of the State of Delaware.
(c) The provisions of Section 4.4 and Article IX shall survive the
termination of the Trust.
ARTICLE VIII
TRANSFER OF INTERESTS
SECTION 8.1 TRANSFER OF SECURITIES.
(a) Securities may only be transferred, in whole or in part, in accordance
with the terms and conditions set forth in this Declaration and in the terms of
the Securities. Any transfer or purported transfer of any Security not made in
accordance with this Declaration shall be null and void.
(b) Subject to this Article VIII, Capital Securities shall be freely
transferable.
(c) Subject to this Article VIII, the Sponsor and any Related Party may
only transfer Common Securities to the Sponsor or a Related Party of the
Sponsor; provided that any such transfer is subject to the condition precedent
that the transferor obtain the written opinion of nationally recognized
independent counsel experienced in such matters that such transfer would not
cause more than an insubstantial risk that:
(i) the Trust would be classified for United States federal income
tax purposes as other than a grantor trust; and
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(ii) the Trust would be an Investment Company or the transferee to
be an Investment Company.
SECTION 8.2 TRANSFER OF CERTIFICATES.
The Regular Trustees shall provide for the registration of Certificates
and of transfers of Certificates, which will be effected without charge but only
upon payment (with such indemnity as the Regular Trustees may require) in
respect of any tax or other government charges that may be imposed in relation
to it. Upon surrender for registration of transfer of any Certificate, the
Regular Trustees shall cause one or more new Certificates to be issued in the
name of the designated transferee or transferees. Every Certificate surrendered
for registration of transfer shall be accompanied by a written instrument of
transfer in form satisfactory to the Regular Trustees duly executed by the
Holder or such Holder's attorney duly authorized in writing. Each Certificate
surrendered for registration of transfer shall be canceled by the Regular
Trustees. A transferee of a Certificate shall be entitled to the rights and
subject to the obligations of a Holder hereunder upon the receipt by such
transferee of a Certificate. By acceptance of a Certificate, each transferee
shall be deemed to have agreed to be bound by this Declaration.
SECTION 8.3 DEEMED SECURITY HOLDERS.
The Trustees may treat the Person in whose name any Certificate shall be
registered on the books and records of the Trust as the sole holder of such
Certificate and of the Securities represented by such Certificate for purposes
of receiving Distributions and for all other purposes whatsoever and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such Certificate or in the Securities represented by such
Certificate on the part of any Person, whether or not the Trust shall have
actual or other notice thereof.
SECTION 8.4 BOOK ENTRY INTERESTS.
_______________ of the Capital Securities Certificates, on original
issuance, will be issued in the form of one or more definitive, fully registered
Capital Securities Certificates (each a "Definitive Capital Securities
Certificate") issued in the name of The First National Bank of Chicago, as
Purchase Contract Agent; one Capital Security Certificate, on original issuance,
will be issued in the form of one or more, fully registered, global Capital
Security Certificates (each a "Global Certificate"), to be delivered to DTC, the
initial Clearing Agency, by, or on behalf of, the Trust. Such Global
Certificate(s) shall initially be registered on the books and records of the
Trust in the name of Cede & Co., the nominee of DTC, and no Capital Security
Beneficial Owner will receive a definitive Capital Security Certificate
representing such Capital Security Beneficial Owner's interests in such Global
Certificate(s), except as provided in Section 8.7. However, notwithstanding
anything to the contrary contained in this Declaration, the Capital Securities
Certificates which are a component of the FELINE PRIDES shall be issued in
definitive registered form in the name of the Purchase Contract Agent under the
Purchase Contract Agreement. Except for the Definitive Capital Security
Certificates as specified herein and the definitive, fully registered Capital
Securities Certificates that have been issued to the Capital Security Beneficial
Owners pursuant to Section 8.7:
(a) the provisions of this Section 8.4 shall be in full force and effect;
(b) the Trust and the Trustees shall be entitled to deal with the Clearing
Agency for all purposes of this Declaration (including the payment of
Distributions on the Global Certificate(s) and receiving approvals,
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votes or consents hereunder) as the Holder of the Capital Securities and the
sole holder of the Global Certificate(s) and shall have no obligation to the
Capital Security Beneficial Owners;
(c) to the extent that the provisions of this Section 8.4 conflict with
any other provisions of this Declaration, the provisions of this Section 8.4
shall control; and
(d) the rights of the Capital Security Beneficial Owners shall be
exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Capital Security Beneficial
Owners and the Clearing Agency and/or the Clearing Agency Participants to
receive and transmit payments of Distributions on the Global Certificates to
such Clearing Agency Participants. DTC will make book entry transfers among the
Clearing Agency Participants; provided, that, solely for the purposes of
determining whether the Holders of the requisite amount of Capital Securities
have voted on any matter provided for in this Declaration, so long as Definitive
Capital Security Certificates have not been issued, the Trustees may
conclusively rely on, and shall be protected in relying on, any written
instrument (including a proxy) delivered to the Trustees by the Clearing Agency
setting forth the Capital Security Beneficial Owners' votes or assigning the
right to vote on any matter to any other Persons either in whole or in part.
SECTION 8.5 NOTICES TO CLEARING AGENCY.
Whenever a notice or other communication to the Capital Security Holders
is required under this Declaration, unless and until definitive fully registered
Capital Security Certificates shall have been issued to the Capital Security
Beneficial Owners pursuant to Section 8.7 or otherwise, the Regular Trustees
shall give all such notices and communications specified herein to be given to
the Capital Security Holders to the Clearing Agency, and shall have no notice
obligations to the Capital Security Beneficial Owners.
SECTION 8.6 APPOINTMENT OF SUCCESSOR CLEARING AGENCY.
If any Clearing Agency elects to discontinue its services as securities
depositary with respect to the Capital Securities, the Regular Trustees may, in
their sole discretion, appoint a successor Clearing Agency with respect to such
Capital Securities.
SECTION 8.7 DEFINITIVE Capital SECURITY CERTIFICATES.
In addition to the Definitive Capital Security Certificates being issued
pursuant to Section 8.4, in the event that:
(a) a Clearing Agency elects to discontinue its services as securities
depositary with respect to the Capital Securities and a successor Clearing
Agency is not appointed within 90 days after such discontinuance pursuant to
Section 8.6; or
(b) the Regular Trustees elect after consultation with the Sponsor to
terminate the book entry system through the Clearing Agency with respect to the
Capital Securities, then:
(c) definitive fully registered Capital Security Certificates shall be
prepared by the Regular Trustees on behalf of the Trust with respect to such
Capital Securities; and
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(d) upon surrender of the Global Certificate(s) by the Clearing Agency,
accompanied by registration instructions, the Regular Trustees shall cause
definitive fully registered Capital Securities Certificates to be delivered to
Capital Security Beneficial Owners in accordance with the instructions of the
Clearing Agency. Neither the Trustees nor the Trust shall be liable for any
delay in delivery of such instructions and each of them may conclusively rely on
and shall be protected in relying on, said instructions of the Clearing Agency.
The definitive fully registered Capital Security Certificates shall be printed,
lithographed or engraved or may be produced in any other manner as is reasonably
acceptable to the Regular Trustees, as evidenced by their execution thereof, and
may have such letters, numbers or other marks of identification or designation
and such legends or endorsements as the Regular Trustees may deem appropriate,
or as may be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on which
Capital Securities may be listed, or to conform to usage. Notwithstanding the
foregoing, if and to the extent that any of the Capital Securities evidenced by
the Capital Security Certificates referred to in this paragraph are still
pledged pursuant to the Pledge Agreement, such Certificates shall be delivered
to the Collateral Agent to be held by the Collateral Agent as collateral pledged
pursuant to the Pledge Agreement.
SECTION 8.8 MUTILATED, DESTROYED, LOST OR STOLEN CERTIFICATES.
If:
(a) any mutilated Certificate should be surrendered to the Regular
Trustees, or if the Regular Trustees shall receive evidence to their
satisfaction of the destruction, loss or theft of any Certificate; and
(b) there shall be delivered to the Regular Trustees and Institutional
Trustee such security or indemnity as may be required by them to keep each of
them and the Trust harmless,
then, in the absence of notice that such Certificate shall have been acquired by
a bona fide purchaser, any Regular Trustee on behalf of the Trust shall execute
and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost
or stolen Certificate, a new Certificate of like denomination. In connection
with the issuance of any new Certificate under this Section 8.8, the Regular
Trustees may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith. Any duplicate
Certificate issued pursuant to this Section shall constitute conclusive evidence
of an ownership interest in the relevant Securities, as if originally issued,
whether or not the lost, stolen or destroyed Certificate shall be found at any
time.
ARTICLE IX
LIMITATION OF LIABILITY OF HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 9.1 LIABILITY.
(a) Except as expressly set forth in this Declaration, the Debentures, the
Guarantee and the terms of the Securities, the Sponsor shall not be:
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(i) personally liable for the return of any portion of the capital
contributions (or any return thereon) of the Holders of the Securities,
which shall be made solely from assets of the Trust; or
(ii) required to pay to the Trust or to any Holder of Securities
any deficit upon dissolution of the Trust or otherwise.
(b) Under Section 5.1 of the First Supplemental Indenture, the Debenture
Issuer, in its capacity as Borrower, shall be liable for all of the debts and
obligations of the Trust (other than with respect to the Securities) to the
extent not satisfied out of the Trust's assets.
(c) Pursuant to ss.3803(a) of the Business Trust Act, the Holders of the
Capital Securities shall 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.
SECTION 9.2 EXCULPATION.
(a) No Indemnified Person shall be liable, responsible or accountable in
damages or otherwise to the Trust or any Covered Person for any loss, damage or
claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith on behalf of the Trust and in a manner such
Indemnified Person reasonably believed to be within the scope of the authority
conferred on such Indemnified Person by this Declaration or by law, except that
an Indemnified Person shall be liable for any such loss, damage or claim
incurred by reason of such Indemnified Person's willful misconduct with respect
to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Trust and upon such information, opinions, reports
or statements presented to the Trust by any Person as to matters the Indemnified
Person reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Trust, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, profits, losses, or any other facts
pertinent to the existence and amount of assets from which Distributions to
Holders of Securities might properly be paid.
SECTION 9.3 FIDUCIARY DUTY.
(a) To the extent that, at law or in equity, an Indemnified Person has
duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Declaration shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration. The provisions of
this Declaration, to the extent that they restrict the duties and liabilities of
an Indemnified Person otherwise existing at law or in equity (other than the
duties imposed on the Institutional Trustee under the Trust Indenture Act), are
agreed by the parties hereto to replace such other duties and liabilities of
such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between any
Covered Person or any Indemnified Person; or
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(ii) whenever this Declaration or any other agreement contemplated
herein or therein provides that an Indemnified Person shall act in a
manner that is, or provides terms that are, fair and reasonable to the
Trust or any Holder of Securities,
the Indemnified Person shall resolve such conflict of interest, take such action
or provide such terms, considering in each case the relative interest of each
party (including its own interest) to such conflict, agreement, transaction or
situation and the benefits and burdens relating to such interests, any customary
or accepted industry practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Indemnified Person,
the resolution, action or term so made, taken or provided by the Indemnified
Person shall not constitute a breach of this Declaration or any other agreement
contemplated herein or of any duty or obligation of the Indemnified Person at
law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person is permitted or
required to make a decision:
(i) in its "discretion" or under a grant of similar authority, the
Indemnified Person shall be entitled to consider such interests and
factors as it desires, including its own interests, and shall have no duty
or obligation to give any consideration to any interest of or factors
affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express standard, the
Indemnified Person shall act under such express standard and shall not be
subject to any other or different standard imposed by this Declaration or
by applicable law.
SECTION 9.4 INDEMNIFICATION.
(a)
(i) Under Section 5.1 of the First Supplemental Indenture, the
Debenture Issuer, in its capacity as borrower, shall be required to
indemnify, to the full extent permitted by law, any Company Indemnified
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 Trust) by reason of the fact that he is or was a
Person of the type described in the definition of Company Indemnified
Person contained herein against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with such action,
suit or proceeding , judgments, fines and amounts paid in settlement 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 Trust, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere
or its equivalent, shall not, of itself, create a presumption that the
Company Indemnified Person did not act in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of
the Trust, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(ii) Under Section 5.1 of the First Supplemental Indenture, the
Debenture Issuer, in its capacity as borrower, shall be required to
indemnify, to the full extent permitted by law, any Person of the type
described in the definition of Company Indemnified Person 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
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the right of the Trust to procure a judgment in its favor by reason of the
fact that he is or was a Company Indemnified Person against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit,
judgments, fines and amounts paid in settlement 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 Trust and except that no such indemnification shall be
made in respect of any claim, issue or matter as to which such Company
Indemnified Person shall have been adjudged to be liable to the Trust
unless and only to the extent that the Court of Chancery of Delaware or
the 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 indemnity for such expenses which such Court of Chancery or
such other court shall deem proper.
(iii) Any indemnification under paragraphs (i) and (ii) of this
Section 9.4(a) (unless ordered by a court) shall be made by the Debenture
Issuer only as authorized in the specific case upon a determination that
indemnification of the Company Indemnified Person is proper in the
circumstances because he has met the applicable standard of conduct set
forth in paragraphs (i) and (ii). Such determination shall be made (1) by
the Regular Trustees by a majority vote of a quorum consisting of such
Regular Trustees who were not parties to such action, suit or proceeding,
(2) if such a quorum is not obtainable, or, even if obtainable, if a
quorum of disinterested Regular Trustees so directs, by independent legal
counsel in a written opinion, or (3) by the Common Security Holders of the
Trust.
(iv) Expenses (including attorneys' fees) incurred by a Company
Indemnified Person in defending a civil, criminal, administrative or
investigative action, suit or proceeding referred to in paragraphs (i) and
(ii) of this Section 9.4(a) shall be paid by the Debenture Issuer in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such Company Indemnified
Person to repay such amount if it shall ultimately be determined that such
person is not entitled to be indemnified by the Debenture Issuer as
authorized in this Section 9.4(a). Notwithstanding the foregoing, no
advance shall be made by the Debenture Issuer if a determination is
reasonably and promptly made (i) by the Regular Trustees by a majority
vote of a quorum of disinterested Regular Trustees, (ii) if such a quorum
is not obtainable, or, even if obtainable, if a quorum of disinterested
Regular Trustees so directs, by independent legal counsel in a written
opinion or (iii) by the Common Security Holders of the Trust, that, based
upon the facts known to the Regular Trustees, independent legal counsel or
Common Security Holder at the time such determination is made, such person
acted in bad faith or in a manner that such person did not believe to be
in or not opposed to the best interests of the Trust, or, with respect to
any criminal proceeding, that such Company Indemnified Person believed or
had reasonable cause to believe his conduct was unlawful. In no event
shall any advance be made in instances where the Regular Trustees,
independent legal counsel or Common Security Holders reasonably determine
that such person deliberately breached such person's duty to the Trust or
its Common or Capital Security Holders.
(v) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Section 9.4(a) shall not
be deemed exclusive of any other rights to which those seeking
indemnification and advancement of expenses may be entitled under any
agreement, vote of shareholders or disinterested directors of the Sponsor
or Capital Security Holders of the Trust or otherwise, both as to action
in his official capacity and as to action in another
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capacity while holding such office. All rights to indemnification under
this Section 9.4(a) shall be deemed to be provided by a contract between
the Debenture Issuer and each Company Indemnified Person who serves in
such capacity at any time while this Section 9.4(a) is in effect. Any
repeal or modification of this Section 9.4(a) shall not affect any rights
or obligations then existing.
(vi) The Debenture Issuer or the Trust may purchase and maintain
insurance on behalf of any person who is or was a Company Indemnified
Person against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not
the Debenture Issuer would have the power to indemnify him against such
liability under the provisions of this Section 9.4(a).
(vii) For purposes of this Section 9.4(a), references to "the
Trust" shall include, in addition to the resulting or surviving entity,
any constituent entity (including any constituent of a constituent)
absorbed in a consolidation or merger, so that any person who is or was a
director, trustee, officer or employee of such constituent entity, or is
or was serving at the request of such constituent entity as a director,
trustee, officer, employee or agent of another entity, shall stand in the
same position under the provisions of this Section 9.4(a) with respect to
the resulting or surviving entity as such person would have with respect
to such constituent entity if its separate existence had continued.
(viii) The indemnification and advancement of expenses provided by,
or granted pursuant to, this Section 9.4(a) shall continue as to a person
who has ceased to be a Company Indemnified Person and shall inure to the
benefit of the successors, heirs, executors and administrators of such a
person.
(b) The Debenture Issuer shall indemnify the (i) Institutional Trustee,
(ii) the Delaware Trustee, (iii) any Affiliate of the Institutional Trustee or
the Delaware Trustee, and (iv) any officers, directors, shareholders, members,
partners, employees, representatives, custodians, nominees or agents of the
Institutional Trustee or the Delaware Trustee (each of the Persons in (i)
through (iv) being referred to as a "Fiduciary Indemnified Person") for, and to
hold each Fiduciary Indemnified Person harmless against, any loss, liability or
expense incurred without gross negligence and, in the case of the Institutional
Trustee, pursuant to Section 3.9, negligence or bad faith on its part, arising
out of or in connection with the acceptance or administration of the trust or
trusts hereunder, including the costs and expenses (including reasonable legal
fees and expenses) of defending itself against or investigating any claim or
liability in connection with the exercise or performance of any of its powers or
duties hereunder. The provisions of this Section 10.4(b) shall survive the
satisfaction and discharge of this Declaration or the resignation or removal of
the Institutional Trustee or the Delaware Trustee, as the case may be.
SECTION 9.5 OUTSIDE BUSINESSES.
Any Covered Person, the Sponsor, the Delaware Trustee and the
Institutional Trustee may engage in or possess an interest in other business
ventures of any nature or description, independently or with others, similar or
dissimilar to the business of the Trust, and the Trust and the Holders of
Securities shall have no rights by virtue of this Declaration in and to such
independent ventures or the income or profits derived therefrom, and the pursuit
of any such venture, even if competitive with the business of the Trust, shall
not be deemed wrongful or improper. No Covered Person, the Sponsor, the Delaware
Trustee or the Institutional Trustee shall be obligated to present any
particular investment or other opportunity to the Trust even if such
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opportunity is of a character that, if presented to the Trust, could be taken by
the Trust, and any Covered Person, the Sponsor, the Delaware Trustee and the
Institutional Trustee shall have the right to take for its own account
(individually or as a partner or fiduciary) or to recommend to others any such
particular investment or other opportunity. Any Covered Person, the Delaware
Trustee and the Institutional Trustee may engage or be interested in any
financial or other transaction with the Sponsor or any Affiliate of the Sponsor,
or may act as depositary for, trustee or agent for, or act on any committee or
body of holders of, securities or other obligations of the Sponsor or its
Affiliates.
ARTICLE X
ACCOUNTING
SECTION 10.1 FISCAL YEAR.
The fiscal year ("Fiscal Year") of the Trust shall be the calendar year,
or such other year as is required by the Code.
SECTION 10.2 CERTAIN ACCOUNTING MATTERS.
(a) At all times during the existence of the Trust, the Trust shall keep,
or cause to be kept, full books of account, records and supporting documents,
which shall reflect in reasonable detail, each transaction of the Trust. The
books of account shall be maintained on the accrual method of accounting, in
accordance with generally accepted accounting principles, consistently applied.
The books of account and the records of the Trust shall be examined by and
reported upon as of the end of each Fiscal Year of the Trust by a firm of
independent certified public accountants selected by the Regular Trustees.
(b) The Trust shall cause to be duly prepared and delivered to each of the
Holders of Securities, any annual United States federal income tax information
statement required by the Code, containing such information with regard to the
Securities held by each Holder as is required by the Code and the Treasury
Regulations. Notwithstanding any right under the Code to deliver any such
statement at a later date, the Trust shall endeavor to deliver all such
statements within 75 days after the end of each Fiscal Year of the Trust.
(c) The Trust shall cause to be duly prepared and filed with the
appropriate taxing authority an annual United States federal income tax return,
on a Form 1041 or such other form or statement as may be required under United
States federal income tax law, and any other annual income tax returns required
to be filed by the Trust on behalf of the Trust with any state or local taxing
authority. A copy of such returns as filed will be delivered to the
Institutional Trustee promptly after filing.
SECTION 10.3 BANKING.
The Trust shall maintain one or more bank accounts in the name and for the
sole benefit of the Trust; provided however, that all payments of funds in
respect of the Debentures held by the Institutional Trustee shall be made
directly to the Institutional Trustee Account and no other funds of the Trust
shall be deposited in the Institutional Trustee Account. The sole signatories
for such accounts shall be designated by the Regular Trustees; provided,
however, that the Institutional Trustee shall designate the signatories for the
Institutional Trustee Account.
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SECTION 10.4 WITHHOLDING.
The Trust shall comply with all withholding requirements under United
States federal, state and local law. The Trust shall request, and the Holders
shall provide to the Trust, such forms or certificates as are necessary to
establish an exemption from withholding with respect to each Holder, and any
representations and forms as shall reasonably be requested by the Trust to
assist it in determining the extent of, and in fulfilling, its withholding
obligations. The Trust shall file required forms with applicable jurisdictions
and, unless an exemption from withholding is properly established by a Holder,
shall remit amounts withheld with respect to the Holder to applicable
jurisdictions. To the extent that the Trust is required to withhold and pay over
any amounts to any authority with respect to distributions or allocations to any
Holder, the amount withheld shall be deemed to be a distribution in the amount
of the withholding to the Holder. In the event of any claimed over withholding,
Holders shall be limited to an action against the applicable jurisdiction. If
the amount required to be withheld was not withheld from actual Distributions
made, the Trust may reduce subsequent Distributions by the amount of such
withholding.
ARTICLE XI
AMENDMENTS AND MEETINGS
SECTION 11.1 AMENDMENTS.
(a) Except as otherwise provided in this Declaration or by any applicable
terms of the Securities, this Declaration may only be amended by a written
instrument approved and executed by the Regular Trustees (or, if there are more
than two Regular Trustees, a majority of the Regular Trustees); and
(i) if the amendment affects the rights, powers, duties,
obligations or immunities of the Institutional Trustee, also by the
Institutional Trustee; and
(ii) if the amendment affects the rights, powers, duties,
obligations or immunities of the Delaware Trustee, also by the Delaware
Trustee;
(b) no amendment shall be made:
(i) unless, in the case of any proposed amendment, the
Institutional Trustee shall have first received an Officer's Certificate
from each of the Trust and the Sponsor that such amendment is permitted
by, and conforms to, the terms of this Declaration (including the terms of
the Securities);
(ii) unless, in the case of any proposed amendment which affects
the rights, powers, duties, obligations or immunities of the Institutional
Trustee, the Institutional Trustee shall have first received:
(A) an Officer's Certificate from each of the Trust and the
Sponsor that such amendment is permitted by, and conforms to, the
terms of this Declaration (including the terms of the Securities);
and
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<PAGE> 57
(B) an opinion of counsel (who may be counsel to the Sponsor
or the Trust) that such amendment is permitted by, and conforms to,
the terms of this Declaration (including the terms of the
Securities); and
(iii) to the extent the result of such amendment would be to:
(A) cause the Trust to fail to continue to be classified for
purposes of United States federal income taxation as a grantor
trust;
(B) reduce or otherwise adversely affect the powers of the
Institutional Trustee in contravention of the Trust Indenture Act;
or
(C) cause the Trust to be deemed to be an Investment Company
required to be registered under the Investment Company Act;
(c) at such time after the Trust has issued any Securities that remain
outstanding, any amendment that would materially and adversely affect the
rights, privileges or preferences of any Holder of Securities may be effected
only with such additional requirements as may be set forth in the terms of such
Securities;
(d) This Section 11.1 shall not be amended without the consent of all of
the Holders of the Securities;
(e) Article IV shall not be amended without the consent of the Holders of
a Majority in liquidation amount of the Common Securities;
(f) the rights of the Holders of the Common Securities under Article V to
increase or decrease the number of, and appoint and remove Trustees shall not be
amended without the consent of the Holders of a Majority in liquidation amount
of the Common Securities; and
(g) notwithstanding Section 11.1(c), this Declaration may be amended
without the consent of the Holders of the Securities to:
(i) cure any ambiguity;
(ii) correct or supplement any provision in this Declaration that
may be defective or inconsistent with any other provision of this
Declaration;
(iii) add to the covenants, restrictions or obligations of the
Sponsor;
(iv) to conform to any change in Rule 3a-5 or written change in
interpretation or application of Rule 3a-5 by any legislative body, court,
government agency or regulatory authority which amendment does not have a
material adverse effect on the right, preferences or privileges of the
Holders;
(v) to modify, eliminate and add to any provision of the
Declaration to such extent as may be necessary; and
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<PAGE> 58
(vi) cause the Trust to continue to be classified for United States
federal income tax purposes as a grantor trust.
SECTION 11.2 MEETINGS OF THE HOLDERS OF SECURITIES; ACTION BY WRITTEN CONSENT.
(a) Meetings of the Holders of any class of Securities may be called at
any time by the Regular Trustees (or as provided in the terms of the Securities)
to consider and act on any matter on which Holders of such class of Securities
are entitled to act under the terms of this Declaration, the terms of the
Securities or the rules of any stock exchange on which the Capital Securities
are listed or admitted for trading. The Regular Trustees shall call a meeting of
the Holders of such class if directed to do so by the Holders of at least 10% in
liquidation amount of such class of Securities. Such direction shall be given by
delivering to the Regular Trustees one or more calls in a writing stating that
the signing Holders of Securities wish to call a meeting and indicating the
general or specific purpose for which the meeting is to be called. Any Holders
of Securities calling a meeting shall specify in writing the Security
Certificates held by the Holders of Securities exercising the right to call a
meeting and only those Securities specified shall be counted for purposes of
determining whether the required percentage set forth in the second sentence of
this paragraph has been met.
(b) Except to the extent otherwise provided in the terms of the
Securities, the following provisions shall apply to meetings of Holders of
Securities:
(i) notice of any such meeting shall be given to all the Holders of
Securities having a right to vote thereat at least 7 days and not more
than 60 days before the date of such meeting. Whenever a vote, consent or
approval of the Holders of Securities is permitted or required under this
Declaration, the terms of the Securities or the rules of any stock
exchange on which the Capital Securities are listed or admitted for
trading, such vote, consent or approval may be given at a meeting of the
Holders of Securities. Any action that may be taken at a meeting of the
Holders of Securities may be taken without a meeting if a consent in
writing setting forth the action so taken is signed by the Holders of
Securities owning not less than the minimum amount of Securities in
liquidation amount that would be necessary to authorize or take such
action at a meeting at which all Holders of Securities having a right to
vote thereon were present and voting. Prompt notice of the taking of
action without a meeting shall be given to the Holders of Securities
entitled to vote who have not consented in writing. The Regular Trustees
may specify that any written ballot submitted to the Security Holder for
the purpose of taking any action without a meeting shall be returned to
the Trust within the time specified by the Regular Trustees;
(ii) each Holder of a Security may authorize any Person to act for
it by proxy on all matters in which a Holder of Securities is entitled to
participate, including waiving notice of any meeting, or voting or
participating at a meeting. No proxy shall be valid after the expiration
of 11 months from the date thereof unless otherwise provided in the proxy.
Every proxy shall be revocable at the pleasure of the Holder of Securities
executing it. Except as otherwise provided herein, all matters relating to
the giving, voting or validity of proxies shall be governed by the General
Corporation Law of the State of Delaware relating to proxies, and judicial
interpretations thereunder, as if the Trust were a Delaware corporation
and the Holders of the Securities were stockholders of a Delaware
corporation;
(iii) each meeting of the Holders of the Securities shall be
conducted by the Regular Trustees or by such other Person that the Regular
Trustees may designate; and
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<PAGE> 59
(iv) unless the Business Trust Act, this Declaration, the terms of
the Securities, the Trust Indenture Act or the listing rules of any stock
exchange on which the Capital Securities are then listed or trading
otherwise provides, the Regular Trustees, in their sole discretion, shall
establish all other provisions relating to meetings of Holders of
Securities, including notice of the time, place or purpose of any meeting
at which any matter is to be voted on by any Holders of Securities, waiver
of any such notice, action by consent without a meeting, the establishment
of a record date, quorum requirements, voting in person or by proxy or any
other matter with respect to the exercise of any such right to vote.
ARTICLE XII
REPRESENTATIONS OF INSTITUTIONAL TRUSTEE AND DELAWARE TRUSTEE
SECTION 12.1 REPRESENTATIONS AND WARRANTIES OF INSTITUTIONAL TRUSTEE.
The Trustee that acts as initial Institutional Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Institutional Trustee represents and warrants to the Trust and
the Sponsor at the time of the Successor Institutional Trustee's acceptance of
its appointment as Institutional Trustee, that:
(a) the Institutional Trustee is a national banking association with trust
powers, duly organized, validly existing and in good standing under the laws of
the United States of America, with trust power and authority to execute and
deliver, and to carry out and perform its obligations under the terms of, the
Declaration;
(b) the Institutional Trustee satisfies the requirements set forth in
Section 5.3(a);
(c) the execution, delivery and performance by the Institutional Trustee
of the Declaration has been duly authorized by all necessary corporate action on
the part of the Institutional Trustee. The Declaration has been duly executed
and delivered by the Institutional Trustee, and it constitutes a legal, valid
and binding obligation of the Institutional Trustee, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, reorganization,
moratorium, insolvency, and other similar laws affecting creditors' rights
generally and to general principles of equity and the discretion of the court
(regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law);
(d) the execution, delivery and performance of the Declaration by the
Institutional Trustee does not conflict with or constitute a breach of the
Articles of Organization or By-laws of the Institutional Trustee; and
(e) no consent, approval or authorization of, or registration with or
notice to, any State or Federal banking authority is required for the execution,
delivery or performance by the Institutional Trustee, of the Declaration.
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<PAGE> 60
SECTION 12.2 REPRESENTATIONS AND WARRANTIES OF DELAWARE TRUSTEE.
The Trustee that acts as initial Delaware Trustee represents and warrants
to the Trust and to the Sponsor at the date of this Declaration, and each
Successor Delaware Trustee represents and warrants to the Trust and the Sponsor
at the time of the Successor Delaware Trustee's acceptance of its appointment as
Delaware Trustee, that:
(a) The Delaware Trustee is a Delaware corporation, duly organized,
validly existing and in good standing under the laws of the State of Delaware,
with power and authority to execute and deliver, and to carry out and perform
its obligations under the terms of, the Declaration;
(b) the execution, delivery and performance by the Delaware Trustee of the
Declaration has been duly authorized by all necessary corporate action on the
part of the Delaware Trustee. The Declaration has been duly executed and
delivered by the Delaware Trustee, and it constitutes a legal, valid and binding
obligation of the Delaware Trustee, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, reorganization, moratorium,
insolvency, and other similar laws affecting creditors' rights generally and to
general principles of equity and the discretion of the court (regardless of
whether the enforcement of such remedies is considered in a proceeding in equity
or at law);
(c) No consent, approval or authorization of, or registration with or
notice to, any State or Federal banking authority is required for the execution,
delivery or performance by the Delaware Trustee of the Declaration; and
(d) the execution, delivery and performance of the Declaration by the
Delaware Trustee does not conflict with or constitute a breach of the Articles
of Organization or By-laws of the Delaware Trustee; and
(e) The Delaware Trustee is a natural person who is a resident of the
State of Delaware or, if not a natural person, an entity which has its principal
place of business in the State of Delaware.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1 NOTICES.
All notices provided for in this Declaration shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by registered or certified mail, as follows:
(a) if given to the Trust, in care of the Regular Trustees at the Trust's
mailing address set forth below (or such other address as the Trust may give
notice of to the Holders of the Securities):
KBHC Financing I
c/o Kaufman and Broad Home Corporation
10990 Wilshire Blvd.
Los Angeles, CA 90024
Attn: Chief Financial Officer
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<PAGE> 61
(b) if given to the Delaware Trustee, at the mailing address set forth
below (or such other address as Delaware Trustee may give notice of to the
Holders of the Securities):
First Chicago Delaware Inc.
300 King Street
Wilmington, DE 19801
Attention: Corporate Trust Services
(c) if given to the Institutional Trustee, at its Corporate Trust Office
to the attention of Corporate Trust Administration (or such other address as the
Institutional Trustee may give notice of to the Holders of the Securities):
The First National Bank of Chicago
One First National Plaza
Suite 0126
Chicago, IL 60670-0126
Attention: Corporate Trust Services
(d) if given to the Holder of the Common Securities, at the mailing
address of the Sponsor set forth below (or such other address as the Holder of
the Common Securities may give notice to the Trust):
Kaufman and Broad Home Corporation
10990 Wilshire Blvd.
Los Angeles, CA 90024
Attn: Chief Financial Officer
(e) if given to any other Holder, at the address set forth on the books
and records of the Trust.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
SECTION 13.2 GOVERNING LAW.
This Declaration and the rights of the parties hereunder shall be governed
by and interpreted in accordance with the laws of the State of Delaware and all
rights and remedies shall be governed by such laws without regard to principles
of conflict of laws.
SECTION 13.3 INTENTION OF THE PARTIES.
It is the intention of the parties hereto that the Trust be classified for
United States federal income tax purposes as a grantor trust. The provisions of
this Declaration shall be interpreted to further this intention of the parties.
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SECTION 13.4 HEADINGS.
Headings contained in this Declaration are inserted for convenience of
reference only and do not affect the interpretation of this Declaration or any
provision hereof.
SECTION 13.5 SUCCESSORS AND ASSIGNS.
Whenever in this Declaration any of the parties hereto is named or
referred to, the successors and assigns of such party shall be deemed to be
included, and all covenants and agreements in this Declaration by the Sponsor
and the Trustees shall bind and inure to the benefit of their respective
successors and assigns, whether so expressed.
SECTION 13.6 PARTIAL ENFORCEABILITY.
If any provision of this Declaration, or the application of such provision
to any Person or circumstance, shall be held invalid, the remainder of this
Declaration, or the application of such provision to persons or circumstances
other than those to which it is held invalid, shall not be affected thereby.
SECTION 13.7 COUNTERPARTS.
This Declaration may contain more than one counterpart of the signature
page and this Declaration may be executed by the affixing of the signature of
each of the Trustees to one of such counterpart signature pages. All of such
counterpart signature pages shall be read as though one, and they shall have the
same force and effect as though all of the signers had signed a single signature
page.
SECTION 13.8 REMARKETING
(a) The Debenture Issuer will request, not later than 15 nor more
than 30 calendar days prior to the Remarketing Date that the Clearing Agency
notify the Holders of Capital Securities and the Holders of Income PRIDES and
Growth PRIDES of the Remarketing and of the procedures that must be followed if
a Holder of Capital Securities wishes to exercise such Holder's rights with
respect to the Put Option if there is a Failed Remarketing.
(b) Not later than 5:00 P.M., New York City time, on the fifth
Business Day immediately preceding the Purchase Contract Settlement Date, each
Holder of the Capital Securities may elect to have Capital Securities held by
such Holder remarketed. Under Section 5.4 of the Purchase Contract Agreement,
Holders of Income PRIDES that do not give notice of intention to make a Cash
Settlement of their related Purchase Contracts shall be deemed to have consented
to the disposition of the Capital Securities comprising a component of such
Income PRIDES. Holders of Capital Securities that are not a component of Income
PRIDES shall give notice of their election to have such Capital Securities
remarketed to the Custodial Agent pursuant to the Pledge Agreement. Any such
notice shall be irrevocable after 5:00 P.M., New York City time on the fifth
Business Day immediately preceding the Purchase Contract Settlement Date and may
not be conditioned upon the level at which the Reset Rate is established.
Promptly after 5:30 P.M., New York City time, on such fifth Business Day, the
Institutional Trustee, based on the notices received by it prior to such time
(including notices from the Purchase Contract Agent as to Purchase Contracts for
which cash settlement has been elected), shall notify the Trust, the Sponsor and
the Remarketing Agent of the number of Capital Securities to be tendered for
purchase.
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(c) If any Holder of Income PRIDES does not give a notice of its
intention to make a Cash Settlement or gives a notice of election to tender
Capital Securities as described in Section 13.8(b), the Capital Securities of
such Holder shall be deemed tendered, notwithstanding any failure by such Holder
to deliver or properly deliver such Capital Securities to the Remarketing Agent
for purchase.
(d) The right of each Holder to have Capital Securities tendered
for purchase shall be limited to the extent that (i) the Remarketing Agent
conducts a remarketing pursuant to the terms of the Remarketing Agreement, (ii)
Capital Securities tendered have not been called for redemption, (iii) the
Remarketing Agent is able to find a purchaser or purchasers for tendered Capital
Securities and (iv) such purchaser or purchasers deliver the purchase price
therefor to the Remarketing Agent.
(e) On the Remarketing Date, the Remarketing Agent shall use
commercially reasonable efforts to remarket at a price equal to approximately
100.75% of the aggregate liquidation amount thereof, Capital Securities tendered
or deemed tendered for purchase.
(f) If none of the Holders elect to have Capital Securities held by
them remarketed, the Reset Rate shall be the rate determined by the Remarketing
Agent, subject to the terms of the Remarketing Agreement, as the rate that would
have been established had a remarketing been held on the Remarketing Date.
(g) If the Remarketing Agent has determined that it will be able to
remarket all Capital Securities tendered or deemed tendered prior to 4:00 P.M.,
New York City time, on the Remarketing Date, the Remarketing Agent shall
determine the Reset Rate, which shall be the rate per annum (rounded to the
nearest one-thousandth (0.001) of one percent per annum) which the Remarketing
Agent determines, subject to the terms of the Remarketing Agreement, to be the
lowest rate per annum that will enable it to remarket all Capital Securities
tendered or deemed tendered for remarketing.
(h) If, by 4:00 P.M., New York City time, on the Remarketing Date,
the Remarketing Agent is unable to remarket all Capital Securities tendered or
deemed tendered for purchase, a failed remarketing ("Failed Remarketing") shall
be deemed to have occurred and the Remarketing Agent shall so advise by
telephone the Collateral Agent, Debenture Issuer, Institutional Trustee,
Delaware Trustee and Clearing Agency.
(i) By approximately 4:30 P.M., New York City time, on the
Remarketing Date, provided that there has not been a Failed Remarketing, the
Remarketing Agent shall advise, by telephone (i) the Collateral Agent, Debenture
Issuer, Institutional Trustee, Delaware Trustee and Clearing Agency of the Reset
Rate determined in the Remarketing and the number of Capital Securities sold in
the remarketing, (ii) each purchaser (or the Clearing Agency Participant
thereof) of the Reset Rate and the number of Capital Securities such purchaser
is to purchase and (iii) each purchaser to give instructions to its Clearing
Agency Participant to pay the purchase price on the Purchase Contract Settlement
Date in same day funds against delivery of the Capital Securities purchased
through the facilities of the Clearing Agency.
(j) In accordance with the Clearing Agency's normal procedures, on
the Purchase Contract Settlement Date, the transactions described above with
respect to each Capital Security tendered for purchase and sold in the
remarketing shall be executed through the Clearing Agency, and the accounts of
the respective Clearing Agency Participants shall be debited and credited and
such Capital Securities delivered by book
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<PAGE> 64
entry as necessary to effect purchases and sales of such Capital Securities. The
Clearing Agency shall make payment in accordance with its normal procedures.
(k) If any Holder selling Capital Securities in the remarketing
fails to deliver such Capital Securities, the Clearing Agency Participant of
such selling Holder and of any other person that was to have purchased Capital
Securities in the remarketing may deliver to any such other person a number of
Capital Securities that is less than the number of Capital Securities that
otherwise was to be purchased by such person. In such event, the number of
Capital Securities to be so delivered shall be determined by such Clearing
Agency Participant, and delivery of such lesser number of Capital Securities
shall constitute good delivery.
(l) The Remarketing Agent is not obligated to purchase any Capital
Securities that would otherwise remain unsold in a remarketing. Neither the
Trust, any Trustee, the Sponsor nor the Remarketing Agent shall be obligated in
any case to provide funds to make payment upon tender of Capital Securities for
remarketing.
(m) The tender and settlement procedures set forth in this Section
13.8, including provisions for payment by purchasers of Capital Securities in
the remarketing, shall be subject to modification, notwithstanding any provision
to the contrary set forth in Article 11, to the extent required by the Clearing
Agency or if the book-entry system is no longer available for the Capital
Securities at the time of the remarketing, to facilitate the tendering and
remarketing of Capital Securities in certificated form. In addition, the
Remarketing Agent may, notwithstanding any provision to the contrary set forth
in Article 11, modify the settlement procedures set forth herein in order to
facilitate the settlement process.
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<PAGE> 65
IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed as of the day and year first above written.
___________________________________________
as Regular Trustee
___________________________________________
as Regular Trustee
FIRST CHICAGO DELAWARE INC.,
as Delaware Trustee
By ________________________________________
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as Institutional Trustee
By ________________________________________
Name:
Title:
KAUFMAN AND BROAD HOME CORPORATION,
as Sponsor
By ________________________________________
Name:
Title:
<PAGE> 66
EXHIBIT A-1
FORM OF CAPITAL SECURITY CERTIFICATE
[IF THE CAPITAL SECURITY IS TO BE A GLOBAL CERTIFICATE INSERT - This
Capital Security is a Global Certificate within the meaning of the Declaration
hereinafter referred to and is registered in the name of The Depository Trust
Company (the "Depositary") or a nominee of the Depositary. This Capital Security
is exchangeable for Capital Securities registered in the name of a person other
than the Depositary or its nominee only in the limited circumstances described
in the Declaration and no transfer of this Capital Security (other than a
transfer of this Capital Security as a whole by the Depositary to a nominee of
the Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary) may be registered except in limited circumstances.
Unless this Capital Security is presented by an authorized representative
of The Depository Trust Company (55 Water Street, New York, New York) to the
Trust or its agent for registration of transfer, exchange or payment, and any
Capital Security issued is registered in the name of Cede & Co. or such other
name as requested by an authorized representative of The Depository Trust
Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the
registered owner hereof, Cede & Co., has an interest herein.]
Certificate Number _________ Number of Capital Securities ______
CUSIP NO. ___________
Certificate Evidencing Capital Securities
of
KBHC Financing I
____% CapitalSecurities
(liquidation amount $10 per Capital Security)
KBHC Financing I, a statutory business trust created under the laws of the
State of Delaware (the "Trust"), hereby certifies that __________ (the "Holder")
is the registered owner of _______ Capital Securities of the Trust representing
undivided beneficial ownership interests in the assets of the Trust designated
as the ___% Capital Securities (liquidation amount $10 per Capital Security)
(the "Capital Securities"). The Capital Securities are transferable on the books
and records of the Trust, in person or by a duly authorized attorney, upon
surrender of this certificate duly endorsed and in proper form for transfer. The
designation, rights, privileges, restrictions, preferences and other terms and
provisions of the Capital Securities represented hereby are issued and shall in
all respects be subject to the provisions of the Amended and Restated
Declaration of Trust of the Trust dated as of _________, 1998, as the same may
be amended from time to time (the "Declaration"). Capitalized terms used herein
but not defined shall have the meaning given them in the Declaration. The Holder
is entitled to the benefits of the Guarantee to the extent provided therein. The
Sponsor will provide a copy of the Declaration, the Guarantee and the Indenture
to a Holder without charge upon written request to the Trust at its principal
place of business.
Upon receipt of this certificate, the Holder is bound by the Declaration
and is entitled to the benefits thereunder.
<PAGE> 67
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Capital Securities
as evidence of indirect beneficial ownership in the Debentures.
<PAGE> 68
IN WITNESS WHEREOF, the Trust has executed this certificate this ___ day of
_____, 1998.
KBHC FINANCING I
By: _________________________________
Name: _______________________________
Title: Regular Trustee
<PAGE> 69
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Capital Security will be fixed at a rate per
annum of __% until ___ 15, 2001, and at the Reset Rate thereafter (the "Coupon
Rate") of the stated liquidation amount of $10 per Capital Security, such rate
being the rate of interest payable on the Debentures to be held by the
Institutional Trustee. Distributions in arrears for more than one quarter will
bear interest thereon compounded quarterly at the rate of __% until ___ 15,
2001, and at the Reset Rate thereafter (to the extent permitted by applicable
law). The term "Distributions" as used herein includes such cash distributions
and any such interest payable unless otherwise stated. A Distribution is payable
only to the extent that payments are made in respect of the Debentures held by
the Institutional Trustee and to the extent the Institutional Trustee has funds
available therefor. The amount of Distributions payable for any period will be
computed for any full quarterly Distribution period on the basis of a 360-day
year consisting 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.
Except as otherwise described below, Distributions on the Capital
Securities will be cumulative, will accrue from the date of original issuance
and will be payable quarterly in arrears, on February 16, May 16, August 16 and
November 16 of each year, commencing on __ 16, 1998, to holders of record, if in
book-entry only form, one Business Day prior to such payment date, which payment
dates shall correspond to the interest payment dates on the Debentures. In the
event that the Capital Securities are not in book-entry form, the Regular
Trustees will have the right to select relevant record dates, which will be more
than one Business Day but less than 60 Business Days prior to the relevant
payment dates. The Debenture Issuer has the right under the Indenture to defer
payments of interest by extending the interest payment period from time to time
on the Debentures for a period not exceeding beyond the date of maturity of the
Debentures (each an "Extension Period") and, as a consequence of such deferral,
Distributions will also be deferred. Despite such deferral, quarterly
Distributions will continue to accrue with interest thereon at the rate of ___%
until ____ 15, 2001, and at the Reset Rate thereafter, compounded quarterly
during any such Extension Period (to the extent permitted by applicable law).
Payments of accrued Distributions will be payable to Holders as they appear on
the books and records of the Trust on the first record date after the end of the
Extension Period. Upon the termination of any Extension Period and the payment
of all amounts then due, the Debenture Issuer may commence a new Extension
Period; provided that such Extension Period together with all such previous and
further extensions thereof may not exceed beyond the maturity date of the
Debenture.
The Capital Securities shall be redeemable as provided in the Declaration.
<PAGE> 70
OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably requests and instructs the Trust to
repay $_____ stated liquidation amount of the within Capital Security, pursuant
to its terms, on the "Put Option Exercise Date," together with distributions
thereon accrued but unpaid to the date of repayment, to the undersigned at:
______________________________________________________________
(Please print or type Name and Address of the Undersigned)
and to issue to the undersigned, pursuant to the terms of the Declaration, a new
Capital Security or Capital Securities representing the remaining stated
liquidation amount of this Capital Security.
For this Option to Elect Repayment to be effective, the within Capital Security
with this Option to Elect Repayment duly completed must be received by the Trust
at the Corporate Trust Office of the Institutional Trustee at The First National
Bank of Chicago, One First National Plaza, Suite 0126, Chicago, IL 60670-0126,
Attention: Corporate Trust Administration.
Dated: Signature: ___________________________________
Signature Guarantee: _________________________
Note: The signature to this Option to Elect Repayment must correspond with the
name as written upon the face of the within Capital Security in every particular
without alternation or enlargement or any change whatsoever.
<PAGE> 71
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Capital Security
Certificate to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax identification number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
agent to transfer this Capital Security Certificate on the books of the
Trust. The agent may substitute another to act for him or her.
Date: ____________________________________
Signature: ___________________________________
Signature Guarantee: _________________________
(Sign exactly as your name appears on the other side of this
Capital Security Certificate)
<PAGE> 72
EXHIBIT A-2
FORM OF COMMON SECURITY CERTIFICATE
THE COMMON SECURITIES MAY ONLY BE TRANSFERRED BY THE DEBENTURE
ISSUER AND ANY RELATED PARTY TO THE DEBENTURE ISSUER OR A RELATED PARTY OF THE
DEBENTURE ISSUER; PROVIDED THAT, ANY SUCH TRANSFER IS SUBJECT TO THE CONDITION
PRECEDENT THAT THE TRANSFEROR OBTAIN THE WRITTEN OPINION OF NATIONALLY
RECOGNIZED INDEPENDENT COUNSEL EXPERIENCED IN SUCH MATTERS THAT SUCH TRANSFER
WOULD NOT CAUSE:
(I) THE TRUST TO BE CLASSIFIED FOR UNITED STATES FEDERAL INCOME TAX
PURPOSES AS OTHER THAN A GRANTOR TRUST; AND
(II) THE TRUST TO BE AN INVESTMENT COMPANY OR THE TRANSFEREE TO
BECOME AN INVESTMENT COMPANY.
Certificate Number ___________ Number of Common Securities ________
Certificate Evidencing Common Securities
of
KBHC Financing I
___% Common Securities
(liquidation amount $10 per Common Security)
KBHC Financing I, a statutory business trust created under the laws of the
State of Delaware (the "Trust"), hereby certifies that Kaufman and Broad Home
Corporation (the "Holder") is the registered owner of _____ common securities of
the Trust representing undivided beneficial ownership interests in the assets of
the Trust designated as the ___% Common Securities (liquidation amount $10 per
common security) (the "Common Securities"). The Common Securities are
transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer. The designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Common Securities represented
hereby are issued and shall in all respects be subject to the provisions of the
Amended and Restated Declaration of Trust of the Trust dated as of _________,
1998, as the same may be amended from time to time (the "Declaration").
Capitalized terms used herein but not defined shall have the meaning given them
in the Declaration. The Holder is entitled to the benefits of the Guarantee to
the extent provided therein. The Sponsor will provide a copy of the Declaration,
the Guarantee and the Indenture to a Holder without charge upon written request
to the Sponsor at its principal place of business.
Upon receipt of this certificate, the Sponsor is bound by the Declaration
and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Common Securities as
evidence of indirect beneficial ownership in the Debentures.
<PAGE> 73
IN WITNESS WHEREOF, the Trust has executed this certificate this ___ day
of _____, 1998.
KBHC FINANCING I
By: _____________________________
Name: ___________________________
Title: Regular Trustee
<PAGE> 74
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed at a rate per
annum of __% until ________, 2001, and at the Reset Rate thereafter (the "Coupon
Rate") of the stated liquidation amount of $10 per Common Security, such rate
being the rate of interest payable on the Debentures to be held by the
Institutional Trustee. Distributions in arrears for more than one quarter will
bear interest thereon compounded quarterly at the rate of __% until __ 15, 2001,
and at the Reset Rate thereafter (to the extent permitted by applicable law).
The term "Distributions" as used herein includes such cash distributions and any
such interest payable unless otherwise stated. A Distribution is payable only to
the extent that payments are made in respect of the Debentures held by the
Institutional Trustee and to the extent the Institutional Trustee has funds
available therefor. The amount of Distributions payable for any period will be
computed for any full quarterly Distribution period 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.
Except as otherwise described below, distributions on the Common
Securities will be cumulative, will accrue from the date of original issuance
and will be payable quarterly in arrears, on February 16, May 16, August 16 and
November 16, of each year, commencing on __ 16, 1998, to Holders of record one
Business Day prior to such payment dates, which payment dates shall correspond
to the interest payment dates on the Debentures. The Debenture Issuer has the
right under the Indenture to defer payments of interest by extending the
interest payment period from time to time on the Debentures for a period not
exceeding beyond the date of maturity of the Debentures (each an "Extension
Period") and, as a consequence of such deferral, Distributions will also be
deferred. Despite such deferral, quarterly Distributions will continue to accrue
with interest thereon (to the extent permitted by applicable law) at the rate of
__% until __ 15, 2001, and at the Reset Rate thereafter, compounded quarterly
during any such Extension Period. Payments of accrued Distributions will be
payable to Holders as they appear on the books and records of the Trust on the
first record date after the end of the Extension Period. Upon the termination of
any Extension Period and the payment of all amounts then due, the Debenture
Issuer may commence a new Extension Period; provided, that such Extension Period
together with all such previous and further extensions thereof may not exceed
beyond the maturity date of the Debentures.
The Common Securities shall be redeemable as provided in the Declaration.
<PAGE> 75
OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably requests and instructs the Trust to
repay $_____ stated liquidation amount of the within Common Security, pursuant
to its terms, on the "Put Option Exercise Date," together with distributions
thereon accrued and unpaid to the date of repayment, to the undersigned at:
___________________________________________________________
(Please print or type Name and Address of the Undersigned)
and to issue to the undersigned, pursuant to the terms of the Declaration, a new
Common Security or Common Securities representing the remaining stated
liquidation amount of this Common Security.
For this Option to Elect Repayment to be effective, the within Common Security
with this Option to Elect Repayment duly completed must be received by the Trust
at the Corporate Trust Office of the Institutional Trustee at The First National
Bank of Chicago, One First National Plaza, Suite 0126, Chicago, IL 60670-0126,
Attention: Corporate Trust Administration.
Dated: Signature: __________________________________
Signature Guarantee: ________________________
Note: The signature to this Option to Elect Repayment must correspond with the
name as written upon the face of the within Common Security in every particular
without alternation or enlargement or any change whatsoever.
<PAGE> 76
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security
Certificate to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax identification number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
agent to transfer this Common Security Certificate on the books of the Trust.
The agent may substitute another to act for him or her.
Date: ____________________________________
Signature: _____________________________________
Signature Guarantee: ___________________________
(Sign exactly as your name appears on the other side of this
Common Security Certificate)
<PAGE> 77
EXHIBIT B
SPECIMEN OF DEBENTURE
<PAGE> 78
EXHIBIT C
UNDERWRITING AGREEMENT
<PAGE> 1
Exhibit 4.11
===============================================
FORM OF GUARANTEE AGREEMENT
KBHC FINANCING I
Dated as of __________, 1998
===============================================
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS AND INTERPRETATIONS
SECTION 1.1 Definitions and Interpretation............................ 1
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act: Application.......................... 4
SECTION 2.2 List of Holders of Securities............................. 4
SECTION 2.3 Reports by the Guarantee Trustee.......................... 4
SECTION 2.4 Periodic Reports to Guarantee Trustee.................... 4
SECTION 2.5 Evidence of Compliance with Conditions Precedent.......... 5
SECTION 2.6 Events of Default; Waiver................................. 5
SECTION 2.7 Event of Default; Notice.................................. 5
SECTION 2.8 Conflicting Interests..................................... 5
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Guarantee Trustee................ 5
SECTION 3.2 Certain Rights of the Guarantee Trustee................... 7
SECTION 3.3 Not Responsible for Recitals or Issuance of Guarantee..... 8
ARTICLE IV
GUARANTEE TRUSTEE
SECTION 4.1 Guarantee Trustee; Eligibility........................... 8
SECTION 4.2 Appointment, Removal and Resignation of Guarantee
Trustees ................................................ 9
ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee................................................. 9
SECTION 5.2 Waiver of Notice and Demand............................... 10
SECTION 5.3 Obligations Not Affected.................................. 10
SECTION 5.4 Rights of Holders......................................... 10
SECTION 5.5 Guarantee of Payment...................................... 11
SECTION 5.6 Subrogation............................................... 11
SECTION 5.7 Independent Obligations................................... 11
i
<PAGE> 3
ARTICLE VI
LIMITATION OF TRANSACTIONS; RANKING
SECTION 6.1 Limitation of Transactions................................ 11
SECTION 6.2 Ranking................................................... 12
ARTICLE VII
TERMINATION
SECTION 7.1 Termination............................................... 12
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Exculpation............................................... 12
SECTION 8.2 Indemnification........................................... 13
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Successors and Assigns.................................... 13
SECTION 9.2 Amendments................................................ 13
SECTION 9.3 Notices................................................... 14
SECTION 9.4 Benefit................................................... 14
SECTION 9.5 Governing Law............................................. 14
ii
<PAGE> 4
FORM OF GUARANTEE AGREEMENT
This FORM OF GUARANTEE AGREEMENT (the "Guarantee"), dated as of ______,
1998, is executed and delivered by Kaufman and Broad Home Corporation, a
Delaware corporation (the "Guarantor"), and "The First National Bank of
Chicago", as trustee (the " Guarantee Trustee"), for the benefit of the Holders
(as defined herein) from time to time of the Securities (as defined herein) of
KBHC Financing I, a Delaware business trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Declaration of Trust (the
"Declaration"), dated as of _________, 1998, among the trustees of the Issuer
named therein, the Guarantor, as sponsor, and the holders from time to time of
undivided beneficial ownership interests in the assets of the Issuer, the Issuer
is issuing on the date hereof __________ Capital Securities, liquidation amount
$_____ per Capital Security, having an aggregate liquidation amount of
$_________ designated the __% Capital Securities (the "Capital Securities") and
______ common securities, liquidation amount $10 per common security, having an
aggregate liquidation amount $_________, designated the ________ % Common
Securities (the "Common Securities" and, together with the FELINE PRIDES, the
"Securities");
WHEREAS, as incentive for the Holders to purchase the Securities, the
Guarantor desires irrevocably and unconditionally to agree, to the extent set
forth in this Guarantee, to pay to the Holders the Guarantee Payments (as
defined herein) and to make certain other payments on the terms and conditions
set forth herein; and
WHEREAS, if an Event of Default (as defined in the Declaration), has
occurred and is continuing, the rights of holders of the Common Securities to
receive Guarantee Payments under this Guarantee are subordinated to the rights
of the holders of the Capital Securities to receive Guarantee Payments under
this Guarantee.
NOW, THEREFORE, in consideration of the purchase by each Holder, which
purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor
executes and delivers this Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATIONS
SECTION 1.1 Definitions and Interpretation
In this Guarantee, unless the context otherwise requires:
(a) capitalized terms used in this Guarantee but not defined in the
preamble above have the respective meanings assigned to them in this
Section 1.1;
(b) a term defined anywhere in this Guarantee has the same meaning
throughout;
(c) all reference to "the Guarantee" or "this Guarantee" are to this
Guarantee as modified, supplemented or amended from time to time;
(d) all references in this Guarantee to Articles and Sections are to
Articles and Sections of this Guarantee, unless otherwise specified;
<PAGE> 5
(e) a term defined in the Trust Indenture Act has the same meaning when
used in this Guarantee, unless otherwise defined in this Guarantee
or unless the context otherwise requires; and
(f) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of the
Securities Act of 1933, as amended, or any successor rule thereunder.
"Authorized Officer" of a Person means any Person that is authorized to
bind such Person.
"Business Day" means any day other than Saturday, Sunday or any day on
which banking institutions in the City of New York, New York are authorized or
required by any applicable law to close.
"Corporate Trust Office" means the office of the Guarantee Trustee at
which the corporate trust business of the Guarantee Trustee shall, at any
particular time, be principally administered, which office at the date of
execution of this Agreement is located at The First National Bank of Chicago,
One First National Plaza, Suite 0126, Chicago, IL 60670-0126, Attention:
Corporate Services Division
"Covered Person" means any Holder or beneficial owner of Securities.
"Debentures" means the series of debt securities of the Guarantor
designated the % Debentures due 15, 2003 held by the Institutional Trustee (as
defined in the Declaration) of the Issuer.
"Direction" by a person means a written direction signed: (a) if the
Person is a natural person, by that Person; or (b) in any other case in the name
of such Person by one or more Authorized Officers of that Person.
"Event of Default" means a default by the Guarantor on any of its payment
or other obligations under this Guarantee.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Securities, to the extent not paid or
made by the Issuer: (i) any accrued and unpaid Distributions (as defined in the
Declaration) that are required to be paid on such Securities to the extent the
Issuer shall have funds available therefor, (ii) the redemption price, including
all accrued and unpaid distributions to the date of redemption (the "Redemption
Price") with respect to 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 Issuer has funds available therefor, and (iii) upon a
voluntary or involuntary dissolution, winding-up or termination of the Issuer
(other than in connection with the distribution of Debentures to the Holders in
exchange for the Securities as provided in the Declaration), the lesser of (a)
the aggregate of the liquidation amount and all accrued and unpaid Distributions
on the Securities to the date of payment, to the extent the Issuer shall have
funds available therefor, and (b) the amount of assets of the Issuer remaining
available for distribution to Holders in liquidation of the Issuer (in either
case, the "Liquidation Distribution"). If an event of default under the
Indenture has occurred and is continuing, the rights of holders of the Common
Securities to receive payments under this Guarantee are subordinated to the
rights of holders of Capital Securities to receive Guarantee Payments under this
Guarantee.
"Guarantee Trustee" means The First National Bank of Chicago, until a
Successor Guarantee Trustee has been appointed and has accepted such appointment
pursuant to the terms of this Guarantee and thereafter means each such Successor
Guarantee Trustee.
2
<PAGE> 6
"Holder" shall mean any holder, as registered on the books and records of
the Issuer, of any Securities; provided, however, that, in determining whether
the holders of the requisite percentage of Securities have given any request,
notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or
any Affiliate of the Guarantor.
"Indemnified Person" means the Guarantee Trustee, any Affiliate of the
Guarantee Trustee, or any officers, directors, shareholders, members, partners,
employees, representatives, nominees, custodians or agents of the Guarantee
Trustee.
"Indenture" means the Indenture dated as of ______ 1998, among the
Guarantor (the "Debenture Issuer") and The First National Bank of Chicago, as
trustee, and any indenture supplemental thereto pursuant to which certain debt
securities of the Debenture Issuer are to be issued to the Institutional
Trustee of the Issuer.
"Majority in liquidation amount of the Securities" means, except as
provided by the Trust Indenture Act, a vote by Holder(s) of Securities, voting
separately as a class, of more than 50% of the aggregate liquidation amount
(including the stated amount that would be paid on redemption, liquidation or
otherwise, plus accrued and unpaid Distributions to the date upon which the
voting percentages are determined) of all Securities.
"Officer's Certificate" means, with respect to any Person, a certificate
signed on behalf of such Person by an Authorized Officer of such Person. Any
Officer's Certificate delivered with respect to compliance with a condition or
covenant provided for in this Guarantee shall include:
(a) a statement that each officer signing the Officer's Certificate
has read the covenant or condition and the definition relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officer's
Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such
officer to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(d) a statement as to whether, in the opinion of such Person, such
condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association or government or any agency
or political subdivision thereof, or any other entity of whatever nature.
"Responsible Officer" means, with respect to the Guarantee Trustee, any
officer within the Corporate Trust office of the Guarantee Trustee, including
any vice-president, any assistant vice-president, any assistant secretary, the
treasurer, any assistant treasurer or other officer of the Corporate Trust
Office of the Guarantee Trustee customarily performing functions similar to
those performed by any of the above designated officers and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of that officer's knowledge of and familiarity with
the particular subject.
3
<PAGE> 7
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.1.
"Tax Event Redemption" has the same meaning as defined in Annex I to the
Declaration.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act: Application
(a) This Guarantee is subject to the provisions of the Trust Indenture Act
that are required to be part of this Guarantee and shall, to the extent
applicable, be governed by such provisions; and
(b) If and to the extent that any provision of this Guarantee limits,
qualifies or conflicts with the duties imposed by Section 310 to 317, inclusive,
of the Trust Indenture Act, such imposed duties shall control.
SECTION 2.2 List of Holders of Securities
(a) The Guarantor shall provide the Guarantee Trustee with a list, in such
form as the Guarantee Trustee may reasonably require, of the names and addresses
of the Holders ("List of Holders") as of such date, (i) within 1 Business Day
after January 1 and July 1 of each year, and (ii) at any other time within 30
days of receipt by the Guarantor of a written request for a List of Holders as
of a date no more than 14 days before such List of Holders is given to the
Guarantee Trustee provided, that the Guarantor shall not be obligated to provide
such List of Holders at any time the List of Holders does not differ from the
most recent List of Holders given to the Guarantee Trustee by the Guarantor. The
Guarantee Trustee may destroy any List of Holders previously given to it on
receipt of a new List of Holders.
(b) The Guarantee Trustee shall comply with its obligations under Section
311(a), 311(b) and Section 312(b) of the Trust Indenture Act.
SECTION 2.3 Reports by the Guarantee Trustee
Within 60 days after May 15 of each year commencing May 1999, the
Guarantee Trustee shall provide to the Holders such reports as are required by
Section 313 of the Trust Indenture Act, if any, in the form and in the manner
provided by Section 313 of the Trust Indenture Act. The Guarantee Trustee shall
also comply with the requirements of Section 313(d) of the Trust Indenture Act.
SECTION 2.4 Periodic Reports to Guarantee Trustee
The Guarantor shall provide to the Guarantee Trustee such documents,
reports and information as required by Section 314 (if any) and the compliance
certificate required by Section 314 of the Trust Indenture Act in the form, in
the manner and at the times required by Section 314 of the Trust Indenture Act.
4
<PAGE> 8
SECTION 2.5 Evidence of Compliance with Conditions Precedent
The Guarantor shall provide to the Guarantee Trustee such evidence of
compliance with any conditions precedent, if any, provided for in this
Securities Guarantee that relate to any of the matters set forth in Section
314(c) of the Trust Indenture Act. Any certificate or opinion required to be
given by an officer pursuant to Section 314(c)(1) may be given in the form of an
Officer's Certificate.
SECTION 2.6 Events of Default; Waiver
The Holders of a Majority in liquidation amount of Securities may, by
vote, on behalf of all Holders, waive any past Event of Default and its
consequences. Upon such waiver, any such Event of Default shall cease to exist,
and any Event of Default arising therefrom shall be deemed to have been cured,
for every purpose of this Guarantee, but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
SECTION 2.7 Event of Default; Notice
(a) The Guarantee Trustee shall, within 90 days after the occurrence of an
Event of Default actually known to a Responsible Officer of the Guarantee
Trustee, transmit by mail, first class postage prepaid, to the Holders, notices
of all such Events of Default, unless such defaults have been cured or waived
before the giving of such notice, provided, that, the Guarantee Trustee shall be
protected in withholding such notice if and so long as a Responsible Officer of
the Guarantee Trustee in good faith determines that the withholding of such
notice is in the interests of the Holders.
(b) The Guarantee Trustee shall not be deemed to have knowledge of any
Event of Default unless the Guarantee Trustee shall have received written notice
thereof, or a Responsible Officer of the Guarantee Trustee charged with the
administration of the Declaration shall have obtained actual knowledge thereof.
SECTION 2.8 Conflicting Interests
The Declaration and the Indenture shall be deemed to be specifically
described in this Guarantee for the purposes of clause (i) of the first proviso
contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF
GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Guarantee Trustee
(a) This Guarantee shall be held by the Guarantee Trustee for the benefit
of the Holders, and the Guarantee Trustee shall not transfer this Guarantee to
any Person except a Holder exercising his or her rights pursuant to Section
5.4(b) or to a Successor Guarantee Trustee on acceptance by such Successor
Guarantee Trustee of its appointment to act as Successor Guarantee Trustee. The
right, title and interest of the Guarantee Trustee shall automatically vest in
any Successor Guarantee Trustee, and such vesting and cessation of title shall
be effective whether or not conveyancing documents have been executed and
delivered pursuant to the appointment of such Successor Guarantee Trustee.
5
<PAGE> 9
(b) If an Event of Default actually known to a Responsible Officer of the
Guarantee Trustee has occurred and is continuing, the Guarantee Trustee shall
enforce this Guarantee for the benefit of the Holders.
(c) The Guarantee Trustee, before the occurrence of any Event of Default
and after the curing or waiver of all Events of Default that may have occurred,
shall undertake to perform only such duties as are specifically set forth in
this Guarantee, and no implied covenants shall be read into this Guarantee
against the Guarantee Trustee. In case an Event of Default has occurred (that
has not been cured or waived pursuant to Section 2.6) and is actually known to a
Responsible Officer of the Guarantee Trustee, the Guarantee Trustee shall
exercise such of the rights and powers vested in it by this Guarantee, and use
the same degree of care and skill in its exercise thereof, as a prudent person
would exercise or use under the circumstances in the conduct of his or her own
affairs.
(d) No provision of this Guarantee shall be construed to relieve the
Guarantee Trustee from liability for its own negligent action, its own negligent
failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of any Event of Default and after the
curing or waiving of such Events of Default that may have occurred:
(A) the duties and obligations of the Guarantee Trustee shall
be determined solely by the express provisions of this Guarantee, and the
Guarantee Trustee shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this Guarantee,
and no implied covenants or obligations shall be read into this Guarantee
against the Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Guarantee
Trustee, the Guarantee Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon
any certificates or opinions furnished to the Guarantee Trustee and
conforming to the requirements of this Guarantee; but in the case of any
such certificates or opinions that by any provision hereof are
specifically required to be furnished to the Guarantee Trustee, the
Guarantee Trustee shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this Guarantee;
(ii) the Guarantee Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Guarantee
Trustee, unless it shall be proved that the Guarantee Trustee was
negligent in ascertaining the pertinent facts upon which such judgment was
made;
(iii) the Guarantee Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in accordance with
the direction of the Holders of not less than a Majority in liquidation
amount of the Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Guarantee
Trustee, or exercising any trust or power conferred upon the Guarantee
Trustee under this Guarantee; and
(iv) no provision of this Guarantee shall require the Guarantee
Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the
exercise of any of its rights or powers, if the Guarantee Trustee shall
have reasonable grounds for believing that the repayment of such funds or
liability is not reasonably assured to it under the terms of this
Guarantee or indemnity, reasonably satisfactory to the Guarantee Trustee,
against such risk or liability is not reasonably assured to it.
6
<PAGE> 10
SECTION 3.2 Certain Rights of the Guarantee Trustee
(a) Subject to the provisions of Section 3.1:
(i) The Guarantee Trustee may conclusively rely, and shall be fully
protected in acting or refraining from acting upon, any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document believed by it to be genuine and
to have been signed, sent or presented by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by this
Guarantee shall be sufficiently evidenced by a Direction or an Officer's
Certificate.
(iii) Whenever, in the administration of this Guarantee, the
Guarantee Trustee shall deem it desirable that a matter be proved or
established before taking, suffering or omitting any action hereunder, the
Guarantee Trustee (unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on its part, request and
conclusively rely upon an Officer's Certificate which, upon receipt of
such request, shall be promptly delivered by the Guarantor.
(iv) The Guarantee Trustee shall have no duty to see to any
recording, filing or registration of any instrument (or any rerecording,
refiling or reregistration thereof).
(v) The Guarantee Trustee may consult with competent legal counsel,
and the written advice or opinion of such counsel with respect to legal
matters shall be full and complete authorization and protection in respect
of any action taken, suffered or omitted by it hereunder in good faith and
in accordance with such advice or opinion. Such counsel may be counsel to
the Guarantor or any of its Affiliates and may include any of its
employees. The Guarantee Trustee shall have the right at any time to seek
instructions concerning the administration of this Guarantee from any
court of competent jurisdiction.
(vi) The Guarantee Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Guarantee at the request
or direction of any Holder, unless such Holder shall have provided to the
Guarantee Trustee such security and indemnity, reasonably satisfactory to
the Guarantee Trustee, against the costs, expenses (including attorneys'
fees and expenses and the expenses of the Guarantee Trustees, agents,
nominees or custodians) and liabilities that might be incurred by it in
complying with such request or direction, including such reasonable
advances as may be requested by the Guarantee Trustee; provided that,
nothing contained in this Section 3.2 (a) (vi) shall be taken to relieve
the Guarantee Trustee, upon the occurrence of an Event of Default, of its
obligation to exercise the rights and powers vested in it by this
Guarantee.
(vii) The Guarantee Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Guarantee Trustee, in its
discretion, may make such further inquiry or investigation into such facts
or matters as it may see fit.
(viii) The Guarantee Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents, nominees, custodians or
7
<PAGE> 11
attorneys, and the Guarantee Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney appointed
with due care by it hereunder.
(ix) Any action taken by the Guarantee Trustee or its agents
hereunder shall bind the Holders, and the signature of the Guarantee
Trustee or its agents alone shall be sufficient and effective to perform
any such action. No third party shall be required to inquire as to the
authority of the Guarantee Trustee to so act or as to its compliance with
any of the terms and provisions of this Guarantee, both of which shall be
conclusively evidenced by the Guarantee Trustee's or its agent's taking
such action.
(x) Whenever in the administration of this Guarantee the Guarantee
Trustee shall deem it desirable to receive instructions with respect to
enforcing any remedy or right or taking any other action hereunder, the
Guarantee Trustee (i) may request instructions from the Holders of a
Majority in liquidation amount of the Securities, (ii) may refrain from
enforcing such remedy or right or taking such other action until such
instructions are received, and (iii) shall be protected in conclusively
relying on or acting in accordance with such instructions.
(b) No provision of this Guarantee shall be deemed to impose any duty or
obligation on the Guarantee Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it in any jurisdiction
in which it shall be illegal, or in which the Guarantee Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Guarantee Trustee shall be
construed to be a duty.
SECTION 3.3 Not Responsible for Recitals or Issuance of Guarantee
The recitals contained in this Guarantee shall be taken as the statements
of the Guarantor, and the Guarantee Trustee does not assume any responsibility
for their correctness. The Guarantee Trustee makes no representation as to the
validity or sufficiency of this Guarantee.
ARTICLE IV
GUARANTEE TRUSTEE
SECTION 4.1 Guarantee Trustee; Eligibility
(a) There shall at all times be a Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the laws of
the United States of America or any State or Territory thereof or of the
District of Columbia, or a corporation or Person permitted by the
Securities and Exchange Commission to act as an institutional trustee
under the Trust Indenture Act, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at least
750 million U.S. dollars ($750,000,000), and subject to supervision or
examination by Federal, State, Territorial or District of Columbia
authority. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the supervising or
examining authority referred to above, then, for the purposes of this
Section 4.1
8
<PAGE> 12
(a)(ii), the combined capital and surplus of such corporation shall be
deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published.
(b) If at any time the Guarantee Trustee shall cease to be eligible to so
act under Section 4.1(a), the Guarantee Trustee shall immediately resign in the
manner and with the effect set out in Section 4.2(c).
(c) If the Guarantee Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Guarantee Trustee and Guarantor shall in all respects comply with the provisions
of Section 310(b) of the Trust Indenture Act.
SECTION 4.2 Appointment, Removal and Resignation of Guarantee Trustees
(a) Subject to Section 4.2(b), the Guarantee Trustee may be appointed or
removed without cause at any time by the Guarantor.
(b) The Guarantee Trustee shall not be removed in accordance with Section
4.2(a) until a Successor Guarantee Trustee has been appointed and has accepted
such appointment by written instrument executed by such Successor Guarantee
Trustee and delivered to the Guarantor.
(c) The Guarantee Trustee appointed to office shall hold office until a
Successor Guarantee Trustee shall have been appointed or until its removal or
resignation. The Guarantee Trustee may resign from office (without need for
prior or subsequent accounting) by an instrument in writing executed by the
Guarantee Trustee and delivered to the Guarantor, which resignation shall not
take effect until a Successor Guarantee Trustee has been appointed and has
accepted such appointment by instrument in writing executed by such Successor
Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee
Trustee.
(d) If no Successor Guarantee Trustee shall have been appointed and
accepted appointment as provided in this Section 4.2 within 60 days after
delivery to the Guarantor of an instrument of resignation, the resigning
Guarantee Trustee may petition any court of competent jurisdiction for
appointment of a Successor Guarantee Trustee. Such court may thereupon, after
prescribing such notice, if any, as it may deem proper, appoint a Successor
Guarantee Trustee.
(e) No Guarantee Trustee shall be liable for the acts or omissions to act
of any Successor Guarantee Trustee.
(f) Upon termination of this Guarantee or removal or resignation of the
Guarantee Trustee pursuant to this Section 4.2, the Guarantor shall pay to the
Guarantee Trustee all amounts accrued to the date of such termination, removal
or resignation.
ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee
The Guarantor irrevocably and unconditionally agrees to pay in full to the
Holders the Guarantee Payments (without duplication of amounts theretofore paid
by the Issuer), as and when due (taking into account any permitted deferral
thereof), regardless of any defense, right of set-off or counter claim that the
Issuer may have or assert. The Guarantor's obligation to make a Guarantee
Payment may be satisfied by
9
<PAGE> 13
direct payment of the required amounts by the Guarantor to the Holders or by
causing the Issuer to pay such amounts to the Holders.
SECTION 5.2 Waiver of Notice and Demand
The Guarantor hereby waives notice of acceptance of this Guarantee and of
any liability to which it applies or may apply, presentment, demand for payment,
any right to require a proceeding first against the Issuer or any other Person
before proceeding against the Guarantor, protest, notice of nonpayment, notice
of dishonor, notice of redemption and all other notices and demands.
SECTION 5.3 Obligations Not Affected
The obligations, covenants, agreements and duties of the Guarantor under
this Guarantee shall in no way be affected or impaired by reason of the
happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Issuer of any express or implied agreement,
covenant, term or condition relating to the to be performed or observed by the
Issuer;
(b) the extension of time for the payment by the Issuer of all or any
portion of the Distributions, Redemption Price, Liquidation Distribution or any
other sums payable under the terms of the Securities or the extension of time
for the performance of any other obligation under, arising out of, or in
connection with, the Securities (other than an extension of time for payment of
Distributions, Redemption Price, Liquidation Distribution or other sum payable
that results from the extension of any interest payment period on the Debentures
or any extension of the maturity date of the Debentures permitted by the
Indenture);
(c) any failure, omission, delay or lack of diligence on the part of the
Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Securities, or any action
on the part of the Issuer granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Issuer or any of the assets of the
Issuer;
(e) any invalidity of, or defect or deficiency in, the Securities;
(f) the settlement or compromise of any obligation guaranteed hereby or
hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute a
legal or equitable discharge or defense of a guarantor, it being the intent of
this Section 5.3 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain
the consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 5.4 Rights of Holders
(a) The Holders of a Majority in liquidation amount of the Securities have
the right to direct the time, method and place of conducting of any proceeding
for any remedy available to the Guarantee Trustee
10
<PAGE> 14
in respect of this Guarantee or exercising any trust or power conferred upon the
Guarantee Trustee under this Guarantee.
(b) If the Guarantee Trustee fails to enforce this Guarantee, any Holder
may institute a legal proceeding directly against the Guarantor to enforce its
rights under this Guarantee, without first instituting a legal proceeding
against the Issuer, the Guarantee Trustee or any other Person. Notwithstanding
the foregoing, if the Guarantor has failed to make a Guarantee Payment, a Holder
may directly institute a proceeding against the Guarantor for enforcement of the
Guarantee for such payment. The Guarantor waives any right or remedy to require
that any action on this Guarantee be brought first against the Issuer or any
other person or entity before proceeding directly against the Guarantor.
SECTION 5.5 Guarantee of Payment
This Guarantee creates a guarantee of payment and not of collection.
SECTION 5.6 Subrogation
The Guarantor shall be subrogated to all rights, if any, of the Holders
against the Issuer in respect of any amounts paid to such Holders by the
Guarantor under this Guarantee; provided, however, that the Guarantor shall not
(except to the extent required by mandatory provisions of law) be entitled to
enforce or exercise any right that it may acquire by way of subrogation or any
indemnity, reimbursement or other agreement, in all cases as a result of payment
under this Guarantee, if, at the time of any such payment, any amounts are due
and unpaid under this Guarantee. If any amount shall be paid to the Guarantor in
violation of the preceding sentence, the Guarantor agrees to hold such amount in
trust for the Holders and to pay over such amount to the Holders.
SECTION 5.7 Independent Obligations
The Guarantor acknowledges that its obligations hereunder are independent
of the obligations of the Issuer with respect to the Securities, and that the
Guarantor shall be liable as principal and as debtor hereunder to make Guarantee
Payments pursuant to the terms of this Guarantee notwithstanding the occurrence
of any event referred to in subsections (a) through (g), inclusive, of Section
5.3 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; RANKING
SECTION 6.1 Limitation of Transactions
So long as any Securities remain outstanding, if there shall have occurred
an Event of Default or an Event of Default under the Declaration and written
notice of such Event of Default has been given to the Guarantor, then (a) the
Guarantor shall not declare or pay any dividend on, 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 Guarantor in connection with the satisfaction by the
Guarantor of its obligations under any employee or agent benefit plans or the
satisfaction by the Guarantor of its obligations pursuant to any contract or
security outstanding on the date of such event requiring the Guarantor to
purchase capital stock of the Guarantor, (ii) as a result of a reclassification
of the Guarantor's capital stock or the exchange or conversion of one class or
series of the Guarantor's capital stock for another class or series of the
Guarantor's capital stock, (iii) the purchase of fractional interests in shares
of the
11
<PAGE> 15
Guarantor'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 Guarantor (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 purchases of any rights
outstanding under a shareholder rights plan), and (b) the Guarantor shall not
make any guarantee payments with respect to the foregoing (other than payments
pursuant to the Guarantee).
SECTION 6.2 Ranking
This Guarantee will constitute a senior unsecured obligation of the
Guarantor and, at all times when an Event of Default has occurred and is
continuing under the Declaration, will rank on a parity to all of the
Guarantor's senior unsecured obligations except those made subordinate hereto or
pari passu herewith by their terms.
If an event of default under the Indenture has occurred and is continuing,
the rights of the holders of the Common Securities will be subordinate and
junior in right of payment hereunder and shall not be paid until the prior
payment in full of, all amounts due and owing hereunder to the holders of the
Capital Securities.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination
This Guarantee shall terminate upon (i) full payment of the Redemption
Price of all Securities, (ii) upon the distribution of the Debentures to all
Holders or (iii) upon full payment of the amounts payable in accordance with the
Declaration upon liquidation of the Issuer. Notwithstanding the foregoing, this
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any Holder must restore payment of any sums paid under the
Securities or under this Guarantee.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Exculpation
(a) No Indemnified Person shall be liable, responsible or accountable in
damages or otherwise to the Guarantor or any Covered Person for any loss, damage
or claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith in accordance with this Guarantee and in a
manner that such Indemnified Person reasonably believed to be within the scope
of the authority conferred on such Indemnified Person by this Guarantee or by
law, except that an Indemnified Person shall be liable for any such loss, damage
or claim incurred by reason of such Indemnified Person's negligence or willful
misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Guarantor and upon such information, opinions,
reports or statements presented to the Guarantor by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Guarantor,
12
<PAGE> 16
including information, opinions, reports or statements as to the value and
amount of the assets, liabilities, profits, losses, or any other facts pertinent
to the existence and amount of assets from which Distributions to Holders might
properly be paid.
SECTION 8.2 Indemnification
(a) To the fullest extent permitted by applicable law, the Guarantor shall
indemnify and hold harmless each Indemnified Person from and against any loss,
damage or claim incurred by such Indemnified Person by reason of any act or
omission performed or omitted by such Indemnified Person in good faith in
accordance with this Guarantee and in a manner such Indemnified Person
reasonably believed to be within the scope of authority conferred on such
Indemnified Person by this Guarantee, except that no Indemnified Person shall be
entitled to be indemnified in respect of any loss, damage or claim incurred by
such Indemnified Person by reason of negligence or willful misconduct with
respect to such acts or omissions.
(b) To the fullest extent permitted by applicable law, reasonable
out-of-pocket expenses (including legal fees) incurred by an Indemnified Person
in defending any claim, demand, action, suit or proceeding shall, from time to
time, be advanced by the Guarantor prior to the final disposition of such claim,
demand, action, suit or proceeding upon receipt by the Guarantor of an
undertaking by or on behalf of the Indemnified Person to repay such amount if it
shall be determined that the Indemnified Person is not entitled to be
indemnified as authorized in Section 8.2(a).
(c) The provisions set forth in this Section 8.2 shall survive the
termination of the Guarantee or the resignation or removal of the Guarantee
Trustee.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Successors and Assigns
All guarantees and agreements contained in this Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the Guarantor
and shall inure to the benefit of the Holders of the Securities then
outstanding.
SECTION 9.2 Amendments
Except with respect to any changes that do not adversely affect the rights
of Holders or the Guarantee Trustee (in which case no consent of Holders or the
Guarantee Trustee, respectively, will be required), this Guarantee may only be
amended with the prior approval of the Guarantor, the Guarantee Trustee and the
Holders of at least a Majority in liquidation amount (including the stated
amount that would be paid on redemption, liquidation or otherwise, plus accrued
and unpaid Distributions to the date upon which the voting percentages are
determined) of all the outstanding Securities. The provisions of Section 12.2 of
the Declaration with respect to meetings of Holders apply to the giving of such
approval.
SECTION 9.3 Notices
All notices provided for in this Guarantee shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by registered or certified mail, as follows:
13
<PAGE> 17
(a) If given to the Guarantee Trustee, at the Guarantee Trustee's mailing
address set forth below (or such other address as the Guarantee Trustee may give
notice of to the Holders of the Securities):
The First National Bank of Chicago
One First National Plaza
Suite 0126
Chicago, IL 60670-0126
Attention: Corporate Trust
Services Division
(b) If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to the
Holders):
Kaufman and Broad Home Corporation
10990 Wilshire Blvd.
Los Angeles, CA 90024
Attn: Chief Financial Officer
(c) If given to any Holder, at the address set forth on the books and
records of the Issuer.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
SECTION 9.4 Benefit
This Guarantee is solely for the benefit of the Holders and, subject to
Section 3.1(a), is not separately transferable from the Securities.
SECTION 9.5 Governing Law.
THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
14
<PAGE> 18
THIS GUARANTEE is executed as of the day and year first above written.
KAUFMAN AND BROAD HOME CORPORATION,
as Guarantor
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as Guarantee Trustee
By:
-----------------------------------
Name:
Title:
<PAGE> 1
Exhibit 4.12
- -------------------------------------------------------------------------------
KAUFMAN AND BROAD HOME CORPORATION
AS ISSUER
TO
THE FIRST NATIONAL BANK OF CHICAGO,
AS TRUSTEE
------------------------------------------------------------------------------
FORM OF SENIOR DEBT SECURITIES INDENTURE
DATED AS OF _________, 1998
- -------------------------------------------------------------------------------
<PAGE> 2
Kaufman and Broad Home Corporation
RECONCILIATION AND TIE BETWEEN TRUST
INDENTURE ACT OF 1939, AS AMENDED
AND INDENTURE, DATED AS OF _________, 1998
TRUST INDENTURE INDENTURE SECTION
ACT SECTION
Section 310 (a)(1).........................................................609
(a)(2).........................................................609
(a)(3)..............................................Not Applicable
(a)(4)..............................................Not Applicable
(b).......................................................608, 610
Section 311 (a)............................................................613
(b)............................................................613
Section 312 (a)....................................................701, 702(a)
(b).........................................................702(b)
(c).........................................................702(c)
Section 313 (a).........................................................703(a)
(b).................................................Not Applicable
(c).................................................703(a), 703(b)
(d).........................................................703(b)
Section 314 (a)............................................................704
(b).................................................Not Applicable
(c)(1).........................................................102
(c)(2).........................................................102
(c)(3)..............................................Not Applicable
(d).................................................Not Applicable
(e)............................................................102
Section 315 (a).........................................................601(a)
(b)............................................................602
(c).........................................................601(b)
(d).........................................................601(c)
(d)(l)..............................................601(a), 601(c)
(d)(2)......................................................601(c)
(d)(3)......................................................601(c)
(e)............................................................514
Section 316 (a)(1)(A)......................................................512
(a)(1)(B).................................................502, 513
(a)(2)..............................................Not Applicable
(b)............................................................508
Section 317 (a)(1).........................................................503
(a)(2).........................................................504
(b)...........................................................1009
Section 318 (a)............................................................107
- ----------
NOTE: THIS RECONCILIATION AND TIE SHALL NOT, FOR ANY PURPOSE, BE DEEMED TO BE A
PART OF THIS INDENTURE.
<PAGE> 3
TABLE OF CONTENTS
PAGE
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.............................................. 1
Act ................................................................... 1
Affiliate.............................................................. 1
Authenticating Agent................................................... 2
Bankruptcy Law......................................................... 2
Board of Directors..................................................... 2
Board Resolution....................................................... 2
Business Day........................................................... 2
Capitalized Lease Obligation........................................... 2
Capital Stock.......................................................... 2
Commission............................................................. 2
Common Depositary...................................................... 2
Company................................................................ 2
Company Request........................................................ 2
Company Order.......................................................... 2
Corporate Trust Office................................................. 2
Covenant Defeasance.................................................... 2
Custodian.............................................................. 2
Default................................................................ 2
Defaulted Interest..................................................... 2
Defeasance............................................................. 2
Dollars................................................................ 3
Event of Default....................................................... 3
Exchange Act........................................................... 3
GAAP ................................................................. 3
Holder................................................................. 3
Security holder........................................................ 3
Indebtedness........................................................... 3
Indenture.............................................................. 3
Interest............................................................... 3
Interest Payment Date.................................................. 3
Lien ................................................................. 3
Maturity............................................................... 3
Officer................................................................ 3
Officer's Certificate.................................................. 3
Opinion of Counsel..................................................... 4
Original Issue Discount Security....................................... 4
Outstanding............................................................ 4
Paying Agent........................................................... 4
Person................................................................. 4
Place of Payment....................................................... 4
Redemption Date........................................................ 4
Redemption Price....................................................... 4
Registered Security.................................................... 4
Regular Record Date.................................................... 4
Responsible Officer.................................................... 5
<PAGE> 4
Securities............................................................. 5
Security Register...................................................... 5
Security Registrar..................................................... 5
Significant Subsidiary................................................. 5
Special Record Date.................................................... 5
Stated Maturity........................................................ 5
Subsidiary............................................................. 5
Trust Indenture Act.................................................... 5
Trustee................................................................ 5
U.S. Depositary........................................................ 5
U.S. Government Obligations............................................ 5
Vice President......................................................... 6
SECTION 102. Compliance Certificates and Opinions..................... 6
SECTION 103. Form of Documents Delivered to Trustee................... 6
SECTION 104. Acts of Holders.......................................... 7
SECTION 105. Notices, Etc., to Trustee and Company.................... 7
SECTION 106. Notice to Holders; Waiver................................ 8
SECTION 107. Conflict with Trust Indenture Act........................ 8
SECTION 108. Effect of Headings and Table of Contents................. 8
SECTION 109. Successors and Assigns................................... 8
SECTION 110. Separability Clause...................................... 8
SECTION 111. Benefits of Indenture.................................... 8
SECTION 112. Governing Law............................................ 8
SECTION 113. Legal Holidays........................................... 9
SECTION 114. No Recourse Against Others............................... 9
ARTICLE 2
SECURITY FORMS
SECTION 201. Forms Generally......................................... 9
SECTION 202. Form of Face of Security................................ 9
SECTION 203. Form of Reverse of Security............................. 11
SECTION 204. Form of Trustee's Certificate of Authentication......... 14
SECTION 205. Securities in Global Form............................... 14
SECTION 206. CUSIP Number............................................ 15
SECTION 207. Form of Legend for the Securities in Global Form........ 15
ARTICLE 3
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series.................... 15
SECTION 302. Denominations........................................... 17
SECTION 303. Execution, Authentication, Delivery and Dating.......... 17
SECTION 304. Temporary Securities.................................... 18
SECTION 305. Registration, Registration of Transfer and Exchange..... 19
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities........ 20
SECTION 307. Payment of Interest; Interest Rights Preserved.......... 21
SECTION 308. Persons Deemed Owners................................... 22
SECTION 309. Cancellation............................................ 22
SECTION 310. Computation of Interest................................. 22
SECTION 311. Ranking................................................. 22
<PAGE> 5
ARTICLE 4
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture................. 22
SECTION 402. Application of Trust Money.............................. 23
ARTICLE 5
REMEDIES
SECTION 501. Events of Default....................................... 23
SECTION 502. Acceleration of Maturity; Rescission and Annulment...... 25
SECTION 503. Collection of Indebtedness and Suits for Enforcement
by Trustee ............................................. 25
SECTION 504. Trustee May File Proofs of Claim........................ 26
SECTION 505. Trustee May Enforce Claims
Without Possession of Securities........................ 26
SECTION 506. Application of Money Collected.......................... 26
SECTION 507. Limitation on Suits..................................... 27
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest.................................... 27
SECTION 509. Restoration of Rights and Remedies...................... 28
SECTION 510. Rights and Remedies Cumulative.......................... 28
SECTION 511. Delay or Omission Not Waiver............................ 28
SECTION 512. Control by Holders...................................... 28
SECTION 513. Waiver of Past Defaults................................. 28
SECTION 514. Undertaking for Costs................................... 29
ARTICLE 6
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities of the Trustee...... 29
SECTION 602. Notice of Defaults...................................... 29
SECTION 603. Certain Rights of Trustee............................... 29
SECTION 604. Not Responsible for Recitals or Issuance of Securities.. 30
SECTION 605. May Hold Securities..................................... 30
SECTION 606. Money Held in Trust..................................... 30
SECTION 607. Compensation and Reimbursement.......................... 31
SECTION 608. Disqualification; Conflicting Interests................. 31
SECTION 609. Corporate Trustee Required; Eligibility................. 31
SECTION 610. Resignation and Removal; Appointment of Successor....... 31
SECTION 611. Acceptance of Appointment by Successor.................. 32
SECTION 612. Merger, Conversion, Consolidation or Succession to
Business................................................ 33
SECTION 613. Preferential Collection of Claims Against Company....... 33
SECTION 614. Appointment of Authenticating Agent..................... 33
ARTICLE 7
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of
Holders................................................. 35
SECTION 702. Preservation of Information; Communications to Holders.. 35
SECTION 703. Reports by Trustee...................................... 36
SECTION 704. Reports by Company...................................... 36
<PAGE> 6
ARTICLE 8
CONSOLIDATION, MERGER, LEASE, SALE OR TRANSFER
SECTION 801. When Company May Merge, Etc............................. 37
SECTION 802. Opinion of Counsel...................................... 37
SECTION 803. Successor Corporation Substituted....................... 37
ARTICLE 9
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders...... 37
SECTION 902. Supplemental Indentures with Consent of Holders......... 38
SECTION 903. Execution of Supplemental Indentures.................... 39
SECTION 904. Effect of Supplemental Indentures....................... 39
SECTION 905. Conformity with Trust Indenture Act..................... 39
SECTION 906. Reference in Securities to Supplemental Indentures...... 39
ARTICLE 10
COVENANTS
SECTION 1001. Payments of Securities.................................. 40
SECTION 1002. Maintenance of Office or Agency......................... 40
SECTION 1003. Corporate Existence..................................... 40
SECTION 1004. Payment of Taxes and Other Claims....................... 40
SECTION 1005. Maintenance of Properties............................... 41
SECTION 1006. Compliance Certificates................................. 41
SECTION 1007. Commission Reports...................................... 41
SECTION 1008. Waiver of Stay, Extension or Usury Laws................. 42
SECTION 1009. Money for Securities Payments to Be Held in Trust....... 42
SECTION 1010. Waiver of Certain Covenants............................. 43
ARTICLE 11
REDEMPTION OF SECURITIES
SECTION 1101. Applicability of Article................................ 43
SECTION 1102. Election to Redeem; Notice to Trustee................... 43
SECTION 1103. Selection by Trustee of Securities to Be Redeemed....... 43
SECTION 1104. Notice of Redemption.................................... 44
SECTION 1105. Deposit of Redemption Price............................. 44
SECTION 1106. Securities Payable on Redemption Date................... 44
SECTION 1107. Securities Redeemed in Part............................. 45
ARTICLE 12
SINKING FUNDS
SECTION 1201. Applicability of Article................................ 45
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities... 45
SECTION 1203. Redemption of Securities for Sinking Fund............... 45
ARTICLE 13
<PAGE> 7
DEFEASANCE AND COVENANT DEFEASANCE..................... 46
SECTION 1301. Applicability of Article; Company's Option to
Effect Defeasance or Covenant Defeasance................ 46
SECTION 1302. Defeasance and Discharge................................ 46
SECTION 1303. Covenant Defeasance..................................... 46
SECTION 1304. Conditions to Defeasance or Covenant Defeasance......... 46
SECTION 1305. Deposited Money and Government Obligations
To Be Held In Trust..................................... 48
ARTICLE 14
MISCELLANEOUS
SECTION 1401. Miscellaneous........................................... 48
<PAGE> 8
Form of Indenture, dated as of _____________, 1998, between KAUFMAN AND
BROAD HOME CORPORATION, a corporation duly organized and existing under the laws
of the State of Delaware (herein called the "Company "), having its principal
office at 10990 Wilshire Blvd., Los Angeles, CA 90024 and The First National
Bank of Chicago, a , as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
debentures, notes or other evidences of indebtedness (herein called the
"Securities"), to be issued in one or more series as in this Indenture provided.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities or of series
thereof, as follows:
ARTICLE 1
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to them
in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to them
therein;
(3) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with GAAP;
(4) the word "including" (and with the correlative meaning "Include")
means including, without limiting the generality of, any description preceding
such term; and
(5) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Article Six, are defined in that
Article.
"Act," when used with respect to any Holder, has the meaning specified in
Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
<PAGE> 9
"Authenticating Agent" means any Person authorized by the Trustee to act
on behalf of the Trustee to authenticate Securities.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state
law for the relief of debtors.
"Board of Directors" means the board of directors of the Company;
provided, however, that when the context refers to actions or resolutions of the
Board of Directors, then the term "Board of Directors" shall also mean any duly
authorized committee of the Board of Directors of the Company or Officer
authorized to act with respect to any particular matter to exercise the power of
the Board of Directors of the Company.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day," when used with respect to any Place of Payment, means each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in that Place of Payment are authorized or obligated by law
or regulation to close.
"Capitalized Lease Obligation" means an obligation under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligation shall be the
capitalized amount of such obligations determined ln accordance with such
principles.
"Capital Stock" of any Person shall mean any and all shares, interests,
participations or other equivalents of or interests in (however designated)
equity of such Person, including any preferred stock, but excluding any debt
securities convertible into such equity.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Common Depositary" has the meaning specified in Section 304.
"Company" means the Person named as the "Company" in the first paragraph
of this Indenture until a successor corporation shall have become such pursuant
to the applicable provisions of this Indenture, and thereafter "Company" shall
mean such successor corporation.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its President or
a Vice President, and by its Treasurer, an Assistant Treasurer, its Controller,
an Assistant Controller, its Secretary or an Assistant Secretary, and delivered
to the Trustee.
"Corporate Trust Office" means the office of the Trustee in Chicago,
Illinois at which at any particular time its corporate trust business shall be
principally administered, which office at the date hereof is located at One
First National Plaza, Suite 0126, Chicago, Illinois 60670-0126.
"Covenant Defeasance" has the meaning specified in Section 1303.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Defeasance" has the meaning specified in Section 1302.
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<PAGE> 10
"Dollars" and "$" means lawful money of the United States of America.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities and Exchange Act of 1934, as amended
from time to time, and the rules and regulations promulgated thereunder.
"GAAP" means such accounting principles that are generally accepted in the
United States of America as of the date of any computation required hereunder.
"Holder" or "Security holder" means a Person in whose name a Security if
registered in the Security Register.
"Indebtedness" of any Person means, without duplication, (i) the principal
of and premium (if any) in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such Person is responsible or
liable; (ii) all Capitalized Lease Obligations of such Person; (iii) all
obligations of such Person issued or assumed as the deferred purchase price of
property, all conditional sale obligations and all obligations under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) all obligations of such Person for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction (other than obligations with respect to letters of
credit securing obligations (other than obligations described in (i) through
(iii) above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the extent
drawn upon, such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement following payment
on the letter of credit); (v) all obligations of the type referred to in clauses
(i) through (iv) of other Persons and all dividends of other Persons for the
payment of which, in either case, such Person is responsible or liable as
obligor, guarantor or otherwise; and (vi) all obligations of the type referred
to in clauses (i) through (v) of other Persons secured by any Lien on any
property or asset of such Person (whether or not such obligation is assumed by
such Person), the amount of such obligation being deemed to be the lesser of the
value of such property or assets or the amount of the obligation so secured.
"Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof and shall
include the terms of particular series of Securities established as contemplated
by Section 301.
"Interest," when used with respect to an Original Issue Discount Security
which by its terms bears interest only after Maturity, means interest payable
after Maturity.
"Interest Payment Date," when used with respect to any Security, means the
Stated Maturity of an installment of interest on such Security.
"Maturity," when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"Officer" means the Chairman of the Board, the Vice Chairman of the Board,
the President, the Executive Vice President, any Vice President, the Treasurer,
any Assistant Treasurer, the Controller, the Secretary or any Assistant
Secretary of the Company.
"Officer's Certificate" means a certificate of the Company signed on its
behalf by an Officer and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be an
employee of or counsel for the Company, and who shall be reasonably acceptable
to the Trustee.
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<PAGE> 11
"Original Issue Discount Security" means any Security which provides for
an amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502.
"Outstanding," when used with respect to Securities or Securities of any
series, means, as of the date of determination, all such Securities theretofore
authenticated and delivered under this Indenture, except: (i) Securities
theretofore cancelled by the Trustee or delivered to the Trustee for
cancellation; (ii) Securities, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own Paying
Agent) for the Holders of such Securities; provided that, if such Securities are
to be redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been made; (iii)
Securities which have been paid pursuant to Section 306 or in exchange for or in
lieu of which other Securities have been authenticated and delivered pursuant to
this Indenture, other than any such Securities in respect of which there shall
have been presented to the Trustee proof satisfactory to it that such Securities
are held by a bona fide purchaser in whose hands such Securities are valid
obligations of the Company; and (iv) Securities which have been defeased
pursuant to Section 1302; provided, however, that in determining whether the
Holders of the requisite principal amount of the Outstanding Securities have
given any request, demand, authorization, direction, notice, consent or waiver
hereunder, (a) the principal amount of an Original Issue Discount Security that
shall be deemed to be Outstanding for such purposes shall be that portion of the
principal amount thereof that could be declared to be due and payable upon the
occurrence of an Event of Default and the continuation thereof pursuant to the
terms of such Original Issue Discount Security as of the date of such
determination and (b) Securities owned by the Company or any other obligor upon
the Securities or any Affiliate of the Company or of such other obligor shall be
disregarded and deemed not to be Outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or of such
other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of (and premium, if any) or interest on any Securities on behalf of
the Company. The Company may act as Paying Agent with respect to any Securities
issued hereunder.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Place of Payment," when used with respect to the Securities of any
series, means the place or places where the principal of (and premium, if any)
and interest on the Securities of that series are payable as specified as
contemplated by Section 301.
"Redemption Date," when used with respect to any Security of any series to
be redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price," when used with respect to any Security of any series
to be redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registered Security" means any Security issued hereunder and registered
in the Security Register.
"Regular Record Date" for the interest payable on any Interest Payment
Date on the Securities of any series means the date specified for that purpose
as contemplated by Section 301.
"Responsible Officer," when used with respect to the Trustee, means any
officer of the Trustee in its Corporate Trust Office and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge of and familiarity with the
particular subject.
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<PAGE> 12
"Securities" has the meaning stated in the first recital of this Indenture
and more particularly means any Securities authenticated and delivered under
this Indenture.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 305.
"Significant Subsidiary" means a Subsidiary or Subsidiaries of the Company
possessing assets (including the assets of its own Subsidiaries but without
regard to the Company or any other Subsidiary) having a book value, in the
aggregate, equal to not less than 10% of the book value of the aggregate assets
of the Company and its Subsidiaries calculated on a consolidated basis.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 307.
"Stated Maturity," when used with respect to any Security or any
installment of principal thereof or interest thereon, means the date specified
in such Security as the fixed date on which the principal of such Security or
such installment of principal or interest is due and payable.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, association, joint venture or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Company.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended,
as in force at the date as of which this Indenture was executed; provided,
however, that in the event that such Act is amended after such date, "Trust
Indenture Act" means the Trust Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph
of this instrument until a successor Trustee shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
or include each Person who is then a Trustee hereunder, and if at any time there
is more than one such Person, "Trustee" as used with respect to the Securities
of any series shall mean the Trustee with respect to Securities of that series.
"U.S. Depositary" means, with respect to the Securities of any series
issuable or issued in whole or in part in the form of one or more permanent
global Securities, the Person designated as U.S. Depositary by the Company
pursuant to Section 301, which must be a clearing agency registered under the
Exchange Act until a successor U.S. Depositary shall have become such pursuant
to the applicable provisions of this Indenture, and thereafter "U.S. Depositary"
shall mean or include each Person who is then a U.S. Depositary hereunder, and
if at any time there is more than one such Person, "U.S. Depositary" shall mean
the U.S. Depositary with respect to the Securities of that series.
"U.S. Government Obligations" means securities which are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the timely payment of which is unconditionally guaranteed by the full
faith and credit of the United States of America which, in either case, are not
callable or redeemable at the option of the issuer thereof or otherwise subject
to prepayment, and shall also include a depository receipt issued by a New York
Clearing House bank or trust company as custodian with respect to any such U.S.
Government Obligation or a specific payment or interest on or principal of any
such U.S. Government Obligation held by such custodian for the account of the
holder of a depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such depository receipt or from any amount held by the custodian in
respect of the U.S. Government Obligation or the specific payment of interest on
or principal of the U.S. Government Obligation evidenced by such depository
receipt.
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<PAGE> 13
"Vice President," when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any
action under any provision of this Indenture, other than an action permitted by
Sections 205 and 704 hereof, the Company shall furnish to the Trustee an
Officer's Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been complied with
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate or opinion
has read such covenant or condition and the definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(d) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an Officer may be based, insofar as it
relates to legal matters, upon a certificate or opinion of, or representations
by, counsel, unless such Officer knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
the matters upon which his certificate or opinion is based are erroneous. Any
such certificate or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, an
Officer or Officers of the Company stating that the information with respect to
such factual matters is in the possession of the Company, unless such counsel
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
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<PAGE> 14
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Indenture to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by agents duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "ACT" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 601) conclusive in favor of the Trustee and the Company,
if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The ownership of Registered Securities shall be proved by the Security
Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
(e) If the Company shall solicit from the Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Company may,
at its option, by or pursuant to a Board Resolution, fix in advance a record
date for the determination of Holders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other Act, but the Company
shall have no obligation to do so. If such a record date is fixed, such request,
demand, authorization, direction, notice, consent, waiver or other Act may be
given before or after such record date, but only the Holders of record at the
close of business on such record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of
Outstanding Securities have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Securities shall be computed as of such record
date; provided that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than six months after the
record date.
SECTION 105. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Indenture to be
made upon, given or furnished to, or filed with,
(a) the Trustee by any Holder or by the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing to or with
the Trustee and received by the Trustee at its Corporate Trust Office,
Attention: Corporate Trust Administration, or
(b) the Company by the Trustee or by any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to the Company addressed to it
at the address of its principal office specified in the first paragraph of this
Indenture, attention: Secretary, or at any other address previously furnished in
writing to the Trustee by the Company.
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<PAGE> 15
SECTION 106. Notice to Holders; Waiver.
Where this Indenture or any Security provides for notice to Holders of any
event, such notice shall be deemed sufficiently given (unless otherwise herein
or in such Security expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Security Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In any
case where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders or the
validity of the proceedings to which such notice relates. Where this Indenture
or any Security provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail, then
such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
Any request, demand, authorization, direction, notice, consent or waiver
required or permitted under this Indenture shall be in the English language,
except that any published notice may be in an official language of the country
of publication.
SECTION 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Indenture by any of
the provisions of the Trust Indenture Act, such required provision shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or shall be
excluded, as the case may be.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind
its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and the Holders, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
SECTION 112. Governing Law.
This Indenture and the Securities shall be governed by and construed in
accordance with the laws (other than the choice of law provisions) of the State
of New York.
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<PAGE> 16
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day at any Place of Payment,
then (notwithstanding any other provision of this Indenture or of the
Securities) payment of interest or principal (and premium, if any) need not be
made at such Place of Payment on such date, but may be made on the next
succeeding Business Day or on such other day as may be set out in the Officer's
Certificate pursuant to Section 301 at such Place of Payment with the same force
and effect as if made on the Interest Payment Date or Redemption Date, or at the
Stated Maturity, provided that no interest shall accrue for the period from and
after such Interest Payment Date, Redemption Date or Stated Maturity, as the
case may be.
SECTION 114. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the
Securities or this Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Security holder, by accepting
a Security, waives and releases all such liability. Such waivers and releases
are part of the consideration for the issuance of the Securities.
ARTICLE 2
SECURITY FORMS
SECTION 201. Forms Generally.
The Securities of each series shall be in substantially the form set forth
in this Article, or in such other form as shall be established by or pursuant to
a Board Resolution or in one or more indentures supplemental hereto, ln each
case with such appropriate insertions, omissions, substitutions and other
variations as are required or permitted by this Indenture, and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or as may, consistently herewith, be determined by the
Officers executing such Securities, as evidenced by their execution of the
Securities. If the form of Securities of any series is established by action
taken pursuant to a Board Resolution, a copy of an appropriate record of such
action shall be certified by the Secretary or an Assistant Secretary of the
Company and delivered to the Trustee at or prior to the delivery of the Company
Order contemplated by Section 303 for the authentication and delivery of such
Securities.
The Trustee's certificates of authentication shall be in substantially the
form set forth in this Article.
The definitive Securities shall be photocopied, printed, lithographed or
engraved on steel engraved borders or may be produced in any other manner, all
as determined by the Officers executing such Securities, as evidenced by their
execution of such Securities.
SECTION 202. Form of Face of Security.
(If the Security is an Original Issue Discount Security, insert--FOR
PURPOSES OF SECTION 1272 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE"), THE AMOUNT OF ORIGINAL ISSUE DISCOUNT (AS DEFINED IN SECTION 1273(a)(1)
OF THE CODE AND TREASURY REGULATION SECTION 1.1273-l(a) WITH RESPECT TO THIS
SECURITY IS , THE ISSUE PRICE (AS DEFINED IN TREASURY REGULATION SECTION
1.1273-2) OF THIS SECURITY IS , THE ISSUE DATE (AS DEFINED IN SECTION
1275(a)(2) OF THE CODE AND TREASURY REGULATION SECTION 1.1273-2) OF THIS
SECURITY IS AND THE YIELD TO MATURITY OF THIS SECURITY IS ).
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<PAGE> 17
KAUFMAN AND BROAD HOME CORPORATION
........................
No. ________ ($)________
KAUFMAN AND BROAD HOME CORPORATION, a corporation duly organized and
existing under the laws of Delaware (herein called the "Company," which term
includes any successor corporation under the Indenture hereinafter referred to),
for value received, hereby promises to pay to , or registered assigns,
the principal sum of $ on . (If the Security is to bear interest prior
to Maturity, insert --, and to pay interest thereon from ______________ or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, (semi-annually) (quarterly) (monthly) on and in each year,
commencing , at the rate of % per annum, until the principal hereof is
paid or made available for payment (If applicable insert--, and (to the extent
that the payment of such interest shall be legally enforceable) at the rate
of % per annum on any overdue principal and premium and on any overdue
installment of interest). The interest so payable, and punctually paid or duly
provided for, on any Interest PaymentDate will, as provided in such Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the of (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for will forthwith
cease to be payable to the Holder on such Regular Record Date and may either be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities of this series not less than 10
days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities of this series may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in said Indenture.)
(If the Security is not to bear interest prior to Maturity, insert--The
principal of this Security shall not bear interest except in the case of a
default in payment of principal upon acceleration, upon redemption or at Stated
Maturity and in such case the overdue principal of this Security shall bear
interest at the rate of % per annum (to the extent that the payment of such
interest shall be legally enforceable), which shall accrue from the date of such
default in payment to the date payment of such principal has been made or duly
provided for. Interest on any overdue principal shall be payable on demand. Any
such interest on any overdue principal that is not so paid on demand shall bear
interest at the rate of % per annum (to the extent that the payment of such
interest shall be legally enforceable), which shall accrue from the date of such
demand for payment to the date payment of such interest has been made or duly
provided for, and such interest shall also be payable on demand.)
Payment of the principal of (and premium, if any) and (if applicable,
insert--any such) interest on this Security will be made at the office or agency
of the Company maintained for that purpose in , in Dollars (if applicable,
insert--; provided, however, that at the option of the Company payment of
interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register).
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
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<PAGE> 18
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed under its corporate seal.
KAUFMAN AND BROAD HOME
CORPORATION
By:
-------------------------------
Attest:
- --------------------------
(SEAL)
SECTION 203. Form of Reverse of Security.
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of April , 1998 (herein called the
"Indenture"), between the Company and as Trustee (herein called the "Trustee,"
which term includes any successor trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights, duties and immunities
thereunder of the Company, the Trustee and the Holders of the Securities and of
the terms upon which the Securities are, and are to be, authenticated and
delivered. This Security is one of the series designated on the face hereof
(limited in aggregate principal amount to $ ).
(If applicable, insert--The Securities of this series are subject to redemption
upon not less than 30 nor more than 45 days' notice by first class mail, (if
applicable, insert--(1) on in any year commencing with the year and ending
with the year through operation of the sinking fund for this series at a
Redemption Price equal to 100% of the principal amount, and (2)) at any time (on
or after ,), as a whole or in part, at the election of the Company, at the
following Redemption Prices (expressed as percentages of the principal amount):
If redeemed (on or before , %, and if redeemed) during the
12-month period beginning of the years indicated,
Year Redemption Price Year Redemption Price
and thereafter at a Redemption Price equal to _______ of the principal amount,
together in the case of any such redemption (if applicable, insert -- (whether
through operation of the sinking fund or otherwise)) with accrued and unpaid
interest to the Redemption Date, but interest installments whose Stated Maturity
is on or prior to such Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, of record at the close of
business on the relevant Record Dates referred to on the face hereof, all as
provided in the Indenture.)
(If applicable, insert -- The Securities of this series are subject to
redemption upon not less than 30 nor more than 45 days' notice by first class
mail, (1) on in any year commencing with the year and ending with the
year through operation of the sinking fund for this series at the Redemption
Prices for redemption through operation of the sinking fund (expressed as
percentages of the principal amount) set forth in the table below, and (2) at
any time (on or after ____________), as a whole or in part, at the election of
the Company, at the Redemption
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Prices for redemption otherwise than through operation of the sinking fund
(expressed as percentages of the principal amount) set forth in the table below:
If redeemed during a 12-month period beginning of the years indicated,
Redemption Price for Redemption Price for
Redemption Through Redemption Otherwise
Operation of the Than Through Operation
Year Sinking Fund of the Sinking Fund
and thereafter at a Redemption Price equal to % of the principal amount,
together in the case of any such redemption (whether through operation of the
sinking fund or otherwise) with accrued and unpaid interest to the Redemption
Date, but interest installments whose Stated Maturity is on or prior to such
Redemption Date will be payable to the Holders of such Securities, or one or
more Predecessor Securities, of record at the close of business on the relevant
Record Dates referred to on the face hereof, all as provided in the Indenture.)
(Notwithstanding the foregoing, the Company may not, prior to redeem
any Securities of this series as contemplated by (clause (2) of) the preceding
paragraph as a part of, or in anticipation of, any refunding operation by the
application, directly or indirectly, of moneys borrowed having an interest cost
to the Company (calculated in accordance with generally accepted financial
practice) of less than % per annum.)
(The sinking fund for this series provides for the redemption on
in each year beginning with the year and ending with the year of (not less
than) $ (("mandatory sinking fund") and not more than $ aggregate
principal amount of Securities of this series.) (Securities of this series
acquired or redeemed by the Company otherwise than through (mandatory) sinking
fund payments may be credited against subsequent (mandatory) sinking fund
payments otherwise required to be made--in the (inverse) order in which they
become due.)
(In the event of redemption of this Security in part only a new Security
or Securities of this series for the unredeemed portion hereof will be issued ln
the name of the Holder hereof upon the cancellation hereof.)
(If the Security is not an Original Issue Discount Security, insert -- If
any Event of Default with respect to Securities of this series shall occur and
be continuing, the principal of the Securities of this series may be declared
due and payable in the manner and with the effect provided in the Indenture.)
(If the Security is an Original Issue Discount Security, insert -- If an Event
of Default with respect to Securities of this series shall occur and be
continuing, an amount of principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture. Such amount shall be equal -- insert formula for determining the
amount.) Upon payment (i) of the amount of principal so declared due and payable
and (ii) of interest on any overdue principal and overdue interest (in each case
to the extent that the payment of such interest shall be legally enforceable),
all of the Company's obligations in respect of the payment of the principal of
and interest, if any, on the Securities of this series shall terminate.
This Security is a senior unsecured obligation of the Company and will
rank pari passu in right of payment with all other senior unsecured obligations
of the Company.
This Security is subject to Defeasance as described in the Indenture.
The Indenture may be modified by the Company and the Trustee without
consent of any Holder with respect to certain matters as described in the
Indenture. In addition, the Indenture permits, with certain exceptions as
therein provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities of
each series to be affected under the Indenture at any time by the Company and
the Trustee with the consent of the Holders of a majority in principal amount of
the Securities at the time Outstanding of
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<PAGE> 20
each series to be affected. The Indenture also contains provisions permitting
the Holders of a majority in principal amount of the Securities of each series
at the time Outstanding, on behalf of the Holders of all Securities of such
series, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults under the Indenture and their consequences.
Any such consent or waiver by the Holder of this Security shall bind such Holder
and all future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof, whether
or not notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of (and
premium, if any) and interest on this Security are payable, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by the Holder hereof or his
attorney duly authorized in writing, and thereupon one or more new Securities of
this series, of authorized denominations and for the same Stated Maturity and
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Securities of this series are issuable only in registered form without
coupons in denominations of ($1,000) and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of Securities of this series of a different authorized denomination, as
requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
The Indenture imposes certain limitations on the ability of the Company
to, among other things, merge or consolidate with any other Person or sell,
assign, transfer or lease all or substantially all of its properties or assets
(If other covenants are applicable pursuant to the provisions of Section 301,
insert here). All such covenants and limitations are subject to a number of
important qualifications and exceptions. The Company must report periodically to
the Trustee on compliance with the covenants in the Indenture.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under this
Security or the Indenture or for any claim based on, in respect of or by reason
of, such obligations or their creation. Each Holder, by accepting a Security,
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of this Security.
(If applicable, insert -- Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures ("CUSIP"), the Company
has caused CUSIP numbers to be printed on the Securities of this series as a
convenience to the Holders of the Securities of this series. No representation
is made as to the correctness or accuracy of such numbers as printed on the
Securities of this series and reliance may be placed only on the other
identification numbers printed hereon.)
All capitalized terms used in this Security without definition which are
defined in the Indenture shall have the meanings assigned to them in the
Indenture.
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<PAGE> 21
ASSIGNMENT FORM
To assign this Security, fill in the form below: (I) or (we) assign and
transfer this Security to
________________________________________________________________________________
(Insert assignee's social security or tax I.D. number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint_________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated: Your Signature:
--------- -----------------------------------------
(Sign exactly as your name
appears on the other side
of this Security)
Signature Guaranty:
-----------------------------------------------------------
(Signatures must be guaranteed by an "eligible guarantor
institution" meeting the requirements of the Transfer
Agent, which requirements will include membership or
participation in STAMP or such other "signature guarantee
program" as may be determined by the Transfer Agent in
addition to, or in substitution for, STAMP all in
accordance with the Exchange Act.)
Social Security Number or Taxpayer Identification Number:_______________________
SECTION 204. Form of Trustee's Certificate of Authentication.
Dated:
-------------------
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
THE FIRST NATIONAL BANK OF CHICAGO
as Trustee
By:
---------------------------------
Authorized Signatory
SECTION 205. Securities in Global Form.
If Securities of a series are issuable in global form, as contemplated by
Section 301, then, notwithstanding the provisions of Section 302, any such
Security shall represent such of the Outstanding Securities of such series as
shall be specified therein and may provide that it shall represent the aggregate
amount of Outstanding Securities from
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<PAGE> 22
time to time endorsed thereon and that the aggregate amount of Outstanding
Securities represented thereby may from time to time be reduced to reflect
exchanges. Any endorsement of a Security in global form to reflect the amount,
or any increase or decrease in the amount, of Outstanding Securities represented
thereby shall be made in such manner and upon instructions given by such Person
or Persons as shall be specified therein or in the Company Order to be delivered
to the Trustee pursuant to Section 303 or Section 304. Subject to the provisions
of Section 303 and, if applicable, Section 304, the Trustee shall deliver and
redeliver any Security in permanent global form in the manner and upon
instructions given by the Person or Persons specified therein or in the
applicable Company Order. If a Company Order pursuant to Section 303 or 304 has
been, or simultaneously is, delivered, any instructions by the Company with
respect to endorsement or delivery or redelivery of a Security in global form
shall be in writing but need not comply with Section 102 and need not be
accompanied by an Opinion of Counsel.
The provisions of Section 309 shall apply to any Security represented by a
Security in global form if such Security was never issued and sold by the
Company and the Company delivers to the Trustee the Security in global form
together with written instructions (which need not comply with Section 102 and
need not be accompanied by an Opinion of Counsel) with regard to the reduction
in the principal amount of Securities represented thereby.
Notwithstanding the provisions of Sections 201 and 307, unless otherwise
specified as contemplated by Section 301, payment of principal of, premium, if
any, and interest on any Security in permanent global form shall be made to the
Person or Persons specified therein.
Notwithstanding the provisions of Section 308 and except as provided in
the preceding paragraph, the Company, the Trustee and any agent of the Company
and the Trustee shall treat a Person as the Holder of such principal amount of
Outstanding Securities represented by a permanent global Security as shall be
specified in a written statement of the Holder of such permanent global
Security.
SECTION 206. CUSIP Number.
The Company in issuing Securities of any series may use a "CUSIP" number,
and, if so, the Trustee may use the CUSIP number in notices of redemption or
exchange as a convenience to Holders of such series; provided, that any such
notice may state that no representation is made as to the correctness or
accuracy of the CUSIP number printed on the notice or on the Securities of such
series, and that reliance may be placed only on the other identification numbers
printed on the Securities, and any such redemption shall not be affected by any
defect in or omission of such numbers. The Company will promptly notify the
Trustee of any change in the CUSIP number of any series of Securities.
SECTION 207. Form of Legend for the Securities in Global Form.
Any Security in global form authenticated and delivered hereunder shall
bear a legend in substantially the following form:
"This Security is in global form within the meaning of the Indenture
hereinafter referred to and is registered in the name of a Common Depositary or
a U.S. Depositary. Unless and until it is exchanged in whole or in part for
Securities in certificated form, this Security may not be transferred except as
a whole by the Common Depositary or a U.S. Depositary or by a nominee of the
Common Depositary or a nominee of the U.S. Depositary as the case may be."
ARTICLE 3
THE SECURITIES
SECTION 301. Amount Unlimited; Issuable in Series.
The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is unlimited.
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<PAGE> 23
The Securities may be issued from time to time in one or more series.
There shall be established in or pursuant to a Board Resolution, and set forth
in an Officer's Certificate, or established in one or more indentures
supplemental hereto, prior to the issuance of Securities of any series:
(1) the title of the Securities of the series (which shall distinguish the
Securities of the series from all other Securities);
(2) any limit upon the aggregate principal amount of the Securities of the
series which may be authenticated and delivered under this Indenture (except for
Securities authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Securities of the series pursuant to Sections
304, 305, 306, 906 or 1107);
(3) whether any Securities of the series are to be issuable in permanent
global form with or without coupons and, if so, (i) whether beneficial owners of
interests in any such permanent global security may exchange such interests for
Securities of such series and of like tenor of any authorized form and
denomination and the circumstances under which any such exchanges may occur, if
other than in the manner provided in Section 305, and (ii) the name of the
Common Depositary (as defined in Section 304) or the U.S. Depositary, as the
case may be, with respect to any global security;
(4) the date or dates on which the principal of the Securities of the
series is payable;
(5) the rate or rates at which the Securities of the series shall bear
interest, if any, the date or dates from which such interest shall accrue, the
Interest Payment Dates on which such interest shall be payable and the Regular
Record Date for the interest payable on any Interest Payment Date and, if
applicable to such series of Securities, the basis points and United States
Treasury rate(s) and any other rates to be used in calculating the reset rate;
(6) the place or places where the principal of (and premium, if any) and
interest on Securities of the series shall be payable;
(7) the right of the Company, if any, to defer any payment of principal of
or interest on the Securities of the series, and the maximum length of any such
deferral period;
(8) the period or periods within which, the price or prices at which and
the terms and conditions upon which Securities of the series may be redeemed, in
whole or in part, at the option of the Company, pursuant to any sinking fund or
otherwise;
(9) the obligation, if any, of the Company to redeem or purchase
Securities of the series pursuant to any sinking fund or analogous provisions or
at the option of a Holder thereof and the period or periods within which, the
price or prices at which and the terms and conditions upon which Securities of
the series shall be redeemed or purchased, in whole or in part, pursuant to such
obligation, and, where applicable, the obligation of the Company to select the
Securities to be redeemed;
(10) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which Securities of the series shall be issuable;
(11) if other than the principal amount thereof, the portion of the
principal amount of Securities of the series which shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section 502;
(12) additional Events of Default with respect to Securities of the
series, if any, other than those set forth herein;
(13) if either or both of Section 1302 and Section 1303 shall be
inapplicable to the Securities of the series (provided that if no such
inapplicability shall be specified, then both Section 1302 and Section 1303
shall be applicable to the Securities of the series);
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<PAGE> 24
(14) if other than U.S. dollars, the currency or currencies or units based
on or related to currencies in which the Securities of such series shall be
denominated and in which payments or principal of, and any premium and interest
on, such Securities shall or may by payable;
(15) additional covenants with respect to Securities of the series, if
any, other than those set forth herein;
(16) if other than the Trustee, the identity of the Registrar and any
Paying Agent; and
(17) any other terms of the series (which terms shall not be inconsistent
with the provisions of this Indenture).
All Securities of any one series shall be substantially identical except
as to denomination and except as may otherwise be provided in or pursuant to
such Board Resolution and set forth in such Officer's Certificate or in any such
Indenture supplemental hereto.
If any of the terms of the series are established by action taken pursuant
to a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officer's
Certificate setting forth, or providing the manner for determining, the terms of
the Securities of such series.
SECTION 302. Denominations.
The Securities of each series shall be issuable in registered form without
coupons in such denominations as shall be specified as contemplated by Section
301. In the absence of any such provisions with respect to the Securities of any
series, the Securities of such series shall be issuable in denominations of
$1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its Chairman
of the Board, its Vice Chairman of the Board, its President or one of its Vice
Presidents, under its corporate seal reproduced thereon attested by its
Secretary or one of its Assistant Secretaries. The signature of any of these
officers on the Securities may be manual or facsimile. The seal of the Company
may be in the form of a facsimile thereof and may be impressed, affixed,
imprinted or otherwise reproduced on the Securities. Typographical and other
minor errors or defects in any such reproduction of the seal or any such
signature shall not affect the validity or enforceability of any security that
has been duly authenticated and delivered by the Trustee.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities of any series executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with the Company Order shall authenticate and make such Securities available for
delivery. If the form or terms of the Securities of the series have been
established in or pursuant to one or more Board Resolutions as permitted by
Sections 201 and 301, in authenticating such Securities, and accepting the
additional responsibilities under this Indenture in relation to such Securities,
the Trustee shall be entitled to receive, and (subject to Sections 315(a)
through (d) of the Trust Indenture Act) shall be fully protected in relying
upon, an Opinion of Counsel stating,
(a) if the form of such Securities has been established by or pursuant to
Board Resolution as permitted by Section 201, that such form has been
established in conformity with the provisions of this Indenture;
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<PAGE> 25
(b) if the terms of such Securities have been established by or pursuant
to Board Resolution as permitted by Section 301, that such terms have been
established in conformity with the provisions of this Indenture;
(c) that such Securities, when authenticated and delivered by the Trustee
and issued by the Company in the manner and subject to any conditions specified
in such Opinion of Counsel, will constitute valid and legally binding
obligations of the Company, enforceable in accordance with their terms, except
to the extent enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other similar laws affecting the
enforcement of creditors' rights generally and by the effect of general
principles of equity (regardless of whether enforceability is considered in a
proceeding ln equity or at law); and
(d) that no consent, approval, authorization, order, registration or
qualification of or with any court or any governmental agency or body having
jurisdiction over the Company is required for the execution and delivery of such
Securities by the Company, except such as have been obtained (except that no
opinion need be expressed as to state securities or Blue Sky laws).
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee, or in the written opinion of
counsel to the Trustee (which counsel may be an employee of the Trustee) such
authentication may not lawfully be made or would involve the Trustee in personal
liability.
Notwithstanding the provisions of Section 301 and of the immediately
preceding paragraph, if all Securities of a series are not to be originally
issued at one time, it shall not be necessary to deliver the Officer's
Certificate otherwise required pursuant to Section 301 or the Company Order and
Opinion of Counsel otherwise required pursuant to the immediately preceding
paragraph at or prior to the time of authentication of each security of such
series if such documents are delivered at or prior to the authentication upon
original issuance of the first security of such series to be issued.
If the Company shall establish pursuant to Section 301 that the Securities
of a series are to be issued in the form of one or more global Securities, then
the Company shall execute and the Trustee shall, in accordance with this Section
and the Company Order with respect to the authentication and delivery of such
series, authenticate and deliver one or more global Securities that (i) shall be
in an aggregate amount equal to the aggregate principal amount specified in such
Company Order, (ii) shall be registered in the name of the Common Depositary or
U.S. Depositary, as the case may be, therefor or its nominee, and (iii) shall be
made available for delivery by the Trustee to such depositary or pursuant to
such depositary's instruction.
Each depositary designated pursuant to Section 301 must, at the time of
its designation and at all times while it serves as depositary, be a clearing
agency registered under the Exchange Act and any other applicable statute or
regulation.
Unless otherwise provided for in the form of security, each security shall
be dated the date of its authentication.
No security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
security shall be conclusive evidence, and the only evidence, that such security
has been duly authenticated and delivered hereunder and is entitled to the
benefits of this Indenture.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities of any series, the
Company may execute, and upon Company Order the Trustee shall authenticate and
make available for delivery, temporary Securities which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any authorized
denomination, substantially of the tenor of the definitive Securities in lieu of
which they are issued and with such appropriate insertions, omissions,
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<PAGE> 26
substitutions and other variations as the officers executing such Securities may
determine, as evidenced by their execution of such Securities.
In the case of Securities of any series, such temporary Securities may be
in global form, representing all or a portion of the Outstanding Securities of
such series.
Except in the case of temporary Securities in global form (which shall be
exchanged in accordance with the provisions of Section 305), if temporary
Securities of any series are issued, the Company will cause definitive
Securities of that series to be prepared without unreasonable delay. After the
preparation of definitive Securities of such series, the temporary Securities of
such series shall be exchangeable for definitive Securities of such series upon
surrender of the temporary Securities of such series at the office or agency of
the Company in a Place of Payment for that series, without charge to the Holder.
Upon surrender for cancellation of any one or more temporary Securities of any
series, the Company shall execute and the Trustee shall authenticate and make
available for delivery in exchange therefor a like principal amount of
definitive Securities of the same series of authorized denominations and of like
tenor. Until so exchanged, the temporary Securities of any series shall in all
respects be entitled to the same benefits under this Indenture as definitive
Securities of such series.
If temporary Securities of any series are issued in global form, any such
temporary global Security shall, unless otherwise provided therein, be delivered
to the office of a depositary or common depositary (the "COMMON DEPOSITARY") for
credit to the respective accounts of the beneficial owners of such Securities
(or to such other accounts as they may direct).
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency of the Company in a Place of Payment being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of registration of transfers of Securities. The
Trustee is hereby appointed "Security Registrar" for the purpose of registering
Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any security of any series
at the office or agency of the Company in Place of Payment for that series, the
Company shall execute, and the Trustee shall authenticate and make available for
delivery, in the name of the designated transferee or transferees, one or more
new Securities of the same series, of any authorized denominations and of a like
aggregate principal amount and Stated Maturity.
At the option of the Holder, Securities of any series may be exchanged for
other Securities of the same series, of any authorized denominations and of a
like aggregate principal amount and Stated Maturity, upon surrender of the
Securities to be exchanged at such office or agency. Whenever any Securities are
so surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and make available for delivery, the Securities which the Holder
making the exchange is entitled to receive.
Notwithstanding the foregoing, except as otherwise specified as
contemplated by Section 301, any permanent global security shall be exchangeable
only as provided in this paragraph. If the beneficial owners of interests in a
permanent global security are entitled to exchange such interests for Securities
of such series and of like tenor and principal amount of another authorized form
and denomination, as specified and as subject to the conditions contemplated by
Section 301, then without unnecessary delay but in any event not later than the
earliest date on which such interests may be so exchanged, the Company shall
deliver to the Trustee definitive Securities of that series in aggregate
principal amount equal to the principal amount of such permanent global
security, executed by the Company. On or after the earliest date on which such
interests may be so exchanged, such permanent global Securities shall be
surrendered from time to time by the Common Depositary or the U.S. Depositary,
as the case may be, and in accordance with instructions given to the Trustee and
the Common Depositary or the U.S. Depositary, as the case may be (which
instructions shall be in writing but need not comply with Section 102 or be
accompanied by an Opinion of Counsel), as shall be specified in the Company
Order with respect thereto to the Trustee, as the Company's agent for such
purpose, to be exchanged, in whole or in part, for definitive Securities of the
same series
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without charge. The Trustee shall authenticate and make available for delivery,
in exchange for each portion of such surrendered permanent global security, a
like aggregate principal amount of definitive Securities of the same series of
authorized denominations and of like tenor as the portion of such permanent
global security to be exchanged which shall be in the form of the Securities of
such series; provided, however, that no such exchanges may occur during a period
beginning at the opening of business 15 days before the day of the mailing of a
notice of redemption of Securities of that series selected for redemption under
Section 1103 and ending at the close of business on the day of such mailing.
Promptly following any such exchange in part, such permanent global Security
shall be returned by the Trustee to the Common Depositary or the U.S.
Depositary, as the case may be, or such other Common Depositary or U.S.
Depositary referred to above in accordance with the written instructions of the
Company referred to above. If a Security in the form specified for such series
is issued in exchange for any portion of a permanent global Security after the
close of business at the office or agency where such exchange occurs on (i) any
Regular Record Date and before the opening of business at such office or agency
on the relevant Interest Payment Date, or (ii) any Special Record Date and
before the opening of business at such office or agency on the related proposed
date for payment of interest or Defaulted Interest, as the case may be, such
interest or Defaulted Interest will not be payable on such Interest Payment Date
or proposed date for payment, as the case may be, in respect of such security in
the form specified for such series, but will be payable on such Interest Payment
Date or proposed date for payment, as the case may be, only to the Person to
whom interest in respect of such portion of such permanent global Security is
payable in accordance with the provisions of this Indenture.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligation, of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
Unless otherwise provided in the Securities to be transferred or
exchanged, no service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906 or 1107 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer of
or exchange Securities of any series during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of
Securities of that series selected for redemption under Section 1103 and ending
at the close of business on the day of such mailing, or (ii) to register the
transfer of or exchange any security so selected for redemption in whole or in
part, except the unredeemed portion of any security being redeemed in part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company shall
execute and the Trustee shall authenticate and deliver in exchange therefor a
new Security of the same series and of like tenor and principal amount and
bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such Security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the Trustee shall
authenticate and deliver, in lieu of any such destroyed, lost or stolen
Security, a new Security of the same series and of like tenor and principal
amount and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, make payment with respect to such Security.
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Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security of any series issued pursuant to this Section in lieu
of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of that series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest.
Any interest on any Security of any series which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to the
Persons in whose names the Securities of such series (or their respective
Predecessor Securities) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Security of such series
and the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date of
the proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this Section
307 provided. Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than 15 days and not
less than 10 days prior to the date of the proposed payment and not less than 10
days after the receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such Special Record Date and, in
the name and at the expense of the Company, shall cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor to be
mailed, first-class postage prepaid, to each Holder of Securities of such series
at its address as it appears in the Security Register, not less than 10 days
prior to such Special Record Date. Notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor having been so mailed,
such Defaulted Interest shall be paid to the Persons in whose names the
Securities of such series (or their respective Predecessor Securities) are
registered at the close of business on such Special Record Date and shall no
longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest on the
Securities of any series in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Securities may be listed,
and upon such notice as may be required by such exchange, if, after notice given
by the Company to the Trustee of the proposed payment pursuant to this Section
307, such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
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SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered as the owner of such Security
for the purpose of receiving payment of principal of (and premium, if any) and
(subject to Section 307) interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.
None of the Company, the Trustee or any agent of the Company or the
Trustee shall have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interest of a
Security in global form, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest. Notwithstanding the
foregoing, with respect to any Security in global form, nothing herein shall
prevent the Company or the Trustee or any agent of the Company or the Trustee
from giving effect to any written certification, proxy or other authorization
furnished by any Common Depositary (or its nominee), as a Holder, with respect
to such Security in global form or impair, as between such Common Depositary and
owners of beneficial interests in such Security in global form, the operation of
customary practices governing the exercise of the right of such Common
Depositary (or its nominee) as holder of such Security in global form.
SECTION 309. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange or for credit against any sinking fund payment shall, if
surrendered to any Person other than the Trustee, be delivered to the Trustee
and shall be promptly cancelled by it. The Company may at any time deliver to
the Trustee for cancellation any Securities previously authenticated and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Securities so delivered shall be promptly cancelled by the
Trustee. No Securities shall be authenticated in lieu of or in exchange for any
Securities cancelled as provided in this Section, except as expressly permitted
by this Indenture. All cancelled Securities shall be held by the Trustee and may
be destroyed (and, if so destroyed, certification of their destruction shall be
delivered to the Company, unless, by a Company Order, the Company shall direct
that cancelled Securities be returned to it).
SECTION 310. Computation of Interest.
Except as otherwise specified as contemplated by Section 301 for
Securities of any series, interest on the Securities of each series shall be
computed on the basis of a 360-day year consisting of twelve 30-day months.
SECTION 311. Ranking.
The Company hereby confirms that the Securities issued pursuant to this
Indenture are senior unsecured obligations of the Company and will rank pari
passu in right of payment with all other senior unsecured obligations of the
Company.
ARTICLE 4
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange of Securities herein
expressly provided for or in the form of security for such series), when the
Trustee, upon Company Request and at the expense of the Company, shall execute
proper instruments acknowledging satisfaction and discharge of this Indenture,
when
(1) either
(A) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been destroyed, lost or stolen and which have
been replaced or paid as provided in Section 306 and (ii) Securities for whose
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payment money has theretofore been deposited in trust or segregated and held in
trust by the Company and thereafter repaid to the Company or discharged from
such trust, as provided in Section 1009) have been delivered to the Trustee for
cancellation; or
(B) all such Securities not theretofore delivered to the 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 for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice of redemption
by the Trustee in the name, and at the expense, of the Company,
and the Company, in the case of (i), (ii) or (iii) above, has deposited with the
Trustee as trust funds in trust for the purpose an amount sufficient to pay and
discharge the entire indebtedness on such Securities not theretofore delivered
to the Trustee for cancellation, for principal (and premium, if any) and
interest to the date of such deposit (in the case of Securities which have
become due and payable) or the Stated Maturity or Redemption Date, as the case
may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officer's Certificate and
an Opinion of Counsel, each stating that all conditions precedent provided for
herein relating to the satisfaction and discharge of this Indenture have been
complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 607, the obligations of
the Company to any Authenticating Agent under Section 614 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1009 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1009, all money
deposited with the Trustee pursuant to Section 401 shall be held in trust and
applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with or
received by the Trustee.
ARTICLE 5
REMEDIES
SECTION 501. Events of Default.
"EVENT OF DEFAULT," wherever used herein with respect to Securities of any
series, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or to be
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body):
(1) the Company defaults in the payment of interest on any Security of
that series when such interest becomes due and payable and the default continues
for a period of 30 days; provided, however, that if the Company is permitted by
the terms of the Securities of the applicable series 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 Securities; or
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(2) the Company defaults in the payment of the principal of (or premium,
if any, on) any Security of that series when the same becomes due and payable at
Maturity, upon redemption (including redemptions under Article 11), or
otherwise; provided, however, that if the Company is permitted by the terms of
the Securities of the applicable series 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 Securities; or
(3) the Company fails to observe or perform any of its other covenants,
warranties or agreements in the Securities of that series or this Indenture
(other than a covenant, agreement or warranty a default in whose performance or
whose breach is elsewhere in this Section specifically dealt with or which has
expressly been included in this Indenture solely for the benefit of series of
Securities other than that series), and the failure to observe or perform
continues for the period and after the notice specified in the last paragraph of
this Section; or
(4) any Event of Default under any series of Securities issued pursuant to
this Indenture or any event of default, as defined in any other Indenture,
mortgage, indenture, or instrument under which there may be issued, or by which
there may be secured or evidenced, any Indebtedness of the Company or a
Subsidiary (whether such Indebtedness now exists or shall hereafter be created
or incurred) shall occur and shall consist of default in the payment of such
Indebtedness at the maturity thereof (after giving effect to any applicable
grace period) or shall result in Indebtedness becoming or being declared due and
payable prior to the date on which it would otherwise become due and payable,
and such default in payment is not cured or such acceleration shall not be
rescinded or annulled within 10 days after written notice to the Company from
the Trustee or to the Company and to the Trustee from the Holders of at least
10% in aggregate principal amount of the Securities of that series at the time
outstanding; provided that it shall not be an Event of Default if the principal
amount of Indebtedness (other than Indebtedness represented by Securities issued
pursuant to this Indenture) which is not paid at maturity or the maturity of
which is accelerated is less than the amount equal to 5% of the Company's
consolidated total assets (determined as of its most recent fiscal year-end)
provided further that if, prior to a declaration of acceleration of the maturity
of the Securities of that series or the entry of judgment in favor of the
Trustee in a suit pursuant to Section 503, such default shall be remedied or
cured by the Company or waived by the holders of such Indebtedness, then the
Event of Default hereunder by reason thereof shall be deemed likewise to have
been thereupon remedied, cured or waived without further action upon the part of
either the Trustee or any of the Holders of the Securities of that series, and
provided further, that, subject to Sections 601 and 602, the Trustee shall not
be charged with knowledge of any such default unless written notice of such
default shall have been given to the Trustee by the Company, by a holder or an
agent of a holder of any such Indebtedness, by the trustee then acting under any
indenture or other instrument under which such default shall have occurred, or
by the Holders of at least five percent in aggregate principal amount of the
Securities of that series at the time outstanding; or
(5) the Company pursuant to or within the meaning of any Bankruptcy Law
(A) commences a voluntary case or proceeding under any Bankruptcy Law with
respect to itself, (B) consents to the entry of a judgment, decree or order for
relief against it in an involuntary case or proceeding under any Bankruptcy Law,
(C) consents to or acquiesces in the institution of bankruptcy or insolvency
proceedings against it, (D) applies for, consents to or acquiesces in the
appointment of or taking possession by a Custodian of the Company or for any
material part of its property, (E) makes a general assignment for the benefit of
its creditors or (F) takes any corporate action in furtherance of or to
facilitate, conditionally or otherwise, any of the foregoing; or
(6) (i) a court of competent jurisdiction enters a judgment, decree or
order for relief in respect of the Company in an involuntary case or proceeding
under any Bankruptcy Law which shall (A) approve as properly filed a petition
seeking reorganization, arrangement, adjustment or composition in respect of the
Company, (B) appoint a Custodian of the Company or for any material part of its
property, or (C) order the winding-up or liquidation of its affairs, and such
judgment, decree or order shall remain unstayed and in effect for a period of 60
consecutive days; or (ii) any bankruptcy or insolvency petition or application
is filed, or any bankruptcy or insolvency proceeding is commenced against the
Company and such petition, application or proceeding is not dismissed within 60
days; or (iii) a warrant of attachment is issued against any material portion of
the property of the Company which is not released within 60 days of service; or
(7) any other Event of Default provided with respect to Securities of that
series.
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A Default under clause (3) above is not an Event of Default until the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Outstanding Securities of that series notify the Company of the Default and the
Company does not cure the Default within 60 days after receipt of the notice.
The notice must specify the Default, demand that it be remedied and state that
the notice is a "Notice of Default." When a Default under clause (3) above is
cured within such 60-day period, it ceases.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default with respect to Securities of any series (other
than an Event of Default specified in clause (5) or (6) of Section 501) occurs
and is continuing, the Trustee by notice in writing to the Company, or the
Holders of at least 25% in aggregate principal amount of the Outstanding
Securities of that series by notice in writing to the Company and the Trustee,
may declare the unpaid principal of and accrued interest to the date of
acceleration (or, if the Securities of that series are Original Issue Discount
Securities, such portion of the principal amount as may be specified in the
terms of that series) on all the Outstanding Securities of that series to be due
and payable immediately and, upon any such declaration, the Outstanding
Securities of that series (or specified principal amount) shall become and be
immediately due and payable.
If an Event of Default specified in clause (5) or (6) of Section 501
occurs, all unpaid principal of and accrued interest on the Outstanding
Securities of that series (or specified principal amount) shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder of any Security of that series.
Upon payment of all such principal and interest, all of the Company's
obligations under the Securities of that series and (upon payment of the
Securities of all series) this Indenture shall terminate, except obligations
under Section 607.
The Holders of a majority in principal amount of the Outstanding
Securities of that series by notice to the Trustee may rescind an acceleration
and its consequences if (i) all existing Events of Default, other than the
nonpayment of the principal and interest of the Securities of that series that
has become due solely by such declaration of acceleration, have been cured or
waived, (ii) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal that has become due
otherwise than by such declaration of acceleration have been paid, (iii) the
rescission would not conflict with any judgment or decree of a court of
competent jurisdiction and (iv) all payments due to the Trustee and any
predecessor Trustee under Section 607 have been made.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company covenants that if:
(1) the Company defaults in the payment of interest on any Security of any
series when such interest becomes due and payable and the default continues for
a period of 30 days; provided, however, that if the Company is permitted by the
terms of the Securities of the applicable series 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 Securities, or
(2) the Company defaults in the payment of the principal of (or premium,
if any, on) any Security of any series when the same becomes due and payable at
Maturity, upon redemption (including redemptions under Article 11), or
otherwise; provided, however, that if the Company is permitted by the terms of
the Securities of the applicable series 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 Securities,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest and, to the extent
that payment of such interest shall be legally enforceable, interest on any
overdue principal (and premium, if any) and on any overdue interest, at the rate
or rates prescribed therefor in such Securities, and, in addition thereto, such
further
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amount as shall be sufficient to cover the reasonable costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon such Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon such Securities, wherever
situated.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to secure any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities and
to file such other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel) and of the Holders allowed in such judicial proceedings, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may
be prosecuted and enforced by the Trustee without the possession of any of the
Securities or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Holders of the Securities in respect of which such judgment has been
recovered.
SECTION 506. Application of Money Collected.
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Any money collected by the Trustee pursuant to this Article in respect of
the Securities of any series shall be applied in the following order, at the
date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal (or premium, if any) or interest, upon
presentation of the Securities in respect of which moneys have been collected
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
First: To the payment of all amounts due the Trustee under Section 607
applicable to such series;
Second: To the payment of the amounts then due and unpaid for principal of
(and premium, if any) and interest on the Securities of such series in respect
of which or for the benefit of which such money has been collected, ratably,
without preference or priority of any kind, according to the amounts due and
payable on such Securities of such series for principal (and premium, if any)
and interest, respectively; and
Third: To the Company.
The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section 506. At least fifteen (15) days before such
record date, the Trustee shall mail to each Holder and the Company a notice that
states the record date, the payment date and the amount to be paid.
SECTION 507. Limitation on Suits.
No Holder of any Security of any series shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless:
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to
the Trustee during such 60-day period by the Holders of a majority in principal
amount of the Outstanding Securities of that series;
it being understood and intended that no one or more of Holders of Securities of
any series shall have any right in any manner whatever by virtue of, or by
availing of, any provision of this Indenture to affect, disturb or prejudice the
rights of any other of such Holders, or to obtain or to seek to obtain priority
or preference over any other of such Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and ratable
benefit of all Holders of Securities of the affected series.
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium
and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of (and premium, if any) and (subject to Section 307)
interest on such Security on the Stated Maturity or Maturities expressed in such
Security (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
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SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any
right or remedy under this Indenture and such proceeding has been discontinued
or abandoned for any reason, or has been determined adversely to the Trustee or
to such Holder, then and in every such case, subject to any determination in
such proceeding, the Company, the Trustee and the Holders shall be restored
severally and respectively to their former positions hereunder and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding has been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Securities in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or ln equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Securities to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
The Holders of a majority in principal amount of the Outstanding
Securities of any series shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, with respect to the
Securities of such series, provided that:
(1) such direction shall not be in conflict with any rule of law or with
this Indenture;
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction; and
(3) subject to Section 601, the Trustee need not take any action which
might involve the Trustee in personal liability or be unduly prejudicial to the
Holders not joining therein.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series may by written notice to the Trustee on
behalf of the Holders of all the Securities of such series waive any Default or
Event of Default with respect to such series and its consequences, except a
Default or Event of Default
(1) in respect of the payment of the principal of (or premium, if any) or
interest on any Security of such series, or
(2) in respect of a covenant or other provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series affected.
Upon any such waiver, such Default or Event of Default shall cease to
exist and shall be deemed to have been cured, for every purpose of this
Indenture and the Securities of such series; but no such waiver shall extend to
any subsequent or other Default or Event of Default or impair any right
consequent thereon.
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SECTION 514. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% in principal
amount of the Outstanding Securities of any series, or to any suit instituted by
any Holder for the enforcement of the payment of the principal of (or premium,
if any) or interest on any Security on or after the Stated Maturity or
Maturities expressed in such Security (or, in the case of redemption, on or
after the Redemption Date).
ARTICLE 6
THE TRUSTEE
SECTION 601. Certain Duties and Responsibilities of the Trustee.
(a) Except during the continuance of an Event of Default, the Trustee's
duties and responsibilities under this Indenture shall be governed by Section
315(a) of the Trust Indenture Act.
(b) In case an Event of Default has occurred and is continuing, and is
known to the Trustee, the Trustee shall exercise the rights and powers vested in
it by this Indenture, and shall use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
(c) None of the provisions of Section 315(d) of the Trust Indenture Act
shall be excluded from this Indenture.
SECTION 602. Notice of Defaults.
Within 30 days after the occurrence of any Default or Event of Default
with respect to the Securities of any series, the Trustee shall give to all
Holders of Securities of such series, as their names and addresses appear in the
Security Register, notice of such Default or Event of Default known to the
Trustee, unless such Default or Event of Default shall have been cured or
waived; provided, however, that, except in the case of a Default or Event of
Default in the payment of the principal of (or premium, if any) or interest on
any Security of such series or in the payment of any sinking fund installment
with respect to Securities of such series, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or directors or Responsible Officers of the Trustee in good faith
determine that the withholding of such notice is in the interest of the Holders
of Securities of such series.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of the Trust Indenture Act:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document believed by it to be genuine
and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any resolution
of the Board of Directors may be sufficiently evidenced by a Board Resolution;
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(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other evidence
be herein specifically prescribed) may, in the absence of bad faith on its part,
rely upon an Officer's Certificate;
(d) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request or direction of any of
the Holders pursuant to this Indenture, unless such Holders shall have offered
to the Trustee security or indemnity to its reasonable satisfaction against the
costs, expenses and liabilities which might be incurred by it in compliance with
such request or direction;
(f) prior to the occurrence of an Event of Default with respect to the
Securities of any series and after the curing or waiving of all such Events of
Default which may have occurred, the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction, consent,
order, approval or other paper or document, or the books and records of the
Company, unless requested in writing to do so by the Holders of a majority in
principal amount of the Outstanding Securities of any series; provided, however,
that if the payment within a reasonable time to the Trustee of the costs,
expenses or liabilities likely to be incurred by it in the making of such
investigation is not, in the opinion of the Trustee, reasonably assured to the
Trustee by the security afforded to it by the terms of this Indenture, the
Trustee may require reasonable indemnity against such costs, expenses or
liabilities as a condition to so proceeding; the reasonable expense of every
such investigation shall be paid by the Company or, if paid by the Trustee,
shall be repaid by the Company upon demand;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder; and
(h) the Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
SECTION 604. Not Responsible for Recitals or Issuance of Securities.
The recitals herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee or any Authenticating Agent assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities. Neither the Trustee nor any
Authenticating Agent shall be accountable for the use or application by the
Company of Securities or the proceeds thereof.
SECTION 605. May Hold Securities.
The Trustee, any Authenticating Agent, any Paying Agent, any Security
Registrar or any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and, subject to Sections
608 and 613, may otherwise deal with the Company with the same rights it would
have if it were not Trustee, Authenticating Agent, Paying Agent, Security
Registrar or such other agent.
SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder (including amounts held by
the Trustee as Paying Agent) need not be segregated from other funds except to
the extent required by law. The Trustee shall be under no liability for interest
on any money received by it hereunder except as otherwise agreed upon in writing
with the Company.
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SECTION 607. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time reasonable compensation for
all services rendered by it hereunder (which compensation shall not be limited
by any provision of law in regard to the compensation of a trustee of an express
trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability, damage, claim or expense, including taxes (other than taxes
based upon or determined or measured by the income or gross receipts of the
Trustee), incurred without gross negligence or bad faith on its part, arising
out of or in connection with the acceptance or administration of the trust or
trusts hereunder, 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 hereunder.
When the Trustee incurs expenses or renders services in connection with an
Event of Default specified in Section 501(5) or Section 501(6), the expenses
(including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section 607 shall survive this Indenture.
SECTION 608. Disqualification; Conflicting Interests.
The Trustee shall be disqualified only where such disqualification is
required by Section 310(b) of the Trust Indenture Act. Nothing shall prevent the
Trustee from filing with the Commission the application referred to in the
second to last paragraph of Section 310(b) of the Trust Indenture Act.
SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be eligible to
act as Trustee under Section 310(a)(1) of the Trust Indenture Act having a
combined capital and surplus of at least $50,000,000 subject to supervision or
examination by federal or state authority. If such corporation publishes reports
of condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. Neither the Company nor any Person directly or indirectly
controlling, controlled by, or under common control with the Company may serve
as Trustee. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 611.
(b) The Trustee may resign at any time with respect to the Securities of
one or more series by giving written notice thereof to the Company. If the
instrument of acceptance by a successor Trustee required by Section 611 shall
not have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
Securities of such series.
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(c) The Trustee may be removed at any time with respect to the Securities
of any series by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series, delivered to the Trustee and to the
Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 310(b) of the
Trust Indenture Act after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six months; or
(2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request herefor by the Company or by any such
Holder of a Security who has been a bona fide Holder of a Security for at least
six months; or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation;
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee with respect to all Securities, or (ii) subject to Section 315(e) of the
Trust Indenture Act, any Holder who has been a bona fide Holder of a security
for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the removal of the
Trustee with respect to all Securities and the appointment of a successor
Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Trustee for any cause, with respect
to the Securities of one or more series, the Company, by a Board Resolution,
shall promptly appoint a successor Trustee or Trustees with respect to the
Securities of that or those series (it being understood that any such successor
Trustee may be appointed with respect to the Securities of one or more or all of
such series and that at any time there shall be only one Trustee with respect to
the Securities of any particular series) and shall comply with the applicable
requirements of Section 611. If, within one year after such resignation, removal
or incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Securities of any series shall be appointed by Act of the Holders
of a majority in principal amount of the Outstanding Securities of such series
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 611, become the successor Trustee
with respect to the Securities of such series and to that extent supersede the
successor Trustee appointed by the Company with respect to such Securities. If
no successor Trustee with respect to the Securities of any series shall have
been so appointed by the Company or the Holders and accepted appointment in the
manner required by Section 611, any Holder who has been a bona fide Holder of a
security of such series for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee with respect to the Securities of such
series.
(f) The Company shall give notice of each resignation and each removal of
the Trustee with respect to the Securities of any series and each appointment of
a successor Trustee with respect to the Securities of any series by mailing
written notice of such event by first-class mail, postage prepaid, to all
Holders of Securities of such series as their names and addresses appear in the
security Register. Each notice shall include the name of the successor Trustee
with respect to the Securities of such series and the address of its Corporate
Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Trustee with
respect to all Securities, every such successor Trustee so appointed shall
execute, acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on the request
of the Company or the successor Trustee, such retiring Trustee shall, upon
payment of its charges, execute and deliver an instrument transferring to such
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successor Trustee all the rights, powers and trusts of the retiring Trustee and
shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company, the
retiring Trustee and each successor Trustee with respect to the Securities of
one or more series shall execute and deliver an indenture supplemental hereto
wherein each successor Trustee shall accept such appointment and which (1) shall
contain such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Trustee all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series to which the appointment of such successor Trustee relates, (2)
if the retiring Trustee is not retiring with respect to all Securities, shall
contain such provisions as shall be deemed necessary or desirable to confirm
that all the rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series as to which the retiring
Trustee is not retiring shall continue to be vested in the retiring Trustee, and
(3) shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein or
in such supplemental Indenture shall constitute such Trustees co-trustees of the
same trust and that each such Trustee shall be trustee of a trust or trusts
hereunder separate and apart from any trust or trusts hereunder administered by
any other such Trustee; and upon the execution and delivery of such supplemental
indenture the resignation or removal of the retiring Trustee shall become
effective to the extent provided therein and each such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such successor
Trustee relates; but, on request of the Company or any successor Trustee, such
retiring Trustee shall duly assign, transfer and deliver to such successor
Trustee all property and money held by such retiring Trustee hereunder with
respect to the Securities of that or those series to which the appointment of
such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirming
to such successor Trustee all such rights, powers and trusts referred to in
paragraph (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
the Trust Indenture Act.
SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities.
SECTION 613. Preferential Collection of Claims Against Company.
The Trustee shall comply with Section 311(a) of the Trust Indenture Act,
excluding any creditor relationship listed in Section 311(b) of the Trust
Indenture Act. A Trustee who has resigned or been removed shall be subject to
Section 311(a) of the Trust Indenture Act to the extent indicated therein.
SECTION 614. Appointment of Authenticating Agent.
At any time when any of the Securities remain Outstanding the Trustee may
appoint an Authenticating Agent or Agents with respect to one or more series of
Securities which shall be authorized to act on behalf of, and subject to the
direction of, the Trustee to authenticate Securities of such series issued upon
exchange, registration of transfer or partial redemption thereof or pursuant to
Section 306, and Securities so authenticated shall be entitled to the benefits
of this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder.
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Wherever reference is made in this Indenture to the authentication and delivery
of Securities by the Trustee or the Trustee's certificate of authentication,
such reference shall be deemed to include authentication and delivery on behalf
of the Trustee by an Authenticating Agent and a certificate of authentication
executed on behalf of the Trustee by an Authenticating Agent. Each
Authenticating Agent shall be acceptable to the Company and shall at all times
be a corporation organized and doing business under the laws of the United
States of America, any State thereof or the District of Columbia, authorized
under such laws to act as Authenticating Agent, having a combined capital and
surplus of not less than $50,000,000 and subject to supervision or examination
by federal or State authority. If such Authenticating Agent publishes reports of
condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such Authenticating Agent shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to be
eligible in accordance with the provisions of this Section, such Authenticating
Agent shall resign immediately in the manner and with the effect specified in
this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders of
Securities of the series with respect to which such Authenticating Agent will
serve, as their names and addresses appear in the security Register. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section.
If an appointment with respect to one or more series is made pursuant to
this Section, the Securities of such series may have endorsed thereon, in
addition to the Trustee's certificate of authentication, an alternate
certificate of authentication in the following form:
Form of Authenticating Agent's
Certificate of Authentication
Dated:
-------------
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
THE FIRST NATIONAL BANK OF CHICAGO
As Trustee
By:
-----------------------------------
As Authenticating Agent
By:
-----------------------------------
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Authorized Signatory
ARTICLE 7
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee:
(a) semi-annually, not later than January 1 and July 1 in each year, a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders as of the preceding December 15 or June 15, as the case
may be; and
(b) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such list
is furnished;
provided, however, that so long as the Trustee is the Security Registrar, no
such list shall be required to be furnished.
SECTION 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar. The Trustee may destroy any list furnished to it as provided in
Section 701 upon receipt of a new list so furnished.
(b) If three or more Holders (herein referred to as "applicants") apply in
writing to the Trustee, and furnish to the Trustee reasonable proof that each
such applicant has owned a Security for a period of at least six months
preceding the date of such application, and such application states that the
applicants desire to communicate with other Holders with respect to their rights
under this Indenture or under the Securities and is accompanied by a copy of the
form of proxy or other communication which such applicants propose to transmit
then the Trustee shall, within five Business Days after the receipt of such
application, at its election, either
(i) afford such applicants access to the information preserved at
the time by the Trustee in accordance with Section 702(a); or
(ii) inform such applicants as to the approximate number of Holders
whose names and addresses appear in the information preserved at the time by the
Trustee in accordance with Section 702(a), and as to the approximate cost of
mailing to such Holders the form of proxy or other communication, if any,
specified in such application.
If the Trustee shall elect not to afford such applicants access to such
information, the Trustee shall, upon the written request of such applicants,
mail to each Holder whose name and address appears in the information preserved
at the time by the Trustee in accordance with Section 702(a) a copy of the form
of proxy or other communication which is specified in such request, with
reasonable promptness after a tender to the Trustee of the material to be mailed
and of payment, or provision for the payment, of the reasonable expenses of
mailing, unless within five days after such tender the Trustee shall mail to
such applicants and file with the Commission, together with a copy of the
material to be mailed, a written statement to the effect that, in the opinion of
the Trustee, such mailing would be contrary to the best interest of the Holders
or would be in violation of applicable law. Such written statement shall specify
the basis of such opinion. If the Commission, after opportunity for a hearing
upon the objections specified in the written statement so filed, shall enter an
order refusing to sustain any of such objections or if, after the entry of an
order sustaining one or more of such objections, the Commission shall find,
after notice and opportunity for hearing, that all objections so sustained have
been met and shall enter an order so declaring, the Trustee shall mail
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copies of such material to all such Holders with reasonable promptness after the
entry of such order and the renewal of such tender; otherwise the Trustee shall
be relieved of any obligation or duty to such applicants respecting their
application.
(c) Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that neither the Company nor the Trustee nor
any agent of either of them shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the Holders
in accordance with Section 702(b), regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under Section 702(b).
SECTION 703. Reports by Trustee.
(a) Within 60 days after May 15 of each year commencing with the year
1998, the Trustee shall transmit by mail to all Holders of Securities as
provided in Section 313(c) of the Trust Indenture Act, a brief report dated as
of May 15, if required by and in compliance with Section 313(a) of the Trust
Indenture Act.
(b) A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which any
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when any Securities are listed on any stock exchange.
SECTION 704. Reports by Company.
The Company shall:
(1) file with the Trustee, within 30 days after the Company is required to
file the same with the Commission, copies of the annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may from time to time by rules and regulations
prescribe) which the Company may be required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company
is not required to file information, documents or reports pursuant to either of
said Sections, then it shall file with the Trustee and the Commission, in
accordance with rules and regulations prescribed from time to time by the
Commission, such of the supplementary and periodic information, documents and
reports which may be required pursuant to Section 13 of the Exchange Act in
respect of a security listed and registered on a national securities exchange as
may be prescribed from time to time in such rules and regulations;
(2) file with the Trustee and the Commission, in accordance with rules and
regulations prescribed from time to time by the Commission, such additional
information, documents and reports with respect to compliance by the Company
with the conditions and covenants of this Indenture as may be required from time
to time by such rules and regulations;
(3) transmit by mail to all Holders, as their names and addresses appear
in the Security Register, (a) concurrently with furnishing the same to its
shareholders, the Company's annual report to shareholders, containing certified
financial statements, and any other financial reports which the Company
generally furnishes to its shareholders, and (b) within 30 days after the filing
thereof with the Trustee, such summaries of any other information, documents and
reports required to be filed by the Company pursuant to paragraphs (1) and (2)
of this Section as may be required by rules and regulations prescribed from time
to time by the Commission; and
(4) furnish to the Trustee, on or before May 1 of each year, a brief
certificate from the principal executive officer, principal financial officer or
principal accounting officer as to his or her knowledge of the Company's
compliance with all conditions and covenants under this Indenture. For purposes
of this paragraph, such compliance shall be determined without regard to any
period of grace or requirement of notice provided under this Indenture. Such
certificate need not comply with Section 102.
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ARTICLE 8
CONSOLIDATION, MERGER, LEASE, SALE OR TRANSFER
SECTION 801. When Company May Merge, Etc.
The Company shall not consolidate with, or merge with or into any other
corporation (whether or not the Company shall be the surviving corporation), or
sell, assign, transfer or lease all or substantially all of its properties and
assets as an entirety or substantially as an entirety to any Person or group of
affiliated Persons, in one transaction or a series of related transactions,
unless:
(1) either the Company shall be the continuing Person or the Person (if
other than the Company) formed by such consolidation or with which or into which
the Company is merged or the Person (or group of affiliated Persons) to which
all or substantially all the properties and assets of the Company as an entirety
or substantially as an entirety are sold, assigned, transferred or leased shall
be a corporation (or constitute corporations) organized and existing under the
laws of the United States of America or any State thereof or the District of
Columbia and shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of the Company under the Securities and this Indenture; and
(2) immediately before and after giving effect to such transaction or
series of related transactions, no Event of Default, and no Default, shall have
occurred and be continuing.
SECTION 802. Opinion of Counsel.
The Company shall deliver to the Trustee prior to the proposed
transaction(s) covered by Section 801 an Officer's Certificate and an Opinion of
Counsel stating that the transaction(s) and such supplemental indenture comply
with this Indenture and that all conditions precedent to the consummation of the
transaction(s) under this Indenture have been met.
SECTION 803. Successor Corporation Substituted.
Upon any consolidation by the Company with or merger by the Company into
an other corporation or any lease, sale, assignment, or transfer of all or
substantially all of the property and assets of the Company in accordance with
Section 801, the successor corporation formed by such consolidation or into
which the Company is merged or the successor corporation or affiliated group of
corporations to which such lease, sale, assignment, or transfer is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture with the same effect as if such successor
corporation or corporations had been named as the Company herein, and
thereafter, except in the case of a lease, the predecessor corporation or
corporations shall be relieved of all obligations and covenants under this
Indenture and the Securities and in the event of such conveyance or transfer,
except in the case of a lease, any such predecessor corporation may be dissolved
and liquidated.
ARTICLE 9
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without notice to or the consent of any Holders, the Company, when authorized by
a Board Resolution, and the Trustee, at any time and from time to time, may
enter into one or more indentures supplemental hereto, in form satisfactory to
the Trustee, for any of the following purposes:
(1) to evidence the succession of another corporation to the Company and
the assumption by any such successor of the covenants of the Company herein and
in the Securities; or
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(2) to add to the covenants of the Company for the benefit of the Holders
of all or any series of Securities (and if such covenants are to be for the
benefit of less than all series of Securities, stating that such covenants are
expressly being included solely for the benefit of series) or to surrender any
right or power herein conferred upon the Company; or
(3) to add any additional Events of Default with respect to all or any
series of Securities; or
(4) to add or change any of the provisions of this Indenture to such
extent as shall be necessary to permit or facilitate the issuance of Securities
in bearer form, registrable or not registrable as to principal, and with or
without interest coupons; or
(5) to change or eliminate any of the provisions of this Indenture,
provided that any such change or elimination shall become effective only when
there is no Security Outstanding of any series created prior to the execution of
such supplemental Indenture which is entitled to the benefit of such provision;
or
(6) to secure the Securities; or
(7) to establish the form or terms of Securities of any series as
permitted by Sections 201 and 301; or
(8) to evidence and provide for the acceptance of appointment hereunder by
a successor Trustee with respect to the Securities of one or more series and to
add to or change any of the provisions of this Indenture as shall be necessary
to provide for or facilitate the administration of the trusts hereunder by more
than one Trustee, pursuant to the requirements of Section 611(b); or
(9) to cure any ambiguity, defect or inconsistency or to correct or
supplement any provision herein which may be inconsistent with any other
provision herein; or
(10) to make any change that does not materially adversely affect the
interests of the Holders of Securities of any series.
Upon request of the Company, accompanied by a Board Resolution authorizing
the execution of any such supplemental indenture, and upon receipt by the
Trustee of the documents described in (and subject to the last sentence of)
Section 903, the Trustee shall join with the Company in the execution of any
supplemental indenture authorized or permitted by the terms of this Indenture.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the written consent of the Holders of a majority in principal amount
of the Outstanding Securities of each series affected by such supplemental
indenture, by Act of said Holders delivered to the Company and the Trustee, the
Company, when authorized by a Board Resolution, and the Trustee shall, subject
to Section 903, enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to or changing in any manner or eliminating
any of the provisions of this Indenture or of modifying in any manner the rights
of the Holders of Securities of such series under this Indenture; provided,
however, that no such supplemental indenture shall, without the consent of the
Holder of each Outstanding security affected thereby,
(1) change the Stated Maturity of the principal of, or any installment of
principal of or interest on, any security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof or extend the time for payment thereof, or reduce the amount
of the principal of an Original Issue Discount security that would be due and
payable upon a declaration of acceleration of the Maturity thereof pursuant to
Section 502, or change any Place of Payment where, or the coin or currency in
which, any security or any premium or the interest thereon is payable, or impair
the right to institute suit for the enforcement of any such payment on or after
the Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date);
(2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for
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any waiver of compliance with certain provisions of this Indenture or Defaults
or Events of Default hereunder and their consequences provided for in this
Indenture; or
(3) change the redemption provisions (including Article Eleven) hereof in
a manner adverse to such Holder; or
(4) modify any of the provisions of this Section or Section 513, except to
increase any such percentage or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of each
Outstanding Security affected thereby; provided, however, that this clause shall
not be deemed to require the consent of any Holder with respect to changes in
the references to "the Trustee" and concomitant changes in this Section, or the
deletion of this proviso, in accordance with the requirements of Sections 611(b)
and 901(8).
A supplemental indenture which changes or eliminates any covenant or other
provisions of this Indenture which as expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of the Holders of Securities of such series with respect to such covenant
or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
The Trustee shall sign any supplemental indenture authorized pursuant to
this Article, subject to the last sentence of this Section 903. In executing, or
accepting the additional trusts created by, any supplemental indenture permitted
by this Article or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Section
601) shall be fully protected in relying upon, an Officer's Certificate and an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
Indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities of any series authenticated and delivered after the execution
of any supplemental indenture pursuant to this Article may, and shall if
required by the Trustee, bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture. If the Company shall so
determine, new Securities of any series so modified as to conform, ln the
opinion of the Trustee and the Company, to any such supplemental indenture may
be prepared and executed by the Company and authenticate and delivered by the
Trustee in exchange for Outstanding Securities of such series.
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ARTICLE 10
COVENANTS
SECTION 1001. Payments of Securities.
With respect to each series of Securities, the Company will duly and
punctually pay the principal of (and premium, if any) and interest on such
Securities in accordance with their terms and this Indenture, and will duly
comply with all the other terms, agreements and conditions contained in, or made
in the Indenture for the benefit of, the Securities of such series.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain an office or agency in each Place of Payment
where Securities may be surrendered for registration of transfer or exchange or
for presentation for payment, where notices and demands to or upon the Company
in respect of the Securities and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any change ln
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee as set forth in Section 105
hereof and the Company hereby appoints the Trustee as its agent to receive all
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies where the Securities may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations. The Company
will give prompt written notice to the Trustee of any such designation or
rescission and of any change in the location of any such other office or agency.
SECTION 1003. Corporate Existence.
Subject to Article 8 hereof, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and that of each of its Subsidiaries and the material rights (charter
and statutory) of the Company and its Subsidiaries; provided, however, that (a)
the Company shall not be required to preserve any such right or the corporate
existence of any of its Subsidiaries if the Board of Directors, or the board of
directors of the Subsidiary concerned, as the case may be, shall determine that
the preservation thereof is no longer desirable in the conduct of the business
of the Company or any of its Subsidiaries and that the loss thereof is not
materially disadvantageous to the Holders, and (b) nothing herein contained
shall prevent any Subsidiary of the Company from liquidating or dissolving, or
merging into, or consolidating with the Company (provided that the Company shall
be the continuing or surviving corporation) or with any one or more Subsidiaries
if the Board of Directors or the board of directors of the Subsidiary concerned,
as the case may be, shall so determine.
SECTION 1004. Payment of Taxes and Other Claims.
The Company will pay or discharge, or cause to be paid or discharged,
before the same shall become delinquent, (1) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary, and (2)
all lawful claims for labor, materials and supplies which, if unpaid, might by
law become a material lien upon the property of the Company or any Subsidiary;
provided, however, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which adequate provision has been made.
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SECTION 1005. Maintenance of Properties.
The Company will cause all material properties used or useful in the
conduct of its business or the business of any of its Subsidiaries to be
maintained and kept in good condition, repair and working order (normal wear and
tear and casualty loss excepted) and supplied with all necessary equipment and
will cause to be made all necessary repairs, renewals, replacements, betterments
and improvements thereof, all as in the judgment of the Company may be
necessary, so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
nothing in this Section shall prevent the Company from discontinuing the
operation or maintenance of any of such properties, or disposing of any of them,
if such discontinuance or disposal is, in the judgment of the Board of Directors
or of the board of directors of the Subsidiary concerned, as the case may be,
desirable in the conduct of the business of the Company or any Subsidiary of the
Company and not materially disadvantageous to the Holders.
SECTION 1006. Compliance Certificates.
(a) The Company shall deliver to the Trustee within 90 days after the end
of each fiscal year of the Company (which fiscal year currently ends on December
31), an Officer's Certificate stating whether or not the signer knows of any
Default or Event of Default by the Company that occurred prior to the end of the
fiscal year and is then continuing. If the signer does know of such a Default or
Event of Default, the certificate shall describe each such Default or Event of
Default and its status and the specific section or sections of this Indenture in
connection with which such Default or Event of Default has occurred. The Company
shall also promptly notify the Trustee in writing should the Company's fiscal
year be changed so that the end thereof is on any date other than the date on
which the Company's fiscal year currently ends. The certificate need not comply
with Section 102 hereof.
(b) The Company shall deliver to the Trustee, within 10 days after the
occurrence thereof, notice of any acceleration which with the giving of notice
and the lapse of time would be an Event of Default within the meaning of Section
501(4) hereof.
(c) The Company shall deliver to the Trustee forthwith upon becoming aware
of a Default or Event of Default (but in no event later than 10 days after the
occurrence of each Default or Event of Default that is continuing), an Officer's
Certificate setting forth the details of such Default or Event of Default and
the action that the Company proposes to take with respect thereto and the
specific section or sections of this Indenture in connection with which such
Default or Event of Default has occurred.
SECTION 1007. Commission Reports.
(a) The Company shall file with the Trustee, within 30 days after it files
them with the Commission, copies of the quarterly and annual reports and of the
information, documents, and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) which
the Company is required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act. If the Company is not subject to the requirement of
such Section 13 or 15(d) of the Exchange Act, the Company shall file with the
Trustee, within 30 days after it would have been required to file such
information with the Commission, financial statements, including any notes
thereto and, with respect to annual reports, an auditors' report by an
accounting firm of established national reputation and a "Management's
Discussion and Analysis of Financial Condition and Results of Operations," both
comparable to that which the Company would have been required to include in such
annual reports, information, documents or other reports if the Company had been
subject to the requirements of such Sections 13 or 15(d) of the Exchange Act.
The Company also shall comply with the other provisions of Section 314(a) of the
Trust Indenture Act.
(b) So long as the Securities remain outstanding, the Company shall cause
its annual report to shareholders and any other financial reports furnished by
it to shareholders generally, to be mailed to the Holders at their addresses
appearing in the register of Securities maintained by the Security Registrar in
each case at the time of such mailing or furnishing to shareholders. If the
Company is not required to furnish annual or quarterly reports to its
shareholders pursuant to the Exchange Act, the Company shall cause its financial
statements, including any notes thereto and, with respect to annual reports, an
auditors' report by an accounting firm of established national reputation and a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," to be so filed with
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the Trustee and mailed to the Holders within 90 days after the end of each of
the Company's fiscal years and within 45 days after the end of each of the first
three quarters of each fiscal year.
(c) The Company shall provide the Trustee with a sufficient number of
copies of all reports and other documents and information that the Company may
be required to deliver to the Holders under this Section 1007.
SECTION 1008. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim,
and will actively resist any and all efforts to be compelled to take the benefit
or advantage of, any stay or extension law or any usury law or other law, which
would prohibit or forgive the Company from paying all or any portion of the
principal of and/or interest on the Securities as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that it may
lawfully do so) the Company hereby expressly waives all benefit or advantage of
any such law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
SECTION 1009. Money for Securities Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent with respect
to any series of Securities, it will, on or before each due date of the
principal of (and premium, if any) or interest on any of the Securities of that
series, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal (and premium, if any) or interest
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and will promptly notify the Trustee of its
action or failure so to act.
Whenever the Company shall have one or more Paying Agents for any series
of Securities, it will, prior to each due date of the principal of (and premium,
if any) or interest on any Securities of that series, deposit with a Paying
Agent a sum sufficient to pay the principal (and premium, if any) or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium or interest, and (unless such Paying Agent
is the Trustee) the Company will promptly notify the Trustee of its action or
failure to so act.
The Company will cause each Paying Agent for any series of Securities
(other than the Trustee) to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent will:
(i) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Securities of that series in trust for the
benefit of the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(ii) give the Trustee notice of any default by the Company (or any other
obligor upon the Securities of that series) in the making of any payment of
principal (and premium, if any) or interest on the Securities of that series;
and
(iii) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of (and premium, if any)
or interest on any security of any series and remaining unclaimed
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for two years after such principal (and premium, if any) or interest has become
due and payable shall be paid to the Company on Company Request, or (if then
held by the Company) shall be discharged from such trust; and the Holder of such
security shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee of
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in New York, New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 1010. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Sections 1010 or 1011 hereof, if before or
after the time for such compliance the Holders of not less than a majority in
principal amount of the Securities at the time Outstanding of each series which
is affected thereby, shall, by consent in writing of such Holders, either waive
such compliance in such instance or generally waive compliance with such
covenant or condition, but no such waiver shall extend to or affect such
covenant or conditions except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the duties of
the Trustee in respect of any such covenant or condition shall remain in full
force and effect.
ARTICLE 11
REDEMPTION OF SECURITIES
SECTION 1101. Applicability of Article.
Securities of any series which are redeemable before their Stated Maturity
shall be redeemable in accordance with their terms and (except as otherwise
specified as contemplated by Section 301 for Securities of any series) in
accordance with this Article.
SECTION 1102. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities shall be evidenced by
a Board Resolution. In case of any redemption at the election of the Company of
less than all the Securities of any series, the Company shall, at least 45 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of Securities of such series to be redeemed. In the case
of any redemption of Securities prior to the expiration of any restriction on
such redemption provided in the terms of such Securities or elsewhere in this
Indenture, the Company shall furnish the Trustee with an Officer's Certificate
evidencing compliance with such restriction.
SECTION 1103. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities of any series are to be redeemed, the
particular Securities to be redeemed shall be selected not more than 90 days
prior to the Redemption Date by the Trustee, from the Outstanding Securities of
such series not previously called for redemption, substantially pro rata, by lot
or by any other method as the Trustee considers fair and appropriate and that
complies with the requirements of the principal national securities exchange, if
any, on which such Securities are listed, and which may provide for the
selection for redemption of portions (equal to the minimum authorized
denomination for Securities of that series or any integral multiple thereof) of
the principal amount of Securities of such series of a denomination larger than
the minimum authorized denomination for Securities of that series; provided that
in case the Securities of such series have different terms and maturities, the
Securities to be redeemed shall be selected by the Company and the Company shall
give notice thereof to the Trustee.
The Trustee shall promptly notify the Company in writing of the Securities
selected for redemption and, in the case of any Securities selected for partial
redemption, the principal amount thereof to be redeemed.
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For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of the Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
SECTION 1104. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid,
mailed not less than 30 nor more than 45 days prior to the Redemption Date, to
each Holder of Securities to be redeemed, at this address appearing in the
Security Register.
All notices of redemption shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) if less than all the Outstanding Securities of any series are to be
redeemed, the identification (and, in the case of partial redemption, the
principal amounts) of the particular Securities to be redeemed;
(4) that on the Redemption Date the Redemption Price will be come due and
payable upon each such security to be redeemed and, if applicable, that interest
thereon will cease to accrue on and after said date;
(5) the place or places where such Securities are to be surrendered for
payment of the Redemption Price;
(6) that the redemption is for a sinking fund, if such is the case;
(7) the CUSIP number, if any, of the Securities to be redeemed; and
(8) unless otherwise provided as to a particular series of Securities, if
at the time of publication or mailing of any notice of redemption the Company
shall not have deposited with the Trustee or Paying Agent and/or irrevocably
directed the Trustee or Paying Agent to apply, from money held by it available
to be used for the redemption of Securities, an amount in cash sufficient to
redeem all of the Securities called for redemption, including accrued interest
to the Redemption Date, such notice shall state that it is subject to the
receipt of the redemption moneys by the Trustee or Paying Agent before the
Redemption Date (unless such redemption is mandatory) and such notice shall be
of no effect unless such moneys are so received before such date.
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1105. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the Trustee
or with a Paying Agent (or, if the Company is acting as its own Paying Agent,
segregate and hold in trust as provided in Section 1009) an amount of money
sufficient to pay the Redemption Price of, and (except if the Redemption Date
shall be an Interest Payment Date) accrued interest on, all the Securities which
are to be redeemed on that date.
SECTION 1106. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Upon surrender of any
such security for redemption in accordance with said notice, such security shall
be paid by the Company at the Redemption Price, together with accrued interest
to the Redemption Date; provided, however, that installments of interest whose
Stated Maturity is on or prior to the Redemption Date shall be
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payable to the Holders of such Securities, or one or more Predecessor
Securities, registered as such at the close of business on the relevant Regular
or Special Record Dates according to their terms and the provisions of Section
307.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate prescribed thereof or in the
security.
SECTION 1107. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered at
an office or agency of the Company at a Place of Payment therefor (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or his attorney duly authorized in writing), and the
Company shall execute, and the Trustee shall authenticate and deliver to the
Holder of such security without service charge, a new Security or Securities of
the same series and Stated Maturity, of any authorized denomination as requested
by such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the security so surrendered.
ARTICLE 12
SINKING FUNDS
SECTION 1201. Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund for
the retirement of Securities of a series, except as otherwise specified as
contemplated by Section 301 for Securities of such series.
The minimum amount of any sinking fund payment provided for by the terms
of Securities of any series is herein referred to as a "Mandatory Sinking Fund
Payment," and any payment in excess of such minimum amount provided for by the
terms of Securities of any series is herein referred to as an "Optional Sinking
Fund Payment." If provided for by the terms of Securities of any series, the
cash amount of any sinking fund payment may be subject to redemption as provided
in Section 1202. Each sinking fund payment shall be applied to the redemption of
Securities of any series as provided for by the terms of Securities of such
series.
SECTION 1202. Satisfaction of Sinking Fund Payments with Securities.
The Company (1) may deliver Securities of a series (other than any
Securities previously called for redemption) and (2) may apply as a credit
Securities of a series which have been redeemed either at the election of the
Company pursuant to the terms of such Securities or through the application of
permitted optional sinking fund payments pursuant to the terms of such
Securities, in each case in satisfaction of all or any part of any sinking fund
payment with respect to the Securities of such series required to be made
pursuant to the terms of such Securities as provided for by the terms of such
series; provided that such Securities have not been previously so credited. Such
Securities shall be received and credited for such purpose by the Trustee at the
Redemption Price specified in such Securities for redemption through operation
of the sinking fund and the amount of such sinking fund payment shall be reduced
accordingly.
SECTION 1203. Redemption of Securities for Sinking Fund.
Not less than 45 days prior to each sinking fund payment date for any
series of Securities, the Company will deliver to the Trustee an Officer's
Certificate specifying the amount of the next ensuing sinking fund payment for
that series pursuant to the terms of that series, the portion thereof, if any,
which is to be satisfied by payment of cash and the portion thereof, if any,
which is to be satisfied by delivering and crediting Securities of that series
pursuant to Section 1202 and will also deliver to the Trustee any Securities to
be so delivered. Not less than 30 days before each such sinking fund payment
date the Trustee shall select the Securities to be redeemed upon such sinking
fund payment date in the manner specified in Section 1103 and cause notice of
the redemption thereof to be given in the name of
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<PAGE> 53
and at the expense of the Company in the manner provided in Section 1104. Such
notice having been duly given, the redemption of such Securities shall be made
upon the terms and in the manner stated in Sections 1106 and 1107.
ARTICLE 13
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Applicability of Article; Company's Option to
Effect Defeasance or Covenant Defeasance.
Unless pursuant to Section 301 provision is made for the inapplicability
of either or both of (a) Defeasance of the Securities of a series under Section
1302 or (b) Covenant Defeasance of the Securities of a series under Section
1303, then the provisions of such Section or Sections, as the case may be,
together with the other provisions of this Article, shall be applicable to the
Securities of such series, and the Company may at its option by Board
Resolution, at any time, with respect to the Securities of such series, elect to
have either Section 1302 (unless inapplicable) or Section 1303 (unless
inapplicable) be applied to the Outstanding Securities of such series upon
compliance with the applicable conditions set forth below in this Article.
SECTION 1302. Defeasance and Discharge.
Upon the Company's exercise of the option provided in Section 1301 to
defease the Outstanding Securities of a particular series, the Company shall be
discharged from its obligations with respect to the Outstanding Securities of
such series on the date the applicable conditions set forth in Section 1304 are
satisfied (hereinafter, "Defeasance"). Defeasance shall mean that the Company
shall be deemed to have paid and discharged the entire indebtedness represented
by the Outstanding Securities of such series and to have satisfied all its other
obligations under such Securities and this Indenture insofar as such Securities
are concerned (and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging the same); provided, however, that the
following rights, obligations, powers, trusts, duties and immunities shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of Outstanding Securities of such series to receive, solely from the
trust fund provided for in Section 1304, payments in respect of the principal of
(and premium, if any) and interest on such Securities when such payments are
due, (B) the Company's obligations with respect to such Securities under
Sections 304, 305, 306, 1002 and 1009, (C) the rights, powers, trusts, duties
and immunities of the Trustee hereunder and (D) this Article. Subject to
compliance with this Article, the Company may exercise its option with respect
to Defeasance under this Section 1302 notwithstanding the prior exercise of its
option with respect to Covenant Defeasance under Section 1303 in regard to the
Securities of such series.
SECTION 1303. Covenant Defeasance.
Upon the Company's exercise of the option provided in Section 1301 to
obtain a Covenant Defeasance with respect to the Outstanding Securities of a
particular series, the Company shall be released from its obligations under this
Indenture (except its obligations under Sections 304, 305, 306, 506, 509, 610,
1001, 1002, 1006, 1008 and 1009) with respect to the Outstanding Securities of
such series on and after the date the applicable conditions set forth in Section
1304 are satisfied (hereinafter, "Covenant Defeasance"). Covenant Defeasance
shall mean that, with respect to the Outstanding Securities of such series, the
Company may omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in this Indenture (except its
obligations under Sections 304, 305, 306, 506, 509, 610, 1001, 1002, 1006, 1008
and 1009), whether directly or indirectly by reason of any reference elsewhere
herein or by reason of any reference to any other provision herein or in any
other document, and such omission to comply shall not constitute an Event of
Default under Section 501(4) with respect to Outstanding Securities of such
series, and the remainder of this Indenture and of the Securities of such series
shall be unaffected thereby.
SECTION 1304. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to Defeasance under Section 1302 and
Covenant Defeasance under Section 1303 with respect to the Outstanding
Securities of a particular series:
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<PAGE> 54
(1) the Company shall irrevocably have deposited or caused to be deposited
with the Trustee (or another trustee satisfying the requirements of Section 609
who shall agree to comply with the provisions of this Article applicable to it),
under the terms of an irrevocable trust agreement in form and substance
reasonably satisfactory to such Trustee, as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (A) Dollars
in an amount, or (B) U.S. Government Obligations which through the scheduled
payment of principal and interest in respect thereof in accordance with their
terms will provide, not later than the due date of any payment, money in an
amount, or (C) a combination thereof, in each case sufficient, after payment of
all federal, state and local taxes or other charges or assessments in respect
thereof payable by the Trustee, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay and discharge, and which shall be applied by
the Trustee (or other qualifying trustee) to pay and discharge, (i) the
principal of (and premium, if any, on) and each installment of principal of (and
premium, if any) and interest on the Outstanding Securities of such series on
the Stated Maturity of such principal or installment of principal or interest
and (ii) any mandatory sinking fund payments or analogous payments applicable to
the Outstanding Securities of such series on the day on which such payments are
due and payable in accordance with the terms of this Indenture and of such
Securities.
(2) No Default or Event of Default with respect to the Securities of such
series shall have occurred and be continuing on the date of such deposit or
shall occur as a result of such deposit, and no Default or Event of Default
under clause (5) or (6) of Section 501 hereof shall occur and be continuing, at
any time during the period ending on the 31st day after the date of such deposit
(it being understood that this condition shall not be deemed satisfied until the
expiration of such period).
(3) Such deposit, Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any other agreement or
instrument to which the Company is a party or by which it is bound.
(4) Such Defeasance or Covenant Defeasance shall not cause any Securities
of such series then listed on any national securities exchange registered under
the Exchange Act to be delisted.
(5) In the case of an election with respect to Section 1302, the Company
shall have delivered to the Trustee either (A) a ruling directed to the Trustee
received from the Internal Revenue Service to the effect that the Holders of the
Outstanding Securities of such series will not recognize income, gain or loss
for federal income tax purposes as a result of such Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Defeasance had not occurred or
(B) an Opinion of Counsel, based on such ruling or on a change in the applicable
federal income tax law since the date of this Indenture, in either case to the
effect that, and based thereon such opinion shall confirm that, the Holders of
the Outstanding Securities of such series will not recognize income, gain or
loss for federal income tax purposes as a result of such Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Defeasance had not occurred.
(6) In the case of an election with respect to Section 1303, the Company
shall have delivered to the Trustee an Opinion of Counsel or a ruling directed
to the Trustee received from the Internal Revenue Service to the effect that the
Holders of the Outstanding Securities of such series will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred.
(7) Such Defeasance or Covenant Defeasance shall be effected in compliance
with any additional terms, conditions or limitations which may be imposed on the
Company in connection therewith pursuant to Section 301.
(8) The Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the Defeasance under Section 1302 or
the Covenant Defeasance under Section 1303 (as the case may be) have been
complied with.
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SECTION 1305. Deposited Money and Government Obligations
To Be Held In Trust.
Subject to the provisions of the last paragraph of Section 1009, all money
and Government Obligations (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee--collectively for purposes of this Section
1305, the "Trustee") pursuant to Section 1304 in respect of the Outstanding
Securities of a particular series shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities of all sums due and to become due
thereon in respect of principal (and premium, if any) and interest, but such
money need not be segregated from other funds except to the extent required by
law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the Government Obligations deposited
pursuant to Section 1304 or the principal and interest received in respect
thereof, other than any such tax, fee or other charge which by law is for the
account of the Holders of the Outstanding Securities of such series.
Anything in this Article to the contrary notwithstanding, the Trustee
shall deliver to pay to the Company from time to time upon Company Request any
money or Government Obligations held by it as provided ln Section 1304 which, in
the opinion of a nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the Trustee, are in
excess of the amount thereof which would then be required to be deposited for
the purpose for which such money or Government Obligations were deposited.
ARTICLE 14
MISCELLANEOUS
SECTION 1401. Miscellaneous.
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
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<PAGE> 56
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
KAUFMAN AND BROAD HOME
CORPORATION
By
----------------------------------
Name:
Title:
Attest:
- -------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO, as Trustee
By
----------------------------------
Name:
Title:
Attest:
- -------------------------
Name:
Title:
<PAGE> 1
Exhibit 4.14
------------------------------------------------------
FORM OF FIRST SUPPLEMENTAL INDENTURE
Dated as of __________, 1998
between
KAUFMAN AND BROAD HOME CORPORATION
AS ISSUER
and
THE FIRST NATIONAL BANK OF CHICAGO
AS TRUSTEE
------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS................................................................. 1
SECTION 1.1. Definition of Terms............................................ 1
ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE DEBENTURES.............................. 3
SECTION 2.1. Designation and Principal Amount............................... 3
SECTION 2.2. Maturity....................................................... 3
SECTION 2.3. Form and Payment............................................... 3
SECTION 2.4. Global Debenture............................................... 3
SECTION 2.5. Interest....................................................... 4
ARTICLE III
REDEMPTION OF THE DEBENTURES................................................ 5
SECTION 3.1. Tax Event Redemption........................................... 5
SECTION 3.2. Redemption Procedure for Debentures............................ 5
SECTION 3.3. No Sinking Fund................................................ 6
SECTION 3.4. Option to Put Debentures upon a Failed Remarketing............. 6
SECTION 3.5. Repurchase Procedure for Debentures............................ 6
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD........................................ 6
SECTION 4.1. Extension of Interest Payment Period........................... 6
SECTION 4.2. Notice of Extension............................................ 7
ARTICLE V
EXPENSES.................................................................... 8
SECTION 5.1. Payment of Expenses............................................ 8
SECTION 5.2. Payment Upon Resignation or Removal............................ 8
ARTICLE VI
NOTICE...................................................................... 8
SECTION 6.1. Notice by the Company.......................................... 8
i
<PAGE> 3
Page
----
ARTICLE VII
FORM OF DEBENTURE........................................................... 9
SECTION 7.1. Form of Debenture.............................................. 9
ARTICLE VIII
ORIGINAL ISSUE OF DEBENTURES............................................... 17
SECTION 8.1. Original Issue of Debentures.................................. 17
ARTICLE IX
MISCELLANEOUS.............................................................. 17
SECTION 9.1. Ratification of Indenture..................................... 17
SECTION 9.2. Trustee Not Responsible for Recitals.......................... 17
SECTION 9.3. Governing Law................................................. 17
SECTION 9.4. Separability.................................................. 17
SECTION 9.5. Counterparts.................................................. 17
SECTION 9.6. Guarantee and Declaration..................................... 18
ARTICLE X
REMARKETING................................................................ 18
SECTION 10.1. Effectiveness of this Article............................... 18
SECTION 10.2. Remarketing Procedures...................................... 18
ii
<PAGE> 4
FORM OF FIRST SUPPLEMENTAL INDENTURE, dated as of , 1998 (the "First
Supplemental Indenture"), between Kaufman and Broad Home Corporation, a
corporation duly organized and existing under the laws of the State of Delaware,
(the "Company"), and The First National Bank of Chicago, as trustee (the
"Trustee").
WHEREAS, the Company executed and delivered the indenture dated as of ,
1998 (the "Base Indenture"), to the Trustee to provide for the future issuance
of the Company's senior unsecured debentures, notes or other evidence of
indebtedness (the "Securities"), to be issued from time to time in one or more
series as might be determined by the Company under the Base Indenture;
WHEREAS, pursuant to the terms of the Base Indenture, the Company desires
to provide for the establishment of a new series of its Securities to be known
as its % Debentures due 16, 2003 (the "Debentures"), the form and substance of
such Debentures and the terms, provisions and conditions thereof to be set forth
as provided in the Base Indenture and this First Supplemental Indenture
(together, the "Indenture");
WHEREAS, KBHC Financing I, a Delaware statutory business trust (the
"Trust"), has offered to the public its % Capital Securities (the "Capital
Securities"), representing, undivided beneficial ownership interests in the
assets of the Trust, and proposes to invest the proceeds from such offering,
together with the proceeds of the issuance and sale by the Trust to the Company
of its % Common Securities (the "Common Securities" and together with the
Capital Securities, the "Trust Securities"), in the Debentures; and
WHEREAS, the Company has requested that the Trustee execute and deliver
this First Supplemental Indenture and all requirements necessary to make this
First Supplemental Indenture a valid instrument in accordance with its terms,
and to make the Debentures, when executed by the Company and authenticated and
delivered by the Trustee, the valid obligations of the Company and all acts and
things necessary have been done and performed to make this First Supplemental
Indenture enforceable in accordance with its terms, and the execution and
delivery of this First Supplemental Indenture has been duly authorized in all
respects:
NOW THEREFORE, in consideration of the purchase and acceptance of the
Debentures by the Holders thereof, and for the purpose of setting forth, as
provided in the Indenture, the form and substance of the Debentures and the
terms, provisions and conditions thereof, the Company covenants and agrees with
the Trustee as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definition of Terms.
Unless the context otherwise requires:
(a) a term defined in the Indenture has the same meaning when used in this
First Supplemental Indenture;
(b) a term defined anywhere in this First Supplemental Indenture has the
same meaning throughout;
(c) the singular includes the plural and vice versa;
(d) headings are for convenience of reference only and do not affect
interpretation;
(e) the following terms have the meanings given to them in the
Declaration: (i) Applicable Principal Amount; (ii)Authorized Newspaper; (iii)
Business Day; (iv) Clearing Agency; (v) Delaware Trustee; (vi) DTC; (vii) FELINE
PRIDES; (viii) Growth PRIDES; (ix) Income PRIDES; (x) Institutional Trustee;
(xi) Investment Company Event; (xii)
<PAGE> 5
Capital Security Certificate; (xiii) Pricing Agreement; (xiv) Purchase Contract
Agreement; (xv) Put Option (xvi) Quotation Agent; (xvii) Regular Trustees;
(xviii) Redemption Amount, (xix) Reset Agent; (xx) Reset Announcement Date;
(xxi) Reset Rate (xxii) Reset Spread;(xxiii) Tax Event; (xxiv) Tax Event
Redemption Date; (xxv) Treasury Portfolio Purchase Price; (xxvi) Treasury
Portfolio; (xxvii) Treasury Securities and (xxviii) Two-Year Benchmark Treasury.
(f) the following terms have the meanings given to them in this Section
1.1(f):
"Compounded Interest" shall have the meaning set forth in Section 4.1.
"Coupon Rate" shall have the meaning set forth in Section 2.5.
"Custodial Agent" means The Bank of New York, as Custodial Agent.
"Debenture Repayment Price" shall have the meaning set forth in Section
3.4.
"Declaration" means the Amended and Restated Declaration of Trust of KBHC
Financing I, a Delaware statutory business trust, dated as of _______, 1998.
"Deferred Interest" shall have the meaning set forth in Section 4.1
hereof.
"Dissolution Event" means that, as a result of the occurrence and
continuation of a Tax Event, an Investment Company Event or otherwise, the Trust
is to be dissolved in accordance with the Declaration, and, except in the case
of a Tax Event Redemption, the Debentures held by the Institutional Trustee are
to be distributed to the holders of the Trust Securities issued by the Trust pro
rata in accordance with the Declaration.
"Exchange Agent" means the Institutional Trustee.
"Extended Interest Payment Period" shall have the meaning set forth in
Section 4.1.
"Failed Remarketing" shall have the meaning set forth in Section 5.4(b) of
the Purchase Contract Agreement.
"Global Debentures" shall have the meaning set forth in Section 2.4.
"Non Book-Entry Capital Securities" shall have the meaning set forth in
Section 2.4 .
"Pledge Agreement" means the Pledge Agreement dated as of _______, 1998,
among the Company, the Trust, The Bank of New York, as collateral agent,
custodial agent and securities intermediary and The First National Bank of
Chicago, as purchase contract agent.
"Purchase Contract" shall have the meaning set forth in the Purchase
Contract Agreement, dated as of _______, 1998, between the Company and The First
National Bank of Chicago, as purchase contract agent.
"Purchase Contract Settlement Date" means _______ 16, 2001.
"Remarketing Agent" means Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and/or any successor thereto or replacement
Remarketing Agent under the Remarketing Agreement.
"Remarketing Agreement" means the Remarketing Agreement, dated as of ,
1998, among the Company, the Trust, Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, as remarketing agent and The First National Bank of
Chicago, as purchase contract agent.
2
<PAGE> 6
"Remarketing Date" shall have the meaning set forth in the Remarketing
Agreement.
ARTICLE II
GENERAL TERMS AND CONDITIONS OF THE DEBENTURES
SECTION 2.1. Designation and Principal Amount.
There is hereby authorized a series of Securities designated the ______%
Debentures (the "Debentures") due ____ 16, 2003, limited in aggregate principal
amount to $ _______ million, which amount shall be as set forth in any written
order of the Company for the authentication and delivery of Debentures pursuant
to Section 303 of the Base Indenture.
SECTION 2.2. Maturity. The Maturity Date will be _______ 16, 2003.
SECTION 2.3. Form and Payment.
Except as provided in Section 2.4, the Debentures shall be issued in fully
registered certificated form without interest coupons, bearing identical terms.
Principal and interest on the Debentures issued in certificated form will be
payable, the transfer of such Debentures will be registrable and such Debentures
will be exchangeable for Debentures bearing identical terms and provisions at
the office or agency of the Institutional Trustee; provided, however, that
payment of interest may be made at the option of the Company by check mailed to
the Holder at such address as shall appear in the Security Register.
Notwithstanding the foregoing, so long as the Holder of any Debentures is the
Institutional Trustee, the payment of the principal of and interest (including
Compounded Interest and expenses and taxes of the Trust set forth in Section 4.1
hereof, if any) on such Debentures held by the Institutional Trustee will be
made at such place and to such account as may be designated by the Institutional
Trustee.
SECTION 2.4. Global Debenture.
(a) In connection with a Dissolution Event,
(i) the Debentures in certificated form may be presented to the
Trustee by the Institutional Trustee in exchange for a global Debenture in an
aggregate principal amount equal to the aggregate principal amount of all
outstanding Debentures (a "Global Debenture"), to be registered in the name of
the Clearing Agency, or its nominee, and delivered by the Institutional Trustee
to the Clearing Agency for crediting to the accounts of its participants
pursuant to the instructions of the Regular Trustees. The Company upon any such
presentation shall execute a Global Debenture in such aggregate principal amount
and deliver the same to the Trustee for authentication and delivery in
accordance with the Indenture. Payments on the Debentures issued as a Global
Debenture will be made to the Clearing Agency; and
(ii) if any Capital Securities are held in non book-entry
certificated form, the Debentures in certificated form may be presented to the
Trustee by the Institutional Trustee and any Capital Security Certificate which
represents Capital Securities other than Capital Securities held by the Clearing
Agency or its nominee ("Non Book-Entry Capital Securities") will be deemed to
represent beneficial interests in the Debentures presented to the Trustee by the
Institutional Trustee having an aggregate principal amount equal to the
aggregate liquidation amount of the Non Book-Entry Capital Securities until such
Capital Security Certificates are presented to the Security Registrar for
transfer or reissuance at which time such Capital Security Certificates will be
cancelled and a Debenture, registered in the name of the holder of the Capital
Security Certificate or the transferee of the holder of such Capital Security
Certificate, as the case may be, with an aggregate principal amount equal to the
aggregate liquidation amount of the Capital Security Certificate cancelled, will
be executed by the Company and delivered to the Trustee for authentication
3
<PAGE> 7
and delivery in accordance with the Indenture to such holder. On issue of such
Debentures, Debentures with an equivalent aggregate principal amount that were
presented by the Institutional Trustee to the Trustee will be deemed to have
been cancelled.
(b) Unless and until it is exchanged for the Debentures in registered
form, a Global Debenture may be transferred, in whole but not in part, only to
another nominee of the Clearing Agency, or to a successor Clearing Agency
selected or approved by the Company or to a nominee of such successor Clearing
Agency.
(c) If at any time the Clearing Agency notifies the Company that it is
unwilling or unable to continue as a Clearing Agency or if at any time the
Clearing Agency for such series shall no longer be registered or in good
standing under the Securities Exchange Act of 1934, as amended, or other
applicable statute or regulation, and a successor Clearing Agency for such
series is not appointed by the Company within 90 days after the Company receives
such notice or becomes aware of such condition, as the case may be, the Company
will execute, and, subject to Article III of the Indenture, the Trustee, upon
written notice from the Company, will authenticate and deliver the Debentures in
definitive registered form without coupons, in authorized denominations, and in
an aggregate principal amount equal to the principal amount of the Global
Debenture in exchange for such Global Debenture. In addition, the Company may at
any time determine that the Debentures shall no longer be represented by a
Global Debenture. In such event the Company will execute, and subject to Section
3.3 of the Base Indenture, the Trustee, upon receipt of an Officer's Certificate
evidencing such determination by the Company, will authenticate and deliver the
Debentures in definitive registered form without coupons, in authorized
denominations, and in an aggregate principal amount equal to the principal
amount of the Global Debenture in exchange for such Global Debenture. Upon the
exchange of the Global Debenture for such Debentures in definitive registered
form without coupons, in authorized denominations, the Global Debenture shall be
cancelled by the Trustee. Such Debentures in definitive registered form issued
in exchange for the Global Debenture shall be registered in such names and in
such authorized denominations as the Clearing Agency, pursuant to instructions
from its direct or indirect participants or otherwise, shall instruct the
Trustee. The Trustee shall deliver such Securities to the Clearing Agency for
delivery to the Persons in whose names such Securities are so registered.
SECTION 2.5. Interest.
(a) Each Debenture will bear interest initially at the rate of ___ % per
annum (the "Coupon Rate") from the original date of issuance until _______ 15,
2001, and at the Reset Rate thereafter until the principal thereof becomes due
and payable, and on any overdue principal and (to the extent that payment of
such interest is enforceable under applicable law) on any overdue installment of
interest at the Coupon Rate until _______ 15, 2001 and at the Reset Rate
thereafter, compounded quarterly, payable (subject to the provisions of Article
IV herein) quarterly in arrears on February 16, May 16, August 16 and November
16 of each year (each, an "Interest Payment Date") commencing on _______ 16,
1998, to the Person in whose name such Debenture or any predecessor Debenture is
registered, at the close of business on the Regular Record Date for such
interest installment, which, in respect of (i) Debentures of which the
Institutional Trustee is the Holder and the Capital Securities are in book-entry
only form or (ii) a Global Debenture, shall be the close of business on the
Business Day next preceding that Interest Payment Date. Notwithstanding the
foregoing sentence, if (i) the Debentures are held by the Institutional Trustee
and the Capital Securities are no longer in book-entry only form or (ii) the
Debentures are not represented by a Global Debenture, the Company may select a
Regular Record Date for such interest installment which shall be more than one
Business Day but less than 60 Business Days prior to an Interest Payment Date.
(b) The Coupon Rate on the Debentures will be reset on the third Business
Day immediately preceding the Purchase Contract Settlement Date to the Reset
Rate (which Reset Rate will become effective on and after the Purchase Contract
Settlement Date). On the tenth (10) Business Day immediately preceding the
Purchase Contract Settlement Date, the Reset Announcement Date, the Reset Spread
and the relevant Two-Year Benchmark Treasury will be announced by the Company.
On the Business Day immediately following such Reset Announcement Date, the
Holders
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<PAGE> 8
of Debentures will be notified of such Reset Spread and Two-Year Benchmark
Treasury by the Company. Such notice shall be sufficiently given to such Holders
of Debentures if published in an Authorized Newspaper.
(c) Not later than seven calendar days nor more than 15 calendar days
immediately preceding the Reset Announcement Date, the Company will request that
the Clearing Agency or its nominee (or any successor Clearing Agency or its
nominee) or the Institutional Trustee, notify the Holders of Debentures of such
Reset Announcement Date and the procedures to be followed by such holders of
Debentures wishing to settle the related Purchase Contract with separate cash on
the Business Day immediately preceding the Purchase Contract Settlement Date.
(d) 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. Except as provided
in the following sentence, 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 a 90-day period. In the
event that any date on which interest is payable on the Debentures is not a
Business Day, then payment of interest 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 date.
ARTICLE III
REDEMPTION OF THE DEBENTURES
SECTION 3.1. Tax Event Redemption.
If a Tax Event shall occur and be continuing, the Company may, at its
option, redeem the Debentures in whole (but not in part) at any time at a
Redemption Price per Debenture equal to the Redemption Amount plus accrued and
unpaid interest thereon, including Compounded Interest and the expenses and
taxes of the Trust set forth in Section 4.1 hereof, if any, to the date of such
redemption (the "Tax Event Redemption Date"). If, following the occurrence of a
Tax Event, the Company exercises its option to redeem the Debentures, then the
proceeds of such redemption, if distributed to the Institutional Trustee as the
sole Holder of such Debentures, will be applied by the Institutional Trustee to
redeem Trust Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Debentures so redeemed, at the Redemption
Price. If, following the occurrence of a Tax Event prior to the Purchase
Contract Settlement Date, the Company exercises its option to redeem the
Debentures, the Company shall appoint the Quotation Agent to assemble the
Treasury Portfolio in consultation with the Company. Notice of any redemption
will be mailed at least 30 days but not more than 60 days before the Tax Event
Redemption Date to each registered Holder of the Debentures to be prepaid 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.
SECTION 3.2. Redemption Procedure for Debentures.
Payment of the Redemption Price to each Holder of Debentures shall be made
by the Company, no later than 12:00 noon, New York City time, on the Tax Event
Redemption Date, by check or wire transfer in immediately available funds at
such place and to such account as may be designated by each such Holder of
Debentures, including the Institutional Trustee or the Collateral Agent, as the
case may be. If the Trustee holds immediately available funds sufficient to pay
the Redemption Price of the Debentures (or, if the Company is acting as Paying
Agent or the Institutional Trustee has received the Redemption Price), then, on
such Tax Event Redemption Date, such Debentures will cease to be outstanding and
interest thereon will cease to accrue, whether or not such Debentures have been
received by the Company, and all other rights of the Holder in respect of the
Debentures shall terminate and lapse (other than the right to receive the
Redemption Price upon delivery of such Debentures but without interest on such
Redemption Price).
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<PAGE> 9
SECTION 3.3. No Sinking Fund.
The Debentures are not entitled to the benefit of any sinking fund.
SECTION 3.4. Option to Put Debentures upon a Failed Remarketing.
If a Failed Remarketing (as described in Section 5.4(b) of the Purchase
Contract Agreement and incorporated herein by reference) has occurred, each
holder of Securities who holds such Securities on the day immediately following
the Purchase Contract Settlement Date, shall, upon at least three Business Days'
prior notice, have the right (the "Put Option") on the Business Day immediately
following 16, 2001, to require the Trust to distribute their pro rata share of
Debentures to the Exchange Agent and to require the Exchange Agent to put such
Debentures, on behalf of such holders on , 2001 (the "Put Option Exercise Date")
at a repayment price of $10 per Security plus an amount equal to the accrued and
unpaid Distributions (including deferred distributions, if any) thereon to the
date of payment (the "Debenture Repayment Price").
SECTION 3.5. Repurchase Procedure for Debentures.
(a) In order for the Debentures to be repurchased on the Put Option
Exercise Date, the Company must receive on or prior to 5:00 p.m. New York City
time on the third Business Day immediately preceding the Put Option Exercise
Date, at the then principal executive offices of the Company, the Debentures to
be repurchased with the form entitled "Option to Elect Repayment" on the reverse
of or otherwise accompanying such Debentures duly com pleted. Any such notice
received by the Trustee shall be irrevocable. All questions as to the validity,
eligibility (in cluding time of receipt) and acceptance of the Debentures for
repayment shall be determined by the Company, whose determination shall be final
and binding.
(b) Payment of the Debenture Repayment Price to the Exchange Agent
shall be made through the Trustee, subject to the Trustee's receipt of payment
from the Company in accordance with the terms of the Indenture either through
the Trustee or the Company acting as Paying Agent, no later than 12:00 noon, New
York City time, on the Put Option Exercise Date, and to such account as may be
designated by the Exchange Agent. If the Trustee holds immediately available
funds sufficient to pay the Debenture Repayment Price of the Debentures
presented for repayment (or, if the Company is acting as Paying Agent and the
Institutional Trustee has received the Debenture Repayment Price), then,
immediately prior to the close of business on the Business Day immediately
preceding the Put Option Exercise Date, such Debentures will cease to be
outstanding and interest thereon will cease to accrue, whether or not such
Debentures have been received by the Company, and all other rights of the Holder
in respect of the Debentures, including the Holder's right to require the
Company to repay such Debentures, shall terminate and lapse (other than the
right to receive the Debenture Repayment Price upon delivery of such Debentures
but without interest on such Debenture Repayment Price). Neither the Trustee nor
the Company will be required to register or cease to be registered the transfer
of any Debenture for which repayment has been elected.
ARTICLE IV
EXTENSION OF INTEREST PAYMENT PERIOD
SECTION 4.1. Extension of 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 of such Debentures for a period not extending, in
the aggregate, beyond the Maturity Date of the Debentures (the "Extended
Interest Payment Period"), during which Extended Interest Payment Period no
interest shall be due and payable. To the extent permitted by applicable law,
interest, the payment of which has been deferred because of the extension of the
interest payment period pursuant to this Section 4.1, will bear interest thereon
at the rate of % until 15, 2001, and at the Reset Rate thereafter
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<PAGE> 10
compounded quarterly for each quarter of the Extended Interest Payment Period
("Compounded Interest"). At the end of the Extended Interest Payment Period, the
Company shall pay all interest accrued and unpaid on the Debentures, including
any expenses and taxes of the Trust set forth in Section 5.1 hereof and
Compounded Interest (together, "Deferred Interest") that shall be payable to the
Holders of the Debentures in whose names the Debentures are registered in the
Security Register on the first record date after the end of the Extended
Interest Payment Period; provided, however, that during any such Extended
Interest Payment 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 Extended Interest Payment
Period, the Company may further extend such period, provided that such period
together with all such previous and further extensions thereof shall not extend
beyond the Maturity Date of the Debentures. Upon the termination of any Extended
Interest Payment Period and the payment of all Deferred Interest then due, the
Company may commence a new Extended Interest Payment Period, subject to the
foregoing requirements. No interest shall be due and payable during an Extended
Interest Payment Period, except at the end thereof, but the Company, at its
option, may prepay on any Interest Payment Date all or any portion of the
interest accrued during the then elapsed portion of an Extended Interest Payment
Period.
SECTION 4.2. Notice of Extension.
(a) If the Institutional Trustee is the only registered Holder of the
Debentures at the time the Company selects an Extended Interest Payment Period,
the Company shall give written notice to the Regular Trustees, the Institutional
Trustee and the Trustee of its selection of such Extended Interest Payment
Period one Business Day before the earlier of (i) the next succeeding date on
which Distributions on the Trust Securities issued by the Trust are payable, or
(ii) the date the Trust is required to give notice of the record date, or the
date such Distributions are payable, to The New York Stock Exchange, Inc. (the
"NYSE") or other applicable self-regulatory organization or to holders of the
Capital Securities issued by the Trust, but in any event at least one Business
Day before such record date.
(b) If the Institutional Trustee is not the only Holder of the Debentures
at the time the Company selects an Extended Interest Payment Period, the Company
shall give the Holders of the Debentures and the Trustee written notice of its
selection of such Extended Interest Payment Period at least 10 Business Days
before the earlier of (i) the next succeeding Interest Payment Date, or (ii) the
date the Company is required to give notice of the record or payment date of
such interest payment to the NYSE or other applicable self-regulatory
organization or to Holders of the Debentures.
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<PAGE> 11
ARTICLE V
EXPENSES
SECTION 5.1. Payment of Expenses.
In connection with the offering, sale and issuance of the Debentures to
the Institutional Trustee and in connection with the sale of the Trust
Securities by the Trust, the Company, in its capacity as borrower with respect
to the Debentures, shall:
(a) pay all costs and expenses relating to the offering, sale and issuance
of the Debentures, including commissions to the underwriters payable pursuant to
the Underwriting Agreement and the Pricing Agreement and compensation of the
Trustee under the Indenture in accordance with the provisions of Section 607 of
the Base Indenture;
(b) pay all costs and expenses of the Trust including, but not limited to,
costs and expenses relating to the organization of the Trust, the offering, sale
and issuance of the Trust Securities (including commissions to the underwriters
in connection therewith), the fees and expenses of the Institutional Trustee and
the Delaware Trustee, the costs and expenses relating to the operation of the
Trust, including without limitation, costs and expenses of accountants,
attorneys, statistical or bookkeeping services, expenses for printing and
engraving and computing or accounting equipment, paying agent(s), registrar(s),
transfer agent(s), duplicating, travel and telephone and other
telecommunications expenses and costs and expenses incurred in connection with
the acquisition, financing, and disposition of Trust assets) to which the Trust
might become subject;
(c) be primarily liable for any indemnification obligations arising with
respect to the Declaration; and
(d) pay any and all taxes (other than United States withholding taxes
attributable to the Trust or its assets) and all liabilities, costs and expenses
with respect to such taxes of the Trust.
SECTION 5.2. Payment Upon Resignation or Removal.
Upon termination of this First Supplemental Indenture or the Base
Indenture or the removal or resignation of the Trustee, the Company shall pay to
the Trustee all amounts accrued to the date of such termination, removal or
resignation. Upon termination of the Declaration or the removal or resignation
of the Delaware Trustee or the Institutional Trustee, as the case may be, the
Company shall pay to the Delaware Trustee or the Institutional Trustee, as the
case may be, all amounts accrued to the date of such termination, removal or
resignation.
ARTICLE VI
NOTICE
SECTION 6.1. Notice by the Company.
The Company shall give prompt written notice to a Responsible Officer of
the Trustee of any fact known to the Company that would prohibit the making of
any payment of monies to or by the Trustee in respect of the Debentures pursuant
to the provisions of this Article VI. Notwithstanding any of the provisions of
the Base Indenture and this First Supplemental Indenture, the Trustee shall not
be charged with knowledge of the existence of any facts that would prohibit the
making of any payment of monies to or by the Trustee in respect of the
Debentures pursuant to the provisions of the Base Indenture; provided, however,
that if the Trustee shall not have received the notice provided for in this
Article VI at least two Business Days prior to the date upon which by the terms
hereof any money may become payable for any purpose (including, without
limitation, the payment of the principal of (or premium, if any) or interest on
any Debenture), then, anything herein contained to the contrary notwithstanding,
the Trustee shall
8
<PAGE> 12
have full power and authority to receive such money and to apply the same to the
purposes for which they were received, and shall not be affected by any notice
to the contrary that may be received by it within two Business Days prior to
such date.
ARTICLE VII
FORM OF DEBENTURE
SECTION 7.1. Form of Debenture.
The Debentures and the Trustee's Certificate of Authentication to be
endorsed thereon are to be substantially in the following forms:
(FORM OF FACE OF DEBENTURE)
[IF THE DEBENTURE IS TO BE A GLOBAL DEBENTURE, INSERT - THIS DEBENTURE IS
A GLOBAL DEBENTURE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO
AND IS REGISTERED IN THE NAME OF THE CLEARING AGENCY OR A NOMINEE OR THE
CLEARING AGENCY. THIS DEBENTURE IS EXCHANGEABLE FOR DEBENTURES REGISTERED IN THE
NAME OF A PERSON OTHER THAN THE CLEARING AGENCY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS
DEBENTURE (OTHER THAN A TRANSFER OF THIS DEBENTURE AS A WHOLE BY THE CLEARING
AGENCY TO A NOMINEE OF THE CLEARING AGENCY OR BY A NOMINEE OF THE CLEARING
AGENCY TO THE CLEARING AGENCY OR ANOTHER NOMINEE OF THE CLEARING AGENCY) MAY BE
REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES.]
UNLESS THIS DEBENTURE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY DEBENTURE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED
BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT
HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE
OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE &
CO., HAS AN INTEREST HEREIN.]
No._________________
$___________________
KAUFMAN AND BROAD HOME CORPORATION
___% DEBENTURE
DUE ___ 16, 2003
KAUFMAN AND BROAD HOME CORPORATION, a Delaware corporation (the "Company",
which term includes any successor corporation under the Indenture hereinafter
referred to), for value received, hereby promises to pay to _____________, the
principal sum of __________________ ($______________) on ___ 16, 2003 (such date
is hereinafter referred to as the "Maturity Date"), and to pay interest on said
principal sum from _______, 1998, or from the most recent interest payment date
(each such date, an "Interest Payment Date") to which interest has been paid or
duly provided for, quarterly (subject to deferral as set forth herein) in
arrears on February 16, May 16, August 16 and November 16 of each year,
commencing on ___ 16, 1998, initially at the rate
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<PAGE> 13
of ___% per annum until ___ 15, 2001, and at the Reset Rate thereafter until the
principal hereof shall have become due and payable, and on any overdue principal
and premium, if any, and (without duplication and to the extent that payment of
such interest is enforceable under applicable law) on any overdue installment of
interest at the rate of ___% until ____ 15, 2001, and at the Reset Date
thereafter, compounded quarterly. The interest rate will be reset on the third
business day preceding ____ 16, 2001 to the Reset Rate (as determined by the
Reset Agent). The amount of interest payable on any Interest Payment Date shall
be computed on the basis of a 360-day year consisting of twelve 30-day months.
In the event that any date on which interest is payable on this Debenture is not
a Business Day, then payment of 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, 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. The interest installment so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in the
Indenture, be paid to the person in whose name this Debenture (or one or more
Predecessor Securities, as defined in said Indenture) is registered at the close
of business on the regular record date for such interest installment which in
the case of a Global Debenture shall be the close of business on the business
day next preceding such Interest Payment Date; provided, however, if pursuant to
the terms of the Indenture the Debentures are no longer represented by a Global
Debenture, the Company may select such regular record date for such interest
installment which shall be more than one Business Day but less than 60 Business
Days prior to an Interest Payment Date. Any such interest installment not
punctually paid or duly provided for shall forthwith cease to be payable to the
registered Holders on such regular record date and may be paid to the Person in
whose name this Debenture (or one or more Predecessor Securities) is registered
at the close of business on a special record date to be fixed by the Trustee for
the payment of such defaulted interest, notice whereof shall be given to the
registered Holders of this series of Debentures not less than 10 days prior to
such special record date, or may be paid at any time in any other lawful manner
not inconsistent with the requirements of any securities exchange on which the
Debentures may be listed, and upon such notice as may be required by such
exchange all as more fully provided in the Indenture. The principal of (and
premium, if any) and the interest on this Debenture shall be payable at the
office or agency of the Trustee maintained for that purpose in any coin or
currency of the United States of America that at the time of payment is legal
tender for payment of public and private debts; provided, however, that payment
of interest may be made at the option of the Company by check mailed to the
registered Holders at such address as shall appear in the Security Register or
by wire transfer to an account appropriately designated by the Holders entitled
thereto. Notwithstanding the foregoing, so long as the Holder of this Debenture
is the Institutional Trustee or the Collateral Agent, the payment of the
principal of (and premium, if any) and interest on this Debenture will be made
at such place and to such account as may be designated in writing by the
Institutional Trustee or the Collateral Agent.
The indebtedness evidenced by this Debenture is, to the extent provided in
the Indenture, senior and unsecured and will rank in right of payment on parity
with all other senior unsecured obligations of the Company.
This Debenture shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of
the Trustee.
The provisions of this Debenture are continued on the reverse side hereof
and such continued provisions shall for all purposes have the same effect as
though fully set forth at this place.
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<PAGE> 14
IN WITNESS WHEREOF, the Company has caused this instrument to be executed.
Dated: _______, 1998
KAUFMAN AND BROAD HOME CORPORATION
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
Attest:
By:
----------------------------------
Name:
Title:
CERTIFICATE OF AUTHENTICATION
This is one of the Debentures of the series of Debentures described in the
within-mentioned Indenture.
Dated
----------------------------------
THE FIRST NATIONAL BANK OF CHICAGO
as Trustee
By
----------------------------------
Authorized Signatory
<PAGE> 15
(FORM OF REVERSE OF DEBENTURE)
This Debenture is one of a duly authorized series of Securities of the
Company (herein sometimes referred to as the "Securities"), specified in the
Indenture, all issued or to be issued in one or more series under and pursuant
to an Indenture dated as of , 1998 (the "Base Indenture"), duly executed and
delivered between the Company and The First National Bank of Chicago, as Trustee
(the "Trustee") (as supplemented by a First Supplemental Indenture, dated ,
1998), (the Base Indenture as so supplemented, the "Indenture"), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the Holders of the
Securities. By the terms of the Indenture, the Securities are issuable in series
that may vary as to amount, date of maturity, rate of interest and in other
respects as provided in the Indenture. This series of Securities is limited in
aggregate principal amount as specified in said First Supplemental Indenture.
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 per Debenture equal to the Redemption Amount plus accrued and unpaid
interest thereon, including Compounded Interest and expenses and taxes of the
Trust (each as defined herein), if any, to the Tax Event Redemption Date. The
Redemption Price shall be paid to each Holder of the Debenture by the Company,
no later than 12:00 noon, New York City time, on the Tax Event Redemption Date,
by check or wire transfer in immediately available funds, at such place and to
such account as may be designated by each such Holder.
The Debentures are not entitled to the benefit of any sinking fund.
If a Failed Remarketing (as described in Section 5.4(b) of the Purchase
Contract Agreement and incorporated herein by reference) has occurred, each
holder of Securities who holds such Securities on the day immediately following
The Purchase Contract Settlement Date, shall, upon at least three Business Days'
prior notice, have the right (the "Put Option") on the Business Day immediately
following , 2001, to require the Trust to distribute their pro rata share of
Debentures to the Exchange Agent and to require the Exchange Agent to put such
Debentures, on behalf of such holders on , 2001 (the "Put Option Exercise Date")
at a repayment price of $10 per Security plus an amount equal to the accrued and
unpaid Distributions (including deferred distributions, if any) thereon to the
date of payment (the "Debenture Repayment Price").
In order for the Debentures to be so repurchased, the Company must
receive, on or prior to 5:00 p.m. New York City Time on the third Business Day
immediately preceding the Put Option Exercise Date, at the then principal
executive offices of the Company, the Debentures to be repurchased with the form
entitled "Option to Elect Repayment" on the reverse of or otherwise accompanying
such Debentures duly completed. Any such notice received by the Trustee shall be
irrevocable. All questions as to the validity, eligibility (including time of
receipt) and acceptance of the Debentures for repayment shall be determined by
the Company, whose determination shall be final and binding. The payment of the
Debenture Repayment Price in respect of such Debentures shall be made, either
through the Trustee or the Company acting as Paying Agent, no later than 12:00
noon, New York City time, on the Put Option Exercise Date.
In case an Event of Default, as defined in the Indenture, shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of not less than a majority in aggregate
principal amount of the Debentures of each series affected at the time
outstanding, as defined in the Indenture, to execute supplemental indentures for
the purpose of, among other things, adding any provisions to or changing or
eliminating any of the provisions of the Indenture or of any supplemental
indenture or of modifying the rights of the Holders of the Debentures; provided,
however, that, among other things, no such
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<PAGE> 16
supplemental indenture shall (i) reduce the principal amount thereof, or reduce
the rate or extend the time of payment of interest thereon (subject to the
Company's right to defer such payments in the manner set forth herein), or
reduce any premium payable upon the redemption thereof, without the consent of
the Holder of each Debenture so affected, or (ii) reduce the aforesaid
percentage of Debentures, the Holders of which are required to consent to any
such supplemental indenture, without the consent of the Holders of each
Debenture then outstanding and affected thereby. The Indenture also contains
provisions permitting the Holders of a majority in aggregate principal amount of
the Securities of any series at the time outstanding affected thereby, on behalf
of all of the Holders of the Debentures of such series, to waive a Default or
Event of Default with respect to such series, and its consequences, except a
Default or Event of Default in the payment of the principal of or premium, if
any, or interest on any of the Securities of such series. Any such consent or
waiver by the registered Holder of this Debenture (unless revoked as provided in
the Indenture) shall be conclusive and binding upon such Holder and upon all
future Holders and owners of this Debenture and of any Debenture issued in
exchange for or in place hereof (whether by registration of transfer or
otherwise), irrespective of whether or not any notation of such consent or
waiver is made upon this Debenture.
No reference herein to the Indenture and no provision of this Debenture or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Debenture at the time and place and at the rate and in the
money herein prescribed.
So long as the Company is not in default in the payment of interest on the
Debenture, the Company shall have the right at any time during the term of the
Debentures from time to time to extend the interest payment period of such
Debentures for a period not extending, in the aggregate, beyond the Maturity
Date of the Debentures (an "Extended Interest Payment Period"). At the end of an
Extended Interest Payment Period, the Company shall pay all interest then
accrued and unpaid (together with the interest thereon at the rate of % until
15, 2001 and at the Reset Rate thereafter to the extent that payment of such
interest is enforceable under applicable law). In the event that the Company
exercises this right, then (a) the Company shall not declare or pay dividends 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'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 purchases of any rights
outstanding under a shareholder rights plan or the declaration thereunder of a
dividend of rights in the future), and (bc) 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 Extended Interest
Payment Period, the Company may further extend the interest payment period;
provided, that such Extended Interest Payment Period, together with all such
previous and further extensions thereof, may not extend beyond the Maturity Date
of the Debenture. At the termination of any such Extended Interest Payment
Period and upon the payment of all accrued and unpaid interest and any
additional amount then due, the Company may commence a new Extended Interest
Payment Period, subject to the above requirements.
As provided in the Indenture and subject to certain limitations therein
set forth, this Debenture is transferable by the registered Holder hereof on the
Security Register of the Company, upon surrender of this Debenture for
registration of transfer at the office or agency of the Trustee in The City of
New York and State of New York accompanied by a written instrument or
instruments of transfer in form satisfactory to the Company or the Trustee duly
executed by the registered Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Debentures of authorized denominations
and for the same aggregate principal amount and series will be issued to the
designated transferee or transferees. No service charge will be made for any
such transfer, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in relation thereto.
13
<PAGE> 17
Prior to due presentment for registration of transfer of this Debenture,
the Company, the Trustee, any Paying Agent and the Security Registrar may deem
and treat the registered holder hereof as the absolute owner hereof (whether or
not this Debenture shall be overdue and notwithstanding any notice of ownership
or writing hereon made by anyone other than the Security Registrar) for the
purpose of receiving payment of or on account of the principal hereof and
premium, if any, and interest due hereon and for all other purposes, and neither
the Company nor the Trustee nor any Paying Agent nor any Security Registrar
shall be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, shareholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issuance hereof, expressly
waived and released.
The Indenture imposes certain limitations on the ability of the Company
to, among other things, merge or consolidate with any other Person or sell,
assign, transfer or lease all or substantially all of its properties or assets.
All such covenants and limitations are subject to a number of important
qualifications and exceptions. The Company must report periodically to the
Trustee on compliance with the covenants in the Indenture.
The Debentures of this series are issuable only in registered form without
coupons in denominations of $10 and any integral multiple thereof. This Global
Debenture is exchangeable for Debentures in definitive form only under certain
limited circumstances set forth in the Indenture. As provided in the Indenture
and subject to certain limitations therein set forth, Debentures of this series
so issued are exchangeable for a like aggregate principal amount of Debentures
of this series of a different authorized denomination, as requested by the
Holder surrendering the same.
All terms used in this Debenture that are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
14
<PAGE> 18
OPTION TO ELECT REPAYMENT
The undersigned hereby irrevocably requests and instructs the Company to
repay $_____ principal amount of the within Debenture, pursuant to its terms, on
the "Put Option Exercise Date," together with any interest thereon accrued but
unpaid to the date of repayment, to the undersigned at:
(Please print or type name and address of the undersigned)
and to issue to the undersigned, pursuant to the terms of the Debenture, a new
Debenture or Debentures representing the remaining aggregate principal amount of
this Debenture.
For this Option to Elect Repayment to be effective, this Debenture with the
Option to Elect Repayment duly completed must be received by the Company at its
principal executive office, Attn: Secretary, no later than 5:00 p.m. on
__________, 2001.
Dated: Signature:____________________________________
Signature Guarantee: _________________________
Note: The signature to this Option to Elect Repayment must correspond with the
name as written upon the face of the within Debenture without alternation or
enlargement or any change whatsoever.
SIGNATURE GUARANTEE
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include membership
or participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
15
<PAGE> 19
----------------
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Debenture to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax identification number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
agent to transfer this Debenture on the books of the Trust. The agent may
substitute another to act for him or her.
Date: ____________________________________
Signature:____________________________________
Signature Guarantee: _________________________
(Sign exactly as your name appears on the other side of this Debenture)
SIGNATURE GUARANTEE
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include membership
or participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
16
<PAGE> 20
ARTICLE VIII
ORIGINAL ISSUE OF DEBENTURES
SECTION 8.1. Original Issue of Debentures.
Debentures in the aggregate principal amount of $______ may, upon
execution of this First Supplemental Indenture, be executed by the Company and
delivered to the Trustee for authentication, and the Trustee shall thereupon
authenticate and deliver said Debentures to or upon the written order of the
Company, signed by its Chairman, its Vice Chairman, its President, or any Vice
President and its Treasurer or an Assistant Treasurer, without any further
action by the Company.
The Company shall file with the Trustee promptly at the end of each
calendar year (i) a written notice specifying the amount of original issue
discount (including daily rates and accrual periods) accrued on Outstanding
Securities as of the end of the year and (ii) such other specific information
relating to such original issue discount as may then be relevant under the
Internal Revenue Code of 1986, as amended from time to time.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. Ratification of Indenture.
The Indenture as supplemented by this First Supplemental Indenture, is in
all respects ratified and confirmed, and this First Supplemental Indenture shall
be deemed part of the Indenture in the manner and to the extent herein and
therein provided.
SECTION 9.2. Trustee Not Responsible for Recitals.
The recitals herein contained are made by the Company and not by the
Trustee, and the Trustee assumes no responsibility for the correctness thereof.
The Trustee makes no representation as to the validity or sufficiency of this
First Supplemental Indenture.
SECTION 9.3. Governing Law.
This First Supplemental Indenture and each Debenture shall be deemed to be
a contract made under the internal laws of the State of New York, and for all
purposes shall be construed in accordance with the laws of said State.
SECTION 9.4. Separability.
In case any one or more of the provisions contained in this First
Supplemental Indenture or in the Debentures shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this First
Supplemental Indenture or of the Debentures, but this First Supplemental
Indenture and the Debentures shall be construed as if such invalid or illegal or
unenforceable provision had never been contained herein or therein.
SECTION 9.5. Counterparts.
This First Supplemental Indenture may be executed in any number of
counterparts each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
17
<PAGE> 21
SECTION 9.6. Guarantee and Declaration
The Guarantee and the Declaration shall be deemed to be specifically
described in this First Supplemental Indenture for purposes of clause (i) of the
first proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE X
REMARKETING
SECTION 10.1. Effectiveness of this Article.
This Article Ten shall only become effective upon a Dissolution Event
which occurs prior to the Remarketing of the Capital Securities pursuant to this
Agreement. Until such Dissolution Event, this Article Ten shall have no effect.
SECTION 10.2. Remarketing Procedures.
(a) The Company will request, not later than 15 nor more than 30
calendar days prior to the Remarketing Date that the Clearing Agency notify the
Holders of the Debentures and the holders of Income PRIDES and Growth PRIDES of
the Remarketing and of the procedures that must be followed if a Holder of
Debentures wishes to exercise such Holder's rights with respect to the Put
Option if there is a Failed Remarketing.
(b) Not later than 5:00 P.M., New York City time, on the fifth
Business Day immediately preceding the Purchase Contract Settlement Date, each
Holder of the Debentures may elect to have Debentures held by such Holder
remarketed. Under Section 5.4 of the Purchase Contract Agreement, Holders of
Income PRIDES that do not give notice of intention to make a Cash Settlement of
their related Purchase Contracts shall be deemed to have consented to the
disposition of the Debentures comprising a component of such Income PRIDES.
Holders of Debentures that are not a component of Income PRIDES shall give
notice of their election to have such Debentures remarketed to the Custodial
Agent pursuant to the Pledge Agreement. Any such notice shall be irrevocable
after 5:00 P.M., New York City time, on the fifth Business Day immediately
preceding the Purchase Contract Settlement Date and may not be conditioned upon
the level at which the Reset Rate is established. Promptly after 5:30 P.M., New
York City time, on such fifth Business Day, the Institutional Trustee, based on
the notices received by it prior to such time (including notices from the
Purchase Contract Agent as to Purchase Contracts for which Cash Settlement has
been elected), shall notify the Trust, the Company and the Remarketing Agent of
the number of Debentures to be tendered for purchase.
(c) If any Holder of Income PRIDES does not give a notice of its
intention to make a Cash Settlement or gives a notice of election to tender
Debentures as described in Section 10.2(b), the Debentures of such Holder shall
be deemed tendered, notwithstanding any failure by such Holder to deliver or
properly deliver such Debentures to the Remarketing Agent for purchase.
(d) The right of each Holder to have Debentures tendered for
purchase shall be limited to the extent that (i) the Remarketing Agent conducts
a remarketing pursuant to the terms of the Remarketing Agreement, (ii)
Debentures tendered have not been called for redemption, (iii) the Remarketing
Agent is able to find a purchaser or purchasers for tendered Debentures and (iv)
such purchaser or purchasers deliver the purchase price therefor to the
Remarketing Agent.
(e) On the Remarketing Date, the Remarketing Agent shall use
commercially reasonable efforts to remarket at a price equal to approximately
100.5% of the aggregate principal amount thereof, Debentures tendered or deemed
tendered for purchase.
18
<PAGE> 22
(f) If none of the Holders elect to have Debentures held by them
remarketed, the Reset Rate shall be the rate determined by the Remarketing
Agent, subject to the terms of the Remarketing Agreement, as the rate that would
have been established had a remarketing been held on the Remarketing Date.
(g) If the Remarketing Agent has determined that it will be able to
remarket all Debentures tendered or deemed tendered prior to 4:00 P.M., New York
City time, on the Remarketing Date, the Remarketing Agent shall determine the
Reset Rate, which shall be the rate per annum (rounded to the nearest
one-thousandth (0.001) of one percent per annum) which the Remarketing Agent
determines, subject to the terms of the Remarketing Agreement, to be the lowest
rate per annum that will enable it to remarket all Debentures tendered or deemed
tendered for remarketing.
(h) If, by 4:00 P.M., New York City time, on the Remarketing Date,
the Remarketing Agent is unable to remarket all Debentures tendered or deemed
tendered for purchase, a failed remarketing ("Failed Remarketing") shall be
deemed to have occurred and the Remarketing Agent shall so advise by telephone
the Collateral Agent, Company, Institutional Trustee, Delaware Trustee and
Clearing Agency.
(i) By approximately 4:30 P.M., New York City time, on the
Remarketing Date, provided that there has not been a Failed Remarketing, the
Remarketing Agent shall advise, by telephone (i) the Collateral Agent, Company,
Institutional Trustee, Delaware Trustee and Clearing Agency of the Reset Rate
determined in the Remarketing and the number of Debentures sold in the
remarketing, (ii) each purchaser (or the Clearing Agency Participant thereof) of
the Reset Rate and the number of Debentures such purchaser is to purchase and
(iii) each purchaser to give instructions to its Clearing Agency Participant to
pay the purchase price on the Purchase Contract Settlement Date in same day
funds against delivery of the Debentures purchased through the facilities of the
Clearing Agency.
(j) In accordance with the Clearing Agency's normal procedures, on
the Purchase Contract Settlement Date, the transactions described above with
respect to each Debenture tendered for purchase and sold in the remarketing
shall be executed through the Clearing Agency, and the accounts of the
respective Clearing Agency Participants shall be debited and credited and such
Debentures delivered by book entry as necessary to effect purchases and sales of
such Debentures. The Clearing Agency shall make payment in accordance with its
normal procedures.
(k) If any Holder selling Debentures in the remarketing fails to
deliver such Debentures, the Clearing Agency Participant of such selling Holder
and of any other person that was to have purchased Debentures in the remarketing
may deliver to any such other person a number of Debentures that is less than
the number of Debentures that otherwise was to be purchased by such person. In
such event, the number of Debentures to be so delivered shall be determined by
such Clearing Agency Participant, and delivery of such lesser number of
Debentures shall constitute good delivery.
(l) The Remarketing Agent is not obligated to purchase any
Debentures that would otherwise remain unsold in a remarketing. Neither the
Trust, any Trustee, the Company nor the Remarketing Agent shall be obligated in
any case to provide funds to make payment upon tender of Debentures for
remarketing.
(m) The tender and settlement procedures set in this Section 10.2,
including provisions for payment by purchasers of Debentures in the remarketing,
shall be subject to modification, notwithstanding any provision to the contrary
set forth herein, to the extent required by the Clearing Agency or if the
book-entry system is no longer available for the Debentures at the time of the
remarketing, to facilitate the tendering and remarketing of Debentures in
certificated form. In addition, the Remarketing Agent may, notwithstanding any
provision to the contrary set forth herein, modify the settlement procedures set
forth herein in order to facilitate the settlement process.
19
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be duly executed by their respective officers thereunto duly
authorized, on the date or dates indicated in the acknowledgments and as of the
day and year first above written.
KAUFMAN AND BROAD HOME CORPORATION,
as Issuer
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO
as Trustee
By:
--------------------------------
Name:
Title:
<PAGE> 1
Exhibit 4.15
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
KAUFMAN AND BROAD HOME CORPORATION
AND
THE FIRST NATIONAL BANK OF CHICAGO,
AS PURCHASE CONTRACT AGENT
--------------------------
FORM OF PURCHASE CONTRACT AGREEMENT
--------------------------
DATED AS OF ______, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
----
RECITALS.......................................................................1
ARTICLE I
Definitions and Other Provisions
of General Applications........................................................1
Section 1.1. Definitions..................................................1
Section 1.2. Compliance Certificates and Opinions........................12
Section 1.3. Form of Documents Delivered to Agent........................13
Section 1.4. Acts of Holders; Record Dates...............................13
Section 1.5. Notices.....................................................15
Section 1.6. Notice to Holders; Waiver...................................16
Section 1.7. Effect of Headings and Table of Contents....................17
Section 1.8. Successors and Assigns......................................17
Section 1.9. Separability Clause.........................................17
Section 1.10. Benefits of Agreement.......................................17
Section 1.11. Governing Law...............................................17
Section 1.12. Legal Holidays..............................................18
Section 1.13. Counterparts................................................18
Section 1.14. Inspection of Agreement.....................................18
ARTICLE II
Certificate Forms.............................................................19
Section 2.1. Forms of Certificates Generally.............................19
Section 2.2. Form of Agent's Certificate of Authentication...............20
ARTICLE III
The Securities................................................................20
Section 3.1. Title and Terms; Denominations..............................20
Section 3.2. Rights and Obligations Evidenced by the Certificates........21
Section 3.3. Execution, Authentication, Delivery and Dating..............21
i
<PAGE> 3
Page
----
Section 3.4. Temporary Certificates......................................22
Section 3.5. Registration; Registration of Transfer and Exchange.........23
Section 3.6. Book-Entry Interests........................................25
Section 3.7. Notices to Holders..........................................25
Section 3.8. Appointment of Successor Clearing Agency....................26
Section 3.9. Definitive Certificates.....................................26
Section 3.10. Mutilated, Destroyed, Lost and Stolen Certificates..........26
Section 3.11. Persons Deemed Owners.......................................28
Section 3.12. Cancellation................................................28
Section 3.14. Establishment or Reestablishment of Income PRIDES...........31
Section 3.15. Transfer of Collateral upon Occurrence of
Termination Event...........................................32
Section 3.16. No Consent to Assumption....................................33
ARTICLE IV
The Capital Securities........................................................34
Section 4.1. Payment of Distribution; Rights to Distributions Preserved;
Distribution Rate Reset; Notice..................34
Section 4.2. Notice and Voting...........................................35
Section 4.3. Distribution of Debentures; Tax Event Redemption............36
ARTICLE V
The Purchase Contracts........................................................37
Section 5.1. Purchase of Shares of Common Stock..........................37
Section 5.2. Contract Adjustment Payments................................39
Section 5.3. Deferral of Payment Dates For Contract Adjustment Payments
...........................................................40
Section 5.4. Payment of Purchase Price...................................42
Section 5.5. Issuance of Shares of Common Stock..........................47
Section 5.6. Adjustment of Settlement Rate...............................48
Section 5.7. Notice of Adjustments and Certain Other Events..............54
Section 5.8. Termination Event; Notice...................................55
Section 5.9. Early Settlement............................................55
ii
<PAGE> 4
Page
----
Section 5.10. No Fractional Shares........................................58
Section 5.11. Charges and Taxes...........................................58
ARTICLE VI
Remedies......................................................................59
Section 6.1. Unconditional Right of Holders to Receive Contract
Adjustment Payments and to Purchase Common Stock............59
Section 6.2. Restoration of Rights and Remedies..........................59
Section 6.3. Rights and Remedies Cumulative..............................59
Section 6.4. Delay or Omission Not Waiver................................60
Section 6.5. Undertaking for Costs.......................................60
Section 6.6. Waiver of Stay or Extension Laws............................60
ARTICLE VII
The Agent.....................................................................61
Section 7.1. Certain Duties and Responsibilities.........................61
Section 7.2. Notice of Default...........................................62
Section 7.3. Certain Rights of Agent.....................................62
Section 7.4. Not Responsible for Recitals or Issuance of Securities......63
Section 7.5. May Hold Securities.........................................63
Section 7.6. Money Held in Custody.......................................63
Section 7.7. Compensation and Reimbursement..............................64
Section 7.8. Corporate Agent Required; Eligibility.......................64
Section 7.9. Resignation and Removal; Appointment of Successor...........65
Section 7.10. Acceptance of Appointment by Successor......................66
Section 7.11. Merger, Conversion, Consolidation or Succession to
Business....................................................67
Section 7.12. Preservation of Information; Communications to Holders......67
Section 7.13. No Obligations of Agent.....................................68
Section 7.14. Tax Compliance..............................................68
ARTICLE VIII
Supplemental Agreements.......................................................69
iii
<PAGE> 5
Page
----
Section 8.1. Supplemental Agreements Without Consent of Holders..........69
Section 8.2. Supplemental Agreements with Consent of Holders.............69
Section 8.3. Execution of Supplemental Agreements........................71
Section 8.4. Effect of Supplemental Agreements...........................71
Section 8.5. Reference to Supplemental Agreements........................71
ARTICLE IX
Consolidation, Merger, Sale or Conveyance.....................................72
Section 9.1. Covenant Not to Merge, Consolidate, Sell or Convey
Property Except Under Certain Conditions....................72
Section 9.2. Rights and Duties of Successor Corporation..................72
Section 9.3. Opinion of Counsel Given to Agent...........................73
ARTICLE X
Covenants.....................................................................73
Section 10.1. Performance Under Purchase Contracts........................73
Section 10.2. Maintenance of Office or Agency.............................73
Section 10.3. Company to Reserve Common Stock.............................74
Section 10.4. Covenants as to Common Stock................................74
EXHIBIT A Form of Income PRIDES Certificate
EXHIBIT B Form of Growth PRIDES Certificate
EXHIBIT C Instruction to Collateral Agent
EXHIBIT D Instruction to Purchase Contract Agent
EXHIBIT E Notice to Settle with Separate Cash
iv
<PAGE> 6
FORM OF PURCHASE CONTRACT AGREEMENT, dated as of ______, 1998 between
Kaufman and Broad Home Corporation, a Delaware corporation (the "Company"), and
The First National Bank of Chicago, a national banking associa tion, acting as
purchase contract agent for the Holders of Securities from time to time (the
"Agent").
RECITALS
The Company has duly authorized the execution and delivery of this Agree
ment and the Certificates evidencing the Securities.
All things necessary to make the Purchase Contracts, when the Certificates
are executed by the Company and authenticated, executed on behalf of the Holders
and delivered by the Agent, as provided in this Agreement, the valid obligations
of the Company, and to constitute these presents a valid agreement of the
Company, in accordance with its terms, have been done.
WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed as follows:
ARTICLE I
Definitions and Other Provisions
of General Applications
Section 1.1. Definitions.
For all purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to them
in this Article and include the plural as well as the singular; and nouns and
pronouns of the masculine gender include the feminine and neuter genders;
<PAGE> 7
(b) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles in
the United States;
(c) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision;
(d) the following terms have the meanings given to them in the Declara
tion: (i) Applicable Ownership Interest; (ii) Applicable Principal Amount; (iii)
Authorized Newspaper; (iv) Indenture, (v) Investment Company Event; (vi) Liquida
tion Distribution; (vii) Guarantee; (viii) Primary Treasury Dealer; (ix)
Quotation Agent; (x) Redemption Amount; (xi) Redemption Price; (xii) Reset
Agent; (xiii) Reset Announcement Date; (xiv) Reset Rate; (xv) Reset Spread;
(xvi) Tax Event; (xvii) Tax Event Redemption; (xviii) Tax Event Redemption Date;
(xix) Two-Year Benchmark Treasury; (xx) Treasury Portfolio; and (xxi) Treasury
Portfolio Purchase Price; and
(e) the following terms have the meanings given to them in this Section
1.1(e).
"Act" when used with respect to any Holder, has the meaning specified in
Section 1.4.
"Affiliate"has the same meaning as given to that term in Rule 405 of the
Securities Act or any successor rule thereunder.
"Agent" means the Person named as the "Agent" in the first paragraph of
this instrument until a successor Agent shall have become such pursuant to the
applicable provisions of this Agreement, and thereafter "Agent" shall mean such
Person.
"Agreement" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more agreements supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Applicable Market Value" has the meaning specified in Section 5.1.
2
<PAGE> 8
"Bankruptcy Code" means title 11 of the United States Code, or any other
law of the United States that from time to time provides a uniform system of
bank ruptcy laws.
"Beneficial Owner" means, with respect to a Book-Entry Interest, a Person
who is the beneficial owner of such Book-Entry Interest as reflected on the
books of the Clearing Agency or on the books of a Person maintaining an account
with such Clearing Agency (directly as a Clearing Agency Participant or as an
indirect partici pant, in each case in accordance with the rules of such
Clearing Agency).
"Board of Directors" means the board of directors of the Company or a duly
authorized committee of that board.
"Board Resolution" means one or more resolutions of the Board of
Directors, a copy of which has been certified by the Secretary or an Assistant
Secretary of the Company to have been duly adopted by the Board of Directors and
to be in full force and effect on the date of such certification and delivered
to the Agent.
"Book-Entry Interest" means a beneficial interest in a Global Certificate,
ownership and transfers of which shall be maintained and made through book
entries by a Clearing Agency as described in Section 3.6.
"Business Day" means any day other than a 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.
"Cash Settlement" has the meaning set forth in Section 5.4(a)(i).
"Certificate" means an Income PRIDES Certificate or a Growth PRIDES
Certificate.
"Clearing Agency" means an organization registered as a "Clearing Agency"
pursuant to Section 17A of the Exchange Act that is acting as a depositary for
the Securities and in whose name, or in the name of a nominee of that
organization, shall be registered a Global Certificate and which shall undertake
to effect book entry transfers and pledges of the Securities.
3
<PAGE> 9
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time the Clearing
Agency effects book entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Price" has the meaning specified in Section 5.1.
"Collateral" has the meaning specified in Section 2.1 of the Pledge Agree
ment.
"Collateral Agent" means The Bank of New York, as Collateral Agent under
the Pledge Agreement until a successor Collateral Agent shall have become such
pursuant to the applicable provisions of the Pledge Agreement, and thereafter
"Collateral Agent" shall mean the Person who is then the Collateral Agent
thereunder.
"Collateral Substitution" has the meaning specified in Section 3.13.
"Common Stock" means the Common Stock, no par value, of the Company.
"Company" means the Person named as the "Company" in the first paragraph
of this instrument until a successor shall have become such pursuant to the
applicable provision of this Agreement, and thereafter "Company" shall mean such
successor.
"Contract Adjustment Payments" means the amount payable by the Company in
respect of each Purchase Contract, equal to ___% per annum of the Stated Amount,
computed on the basis of a 360 day year of twelve 30 day months, plus any
Deferred Contract Adjustment Payments accrued pursuant to Section 5.2.
"Corporate Trust Office" means the principal corporate trust office of the
Agent at which, at any particular time, its corporate trust business shall be
adminis tered, which office at the date hereof is located at One First National
Plaza, Suite 0126, Chicago, IL 60670-0126, Attention: Corporate Trust Services
Division.
"Coupon Rate" means the percentage rate per annum at which each Deben ture
will bear interest initially.
"Current Market Price" has the meaning specified in Section 5.6(a)(8).
4
<PAGE> 10
"Debentures" means the series of debentures of the Company designated the
__% Debentures due ______ 15, 2003, to be issued under the Indenture as of the
date hereof.
"Declaration" means the Amended and Restated Declaration of Trust of KBHC
Financing I, dated ______, 1998, among the Company, as the sponsor, the trustees
named therein and the holders from time to time of individual beneficial
interests in the assets of the Trust.
"Deferred Contract Adjustment Payments" has the meaning specified in
Section 5.3.
"Depositary" means, initially, DTC until another Clearing Agency becomes
its successor.
"DTC" means The Depository Trust Company, the initial Clearing Agency.
"Early Settlement" has the meaning specified in Section 5.9(a).
"Early Settlement Amount" has the meaning specified in Section 5.9(a).
"Early Settlement Date" has the meaning specified in Section 5.9(a).
"Early Settlement Rate" has the meaning specified in Section 5.9(b).
"Exchange Act" means the Securities Exchange Act of 1934 and any statute
successor thereto, in each case as amended from time to time, and the rules and
regulations promulgated thereunder.
"Expiration Date" has the meaning specified in Section 1.4.
"Expiration Time" has the meaning specified in Section 5.6(a)(6).
"Failed Remarketing" has the meaning specified in Section 5.4(b).
"Global Capital Security Certificate" means a certificate evidencing the
rights and obligations of a Holder in respect of the number of Capital
Securities specified on such certificate and which is registered in the name of
a Clearing Agency or a nominee thereof.
5
<PAGE> 11
"Global Certificate" means a Certificate that evidences all or part of the
Securities and is registered in the name of a Depositary or a nominee thereof.
"Growth PRIDES" means the collective rights and obligations of a holder of
a Growth PRIDES Certificate in respect of such Treasury Securities, subject in
each case to the Pledge thereof, and the related Purchase Contract.
"Growth PRIDES Certificate" means a certificate evidencing the rights and
obligations of a Holder in respect of the number of Growth PRIDES specified on
such certificate.
"Growth PRIDES Register" and "Growth PRIDES Registrar" have the respective
meanings specified in Section 3.5.
"Holder," when used with respect to a Security, means the Person in whose
name the Security evidenced by an Income PRIDES Certificate and/or a Growth
PRIDES Certificate is registered in the related Income PRIDES Register and/or
the Growth PRIDES Register, as the case may be.
"Income PRIDES" means the collective rights and obligations of a Holder of
an Income PRIDES Certificate in respect of a Capital Security or an appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,
subject in each case to the Pledge thereof, and the related Purchase Contract.
"Income PRIDES Certificate" means a certificate evidencing the rights and
obligations of a Holder in respect of the number of Income PRIDES specified on
such certificate.
"Income PRIDES Register" and "Income PRIDES Registrar" have the respective
meanings specified in Section 3.5.
"Indenture" has the meaning set forth in Section 1.1 of the Declaration.
"Indenture Trustee" means The First National Bank of Chicago, a national
banking association, as trustee under the Indenture, or any successor thereto.
"Institutional Trustee" means The First National Bank of Chicago, as
institutional trustee under the Declaration, or any successor thereto that is a
financial institution unaffiliated with the Company.
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<PAGE> 12
"Issuer Order" or "Issuer Request" means a written order or request signed
in the name of the Company by its Chairman of the Board, its President or a Vice
President and by its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary, and delivered to the Agent.
"NYSE" has the meaning specified in Section 5.1.
"Officer's Certificate" means a certificate of the Company signed on its
behalf by the Chairman of the Board, the President, any Vice President, the
Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of
the Company and delivered to the Agent.
"Opinion of Counsel" means an opinion in writing signed by legal counsel,
who may be an employee of or counsel to the Company or an Affiliate and who
shall be reasonably acceptable to the Agent.
"Outstanding Securities," with respect to any Income PRIDES or Growth
PRIDES, means, as of the date of determination, all Income PRIDES or Growth
PRIDES evidenced by Certificates theretofore authenticated, executed and
delivered under this Agreement, except:
(i) If a Termination Event has occurred, (A) Growth PRIDES and (B)
Income PRIDES for which the Stated Amount of the related Capital Security
or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, or a Liquidation Distribution in respect of such Capital
Security, as the case may be, has been theretofore deposited with the
Agent in trust for the Holders of such Income PRIDES;
(ii) Income PRIDES and Growth PRIDES evidenced by Certifi cates
theretofore cancelled by the Agent or delivered to the Agent for cancel
lation or deemed cancelled pursuant to the provisions of this Agreement;
and
(iii) Income PRIDES and Growth PRIDES evidenced by Certifi cates in
exchange for or in lieu of which other Certificates have been authen
ticated, executed on behalf of the Holder and delivered pursuant to this
Agreement, other than any such Certificate in respect of which there shall
have been presented to the Agent proof satisfactory to it that such
Certificate is held by a bona fide purchaser in whose hands the Income
PRIDES or
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<PAGE> 13
Growth PRIDES evidenced by such Certificate are valid obligations of the
Company;
provided, however, that in determining whether the Holders of the requisite
number of the Income PRIDES or Growth PRIDES have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Income PRIDES or
Growth PRIDES owned by the Company or any Affiliate of the Company shall be
disregarded and deemed not to be outstanding, except that, in determining
whether the Agent shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Income PRIDES or
Growth PRIDES which a Responsible Officer of the Agent knows to be so owned
shall be so disregarded. Income PRIDES or Growth PRIDES so owned which have been
pledged in good faith may be regarded as Outstanding Securities if the pledgee
establishes to the satisfaction of the Agent the pledgee's right so to act with
respect to such Income PRIDES or Growth PRIDES and that the pledgee is not the
Company or any Affiliate of the Company.
"Payment Date" means each February 16, May 16, August 16 and November 16,
commencing August 16, 1998.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint-stock company, limited
liability com pany, trust, unincorporated association or government or any
agency or political subdivision thereof or any other entity of whatever nature.
"Permitted Investments" has the meaning set forth in Section 1 of the
Pledge Agreement.
"Pledge" means the pledge under the Pledge Agreement of the Capital
Securities, the Treasury Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, in each case constituting a part of the
Securities.
"Pledge Agreement" means the Pledge Agreement, dated as of the date
hereof, by and among the Company, the Collateral Agent and the Agent, on its own
behalf and as attorney-in-fact for the Holders from time to time of the
Securities, as the same may hereafter be amended.
"Predecessor Certificate" means a Predecessor Income PRIDES Certificate or
a Predecessor Growth PRIDES Certificate.
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<PAGE> 14
"Predecessor Growth PRIDES Certificate" of any particular Growth PRIDES
Certificate means every previous Growth PRIDES Certificate evidencing all or a
portion of the rights and obligations of the Company and the Holder under the
Growth PRIDES evidenced thereby; and, for the purposes of this definition, any
Growth PRIDES Certificate authenticated and delivered under Section 3.10 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Growth PRIDES
Certificate shall be deemed to evidence the same rights and obligations of the
Company and the Holder as the mutilated, destroyed, lost or stolen Growth PRIDES
Certificate.
"Predecessor Income PRIDES Certificate" of any particular Income PRIDES
Certificate means every previous Income PRIDES Certificate evidencing all or a
portion of the rights and obligations of the Company and the Holder under the
Income PRIDES evidenced thereby; and, for the purposes of this definition, any
Income PRIDES Certificate authenticated and delivered under Section 3.10 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Income PRIDES
Certificate shall be deemed to evidence the same rights and obligations of the
Company and the Holder as the mutilated, destroyed, lost or stolen Income PRIDES
Certificate.
"Proceeds" has the meaning set forth in Section 1 of the Pledge Agreement.
"Purchase Contract," when used with respect to any Security, means the
contract forming a part of such Security and obligating the Company to (i) sell
and the Holder of such Security to purchase Common Stock and (ii) pay the Holder
Contract Adjustment Payments, if any, on the terms and subject to the conditions
set forth in Article Five hereof.
"Purchase Contract Settlement Date" means _______ 16, 2001.
"Purchase Contract Settlement Fund" has the meaning specified in Section
5.5.
"Purchase Price" has the meaning specified in Section 5.1.
"Purchased Shares" has the meaning specified in Section 5.6(a)(6).
"Record Date" for the distribution and Contract Adjustment Payments, if
any, payable on any Payment Date means, as to any Global Certificate, the
Business Day
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<PAGE> 15
next preceding such Payment Date, and as to any other Certificate, a day
selected by the Company which shall be more than one Business Day but less than
60 Business Days prior to such Payment Date.
"Register" means the Income PRIDES Register and the Growth PRIDES
Register.
"Registrar" means the Income PRIDES Registrar and the Growth PRIDES
Registrar.
"Remarketing Agent" has the meaning specified in Section 5.4.
"Remarketing Agreement" means the Remarketing Agreement dated _____, 1998
by and between the Company, the Trust, the Remarketing Agent and the Purchase
Contract Agent.
"Remarketing Fee" has the meaning specified in Section 5.4.
"Remarketing Purchase Agreement" has the meaning specified in the
Remarketing Agreement.
"Reorganization Event" has the meaning specified in Section 5.6(b).
"Responsible Officer," when used with respect to the Agent, means any
officer of the Agent assigned by the Agent to administer its corporate trust
matters.
"Security" means an Income PRIDES or a Growth PRIDES.
"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 parity with or subordinated in right of payment to the Contract Adjust
ment Payments.
"Settlement Rate" has the meaning specified in Section 5.1.
"Stated Amount" means $10.
"Termination Date" means the date, if any, on which a Termination Event
occurs.
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<PAGE> 16
"Termination Event" means the occurrence of any of the following events:
(i) at any time on or prior to the Purchase Contract Settlement Date, a
judgment, decree or court order shall have been entered granting relief under
the Bankruptcy Code, adjudicating the Company to be insolvent, or approving as
properly filed a petition seeking reorganization or liquidation of the Company
or any other similar applicable Federal or State law, and, unless such judgment,
decree or order shall have been entered within 60 days prior to the Purchase
Contract Settlement Date, such decree or order shall have continued undischarged
and unstayed for a period of 60 days; or (ii) at any time on or prior to the
Purchase Contract Settlement Date, a judgment, decree or court order for the
appointment of a receiver or liquidator or trustee or assignee in bankruptcy or
insolvency of the Company or of its property, or for the winding up or
liquidation of its affairs, shall have been entered, and, unless such judgment,
decree or order shall have been entered within 60 days prior to the Purchase
Contract Settlement Date, such judgment, decree or order shall have continued
undischarged and unstayed for a period of 60 days, or (iii) at any time on or
prior to the Purchase Contract Settlement Date the Company shall file a petition
for relief under the Bankruptcy Code, or shall consent to the filing of a
bankruptcy proceeding against it, or shall file a petition or answer or consent
seeking reorganiza tion or liquidation under the Bankruptcy Code or any other
similar applicable Federal or State law, or shall consent to the filing of any
such petition, or shall consent to the appointment of a receiver or liquidator
or trustee or assignee in bankruptcy or insolvency of it or of its property, or
shall make an assignment for the benefit of creditors, or shall admit in writing
its inability to pay its debts generally as they become due.
"Threshold Appreciation Price" has the meaning specified in Section 5.1.
"TIA" means the Trust Indenture Act of 1939, as amended, or any successor
statute.
"Trading Day" has the meaning specified in Section 5.1.
"Treasury Security" means zero-coupon U.S. Treasury Securities (CUSIP
Number _______________) which are the principal strip of the U.S. Treasury
Securities which mature on ______ 15, 2001.
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<PAGE> 17
"Trust" means KBHC Financing I, a statutory business trust formed under
the laws of the State of Delaware, or any successor thereto by merger or
consolidation.
"Capital Securities" means the __% Capital Securities of the Trust, each
having a stated liquidation amount of $10, representing undivided beneficial
interests in the assets of the Trust.
"Underwriting Agreement" means the Underwriting Agreement dated ______ ,
1998 among the Company, the Trust, and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
"Vice President" means any vice president, whether or not designated by a
number or a word or words added before or after the title "vice president."
Section 1.2. Compliance Certificates and Opinions.
Except as otherwise expressly provided by this Agreement, upon any
application or request by the Company to the Agent to take any action under any
provision of this Agreement, the Company shall furnish to the Agent an Officer's
Certificate stating that all conditions precedent, if any, provided for in this
Agree ment relating to the proposed action have been complied with and, if
reasonably requested by the Agent, an Opinion of Counsel stating that, in the
opinion of such counsel, all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Agreement relating to such particular application or request, no
additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Agreement shall include:
(1) a statement that each Person signing such certificate or opin
ion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
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<PAGE> 18
(3) a statement that, in the opinion of each such Person, he or she
or it has made such examination or investigation as is necessary to enable
such individual to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such Person,
such condition or covenant has been complied with.
Section 1.3. Form of Documents Delivered to Agent.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of the Company may be based, insofar as it
relates to legal matters, upon a certificate or opinion of, or representations
by, counsel, unless the Company knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations with respect to
the matters upon which his certificate or opinion is based are erroneous. Any
such certificate or Opinion of Counsel may be based, insofar as it relates to
factual matters, upon a certificate or opinion of, or representations by, the
Company stating that the information with respect to such factual matters is in
the possession of the Company unless the Person giving such certificate or
Opinion of Counsel knows, or in the exercise of reasonable care should know,
that the certificate or opinion or representations with respect to such matters
are erroneous.
Where any Person is required to make, give or execute two or more applica
tions, requests, consents, certificates, statements, opinions or other
instruments under this Agreement, they may, but need not, be consolidated and
form one instrument.
Section 1.4. Acts of Holders; Record Dates.
(a) Any request, demand, authorization, direction, notice, consent, waiver
or other action provided by this Agreement to be given or taken by Holders may
be embodied in and evidenced by one or more instruments of substantially similar
tenor
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<PAGE> 19
signed by such Holders in person or by agent duly appointed in writing; and,
except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Agent and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Agreement
and (subject to Section 7.1) conclusive in favor of the Agent and the Company,
if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instru
ment or writing may be proved in any manner which the Agent deems sufficient.
(c) The ownership of Securities shall be proved by the Income PRIDES
Register or the Growth PRIDES Register, as the case may be.
(d) Any request, demand, authorization, direction, notice, consent, waiver
or other Act of the Holder of any Certificate shall bind every future Holder of
the same Certificate and the Holder of every Certificate issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Agent or the
Company in reliance thereon, whether or not notation of such action is made upon
such Certificate.
(e) The Company may set any day as a record date for the purpose of
determining the Holders of Outstanding Securities entitled to give, make or take
any request, demand, authorization, direction, notice, consent, waiver or other
action provided or permitted by this Agreement to be given, made or taken by
Holders of Securities. If any record date is set pursuant to this paragraph, the
Holders of the Outstanding Income PRIDES and the Outstanding Growth PRIDES, as
the case may be, on such record date, and no other Holders, shall be entitled to
take the relevant action with respect to the Income PRIDES or the Growth PRIDES,
as the case may be, whether or not such Holders remain Holders after such record
date; provided that no such action shall be effective hereunder unless taken on
or prior to the applicable Expiration Date by Holders of the requisite number of
Outstanding Securities on such record date. Nothing in this paragraph shall be
construed to prevent the Company from setting a new record date for any action
for which a record date has previously been set pursuant to this paragraph
(whereupon the record date previously set shall automatically and with no action
by any Person be cancelled and of no effect), and nothing in this paragraph
shall be construed to render ineffective any
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<PAGE> 20
action taken by Holders of the requisite number of Outstanding Securities on the
date such action is taken. Promptly after any record date is set pursuant to
this paragraph, the Company, at its own expense, shall cause notice of such
record date, the pro posed action by Holders and the applicable Expiration Date
to be given to the Agent in writing and to each Holder of Securities in the
manner set forth in Section 1.6.
With respect to any record date set pursuant to this Section, the Company
may designate any date as the "Expiration Date" and from time to time may change
the Expiration Date to any earlier or later day; provided that no such change
shall be effective unless notice of the proposed new Expiration Date is given to
the Agent in writing, and to each Holder of Securities in the manner set forth
in Section 1.6, on or prior to the existing Expiration Date. If an Expiration
Date is not designated with respect to any record date set pursuant to this
Section, the Company shall be deemed to have initially designated the 180th day
after such record date as the Expiration Date with respect thereto, subject to
its right to change the Expiration Date as provided in this paragraph.
Notwithstanding the foregoing, no Expiration Date shall be later than the 180th
day after the applicable record date.
Section 1.5. Notices.
Any request, demand, authorization, direction, notice, consent, waiver or
Act of Holders or other document provided or permitted by this Agreement to be
made upon, given or furnished to, or filed with,
(1) the Agent by any Holder or by the Company shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided)
if made, given, furnished or filed in writing and personally delivered or
mailed, first-class postage prepaid, to the Agent at The First National
Bank of Chi cago, One First National Plaza, Suite 0126, Chicago, IL
60670-0126, Atten tion: Corporate Trust Services Division, or at any other
address previously furnished in writing by the Agent to the Holders and
the Company; or
(2) the Company by the Agent or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided)
if made, given, furnished or filed in writing and personally delivered or
mailed, first-class postage prepaid, to the Company at Kaufman and Broad
Home Corporation, 10990 Wilshire Blvd., Los Angeles, CA 90024,Attention:
Chief Financial Officer, or at any other address previously furnished in
writing to the Agent by the Company; or
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<PAGE> 21
(3) the Collateral Agent by the Agent, the Company or any Holder
shall be sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if made, given, furnished or filed in writing and
person ally delivered or mailed, first-class postage prepaid, addressed to
the Collat eral Agent at The Bank of New York, One Wall Street, New York,
New York 10286, Attention: Corporate Trust Administration, or at any other
address previously furnished in writing by the Collateral Agent to the
Agent, the Company and the Holders; or
(4) the Institutional Trustee by the Company shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if
made, given, furnished or filed in writing and personally delivered or
mailed, first-class postage prepaid, addressed to the Institutional
Trustee at The First National Bank of Chicago, One First National Plaza,
Suite 0126, Chicago, IL 60670-0126, Attention: Corporate Trust Services
Division, or at any other address previously furnished in writing by the
Institutional Trustee to the Company; or
(5) the Indenture Trustee by the Company shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if
made, given, furnished or filed in writing and personally delivered or
mailed, first-class postage prepaid, addressed to the Indenture Trustee at
The First National Bank of Chicago, One First National Plaza, Suite 0126,
Chicago, IL 60670-0126, Attention: Corporate Trust Services Division, or
at any other address previously furnished in writing by the Indenture
Trustee to the Company.
Section 1.6. Notice to Holders; Waiver.
Where this Agreement provides for notice to Holders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class postage prepaid, to each Holder affected
by such event, at its address as it appears in the applicable Register, not
later than the latest date, and not earlier than the earliest date, prescribed
for the giving of such notice. In any case where notice to Holders is given by
mail, neither the failure to mail such notice, nor any defect in any notice so
mailed to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Where this Agreement provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such
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<PAGE> 22
waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Agent, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice by mail, then
such notification as shall be made with the approval of the Agent shall
constitute a sufficient notification for every purpose hereunder.
Section 1.7. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
Section 1.8. Successors and Assigns.
All covenants and agreements in this Agreement by the Company shall bind
its successors and assigns, whether so expressed or not.
Section 1.9. Separability Clause.
In case any provision in this Agreement or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions hereof and thereof shall not in any way be affected or
impaired thereby.
Section 1.10. Benefits of Agreement.
Nothing in this Agreement or in the Securities, express or implied, shall
give to any Person, other than the parties hereto and their successors hereunder
and, to the extent provided hereby, the Holders, any benefits or any legal or
equitable right, remedy or claim under this Agreement. The Holders from time to
time shall be beneficiaries of this Agreement and shall be bound by all of the
terms and conditions hereof and of the Securities evidenced by their
Certificates by their acceptance of delivery of such Certificates.
Section 1.11. Governing Law.
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<PAGE> 23
THIS AGREEMENT AND THE SECURITIES SHALL BE GOV ERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 1.12. Legal Holidays.
In any case where any Payment Date shall not be a Business Day, then
(notwithstanding any other provision of this Agreement or the Income PRIDES
Certificates or the Growth PRIDES Certificates) payment of the Contract
Adjustment Payments, if any, shall not be made on such date, but such payments
shall be made on the next succeeding Business Day with the same force and effect
as if made on such Payment Date, provided that no interest shall accrue or be
payable by the Company or any Holder for the period from and after any such
Payment Date, except that, if such next succeeding Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day with the same force and effect as if made on such Payment
Date.
In any case where any Purchase Contract Settlement Date shall not be a
Business Day, then (notwithstanding any other provision of this Agreement, the
Income PRIDES Certificates or the Growth PRIDES Certificates), the Purchase
Contracts shall not be performed on such date, but the Purchase Contracts shall
be performed on the immediately following Business Day with the same force and
effect as if performed on the Purchase Contract Settlement Date.
Section 1.13. Counterparts.
This Agreement may be executed in any number of counterparts by the
parties hereto on separate counterparts, each of which, when so executed and
delivered, shall be deemed an original, but all such counterparts shall together
constitute one and the same instrument.
Section 1.14. Inspection of Agreement.
A copy of this Agreement shall be available at all reasonable times during
normal business hours at the Corporate Trust Office for inspection by any
Holder.
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ARTICLE II
Certificate Forms
Section 2.1. Forms of Certificates Generally.
The Income PRIDES Certificates (including the form of Purchase Contract
forming part of the Income PRIDES evidenced thereby) shall be in substantially
the form set forth in Exhibit A hereto, with such letters, numbers or other
marks of identification or designation and such legends or endorsements printed,
lithographed or engraved thereon as may be required by the rules of any
securities exchange on which the Income PRIDES are listed or any depositary
therefor, or as may, consis tently herewith, be determined by the officers of
the Company executing such Income PRIDES Certificates, as evidenced by their
execution of the Income PRIDES Certificates.
The definitive Income PRIDES Certificates shall be printed, lithographed
or engraved on steel engraved borders or may be produced in any other manner,
all as determined by the officers of the Company executing the Income PRIDES
evidenced by such Income PRIDES Certificates, consistent with the provisions of
this Agree ment, as evidenced by their execution thereof.
The Growth PRIDES Certificates (including the form of Purchase Contracts
forming part of the Growth PRIDES evidenced thereby) shall be in substantially
the form set forth in Exhibit B hereto, with such letters, numbers or other
marks of identification or designation and such legends or endorsements printed,
lithographed or engraved thereon as may be required by the rules of any
securities exchange on which the Growth PRIDES may be listed or any depositary
therefor, or as may, consistently herewith, be determined by the officers of the
Company executing such Growth PRIDES Certificates, as evidenced by their
execution of the Growth PRIDES Certificates.
The definitive Growth PRIDES Certificates shall be printed, lithographed
or engraved on steel engraved borders or may be produced in any other manner,
all as determined by the officers of the Company executing the Growth PRIDES
evidenced by such Growth PRIDES Certificates, consistent with the provisions of
this Agree ment, as evidenced by their execution thereof.
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<PAGE> 25
Every Global Certificate authenticated, executed on behalf of the Holders
and delivered hereunder shall bear a legend in substantially the following form:
THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE
PURCHASE CONTRACT AGREEMENT (AS HERE INAFTER DEFINED) AND IS REGISTERED IN
THE NAME OF THE CLEARING AGENCY OR A NOMINEE THEREOF. THIS CERTIFI CATE
MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A CERTIFICATE REGISTERED, AND
NO TRANSFER OF THIS CERTIFI CATE IN WHOLE OR IN PART MAY BE REGISTERED, IN
THE NAME OF ANY PERSON OTHER THAN SUCH CLEARING AGENCY OR A NOMINEE
THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE PURCHASE
CONTRACT AGREEMENT.
Section 2.2. Form of Agent's Certificate of Authentication.
The form of the Agent's certificate of authentication of the Income PRIDES
shall be in substantially the form set forth on the form of the Income PRIDES
Certificates.
The form of the Agent's certificate of authentication of the Growth PRIDES
shall be in substantially the form set forth on the form of the Growth PRIDES
Certificates.
ARTICLE III
The Securities
Section 3.1. Title and Terms; Denominations.
The aggregate number of Income PRIDES and Growth PRIDES evidenced by
Certificates authenticated, executed on behalf of the Holders and delivered
hereunder is limited to __________ except for Certificates authenticated,
executed and delivered upon registration of transfer of, in exchange for, or in
lieu of, other Certificates pursuant to Section 3.4, 3.5, 3.10, 3.13, 3.14, 5.9
or 8.5.
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The Certificates shall be issuable only in registered form and only in
denomi nations of a single Income PRIDES or Growth PRIDES and any integral
multiple thereof.
Section 3.2. Rights and Obligations Evidenced by the Certificates.
Each Income PRIDES Certificate shall evidence the number of Income PRIDES
specified therein, with each such Income PRIDES representing the owner ship by
the Holder thereof of a beneficial interest in a Capital Security or the Appli
cable Ownership Interest of the Treasury Portfolio, as the case may be, subject
to the Pledge of such Capital Security or the Applicable Ownership Interest of
the Treasury Portfolio, as the case may be, by such Holder pursuant to the
Pledge Agreement, and the rights and obligations of the Holder thereof and the
Company under one Purchase Contract. The Agent as attorney-in-fact for, and on
behalf of, the Holder of each Income PRIDES shall pledge, pursuant to the Pledge
Agreement, the Capital Security or the Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, forming a part of such Income PRIDES, to
the Collateral Agent and grant to the Collateral Agent a security interest in
the right, title, and interest of such Holder in such Capital Security or the
Applicable Ownership Interest of the Treasury Portfolio, as the case may be, for
the benefit of the Company, to secure the obligation of the Holder under each
Purchase Contract to purchase the Common Stock of the Company.
Each Growth PRIDES Certificate shall evidence the number of Growth PRIDES
specified therein, with each such Growth PRIDES representing the owner ship by
the Holder thereof of a 1/100 undivided beneficial interest in a Treasury
Security with a principal amount equal to $1,000 subject to the Pledge of such
Treasury Security by such Holder pursuant to the Pledge Agreement, and the
rights and obligations of the Holder thereof and the Company under one Purchase
Contract.
Section 3.3. Execution, Authentication, Delivery and Dating.
Subject to the provisions of Sections 3.13 and 3.14 hereof, upon the execu
tion and delivery of this Agreement, and at any time and from time to time
thereafter, the Company may deliver Certificates executed by the Company to the
Agent for authentication, execution on behalf of the Holders and delivery,
together with its Issuer Order for authentication of such Certificates, and the
Agent in accordance with such Issuer Order shall authenticate, execute on behalf
of the Holders and deliver such Certificates.
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The Certificates shall be executed on behalf of the Company by its
Chairman of the Board, its President or one of its Vice Presidents and its
Treasurer or one of its Assistant Treasurers, or its Secretary or one of its
Assistant Secretaries. The signa ture of any of these officers on the
Certificates may be manual or facsimile.
Certificates bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Certificates or did not
hold such offices at the date of such Certificates.
No Purchase Contract evidenced by a Certificate shall be valid until such
Certificate has been executed on behalf of the Holder by the manual signature of
an authorized signatory of the Agent, as such Holder's attorney-in-fact. Such
signature by an authorized signatory of the Agent shall be conclusive evidence
that the Holder of such Certificate has entered into the Purchase Contracts
evidenced by such Certificate.
Each Certificate shall be dated the date of its authentication.
No Certificate shall be entitled to any benefit under this Agreement or be
valid or obligatory for any purpose unless there appears on such Certificate a
certificate of authentication substantially in the form provided for herein
executed by an authorized signatory of the Agent by manual signature, and such
certificate upon any Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly authenticated and delivered
hereunder.
Section 3.4. Temporary Certificates.
Pending the preparation of definitive Certificates, the Company shall
execute and deliver to the Agent, and the Agent shall authenticate, execute on
behalf of the Holders, and deliver, in lieu of such definitive Certificates,
temporary Certificates which are in substantially the form set forth in Exhibit
A or Exhibit B hereto, as the case may be, with such letters, numbers or other
marks of identification or designa tion and such legends or endorsements
printed, lithographed or engraved thereon as may be required by the rules of any
securities exchange on which the Income PRIDES or Growth PRIDES are listed, or
as may, consistently herewith, be deter mined by the officers of the Company
executing such Certificates, as evidenced by their execution of the
Certificates.
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If temporary Certificates are issued, the Company will cause definitive
Certificates to be prepared without unreasonable delay. After the preparation of
definitive Certificates, the temporary Certificates shall be exchangeable for
definitive Certificates upon surrender of the temporary Certificates at the
Corporate Trust Office, at the expense of the Company and without charge to the
Holder. Upon surrender for cancellation of any one or more temporary
Certificates, the Company shall execute and deliver to the Agent, and the Agent
shall authenticate, execute on behalf of the Holder, and deliver in exchange
therefor, one or more definitive Certificates of like tenor and denominations
and evidencing a like number of Income PRIDES or Growth PRIDES, as the case may
be, as the temporary Certificate or Certificates so surrendered. Until so
exchanged, the temporary Certificates shall in all respects evidence the same
benefits and the same obligations with respect to the Income PRIDES or Growth
PRIDES, as the case may be, evidenced thereby as definitive Certificates.
Section 3.5. Registration; Registration of Transfer and Exchange.
The Agent shall keep at the Corporate Trust Office a Register (the "Income
PRIDES Register") in which, subject to such reasonable regulations as it may
prescribe, the Agent shall provide for the registration of Income PRIDES
Certificates and of transfers of Income PRIDES Certificates (the Agent, in such
capacity, the "Income PRIDES Registrar") and a Register (the "Growth PRIDES
Register") in which, subject to such reasonable regulations as it may prescribe,
the Agent shall provide for the registration of the Growth PRIDES Certificates
and transfers of Growth PRIDES Certificates (the Agent, in such capacity, the
"Growth PRIDES Registrar").
Upon surrender for registration of transfer of any Certificate at the
Corporate Trust Office, the Company shall execute and deliver to the Agent, and
the Agent shall authenticate, execute on behalf of the designated transferee or
transferees, and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of any authorized denominations, like
tenor, and evidencing a like number of Income PRIDES or Growth PRIDES, as the
case may be.
At the option of the Holder, Certificates may be exchanged for other
Certifi cates, of any authorized denominations and evidencing a like number of
Income PRIDES or Growth PRIDES, as the case may be, upon surrender of the
Certificates to be exchanged at the Corporate Trust Office. Whenever any
Certificates are so surrendered for exchange, the Company shall execute and
deliver to the Agent, and
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the Agent shall authenticate, execute on behalf of the Holder, and deliver the
Certificates which the Holder making the exchange is entitled to receive.
All Certificates issued upon any registration of transfer or exchange of a
Certificate shall evidence the ownership of the same number of Income PRIDES or
Growth PRIDES, as the case may be, and be entitled to the same benefits and
subject to the same obligations, under this Agreement as the Income PRIDES or
Growth PRIDES, as the case may be, evidenced by the Certificate surrendered upon
such registration of transfer or exchange.
Every Certificate presented or surrendered for registration of transfer or
for exchange shall (if so required by the Agent) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Agent duly executed, by the Holder thereof or its attorney duly
authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of a Certificate, but the Company and the Agent may require payment
from the Holder of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection with any registration of transfer or
exchange of Certificates, other than any exchanges pursuant to Sections 3.6 and
8.5 not involving any transfer.
Notwithstanding the foregoing, the Company shall not be obligated to
execute and deliver to the Agent, and the Agent shall not be obligated to
authenti cate, execute on behalf of the Holder and deliver any Certificate
presented or surrendered for registration of transfer or for exchange on or
after the Business Day immediately preceding the earlier of the Purchase
Contract Settlement Date or the Termination Date. In lieu of delivery of a new
Certificate, upon satisfaction of the applicable conditions specified above in
this Section and receipt of appropriate registration or transfer instructions
from such Holder, the Agent shall (i) if the Purchase Contract Settlement Date
has occurred, deliver the shares of Common Stock issuable in respect of the
Purchase Contracts forming a part of the Securities evidenced by such
Certificate, (ii) in the case of Income PRIDES, if a Termination Event shall
have occurred prior to the Purchase Contract Settlement Date, transfer the
aggregate Stated Amount of the Capital Securities or the Treasury Portfolio, as
applicable, evidenced thereby, or (iii) in the case of Growth PRIDES, if a
Termina tion Event shall have occurred prior to the Purchase Contract Settlement
Date, transfer the Treasury Securities evidenced thereby, in each case subject
to the applicable conditions and in accordance with the applicable provisions of
Article Five hereof.
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Section 3.6. Book-Entry Interests.
The Certificates, on original issuance, will be issued in the form of one
or more, fully registered Global Certificates, to be delivered to the Depositary
by, or on behalf of, the Company. Such Global Certificate shall initially be
registered on the books and records of the Company in the name of Cede & Co.,
the nominee of the Depositary, and no Beneficial Owner will receive a definitive
Certificate represent ing such Beneficial Owner's interest in such Global
Certificate, except as provided in Section 3.9. The Agent shall enter into an
agreement with the Depositary if so requested by the Company. Unless and until
definitive, fully registered Certificates have been issued to Beneficial Owners
pursuant to Section 3.9:
(a) the provisions of this Section 3.6 shall be in full force and
effect;
(b) the Company shall be entitled to deal with the Clearing Agency
for all purposes of this Agreement (including the payment of Contract Adjustment
Payments, if any, and receiving approvals, votes or consents hereunder) as the
Holder of the Securities and the sole holder of the Global Certificate(s) and
shall have no obligation to the Beneficial Owners;
(c) to the extent that the provisions of this Section 3.6 conflict
with any other provisions of this Agreement, the provisions of this Section 3.6
shall control; and
(d) the rights of the Beneficial Owners shall be exercised only
through the Clearing Agency and shall be limited to those established by law and
agreements between such Beneficial Owners and the Clearing Agency and/or the
Clearing Agency Participants. The Clearing Agency will make book entry transfers
among Clearing Agency Participants and receive and transmit payments of Contract
Adjustment Payments, if any, to such Clearing Agency Participants.
Section 3.7. Notices to Holders.
Whenever a notice or other communication to the Holders is required to be
given under this Agreement, the Company or the Company's agent shall give such
notices and communications to the Holders and, with respect to any Securities
registered in the name of a Clearing Agency or the nominee of a Clearing Agency,
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the Company or the Company's agent shall, except as set forth herein, have no
obligations to the Beneficial Owners.
Section 3.8. Appointment of Successor Clearing Agency.
If any Clearing Agency elects to discontinue its services as securities
deposi tary with respect to the Securities, the Company may, in its sole
discretion, appoint a successor Clearing Agency with respect to the Securities.
Section 3.9. Definitive Certificates.
If (i) a Clearing Agency elects to discontinue its services as securities
depositary with respect to the Securities and a successor Clearing Agency is not
appointed within 90 days after such discontinuance pursuant to Section 3.8, (ii)
the Company elects to terminate the book-entry system through the Clearing
Agency with respect to the Securities, or (iii) there shall have occurred and be
continuing a default by the Company in respect of its obligations under one or
more Purchase Contracts, then upon surrender of the Global Certificates
representing the Book-Entry Interests with respect to the Securities by the
Clearing Agency, accompanied by registration instructions, the Company shall
cause definitive Certificates to be delivered to Beneficial Owners in accordance
with the instructions of the Clearing Agency. The Company shall not be liable
for any delay in delivery of such instruc tions and may conclusively rely on and
shall be protected in relying on, such instructions.
Section 3.10. Mutilated, Destroyed, Lost and Stolen Certificates.
If any mutilated Certificate is surrendered to the Agent, the Company
shall execute and deliver to the Agent, and the Agent shall authenticate,
execute on behalf of the Holder, and deliver in exchange therefor, a new
Certificate at the cost of the Holder, evidencing the same number of Income
PRIDES or Growth PRIDES, as the case may be, and bearing a Certificate number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Agent (i) evidence to
their satisfaction of the destruction, loss or theft of any Certificate, and
(ii) such security or indemnity at the cost of the Holder as may be required by
them to hold each of them and any agent of any of them harmless, then, in the
absence of notice to the Company or the Agent that such Certificate has been
acquired by a bona fide purchaser, the Company shall execute and deliver to the
Agent, and the Agent shall
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authenticate, execute on behalf of the Holder, and deliver to the Holder, in
lieu of any such destroyed, lost or stolen Certificate, a new Certificate,
evidencing the same number of Income PRIDES or Growth PRIDES, as the case may
be, and bearing a Certificate number not contemporaneously outstanding.
Notwithstanding the foregoing, the Company shall not be obligated to
execute and deliver to the Agent, and the Agent shall not be obligated to
authenti cate, execute on behalf of the Holder, and deliver to the Holder, a
Certificate on or after the Business Day immediately preceding the earlier of
the Purchase Contract Settlement Date or the Termination Date. In lieu of
delivery of a new Certificate, upon satisfaction of the applicable conditions
specified above in this Section and receipt of appropriate registration or
transfer instructions from such Holder, the Agent shall (i) if the Purchase
Contract Settlement Date has occurred, deliver the shares of Common Stock
issuable in respect of the Purchase Contracts forming a part of the Securities
evidenced by such Certificate, or (ii) if a Termination Event shall have
occurred prior to the Purchase Contract Settlement Date, transfer the Capital
Securities, the appropriate Applicable Ownership Interest of the Treasury
Portfolio or the Treasury Securities, as the case may be, evidenced thereby, in
each case subject to the applicable conditions and in accordance with the
applicable provisions of Article Five hereof.
Upon the issuance of any new Certificate under this Section, the Company
and the Agent may require the payment by the Holder of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation thereto and
any other expenses (including the fees and expenses of the Agent) connected
therewith.
Every new Certificate issued pursuant to this Section in lieu of any
destroyed, lost or stolen Certificate shall constitute an original additional
contractual obligation of the Company and of the Holder in respect of the
Security evidenced thereby, whether or not the destroyed, lost or stolen
Certificate (and the Securities evidenced thereby) shall be at any time
enforceable by anyone, and shall be entitled to all the benefits and be subject
to all the obligations of this Agreement equally and propor tionately with any
and all other Certificates delivered hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Certificates.
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Section 3.11. Persons Deemed Owners.
Prior to due presentment of a Certificate for registration of transfer,
the Company and the Agent, and any agent of the Company or the Agent, may treat
the Person in whose name such Certificate is registered as the owner of the
Income PRIDES or Growth PRIDES evidenced thereby, for the purpose of receiving
distributions on the Capital Securities or on the maturing quarterly interest
strips of the Treasury Portfolio, as applicable, receiving payments of Contract
Adjustment Payments, if any, performance of the Purchase Contracts and for all
other purposes whatsoever, whether or not any distributions on the Capital
Securities or the Contract Adjustment Payments, if any, payable in respect of
the Purchase Contracts constitut ing a part of the Income PRIDES or Growth
PRIDES evidenced thereby shall be overdue and notwithstanding any notice to the
contrary, and neither the Company nor the Agent, nor any agent of the Company or
the Agent, shall be affected by notice to the contrary.
Notwithstanding the foregoing, with respect to any Global Certificate,
nothing herein shall prevent the Company, the Agent or any agent of the Company
or the Agent, from giving effect to any written certification, proxy or other
authoriza tion furnished by any Clearing Agency (or its nominee), as a Holder,
with respect to such Global Certificate or impair, as between such Clearing
Agency and owners of beneficial interests in such Global Certificate, the
operation of customary practices governing the exercise of rights of such
Clearing Agency (or its nominee) as Holder of such Global Certificate.
Section 3.12. Cancellation.
All Certificates surrendered for delivery of shares of Common Stock on or
after the Purchase Contract Settlement Date, upon the transfer of Capital
Securities, the appropriate Applicable Ownership Interest of the Treasury
Portfolio or Treasury Securities, as the case may be, after the occurrence of a
Termination Event or pursuant to an Early Settlement, or upon the registration
of a transfer or exchange of a Security, or a Collateral Substitution or the
re-establishment of an Income PRIDES shall, if surrendered to any Person other
than the Agent, be delivered to the Agent and, if not already cancelled, shall
be promptly cancelled by it. The Company may at any time deliver to the Agent
for cancellation any Certificates previously authenti cated, executed and
delivered hereunder which the Company may have acquired in any manner
whatsoever, and all Certificates so delivered shall, upon Issuer Order, be
promptly cancelled by the Agent. No Certificates shall be authenticated,
executed on
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behalf of the Holder and delivered in lieu of or in exchange for any
Certificates cancelled as provided in this Section, except as expressly
permitted by this Agree ment. All cancelled Certificates held by the Agent shall
upon written request be returned to the Company.
If the Company or any Affiliate of the Company shall acquire any
Certificate, such acquisition shall not operate as a cancellation of such
Certificate unless and until such Certificate is delivered to the Agent
cancelled or for cancellation.
Section 3.13. Establishment or Reestablishment of Growth PRIDES.
A Holder may separate the Capital Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as applicable, from the related
Purchase Contracts in respect of an Income PRIDES by substituting for such
Capital Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, Treasury Securities in an aggregate
principal amount equal to the aggregate Stated Amount of such Capital Securities
or for the appropriate Applicable Ownership Interest (as specified in clause (A)
of the definition of such term) of the Treasury Portfolio, as applicable (a
"Collateral Substitution"), at any time from and after the date of this
Agreement and on or prior to the fifth Business Day immedi ately preceding the
Purchase Contract Settlement Date in the case of the Capital Securities and on
or prior to the second Business Day immediately preceding the Purchase Contract
Settlement Date in the case of the appropriate Applicable Owner ship Interest of
the Treasury Portfolio, in each case by (a) depositing with the Collateral Agent
Treasury Securities having an aggregate principal amount equal to the aggregate
Stated Amount of the Capital Securities comprising part of such Income PRIDES or
for the appropriate Applicable Ownership Interest (as specified in clause (A) of
the definition of such term) of the Treasury Portfolio comprising part of such
Income PRIDES, as the case may be, and (b) (i) by delivering cash in an amount
equal to the Contract Adjustment Payments, if any, that would have accrued since
the last date that Contract Adjustment Payments, if any, were made through the
date of substitution on the Growth PRIDES being created by the holder, which
amount the Agent shall promptly remit to the Company, and (ii) transferring the
related Income PRIDES to the Agent accompanied by a notice to the Agent, substan
tially in the form of Exhibit D hereto, stating that the Holder has transferred
the relevant amount of Treasury Securities to the Collateral Agent and
requesting that the Agent instruct the Collateral Agent to release the Capital
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, as the case may be, underlying such Income PRIDES, whereupon the
Agent shall promptly give such
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instruction to the Collateral Agent, substantially in the form of Exhibit C
hereto. Upon receipt of the Treasury Securities described in clause (a) above
and the instruction described in clause (b) above, in accordance with the terms
of the Pledge Agreement, the Collateral Agent will release to the Agent, on
behalf of the Holder, Capital Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be, having a corresponding
aggregate Stated Amount of such Capital Securities or the appropriate Applicable
Ownership Interest (as speci fied in clause (A) of the definition of such term)
of the Treasury Portfolio, as the case may be, from the Pledge, free and clear
of the Company's security interest therein, and upon receipt thereof the Agent
shall promptly:
(i) cancel the related Income PRIDES;
(ii) transfer the Capital Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as the case may be, to the
Holder; and
(iii) authenticate, execute on behalf of such Holder and deliver a
Growth PRIDES Certificate executed by the Company in accordance with
Section 3.3 evidencing the same number of Purchase Contracts as were
evidenced by the cancelled Income PRIDES.
Holders who elect to separate the Capital Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,
from the related Purchase Contract and to substitute Treasury Securities for
such Capital Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, shall be responsible for any fees or
expenses payable to the Collateral Agent for its services as Collateral Agent in
respect of the substitution, and the Company shall not be responsible for any
such fees or expenses.
Holders may make Collateral Substitutions (i) only in integral multiples
of 100 Income PRIDES if Capital Securities are being substituted by Treasury
Securi ties, or (ii) only in integral multiples of 4,000,000 Income PRIDES if
the appropriate Applicable Ownership Interests of the Treasury Portfolio are
being substituted by Treasury Securities.
In the event a Holder making a Collateral Substitution pursuant to this
Section 3.13 fails to effect a book-entry transfer of the Income PRIDES or fails
to deliver an Income PRIDES Certificate(s) to the Agent after depositing
Treasury
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Securities with the Collateral Agent, the Capital Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,
consti tuting a part of such Income PRIDES, and any distributions on such
Capital Security or the Applicable Ownership Interest of the Treasury Portfolio,
as the case may be, shall be held in the name of the Agent or its nominee in
trust for the benefit of such Holder, until such Income PRIDES is so transferred
or the Income PRIDES Certifi cate is so delivered, as the case may be, or, with
respect to an Income PRIDES Certificate, such Holder provides evidence
satisfactory to the Company and the Agent that such Income PRIDES Certificate
has been destroyed, lost or stolen, together with any indemnity that may be
required by the Agent and the Company.
Except as described in this Section 3.13, for so long as the Purchase
Contract underlying an Income PRIDES remains in effect, such Income PRIDES shall
not be separable into its constituent parts, and the rights and obligations of
the Holder in respect of the Capital Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as the case may be, and Purchase
Contract comprising such Income PRIDES may be acquired, and may be transferred
and exchanged, only as an Income PRIDES.
Section 3.14. Establishment or Reestablishment of Income PRIDES.
A Holder of a Growth PRIDES may create or recreate Income PRIDES at any
time (i) on or prior to the fifth Business Day immediately preceding the
Purchase Contract Settlement Date, if a Tax Event Redemption has not occurred,
and (ii) on or prior to the second Business Day immediately preceding the
Purchase Contract Settlement Date, if a Tax Event Redemption has occurred and an
Applicable Owner ship Interest in the Treasury Portfolio has become a component
of the Income PRIDES, in each case by (a) depositing with the Collateral Agent
Capital Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, having an aggregate Stated Amount in the
case of the Capital Securi ties, or an appropriate Applicable Ownership Interest
(as defined in clause (A) of the definition of such term) of the Treasury
Portfolio, as the case may be, equal to the aggregate principal amount of the
Treasury Securities comprising part of the Growth PRIDES and (b) transferring
the related Growth PRIDES to the Agent accompanied by a notice to the Agent,
substantially in the form of Exhibit D hereto, stating that the Holder has
transferred the relevant amount of Capital Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be, to
the Collateral Agent and requesting that the Agent instruct the Collateral Agent
to release the Treasury Securities underlying such Growth PRIDES, whereupon the
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Agent shall promptly give such instruction to the Collateral Agent,
substantially in the form of Exhibit C hereto. Upon receipt of the Capital
Securities or the appropri ate Applicable Ownership Interest of the Treasury
Portfolio, as the case may be, described in clause (a) above and the instruction
described in clause (b) above, in accordance with the terms of the Pledge
Agreement, the Collateral Agent will effect the release of the Treasury
Securities having a corresponding aggregate principal amount from the Pledge to
the Agent free and clear of the Company's security interest therein, and upon
receipt thereof the Agent shall promptly:
(i) cancel the related Growth PRIDES;
(ii) transfer the Treasury Securities to the Holder; and
(iii) authenticate, execute on behalf of such Holder and deliver an
Income PRIDES Certificate executed by the Company in accordance with
Section 3.3 evidencing the same number of Purchase Contracts as were
evidenced by the cancelled Growth PRIDES.
Holders of Growth PRIDES may establish or reestablish Income PRIDES in
integral multiples of 100 Growth PRIDES for 100 Income PRIDES if a Tax Event
Redemption has not occurred, and in integral multiples of 4,000,000 Growth
PRIDES for 4,000,000 Income PRIDES if a Tax Event Redemption has occurred.
Except as provided in this Section 3.14, for so long as the Purchase
Contract underlying a Growth PRIDES remains in effect, such Growth PRIDES shall
not be separable into its constituent parts and the rights and obligations of
the Holder of such Growth PRIDES in respect of the Treasury Security and
Purchase Contract comprising such Growth PRIDES may be acquired, and may be
transferred and exchanged only as a Growth PRIDES.
Section 3.15. Transfer of Collateral upon Occurrence of Termination Event.
Upon the occurrence of a Termination Event and the transfer to the Agent
of the Capital Securities, the appropriate Applicable Ownership Interest of the
Treasury Portfolio or the Treasury Securities, as the case may be, underlying
the Income PRIDES and the Growth PRIDES pursuant to the terms of the Pledge
Agreement, the Agent shall request transfer instructions with respect to such
Capital Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio or Treasury Securities, as the case may be, from each Holder
by written request mailed to such
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Holder at its address as it appears in the Income PRIDES Register or the Growth
PRIDES Register, as the case may be. Upon book-entry transfer of the Income
PRIDES or Growth PRIDES or delivery of an Income PRIDES Certificate or Growth
PRIDES Certificate to the Agent with such transfer instructions, the Agent shall
transfer the Capital Securities, the Treasury Portfolio or Treasury Securities,
as the case may be, underlying such Income PRIDES or Growth PRIDES, as the case
may be, to such Holder by book-entry transfer, or other appropriate procedures,
in accordance with such instructions. In the event a Holder of Income PRIDES or
Growth PRIDES fails to effect such transfer or delivery, the Capital Securities,
the appropriate Applicable Ownership Interest of the Treasury Portfolio or
Treasury Securities, as the case may be, underlying such Income PRIDES or Growth
PRIDES, as the case may be, and any distributions thereon, shall be held in the
name of the Agent or its nominee in trust for the benefit of such Holder, until
such Income PRIDES or Growth PRIDES are transferred or the Income PRIDES
Certificate or Growth PRIDES Certificate is surrendered or such Holder provides
satisfactory evidence that such Income PRIDES Certificate or Growth PRIDES
Certificate has been destroyed, lost or stolen, together with any indemnity that
may be required by the Agent and the Company.
Section 3.16. No Consent to Assumption.
Each Holder of a Security, by acceptance thereof, shall be deemed
expressly to have withheld any consent to the assumption under Section 365 of
the Bankruptcy Code or otherwise, of the Purchase Contract by the Company,
receiver, liquidator or a person or entity performing similar functions, its
trustee in the event that the Company becomes the debtor under the Bankruptcy
Code or subject to other similar state or federal law providing for
reorganization or liquidation.
ARTICLE IV
The Capital Securities
Section 4.1. Payment of Distribution; Rights to Distributions Preserved;
Distribution Rate Reset; Notice.
A distribution on any Capital Security or on the appropriate Applicable
Ownership Interest in the Treasury Portfolio, as the case may be, which is paid
on any Payment Date shall, subject to receipt thereof by the Agent from the
Collateral
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Agent as provided by the terms of the Pledge Agreement, be paid to the Person in
whose name the Income PRIDES Certificate (or one or more Predecessor Income
PRIDES Certificates) of which such Capital Security or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be, is
a part is regis tered at the close of business on the Record Date for such
Payment Date.
Each Income PRIDES Certificate evidencing Capital Securities delivered
under this Agreement upon registration of transfer of or in exchange for or in
lieu of any other Income PRIDES Certificate shall carry the rights to
distributions accrued and unpaid, and to accrue distributions, which were
carried by the Capital Securities underlying such other Income PRIDES
Certificate.
In the case of any Income PRIDES with respect to which Cash Settlement of
the underlying Purchase Contract is effected on the Business Day immediately
preceding the Purchase Contract Settlement Date pursuant to prior notice, or
with respect to which Early Settlement of the underlying Purchase Contract is
effected on an Early Settlement Date, or with respect to which a Collateral
Substitution is effected, in each case on a date that is after any Record Date
and on or prior to the next succeeding Payment Date, distributions on the
Capital Securities or on the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, underlying such Income PRIDES otherwise
payable on such Payment Date shall be payable on such Payment Date
notwithstanding such Cash Settlement or Early Settlement or Collateral
Substitution, and such distributions shall, subject to receipt thereof by the
Agent, be payable to the Person in whose name the Income PRIDES Certificate (or
one or more Predecessor Income PRIDES Certificates) was registered at the close
of business on the Record Date. Except as otherwise expressly provided in the
immediately preceding sentence, in the case of any Income PRIDES with respect to
which Cash Settlement or Early Settlement of the underlying Purchase Contract is
effected on the Business Day immediately preceding the Purchase Contract
Settlement Date or an Early Settlement Date, as the case may be, or with respect
to which a Collateral Substitution has been effected, distributions on the
related Capital Securities or on the appropriate Applicable Ownership Interest
of the Treasury Portfolio, as the case may be, that would otherwise be payable
after the Purchase Contract Settlement Date or Early Settlement Date shall not
be payable hereunder to the Holder of such Income PRIDES; provided, however,
that to the extent that such Holder continues to hold the separated Capital
Securities that formerly comprised a part of such Holder's Income PRIDES, such
Holder shall be entitled to receive the distributions on such separated Capital
Securities.
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The applicable Coupon Rate on the Capital Securities on and after
the Purchase Contract Settlement Date will be reset on the third Business Day
immedi ately preceding the Purchase Contract Settlement Date to the Reset Rate
(such Reset Rate to be in effect on and after the Purchase Contract Settlement
Date). On the Reset Announcement Date the Reset Spread and the Two-Year
Benchmark Treasury to be used to determine the Reset Rate will be announced by
the Company. On the Business Day immediately following the Reset Announcement
Date, the Capital Securities Holders will be notified of such Reset Spread and
Two-Year Benchmark Treasury by the Company. Such notice shall be sufficiently
given to Holders of Capital Securities if published in an Authorized Newspaper
in The City of New York.
Not later than 7 calendar days nor more than 15 calendar days prior
to the Reset Announcement Date, the Company will notify the DTC or its nominee
(or any successor Clearing Agency or its nominee) by first-class mail, postage
prepaid, to notify the Beneficial Owners or Clearing Agency Participants holding
Income PRIDES or Growth PRIDES, of such Reset Announcement Date and the
procedures to be followed by such Holders of Income PRIDES who intend to settle
their obligation under the Purchase Contract with separate cash on the Purchase
Contract Settlement Date.
Section 4.2. Notice and Voting.
Under the terms of the Pledge Agreement, the Agent will be entitled to
exercise the voting and any other consensual rights pertaining to the Capital
Securi ties pledged with the Collateral Agent but only to the extent instructed
by the Holders as described below. Upon receipt of notice of any meeting at
which holders of Capital Securities are entitled to vote or upon any
solicitation of consents, waivers or proxies of holders of Capital Securities,
the Agent shall, as soon as practicable thereafter, mail to the Holders of
Income PRIDES a notice (a) containing such information as is contained in the
notice or solicitation, (b) stating that each Holder on the record date set by
the Agent therefor (which, to the extent possible, shall be the same date as the
record date for determining the holders of Capital Securities entitled to vote)
shall be entitled to instruct the Agent as to the exercise of the voting rights
pertaining to the Capital Securities underlying their Income PRIDES and (c)
stating the manner in which such instructions may be given. Upon the written
request of the Holders of Income PRIDES on such record date, the Agent shall
endeavor insofar as practicable to vote or cause to be voted, in accordance with
the instructions set forth in such requests, the maximum number of Capital
Securities as
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to which any particular voting instructions are received. In the absence of
specific instructions from the Holder of an Income PRIDES, the Agent shall
abstain from voting the Capital Security underlying such Income PRIDES. The
Company hereby agrees, if applicable, to solicit Holders of Income PRIDES to
timely instruct the Agent in order to enable the Agent to vote such Capital
Securities and the Trust shall covenant to such effect in the Declaration.
Section 4.3. Distribution of Debentures; Tax Event Redemption.
Upon the occurrence of an Investment Company Event or a liquidation of the
Trust in accordance with the Declaration, a principal amount of Debentures
constitut ing the assets of the Trust and underlying the Capital Securities
equal to the aggre gate Stated Amount of the Pledged Capital Securities shall be
delivered to the Collateral Agent in exchange for the Pledged Capital
Securities. Thereafter, the Debentures will be substituted for the Pledged
Capital Securities, and will be held by the Collateral Agent in accordance with
the terms of the Pledge Agreement to secure the obligations of each Holder of an
Income PRIDES to purchase the Common Stock of the Company under the Purchase
Contracts constituting a part of such Income PRIDES. Following the occurrence of
an Investment Company Event or a liquida tion of the Trust, the Holders and the
Collateral Agent shall have such security interests, rights and obligations with
respect to the Debentures as the Holders and the Collateral Agent had in respect
of the Capital Securities subject to the Pledge thereof as provided in Articles
II, III, IV, V and VI of the Pledge Agreement, and any reference herein to the
Capital Securities shall be deemed to be a reference to such Debentures. The
Company may cause to be made in any Income PRIDES Certifi cates thereafter to be
issued such change in phraseology and form (but not in substance) as may be
appropriate to reflect the liquidation of the Trust and the substitution of
Debentures for Capital Securities as Collateral.
Upon the occurrence of a Tax Event Redemption prior to the Purchase
Contract Settlement Date, the Redemption Price payable on the Tax Event Redemp
tion Date with respect to the Applicable Principal Amount of Debentures shall be
delivered to the Collateral Agent in exchange for the Pledged Capital
Securities. Thereafter, pursuant to the terms of the Pledge Agreement, the
Collateral Agent 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 promptly remit the remaining portion of such Redemption
Price to the Agent for payment to the Holders of such Income PRIDES. The
Treasury Portfolio will be substituted for the Pledged Capital Securities, and
will be held by the Collateral
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Agent in accordance with the terms of the Pledge Agreement to secure the
obligation of each Holder of an Income PRIDES to purchase the Common Stock of
the Com pany under the Purchase Contract constituting a part of such Income
PRIDES. Following the occurrence of a Tax Event Redemption prior to the Purchase
Contract Settlement Date, the Holders of Income PRIDES and the Collateral Agent
shall have such security interests, rights and obligations with respect to the
Treasury Portfolio as the Holder of Income PRIDES and the Collateral Agent had
in respect of the Capital Security or Debentures, as the case may be, subject to
the Pledge thereof as provided in Articles II, III, IV, V, and VI of the Pledge
Agreement, and any reference herein to the Capital Security or the Debenture
shall be deemed to be reference to such Treasury Portfolio. The Company may
cause to be made in any Income PRIDES Certificates thereafter to be issued such
change in phraseology and form (but not in substance) as may be appropriate to
reflect the liquidation of the Trust and the substitution of the Treasury
Portfolio for Capital Securities or Debentures as collateral.
ARTICLE V
The Purchase Contracts
Section 5.1. Purchase of Shares of Common Stock.
Each Purchase Contract shall, unless an Early Settlement has occurred in
accordance with Section 5.9 hereof, obligate the Holder of the related Security
to purchase, and the Company to sell, on the Purchase Contract Settlement Date
at a price equal to the Stated Amount (the "Purchase Price"), a number of newly
issued shares of Common Stock equal to the Settlement Rate unless, on or prior
to the Purchase Contract Settlement Date, there shall have occurred a
Termination Event with respect to the Security of which such Purchase Contract
is a part. The "Settle ment Rate" is equal to (a) if the Applicable Market Value
(as defined below) is equal to or greater than $____ (the "Threshold
Appreciation Price"), ____ shares of Common Stock per Purchase Contract, (b) if
the Applicable Market Value is less than the Threshold Appreciation Price, but
is greater than $____, the number of shares of Common Stock equal to the Stated
Amount divided by the Applicable Market Value and (c) if the Applicable Market
Value is less than or equal to $____, ____ shares of Common Stock per Purchase
Contract, in each case subject to adjustment as provided in Section 5.6 (and in
each case rounded upward or down-
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ward to the nearest 1/10,000th of a share). As provided in Section 5.10, no
fractional shares of Common Stock will be issued upon settlement of Purchase
Contracts.
The "Applicable Market Value" means the average of the Closing Price per
share of Common Stock on each of the 20 consecutive Trading Days ending on the
third Trading Day immediately preceding the Purchase Contract Settlement Date.
The "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 New York Stock Exchange, Inc. (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, 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.
Each Holder of an Income PRIDES or a Growth PRIDES, by its acceptance
thereof, irrevocably authorizes the Agent to enter into and perform the related
Purchase Contract on its behalf as its attorney-in-fact (including the execution
of Certificates on behalf of such Holder), agrees to be bound by the terms and
provi sions thereof, covenants and agrees to perform its obligations under such
Purchase Contracts, and consents to the provisions hereof, irrevocably
authorizes the Agent as its attorney-in-fact to enter into and perform the
Pledge Agreement on its behalf as its attorney-in-fact, and consents to and
agrees to be bound by the Pledge of the Capital Securities, the Treasury
Portfolio or the Treasury Securities pursuant to the Pledge Agreement; provided
that upon a Termination Event, the rights of the Holder of such Security under
the Purchase Contract may be enforced without regard to any other rights or
obligations. Each Holder of an Income PRIDES or a Growth PRIDES, by its
acceptance thereof, further covenants and agrees, that, to the extent and in the
manner provided in Section 5.4 and the Pledge Agreement, but subject to the
terms thereof, payments in respect of the Stated Amount of the Capital
Securities
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or the Proceeds of the Treasury Securities or the Treasury Portfolio on the
Purchase Contract Settlement Date shall be paid by the Collateral Agent to the
Company in satisfaction of such Holder's obligations under such Purchase
Contract and such Holder shall acquire no right, title or interest in such
payments.
Upon registration of transfer of a Certificate, the transferee shall be
bound (without the necessity of any other action on the part of such
transferee), under the terms of this Agreement, the Purchase Contracts
underlying such Certificate and the Pledge Agreement and the transferor shall be
released from the obligations under this Agreement, the Purchase Contracts
underlying the Certificates so transferred and the Pledge Agreement. The Company
covenants and agrees, and each Holder of a Certificate, by its acceptance
thereof, likewise covenants and agrees, to be bound by the provisions of this
paragraph.
Section 5.2. Contract Adjustment Payments.
Subject to Section 5.3 herein, the Company shall pay, on each Payment
Date, the Contract Adjustment Payments, if any, payable in respect of each
Purchase Contract to the Person in whose name a Growth PRIDES Certificate (or
one or more Predecessor Certificates) is registered at the close of business on
the Record Date next preceding such Payment Date. The Contract Adjustment
Payments, if any, will be payable at the office of the Agent in The City of New
York maintained for that purpose or, at the option of the Company, by check
mailed to the address of the Person entitled thereto at such Person's address as
it appears on the Growth PRIDES Register.
Upon the occurrence of a Termination Event, the Company's obligation to
pay Contract Adjustment Payments, if any, (including any accrued or Deferred
Contract Adjustment Payments) shall cease.
Each Certificate delivered under this Agreement upon registration of
transfer of or in exchange for or in lieu of (including as a result of a
Collateral Substitution or the re-establishment of an Income PRIDES) any other
Certificate shall carry the rights to Contract Adjustment Payments, if any,
accrued and unpaid, and to accrue Contract Adjustment Payments, if any, which
were carried by the Purchase Contracts underlying such other Certificates.
Subject to Section 5.9, in the case of any Security with respect to which
Early Settlement of the underlying Purchase Contract is effected on an Early
Settlement
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Date that is after any Record Date and on or prior to the next succeeding
Payment Date, Contract Adjustment Payments, if any, otherwise payable on such
Payment Date shall be payable on such Payment Date notwithstanding such Early
Settlement, and such Contract Adjustment Payments, if any, shall be paid to the
Person in whose name the Certificate evidencing such Security (or one or more
Predecessor Certifi cates) is registered at the close of business on such Record
Date. Except as otherwise expressly provided in the immediately preceding
sentence, in the case of any Security with respect to which Early Settlement of
the underlying Purchase Contract is effected on an Early Settlement Date,
Contract Adjustment Payments, if any, that would otherwise be payable after the
Early Settlement Date with respect to such Purchase Contract shall not be
payable.
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 obliga
tions under any Senior Indebtedness.
Section 5.3. Deferral of Payment Dates For Contract Adjustment Payments.
The Company shall have the right, at any time prior to the Purchase
Contract Settlement Date, to defer the payment of any or all of the Contract
Adjustment Payments, if any, otherwise payable on any Payment Date, but only if
the Company shall give the Holders and the Agent written notice of its election
to defer such payment (specifying the amount to be deferred) at least ten
Business Days prior to the earlier of (i) the next succeeding Payment Date or
(ii) the date the Company is required to give notice of the Record Date or
Payment Date with respect to payment of such Contract Adjustment Payments, if
any, to the NYSE or other applicable self-regulatory organization or to Holders
of the Securities, but in any event not less than one Business Day prior to such
Record Date. Any Contract Adjustment Payments, if any, so deferred shall bear
additional Contract Adjustment Payments thereon at the rate of ____% per annum
(computed on the basis of 360 day year of twelve 30 day months), compounding on
each succeeding Payment Date, until paid in full (such deferred installments of
Contract Adjustment Payments, if any, together with the additional Contract
Adjustment Payments accrued thereon, being referred to herein as the "Deferred
Contract Adjustment Payments"). Deferred Contract Adjustment Payments shall be
due on the next succeeding Payment Date except to the extent that payment is
deferred pursuant to this Section. No Contract Adjustment Payments, if any, may
be deferred to a date that is after the Purchase Contract Settlement Date. If
the Purchase Contracts are terminated upon the occurrence of a
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Termination Event, the Holder's right to receive Contract Adjustment Payments,
if any, and Deferred Contract Adjustment Payments will 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 will receive on the Purchase Contract
Settlement Date in lieu of a cash payment a number of shares of Common Stock (in
addition to a number of shares of Common Stock equal to the Settlement Rate)
equal to (x) the aggregate amount of Deferred Contract Adjustment Payments
payable to such Holder divided by (y) the Applicable Market Value.
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 as provided in Section 5.10.
In the event the Company exercises its option to defer the payment of
Contract Adjustment Payments, if any, then, 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 conver
sion 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).
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Section 5.4. Payment of Purchase Price.
(a) (i) Unless a Tax Event Redemption has occurred or a Holder settles the
underlying Purchase Contract through the early delivery of cash to the Purchase
Contract Agent in the manner described in Section 5.9, each Holder of an Income
PRIDES must notify the Agent by use of a notice in substantially the form of
Exhibit E hereto of its intention to pay in cash ("Cash Settlement") the
Purchase Price for the shares of Common Stock to be purchased pursuant to a
Purchase Contract. Such notice shall be made on or prior to 5:00 p.m., New York
City time, on the fifth Business Day immediately preceding the Purchase Contract
Settlement Date. The Agent shall promptly notify the Collateral Agent of the
receipt of such a notice from a Holder intending to make a Cash Settlement.
(ii) A Holder of an Income PRIDES who has so notified the Agent of
its intention to make a Cash Settlement is required to pay the Purchase
Price to the Collateral Agent prior to 11:00 a.m., New York City time, on
the Business Day immediately preceding the Purchase Contract Settlement
Date in lawful money of the United States by certified or cashiers' check
or wire transfer, in each case in immediately available funds payable to
or upon the order of the Company. Any cash received by the Collateral
Agent will be invested promptly by the Collateral Agent in Permitted
Investments and paid to the Company on the Purchase Contract Settlement
Date in settlement of the Purchase Contract in accordance with the terms
of this Agreement and the Pledge Agreement. Any funds received by the
Collateral Agent in respect of the investment earnings from the investment
in such Permitted Investments, will be distributed to the Agent when
received for payment to the Holder.
(iii) If a Holder of an Income PRIDES fails to notify the Agent of
its intention to make a Cash Settlement in accordance with paragraph
(a)(i) above, such failure shall constitute an event of default and the
Holder shall be deemed to have consented to the disposition of the pledged
Capital Securities pursuant to the Remarketing as described in paragraph
(b) below. If a Holder of an Income PRIDES does notify the Agent as
provided in paragraph (a)(i) above of its intention to pay the Purchase
Price in cash, but fails to make such payment as required by paragraph
(a)(ii) above, such failure shall also constitute a default; however, the
Capital Securities of such a Holder will not be remarketed but instead the
Collateral Agent, for the benefit of the Com pany, will exercise its
rights as a secured party with respect to such Capital Securities,
including those rights specified in paragraph (c) below.
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(b) In order to dispose of the Capital Securities (or Debentures exchanged
for Capital Securities following an Investment Company Event or other
dissolution of the Trust) of Income PRIDES Holders who have not notified the
Agent of their intention to effect a Cash Settlement as provided in paragraph
(a)(i) above, the Company shall engage a nationally recognized investment bank
(the "Remarketing Agent") pursuant to the Remarketing Agreement to sell such
Capital Securities (or Debentures). In order to facilitate the remarketing, the
Agent shall notify, by 10:00 a.m., New York City time, on the fourth Business
Day immediately preceding the Purchase Contract Settlement Date, the Remarketing
Agent of the aggregate number of Capital Securities (or Debentures) to be
remarketed. Concurrently, the Collateral Agent, pursuant to the terms of the
Pledge Agreement, will present for remarketing such Capital Securities (or
Debentures) to the Remarketing Agent. Upon receipt of such notice from the Agent
and such Capital Securities (or Debentures) from the Collateral Agent, the
Remarketing Agent will, on the third Business Day immedi ately preceding the
Purchase Contract Settlement Date, use its reasonable efforts to remarket such
Capital Securities (or Debentures) on such date at a price of approxi mately
100.75% (but not less than 100%) of the aggregate stated liquidation amount of
such Capital Securities (or Debentures), plus accrued and unpaid distributions
(including deferred distributions), if any, thereon. After deducting as the
remarketing fee ("Remarketing Fee") an amount not exceeding 50 basis points
(.50%) of the aggregate stated liquidation amount of the remarketed Capital
Securi ties (or Debentures) from any amount of such proceeds in excess of the
aggregate stated liquidation amount of the remarketed Capital Securities (or
Debentures) plus accrued and unpaid distributions (including any deferred
distributions), if any, then the Remarketing Agent will remit the entire amount
of the proceeds from such remarketing to the Collateral Agent. Such portion of
the proceeds, equal to the aggregate stated liquidation amount of such Capital
Securities (or Debentures) , will automatically be applied by the Collateral
Agent, in accordance with the Pledge Agreement to satisfy in full such Income
PRIDES holders' obligations to pay the Purchase Price for the Common Stock under
the related Purchase Contracts on the Purchase Contract Settlement Date. Any
proceeds in excess of those required to pay the Purchase Price and the
Remarketing Fee will be remitted to the Agent for payment to the Holders of the
related Income PRIDES. Income PRIDES Holders whose Capital Securities (or
Debentures) are so remarketed will not otherwise be responsible for the payment
of any Remarketing Fee in connection therewith. If, in spite of using its
reasonable efforts, the Remarketing Agent cannot remarket the related Capital
Securities (or Debentures) of such Holders of Income PRIDES at a price not less
than 100% of the aggregate stated liquidation amount of such Capital Securities
(or Debentures) plus accrued and unpaid distributions (including deferred
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distributions), if any, the remarketing will be deemed to have failed (a "Failed
Remarketing") and in accordance with the terms of the Pledge Agreement the
Collateral Agent for the benefit of the Company will exercise its rights as a
secured party with respect to such Capital Securities (or Debentures) ,
including those actions specified in paragraph (c) below; provided, that if upon
a Failed Remarketing the Collateral Agent exercises such rights for the benefit
of the Company with respect to such Capital Securities (or Debentures) , any
accrued and unpaid distribu tions (including any deferred distributions) on such
Capital Securities (or Deben tures) will become payable by the Company to the
Agent for payment to the Holder of the Income PRIDES to which such Capital
Securities (or Debentures) relates. Such payment will be made by the Company on
or prior to 11 a.m. New York City time on the Purchase Contract Settlement Date
in lawful money of the United States by certified or cashiers' check or wire
transfer in immediately available funds payable to or upon the order of the
Agent. 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 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.
(c) With respect to any Capital Securities beneficially owned by Holders
who have elected Cash Settlement but failed to deliver cash as required in
(a)(ii) above, or with respect to Capital Securities which are subject to a
Failed Remarketing, the Collateral Agent for the benefit of the Company reserves
all of its rights as a secured party with respect thereto and, subject to
applicable law and paragraph (h) below, may, among other things, (i) retain the
Capital Securities in full satisfaction of the Holders obligations under the
Purchase Contracts or (ii) sell the Capital Securities in one or more public or
private sales.
(d) (i) Unless a Holder of Growth PRIDES or Income PRIDES (if a Tax Event
Redemption has occurred) settles the underlying Purchase Contract through the
early delivery of cash to the Purchase Contract Agent in the manner described in
Section 5.9, each Holder of a Growth PRIDES or Income PRIDES (if a Tax Event
Redemption has occurred) must notify the Agent by use of a notice in
substantially the form of Exhibit E hereto of its intention to pay in cash the
Purchase Price for the shares of Common Stock to be purchased pursuant to a
Purchase Contract on or prior to 5:00 p.m., New York City time, on the second
Business Day immediately preced ing the Purchase Contract Settlement Date.
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(ii) A Holder of a Growth PRIDES or Income PRIDES (if a Tax Event
Redemption has occurred) who has so notified the Agent of its inten tion
to make a Cash Settlement in accordance with paragraph (d)(i) above is
required to pay the Purchase Price to the Collateral Agent prior to 11:00
a.m., New York City time, on the Business Day immediately preceding the
Pur chase Contract Settlement Date in lawful money of the United States by
certified or cashiers' check or wire transfer, in each case in immediately
available funds payable to or upon the order of the Company. Any cash
received by the Collateral Agent will be invested promptly by the
Collateral Agent in Permitted Investments and paid to the Company on the
Purchase Contract Settlement Date in settlement of the Purchase Contract
in accor dance with the terms of this Agreement and the Pledge Agreement.
Any funds received by the Collateral Agent in respect of the investment
earnings from the investment in such Permitted Investments will be
distributed to the Agent when received for payment to the Holder.
(iii) If a Holder of a Growth PRIDES or an Income PRIDES (if a Tax
Event Redemption has occurred) fails to notify the Agent of its intention
to make a Cash Settlement in accordance with paragraph (d)(i) above, or if
a Holder of a Growth PRIDES or an Income PRIDES (if a Tax Event Redemp
tion has occurred) does notify the Agent as provided in paragraph (d)(i)
above its intention to pay the Purchase Price in cash, but fails to make
such payment as required by paragraph (d)(ii) above, then upon the
maturity of the Pledged Treasury Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as the case may be, held by
the Collateral Agent on the Business Day immediately prior to the Purchase
Contract Settlement Date, the principal amount of the Treasury Securities
or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, as the case may be, received by the Collateral Agent will be
invested promptly in overnight Permitted Invest ments. On the Purchase
Contract Settlement Date an amount equal to the Purchase Price will be
remitted to the Company as payment thereof without receiving any
instructions from the Holder. In the event the sum of the proceeds from
the related Pledged Treasury Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as the case may be, and the
investment earnings earned from such investments is in excess of the
aggregate Purchase Price of the Purchase Contracts being settled thereby,
the Collateral Agent will distribute such excess to the Agent for the
benefit of the Holder of the related Growth PRIDES or Income PRIDES when
received.
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(e) Any distribution to Holders of excess funds and interest described
above, shall be payable at the office of the Agent in The City of New York main
tained for that purpose or, at the option of the Holder, by check mailed to the
address of the Person entitled thereto at such address as it appears on the
Register.
(f) Unless a Holder settles the underlying Purchase Contract through the
early delivery of cash to the Collateral Agent in the manner described herein,
the Company shall not be obligated to issue any shares of Common Stock in
respect of a Purchase Contract or deliver any certificate therefor to the Holder
unless it shall have received payment in full of the Purchase Price for the
shares of Common Stock to be purchased thereunder in the manner herein set
forth.
(g) Upon Cash Settlement of any Purchase Contract, (i) the Collateral
Agent will in accordance with the terms of the Pledge Agreement cause the
Pledged Capital Securities or the appropriate Applicable Ownership Interest of
the Treasury Portfolio, as the case may be, or the Pledged Treasury Securities
underlying the relevant Security to be released from the Pledge by the
Collateral Agent free and clear of any security interest of the Company and
transferred to the Agent for delivery to the Holder thereof or its designee as
soon as practicable and (ii) subject to the receipt thereof from the Collateral
Agent, the Agent shall, by book-entry transfer, or other appropriate procedures,
in accordance with instructions provided by the Holder thereof, transfer such
Capital Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be, or such Treasury Securities (or, if no
such instructions are given to the Agent by the Holder, the Agent shall hold
such Capital Securities or the Treasury Portfolio, as the case may be, or such
Treasury Securities, and any distribution thereon, in the name of the Agent or
its nominee in trust for the benefit of such Holder).
(h) The obligations of the Holders to pay the Purchase Price are
non-recourse obligations and are payable solely out of any Cash Settlement or
the proceeds of any Collateral pledged to secure the obligations of the Holders
and in no event will Holders be liable for any deficiency between the proceeds
of Collateral disposition and the Purchase Price.
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Section 5.5. Issuance of Shares of Common Stock.
Unless a Termination Event or an Early Settlement shall have occurred, on
the Purchase Contract Settlement Date, upon its receipt of payment in full of
the Purchase Price for the shares of Common Stock purchased by the Holders
pursuant to the foregoing provisions of this Article and subject to Section
5.6(b), the Company shall issue and deposit with the Agent, for the benefit of
the Holders of the Outstand ing Securities, one or more certificates
representing the newly issued shares of Common Stock registered in the name of
the Agent (or its nominee) as custodian for the Holders (such certificates for
shares of Common Stock, together with any dividends or distributions for which
both a record date and payment date for such dividend or distribution has
occurred after the Purchase Contract Settlement Date, being hereinafter referred
to as the "Purchase Contract Settlement Fund") to which the Holders are entitled
hereunder. Subject to the foregoing, upon surrender of a Certificate to the
Agent on or after the Purchase Contract Settlement Date, together with
settlement instructions thereon duly completed and executed, the Holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Common Stock which such Holder is
entitled to receive pursuant to the provisions of this Article Five (after
taking into account all Securities then held by such Holder) together with cash
in lieu of fractional shares as provided in Section 5.10 and any dividends or
distributions with respect to such shares constituting part of the Purchase
Contract Settlement Fund, but without any interest thereon, and the Certificate
so surrendered shall forthwith be cancelled. Such shares shall be registered in
the name of the Holder or the Holder's designee as specified in the settlement
instructions provided by the Holder to the Agent. If any shares of Common Stock
issued in respect of a Purchase Contract are to be registered to a Person other
than the Person in whose name the Certificate evidencing such Purchase Contract
is registered, no such registration shall be made unless the Person requesting
such registration has paid any transfer and other taxes required by reason of
such registration in a name other than that of the registered Holder of the
Certifi cate evidencing such Purchase Contract or has established to the
satisfaction of the Company that such tax either has been paid or is not
payable.
Section 5.6. Adjustment of Settlement Rate.
(a) Adjustments for Dividends, Distributions, Stock Splits, Etc.
(1) In case the Company shall pay or make a dividend or other
distribution on the Common Stock in Common Stock, the Settlement Rate, as in
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effect at the opening of business on the day following the date fixed for the
determi nation of stockholders entitled to receive such dividend or other
distribution shall be increased by dividing such Settlement Rate by a fraction
of which the numerator shall be the number of shares of Common Stock outstanding
at the close of business on the date fixed for such determination and the
denominator shall be the sum of such number of shares and the total number of
shares constituting such dividend or other distribution, such increase to become
effective immediately after the opening of business on the day following the
date fixed for such determination. For the purposes of this paragraph (1), the
number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company but shall include any shares issuable
in respect of any scrip certificates issued in lieu of fractions of shares of
Common Stock. The Company will not pay any dividend or make any distribution on
shares of Common Stock held in the treasury of the Company.
(2) In case the Company shall issue rights, options or warrants to
all holders of its Common Stock (not being available on an equivalent basis to
Holders of the Securities upon settlement of the Purchase Contracts underlying
such Securities) entitling them, for a period expiring within 45 days after the
record date for the determination of stockholders entitled to receive such
rights, options or warrants, to subscribe for or purchase shares of Common Stock
at a price per share less than the Current Market Price per share of the Common
Stock on the date fixed for the determination of stockholders entitled to
receive such rights, options or warrants (other than pursuant to a dividend
reinvestment plan), the Settlement Rate in effect at the opening of business on
the day following the date fixed for such determination shall be increased by
dividing such Settlement Rate by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding at the close of business on the
date fixed for such determination plus the number of shares of Common Stock
which the aggregate of the offering price of the total number of shares of
Common Stock so offered for subscription or purchase would purchase at such
Current Market Price and the denominator shall be the number of shares of Common
Stock outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, such increase to become effective immediately after
the opening of business on the day following the date fixed for such
determination. For the purposes of this paragraph (2), the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Company but shall include any shares issuable in respect of any
scrip certificates issued in lieu of fractions of shares of Common Stock. The
Company shall not issue any such rights,
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options or warrants in respect of shares of Common Stock held in the treasury of
the Company.
(3) In case outstanding shares of Common Stock shall be subdi vided
or split into a greater number of shares of Common Stock, the Settlement Rate in
effect at the opening of business on the day following the day upon which such
subdivision or split becomes effective shall be proportionately increased, and,
conversely, in case outstanding shares of Common Stock shall each be combined
into a smaller number of shares of Common Stock, the Settlement Rate, in effect
at the opening of business on the day following the day upon which such
combination becomes effective shall be proportionately reduced, such increase or
reduction, as the case may be, to become effective immediately after the opening
of business on the day following the day upon which such subdivision, split or
combination becomes effective.
(4) In case the Company shall, by dividend or otherwise, distrib ute
to all holders of its Common Stock evidences of its indebtedness or assets
(including securities, but excluding any rights or warrants referred to in
paragraph (2) of this Section, any dividend or distribution paid exclusively in
cash and any dividend or distribution referred to in paragraph (1) of this
Section), the Settlement Rate shall be adjusted so that the same shall equal the
rate determined by dividing the Settlement Rate in effect immediately prior to
the close of business on the date fixed for the determination of stockholders
entitled to receive such distribution by a fraction of which the numerator shall
be the Current Market Price per share of the Common Stock on the date fixed for
such determination less the then fair market value (as determined by the Board
of Directors, whose determination shall be conclusive and described in a Board
Resolution filed with the Agent) of the portion of the assets or evidences of
indebtedness so distributed applicable to one share of Common Stock and the
denominator shall be such Current Market Price per share of the Common Stock,
such adjustment to become effective immediately prior to the opening of business
on the day following the date fixed for the determination of stockholders
entitled to receive such distribution. In any case in which this para graph (4)
is applicable, paragraph (2) of this Section shall not be applicable.
(5) In case the Company shall, (I) by dividend or otherwise,
distribute to all holders of its Common Stock cash (excluding (i) regular
quarterly cash distributions, (ii) any cash that is distributed in a
Reorganization Event to which Section 5.6(b) applies or (iii) cash that is
distributed as part of a distribution referred to in paragraph (4) of this
Section) in an aggregate amount that, combined together
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with (II) the aggregate amount of any other distributions to all holders of its
Com mon Stock (other than regular quarterly cash distributions) made exclusively
in cash within the 12 months preceding the date of payment of such distribution
and in respect of which no adjustment pursuant to this paragraph (5) or
paragraph (6) of this Section has been made and (III) the aggregate of any cash
plus the fair market value (as determined by the Board of Directors, whose
determination shall be conclusive and described in a Board Resolution) of
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
any of its subsidiaries for all or any portion of the Common Stock concluded
within the 12 months preceding the date of payment of the distribution described
in clause (I) above and in respect of which no adjustment pursuant to this
paragraph (5) or paragraph (6) of this Section has been made, exceeds 15% of the
product of the Current Market Price per share of the Common Stock on the date
for the determination of holders of shares of Common Stock entitled to receive
such distribution times the number of shares of Common Stock outstanding on such
date, then, and in each such case, immediately after the close of business on
such date for determination, the Settlement Rate, shall be increased so that the
same shall equal the rate determined by dividing the Settlement Rate in effect
immediately prior to the close of business on the date fixed for determination
of the stockholders entitled to receive such distribution by a fraction (i) the
numera tor of which shall be equal to the Current Market Price per share of the
Common Stock on the date fixed for such determination less an amount equal to
the quotient of (x) the combined amount distributed or payable in the
transactions described in clauses (I), (II) and (III) above and (y) the number
of shares of Common Stock outstanding on such date for determination and (ii)
the denominator of which shall be equal to the Current Market Price per share of
the Common Stock on such date for determination.
(6) In case (I) a tender or exchange offer made by the Company or
any subsidiary of the Company for all or any portion of the Common Stock shall
expire and such tender or exchange offer (as amended upon the expiration
thereof) shall require the payment to stockholders (based on the acceptance (up
to any maximum specified in the terms of the tender or exchange offer) of
Purchased Shares) of an aggregate consideration having a fair market value (as
determined by the Board of Directors, whose determination shall be conclusive
and described in a Board Resolution) that combined together with (II) the
aggregate of the cash plus the fair market value (as determined by the Board of
Directors, whose determination shall be conclusive and described in a Board
Resolution), as of the expiration of such tender or exchange offer, of
consideration payable in respect of any other tender or
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exchange offer (other than consideration payable in respect of any odd-lot
tender offer) by the Company or any subsidiary of the Company for all or any
portion of the Common Stock expiring within the 12 months preceding the
expiration of such tender or exchange offer and in respect of which no
adjustment pursuant to paragraph (5) of this Section or this paragraph (6) has
been made and (III) the aggregate amount of any distributions (other than
regular quarterly cash distributions) to all holders of the Company's Common
Stock made exclusively in cash within the 12 months preceding the expiration of
such tender or exchange offer and in respect of which no adjustment pursuant to
paragraph (5) of this Section or this paragraph (6) has been made, exceeds 15%
of the product of the Current Market Price per share of the Common Stock as of
the last time (the "Expiration Time") tenders could have been made pursuant to
such tender or exchange offer (as it may be amended) times the number of shares
of Common Stock outstanding (including any tendered shares) on the Expiration
Time, then, and in each such case, immediately prior to the opening of business
on the day after the date of the Expiration Time, the Settlement Rate, shall be
adjusted so that the same shall equal the rate determined by dividing the Settle
ment Rate immediately prior to the close of business on the date of the
Expiration Time by a fraction (i) the numerator of which shall be equal to (A)
the product of (I) the Current Market Price per share of the Common Stock on the
date of the Expira tion Time and (II) the number of shares of Common Stock
outstanding (including any tendered shares) on the Expiration Time less (B) the
amount of cash plus the fair market value (determined as aforesaid) of the
aggregate consideration payable to stockholders based on the transactions
described in clauses (I), (II) and (III) above (assuming in the case of clause
(I) the acceptance, up to any maximum specified in the terms of the tender or
exchange offer, of Purchased Shares), and (ii) the denomi nator of which shall
be equal to the product of (A) the Current Market Price per share of the Common
Stock as of the Expiration Time and (B) the number of shares of Common Stock
outstanding (including any tendered shares) as of the Expiration Time less the
number of all shares validly tendered and not withdrawn as of the Expiration
Time (the shares deemed so accepted, up to any such maximum, being referred to
as the "Purchased Shares").
(7) The reclassification of Common Stock into securities includ ing
securities other than Common Stock (other than any reclassification upon a
Reorganization Event to which Section 5.6(b) applies) shall be deemed to involve
(a) a distribution of such securities other than Common Stock to all holders of
Common Stock (and the effective date of such reclassification shall be deemed to
be "the date fixed for the determination of stockholders entitled to receive
such distribution" and the "date fixed for such determination" within the
meaning of paragraph (4) of this
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Section), and (b) a subdivision, split or combination, as the case may be, of
the number of shares of Common Stock outstanding immediately prior to such
reclassifi cation into the number of shares of Common Stock outstanding
immediately thereaf ter (and the effective date of such reclassification shall
be deemed to be "the day upon which such subdivision or split becomes effective"
or "the day upon which such combination becomes effective", as the case may be,
and "the day upon which such subdivision, split or combination becomes
effective" within the meaning of paragraph (3) of this Section).
(8) The "Current Market Price" per share of Common Stock on any day
means the average of the daily Closing Prices for the 5 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.
(9) All adjustments to the Settlement Rate, shall be calculated to
the nearest 1/10,000th of a share of Common Stock (or if there is not a nearest
1/10,000th of a share to the next lower 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 therein; provided, however, that
any adjustments which by reason of this subparagraph are not required to be made
shall be carried forward and taken into account in any subsequent adjustment. If
an adjustment is made to the Settlement Rate pursuant to paragraph (1), (2),
(3), (4), (5), (6), (7) or (10) of this Section 5.6(a), an adjustment shall also
be made to the Applicable Market Value solely to determine which of clauses (a),
(b) or (c) of the definition of Settlement Rate in Section 5.1 will apply on the
Purchase Contract Settlement Date. Such adjustment shall be made by multiplying
the Applicable Market Value by a fraction of which the numerator shall be the
Settlement Rate immediately after such adjustment pursuant to paragraph (1),
(2), (3), (4), (5), (6), (7) or (10) of this Section 5.6(a) and the denominator
shall be the Settlement Rate immediately before such adjustment; provided,
however, that if such adjustment to the Settlement Rate is required to be made
pursuant to the occurrence of any of the events contemplated by paragraph (1),
(2), (3), (4), (5), (7) or (10) of this Section 5.6(a) during the period taken
into consideration for determining the Applicable Market Value, appropriate and
customary adjustments shall be made to the Settlement Rate.
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(10) The Company may make such increases in the Settlement Rate, in
addition to those required by this Section, as it considers to be advisable in
order to avoid or diminish any income tax to any holders of shares of Common
Stock resulting from any dividend or distribution of stock or issuance of rights
or warrants to purchase or subscribe for stock or from any event treated as such
for income tax purposes or for any other reasons.
(b) Adjustment for Consolidation, Merger or Other Reorganization Event. In
the event of (i) any consolidation or merger of the Company with or into another
Person (other than a merger or consolidation in which the Company is the
continuing corporation and in which the Common Stock outstanding immediately
prior to the merger or consolidation is not exchanged for cash, securities or
other property of the Company or another corporation), (ii) any sale, transfer,
lease or conveyance to another Person of the property of the Company as an
entirety or substantially as an entirety, (iii) any statutory exchange of
securities of the Company with another Person (other than in connection with a
merger or acquisition) or (iv) any liquidation, dissolution or winding up of the
Company other than as a result of or after the occurrence of a Termination Event
(any such event, a "Reorganization Event"), the Settlement Rate will be adjusted
to provide that each Holder of Securities will receive on the Purchase Contract
Settlement Date with respect to each Purchase Contract forming a part thereof,
the kind and amount of securities, cash and other property receivable upon such
Reorganization Event (without any interest thereon, and without any right to
dividends or distribution thereon which have a record date that is prior to the
Purchase Contract Settlement Date) by a Holder of the number of shares of Common
Stock issuable on account of each Purchase Contract if the Purchase Contract
Settlement Date had occurred immediately prior to such Reorgani zation Event
assuming such Holder of Common Stock is not a Person with which the Company
consolidated or into which the Company merged or which merged into the Company
or to which such sale or transfer was made, as the case may be (any such Person,
a "Constituent Person"), or an Affiliate of a Constituent Person to the extent
such Reorganization Event provides for different treatment of Common Stock held
by Affiliates of the Company and non-affiliates and such Holder failed to
exercise its rights of election, if any, as to the kind or amount of securities,
cash and other property receivable upon such Reorganization Event (provided that
if the kind or amount of securities, cash and other property receivable upon
such Reorganization Event is not the same for each share of Common Stock held
immediately prior to such Reorganization Event by other than a Constituent
Person or an Affiliate thereof and in respect of which such rights of election
shall not have been exercised ("non-electing share"), then for the purpose of
this Section the kind and amount of
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securities, cash and other property receivable upon such Reorganization Event by
each non-electing share shall be deemed to be the kind and amount so receivable
per share by a plurality of the non-electing shares). In the event of such a
Reorganization Event, the Person formed by such consolidation, merger or
exchange or the Person which acquires the assets of the Company or, in the event
of a liquidation or dissolu tion of the Company, the Company or a liquidating
trust created in connection therewith, shall execute and deliver to the Agent an
agreement supplemental hereto providing that the Holders of each Outstanding
Security shall have the rights provided by this Section 5.6. Such supplemental
agreement shall provide for adjustments which, for events subsequent to the
effective date of such supplemental agreement, shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section. The above
provisions of this Section shall similarly apply to successive Reorganization
Events.
Section 5.7. Notice of Adjustments and Certain Other Events.
(a) Whenever the Settlement Rate is adjusted as herein provided, the
Company shall:
(i) forthwith compute the Settlement Rate in accordance with Section
5.6 and prepare and transmit to the Agent an Officer's Certificate setting
forth the Settlement Rate, the method of calculation thereof in reason
able detail, and the facts requiring such adjustment and upon which such
adjustment is based; and
(ii) within 10 Business Days following the occurrence of an event
that requires an adjustment to the Settlement Rate pursuant to Section 5.6
(or if the Company is not aware of such occurrence, as soon as practicable
after becoming so aware), provide a written notice to the Holders of the
Securities 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 deter mined and setting forth the adjusted Settlement Rate.
(b) The Agent shall not at any time be under any duty or responsibility to
any Holder of Securities to determine whether any facts exist which may require
any adjustment of the Settlement Rate, or with respect to the nature or extent
or calcula tion of any such adjustment when made, or with respect to the method
employed in making the same. The Agent shall not be accountable with respect to
the validity or value (or the kind or amount) of any shares of Common Stock, or
of any securities or
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property, which may at the time be issued or delivered with respect to any
Purchase Contract; and the Agent makes no representation with respect thereto.
The Agent shall not be responsible for any failure of the Company to issue,
transfer or deliver any shares of Common Stock pursuant to a Purchase Contract
or to comply with any of the duties, responsibilities or covenants of the
Company contained in this Article.
Section 5.8. Termination Event; Notice.
The Purchase Contracts and all obligations and rights of the Company and
the Holders thereunder, including, without limitation, the rights of the Holders
to receive and the obligation of the Company to pay Contract Adjustment
Payments, if any, or Deferred Contract Adjustment Payments, if the Company shall
have such obligation, and the rights and obligations of Holders to purchase
Common Stock, shall immedi ately and automatically terminate, without the
necessity of any notice or action by any Holder, the Agent or the Company, if,
on or prior to the Purchase Contract Settlement Date, a Termination Event shall
have occurred. Upon and after the occurrence of a Termination Event, the
Securities shall thereafter represent the right to receive the Capital
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, as the case may be, forming a part of such Securities in the case of
Income PRIDES, or Treasury Securities in the case of Growth PRIDES, in
accordance with the provisions of Section 4.3 of the Pledge Agreement. Upon the
occurrence of a Termination Event, the Company shall promptly but in no event
later than two Business Days thereafter give written notice to the Agent, the
Collateral Agent and to the Holders, at their addresses as they appear in the
Register.
Section 5.9. Early Settlement.
(a) Subject to and upon compliance with the provisions of this Section
5.9, at the option of the Holder thereof, Purchase Contracts underlying
Securities having an aggregate Stated Amount equal to $1,000 or an integral
multiple thereof may be settled early ("Early Settlement") in the case of Income
PRIDES (unless a Tax Event Redemption has occurred) on or prior to the fifth
Business Day immedi ately preceding the Purchase Contract Settlement Date and in
the case of Growth PRIDES on or prior to the second Business Day immediately
preceding the Purchase Contract Settlement Date, in each case, as provided
herein; provided however, that if a Tax Event Redemption has occurred and the
Treasury Portfolio has become a component of the Income PRIDES, Purchase
Contracts underlying Income PRIDES may be settled early, on or prior to the
second Business Day immediately preceding the Purchase Contract Settlement Date,
but only in an aggregate amount of
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$4,000,000 or in an integral multiple thereof. In order to exercise the right to
effect Early Settlement with respect to any Purchase Contracts, the Holder of
the Certificate evidencing Securities shall deliver such Certificate to the
Agent at the Corporate Trust Office duly endorsed for transfer to the Company or
in blank with the form of Election to Settle Early on the reverse thereof duly
completed and accompanied by payment (payable to the Company in immediately
available funds in an amount (the "Early Settlement Amount") equal to (i) the
product of (A) the Stated Amount times (B) the number of Purchase Contracts with
respect to which the Holder has elected to effect Early Settlement plus (ii) if
such delivery is made with respect to any Purchase Contracts 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 sum of (x)
the Contract Adjustment Payments, if any, payable on such Payment Date with
respect to such Purchase Contracts plus (y) in the case of Income PRIDES
Certificate, the distributions on the related Capital Securities payable on such
Payment Date. Except as provided in the immediately preceding sentence and
subject to the second to last paragraph of Section 5.2, no payment or adjustment
shall be made upon Early Settlement of any Purchase Contract on account of any
Contract Adjustment Payments, if any, accrued on such Purchase Contract or on
account of any dividends on the Common Stock issued upon such Early Settlement
or on account of any Deferred Contract Adjustment Payments. If the foregoing
requirements are first satisfied with respect to Purchase Contracts underlying
any Securities at or prior to 5:00 p.m., New York City time, on a Busi ness Day,
such day shall be the "Early Settlement Date" with respect to such Securi ties
and if such requirements are first satisfied after 5:00 p.m., New York City
time, on a Business Day or on a day that is not a Business Day, the "Early
Settlement Date" with respect to such Securities shall be the next succeeding
Business Day.
(b) Upon Early Settlement of Purchase Contracts by a Holder of the related
Securities and payment of any transfer or similar taxes payable by such Holder
in connection with the issuance of the related Common Stock to any person other
than such Holder, the Company shall issue, and the Holder shall be entitled to
receive, shares of Common Stock on account of each Purchase Contract as to which
Early Settlement is effected (the "Early Settlement Rate"); provided, however,
that upon the Early Settlement of the Purchase Contracts, the Holder of such
related Securities will forfeit the right to receive any Deferred Contract
Adjustment Pay ments and future Contract Adjustment Payments, if any. The Early
Settlement Rate shall be adjusted in the same manner and at the same time as the
Settlement Rate is adjusted. As promptly as practicable after Early Settlement
of Purchase Contracts in accordance with the provisions of this Section 5.9, the
Company shall issue and shall
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deliver to the Agent at the Corporate Trust Office a certificate or certificates
for the full number of shares of Common Stock issuable upon such Early
Settlement together with payment in lieu of any fraction of a share, as provided
in Section 5.10.
(c) No later than the third Business Day after the applicable Early
Settlement Date the Company shall cause (i) the shares of Common Stock issuable
upon Early Settlement of Purchase Contracts to be issued and delivered, and (ii)
the related Capital Securities or the appropriate Applicable Ownership Interest
of the Treasury Portfolio, in the case of Income PRIDES, or the related Treasury
Securities, in the case of Growth PRIDES, to be released from the Pledge by the
Collateral Agent and transferred, in each case to the Agent for delivery to the
Holder thereof or its designee.
(d) Upon Early Settlement of any Purchase Contracts, and subject to
receipt of shares of Common Stock from the Company and the Capital Securities,
the appropriate Applicable Ownership Interest of the Treasury Portfolio or
Treasury Securities, as the case may be, from the Collateral Agent, as
applicable, the Agent shall, in accordance with the instructions provided by the
Holder thereof on the applicable form of Election to Settle Early on the reverse
of the Certificate evidenc ing the related Securities, (i) transfer to the
Holder the Capital Securities, Treasury Portfolio or Treasury Securities, as the
case may be, forming a part of such Securi ties, and (ii) deliver to the Holder
a certificate or certificates for the full number of shares of Common Stock
issuable upon such Early Settlement together with payment in lieu of any
fraction of a share, as provided in Section 5.10.
(e) In the event that Early Settlement is effected with respect to
Purchase Contracts underlying less than all the Securities evidenced by a
Certificate, upon such Early Settlement the Company shall execute and the Agent
shall authenticate, countersign and deliver to the Holder thereof, at the
expense of the Company, a Certificate evidencing the Securities as to which
Early Settlement was not effected.
Section 5.10. No Fractional Shares.
No fractional shares or scrip representing fractional shares of Common
Stock shall be issued or delivered upon settlement on the Purchase Contract
Settlement Date or upon Early Settlement of any Purchase Contracts. If
Certificates evidencing more than one Purchase Contract shall be surrendered for
settlement at one time by the same Holder, the number of full shares of Common
Stock which shall be delivered upon settlement shall be computed on the basis of
the aggregate number of
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Purchase Contracts evidenced by the Certificates so surrendered. Instead of any
fractional share of Common Stock which would otherwise be deliverable upon
settlement of any Purchase Contracts on the Purchase Contract Settlement Date or
upon Early Settlement, the Company, through the Agent, shall make a cash payment
in respect of such fractional interest in an amount equal to the value of such
frac tional shares times the Applicable Market Value. The Company shall provide
the Agent from time to time with sufficient funds to permit the Agent to make
all cash payments required by this Section 5.10 in a timely manner.
Section 5.11. Charges and Taxes.
The Company will pay all stock transfer and similar taxes attributable to
the initial issuance and delivery of the shares of Common Stock pursuant to the
Purchase Contracts and in payment of any Deferred Contract Adjustment Payments;
provided, however, that the Company shall not be required to pay any such tax or
taxes which may be payable in respect of any exchange of or substitution for a
Certificate evidencing a Security or any issuance of a share of Common Stock in
a name other than that of the registered Holder of a Certificate surrendered in
respect of the Securities evidenced thereby, other than in the name of the
Agent, as custodian for such Holder, and the Company shall not be required to
issue or deliver such share certificates or Certificates unless or until the
Person or Persons requesting the transfer or issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the satisfaction
of the Company that such tax has been paid.
ARTICLE VI
Remedies
Section 6.1. Unconditional Right of Holders to Receive Contract Adjustment
Payments and to Purchase Common Stock.
In the event that Contract Adjustment Payments shall constitute a
component of Income PRIDES or Growth PRIDES, the Holder of any Income PRIDES or
Growth PRIDES shall have the right, which is absolute and unconditional (subject
to the right of the Company to defer payment thereof pursuant to Section 5.3,
the prepayment of Contract Adjustment Payments, if any, pursuant to Section
5.9(a) and to the forfeiture of any Deferred Contract Adjustment Payments upon
Early Settle ment pursuant to Section 5.9(b) or upon the occurrence of a
Termination Event), to
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receive payment of each installment of the Contract Adjustment Payments, if any,
with respect to the Purchase Contract constituting a part of such Security on
the respective Payment Date for such Security and to purchase Common Stock
pursuant to such Purchase Contract and, in each such case, to institute suit for
the enforcement of any such payment and right to purchase Common Stock, and such
rights shall not be impaired without the consent of such Holder.
Section 6.2. Restoration of Rights and Remedies.
If any Holder has instituted any proceeding to enforce any right or remedy
under this Agreement and such proceeding has been discontinued or abandoned for
any reason, or has been determined adversely to such Holder, then and in every
such case, subject to any determination in such proceeding, the Company and such
Holder shall be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of such Holder shall continue
as though no such proceeding had been instituted.
Section 6.3. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of
mutilated, destroyed, lost or stolen Certificates in the last paragraph of
Section 3.10, no right or remedy herein conferred upon or reserved to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 6.4. Delay or Omission Not Waiver.
No delay or omission of any Holder to exercise any right or remedy upon a
default shall impair any such right or remedy or constitute a waiver of any such
right. Every right and remedy given by this Article or by law to the Holders may
be exercised from time to time, and as often as may be deemed expedient, by such
Holders.
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Section 6.5. Undertaking for Costs.
All parties to this Agreement agree, and each Holder of Income PRIDES or
Growth PRIDES, by its acceptance of such Income PRIDES or Growth PRIDES shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Agreement, or in any suit
against the Agent for any action taken, suffered or omitted by it as Agent, the
filing by any party litigant in such suit of an undertaking to pay the costs of
such suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; provided that the provisions of this Section shall not
apply to any suit instituted by the Company, to any suit instituted by the
Agent, to any suit instituted by any Holder, or group of Holders, holding in the
aggregate more than 10% of the Outstanding Securities, or to any suit instituted
by any Holder for the enforcement of distributions on any Capital Securities or
Contract Adjustment Payments, if any, on any Purchase Contract on or after the
respective Payment Date therefor in respect of any Security held by such Holder,
or for enforcement of the right to purchase shares of Common Stock under the
Purchase Contracts constituting part of any Security held by such Holder.
Section 6.6. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Agreement; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Agent or the Holders, but will suffer and permit the
execution of every such power as though no such law had been enacted.
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ARTICLE VII
The Agent
Section 7.1. Certain Duties and Responsibilities.
(a) (1) The Agent undertakes to perform, with respect to the Securi ties,
such duties and only such duties as are specifically set forth in this Agreement
and the Pledge Agreement, and no implied covenants or obligations shall be read
into this Agreement against the Agent; and
(2) The Agent may, with respect to the Securities, conclusively
rely, as to the truth of the statements and the correctness of the
opinions expressed therein, upon certificates or opinions furnished to the
Agent and conforming to the requirements of this Agreement, but in the
case of any certificates or opinions which by any provision hereof are
specifically required to be furnished to the Agent, the Agent shall be
under a duty to examine the same to determine whether or not they conform
to the require ments of this Agreement.
(b) No provision of this Agreement shall be construed to relieve the Agent
from liability for its own negligent action, its own negligent failure to act,
or its own wilful misconduct, except that
(1) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(2) the Agent shall not be liable for any error of judgment made in
good faith by a Responsible Officer, unless it shall be proved that the
Agent was negligent in ascertaining the pertinent facts; and
(3) no provision of this Agreement shall require the Agent to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of
its rights or powers.
(c) Whether or not therein expressly so provided, every provision of this
Agreement relating to the conduct or affecting the liability of or affording
protection to the Agent shall be subject to the provisions of this Section.
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(d) The Agent is authorized to execute and deliver the Pledge Agreement in
its capacity as Agent.
Section 7.2. Notice of Default.
Within 30 days after the occurrence of any default by the Company
hereunder of which a Responsible Officer of the Agent has actual knowledge, the
Agent shall transmit by mail to the Company and the Holders of Securities, as
their names and addresses appear in the Register, notice of such default
hereunder, unless such default shall have been cured or waived.
Section 7.3. Certain Rights of Agent.
Subject to the provisions of Section 7.1:
(a) the Agent may rely and shall be protected in acting or refraining from
acting upon any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebted ness or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by an Officer's Certificate, Issuer Order or Issuer
Request, and any resolution of the Board of Directors of the Company may be
sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Agreement the Agent shall deem
it desirable that a matter be proved or established prior to taking, suffering
or omitting any action hereunder, the Agent (unless other evidence be herein
specifi cally prescribed) may, in the absence of bad faith on its part, rely
upon an Officer's Certificate of the Company;
(d) the Agent may consult with counsel of its selection and the advice of
such counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(e) the Agent shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report,
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notice, request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the Agent, in its
discretion, may make reasonable further inquiry or investigation into such facts
or matters related to the execution, delivery and performance of the Purchase
Contracts as it may see fit, and, if the Agent shall determine to make such
further inquiry or investigation, it shall be given a reasonable opportunity to
examine the books, records and premises of the Company, personally or by agent
or attorney; and
(f) the Agent may execute any of the powers hereunder or perform any
duties hereunder either directly or by or through agents or attorneys or an
Affiliate and the Agent shall not be responsible for any misconduct or
negligence on the part of any agent or attorney or an Affiliate appointed with
due care by it hereunder.
Section 7.4. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Certificates shall be taken as
the statements of the Company and the Agent assumes no responsibility for their
accuracy. The Agent makes no representations as to the validity or sufficiency
of either this Agreement or of the Securities, or of the Pledge Agreement or the
Pledge. The Agent shall not be accountable for the use or application by the
Company of the proceeds in respect of the Purchase Contracts.
Section 7.5. May Hold Securities.
Any Registrar or any other agent of the Company, or the Agent and its
Affiliates, in their individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with the Company, the Collateral
Agent or any other Person with the same rights it would have if it were not
Registrar or such other agent, or the Agent.
Section 7.6. Money Held in Custody.
Money held by the Agent in custody hereunder need not be segregated from
the other funds except to the extent required by law or provided herein. The
Agent shall be under no obligation to invest or pay interest on any money
received by it hereunder except as otherwise agreed in writing with the Company.
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Section 7.7. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Agent from time to time such compensation for all
services rendered by it hereunder as the parties shall agree from time to
time;
(2) except as otherwise expressly provided herein, to reimburse the
Agent upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Agent in accordance with any provision of
this Agreement (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense,
disburse ment or advance as may be attributable to its negligence, willful
misconduct or bad faith; and
(3) to indemnify the Agent and any predecessor Agent for, and to
hold it harmless against, any loss, liability or expense incurred without
negligence, willful misconduct or bad faith on its part, arising out of or
in connection with the acceptance or administration of its duties
hereunder, 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 hereunder.
Section 7.8. Corporate Agent Required; Eligibility.
There shall at all times be an Agent hereunder which shall be a
corporation organized and doing business under the laws of the United States of
America, any State thereof or the District of Columbia, authorized under such
laws to exercise corporate trust powers, having (or being a member of a bank
holding company having) a combined capital and surplus of at least $50,000,000,
subject to supervi sion or examination by Federal or State authority and having
a Corporate Trust Office in the Borough of Manhattan, The City of New York, if
there be such a corporation in the Borough of Manhattan, The City of New York,
qualified and eligible under this Article and willing to act on reasonable
terms. If such corporation publishes reports of condition at least annually,
pursuant to law or to the require ments of said supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so
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published. If at any time the Agent shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
Section 7.9. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Agent and no appointment of a
successor Agent pursuant to this Article shall become effective until the
acceptance of appointment by the successor Agent in accordance with the
applicable require ments of Section 7.10.
(b) The Agent may resign at any time by giving written notice thereof to
the Company 60 days prior to the effective date of such resignation. If the
instru ment of acceptance by a successor Agent required by Section 7.10 shall
not have been delivered to the Agent within 30 days after the giving of such
notice of resigna tion, the resigning Agent may petition any court of competent
jurisdiction for the appointment of a successor Agent.
(c) The Agent may be removed at any time by Act of the Holders of a
majority in number of the Outstanding Securities delivered to the Agent and the
Company.
(d) if at any time
(1) the Agent fails to comply with Section 310(b) of the TIA, as if
the Agent were an indenture trustee under an indenture qualified under the
TIA, after written request therefor by the Company or by any Holder who
has been a bona fide Holder of a Security for at least six months, or
(2) the Agent shall cease to be eligible under Section 7.8 and shall
fail to resign after written request therefor by the Company or by any
such Holder, or
(3) the Agent shall become incapable of acting or shall be ad judged
a bankrupt or insolvent or a receiver of the Agent or of its property
shall be appointed or any public officer shall take charge or control of
the Agent or of its property or affairs for the purpose of rehabilitation,
conserva tion or liquidation,
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then, in any such case, (i) the Company by a Board Resolution may remove the
Agent, or (ii) any Holder who has been a bona fide Holder of a Security for at
least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the removal of the Agent and
the appointment of a successor Agent.
(e) If the Agent shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of Agent for any cause, the Company,
by a Board Resolution, shall promptly appoint a successor Agent and shall comply
with the applicable requirements of Section 7.10. If no successor Agent shall
have been so appointed by the Company and accepted appointment in the manner
required by Section 7.10, any Holder who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Agent.
(f) The Company shall give, or shall cause such successor Agent to give,
notice of each resignation and each removal of the Agent and each appointment of
a successor Agent by mailing written notice of such event by first-class mail,
postage prepaid, to all Holders as their names and addresses appear in the
applicable Regis ter. Each notice shall include the name of the successor Agent
and the address of its Corporate Trust Office.
Section 7.10. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor Agent, every such
successor Agent so appointed shall execute, acknowledge and deliver to the Com
pany and to the retiring Agent an instrument accepting such appointment, and
thereupon the resignation or removal of the retiring Agent shall become
effective and such successor Agent, without any further act, deed or conveyance,
shall become vested with all the rights, powers, agencies and duties of the
retiring Agent; but, on the request of the Company or the successor Agent, such
retiring Agent shall, upon payment of its charges, execute and deliver an
instrument transferring to such successor Agent all the rights, powers and
trusts of the retiring Agent and shall duly assign, transfer and deliver to such
successor Agent all property and money held by such retiring Agent hereunder.
(b) Upon request of any such successor Agent, the Company shall execute
any and all instruments for more fully and certainly vesting in and confirm-
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ing to such successor Agent all such rights, powers and agencies referred to in
paragraph (a) of this Section.
(c) No successor Agent shall accept its appointment unless at the time of
such acceptance such successor Agent shall be qualified and eligible under this
Article.
Section 7.11. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Agent may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conver sion or consolidation to which the Agent shall be a party, or any
corporation succeed ing to all or substantially all the corporate trust business
of the Agent, shall be the successor of the Agent hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Certificates shall have been
authenticated and executed on behalf of the Holders, but not deliv ered, by the
Agent then in office, any successor by merger, conversion or consolida tion to
such Agent may adopt such authentication and execution and deliver the
Certificates so authenticated and executed with the same effect as if such
successor Agent had itself authenticated and executed such Securities.
Section 7.12. Preservation of Information; Communications to Holders.
(a) The Agent shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders received by the Agent in its
capacity as Registrar.
(b) If three or more Holders (herein referred to as "applicants") apply in
writing to the Agent, and furnish to the Agent reasonable proof that each such
applicant has owned a Security for a period of at least six months preceding the
date of such application, and such application states that the applicants desire
to commu nicate with other Holders with respect to their rights under this
Agreement or under the Securities and is accompanied by a copy of the form of
proxy or other communi cation which such applicants propose to transmit, then
the Agent shall, mail to all the Holders copies of the form of proxy or other
communication which is specified in such request, with reasonable promptness
after a tender to the Agent of the materials to be mailed and of payment, or
provision for the payment, of the reasonable expenses of such mailing.
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Section 7.13. No Obligations of Agent.
Except to the extent otherwise provided in this Agreement, the Agent
assumes no obligations and shall not be subject to any liability under this
Agreement, the Pledge Agreement or any Purchase Contract in respect of the
obligations of the Holder of any Security thereunder. The Company agrees, and
each Holder of a Certificate, by his acceptance thereof, shall be deemed to have
agreed, that the Agent's execution of the Certificates on behalf of the Holders
shall be solely as agent and attorney-in-fact for the Holders, and that the
Agent shall have no obligation to perform such Purchase Contracts on behalf of
the Holders, except to the extent expressly provided in Article Five hereof.
Section 7.14. Tax Compliance.
(a) The Agent, on its own behalf and on behalf of the Company, will comply
with all applicable certification, information reporting and withholding
(including "backup" withholding) requirements imposed by applicable tax laws,
regulations or administrative practice with respect to (i) any payments made
with respect to the Securities or (ii) the issuance, delivery, holding,
transfer, redemption or exercise of rights under the Securities. Such compliance
shall include, without limitation, the preparation and timely filing of required
returns and the timely payment of all amounts required to be withheld to the
appropriate taxing authority or its designated agent.
(b) The Agent shall comply with any written direction received from the
Company with respect to the application of such requirements to particular
payments or Holders or in other particular circumstances, and may for purposes
of this Agree ment rely on any such direction in accordance with the provisions
of Section 7.1(a)(2) hereof.
(c) The Agent shall maintain all appropriate records documenting
compliance with such requirements, and shall make such records available, on
written request, to the Company or its authorized representative within a
reasonable period of time after receipt of such request.
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ARTICLE VIII
Supplemental Agreements
Section 8.1. Supplemental Agreements Without Consent of Holders.
Without the consent of any Holders, the Company and the Agent, at any time
and from time to time, may enter into one or more agreements supplemental
hereto, in form satisfactory to the Company and the Agent, for any of the
following pur poses:
(1) to evidence the succession of another Person to the Company, and
the assumption by any such successor of the covenants of the Company
herein and in the Certificates; or
(2) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the Com
pany; or
(3) to evidence and provide for the acceptance of appointment
hereunder by a successor Agent; or
(4) to make provision with respect to the rights of Holders pursu
ant to the requirements of Section 5.6(b); or
(5) to cure any ambiguity, to correct or supplement any provisions
herein which may be inconsistent with any other provisions herein, or to
make any other provisions with respect to such matters or questions
arising under this Agreement, provided such action shall not adversely
affect the interests of the Holders.
Section 8.2. Supplemental Agreements with Consent of Holders.
With the consent of the Holders of not less than a majority of the
outstanding Purchase Contracts voting together as one Class, by Act of said
Holders delivered to the Company and the Agent, the Company, when authorized by
a Board Resolution, and the Agent may enter into an agreement or agreements
supplemental hereto for the purpose of modifying in any manner the terms of the
Purchase Contracts, or the provisions of this Agreement or the rights of the
Holders in respect of the Securities;
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provided, however, that, except as contemplated herein, no such supplemental
agreement shall, without the consent of the Holder of each Outstanding Security
affected thereby,
(1) change any Payment Date;
(2) change the amount or the type of Collateral required to be
Pledged to secure a Holder's Obligations under the Purchase Contract,
impair the right of the Holder of any Purchase Contract to receive
distributions on the related Collateral (except for the rights of Holders
of Income PRIDES to substitute the Treasury Securities for the Pledged
Capital Securities or the rights of holders of Growth PRIDES to substitute
Capital Securities for the Pledged Treasury Securities) or otherwise
adversely affect the Holder's rights in or to such Collateral or adversely
alter the rights in or to such Collateral;
(3) reduce any Contract Adjustment Payments, if any, or any Deferred
Contract Adjustment Payment, or change any place where, or the coin or
currency in which, any Contract Adjustment Payment is payable;
(4) impair the right to institute suit for the enforcement of any
Purchase Contract;
(5) reduce the number of shares of Common Stock to be pur chased
pursuant to any Purchase Contract, increase the price to purchase shares
of Common Stock upon settlement of any Purchase Contract, change the
Purchase Contract Settlement Date or otherwise adversely affect the
Holder's rights under any Purchase Contract; or
(6) reduce the percentage of the outstanding Purchase Contracts the
consent of whose Holders is required for any such supplemental 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 Holder as of the record date for the Holders entitled to vote thereon will be
entitled to vote on such amendment or proposal, and such amendment or proposal
shall not be effective except with the consent of Holders of not less than a
majority of such class.
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It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental agreement, but it shall
be sufficient if such Act shall approve the substance thereof.
Section 8.3. Execution of Supplemental Agreements.
In executing, or accepting the additional agencies created by, any
supplemen tal agreement permitted by this Article or the modifications thereby
of the agencies created by this Agreement, the Agent shall be entitled to
receive and (subject to Section 7.1) shall be fully protected in relying upon,
an Opinion of Counsel stating that the execution of such supplemental agreement
is authorized or permitted by this Agreement. The Agent may, but shall not be
obligated to, enter into any such supplemental agreement which affects the
Agent's own rights, duties or immunities under this Agreement or otherwise.
Section 8.4. Effect of Supplemental Agreements.
Upon the execution of any supplemental agreement under this Article, this
Agreement shall be modified in accordance therewith, and such supplemental
agreement shall form a part of this Agreement for all purposes; and every Holder
of Certificates theretofore or thereafter authenticated, executed on behalf of
the Holders and delivered hereunder shall be bound thereby.
Section 8.5. Reference to Supplemental Agreements.
Certificates authenticated, executed on behalf of the Holders and
delivered after the execution of any supplemental agreement pursuant to this
Article may, and shall if required by the Agent, bear a notation in form
approved by the Agent as to any matter provided for in such supplemental
agreement. If the Company shall so determine, new Certificates so modified as to
conform, in the opinion of the Agent and the Company, to any such supplemental
agreement may be prepared and executed by the Company and authenticated,
executed on behalf of the Holders and delivered by the Agent in exchange for
Outstanding Certificates.
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ARTICLE IX
Consolidation, Merger, Sale or Conveyance
Section 9.1. Covenant Not to Merge, Consolidate, Sell or Convey Property Except
Under Certain Conditions.
The Company covenants that it will not merge or consolidate with any other
Person or sell, assign, transfer, lease or convey all or substantially all of
its properties and assets to any Person or group of affiliated Persons in one
transaction or a series of related transactions, unless (i) either the Company
shall be the continuing corpora tion, or the successor (if other than the
Company) shall be a corporation organized and existing under the laws of the
United States of America or a State thereof or the District of Columbia and such
corporation shall expressly assume all the obligations of the Company under the
Purchase Contracts, this Agreement and the Pledge Agreement by one or more
supplemental agreements in form reasonably satisfactory to the Agent and the
Collateral Agent, executed and delivered to the Agent and the Collateral Agent
by such corporation, and (ii) the Company or such successor corporation, as the
case may be, shall not, immediately after such merger or consoli dation, or such
sale, assignment, transfer, lease or conveyance, be in default of its payment
obligations hereunder or in material default in the performance of any other
covenant hereunder or under the Debentures, under the Purchase Contracts or
under the Pledge Agreement.
Section 9.2. Rights and Duties of Successor Corporation.
In case of any such consolidation, merger, sale, assignment, transfer,
lease or conveyance and upon any such assumption by a successor corporation in
accordance with Section 9.1, such successor corporation shall succeed to and be
substituted for the Company with the same effect as if it had been named herein
as the Company. Such successor corporation thereupon may cause to be signed, and
may issue either in its own name or in the name of Kaufman and Broad Home
Corporation any or all of the Certificates evidencing Securities issuable
hereunder which theretofore shall not have been signed by the Company and
delivered to the Agent; and, upon the order of such successor corporation,
instead of the Company, and subject to all the terms, conditions and limitations
in this Agreement prescribed, the Agent shall authenticate and execute on behalf
of the Holders and deliver any Certificates which previously shall have been
signed and delivered by the officers of the Company to the Agent for
authentication and execution, and any Certificate evidencing Securities
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which such successor corporation thereafter shall cause to be signed and
delivered to the Agent for that purpose. All the Certificates so issued shall in
all respects have the same legal rank and benefit under this Agreement as the
Certificates theretofore or thereafter issued in accordance with the terms of
this Agreement as though all of such Certificates had been issued at the date of
the execution hereof.
In case of any such consolidation, merger, sale, assignment, transfer,
lease or conveyance, such change in phraseology and form (but not in substance)
may be made in the Certificates evidencing Securities thereafter to be issued as
may be appropriate.
Section 9.3. Opinion of Counsel Given to Agent.
The Agent, subject to Sections 7.1 and 7.3, shall receive an Opinion of
Counsel as conclusive evidence that any such consolidation, merger, sale, assign
ment, transfer, lease or conveyance, and any such assumption, complies with the
provisions of this Article and that all conditions precedent hereunder to the
consum mation of any such consolidation, merger, sale, assignment, transfer,
lease or conveyance have been met.
ARTICLE X
Covenants
Section 10.1. Performance Under Purchase Contracts.
The Company covenants and agrees for the benefit of the Holders from time
to time of the Securities that it will duly and punctually perform its
obligations under the Purchase Contracts in accordance with the terms of the
Purchase Contracts and this Agreement.
Section 10.2. Maintenance of Office or Agency.
The Company will maintain or cause to be maintained in the Borough of
Manhattan, The City of New York an office or agency where Certificates may be
presented or surrendered for acquisition of shares of Common Stock upon
settlement of the Purchase Contracts on the Purchase Contract Settlement Date or
Early Settlement and for transfer of Collateral upon occurrence of a Termination
Event,
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where Certificates may be surrendered for registration of transfer or exchange,
for a Collateral Substitution or re-establishment of an Income PRIDES and where
notices and demands to or upon the Company in respect of the Securities and this
Agreement may be served. The Company will give prompt written notice to the
Agent of the location, and any change in the location, of such office or agency.
If at any time the Company shall fail to maintain any such required office or
agency or shall fail to furnish the Agent with the address thereof, such
presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office, and the Company hereby appoints the Agent as its agent
to receive all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies where Certificates may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, The City of New York for such purposes. The Company will give prompt
written notice to the Agent of any such designation or rescission and of any
change in the location of any such other office or agency. The Company hereby
designates as the place of payment for the Securities the Corporate Trust Office
and appoints the Agent at its Corporate Trust Office as paying agent in such
city.
Section 10.3. Company to Reserve Common Stock.
The Company shall at all times prior to the Purchase Contract Settlement
Date reserve and keep available, free from preemptive rights, out of its
authorized but unissued Common Stock the full number of shares of Common Stock
issuable against tender of payment in respect of all Purchase Contracts
constituting a part of the Securities evidenced by Outstanding Certificates.
Section 10.4. Covenants as to Common Stock.
The Company covenants that all shares of Common Stock which may be issued
against tender of payment in respect of any Purchase Contract constituting a
part of the Outstanding Securities will, upon issuance, be duly authorized,
validly issued, fully paid and nonassessable.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
KAUFMAN AND BROAD HOME
CORPORATION
By:
----------------------------
Name:
Title:
By:
----------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as Purchase Contract Agent
By:
----------------------------
Name:
Title:
<PAGE> 81
EXHIBIT A
THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE
PURCHASE CONTRACT AGREEMENT (AS HEREINAF TER DEFINED) AND IS REGISTERED IN THE
NAME OF THE CLEARING AGENCY OR A NOMINEE THEREOF. THIS CERTIFICATE MAY NOT BE
EXCHANGED IN WHOLE OR IN PART FOR A CERTIFICATE REGISTERED, AND NO TRANSFER OF
THIS CERTIFICATE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY
PERSON OTHER THAN SUCH CLEARING AGENCY OR A NOMINEE THEREOF, EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE PURCHASE CONTRACT AGREEMENT.
Unless this Certificate is presented by an authorized representative of
The Depository Trust Company (55 Water Street, New York, New York) to the
Company or its agent for registration of transfer, exchange or payment, and any
Certificate issued is registered in the name of Cede & Co., or such other name
as requested by an authorized representative of The Depository Trust Company,
and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner
hereof, Cede & Co., has an interest herein.
No. _____ Cusip No.
Number of Income PRIDES _______
Form of Face of Income PRIDES Certificate
____% Income PRIDES
This Income PRIDES Certificate certifies that ___________ is the
registered Holder of the number of Income PRIDES set forth above. Each Income
PRIDES represents (i) either (a) beneficial ownership by the Holder of one __%
Capital Security (the "Capital Security") of KBHC Financing I, a Delaware
statutory business trust (the "Trust"), having a stated liquidation amount of
$10, subject to the Pledge of such Capital Security by such Holder pursuant to
the Pledge Agreement or (b) upon the occurrence of a Tax Event Redemption prior
to the Purchase Contract Settlement Date, the appropriate Applicable Ownership
Interest of the Treasury Portfolio, subject to the Pledge of such Applicable
Ownership Interest of the
<PAGE> 82
Treasury Portfolio by such Holder pursuant to the Pledge Agreement, and (ii) the
rights and obligations of the Holder under one Purchase Contract with Kaufman
and Broad Home Corporation, a Delaware corporation (the "Company"). All
capitalized terms used herein which are defined in the Purchase Contract
Agreement have the meaning set forth therein.
Pursuant to the Pledge Agreement, the Capital Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the case
may be, constituting part of each Income PRIDES evidenced hereby have been
pledged to the Collateral Agent, for the benefit of the Company, to secure the
obligations of the Holder under the Purchase Contract comprising a portion of
such Income PRIDES.
The Pledge Agreement provides that all payments of the Stated Amount of or
the appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio, as the case may be, or cash
distributions on, any Pledged Capital Securities (as defined in the Pledge Agree
ment) or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, as the case may be, constituting part of the Income PRIDES received
by the Collateral Agent shall be paid by the Collateral Agent by wire transfer
in same day funds (i) in the case of (A) cash distributions with respect to
Pledged Capital Securities or the appropriate Applicable Ownership Interest (as
specified in clause (B) of the defini tion of such term) of the Treasury
Portfolio, as the case may be, and (B) any pay ments of the Stated Amount or the
appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such terms) of the Treasury Portfolio, as the case may be, with
respect to any Capital Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be, that have been released
from the Pledge pursuant to the Pledge Agreement, to the Agent to the account
designated by the Agent, no later than 2:00 p.m., New York City time, on the
Business Day such payment is received by the Collateral Agent (provided that in
the event such payment is received by the Collateral Agent on a day that is not
a Business Day or after 12:30 p.m., New York City time, on a Business Day, then
such payment shall be made no later than 10:30 a.m., New York City time, on the
next succeeding Business Day) and (ii) in the case of payments of the Stated
Amount or the appropriate Applicable Ownership Interest (as specified in clause
(A) of the definition of such term) of the Treasury Portfolio, as the case may
be, of any Pledged Capital Securities or the appropriate Applicable Ownership
Interest (as specified in clause (A) of the definition of such term) of the
Treasury Portfolio, as the case may be, to the Company on the Purchase Contract
Settlement Date (as defined herein) in accordance with the terms of the Pledge
Agreement, in full satisfaction of the
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<PAGE> 83
respective obligations of the Holders of the Income PRIDES of which such Pledged
Capital Securities or the Treasury Portfolio, as the case may be, are a part
under the Purchase Contracts forming a part of such Income PRIDES. Distributions
on any Capital Security or the appropriate Applicable Ownership Interest (as
specified in clause (B) of the definition of such term) of the Treasury
Portfolio, as the case may be, forming part of an Income PRIDES evidenced hereby
which are payable quar terly in arrears on February 16, May 16, August 16 and
November 16 each year, commencing 16, 1998 (a "Payment Date"), shall, subject to
receipt thereof by the Agent from the Collateral Agent, be paid to the Person in
whose name this Income PRIDES Certificate (or a Predecessor Income PRIDES
Certificate) is registered at the close of business on the Record Date for such
Payment Date.
Each Purchase Contract evidenced hereby obligates the Holder of this
Income PRIDES Certificate to purchase, and the Company to sell, on _____ 16,
2001 (the "Purchase Contract Settlement Date"), at a price equal to $7 (the
"Stated Amount"), a number of shares of Common Stock, no par value ("Common
Stock"), of the Company, equal to the Settlement Rate, unless on or prior to the
Purchase Contract Settlement Date there shall have occurred a Termination Event
or an Early Settlement with respect to the Income PRIDES of which such Purchase
Contract is a part, all as provided in the Purchase Contract Agreement and more
fully described on the reverse hereof. The purchase price (the "Purchase Price")
for the shares of Common Stock purchased pursuant to each Purchase Contract
evidenced hereby, if not paid earlier, shall be paid on the Purchase Contract
Settlement Date by applica tion of payment received in respect of the Stated
Amount or the appropriate Applica ble Ownership Interest (as specified in clause
(A) of the definition of such term) of the Treasury Portfolio, as the case may
be, of the Pledged Capital Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be, pledged to secure the
obligations under such Purchase Contract of the Holder of the Income PRIDES of
which such Purchase Contract is a part.
The Company shall pay, on each Payment Date, in respect of each Purchase
Contract forming part of an Income PRIDES evidenced hereby an amount (the
"Contract Adjustment Payments") equal to % per annum of the Stated Amount,
computed on the basis of a 360 day year of twelve 30 day months, subject to
deferral at the option of the Company as provided in the Purchase Contract
Agreement and more fully described on the reverse hereof. Such Contract
Adjustment Payments, if any, shall be payable to the Person in whose name this
Income PRIDES Certificate (or a Predecessor Income PRIDES Certificate) is
registered at the close of business on the Record Date for such Payment Date.
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<PAGE> 84
Distributions on the Capital Securities or the appropriate Applicable
Owner ship Interest (as specified in clause (B) of the definition of such term)
of the Treasury Portfolio, as the case may be, and Contract Adjustment Payments,
if any, will be payable at the office of the Agent in The City of New York or,
at the option of the Company, by check mailed to the address of the Person
entitled thereto as such address appears on the Income PRIDES Register.
Reference is hereby made to the further provisions set forth on the
reverse hereof, which further provisions shall for all purposes have the same
effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Agent by manual signature, this Income PRIDES Certificate shall not be entitled
to any benefit under the Pledge Agreement or the Purchase Contract Agreement or
be valid or obligatory for any purpose.
A-4
<PAGE> 85
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
KAUFMAN AND BROAD HOME CORPORATION
By:
-----------------------------------
Name:
Title:
By:
-----------------------------------
Name:
Title:
HOLDER SPECIFIED ABOVE (as to
obligations of such Holder under the
Purchase Contracts evidenced hereby)
By: THE FIRST NATIONAL BANK OF CHICAGO
not individually but solely as Attorney-
in-Fact of such Holder
By:
-----------------------------------
Name:
Title:
Dated: , 1998
AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the Income PRIDES Certificates referred to in the within
mentioned Purchase Contract Agreement.
By: THE FIRST NATIONAL BANK OF CHICAGO,
as Purchase Contract Agent
By:
-----------------------------------
Authorized Officer
<PAGE> 86
(Form of Reverse of Income PRIDES Certificate)
Each Purchase Contract evidenced hereby is governed by a Purchase Contract
Agreement, dated as of _____, 1998 (as may be supplemented from time to time,
the "Purchase Contract Agreement"), between the Company and The First National
Bank of Chicago, as Purchase Contract Agent (herein called the "Agent"), to
which Purchase Contract Agreement and supplemental agreements thereto reference
is hereby made for a description of the respective rights, limitations of
rights, obliga tions, duties and immunities thereunder of the Agent, the
Company, and the Holders and of the terms upon which the Income PRIDES
Certificates are, and are to be, executed and delivered.
Each Purchase Contract evidenced hereby obligates the Holder of this
Income PRIDES Certificate to purchase, and the Company to sell, on the Purchase
Contract Settlement Date at a price equal to the Stated Amount (the "Purchase
Price"), a number of shares of Common Stock of the Company equal to the
Settlement Rate, unless, on or prior to the Purchase Contract Settlement Date,
there shall have occurred a Termination Event or Early Settlement with respect
to the Security of which such Purchase Contract is a part. The "Settlement Rate"
is equal to (a) if the Applicable Market Value (as defined below) is equal to or
greater than $______ (the "Threshold Appreciation Price"), ____ shares of Common
Stock per Purchase Contract, (b) if the Applicable Market Value is less than the
Threshold Appreciation Price but is greater than $____, the number of shares of
Common Stock per Purchase Contract equal to the Stated Amount divided by the
Applicable Market Value and (c) if the Applicable Market Amount is less than or
equal to $____, ____ shares of Common Stock per Purchase Contract, in each case
subject to adjustment as provided in the Purchase Contract Agreement. No
fractional shares of Common Stock will be issued upon settlement of Purchase
Contracts, as provided in the Purchase Contract Agreement.
Each Purchase Contract evidenced hereby, which is settled either through
Early Settlement or Cash Settlement, shall obligate the Holder of the related
Income PRIDES to purchase at the Purchase Price, and the Company to sell, a
number of newly issued shares of Common Stock equal to the Early Settlement Rate
or the Settlement Rate, as applicable.
The "Applicable Market Value" means the average of the Closing Price per
share of Common Stock on each of the 20 consecutive Trading Days ending on the
third Trading Day immediately preceding the Purchase Contract Settlement Date.
A-6
<PAGE> 87
The "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 New York Stock Exchange, Inc. (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 National 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.
In accordance with the terms of the Purchase Contract Agreement, the
Holder of this Income PRIDES Certificate shall pay the Purchase Price for the
shares of Common Stock purchased pursuant to each Purchase Contract evidenced
hereby by effecting a Cash Settlement, an Early Settlement or from the proceeds
of a remarketing of the related Pledged Capital Securities of such holders. A
Holder of Income PRIDES who does not elect, on or prior to 5:00 p.m. New York
City time on the fifth Business Day immediately preceding the Purchase Contract
Settlement Date, to make an effective Cash Settlement or an Early Settlement,
shall pay the Purchase Price for the shares of Common Stock to be issued under
the related Purchase Contract from the Proceeds of the sale of the related
Pledged Capital Securities held by the Collateral Agent. Such sale will be made
by the Remarketing Agent pursuant to the terms of the Remarketing Agreement and
the Remarketing Underwriting Agreement on the third Business Day immediately
preceding the Purchase Contract Settlement Date. If, as provided in the Purchase
Contract Agreement, upon the occurrence of a Failed Remarketing the Collateral
Agent, for the benefit of the Company, exercises its rights as a secured
creditor with respect to the Pledged Capital Securities related to this Income
PRIDES certificate, any accrued and unpaid distribu tions (including deferred
distributions) on such Pledged Capital Securities will become payable by the
Company to the holder of this Income PRIDES Certificate in the manner provided
for in the Purchase Contract Agreement.
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<PAGE> 88
The Company shall not be obligated to issue any shares of Common Stock in
respect of a Purchase Contract or deliver any certificates therefor to the
Holder unless it shall have received payment in full of the aggregate purchase
price for the shares of Common Stock to be purchased thereunder in the manner
herein set forth.
Each Purchase Contract evidenced hereby and all obligations and rights of
the Company and the Holder thereunder shall terminate if a Termination Event
shall have occurred. Upon the occurrence of a Termination Event, the Company
shall give written notice to the Agent and to the Holders, at their addresses as
they appear in the Income PRIDES Register. Upon and after the occurrence of a
Termination Event, the Collateral Agent shall release the Pledged Capital
Security (as defined in the Pledge Agreement) or the appropriate Applicable
Ownership Interest of the Treasury Portfolio forming a part of each Income
PRIDES, or the Liquidation Distribution received in respect of such Pledged
Capital Security, from the Pledge. An Income PRIDES shall thereafter represent
the right to receive the Capital Security or the appropriate Applicable
Ownership Interest of the Treasury Portfolio forming a part of such Income
PRIDES, or the Liquidation Distribution received in respect of such Capital
Security, in accordance with the terms of the Purchase Contract Agreement and
the Pledge Agreement.
Under the terms of the Pledge Agreement, the Agent will be entitled to
exercise the voting and any other consensual rights pertaining to the Pledged
Capital Securities. Upon receipt of notice of any meeting at which holders of
Capital Securities are entitled to vote or upon the solicitation of consents,
waivers or proxies of holders of Capital Securities, the Agent shall, as soon as
practicable thereafter, mail to the Income PRIDES holders a notice (a)
containing such information as is con tained in the notice or solicitation, (b)
stating that each Income PRIDES holder on the record date set by the Agent
therefor (which, to the extent possible, shall be the same date as the record
date for determining the holders of Capital Securities entitled to vote) shall
be entitled to instruct the Agent as to the exercise of the voting rights
pertaining to the Capital Securities constituting a part of such holder's Income
PRIDES and (c) stating the manner in which such instructions may be given. Upon
the written request of the Income PRIDES Holders on such record date, the Agent
shall endeavor insofar as practicable to vote or cause to be voted, in
accordance with the instructions set forth in such requests, the maximum number
of Capital Securities as to which any particular voting instructions are
received. In the absence of specific instructions from the Holder of an Income
PRIDES, the Agent shall abstain from voting the Capital Security evidenced by
such Income PRIDES.
A-8
<PAGE> 89
Upon the occurrence of an Investment Company Event or liquidation of the
Trust, a principal amount of the Debentures constituting the assets of the Trust
and underlying the Capital Securities equal to the aggregate Stated Amount of
the Pledged Capital Securities shall be delivered to the Collateral Agent in
exchange for Pledged Capital Securities. Thereafter, the Debentures shall be
held by the Collateral Agent to secure the obligations of each Holder of Income
PRIDES to purchase shares of Common Stock under the Purchase Contracts
constituting a part of such Income PRIDES. Following the liquidation of the
Trust, the Holders and the Collateral Agent shall have such security interests,
rights and obligations with respect to the Deben tures as the Holders and the
Collateral Agent had in respect of the Pledged Capital Securities, and any
reference in the Purchase Contract Agreement or Pledge Agree ment to the Capital
Securities shall be deemed to be a reference to the Debentures.
Upon the occurrence of a Tax Event Redemption prior to the Purchase
Contract Settlement Date, the Redemption Price payable on the Tax Event Redemp
tion Date with respect to the Applicable Principal Amount of Debentures shall be
delivered to the Collateral Agent in exchange for the Pledged Capital
Securities. Thereafter, pursuant to the terms of the Pledge Agreement, the
Collateral Agent for the benefit of the Company will apply an amount equal to
the Redemption Amount of such Redemption Price to purchase, the Treasury
Portfolio and promptly remit the remaining portion of such Redemption Price to
the Agent for payment to the Holders of such Income PRIDES.
Following the occurrence of a Tax Event Redemption prior to the Purchase
Contract Settlement Date, the Holders of Income PRIDES and the Collateral Agent
shall have such security interests rights and obligations with respect to the
Treasury Portfolio as the Holder of Income PRIDES and the Collateral Agent had
in respect of the Capital Security or Debentures, as the case may be, subject to
the Pledge thereof as provided in Articles II, III, IV, V and VI, of the Pledge
Agreement and any reference herein to the Capital Security or the Debenture
shall be deemed to be reference to such Treasury Portfolio.
The Income PRIDES Certificates are issuable only in registered form and
only in denominations of a single Income PRIDES and any integral multiple
thereof. The transfer of any Income PRIDES Certificate will be registered and
Income PRIDES Certificates may be exchanged as provided in the Purchase Contract
Agreement. The Income PRIDES Registrar may require a Holder, among other things,
to furnish appropriate endorsements and transfer documents permitted by the
Purchase Contract Agreement. No service charge shall be required for any such
registration of transfer
A-9
<PAGE> 90
or exchange, but the Company and the Agent may require payment of a sum suffi
cient to cover any tax or other governmental charge payable in connection
therewith. A holder who elects to substitute Treasury Securities for Capital
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, thereby creating Growth PRIDES, shall be responsible for any fees or
expenses payable in connection therewith. Except as provided in the Purchase
Contract Agreement, for so long as the Purchase Contract underlying an Income
PRIDES remains in effect, such Income PRIDES shall not be separable into its
constituent parts, and the rights and obligations of the Holder of such Income
PRIDES in respect of Capital Securities or the appropri ate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be, and Purchase Contract
constituting such Income PRIDES may be transferred and ex changed only as an
Income PRIDES. The holder of an Income PRIDES may substi tute for the Pledged
Capital Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio securing its obligation under the related Purchase Contract,
Treasury Securities in an aggregate principal amount equal to the aggregate
Stated Amount of the Pledged Capital Securities or the appropriate Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
in the Treasury Portfolio in accordance with the terms of the Purchase Contract
Agreement and the Pledge Agreement. From and after such Collateral Substitution,
the Security for which such Pledged Treasury Securities secures the holder's
obligation under the Purchase Contract shall be referred to as a "Growth
PRIDES." A Holder may make such Collateral Substitution only in integral
multiples of 100 Income PRIDES for 100 Growth PRIDES; provided, however, that if
a Tax Event Redemption has occurred and the Treasury Portfolio has become a
component of the Income PRIDES, a Holder may make such Collateral Substitutions
only in integral multiples of 4,000,000 Income PRIDES for 4,000,000 Growth
PRIDES. Such Collateral Substitution may cause the equivalent aggregate
principal amount of this Certificate to be increased or decreased; provided,
however, the equivalent aggregate principal amount outstanding under this Income
PRIDES Certificate shall not exceed $_____________. All such adjustments to the
equivalent aggregate principal amount of this Income PRIDES Certificate shall be
duly recorded by placing an appropriate notation on the Schedule attached
hereto.
A Holder of Growth PRIDES may create or recreate Income PRIDES by
delivering to the Collateral Agent Capital Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, with a Stated Amount,
in the case of such Capital Securities, or with the appropriate Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio, in the case of such appropriate Applicable Ownership
Interest of the Treasury Portfolio,
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<PAGE> 91
equal to the aggregate principal amount of the Pledged Treasury Securities in ex
change for the release of such Pledged Treasury Securities in accordance with
the terms of the Purchase Contract Agreement and the Pledge Agreement.
Subject to the next succeeding paragraph, the Company shall pay, on each
Payment Date, the Contract Adjustment Payments, if any, payable in respect of
each Purchase Contract to the Person in whose name the Income PRIDES Certificate
evidencing such Purchase Contract is registered at the close of business on the
Record Date for such Payment Date. Contract Adjustment Payments, if any, will be
payable at the office of the Agent in The City of New York or, at the option of
the Company, by check mailed to the address of the Person entitled thereto at
such address as it appears on the Income PRIDES Register.
The Company shall have the right, at any time prior to the Purchase
Contract Settlement Date, to defer the payment of any or all of the Contract
Adjustment Payments, if any, otherwise payable on any Payment Date, but only if
the Company shall give the Holders and the Agent written notice of its election
to defer such payment (specifying the amount to be deferred) as provided in the
Purchase Contract Agreement. Any Contract Adjustment Payments, if any, so
deferred shall bear additional Contract Adjustment Payments thereon at the rate
of % per annum (computed on the basis of a 360 day year of twelve 30 day
months), compounding on each succeeding Payment Date, until paid in full (such
deferred installments of Contract Adjustment Payments, if any, together with the
additional Contract Adjust ment Payments accrued thereon, are referred to herein
as the "Deferred Contract Adjustment Payments"). Deferred Contract Adjustment
Payments, if any, shall be due on the next succeeding Payment Date except to the
extent that payment is deferred pursuant to the Purchase Contract Agreement. No
Contract Adjustment Payments, if any, may be deferred to a date that is after
the Purchase Contract Settlement Date.
In the event that the Company elects to defer the payment of Contract
Adjust ment Payments on the Purchase Contracts until the Purchase Contract
Settlement Date, the Holder of this Income PRIDES Certificate will receive on
the Purchase Contract Settlement Date, 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 the Holder of this Income PRIDES Certificate
divided by (y) the Applica ble Market Value.
A-11
<PAGE> 92
In the event the Company exercises its option to defer the payment of
Contract Adjustment Payments, if any, then until the Deferred Contract
Adjustment Payments have been paid, the Company shall not declare or pay
dividends on, make distribu tions 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 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 reclassifica tion
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 redemp tions 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 a declaration thereunder of a
dividend of rights in the future).
The Purchase Contracts and all obligations and rights of the Company and
the Holders thereunder, including, without limitation, the rights of the Holders
to receive and the obligation of the Company to pay any Contract Adjustment
Payments, if any, or any Deferred Contract Adjustment Payments, shall
immediately and automatically terminate, without the necessity of any notice or
action by any Holder, the Agent or the Company, if, on or prior to the Purchase
Contract Settlement Date, a Termination Event shall have occurred. Upon the
occurrence of a Termination Event, the Com pany shall promptly but in no event
later than two Business Days thereafter give written notice to the Agent, the
Collateral Agent and to the Holders, at their addresses as they appear in the
Income PRIDES Register. Upon and after the occurrence of a Termination Event,
the Collateral Agent shall release the Capital Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,
from the Pledge in accordance with the provisions of the Pledge Agreement.
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<PAGE> 93
Subject to and upon compliance with the provisions of the Purchase
Contract Agreement, at the option of the Holder thereof, Purchase Contracts
underlying Securities having an aggregate Stated Amount equal to $1,000 or an
integral multiple thereof may be settled early ("Early Settlement") as provided
in the Purchase Contract Agreement; provided, however, that if a Tax Event
Redemption has occurred and the Treasury Portfolio has become a component of the
Income PRIDES, Holders may early settle Income PRIDES only in integral multiples
of 4,000,000 Income PRIDES. In order to exercise the right to effect Early
Settlement with respect to any Purchase Contracts evidenced by this Income
PRIDES Certificate, the Holder of this Income PRIDES Certificate shall deliver
this Income PRIDES Certificate to the Agent at the Corporate Trust Office duly
endorsed for transfer to the Company or in blank with the form of Election to
Settle Early set forth below duly completed and accompanied by payment in the
form of immediately available funds payable to the order of the Company in an
amount (the "Early Settlement Amount") equal to (i) the product of (A) the
Stated Amount times (B) the number of Purchase Contracts with respect to which
the Holder has elected to effect Early Settlement, plus (ii) if such delivery is
made with respect to any Purchase Contracts during the period from the close of
business on any Record Date for 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 Contracts. Upon Early
Settlement of Purchase Contracts by a Holder of the related Securities, the
Pledged Capital Securities or the appropriate Applicable Ownership Interest of
the Treasury Portfolio underlying such Securities shall be released from the
Pledge as provided in the Pledge Agreement and the Holder shall be entitled to
receive a number of shares of Common Stock on account of each Purchase Contract
forming part of a Income PRIDES as to which Early Settlement is effected equal
to the Early Settlement Rate; provided however, that upon the Early Settlement
of the Purchase Contracts, the Holder thereof will forfeit the right to receive
any Deferred Contract Adjustment Payments on such Purchase Contracts. The Early
Settlement Rate shall initially be equal to _____ shares of Common Stock and
shall be adjusted in the same manner and at the same time as the Settlement Rate
is adjusted as provided in the Purchase Contract Agreement.
Upon registration of transfer of this Income PRIDES Certificate, the
transferee shall be bound (without the necessity of any other action on the part
of such trans feree, except as may be required by the Agent pursuant to the
Purchase Contract Agreement), under the terms of the Purchase Contract Agreement
and the Purchase Contracts evidenced hereby and the transferor shall be released
from the obligations under the Purchase Contracts evidenced by this Income
PRIDES Certificate. The
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<PAGE> 94
Company covenants and agrees, and the Holder, by its acceptance hereof, likewise
covenants and agrees, to be bound by the provisions of this paragraph.
The Holder of this Income PRIDES Certificate, by its acceptance hereof,
authorizes the Agent to enter into and perform the related Purchase Contracts
forming part of the Income PRIDES evidenced hereby on his behalf as his
attorney-in-fact, expressly withholds any consent to the assumption (i.e.,
affirmance) of the Purchase Contracts by the Company or its trustee in the event
that the Company becomes the subject of a case under the Bankruptcy Code, agrees
to be bound by the terms and provisions thereof, covenants and agrees to perform
its obligations under such Purchase Contracts, consents to the provisions of the
Purchase Contract Agreement, authorizes the Agent to enter into and perform the
Pledge Agreement on its behalf as its attorney-in-fact, and consents to the
Pledge of the Capital Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be, underlying this Income
PRIDES Certificate pursuant to the Pledge Agreement. The Holder further
covenants and agrees, that, to the extent and in the manner provided in the
Purchase Contract Agreement and the Pledge Agreement, but subject to the terms
thereof, payments in respect to the Stated Amount of the Pledged Capital
Securities, or the appropriate Applicable Ownership Interest (as specified in
clause (A) of the definition of such term) of the Treasury Portfolio, on the
Purchase Contract Settlement Date shall be paid by the Collateral Agent to the
Company in satisfaction of such Holder's obligations under such Purchase
Contract and such Holder shall acquire no right, title or interest in such
payments.
Subject to certain exceptions, the provisions of the Purchase Contract
Agree ment may be amended with the consent of the Holders of a majority of the
Purchase Contracts.
The Purchase Contracts shall for all purposes be governed by, and
construed in accordance with, the laws of the State of New York.
The Company, the Agent and its Affiliates and any agent of the Company or
the Agent may treat the Person in whose name this Income PRIDES Certificate is
registered as the owner of the Income PRIDES evidenced hereby for the purpose of
receiving payments of distributions payable quarterly on the Capital Securities,
receiving payments of Contract Adjustment Payments, if any, and any Deferred
Contract Adjustment Payments, performance of the Purchase Contracts and for all
other purposes whatsoever, whether or not any payments in respect thereof be
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<PAGE> 95
overdue and notwithstanding any notice to the contrary, and neither the Company,
the Agent nor any such agent shall be affected by notice to the contrary.
The Purchase Contracts shall not, prior to the settlement thereof, entitle
the Holder to any of the rights of a holder of shares of Common Stock.
A copy of the Purchase Contract Agreement is available for inspection at
the offices of the Agent.
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<PAGE> 96
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
UNIF GIFT MIN ACT - ------------Custodian------------
(cust) (minor)
Under Uniform Gifts to Minors Act
------------------------------------
(State)
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
Additional abbreviations may also be used though not in the above list.
---------------------------------------------
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto _______________________________________________________________
________________________________________________________________________________
(Please insert Social Security or Taxpayer I.D. or other Identifying Number of
Assignee)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please Print or Type Name and Address Including Postal Zip Code of Assignee)
the within Income PRIDES Certificates and all rights thereunder, hereby
irrevocably constituting and appointing
________________________________________________________________________________
attorney to transfer said Income PRIDES Certificates on the books of Kaufman and
Broad Home Corporation with full power of substitution in the premises.
Dated: _________________ _____________________________________________
Signature
NOTICE: The signature to this assignment must
correspond with the name as it appears upon
the face of the within Income PRIDES
Certificates in every particular, without
alteration or enlargement or any change
whatsoever.
Signature Guarantee:________________________________
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined
A-16
<PAGE> 97
by the Registrar in addition to, or in substitution for, STAMP, all in
accordance with the Securities Exchange Act of 1934, as amended.
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<PAGE> 98
SETTLEMENT INSTRUCTIONS
The undersigned Holder directs that a certificate for shares of Common
Stock deliverable upon settlement on or after the Purchase Contract Settlement
Date of the Purchase Contracts underlying the number of Income PRIDES evidenced
by this Income PRIDES Certificate be registered in the name of, and delivered,
together with a check in payment for any fractional share, to the undersigned at
the address indicated below unless a different name and address have been
indicated below. If shares are to be registered in the name of a Person other
than the undersigned, the undersigned will pay any transfer tax payable incident
thereto.
Dated:___________________ _____________________________________________
Signature
Signature Guarantee:_________________________
(if assigned to another person)
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include membership
or participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
If shares are to be registered
in the name of and delivered to REGISTERED HOLDER
a Person other than the Holder,
please (i) print such Person's
name and address and (ii)
provide a guarantee of your
signature:
Please print name and address of Registered
Holder:
______________________________ _____________________________________________
Name Name
______________________________ _____________________________________________
Address Address
______________________________ _____________________________________________
______________________________ _____________________________________________
A-18
<PAGE> 99
______________________________ _____________________________________________
Social Security or other
Taxpayer Identification
Number, if any _____________________________________________
A-19
<PAGE> 100
ELECTION TO SETTLE EARLY
The undersigned Holder of this Income PRIDES Certificate hereby
irrevocably exercises the option to effect Early Settlement in accordance with
the terms of the Purchase Contract Agreement with respect to the Purchase
Contracts underlying the number of Income PRIDES evidenced by this Income PRIDES
Certificate specified below. The undersigned Holder directs that a certificate
for shares of Common Stock deliverable upon such Early Settlement be registered
in the name of, and delivered, together with a check in payment for any
fractional share and any Income PRIDES Certificate representing any Income
PRIDES evidenced hereby as to which Early Settlement of the related Purchase
Contracts is not effected, to the undersigned at the address indicated below
unless a different name and address have been indicated below. Pledged Capital
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, as the case may be, deliverable upon such Early Settlement will be
transferred in accordance with the transfer instructions set forth below. If
shares are to be registered in the name of a Person other than the undersigned,
the under signed will pay any transfer tax payable incident thereto.
Dated:________________________ _____________________________________________
Signature
Signature Guarantee:________________________________
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
A-20
<PAGE> 101
Number of Securities evidenced hereby as to which Early Settlement of the
related Purchase Contracts is being elected:
If shares of Common Stock or REGISTERED HOLDER
Income PRIDES Certificates are
to be registered in the name of
and delivered to and Pledged
Capital Securities, or the
Treasury Portfolio, as the case
may be, are to be transferred
to a Person other than the
Holder, please print such
Person's name and address:
Please print name and address of Registered
Holder:
______________________________ _____________________________________________
Name Name
______________________________ _____________________________________________
Address Address
______________________________ _____________________________________________
______________________________ _____________________________________________
______________________________ _____________________________________________
Social Security or other
Taxpayer Identification
Number, if any _____________________________________________
A-21
<PAGE> 102
Transfer Instructions for Pledged Capital Securities, or the Treasury Portfolio,
as the case may be, Transferable Upon Early Settlement or a Termination Event:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
A-22
<PAGE> 103
[TO BE ATTACHED TO GLOBAL CERTIFICATES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL CERTIFICATE
The following increases or decreases in this Global Certificate have
been made:
<TABLE>
<CAPTION>
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Principal Amount of
Amount of Amount of this Global Certificate Signature of autho-
decrease in Principal increase in Principal following such de- rized officer of
Amount of the Global Amount of the Global crease or Trustee or Securities
Date Certificate Certificate increase Custodian
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
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</TABLE>
A-23
<PAGE> 104
EXHIBIT B
THIS CERTIFICATE IS A GLOBAL CERTIFICATE WITHIN THE MEANING OF THE
PURCHASE CONTRACT AGREEMENT (AS HEREINAFTER DEFINED) AND IS REGISTERED IN THE
NAME OF A CLEARING AGENCY OR A NOMINEE THEREOF. THIS CERTIFICATE MAY NOT BE
EXCHANGED IN WHOLE OR IN PART FOR A CERTIFICATE REGISTERED, AND NO TRANSFER OF
THIS CERTIFICATE IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY
PERSON OTHER THAN SUCH CLEARING AGENCY OR A NOMINEE THEREOF, EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE PURCHASE CONTRACT AGREEMENT.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRE SENTATIVE OF
THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO., OR SUCH OTHER NAME
AS RE QUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY,
AND ANY PAYMENT THEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST THEREIN.
No._______ Number of Growth PRIDES________ Cusip No.
Form of Face of Growth PRIDES Certificate
This Growth PRIDES Certificate certifies that __________ is the registered
Holder of the number of Growth PRIDES set forth above. Each Growth PRIDES
represents (i) a 1/100 undivided beneficial ownership interest, of a Treasury
Security having a principal amount at maturity equal to $1,000, subject to the
Pledge of such Treasury Security by such Holder pursuant to the Pledge
Agreement, and (ii) the rights and obligations of the Holder under one Purchase
Contract with Kaufman and Broad Home Corporation, a Delaware corporation (the
"Company"). All capitalized terms used herein which are defined in the Purchase
Contract Agreement have the meaning set forth therein.
Pursuant to the Pledge Agreement, the Treasury Securities constituting
part of each Growth PRIDES evidenced hereby have been pledged to the Collateral
Agent, for the benefit of the Company, to secure the obligations of the Holder
under the Purchase Contract comprising a portion of such Growth PRIDES.
<PAGE> 105
Each Purchase Contract evidenced hereby obligates the Holder of this
Growth PRIDES Certificate to purchase, and the Company, to sell, on _____, 2001
(the "Purchase Contract Settlement Date"), at a price equal to $10 (the "Stated
Amount"), a number of shares of Common stock, $2 par value per share ("Common
Stock"), of the Company equal to the Settlement Rate, unless on or prior to the
Purchase Contract Settlement Date there shall have occurred a Termination Event
or an Early Settlement with respect to the Growth PRIDES of which such Purchase
Contract is a part, all as provided in the Purchase Contract Agreement and more
fully described on the reverse hereof. The purchase price for the shares of
Common Stock purchased pursuant to each Purchase Contract evidenced hereby will
be paid by application of the Proceeds from the Treasury Securities pledged to
secure the obligations under such Purchase Contract in accordance with the terms
of the Pledge Agreement.
The Company shall pay on each Payment Date in respect of each
Purchase Contract evidenced hereby an amount (the "Contract Adjustment
Payments") equal to ___% per annum of the Stated Amount, computed on the basis
of the actual number of days elapsed in a year of 360 day year of twelve 30 day
months, as the case may be, subject to deferral at the option of the Company as
provided in the Purchase Contract Agreement and more fully described on the
reverse hereof. Such Contract Adjustment Payments, if any, shall be payable to
the Person in whose name this Growth PRIDES Certificate (or a Predecessor Growth
PRIDES Certificate) is registered at the close of business on the Record Date
for such Payment Date.
Contract Adjustment Payments, if any, will be payable at the office of the
Agent in The City of New York or, at the option of the Company, by check mailed
to the address of the Person entitled thereto as such address appears on the
Growth PRIDES Register.
Reference is hereby made to the further provisions set forth on the
reverse hereof, which further provisions shall for all purposes have the same
effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Agent by manual signature, this Growth PRIDES Certificate shall not be entitled
to any benefit under the Pledge Agreement or the Purchase Contract Agreement or
be valid or obligatory for any purpose.
B-2
<PAGE> 106
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed.
KAUFMAN AND BROAD HOME CORPORATION
By:____________________________________
Name:
Title:
By:____________________________________
Name:
Title:
HOLDER SPECIFIED ABOVE (as to
obligations of such Holder under
the Purchase Contracts)
By: THE FIRST NATIONAL BANK OF CHICAGO,
not individually but solely as
Attorney-in-Fact of such Holder
By:____________________________________
Name:
Title:
Dated: , 1998
AGENT'S CERTIFICATE OF AUTHENTICATION
This is one of the Growth PRIDES referred to in the within-mentioned
Purchase Contract Agreement.
By: THE FIRST NATIONAL BANK OF CHICAGO,
as Purchase Contract Agent
By:____________________________________
Authorized Signatory
B-3
<PAGE> 107
(Reverse of
Growth PRIDES Certificate)
Each Purchase Contract evidenced hereby is governed by a Purchase Contract
Agreement, dated as of _____, 1998 (as may be supplemented from time to time,
the "Purchase Contract Agreement") between the Company and The First National
Bank of Chicago, as Purchase Contract Agent (including its successors
thereunder, herein called the "Agent"), to which the Purchase Contract Agreement
and supplemental agreements thereto reference is hereby made for a description
of the respective rights, limitations of rights, obligations, duties and
immunities thereunder of the Agent, the Company and the Holders and of the terms
upon which the Growth PRIDES Certificates are, and are to be, executed and
delivered.
Each Purchase Contract evidenced hereby obligates the Holder of this
Growth PRIDES Certificate to purchase, and the Company to sell, on the Purchase
Contract Settlement Date at a price equal to the Stated Amount (the "Purchase
Price") a number of shares of Common Stock of the Company equal to the
Settlement Rate, unless on or prior to the Purchase Contract Settlement Date,
there shall have occurred a Termination Event or an Early Settlement with
respect to the Security of which such Purchase Contract is a part. The
"Settlement Rate" is equal to (a) if the Applicable Market Value (as defined
below) is equal to or greater than $_____ (the "Threshold Appreciation Price"),
_____ shares of Common Stock per Purchase Contract, (b) if the Applicable Market
Value is less than the Threshold Appreciation Price but is greater than $______,
the number of shares of Common Stock per Purchase Contract equal to the Stated
Amount divided by the Applicable Market Value and (c) if the Applicable Market
Amount is less than or equal to $_____, then _____ shares of Common Stock per
Purchase Contract, in each case subject to adjustment as provided in the
Purchase Contract Agreement. No fractional shares of Common Stock will be issued
upon settlement of Purchase Contracts, as provided in the Purchase Contract
Agreement.
The "Applicable Market Value" means the average of the Closing Prices per
share of Common Stock on each of the twenty consecutive Trading Days ending on
the third Trading Day immediately preceding the Purchase Contract Settlement
Date. The "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 as reported by The New York Stock Exchange, Inc.
(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 transac tions 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, 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
B-4
<PAGE> 108
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.
In accordance with the terms of the Purchase Contract Agreement, the
Holder of this Growth PRIDES Certificate shall pay the Purchase Price for the
shares of Common Stock purchased pursuant to each Purchase Contract evidenced
hereby by effecting either an Early Settlement of each such Purchase Contract or
by applying a principal amount of the Pledged Treasury Securities underlying
such Holder's Growth PRIDES equal to the Stated Amount of such Purchase Contract
to the purchase of the Common Stock.
The Company shall not be obligated to issue any shares of Common Stock in
respect of a Purchase Contract or deliver any certificates therefor to the
Holder unless it shall have received payment in full of the aggregate purchase
price for the shares of Common Stock to be purchased thereunder in the manner
herein set forth.
Each Purchase Contract evidenced hereby and all obligations and rights of
the Company and the Holder thereunder shall terminate if a Termination Event
shall have occurred. Upon the occurrence of a Termination Event, the Company
shall give written notice to the Agent and to the Holders, at their addresses as
they appear in the Growth PRIDES Register. Upon and after the occurrence of a
Termination Event, the Collateral Agent shall release the Pledged Treasury
Securities (as defined in the Pledge Agreement) forming a part of each Growth
PRIDES.
The Growth PRIDES Certificates are issuable only in registered form and
only in denominations of a single Growth PRIDES and any integral multiple
thereof. The transfer of any Growth PRIDES Certificate will be registered and
Growth PRIDES Certificates may be exchanged as provided in the Purchase Contract
Agreement. The Growth PRIDES Registrar may require a Holder, among other things,
to furnish appropriate endorsements and transfer documents permitted by the
Purchase Contract Agreement. No service charge shall be required for any such
registration of transfer or exchange, but the Company and the Agent may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith. A Holder who elects to substitute Capital
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio, as the case may be, for Treasury Securities, thereby recreating
Income PRIDES, shall be responsible for any fees or expenses associated
therewith. Except as provided in the Purchase Contract Agreement, for so long as
the Purchase Contract underlying a Growth PRIDES remains in effect, such Growth
PRIDES shall not be separable into its constituent parts, and the rights and
obligations of the Holder of such Growth PRIDES in respect of the Treasury
Security and the Purchase Contract constituting such Growth PRIDES may be
transferred and exchanged only as a Growth PRIDES. A Holder of Growth PRIDES may
create or recreate Income PRIDES by delivering to the Collateral Agent Capital
Securities or the appropriate
B-5
<PAGE> 109
Applicable Ownership Interest of the Treasury Portfolio, with a Stated Amount,
in the case of such Capital Securities, or with the appropriate Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio, in the case of such appropriate Applicable Ownership
Interest of the Treasury Portfolio, equal to the aggregate principal amount of
the Pledged Treasury Securities in exchange for the release of such Pledged
Treasury Securities in accordance with the terms of the Purchase Contract
Agreement and the Pledge Agreement. From and after such substitution, the
Holder's Security shall be referred to as an "Income PRIDES." Such substitution
may cause the equivalent aggregate principal amount of this Certificate to be
increased or decreased; provided, however, the equivalent aggregate principal
amount outstanding under this Growth PRIDES Certificate shall not exceed
$__________. All such adjustments to the equivalent aggregate principal amount
of this Growth PRIDES Certificate shall be duly recorded by placing an
appropriate notation on the Schedule attached hereto.
A Holder of an Income PRIDES may create or recreate a Growth PRIDES by
delivering to the Collateral Agent Treasury Securities in an aggregate principal
amount equal to the aggregate Stated Amount of the Pledged Capital Securities or
the appropriate Applicable Ownership Interest (as specified in clause (A) of the
definition of such term) of the Treasury Portfolio, as the case may be, in
exchange for the release of such Pledged Capital Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be, in
accordance with the terms of the Purchase Contract Agreement and the Pledge
Agreement. Any such recreation of a Growth PRIDES may be effected only in
multiples of 100 Income PRIDES for 100 Growth PRIDES; provided, however, if a
Tax Event Redemption has occurred and the Treasury Portfolio has become a
component of the Income PRIDES, a Holder may make such Collateral Substitution
in integral multiples of 4,000,000 Income PRIDES for 4,000,000 Growth PRIDES.
Subject to the next succeeding paragraph, the Company shall pay, on each
Payment Date, the Contract Adjustment Payments, if any, payable in respect of
each Purchase Contract to the Person in whose name the Growth PRIDES Certificate
evidencing such Purchase Contract is registered at the close of business on the
Record Date for such Payment Date. Contract Adjustment Payments, if any, will be
payable at the office of the Agent in The City of New York or, at the option of
the Company, by check mailed to the address of the Person entitled thereto at
such address as it appears on the Growth PRIDES Register.
The Company shall have the right, at any time prior to the Purchase
Contract Settlement Date, to defer the payment of any or all of the Contract
Adjustment Payments, if any, otherwise payable on any Payment Date, but only if
the Company shall give the Holders and the Agent written notice of its election
to defer such payment (specifying the amount to be deferred) as provided in the
Purchase Contract Agreement. Any Contract Adjustment Payments, if any, so
deferred shall bear additional Contract Adjustment Payments thereon at the rate
of ____% per annum (computed on the basis of a 360 day year of twelve 30 day
months), compounding on each succeeding Payment Date, until paid in full
B-6
<PAGE> 110
(such deferred installments of Contract Adjustment Payments, if any, together
with the additional Contract Adjustment Payments accrued thereon, are referred
to herein as the "Deferred Contract Adjustment Payments"). Deferred Contract
Adjustment Payments shall be due on the next succeeding Payment Date except to
the extent that payment is deferred pursuant to the Purchase Contract Agreement.
No Contract Adjustment Payments, if any, may be deferred to a date that is after
the Purchase Contract Settlement Date.
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, the Holder of this Growth PRIDES Certificate will
receive on the Purchase Contract Settlement Date, 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 the Holder of the Growth PRIDES
Certificate 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, then, 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 outstand ing 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 the Com pany's capital stock or the security being
converted or exchanged, (iv) dividends or distribu tions 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).
The Purchase Contracts and all obligations and rights of the Company and
the Holders thereunder, including, without limitation, the rights of the Holders
to receive and the obligation of the Company to pay Contract Adjustment
Payments, if any, or any Deferred Contract Adjustment Payments, shall
immediately and automatically terminate, without the necessity of any notice or
action by any Holder, the Agent or the Company, if, on or prior to the Purchase
Contract Settlement Date, a Termination Event shall have occurred. Upon the
occurrence of a Termination Event, the Company shall promptly but in no event
later than two business days thereafter give written notice to the Agent, the
Collateral Agent and to the Holders, at their addresses as they appear in the
Growth PRIDES Register. Upon and after the occurrence of a Termination Event,
the Collateral Agent shall
B-7
<PAGE> 111
release the Treasury Securities from the Pledge in accordance with the
provisions of the Pledge Agreement.
Subject to and upon compliance with the provisions of the Purchase
Contract Agreement, at the option of the Holder thereof, Purchase Contracts
underlying Securities having an aggregate Stated Amount equal to $1,000 or an
integral multiple thereof may be settled early ("Early Settlement") as provided
in the Purchase Contract Agreement. In order to exercise the right to effect
Early Settlement with respect to any Purchase Contracts evidenced by this Growth
PRIDES Certificate, the Holder of this Growth PRIDES Certifi cate shall deliver
this Growth PRIDES Certificate to the Agent at the Corporate Trust Office duly
endorsed for transfer to the Company or in blank with the form of Election to
Settle Early set forth below duly completed and accompanied by payment in the
form of immedi ately available funds payable to the order of the Company in an
amount (the "Early Settle ment Amount") equal to (i) the product of (A) the
Stated Amount times (B) the number of Purchase Contracts with respect to which
the Holder has elected to effect Early Settlement, plus (ii) if such delivery is
made with respect to any Purchase Contracts during the period from the close of
business on any Record Date for 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 Contracts. Upon Early
Settlement of Purchase Contracts by a Holder of the related Securities, the
Pledged Treasury Securities underlying such Securities shall be released from
the Pledge as provided in the Pledge Agreement and the Holder shall be entitled
to receive, a number of shares of Common Stock on account of each Purchase
Contract forming part of a Growth PRIDES as to which Early Settlement is
effected equal to ______ shares of Common Stock per Purchase Contract (the
"Early Settlement Rate"); provided however, that upon the Early Settlement of
the Purchase Contracts, the Holder thereof will forfeit the right to receive any
Deferred Contract Adjustment Payments on such Purchase Contracts. The Early
Settlement Rate shall be adjusted in the same manner and at the same time as the
Settlement Rate is adjusted as provided in the Purchase Contract Agreement.
Upon registration of transfer of this Growth PRIDES Certificate, the
transferee shall be bound (without the necessity of any other action on the part
of such transferee, except as may be required by the Agent pursuant to the
Purchase Contract Agreement), under the terms of the Purchase Contract Agreement
and the Purchase Contracts evidenced hereby and the transferor shall be released
from the obligations under the Purchase Contracts evidenced by this Growth
PRIDES Certificate. The Company covenants and agrees, and the Holder, by his
acceptance hereof, likewise covenants and agrees, to be bound by the provisions
of this paragraph.
The Holder of this Growth PRIDES Certificate, by its acceptance hereof,
authorizes the Agent to enter into and perform the related Purchase Contracts
forming part of the Growth PRIDES evidenced hereby on his behalf as its
attorney-in-fact, expressly withholds any consent to the assumption (i.e.,
affirmance) of the Purchase Contracts by the Company
B-8
<PAGE> 112
or its trustee in the event that the Company becomes the subject of a case under
the Bank ruptcy Code, agrees to be bound by the terms and provisions thereof,
covenants and agrees to perform its obligations under such Purchase Contracts,
consents to the provisions of the Purchase Contract Agreement, authorizes the
Agent to enter into and perform the Pledge Agreement on its behalf as its
attorney-in-fact, and consents to the Pledge of the Treasury Securities
underlying this Growth PRIDES Certificate pursuant to the Pledge Agreement. The
Holder further covenants and agrees, that, to the extent and in the manner
provided in the Purchase Contract Agreement and the Pledge Agreement, but
subject to the terms thereof, payments in respect to the Stated Amount of the
Pledged Treasury Securities on the Purchase Contract Settlement Date shall be
paid by the Collateral Agent to the Company in satisfaction of such Holder's
obligations under such Purchase Contract and such Holder shall acquire no right,
title or interest in such payments.
Subject to certain exceptions, the provisions of the Purchase Contract
Agreement may be amended with the consent of the Holders of a majority of the
Purchase Contracts.
The Purchase Contracts shall for all purposes be governed by, and
construed in accordance with, the laws of the State of New York.
The Company, the Agent and its Affiliates and any agent of the Company or
the Agent may treat the Person in whose name this Growth PRIDES Certificate is
registered as the owner of the Growth PRIDES evidenced hereby for the purpose of
receiving payments of interest on the Treasury Securities, receiving payments of
Contract Adjustment Payments, if any, and any Deferred Contract Adjustment
Payments, performance of the Purchase Contracts and for all other purposes
whatsoever, whether or not any payments in respect thereof be overdue and
notwithstanding any notice to the contrary, and neither the Com pany, the Agent
nor any such agent shall be affected by notice to the contrary.
The Purchase Contracts shall not, prior to the settlement thereof, entitle
the Holder to any of the rights of a holder of shares of Common Stock.
A copy of the Purchase Contract Agreement is available for inspection at
the offices of the Agent.
B-9
<PAGE> 113
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
UNIF GIFT MIN ACT - ------------Custodian------------
(cust) (minor)
Under Uniform Gifts to Minors Act
---------------------------------
(State)
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
Additional abbreviations may also be used though not in the above list.
---------------------------------------------
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto _______________________________________________________________
________________________________________________________________________________
(Please insert Social Security or Taxpayer I.D. or other Identifying Number of
Assignee)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please Print or Type Name and Address Including Postal Zip Code of Assignee)
the within Income PRIDES Certificates and all rights thereunder, hereby
irrevocably constituting and appointing
________________________________________________________________________________
attorney to transfer said Income PRIDES Certificates on the books of Kaufman and
Broad Home Corporation with full power of substitution in the premises.
Dated: _________________ _____________________________________________
Signature
NOTICE: The signature to this assignment must
correspond with the name as it appears upon
the face of the within Income PRIDES
Certificates in every particular, without
alteration or enlargement or any change
whatsoever.
Signature Guarantee:________________________________
B-10
<PAGE> 114
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
B-11
<PAGE> 115
SETTLEMENT INSTRUCTIONS
The undersigned Holder directs that a certificate for shares of Common
Stock deliverable upon settlement on or after the Purchase Contract Settlement
Date of the Purchase Contracts underlying the number of Growth PRIDES evidenced
by this Growth PRIDES Certificate be registered in the name of, and delivered,
together with a check in payment for any fractional share, to the undersigned at
the address indicated below unless a different name and address have been
indicated below. If shares are to be registered in the name of a Person other
than the undersigned, the undersigned will pay any transfer tax payable incident
thereto.
Dated:___________________ _____________________________________________
Signature
Signature Guarantee:_________________________
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Registrar, which requirements include membership
or participation in the Security Transfer Agent Medallion Program ("STAMP") or
such other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
If shares are to be registered
in the name of and delivered to REGISTERED HOLDER
a Person other than the Holder,
please (i) print such Person's
name and address:
Please print name and address of Registered
Holder:
______________________________ _____________________________________________
Name Name
______________________________ _____________________________________________
Address Address
______________________________ _____________________________________________
______________________________ _____________________________________________
B-12
<PAGE> 116
______________________________ _____________________________________________
Social Security or other
Taxpayer Identification
Number, if any _____________________________________________
B-13
<PAGE> 117
ELECTION TO SETTLE EARLY
The undersigned Holder of this Growth PRIDES Certificate hereby
irrevocably exercises the option to effect Early Settlement in accordance with
the terms of the Purchase Contract Agreement with respect to the Purchase
Contracts underlying the number of Growth PRIDES evidenced by this Growth PRIDES
Certificate specified below. The option to effect Early Settlement may be
exercised only with respect to Purchase Contracts underlying Growth PRIDES with
an aggregate Stated Amount equal to $1,000 or an integral multiple thereof. The
undersigned Holder directs that a certificate for shares of Common Stock
deliverable upon such Early Settlement be registered in the name of, and
delivered, together with a check in payment for any fractional share and any
Growth PRIDES Certifi cate representing any Growth PRIDES evidenced hereby as to
which Early Settlement of the related Purchase Contracts is not effected, to the
undersigned at the address indicated below unless a different name and address
have been indicated below. Pledged Treasury Securities deliverable upon such
Early Settlement will be transferred in accordance with the transfer
instructions set forth below. If shares are to be registered in the name of a
Person other than the undersigned, the undersigned will pay any transfer or
similar tax payable incident thereto.
Dated:________________________ ____________________________________________
Signature
Signature Guarantee:_____________________
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
B-14
<PAGE> 118
Number of Securities evidenced hereby as to which Early Settlement of
the related Purchase Contracts is being elected:
If shares of Common Stock of REGISTERED HOLDER
Growth PRIDES Certificates are
to be registered in the name of
and delivered to and Pledged
Treasury Securities are to be
transferred to a Person other
than the Holder, please print
such Person's name and address:
Please print name and address of Registered
Holder:
______________________________ _____________________________________________
Name Name
______________________________ _____________________________________________
Address Address
______________________________ _____________________________________________
______________________________ _____________________________________________
______________________________ _____________________________________________
Social Security or other
Taxpayer Identification
Number, if any _____________________________________________
Transfer Instructions for Pledged Treasury Securities Transferable Upon Early
Settlement or a Termination Event:
______________________________
______________________________
______________________________
B-15
<PAGE> 119
[TO BE ATTACHED TO GLOBAL CERTIFICATES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL CERTIFICATE
The following increases or decreases in this Global
Certificate have been made:
<TABLE>
<CAPTION>
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Principal Amount
Amount of Amount of of this Global Signature of au-
decrease in Prin- increase in Prin- Certificate thorized officer
cipal Amount of cipal Amount of following such of Trustee or
the Global Certif- the Global Certif- decrease or Securities Custo-
Date icate icate increase dian
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------
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</TABLE>
B-16
<PAGE> 120
EXHIBIT C
INSTRUCTION FROM PURCHASE CONTRACT AGENT TO
COLLATERAL AGENT
The Bank of New York
101 Barclay Street, Floor 12 East
New York, NY 10286
Attention:
Re: FELINE PRIDES of Kaufman and Broad Home Corporation
(the "Company"), and KBHC Financing I
We hereby notify you in accordance with Section [4.1] [4.2] of the
Pledge Agreement, dated as of _____, 1998, among the Company, yourselves, as
Collateral Agent, and ourselves, as Purchase Contract Agent and as
attorney-in-fact for the holders of [Income PRIDES] [Growth PRIDES] from time to
time, that the holder of securities listed below (the "Holder") has elected to
substitute [$_____ aggregate [principal amount] of Treasury Securities]
[$_______ Stated Amount of Capital Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as the case may be,] in exchange
for the [Pledged Capital Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be,] [Pledged Treasury
Securities] held by you in accordance with the Pledge Agree ment and has
delivered to us a notice stating that the Holder has Transferred [Trea sury
Securities] [Capital Securities or the appropriate Applicable Ownership Interest
of the Treasury Portfolio, as the case may be,] to you, as Collateral Agent. We
hereby instruct you, upon receipt of such [Pledged Treasury Securities] [Pledged
Capital Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as the case may be], and upon the payment by such Holder of
any applicable fees, to release the [Capital Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,]
[Treasury Securities] related to such [Income PRIDES] [Growth PRIDES] to us in
accordance with the Holder's instructions.
Date:_________________________ ____________________________________________
By:_________________________________________
Name:
Title:
Signature Guarantee:________________________
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
C-1
<PAGE> 121
Please print name and address of Registered Holder electing to substitute
[Treasury Securities] [Capital Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as the case may be,] for the
[Pledged Capital Securities or the appropriate Applicable Ownership Interest of
the Treasury Portfolio, as the case may be,] [Pledged Treasury Securities]:
______________________________ ____________________________________________
Name Social Security or other Taxpayer
Identification Number, if any
______________________________
Address
______________________________
______________________________
C-2
<PAGE> 122
EXHIBIT D
INSTRUCTION TO PURCHASE CONTRACT AGENT
The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, IL 60670-0126
Attention: Corporate Trust Services Division
Re: FELINE PRIDES of Kaufman and Broad Home Corporation (the
"Company"), and KBHC Financing I
The undersigned Holder hereby notifies you that it has delivered to
The Bank of New York, as Collateral Agent, $_______ aggregate principal amount
of [Treasury Securities] [Capital Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio, as the case may be,] in exchange
for the [Pledged Capital Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be,] [Pledged Treasury
Securities] held by the Collateral Agent, in accordance with Section [4.1][4.2]
of the Pledge Agreement, dated ______, 1998, between you, the Company and the
Collateral Agent. The undersigned Holder has paid the Collateral Agent all
applicable fees relating to such exchange. The undersigned Holder hereby
instructs you to instruct the Collateral Agent to release to you on behalf of
the undersigned Holder the [Pledged Capital Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may be,]
[Pledged Treasury Securities] related to such [Income PRIDES] [Growth PRIDES].
Dated:________________________ ____________________________________________
Signature
Signature Guarantee:________________________
Please print name and address of Registered Holder:
______________________________ ____________________________________________
Name Social Security or other Taxpayer
Identification Number, if any
Address
______________________________
______________________________
______________________________
<PAGE> 123
EXHIBIT E
NOTICE TO SETTLE BY SEPARATE CASH
The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, IL 60670-0126
Attention: Corporate Trust Services Division
Re: FELINE PRIDES of Kaufman and Broad Home Corporation (the
"Company"), and KBHC Financing I
The undersigned Holder hereby irrevocably notifies you in accordance
with Section 5.4 of the Purchase Contract Agreement, dated as of ______, 1998
among the Company, yourselves, as Purchase Contract Agent and as
Attorney-in-Fact for the Holders of the Purchase Contracts, that such Holder has
elected to pay to the Collateral Agent, on or prior to 11:00 a.m. New York City
time, on the Business Day immediately preceding the Purchase Contract Settlement
Date, (in lawful money of the United States by [certified or cashiers check or]
wire transfer, in each case in immediately available funds), $_________ as the
Purchase Price for the shares of Common Stock issuable to such Holder by the
Company under the related Purchase Contract on the Purchase Contract Settlement
Date. The undersigned Holder hereby instructs you to notify promptly the
Collateral Agent of the undersigned Holders election to make such cash
settlement with respect to the Purchase Contracts related to such Holder's
[Income PRIDES] [Growth PRIDES].
Dated:________________________ ____________________________________________
Signature
Signature Guarantee:________________________
Signatures must be guaranteed by an "eligible guarantor institution" meeting the
requirements of the Registrar, which requirements include membership or
participation in the Security Transfer Agent Medallion Program ("STAMP") or such
other "signature guarantee program" as may be determined by the Registrar in
addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.
Please print name and address of Registered Holder:
______________________________ ____________________________________________
Name Social Security or other Taxpayer
Identification Number, if any
Address
______________________________
______________________________
E-1
<PAGE> 124
______________________________
E-1
<PAGE> 1
Exhibit 4.16
KAUFMAN AND BROAD HOME CORPORATION,
THE BANK OF NEW YORK,
as Collateral Agent, Custodial Agent
and Securities Intermediary
AND
THE FIRST NATIONAL BANK OF CHICAGO,
as Purchase Contract Agent
FORM OF PLEDGE AGREEMENT
Dated as of _________, 1998
<PAGE> 2
TABLE OF CONTENTS
-----------------
Page
----
RECITALS............................................................1
Section 1. Definitions.............................................3
Section 2. Pledge; Control and Perfection..........................8
Section 2.1. The Pledge......................................8
Section 2.2. Control and Perfection.........................10
Section 3. Distributions on Pledged Collateral....................12
Section 4. Substitution, Release, Repledge and Settlement of
Capital Securities.............................14
Section 4.1. Substitution for Capital Securities
and the Creation of Growth PRIDES..........14
Section 4.2. Substitution of Treasury Securities
and the Creation of Income PRIDES..........15
Section 4.3. Termination Event..............................16
Section 4.4. Cash Settlement................................17
Section 4.5. Early Settlement...............................19
Section 4.6. Application of Proceeds Settlement.............20
Section 5. Voting Rights -- Capital
Securities.......................................23
Section 6. Rights and Remedies; Distribution of the
Debentures; Tax Event Redemption.......................24
Section 6.1. Rights and Remedies of the Collateral
Agent......................................24
Section 6.2. Distribution of the Debentures; Tax
Event Redemption...........................25
Section 6.3. Substitutions..................................27
Section 7. Representations and Warranties;
Covenants........................................27
Section 7.1. Representations and Warranties.................27
Section 7.2. Covenants......................................28
Section 8. The Collateral Agent...................................29
i
<PAGE> 3
Page
----
Section 8.1. Appointment, Powers and
Immunities.................................29
Section 8.2. Instructions of the Company....................30
Section 8.3. Reliance by Collateral Agent...................31
Section 8.4. Rights in Other Capacities.....................31
Section 8.5. Non-Reliance on Collateral Agent...............32
Section 8.6. Compensation and Indemnity.....................32
Section 8.7. Failure to Act.................................33
Section 8.8. Resignation of Collateral Agent................33
Section 8.9. Right to Appoint Agent or Advisor..............35
Section 8.10. Survival......................................35
Section 8.11. Exculpation...................................35
Section 9. Amendment..............................................35
Section 9.1. Amendment Without Consent
of Holders.................................35
Section 9.2. Amendment with Consent of Holders..............36
Section 9.3. Execution of Amendments........................37
Section 9.4. Effect of Amendments...........................37
Section 9.5. Reference to Amendments........................37
Section 10. Miscellaneous.........................................38
Section 10.1. No Waiver.....................................38
Section 10.2. Governing Law.................................38
Section 10.3. Notices.......................................39
Section 10.4. Successors and Assigns........................39
Section 10.5. Counterparts..................................39
Section 10.6. Severability..................................39
Section 10.7. Expenses, etc.................................40
Section 10.8. Security Interest Absolute....................40
EXHIBIT A INSTRUCTION TO COLLATERAL AGENT
EXHIBIT B INSTRUCTION TO PURCHASE CONTRACT AGENT
EXHIBIT C INSTRUCTION TO CUSTODIAL AGENT REGARDING REMARKETING
EXHIBIT D INSTRUCTION TO CUSTODIAL AGENT REGARDING WITHDRAWAL FROM REMARKETING
ii
<PAGE> 4
FORM OF PLEDGE AGREEMENT
FORM OF PLEDGE AGREEMENT, dated as of __________, 1998 (this "Agreement"),
among Kaufman and Broad Home Corporation, a Delaware corporation (the
"Company"), The Bank of New York, a New York banking corporation, not
individually but solely as collateral agent (in such capacity, together with its
successors in such capacity, the "Collateral Agent"), as custodial agent (in
such capacity, together with its successors in such capacity, the "Custodial
Agent") and as "securities intermediary" as defined in Section 8-102(a)(14) of
the Code (as defined herein) (in such capacity, together with its successors in
such capacity, the "Securities Intermediary"), and The First National Bank of
Chicago, not individually but solely as purchase contract agent and as
attorney-in-fact of the Holders (as defined in the Purchase Contract Agreement)
from time to time of the Securities (as hereinafter defined) (in such capacity,
together with its successors in such capacity, the "Purchase Contract Agent")
under the Purchase Contract Agreement (as herein after defined).
RECITALS
The Company and the Purchase Contract Agent are parties to the Purchase
Contract Agreement, dated as of the date hereof (as modified and supplemented
and in effect from time to time, the "Purchase Contract Agree ment"), pursuant
to which there may be issued up to 17,250,000 FELINE PRIDES of the Company,
having a stated amount of $10 (the "Stated Amount") per FELINE PRIDES.
The FELINE PRIDES will initially consist of (A) units (referred to as
"Income PRIDES") with a face amount, per Income PRIDES, equal to the Stated
Amount and (B) units (referred to as "Growth PRIDES" and, together with the
Income PRIDES, the "Securities") with a face amount, per Growth PRIDES, equal to
the Stated Amount. Each Income PRIDES will initially be comprised of (a) a stock
purchase contract (the "Purchase Contract") under which the holder will
purchase from the Company on 16, 2001 (the "Purchase Contract Settle ment
Date"), for an amount of cash equal to the Stated Amount, 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 (as defined below)
<PAGE> 5
and (b) either beneficial ownership of a Capital Security (as defined below) or
upon the occurrence of a Tax Event Redemption the Applicable Ownership Interest
of the Treasury Portfolio. Each Growth PRIDES will initially be 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, 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. _______) having a principal amount equal to $1,000 and
maturing on _________ 15, 2001 (the "Treasury Securities").
Pursuant to the terms of the Declaration (as defined below), KBHC
Financing I, a statutory business trust formed under the laws of the State of
Delaware (the "Trust") will issue _________ ___% Capital Securities (the
"Capital Securities") having a stated liquidation value equal to the Stated
Amount.
Pursuant to the terms of the Purchase Contract Agreement and the Purchase
Contracts, the Holders, from time to time, of the Securities have irrevocably
authorized the Purchase Contract Agent, as attorney-in-fact of such Holders,
among other things, to execute and deliver this Agreement on behalf of such
Holders and to grant the pledge provided hereby of the Capital Securities, any
Applicable Ownership Interest in the Treasury Portfolio and any Treasury
Securities delivered in exchange there for to secure each Holder's obligations
under the related Purchase Contract, as provided herein and subject to the terms
hereof. Upon such pledge, the Capital Securities will be beneficially owned by
the Holders but will be owned of record by the Purchase Contract Agent subject
to the Pledge hereunder.
Accordingly, the Company, the Collateral Agent, the Securities
Intermediary, the Custodial Agent and the Purchase Contract Agent, on its own
behalf and as attorney-in-fact of the Holders from time to time of the
Securities, agree as follows:
2
<PAGE> 6
Section 1. Definitions. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(b) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision;
(c) the following terms have the meanings assigned to them in the
Purchase Contract Agreement: (i) Act, (ii) Agent, (iii) Board Resolution,
(iv) Cash Settlement, (v) Certificate, (vi) Contract Adjustment Payments,
(vii) Debentures, (viii) Early Settlement, (ix) Early Settlement Amount,
(x) Early Settlement Date, (xi) Failed Remarketing, (xii) Holder, (xiii)
Opinion of Counsel, (xiv) Outstanding Securities, (xv) Remarketing Agent,
(xvi) Remarketing Agreement, (xvii) Settlement Rate, and (xviii)
Termination Event; and
(d) the following terms have the meanings as signed to them in the
Declaration: (i) Applicable Ownership Interest (ii) Applicable Principal
Amount, (iii) Institutional Trustee, (iv) Investment Company Event, (v)
Primary Treasury Dealer, (vi) Quotation Agent, (vii) Redemption Amount,
(viii) Redemption Price, (ix) Tax Event, (x) Tax Event Redemption, (xi)
Tax Event Redemption Date, (xii) Treasury Portfolio, (xiii) Treasury
Portfolio Purchase Price.
"Agreement" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more agreements supplemental
hereto entered into pursuant to the applicable provisions hereof.
"Bankruptcy Code" means title 11 of the United States Code, or any other
law of the United States that from time to time provides a uniform system of
bankruptcy laws.
3
<PAGE> 7
"Business Day" means any day other than a Saturday, a Sunday or any other
day on which banking institutions in The City of New York (in the State of New
York) are permitted or required by any applicable law to close.
"Capital Securities" has the meaning specified in the Recitals.
"Cash" means any coin or currency of the United States as at the time
shall be legal tender for payment of public and private debts.
"Code" has the meaning specified in Section 6.1 hereof.
"Collateral" has the meaning specified in Section 2.1 hereof.
"Collateral Account" means the securities account (number ) maintained at
The Bank of New York in the name "The First National Bank of Chicago, as
Purchase Contract Agent on behalf of the holders of certain securities of KBHC
Financing I, Collateral Account subject to the security interest of The Bank of
New York, as Collateral Agent, for the benefit of Kaufman and Broad Home
Corporation, as pledgee" and any successor account.
"Collateral Agent" has the meaning specified in the first paragraph of
this instrument.
"Common Stock" has the meaning specified in the Recitals.
"Company" means the Person named as the "Company" in the first paragraph
of this instrument until a successor shall have become such, and thereafter
"Company" shall mean such successor.
"Custodial Agent" has the meaning specified in the Recitals.
"Debenture Trustee" means The First National Bank of Chicago, as trustee
under the Indenture until a successor is appointed thereunder, and thereafter
means such successor trustee.
4
<PAGE> 8
"Declaration" means the Amended and Restated Declaration of Trust, dated
as of ___________, 1998, among the Company as sponsor, the trustees named
therein and the holders from time to time of undivided beneficial interests in
the assets of the Trust.
"Intermediary" means any entity that in the ordinary course of its
business maintains securities accounts for others and is acting in that
capacity.
"Permitted Investments" means any one of the following which shall mature
not later than the next succeeding Business Day (i) any evidence of indebtedness
with an original maturity of 365 days or less issued, or directly and fully
guaranteed or insured, by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof or such indebtedness
constitutes a general obligation of it); (ii) deposits, certificates of deposit
or acceptances with an original maturity of 365 days or less of any institution
which is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than US $200.0 million at the time of
deposit; (iii) investments with an original maturity of 365 days or less of any
Person that is fully and unconditionally guaranteed by a bank referred to in
clause (ii); (iv) investments in commercial paper, other than commercial paper
issued by the Company or its affiliates, of any corporation incorporated under
the laws of the United States or any State thereof, which commercial paper has a
rating at the time of purchase at least equal to "A-1" by Standard & Poor's
Ratings Services ("S&P") or at least equal to "P-1" by Moody's Investors
Service, Inc. ("Moody's"); and (v) investments in money market funds registered
under the Investment Company Act of 1940, as amended, rated in the highest
applicable rating category by S&P or Moody's.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Pledge" has the meaning specified in Section 2.1 hereof.
5
<PAGE> 9
"Pledged Capital Securities" has the meaning specified in Section 2.1
hereof.
"Pledged Treasury Securities" has the meaning specified in Section 2.1
hereof.
"Proceeds" means all interest, dividends, cash, instruments, securities,
financial assets (as defined in ss. 8-102(a)(9) of the Code) and other property
from time to time received, receivable or otherwise distributed upon the sale,
exchange, collection or disposition of the Collateral or any proceeds thereof.
"Purchase Contract" has the meaning specified in the Recitals.
"Purchase Contract Agent" has the meaning specified in the first paragraph
of this Agreement.
"Purchase Contract Agreement" has the meaning specified in the Recitals.
"Purchase Contract Settlement Date" has the meaning specified in the
Recitals.
"Remarketing Underwriting Agreement" means the Remarketing Underwriting
Agreement attached as Exhibit A to the Remarketing Agreement.
"Securities" has the meaning specified in the Recitals.
"Securities Intermediary" has the meaning specified in the first paragraph
of this Agreement.
"Security Entitlement" has the meaning set forth in Section 8-102(a)(17)
of the Code.
"Separate Capital Securities" means any Capital Securities that are not
Pledged Capital Securities.
"Stated Amount" has the meaning specified in the Recitals.
"TRADES" means the Treasury/Reserve Automated Debt Entry System maintained
by the Federal Reserve Bank of New York pursuant to the TRADES Regulations.
6
<PAGE> 10
"TRADES Regulations" means the regulations of the United States Department
of the Treasury, published at 31 C.F.R. Part 357, as amended from time to time.
Unless otherwise defined herein, all terms defined in the TRADES Regulations are
used herein as therein defined.
"Transfer" means, with respect to the Collateral and in accordance with
the instructions of the Collateral Agent, the Purchase Contract Agent or the
Holder, as applicable:
(i) in the case of Collateral consisting of securities which cannot be
delivered by book-entry or which the parties agree are to be
delivered in physical form, delivery in appropriate physical form to
the recipient accompanied by any duly executed instruments of
transfer, assignments in blank, transfer tax stamps and any other
documents necessary to constitute a legally valid transfer to the
recipient;
(ii) in the case of Collateral consisting of securities maintained in
book-entry form by causing a "securities intermediary" (as defined
in Section 8-102(a)(14) of the Code) to (i) credit a "security
entitlement" (as defined in Section 8-102(a)(17) of the Code) with
respect to such securities to a "securities account" (as defined in
Section 8-501(a) of the Code) maintained by or on behalf of the
recipient and (ii) to issue a confirmation to the recipient with
respect to such credit. In the case of Collateral to be delivered to
the Collateral Agent, the Securities Intermediary shall be the
Securities Intermediary and the securities account shall be the
Collateral Account.
"Treasury Security" has the meaning specified in the Recitals.
"Trust" has the meaning specified in the Recitals.
"Value" with respect to any item of Collateral on any date means, as to
(i) a Capital Security, the Stated Amount, (ii) Cash, the face amount thereof
and (iii)
7
<PAGE> 11
Treasury Securities, the aggregate principal amount thereof at maturity.
Section 2. Pledge; Control and Perfection.
Section 2.1. The Pledge. The Holders from time to time acting through the
Purchase Contract Agent, as their attorney-in-fact, and the Purchase Contract
Agent, as such attorney-in-fact, hereby pledge and grant to the Collateral
Agent, for the benefit of the Company, as collateral security for the
performance when due by such Holders of their respective obligations under the
related Purchase Contracts, a security interest in all of the right, title and
interest of the Purchase Contract Agent and such Holders (a) in the Capital
Securities and Treasury Securities constituting a part of the Securities and
any Treasury Securities delivered in exchange for any Capital Securities, and
any Capital Securities delivered in exchange for any Treasury Securities, in
accordance with Section 4 hereof, in each case that have been Transferred to or
received by the Collateral Agent and not released by the Collateral Agent to
such Holders under the provisions of this Agreement; (b) in payments made by
Holders pursuant to Section 4.4; (c) in the Collateral Account and all
securities, financial assets, Cash and other property credited thereto and all
Security Entitlements related thereto; (d) in any Debentures delivered to the
Collateral Agent upon the occurrence of an Investment Company Event or a
liquidation of the Trust as provided in Section 6.2; (e) in the Treasury
Portfolio purchased on behalf of the Holders of Income PRIDES by the Collateral
Agent upon the occurrence of a Tax Event Redemption as provided in Section 6.2
and (f) all Proceeds of the foregoing (all of the foregoing, collectively, the
"Collateral"). Prior to or concurrently with the execution and delivery of this
Agreement, the Purchase Contract Agent, on behalf of the initial Holders of the
Securities, shall cause the Capital Securities comprising a part of the Income
PRIDES, and the Treasury Securities comprising a part of the Growth PRIDES, to
be Transferred to the Collateral Agent for the benefit of the Company. Such
Capital Securities shall be Transferred by physically delivering such
Securities to the Securities Intermediary indorsed in blank and causing the
Securities Intermediary to credit the Collateral Account with such Securities
and sending the Collateral Agent a confirmation of the deposit of such
Securities. In the
8
<PAGE> 12
event a Holder of Income PRIDES so elects, such Holder may Transfer Treasury
Securities to the Collateral Agent for the benefit of the Company in exchange
for the re lease by the Collateral Agent on behalf of the Company of Capital
Securities or the appropriate Applicable Owner ship Interest of the Treasury
Portfolio, as the case may be, with an aggregate stated liquidation amount equal
to the aggregate principal amount of the Treasury Securities so Transferred, in
the case of Capital Securities, or with an appropriate Applicable Ownership
Interest (as specified in clause (A) of the definition of such term) of the
Treasury Portfolio equal to the aggregate principal amount of the Treasury
Securities so transferred, in the event that a Tax Event Redemption has
occurred, to the Purchase Contract Agent on behalf of such Holder. Treasury
Securities and the Treasury Portfolio, as applicable, shall be Transferred to
the Collateral Account maintained by the Collateral Agent at the Securities
Intermediary by book-entry transfer to the Collateral Account in accordance with
the TRADES Regulations and other applicable law and by the notation by the
Securities Intermediary on its books that a Security Entitle ment with respect
to such Treasury Securities or Treasury Portfolio, has been credited to the
Collateral Account. For purposes of perfecting the Pledge under applicable law,
including, to the extent applicable, the TRADES Regulations or the Uniform
Commercial Code as adopted and in effect in any applicable jurisdiction, the
Collateral Agent shall be the agent of the Company as provided herein. The
pledge provided in this Section 2.1 is herein referred to as the "Pledge" and
the Capital Securities (or the Debentures that are delivered pursuant to
Section 6.2 hereof) or Treasury Securities subject to the Pledge, excluding any
Capital Securities (or the Debentures that are delivered pursuant to Section
6.2 hereof) or Treasury Securities released from the Pledge as provided in
Section 4 hereof, are hereinafter referred to as "Pledged Capital Securities" or
the "Pledged Treasury Securities," respectively. Subject to the Pledge and the
provisions of Section 2.2 hereof, the Holders from time to time shall have full
beneficial ownership of the Collateral. Whenever directed by the Collateral
Agent acting on behalf of the Company, the Securities Intermediary shall have
the right to reregister the Capital Securities or any other Securities held in
physical form in its name.
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Except as may be required in order to release Capital Securities in
connection with a Holder's election to convert its investment from an Income
PRIDES to a Growth PRIDES, or except as otherwise required to release Securities
as specified herein, neither the Collateral Agent nor the Securities
Intermediary shall relinquish physical possession of any certificate evidencing
a Capital Security prior to the termination of this Agreement. If it becomes
necessary for the Securities Intermediary to relinquish physical possession of a
certificate in order to release a portion of the Capital Securities evidenced
thereby from the Pledge, the Securities Intermediary shall use its best efforts
to obtain physical possession of a replacement certificate evidencing any
Capital Securities remaining subject to the Pledge hereunder registered to it or
endorsed in blank within fifteen days of the date it relinquished possession.
The Securities Intermediary shall promptly notify the Company and the Collateral
Agent of the Securities Intermediary's failure to obtain possession of any such
replacement certificate as required hereby.
Section 2.2. Control and Perfection. (a) In connection with the Pledge
granted in Section 2.1, and subject to the other provisions of this Agreement,
the Holders from time to time acting through the Purchase Contract Agent, as
their attorney-in-fact, hereby authorize and direct the Securities Intermediary
(without the necessity of obtaining the further consent of the Purchase
Contract Agent or any of the Holders), and the Securities Intermediary agrees,
to comply with and follow any instructions and entitlement orders (as defined in
Section 8-102(a)(8) of the Code) that the Collateral Agent on behalf of the
Company may give in writing with respect to the Collateral Account, the
Collateral credited thereto and any security entitlements with respect to any
thereof. Such instructions and entitlement orders may, without limitation,
direct the Securities Intermediary to transfer, redeem, sell, liquidate,
assign, deliver or otherwise dispose of the Capital Securities, the Treasury
Securities, the Treasury Portfolio, and any Security Entitlements with respect
thereto and to pay and deliver any income, proceeds or other funds derived
therefrom to the Company. The Holders from time to time acting through the
Purchase Contract Agent hereby further authorize and direct the Collateral
Agent, as Agent of the Company, to itself issue instructions and entitlement
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orders, and to otherwise take action, with respect to the Collateral Account,
the Collateral credited thereto and any security entitlements with respect
thereto, pursuant to the terms and provisions hereof, all without the necessity
of obtaining the further consent of the Purchase Contract Agent or any of the
Holders. The Collateral Agent shall be the Agent of the Company and shall act
as directed in writing by the Company. Without limiting the generality of the
foregoing, the Collateral Agent shall issue entitlement orders to the Securities
Intermediary when and as directed by the Company.
(b) The Securities Intermediary hereby confirms and agrees that: (i) all
securities or other property under lying any financial assets credited to the
Collateral Account shall be registered in the name of the Securities
Intermediary, indorsed to the Securities Intermediary or in blank or credited to
another Collateral Account maintained in the name of the Securities Intermediary
and in no case will any financial asset credited to the Collateral Account be
registered in the name of the Purchase Contract Agent, the Collateral Agent, the
Company or any Holder, payable to the order of, or specially indorsed to, the
Purchase Contract Agent, the Collateral Agent, the Company or any Holder except
to the extent the fore going have been specially indorsed to the Securities
Intermediary or in blank; (ii) all property delivered to the Securities
Intermediary pursuant to this Pledge Agreement (including, without limitation,
any Capital Securities, the Treasury Portfolio or Treasury Securities) will be
promptly credited to the Collateral Account; (iii) the Collateral Account is an
account to which financial assets are or may be credited, and the Securities
Intermediary shall, subject to the terms of this Agreement, treat the Purchase
Contract Agent as entitled to exercise the rights of any financial asset
credited to the Collateral Account; (iv) the Securities Intermediary has not
entered into, and until the termination of the this Agreement will not enter
into, any agreement with any other person relating to the Collateral Account
and/or any financial assets credited thereto pursuant to which it has agreed to
comply with entitle ment orders (as defined in Section 8-102(a)(8) of the Code)
of such other person; and (v) the Securities Intermediary has not entered into,
and until the termination of this Agreement will not enter into, any agreement
with the Company, the Collateral Agent or the Purchase Con-
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tract Agent purporting to limit or condition the obligation of the Securities
Intermediary to comply with entitlement orders as set forth in this Section 2.2
hereof.
(c) The Securities Intermediary hereby agrees that each item of property
(whether investment property, financial asset, security, instrument or cash)
credited to the Collateral Account shall be treated as a "financial asset"
within the meaning of Section 8-102(a)(9) of the Code.
(d) In the event of any conflict between this Agreement (or any portion
thereof) and any other agreement now existing or hereafter entered into, the
terms of this Agreement shall prevail.
(e) The Purchase Contract Agent hereby irrevocably constitutes and
appoints the Collateral Agent and the Company, with full power of substitution,
as the Purchase Contract Agent's attorney-in-fact to take on behalf of, and in
the name, place and stead of the Purchase Contract Agent and the Holders, any
action necessary or desirable to perfect and to keep perfected the security
interest in the Collateral referred to in Section 2.1. The grant of such
power-of-attorney shall not be deemed to require of the Collateral Agent any
specific duties or obligations not otherwise assumed by the Collateral Agent
hereunder.
Section 3. Distributions on Pledged Collateral. So long as the Purchase
Contract Agent is the registered owner of the Pledged Capital Securities, it
shall receive all payments thereon. If the Pledged Capital Securities are
reregistered, such that the Collateral Agent becomes the registered holder, all
payments of the Stated Amount or, if applicable, the appropriate Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio, or cash distributions on, the Pledged Capital
Securities or on the appropriate Applicable Ownership Interest (as specified in
clause (B) of the definition of such term) of the Treasury Portfolio, as the
case may be, and all payments of the principal of, or cash distributions on, any
Pledged Treasury Securities received by the Collateral Agent that are properly
payable hereunder shall be paid by the Collateral Agent by wire transfer in same
day funds:
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(i) In the case of (A) cash distributions with respect to the
Pledged Capital Securities or the appropriate Applicable Ownership
Interest (as specified in clause (B) of the definition of such term) of
the Treasury Portfolio, as the case may be, and (B) any payments of the
Stated Amount or, if applicable, the appropriate Applicable Ownership
Interest (as specified in clause (A) of the definition of such term) of
the Treasury Portfolio with respect to any Capital Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as
the case may be, that have been released from the Pledge pursuant to
Section 4.3 hereof, to the Purchase Contract Agent, for the benefit of the
relevant Holders of Securities, to the account designated by the Purchase
Contract Agent for such purpose, no later than 2:00 p.m., New York City
time, on the Business Day such payment is received by the Collateral Agent
(provided that in the event such payment is received by the Collateral
Agent on a day that is not a Business Day or after 12:30 p.m., New York
City time, on a Business Day, then such payment shall be made no later
than 10:30 a.m., New York City time, on the next succeeding Business Day);
(ii) In the case of any principal payments with respect to any
Treasury Securities that have been released from the Pledge pursuant to
Section 4.3 hereof, to the Holders of the Growth PRIDES to the accounts
designated by them in writing for such purpose no later than 2:00 p.m.,
New York City time, on the Business Day such payment is received by the
Collateral Agent (provided that in the event such payment is received by
the Collateral Agent on a day that is not a Business Day or after 12:30
p.m., New York City time, on a Business Day, then such payment shall be
made no later than 10:30 a.m., New York City time, on the next succeeding
Business Day); and
(iii) In the case of payments of the Stated Amount of any Pledged
Capital Securities or the appropriate Applicable Ownership Interest (as
specified in clause (A) of the definition of such term) of the Treasury
Portfolio, as the case may be, or the principal of any Pledged Treasury
Securities, to the Company on the Purchase Contract Settlement Date
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in accordance with the procedure set forth in Section 4.6(a) or 4.6(b)
hereof, in full satisfaction of the respective obligations of the Holders
under the related Purchase Contracts.
All payments received by the Purchase Contract Agent as provided herein shall be
applied by the Purchase Contract Agent pursuant to the provisions of the
Purchase Contract Agreement. If, notwithstanding the foregoing, the Purchase
Contract Agent shall receive any payments of the Stated Amount or, if
applicable, the appropriate Applicable Ownership Interest (as specified in
clause (A) of the definition of such term) on account of any Capital Security or
the appropriate Applicable Ownership Interest of the Treasury Portfolio, as
applicable, that, at the time of such payment, is a Pledged Capital Security or
the appropriate Applicable Ownership Interest of the Treasury Portfolio, as the
case may be, or a Holder of a Growth PRIDES shall receive any payments of
principal on account of any Treasury Securities that, at the time of such
payment, are Pledged Treasury Securities, the Purchase Contract Agent or such
Holder shall hold the same as trustee of an express trust for the benefit of the
Company (and promptly deliver the same over to the Company) for application to
the obligations of the Holders under the related Purchase Contracts, and the
Holders shall acquire no right, title or interest in any such payments of Stated
Amount or principal so received.
Section 4. Substitution, Release, Repledge and Settlement of Capital
Securities.
Section 4.1. Substitution for Capital Securities and the Creation of
Growth PRIDES. At any time on or prior to the fifth Business Day immediately
preceding the Purchase Contract Settlement Date (unless a Tax Event Redemption
has occurred), a Holder of Income PRIDES shall have the right to substitute
Treasury Securities for the Pledged Capital Securities securing such Holder's
obligations under the Purchase Contract(s) comprising a part of its Income
PRIDES in integral multiples of 100 Income PRIDES by (a) Transferring to the
Collateral Agent Treasury Securities having a Value equal to the aggregate
Stated Amount of the Pledged Capital Securities to be released and (b)(i)
delivering to the Purchase Contract Agent cash in an amount equal to the excess
of the Contract Adjustment Payments, if any, that would have ac-
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<PAGE> 18
crued since the last date that Contract Adjustment Payments were made through
the date of substitution on the Growth PRIDES being created by the Holder, which
amount the Purchase Contract Agent shall promptly remit to the Company, and (ii)
delivering the related Income PRIDES to the Purchase Contract Agent, accompanied
by a notice, substantially in the form of Exhibit B hereto, to the Purchase
Contract Agent stating that such Holder has Transferred Treasury Securities to
the Collateral Agent pursuant to clause (a) above (stating the Value of the
Treasury Securities Transferred by such Holder) and requesting that the Purchase
Contract Agent instruct the Collateral Agent to release from the Pledge the
Pledged Capital Securities related to such Income PRIDES. The Purchase Contract
Agent shall instruct the Collateral Agent in the form provided in Exhibit A;
provided, however, that if a Tax Event Redemption has occurred and the Treasury
Portfolio has become a component of the Income PRIDES, Holders of Income PRIDES
may make such substitution 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. Upon receipt of Treasury Securities from a
Holder of Income PRIDES and the related instruction from the Purchase Contract
Agent, the Collateral Agent shall release the Pledged Capital Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the case
may be, and shall promptly Transfer such Pledged Capital Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio, as the case
may be, free and clear of any lien, pledge or security interest created hereby,
to the Purchase Contract Agent. All items Transferred and/or substituted by any
Holder pursuant to this Section 4.1, Section 4.2 or any other Section of this
Agreement shall be Transferred and/or substituted free and clear of all liens,
claims and encumbrances.
Section 4.2. Substitution of Treasury Securities and the Creation of
Income PRIDES. At any time on or prior to the fifth Business Day immediately
preceding the Purchase Contract Settlement Date (unless a Tax Event Redemption
has occurred), a Holder of Growth PRIDES shall have the right to establish or
reestablish Income PRIDES consisting of the Purchase Contracts and Capital
Securities in integral multiples of 100 Income PRIDES by (a) Transferring to the
Collateral Agent Capital Securities
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having a Value equal to the Value of the Pledged Treasury Securities to be
released and (b) delivering the related Growth PRIDES to the Purchase Contract
Agent, accompanied by a notice, substantially in the form of Exhibit B hereto,
to the Purchase Contract Agent stating that such Holder has transferred Capital
Securities to the Collateral Agent pursuant to clause (a) above and requesting
that the Purchase Contract Agent instruct the Collateral Agent to release from
the Pledge the Pledged Treasury Securities related to such Growth PRIDES. The
Purchase Contract Agent shall instruct the Collateral Agent in the form provided
in Exhibit A; provided, however, that if a Tax Event Redemption has occurred and
the Treasury Portfolio has become a component of the Income PRIDES, Holders of
Growth PRIDES may make such substitution only in integral multiples of 4,000,000
Growth PRIDES, at any time on or prior to the Business Day immediately preceding
the Purchase Contract Settlement Date. Upon receipt of the Capital Securities or
the appropriate Applicable Ownership Interest of the Treasury Portfolio, as the
case may be, from such Holder and the instruction from the Purchase Contract
Agent, the Collateral Agent shall release the Treasury Securities and shall
promptly Transfer such Treasury Securities, free and clear of any lien, pledge
or security interest created hereby, to the Purchase Contract Agent.
Section 4.3. Termination Event. Upon receipt by the Collateral Agent of
written notice from the Company or the Purchase Contract Agent that there has
occurred a Termination Event, the Collateral Agent shall release all Collateral
from the Pledge and shall promptly Transfer any Pledged Capital Securities (or
the Applicable Ownership Interest of the Treasury Portfolio if a Tax Event
Redemption has occurred) and Pledged Treasury Securities to the Purchase
Contract Agent for the benefit of the Holders of the Income PRIDES and the
Growth PRIDES, respectively, free and clear of any lien, pledge or security
interest or other interest created hereby.
If such Termination Event shall result from the Company's becoming a
debtor under the Bankruptcy Code, and if the Collateral Agent shall for any
reason fail promptly to effectuate the release and Transfer of all Pledged
Capital Securities, the Treasury Portfolio or of the Pledged Treasury
Securities, as the case may be, as provided by this Section 4.3, the Purchase
Contract Agent
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shall (i) use its best efforts to obtain an opinion of a nationally recognized
law firm reasonably acceptable to the Collateral Agent to the effect that, as a
result of the Company's being the debtor in such a bankruptcy case, the
Collateral Agent will not be prohibited from releasing or Transferring the
Collateral as provided in this Section 4.3, and shall deliver such opinion to
the Collateral Agent within ten days after the occurrence of such Termination
Event, and if (y) the Purchase Contract Agent shall be unable to obtain such
opinion within ten days after the occurrence of such Termination Event or (z)
the Collateral Agent shall continue, after delivery of such opinion, to refuse
to effectuate the release and Transfer of all Pledged Capital Securities, the
Treasury Portfolio or the Pledged Treasury Securities, as the case may be, as
provided in this Section 4.3, then the Purchase Contract Agent shall within
fifteen days after the occurrence of such Termination Event commence an action
or proceeding in the court with jurisdiction of the Company's case under the
Bankruptcy Code seeking an order requiring the Collateral Agent to effectuate
the release and transfer of all Pledged Capital Securities, the Treasury
Portfolio or of the Pledged Treasury Securities, as the case may be, as provided
by this Section 4.3 or (ii) commence an action or proceeding like that described
in subsection (i)(z) hereof within ten days after the occurrence of such
Termination Event.
Section 4.4. Cash Settlement. (a) Upon receipt by the Collateral Agent of
(i) a notice from the Purchase Contract Agent promptly after the receipt by the
Purchase Contract Agent of such notice that a Holder of an Income PRIDES or
Growth PRIDES has elected, in accordance with the procedures specified in
Section 5.4(a)(i) or (d)(i) of the Purchase Contract Agreement, respectively, to
settle its Purchase Contract with Cash and (ii) payment of the amount required
to settle such contract by such Holder on or prior to 11:00 a.m., New York City
time, on the Business Day immediately preceding the Purchase Contract Settlement
Date in lawful money of the United States by certified or cashiers' check or
wire transfer in immediately available funds payable to or upon the order of the
Company, then the Collateral Agent shall, promptly invest any Cash received from
a Holder in connection with a Cash Settlement in Permitted Investments. Upon
receipt of the proceeds upon the maturity of the Permitted Investments on the
Purchase Contract Settlement
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Date, the Collateral Agent shall pay the portion of such proceeds and deliver
any certified or cashiers' checks received and any funds so wired, in an
aggregate amount equal to the Purchase Price, to the Company on the Purchase
Contract Settlement Date, and shall distribute any funds in respect of the
interest earned from the Permitted Investments to the Purchase Contract Agent
for payment to the relevant Holders.
(b) If a Holder of an Income PRIDES fails to notify the Agent of its
intention to make a Cash Settlement in accordance with Section 5.4(a)(i) of the
Purchase Contract Agreement, such failure shall constitute an event of default
under the Purchase Contract Agreement and hereunder, and the Holder shall be
deemed to have consented to the disposition of the pledged Capital Securities
pursuant to the remarketing as described in Section 5.4(b) of the Purchase
Contract Agreement, which is incorporated herein by reference. If a Holder of an
Income PRIDES does notify the Agent as provided in Section 5.4(a)(i) of the
Purchase Contract Agreement of its intention to pay the Purchase Price in cash,
but fails to make such payment as required by Section 5.4(a)(ii) of the Purchase
Contract Agreement, the Capital Securities of such a Holder will not be
remarketed but instead the Collateral Agent, for the benefit of the Company,
will exercise its rights as a secured party with respect to such Capital
Securities at the direction of the Company to retain or dispose of the
Collateral in accordance with applicable law. In addition, in the event of a
Failed Remarketing as described in Section 5.4(b) of the Purchase Contract
Agreement, such Failed Remarketing shall constitute an event of default
hereunder by such Holder and the Collateral Agent, for the benefit of the
Company, will also exercise its rights as a secured party with respect to such
Capital Securities at the direction of the Company to retain or dispose of the
Collateral in accordance with applicable law.
(c) If a Holder of a Growth PRIDES fails to notify the Purchase Contract
Agent of such Holder's intention to make a Cash Settlement in accordance with
Section 5.4(d)(i) of the Purchase Contract Agreement, or if a Holder of a Growth
PRIDES does notify the Agent as provided in paragraph 5.4 (d)(i) of the Purchase
Contract Agreement of its intention to pay the Purchase Price in cash, but fails
to make such payment as required by
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paragraph 5.4(d)(ii) of the Purchase Contract Agreement, such failure shall
constitute an event of default hereunder by such Holder and upon the maturity of
any Pledged Treasury Securities or the Treasury Portfolio, if any, held by the
Collateral Agent on the Business Day immediately preceding the Purchase Contract
Settlement Date, the principal amount of the Pledged Treasury Securities or the
Treasury Portfolio received by the Collateral Agent shall, upon written
direction of the Company, be invested promptly in Permitted Investments. On the
Purchase Contract Settlement Date, an amount equal to the Purchase Price will be
remitted to the Company as payment thereof. In the event the sum of the proceeds
from the related Pledged Treasury Securities or the Treasury Portfolio, as the
case may be, and the investment earnings earned from such investments is in
excess of the aggregate Purchase Price of the Purchase Contracts being settled
thereby, the Collateral Agent will distribute such excess to the Purchase
Contract Agent for the benefit of the Holder of the related Growth PRIDES or
Income PRIDES when received.
Section 4.5. Early Settlement. Upon written notice to the Collateral Agent
by the Purchase Contract Agent that one or more Holders of Securities have
elected to effect Early Settlement of their respective obligations under the
Purchase Contracts forming a part of such Securities in accordance with the
terms of the Purchase Contracts and the Purchase Contract Agreement (setting
forth the number of such Purchase Contracts as to which such Holders have
elected to effect Early Settlement), and that the Purchase Contract Agent has
received from such Holders, and paid to the Company as confirmed in writing by
the Company, the related Early Settlement Amounts pursuant to the terms of the
Purchase Contracts and the Purchase Contract Agreement and that all conditions
to such Early Settlement have been satisfied, then the Collateral Agent shall
release from the Pledge, (a) Pledged Capital Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio in the case of a Holder
of Income PRIDES or (b) Pledged Treasury Securities in the case of a Holder of
Growth PRIDES, as the case may be, with a principal amount equal to the product
of (i) the Stated Amount times (ii) the number of such Purchase Contracts as to
which such Holders have elected to effect Early Settlement and shall Transfer
all such Pledged Capital Securities or the appropriate Appli-
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cable Ownership Interest of the Treasury Portfolio or Pledged Treasury
Securities, as the case may be, free and clear of the Pledge created hereby, to
the Purchase Contract Agent for the benefit of the Holders.
Section 4.6. Application of Proceeds Settlement. (a) In the event a Holder
of Income PRIDES (if a Tax Event Redemption has not occurred) has not elected to
make an effective Cash Settlement by notifying the Purchase Contract Agent in
the manner provided for in paragraph 5.4(a)(i) in the Purchase Contract
Agreement or has not made an Early Settlement of the Purchase Contract(s)
underlying its Income PRIDES, such Holder shall be deemed to have elected to pay
for the shares of Common Stock to be issued under such Purchase Contract(s) from
the Proceeds of the related Pledged Capital Securities. The Collateral Agent
shall, by 10:00 a.m., New York City time, on the fourth Business Day immediately
preceding the Purchase Contract Settlement Date, without any instruction from
such Holder of Income PRIDES, present the related Pledged Capital Securities to
the Remarketing Agent for remarketing. Upon receiving such Pledged Capital
Securities, the Remarketing Agent, pursuant to the terms of the Remarketing
Agreement and the Remarketing Underwriting Agreement, will use its reasonable
efforts to remarket such Pledged Capital Securities on such date at a price not
less than approximately 100.75% of the aggregate Value of such Pledged Capital
Securities, plus accrued and unpaid distributions (including deferred
distributions), if any, thereon. After deducting as the Remarketing Fee an
amount not exceeding 50 basis points (.50%) of the aggregate Value of the
Pledged Capital Securities from any amount of such Proceeds in excess of the
aggregate Value, plus such accrued and unpaid distributions (including deferred
distributions) of the remarketed Pledged Capital Securities, the Remarketing
Agent will remit the entire amount of the Proceeds of such remarketing to the
Collateral Agent. On the Purchase Contract Settlement Date, the Collateral Agent
shall apply that portion of the Proceeds from such remarketing equal to the
aggregate Value, plus such accrued and unpaid distributions (including deferred
distributions) of such Pledged Capital Securities, to satisfy in full the
obligations of such Holders of Income PRIDES to pay the Purchase Price to
purchase the Common Stock under the related Purchase Contracts. The remaining
portion of such Proceeds, if any, shall be distrib-
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<PAGE> 24
uted by the Collateral Agent to the Purchase Contract Agent for payment to the
Holders. If the Remarketing Agent advises the Collateral Agent in writing that
it cannot remarket the related Pledged Capital Securities of such Holders of
Income PRIDES at a price not less than 100% of the aggregate Value of such
Pledged Capital Securities plus any accrued and unpaid distributions (including
deferred distributions), thus resulting in a Failed Remarketing and an event of
default under the Purchase Contract Agreement and hereunder, the Collateral
Agent, for the benefit of the Company will, at the written direction of the
Company, retain or dispose of the Pledged Capital Securities in accordance with
applicable law and satisfy in full, from any such disposition or retention, such
Holder's obligation to pay the Purchase Price for the Common Stock.
(b) In the event a Holder of Growth PRIDES or Income PRIDES (if a Tax
Event Redemption has occurred) has not made an Early Settlement of the Purchase
Contract(s) underlying its Growth PRIDES or Income PRIDES, such Holder shall be
deemed to have elected to pay for the shares of Common Stock to be issued under
such Purchase Contract(s) from the Proceeds of the related Pledged Treasury
Securities or the Treasury Portfolio, as the case may be. On the Business Day
immediately prior to the Purchase Contract Settlement Date, the Collateral Agent
shall, at the written direction of the Purchase Contract Agent, invest the Cash
proceeds of the maturing Pledged Treasury Securities or the Treasury Portfolio,
as the case may be, in overnight Permitted Investments. Without receiving any
instruction from any such Holder of Growth PRIDES or Income PRIDES, the
Collateral Agent shall apply the Proceeds of the related Pledged Treasury
Securities or Treasury Portfolio to the settlement of such Purchase Contracts on
the Purchase Contract Settlement Date.
In the event the sum of the Proceeds from the related Pledged Treasury
Securities or Treasury Portfolio and the investment earnings from the investment
in overnight Permitted Investments is in excess of the aggregate Purchase Price
of the Purchase Contracts being settled thereby, the Collateral Agent shall
distribute such excess, when received, to the Purchase Contract Agent for the
benefit of the Holders.
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(c) 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 Date immediately preceding the Purchase Contract Settlement Date,
holders of Separate Capital Securities may elect to have their Separate Capital
Securities remarketed by delivering their Separate Capital Securities, together
with a notice of such election, substantially in the form of Exhibit C hereto,
to the Custodial Agent. The Custodial Agent will hold such Separate Capital
Securities in an account separate from the Collateral Account. A holder of
Separate Capital Securities electing to have its Separate Capital Securities
remarketed will also have the right to withdraw such election by written notice
to the Custodial Agent, substantially in the form of Exhibit D hereto, on or
prior to the fifth Business Day immediately preceding the Purchase Contract
Settlement Date, upon which notice the Custodial Agent will return such Separate
Capital Securities to such holder. On the fourth Business Day immediately
preceding the Purchase Contract Settlement Date, the Custodial Agent will
deliver to the Remarketing Agent for remarketing all separate Capital Securities
delivered to the Custodial Agent pursuant to this Section 4.6(c) and not
withdrawn pursuant to the terms hereof prior to such date. The portion of the
proceeds from such remarketing equal to the aggregate Value of such Separate
Capital Securities will automatically be remitted by the Remarketing Agent to
the Custodial Agent for the benefit of the holders of such Separate Capital
Securities. In addition, after deducting as the Remarketing Fee an amount not
exceeding 50 basis points (.50%) of the Value of the remarketed Separate Capital
Securities, from any amount of such proceeds in excess of the aggregate Value of
the remarketed Separate Capital Securities plus any accrued and unpaid
distributions (including deferred distributions, if any), the Remarketing Agent
will remit to the Custodial Agent the remaining portion of the proceeds, if any,
for the benefit of such holders. If, despite using its reasonable efforts, the
Remarketing Agent advises the Custodial Agent in writing that it cannot remarket
the related Separate Capital Securities of such holders at a price not less than
100% of the aggregate Value of such Separate Capital Securities plus accrued and
unpaid distributions (including deferred distributions) and thus result-
22
<PAGE> 26
ing in a Failed Remarketing, the Remarketing Agent will promptly return such
Capital Securities to the Custodial Agent for redelivery to such holders. In the
event of a dissolution of the Trust and the distribution of the Debentures as
described in the Declaration, all references to "Separate Capital Securities" in
this Section 4.6(c) shall be deemed to be references to Debentures which are not
pledged hereunder or required to be part of the Collateral.
Section 5. Voting Rights -- Capital Securities. The Purchase Contract
Agent may exercise, or refrain from exercising, any and all voting and other
consensual rights pertaining to the Pledged Capital Securities or any part
thereof for any purpose not inconsistent with the terms of this Agreement and in
accordance with the terms of the Purchase Contract Agreement; provided, that the
Purchase Contract Agent shall not exercise or, as the case may be, shall not
refrain from exercising such right if, in the judgment of the Company, such
action would impair or otherwise have a material adverse effect on the value of
all or any of the Pledged Capital Securities; and provided, further, that the
Purchase Contract Agent shall give the Company and the Collateral Agent at least
five days' prior written notice of the manner in which it intends to exercise,
or its reasons for refraining from exercising, any such right. Upon receipt of
any notices and other communications in respect of any Pledged Capital
Securities, including notice of any meeting at which holders of Capital
Securities are entitled to vote or solicitation of consents, waivers or proxies
of holders of Capital Securities, the Collateral Agent shall use reasonable
efforts to send promptly to the Purchase Contract Agent such notice or
communication, and as soon as reasonably practicable after receipt of a written
request therefor from the Purchase Contract Agent, execute and deliver to the
Purchase Contract Agent such proxies and other instruments in respect of such
Pledged Capital Securities (in form and substance satisfactory to the Collateral
Agent) as are prepared by the Purchase Contract Agent with respect to the
Pledged Capital Securities.
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Section 6. Rights and Remedies; Distribution of the Debentures; Tax Event
Redemption
Section 6.1. Rights and Remedies of the Collateral Agent. (a) In addition
to the rights and remedies specified in Section 4.4 hereof or otherwise
available at law or in equity, after an event of default hereunder, the
Collateral Agent shall have all of the rights and remedies with respect to the
Collateral of a secured party under the Uniform Commercial Code (or any
successor thereto) as in effect in the State of New York from time to time (the
"Code") (whether or not the Code is in effect in the jurisdiction where the
rights and remedies are asserted) and the TRADES Regulations and such additional
rights and remedies to which a secured party is entitled under the laws in
effect in any jurisdiction where any rights and remedies hereunder may be
asserted. Wherever reference is made in this Agreement to any section of the
Code, such reference shall be deemed to include a reference to any provision of
the Code which is a successor to, or amendment of, such section. Without
limiting the generality of the foregoing, such remedies may include, to the
extent permitted by applicable law, (i) retention of the Pledged Capital
Securities or other Collateral in full satisfaction of the Holders obligations
under the Purchase Contracts or (ii) sale of the Pledged Capital Securities or
other Collateral in one or more public or private sales.
(b) Without limiting any rights or powers otherwise granted by this
Agreement to the Collateral Agent, in the event the Collateral Agent is unable
to make payments to the Company on account of the appropriate Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio or on account of principal payments of any Pledged
Treasury Securities as provided in Section 3 hereof in satisfaction of the
obligations of the Holder of the Securities of which such Pledged Treasury
Securities, or the appropriate Applicable Ownership Interest (as specified in
clause (A) of the definition of such term) of the Treasury Portfolio, as
applicable, is a part under the related Purchase Contracts, the inability to
make such payments shall constitute an event of default hereunder and the
Collateral Agent shall have and may exercise, with reference to such Pledged
Treasury Securities, or
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such appropriate Applicable Ownership Interest (as specified in clause (A) of
the definition of such term) of the Treasury Portfolio, as applicable, and such
obligations of such Holder, any and all of the rights and remedies available to
a secured party under the Code and the TRADES Regulations after default by a
debtor, and as otherwise granted herein or under any other law.
(c) Without limiting any rights or powers otherwise granted by this
Agreement to the Collateral Agent, the Collateral Agent is hereby irrevocably
authorized to receive and collect all payments of (i) the Stated Amount of or,
cash distributions on, the Pledged Capital Securities, (ii) the principal amount
of the Pledged Treasury Securities, or (iii) the appropriate Applicable
Ownership Interest (as specified in clause (A) of the definition of such term)
of the Treasury Portfolio, subject, in each case, to the provisions of Section
3, and as otherwise granted herein.
(d) The Purchase Contract Agent, individually and as attorney-in-fact for
each Holder of Securities, in the event such Holder becomes the Holder of a
Growth PRIDES, agrees that, from time to time, upon the written request of the
Collateral Agent, the Purchase Contract Agent or such Holder shall execute and
deliver such further documents and do such other acts and things as the
Collateral Agent may reasonably request in order to maintain the Pledge, and the
perfection and priority thereof, and to confirm the rights of the Collateral
Agent hereunder. The Purchase Contract Agent shall have no liability to any
Holder for executing any documents or taking any such acts requested by the
Collateral Agent hereunder, except for liability for its own negligent act, its
own negligent failure to act or its own willful misconduct.
Section 6.2. Distribution of the Debentures; Tax Event Redemption. Upon
the occurrence of an Investment Company Event or a liquidation of the Trust, a
principal amount of the Debentures constituting the assets of the Trust and
underlying the Capital Securities equal to the aggregate stated liquidation
amount of the Pledged Capital Securities shall be delivered to the Collateral
Agent in exchange for the Pledged Capital Securities. In the event the
Collateral Agent receives such Debentures in respect of Pledged Capital
Securities upon the occurrence of an Investment Company Event or liquidation of
the
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Trust, the Collateral Agent shall Transfer the Debentures to the Collateral
Account in the manner specified herein (including, without limitation, physical
delivery thereof as set forth in Section 2.1) for Pledged Capital Securities to
secure the obligations of the Holders of Income PRIDES to purchase the Company's
Common Stock under the related Purchase Contracts. Thereafter, the Collateral
Agent shall have such security interests, rights and obligations with respect to
the Debentures as it had in respect of the Pledged Capital Securities as
provided in Sections 2, 3, 4, 5 and 6 hereof, and any reference herein to the
Pledged Capital Securities shall be deemed to be referring to such Debentures.
Upon the occurrence of a Tax Event Redemption prior to the Purchase
Contract Settlement Date, the Redemption Price payable on the Tax Event
Redemption Date with respect to the Applicable Principal Amount of Debentures
shall be delivered to the Collateral Agent by the Institutional Trustee or upon
a dissolution of the Trust and the distribution of the related Debentures by the
Debenture Trustee on or prior to 12:30 p.m., New York City time, by check or
wire transfer in immediately available funds at such place and at such account
as may be designated by the Collateral Agent in exchange for the Pledged Capital
Securities or Debentures, as the case may be. In the event the Collateral Agent
receives such Redemption Price, the Collateral Agent will, at the written
direction of the Company, apply an amount equal to the Redemption Amount of such
Redemption Price to purchase from the Quotation Agent the Treasury Portfolio and
promptly remit the remaining portion of such Redemption Price to the Purchase
Contract Agent for payment to the Holders of Income PRIDES. The Collateral Agent
shall Transfer the Treasury Portfolio to the Collateral Account in the manner
specified herein for Pledged Capital Securities to secure the obligation of all
Holders of Income PRIDES to purchase Common Stock of the Company under the
Purchase Contracts constituting a part of such Income PRIDES, in substitution
for the Pledged Capital Securities. Thereafter the Collateral Agent shall have
such security interests, rights and obligations with respect to the Treasury
Portfolio as it had in respect of the Pledged Capital Securities or Debentures,
as the case may be, as provided in Sections 2, 3, 4, 5 and 6, and any reference
herein to the Pledged Capital Securities or the Deben-
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tures shall be deemed to be reference to such Treasury Portfolio.
Section 6.3. Substitutions. Whenever a Holder has the right to substitute
Treasury Securities, Capital Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio, as the case may be, for Collateral held by
the Collateral Agent, such substitution shall not constitute a novation of the
security interest created hereby.
Section 7. Representations and Warranties; Covenants.
Section 7.1. Representations and Warranties. The Holders from time to
time, acting through the Purchase Contract Agent as their attorney-in-fact (it
being understood that the Purchase Contract Agent shall not be liable for any
representation or warranty made by or on behalf of a Holder), hereby represent
and warrant to the Collateral Agent, which representations and warranties shall
be deemed repeated on each day a Holder Transfers Collateral that:
(a) such Holder has the power to grant a security interest in and
lien on the Collateral;
(b) such Holder is the sole beneficial owner of the Collateral
and, in the case of Collateral delivered in physical form, is
the sole holder of such Collateral and is the sole beneficial
owner of, or has the right to Transfer, the Collateral it
Transfers to the Collateral Agent, free and clear of any
security interest, lien, encumbrance, call, liability to pay
money or other restriction other than the security interest
and lien granted under Section 2 hereof;
(c) upon the Transfer of the Collateral to the Collateral Account,
the Collateral Agent, for the benefit of the Company, will
have a valid and perfected first priority security interest
therein (assuming that any central clearing opera-
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tion or any Intermediary or other entity not within the
control of the Holder involved in the Transfer of the
Collateral, including the Collateral Agent, gives the notices
and takes the action required of it hereunder and under
applicable law for perfection of that interest and assuming
the establishment and exercise of control pursuant to Section
2.2 hereof); and
(d) the execution and performance by the Holder of its obligations
under this Agreement will not result in the creation of any
security interest, lien or other encumbrance on the Collateral
other than the security interest and lien granted under
Section 2 hereof or violate any provision of any existing law
or regulation applicable to it or of any mortgage, charge,
pledge, indenture, contract or undertaking to which it is a
party or which is binding on it or any of its assets.
Section 7.2. Covenants. The Holders from time to time, acting through the
Purchase Contract Agent as their attorney-in-fact (it being understood that the
Purchase Contract Agent shall not be liable for any covenant made by or on
behalf of a Holder), hereby covenant to the Collateral Agent that for so long as
the Collateral remains subject to the Pledge:
(a) neither the Purchase Contract Agent nor such Holders will
create or purport to create or allow to subsist any mortgage,
charge, lien, pledge or any other security interest whatsoever
over the Collateral or any part of it other than pursuant to
this Agreement; and
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(b) neither the Purchase Contract Agent nor such Holders will sell
or otherwise dispose (or attempt to dispose) of the Collateral
or any part of it except for the beneficial interest therein,
subject to the pledge hereunder, transferred in connection
with the Transfer of the Securities.
Section 8. The Collateral Agent. It is hereby agreed as follows:
Section 8.1. Appointment, Powers and Immunities. The Collateral Agent
shall act as Agent for the Company hereunder with such powers as are
specifically vested in the Collateral Agent by the terms of this Agreement,
together with such other powers as are reasonably incidental thereto. Each of
the Collateral Agent, the Custodial Agent and the Securities Intermediary: (a)
shall have no duties or responsibilities except those expressly set forth in
this Agreement and no implied covenants or obligations shall be inferred from
this Agreement against any of them, nor shall any of them be bound by the
provisions of any agreement by any party hereto beyond the specific terms
hereof; (b) shall not be responsible for any recitals contained in this
Agreement, or in any certificate or other document referred to or provided for
in, or received by it under, this Agreement, the Securities or the Purchase
Contract Agreement, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement (other than as against the
Collateral Agent), the Securities or the Purchase Contract Agreement or any
other document referred to or provided for herein or therein or for any failure
by the Company or any other Person (except the Collateral Agent, the Custodial
Agent or the Securities Intermediary, as the case may be) to perform any of its
obligations hereunder or thereunder or for the perfection, priority or, except
as expressly required hereby, maintenance of any security interest created
hereunder; (c) shall not be required to initiate or conduct any litigation or
collection proceedings hereunder (except in the case of the Collateral Agent,
pursuant to directions furnished under Section 8.2 hereof, subject to Section
8.6 hereof); (d) shall not be responsible for any action taken or omitted to be
taken by it hereunder or under any other document or instrument referred to or
provided for
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<PAGE> 33
herein or in connection herewith or therewith, except for its own negligence or
willful misconduct; and (e) shall not be required to advise any party as to
selling or retaining, or taking or refraining from taking any action with
respect to, the Securities or other property deposited hereunder. Subject to the
foregoing, during the term of this Agreement, the Collateral Agent shall take
all reasonable action in connection with the safekeeping and preservation of the
Collateral hereunder.
No provision of this Agreement shall require the Collateral Agent, the
Custodial Agent or the Securities Intermediary to expend or risk its own funds
or otherwise incur any financial liability in the performance of any of its
duties hereunder. In no event shall the Collateral Agent, the Custodial Agent or
the Securities Intermediary be liable for any amount in excess of the Value of
the Collateral. Notwithstanding the foregoing, the Collateral Agent, the
Custodial Agent, the Purchase Contract Agent and Securities Intermediary, each
in its individual capacity, hereby waive any right of setoff, bankers lien,
liens or perfection rights as securities intermediary or any counterclaim with
respect to any of the Collateral.
Section 8.2. Instructions of the Company. The Company shall have the
right, by one or more instruments in writing executed and delivered to the
Collateral Agent, the Custodial Agent or the Securities Intermediary, as the
case may be, to direct the time, method and place of conducting any proceeding
for the realization of any right or remedy available to the Collateral Agent, or
of exercising any power conferred on the Collateral Agent, the Custodial Agent
or the Securities Intermediary, as the case may be, or to direct the taking or
refraining from taking of any action authorized by this Agreement; provided,
however, that (i) such direction shall not conflict with the provisions of any
law or of this Agreement and (ii) the Collateral Agent, the Custodial Agent and
the Securities Intermediary shall be adequately indemnified as provided herein.
Nothing in this Section 8.2 shall impair the right of the Collateral Agent in
its discretion to take any action or omit to take any action which it deems
proper and which is not inconsistent with such direction.
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Section 8.3. Reliance by Collateral Agent. Each of the Securities
Intermediary, the Custodial Agent and the Collateral Agent shall be entitled
conclusively to rely upon any certification, order, judgment, opinion, notice or
other communication (including, without limitation, any thereof by telephone,
telecopy, telex or facsimile) believed by it to be genuine and correct and to
have been signed or sent by or on behalf of the proper Person or Persons
(without being required to determine the correctness of any fact stated
therein), and upon advice and statements of legal counsel and other experts
selected by the Collateral Agent, the Custodial Agent or the Securities
Intermediary, as the case may be. As to any matters not expressly provided for
by this Agreement, the Collateral Agent, the Custodial Agent and the Securities
Intermediary shall in all cases be fully protected in acting, or in refraining
from acting, hereunder in accordance with instructions given by the Company in
accordance with this Agreement.
Section 8.4. Rights in Other Capacities. The Collateral Agent, the
Custodial Agent and the Securities Intermediary and their affiliates may
(without having to account therefor to the Company) accept deposits from, lend
money to, make their investments in and generally engage in any kind of banking,
trust or other business with the Purchase Contract Agent, any Holder of
Securities and any holder of separate Capital Securities (and any of their
respective subsidiaries or affiliates) as if it were not acting as the
Collateral Agent, the Custodial Agent or the Securities Intermediary, as the
case may be, and the Collateral Agent, the Custodial Agent and the Securities
Intermediary and their affiliates may accept fees and other consideration from
the Purchase Contract Agent, any Holder of Securities or any holder of separate
Capital Securities without having to account for the same to the Company;
provided that each of the Securities Intermediary, the Custodial Agent and the
Collateral Agent covenants and agrees with the Company that it shall not accept,
receive or permit there to be created in favor of itself and shall take no
affirmative action to permit there to be created in favor of any other Person,
any security interest, lien or other encumbrance of any kind in or upon the
Collateral and the Collateral shall not be commingled with any other assets of
any such Person.
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Section 8.5. Non-Reliance on Collateral Agent. None of the Securities
Intermediary, the Custodial Agent or the Collateral Agent shall be required to
keep itself informed as to the performance or observance by the Purchase
Contract Agent or any Holder of Securities of this Agreement, the Purchase
Contract Agreement, the Securities or any other document referred to or provided
for herein or therein or to inspect the properties or books of the Purchase
Contract Agent or any Holder of Securities. The Collateral Agent, the Custodial
Agent and the Securities Intermediary shall not have any duty or responsibility
to provide the Company or the Remarketing Agent with any credit or other
information concerning the affairs, financial condition or business of the
Purchase Contract Agent, any Holder of Securities or any holder of separate
Capital Securities (or any of their respective subsidiaries or affiliates) that
may come into the possession of the Collateral Agent, the Custodial Agent or the
Securities Intermediary or any of their respective affiliates.
Section 8.6. Compensation and Indemnity. The Company agrees: (i) to pay
each of the Collateral Agent and the Custodial Agent from time to time such
compensation as shall be agreed in writing between the Company and the
Collateral Agent or the Custodial Agent, as the case may be, for all services
rendered by each of them hereunder and (ii) to indemnify the Collateral Agent,
the Custodial Agent and the Securities Intermediary for, and to hold each of
them harmless from and against, any loss, liability or reasonable out-of-pocket
expense incurred without negligence, willful misconduct or bad faith on its
part, arising out of or in connection with the acceptance or administration of
its powers and duties under this Agreement, including the reasonable
out-of-pocket costs and expenses (including reasonable fees and expenses of
counsel) of defending itself against any claim or liability in connection with
the exercise or performance of such powers and duties. The Collateral Agent, the
Custodial Agent and the Securities Intermediary shall each promptly notify the
Company of any third party claim which may give rise to the indemnity hereunder
and give the Company the opportunity to participate in the defense of such claim
with counsel reasonably satisfactory to the indemnified party, and no such claim
shall be settled without the written consent of the Company, which consent shall
not be unreasonably withheld.
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Section 8.7. Failure to Act. In the event of any ambiguity in the
provisions of this Agreement or any dispute between or conflicting claims by or
among the parties hereto or any other Person with respect to any funds or
property deposited hereunder, the Collateral Agent and the Custodial Agent shall
be entitled, after prompt notice to the Company and the Purchase Contract Agent,
at its sole option, to refuse to comply with any and all claims, demands or
instructions with respect to such property or funds so long as such dispute or
conflict shall continue, and neither the Collateral Agent nor the Custodial
Agent shall be or become liable in any way to any of the parties hereto for its
failure or refusal to comply with such conflicting claims, demands or
instructions. The Collateral Agent and the Custodial Agent shall be entitled to
refuse to act until either (i) such conflicting or adverse claims or demands
shall have been finally determined by a court of competent jurisdiction or
settled by agreement between the conflicting parties as evidenced in a writing,
satisfactory to the Collateral Agent or the Custodial Agent, as the case may be,
or (ii) the Collateral Agent or the Custodial Agent, as the case may be, shall
have received security or an indemnity reasonably satisfactory to the Collateral
Agent or the Custodial Agent, as the case may be, sufficient to save the
Collateral Agent or the Custodial Agent, as the case may be, harmless from and
against any and all loss, liability or reasonable out-of-pocket expense which
the Collateral Agent or the Custodial Agent, as the case may be, may incur by
reason of its acting without bad faith, willful misconduct or gross negligence.
The Collateral Agent or the Custodial Agent may in addition elect to commence an
interpleader action or seek other judicial relief or orders as the Collateral
Agent or the Custodial Agent, as the case may be, may deem necessary.
Notwithstanding anything contained herein to the contrary, neither the
Collateral Agent nor the Custodial Agent shall be required to take any action
that is in its opinion contrary to law or to the terms of this Agreement, or
which would in its opinion subject it or any of its officers, employees or
directors to liability.
Section 8.8. Resignation of Collateral Agent. Subject to the appointment
and acceptance of a successor Collateral Agent or Custodial Agent as provided
below, (a) the Collateral Agent and the Custodial Agent may resign at any time
by giving notice thereof to the Com-
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<PAGE> 37
pany and the Purchase Contract Agent as attorney-in-fact for the Holders of
Securities, (b) the Collateral Agent and the Custodial Agent may be removed at
any time by the Company and (c) if the Collateral Agent or the Custodial Agent
fails to perform any of its material obligations hereunder in any material
respect for a period of not less than 20 days after receiving written notice of
such failure by the Purchase Contract Agent and such failure shall be
continuing, the Collateral Agent or the Custodial Agent may be removed by the
Purchase Contract Agent. The Purchase Contract Agent shall promptly notify the
Company of any removal of the Collateral Agent pursuant to clause (c) of the
immediately preceding sentence. Upon any such resignation or removal, the
Company shall have the right to appoint a successor Collateral Agent or
Custodial Agent, as the case may be. If no successor Collateral Agent or
Custodial Agent, as the case may be, shall have been so appointed and shall have
accepted such appointment within 30 days after the retiring Collateral Agent's
or Custodial Agent's giving of notice of resignation or such removal, then the
retiring Collateral Agent or Custodial Agent, as the case may be, may petition
any court of competent jurisdiction for the appointment of a successor
Collateral Agent or Custodial Agent, as the case may be. Each of the Collateral
Agent and the Custodial Agent shall be a bank which has an office in New York,
New York with a combined capital and surplus of at least $75,000,000. Upon the
acceptance of any appointment as Collateral Agent or Custodial Agent, as the
case may be, hereunder by a successor Collateral Agent or Custodial Agent, as
the case may be, such successor shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring Collateral
Agent or Custodial Agent, as the case may be, and the retiring Collateral Agent
or Custodial Agent, as the case may be, shall take all appropriate action to
transfer any money and property held by it hereunder (including the Collateral)
to such successor. The retiring Collateral Agent or Custodial Agent shall, upon
such succession, be discharged from its duties and obligations as Collateral
Agent or Custodial Agent hereunder. After any retiring Collateral Agent's or
Custodial Agent's resignation hereunder as Collateral Agent or Custodial Agent,
the provisions of this Section 8 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
the Collateral Agent or Custodial Agent. Any resignation or
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<PAGE> 38
removal of the Collateral Agent hereunder shall be deemed for all purposes of
this Agreement as the simultaneous resignation or removal of the Custodial Agent
and the Securities Intermediary.
Section 8.9. Right to Appoint Agent or Advisor. The Collateral Agent shall
have the right to appoint agents or advisors in connection with any of its
duties hereunder, and the Collateral Agent shall not be liable for any action
taken or omitted by, or in reliance upon the advice of, such agents or advisors
selected in good faith. The appointment of agents pursuant to this Section 8.9
shall be subject to prior consent of the Company, which consent shall not be
unreasonably withheld.
Section 8.10. Survival. The provisions of this Section 8 shall survive
termination of this Agreement and the resignation or removal of the Collateral
Agent or the Custodial Agent.
Section 8.11. Exculpation. Anything in this Agreement to the contrary
notwithstanding, in no event shall any of the Collateral Agent, the Custodial
Agent or the Securities Intermediary or their officers, employees or agents be
liable under this Agreement to any third party for indirect, special, punitive,
or consequential loss or damage of any kind whatsoever, including lost profits,
whether or not the likelihood of such loss or damage was known to the Collateral
Agent, the Custodial Agent or the Securities Intermediary, or any of them,
incurred without any act or deed that is found to be attributable to gross
negligence or willful misconduct on the part of the Collateral Agent, the
Custodial Agent or the Securities Intermediary.
Section 9. Amendment.
Section 9.1. Amendment Without Consent of Holders. Without the consent of
any Holders or the holders of any Separate Capital Securities, the Company, the
Collateral Agent, the Custodial Agent, the Securities Intermediary and the
Purchase Contract Agent, at any time and from time to time, may amend this
Agreement, in form satisfactory to the Company, the Collateral Agent, the
Custodial Agent, the Securities Intermediary and the Purchase Contract Agent,
for any of the following purposes:
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(1) to evidence the succession of another Person to the Company, and
the assumption by any such successor of the covenants of the Company; or
(2) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company so long as such covenants or such surrender do not adversely
affect the validity, perfection or priority of the security interests
granted or created hereunder; or
(3) to evidence and provide for the acceptance of appointment
hereunder by a successor Collateral Agent, Securities Intermediary or
Purchase Contract Agent; or
(4) to cure any ambiguity, to correct or supplement any provisions
herein which may be inconsistent with any other such provisions herein, or
to make any other provisions with respect to such matters or questions
arising under this Agreement, provided such action shall not adversely
affect the interests of the Holders.
Section 9.2. Amendment with Consent of Holders. With the consent of the
Holders of not less than a majority of the Purchase Contracts at the time
outstanding, by Act of said Holders delivered to the Company, the Purchase
Contract Agent or the Collateral Agent, as the case may be, the Company, when
duly authorized, the Purchase Contract Agent, the Collateral Agent, the
Custodial Agent and the Securities Intermediary may amend this Agreement for the
purpose of modifying in any manner the provisions of this Agreement or the
rights of the Holders in respect of the Securities; provided, however, that no
such supplemental agreement shall, without the consent of the Holder of each
Outstanding Security adversely affected thereby,
(1) change the amount or type of Collateral underlying a Security
(except for the rights of holders of Income PRIDES to substitute the
Treasury Securities for the Pledged Capital Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio, as the case may
be, or the rights of Holders of Growth PRIDES to substitute
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<PAGE> 40
Capital Securities or the appropriate Applicable Ownership Interest of the
Treasury Portfolio, as applicable, for the Pledged Treasury Securities),
impair the right of the Holder of any Security to receive distributions on
the underlying Collateral or otherwise adversely affect the Holder's
rights in or to such Collateral; or
(2) otherwise effect any action that would require the consent of
the Holder of each Outstanding Security affected thereby pursuant to the
Purchase Contract Agreement if such action were effected by an agreement
supplemental thereto; or
(3) reduce the percentage of Purchase Contracts the consent of whose
Holders is required for any such amendment.
It shall not be necessary for any Act of Holders under this Section to approve
the particular form of any proposed amendment, but it shall be sufficient if
such Act shall approve the substance thereof.
Section 9.3. Execution of Amendments. In executing any amendment permitted
by this Section, the Collateral Agent, the Custodial Agent, the Securities
Intermediary and the Purchase Contract Agent shall be entitled to receive and
(subject to Section 6.1 hereof, with respect to the Collateral Agent, and
Section 7.1 of the Purchase Contract Agreement, with respect to the Purchase
Contract Agent) shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such amendment is authorized or permitted by this
Agreement and that all conditions precedent, if any, to the execution and
delivery of such amendment have been satisfied.
Section 9.4. Effect of Amendments. Upon the execution of any amendment
under this Section 9, this Agreement shall be modified in accordance therewith,
and such amendment shall form a part of this Agreement for all purposes; and
every Holder of Certificates theretofore or thereafter authenticated, executed
on behalf of the Holders and delivered under the Purchase Contract Agreement
shall be bound thereby.
Section 9.5. Reference to Amendments. Security Certificates authenticated,
executed on behalf of the
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Holders and delivered after the execution of any amendment pursuant to this
Section may, and shall if required by the Collateral Agent or the Purchase
Contract Agent, bear a notation in form approved by the Purchase Contract Agent
and the Collateral Agent as to any matter provided for in such amendment. If the
Company shall so determine, new Security Certificates so modified as to conform,
in the opinion of the Collateral Agent, the Purchase Contract Agent and the
Company, to any such amendment may be prepared and executed by the Company and
authenticated, executed on behalf of the Holders and delivered by the Purchase
Contract Agent in accordance with the Purchase Contract Agreement in exchange
for Outstanding Security Certificates.
Section 10. Miscellaneous.
Section 10.1. No Waiver. No failure on the part of any party hereto or any
of its agents to exercise, and no course of dealing with respect to, and no
delay in exercising, any right, power or remedy hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise by any party hereto or
any of its agents of any right, power or remedy hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies herein are cumulative and are not exclusive of any remedies
provided by law.
Section 10.2. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Without limiting
the foregoing, the above choice of law is expressly agreed to by the Securities
Intermediary, the Collateral Agent and the Holders from time to time acting
through the Purchase Contract Agent, as their attorney-in-fact, in connection
with the establishment and maintenance of the Collateral Account. The Company,
the Collateral Agent and the Holders from time to time of the
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Securities, acting through the Purchase Contract Agent as their
attorney-in-fact, hereby submit to the nonexclusive jurisdiction of the United
States District Court for the Southern District of New York and of any New York
state court sitting in New York City for the purposes of all legal proceedings
arising out of or relating to this Agreement or the transactions contemplated
hereby. The Company, the Collateral Agent and the Holders from time to time of
the Securities, acting through the Purchase Contract Agent as their
attorney-in-fact, irrevocably waive, to the fullest extent permitted by
applicable law, any objection which they may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient
forum.
Section 10.3. Notices. All notices, requests, consents and other
communications provided for herein (including, without limitation, any
modifications of, or waivers or consents under, this Agreement) shall be given
or made in writing (including, without limitation, by telecopy) delivered to the
intended recipient at the "Address for Notices" specified below its name on the
signature pages hereof or, as to any party, at such other address as shall be
designated by such party in a notice to the other parties. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have been
duly given when transmitted by telecopier or personally delivered or, in the
case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.
Section 10.4. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the respective successors and assigns of the
Company, the Collateral Agent, the Custodial Agent, the Securities Intermediary
and the Purchase Contract Agent, and the Holders from time to time of the
Securities, by their acceptance of the same, shall be deemed to have agreed to
be bound by the provisions hereof and to have ratified the agreements of, and
the grant of the Pledge hereunder by, the Purchase Contract Agent.
Section 10.5. Counterparts. This Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
Section 10.6. Severability. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in order to carry out the
intentions of the par-
39
<PAGE> 43
ties hereto as nearly as may be possible and (ii) the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.
Section 10.7. Expenses, etc. The Company agrees to reimburse the
Collateral Agent and the Custodial Agent for: (a) all reasonable out-of-pocket
costs and expenses of the Collateral Agent and the Custodial Agent (including,
without limitation, the reasonable fees and expenses of counsel to the
Collateral Agent and the Custodial Agent), in connection with (i) the
negotiation, preparation, execution and delivery or performance of this
Agreement and (ii) any modification, supplement or waiver of any of the terms of
this Agreement; (b) all reasonable costs and expenses of the Collateral Agent
(including, without limitation, reasonable fees and expenses of counsel) in
connection with (i) any enforcement or proceedings resulting or incurred in
connection with causing any Holder of Securities to satisfy its obligations
under the Purchase Contracts forming a part of the Securities and (ii) the
enforcement of this Section 10.7; and (c) all transfer, stamp, documentary or
other similar taxes, assessments or charges levied by any governmental or
revenue authority in respect of this Agreement or any other document referred to
herein and all costs, expenses, taxes, assessments and other charges incurred in
connection with any filing, registration, recording or perfection of any
security interest contemplated hereby.
Section 10.8. Security Interest Absolute. All rights of the Collateral
Agent and security interests hereunder, and all obligations of the Holders from
time to time hereunder, shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of any provision of the
Purchase Contracts or the Securities or any other agreement or instrument
relating thereto;
(b) any change in the time, manner or place of payment of, or any
other term of, or any increase in the amount of, all or any of the
obligations of Holders of Securities under the related Purchase Contracts,
or any other amendment or waiver of any
40
<PAGE> 44
term of, or any consent to any departure from any requirement of, the
Purchase Contract Agreement or any Purchase Contract or any other
agreement or instrument relating thereto; or
(c) any other circumstance which might otherwise constitute a
defense available to, or discharge of, a borrower, a guarantor or a
pledgor.
41
<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
KAUFMAN AND BROAD HOME
CORPORATION
By:
--------------------------------------------
Name:
Title:
Address for Notices:
KAUFMAN AND BROAD HOME
CORPORATION
10990 Wilshire Blvd.
Los Angeles, CA 90024
Attention: Chief Financial Officer
Telecopy: (310)231-4222
THE FIRST NATIONAL BANK OF CHICAGO,
as Purchase Contract Agent and as
attorney-in-fact of the Holders from
time to time of the Securities
By:
--------------------------------------------
Name:
Title:
Address for Notices:
The First National Bank of Chicago
One First National Plaza,
Suite 0126
Chicago, IL 60670-0126
Attention: Corporate Trust Services Division
Telecopy: (312) 407-1708
<PAGE> 46
The Bank of New York,
as Collateral Agent, Custodial Agent and as
Securities Intermediary
By:
--------------------------------------------
Name:
Title:
Address for Notices:
The Bank of New York
101 Barclay Street
Floor 12 East
New York, NY 10286
Attention:
Telecopy: (212) 815-7157
<PAGE> 47
EXHIBIT A
INSTRUCTION FROM PURCHASE CONTRACT AGENT TO COLLATERAL AGENT
The Bank of New York
101 Barclay Street
Floor 12 East
New York, NY 10286
Attention:
Re: FELINE PRIDES of Kaufman and Broad Home Corporation (the
"Company"), and KBHC Financing I
We hereby notify you in accordance with Section [4.1] [4.2] of the
Pledge Agreement, dated as of ______, 1998, (the "Pledge Agreement") among the
Company, yourselves, as Collateral Agent, Custodial Agent and Securities
Intermediary and ourselves, as Purchase Contract Agent and as attorney-in-fact
for the holders of [Income PRIDES] [Growth PRIDES] from time to time, that the
holder of Securities listed below (the "Holder") has elected to substitute
[$_____ aggregate principal amount of Treasury Securities] [$_______Stated
Amount of Capital Securities or the appropriate Applicable Ownership Interest of
the Treasury Portfolio] in exchange for an equal Value of [Pledged Capital
Securities or the appropriate Applicable Ownership Interest of the Treasury
Portfolio] [Pledged Treasury Securities] held by you in accordance with the
Pledge Agreement and has delivered to us a notice stating that the Holder has
Transferred [Treasury Securities] [Capital Securities or the appropriate
Applicable Ownership Interest of the Treasury Portfolio] to you, as Collateral
Agent. We hereby instruct you, upon receipt of such [Pledged Treasury
Securities] [Pledged Capital Securities or the appropriate Applicable Ownership
Interest of the Treasury Portfolio], to release the [Capital Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio] [Treasury
Securities] related to such [Income PRIDES] [Growth PRIDES] to us in accordance
with the Holder's instructions. Capitalized terms used herein but not defined
shall have the meaning set forth in the Pledge Agreement.
Date:
--------------------- ----------------------------------------
By:
-------------------------------------
<PAGE> 48
Name:
Title:
Signature Guarantee:
-----------------
Please print name and address of Registered Holder electing to substitute
[Treasury Securities] [Capital Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio] for the [Pledged Capital
Securities or the Treasury Portfolio] [Pledged Treasury Securities]:
- --------------------------- ------------------------------------
Name Social Security or other Taxpayer
Identification Number, if any
- ---------------------------
Address
- ---------------------------
- ---------------------------
<PAGE> 49
EXHIBIT B
INSTRUCTION TO PURCHASE CONTRACT AGENT
The First National Bank of Chicago
One First National Plaza, Suite 0126
Chicago, IL 60670-0126
Attention: Corporate Trust, Services Division
Re: FELINE PRIDES of Kaufman and Broad Home Corporation (the
"Company"), and KBHC Financing I
The undersigned Holder hereby notifies you that it has delivered to
The Bank of New York, as Collateral Agent, [$_______ aggregate principal amount
of Treasury Securities] [$ aggregate Stated Amount of Capital Securities or the
appropriate Applicable Ownership Interest of the Treasury Portfolio] in exchange
for an equal Value of [Pledged Capital Securities or the appropriate Applicable
Ownership Interest of the Treasury Portfolio] [Pledged Treasury Securities] held
by the Collateral Agent, in accordance with Section 4.1 of the Pledge Agreement,
dated ______, 1998 (the "Pledge Agreement"), between you, the Company and the
Collateral Agent. The undersigned Holder hereby instructs you to instruct the
Collateral Agent to release to you on behalf of the undersigned Holder the
[Pledged Capital Securities or the appropriate Applicable Ownership Interest of
the Treasury Portfolio] [Pledged Treasury Securities] related to such [Income
PRIDES] [Growth PRIDES]. Capitalized terms used herein but not defined shall
have the meaning set forth in the Pledge Agreement.
Dated:
------------------- --------------------------------
Signature
Signature Guarantee:
-----------------------
<PAGE> 50
Please print name and address of Registered Holder:
- ------------------------- -------------------------
Name Social Security or other
Taxpayer Identification
Number, if any
- -------------------------
Address
- -------------------------
- -------------------------
- -------------------------
<PAGE> 51
EXHIBIT C
INSTRUCTION TO CUSTODIAL AGENT REGARDING REMARKETING
The Bank of New York
101 Barclay Street
Floor 12 East
New York, NY 10286
Attention:
Re: Capital Securities of Kaufman and Broad Home Corporation (the
"Company"), and KBHC Financing I
The undersigned hereby notifies you in accordance with Section 4.6(c) of
the Pledge Agreement, dated as of __________, 1998 (the "Pledge Agreement"),
among the Company, yourselves, as Collateral Agent, Securities Intermediary and
Custodial Agent, and The First National Bank of Chicago, as Purchase Contract
Agent and as attorney-in-fact for the Holders of Income PRIDES and Growth PRIDES
from time to time, that the undersigned elects to deliver $ stated liquidation
amount of Capital Securities for delivery to the Remarketing Agent on the fourth
Business Day immediately preceding the Purchase Contract Settlement Date for
remarketing pursuant to Section 4.6(c) of the Pledge Agreement. The undersigned
will, upon request of the Remarketing Agent, execute and deliver any additional
documents deemed by the Remarketing Agent or by the Company to be necessary or
desirable to complete the sale, assignment and transfer of the Capital
Securities tendered hereby.
The undersigned hereby instructs you, upon receipt of the Proceeds
of such remarketing from the Remarketing Agent to deliver such Proceeds to the
undersigned in accordance with the instructions indicated herein under "A.
Payment Instructions". The undersigned hereby instructs you, in the event of
Failed Remarketing, upon receipt of the Capital Securities tendered herewith
from the Remarketing Agent, to be delivered to the person(s) and the address(es)
indicated herein under "B. Delivery Instructions."
With this notice, the undersigned hereby (i) represents and warrants
that the undersigned has full power and authority to tender, sell, assign and
transfer the Capital Securities tendered hereby and that the undersigned is the
record owner of any Capital Securities tendered herewith in physical form or a
participant in The Depositary Trust Company ("DTC") and the beneficial owner of
any Capi-
<PAGE> 52
tal Securities tendered herewith by book-entry transfer to your account at DTC
and (ii) agrees to be bound by the terms and conditions of Section 4.6(c) of the
Pledge Agreement. Capitalized terms used herein but not defined shall have the
meaning set forth in the Pledge Agreement.
Date:
---------------
--------------------------------------
By:
-----------------------------------
Name:
Title:
Signature Guarantee:
------------------
Please print name and address:
- --------------------------------- ---------------------------------
Name Social Security or other Taxpayer
Identification Number, if any
- ---------------------------------
Address
- ---------------------------------
- ---------------------------------
- ---------------------------------
- --------------------------------------------------------------------------------
A. PAYMENT INSTRUCTIONS
Proceeds of the remarketing should be paid by check in the name of the person(s)
set forth below and mailed to the address set forth below.
Name(s)
--------------------------------------
(Please Print)
Address
--------------------------------------
(Please Print)
- ----------------------------------------------
- ----------------------------------------------
(Zip Code)
- ----------------------------------------------
(Tax Identification or Social Security Number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
B. DELIVERY INSTRUCTIONS
In the event of a Failed Remarketing, Capital Securities which are in physical
form should be delivered to the person(s) set forth below and mailed to the
address set forth below.
Name(s)
--------------------------------------
(Please Print)
Address
--------------------------------------
(Please Print)
- ----------------------------------------------
- ----------------------------------------------
(Zip Code)
- ----------------------------------------------
(Tax Identification or Social Security Number)
In the event of a Failed Remarketing, Capital Securities which are in book-entry
form should be credited to the account at The Depositary Trust Company set forth
below.
------------------
DTC Account Number
Name of Account Party: ______________
- --------------------------------------------------------------------------------
<PAGE> 53
EXHIBIT D
INSTRUCTION TO CUSTODIAL AGENT REGARDING
WITHDRAWAL FROM REMARKETING
The Bank of New York
101 Barclay Street
Floor 12 East
New York, NY 10286
Attention:
Re: Capital Securities of Kaufman and Broad Home Corporation (the
"Company"), and KBHC Financing I
The undersigned hereby notifies you in accordance with Section 4.6(c) of
the Pledge Agreement, dated as of ___________, 1998 (the "Pledge Agreement")
among the Company, yourselves, as Collateral Agent, Securities Intermediary and
Custodial Agent and The First National Bank of Chicago, as Purchase Contract
Agent and as attorney-in-fact for the Holders of Income PRIDES and Growth PRIDES
from time to time, that the undersigned elects to withdraw the $_____ aggregate
stated liquidation amount of Capital Securities delivered to the Custodial Agent
on ___________, 2001 for remarketing pursuant to Section 4.6(c) of the Pledge
Agreement. The undersigned hereby instructs you to return such Capital
Securities to the undersigned in accordance with the undersigned's instructions.
With this notice, the Undersigned hereby agrees to be bound by the terms and
conditions of Section 4.6(c) of the Pledge Agreement. Capitalized terms used
herein but not defined shall have the meaning set forth in the Pledge Agreement.
Date:
-------------------------- ---------------------------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Signature Guarantee:
-------------------
<PAGE> 54
Please print name and address:
- ---------------------------------- ---------------------------------
Name Social Security or other Taxpayer
Identification Number, if any
- ----------------------------------
Address
- ----------------------------------
- ----------------------------------
- ----------------------------------
- --------------------------------------------------------------------------------
A. DELIVERY INSTRUCTIONS
In the event of a Failed Remarketing, Capital Securities which are in physical
form should be delivered to the person(s) set forth below and mailed to the
address set forth below.
Name(s)
--------------------------------------
(Please Print)
Address
--------------------------------------
(Please Print)
- ----------------------------------------------
- ----------------------------------------------
(Zip Code)
- ----------------------------------------------
(Tax Identification or Social Security Number)
In the event of a Failed Remarketing, Capital Securities which are in book-entry
form should be credited to the account at The Depositary Trust Company set forth
below.
------------------
DTC Account Number
Name of Account Party: ______________
- --------------------------------------------------------------------------------
<PAGE> 1
WHEREAS, the applicable distribution rate on the Capital Securities
(and, thus, the interest rate on the Debentures) 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 to be determined by the Reset Agent as the rate that such Capital
Securities (and, thus the Debentures) should bear in order to have an
approximate market value of 100.5% of the aggregate stated liquidation amount of
the Capital Securities or the aggregate principal amount of the Debentures on
the third Business Day immediately preceding the Purchase Contract Settlement
Date, provided that in the determination of such Reset Rate, the Company may
limit the Reset Spread (a component of the Reset Rate) to be no higher than 255
basis points (2.55%); and
WHEREAS, the Company has requested Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") to act as the Reset
Agent and as the Remarketing Agent, and as such to perform the services
described herein; and
WHEREAS, Merrill Lynch is willing to act as Reset Agent and
Remarketing Agent and as such to perform such duties on the terms and conditions
expressly set forth herein;
NOW, THEREFORE, for and in consideration of the covenants herein
made, and subject to the conditions herein set forth, the parties hereto agree
as follows:
Section 1. Definitions. Capitalized terms used and not defined in
this Agree ment shall have the meanings assigned to them in the Purchase
Contract Agreement or, if not therein stated, the Declaration or the Pledge
Agreement.
Section 2. Appointment and Obligations of Remarketing Agent. The
Company hereby appoints Merrill Lynch and Merrill Lynch hereby accepts such
appointment, (i) as the Reset Agent to determine in consultation with the
Company, in the manner provided for in the Declaration with respect to the Trust
Securities and the Indenture with respect to the Debentures, the Reset Rate,
that in the opinion of the Reset Agent, will, when applied to the Trust
Securities (and, thus, the Debentures), enable a Trust Security (and, thus, a
Debenture), to have an approximate market value of approximately 100.5% of the
aggregate stated liquidation amount in the case of such Trust Security and the
aggregate principal amount in the case of such Debenture, and (ii) as the
exclusive Remarketing Agent to remarket the Capital Securities, or the
Debentures, as the case may be, (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 (3.00%)), of such Capital Security or Debenture holders electing to
have their Capital Securities or Debentures remarketed, or of such Income PRIDES
holders who have not early settled the related Purchase Contracts and 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 through Cash Settlement, for
settlement on the Purchase Contract Settlement Date, pursuant to the Remarketing
Underwriting Agreement with the Company, the Trust and the Purchase Contract
Agent, substantially in the form attached hereto as Exhibit A (with such changes
as the Company, the Purchase Contract Agent and the Remarketing Agent may agree
upon, it being understood that changes may be necessary in the representations,
warranties, covenants and other provisions of the Remarketing Underwriting
Agreement due to changes in law or facts and circumstances). Pursuant to the
Remarketing Underwriting Agreement, the Remarketing Agent, either as the sole
remarketing
2
<PAGE> 2
underwriter or as the representative of a syndicate including the Remarketing
Agent and one or more other remarketing underwriters designated by the
Remarketing Agent, will agree, subject to the terms and conditions set forth
therein, that the Remarketing Agent and any such other remarketing underwriters
will purchase severally the Capital Securities or the Debentures, as the case
may be, to be sold by the holder or holders of Capital Securities or Income
PRIDES on the third Business Day immediately preceding the Purchase Contract
Settlement Date and use their reasonable efforts to remarket such Capital
Securities or the Debentures, as the case may be, (such purchase and remarketing
being hereinafter referred to as the "Remarketing"), at a price of approximately
100.75% of such Capital Securities aggregate stated liquidation amount plus any
accrued and unpaid distributions (including any deferred distributions) and in
the case of Deben tures, at a price of approximately 100.75% of such Debentures
aggregate principal amount plus any accrued and unpaid interest (including any
deferred interest). Notwithstanding the preceding sentence, the Remarketing
Agent shall neither purchase nor remarket any Capital Securities or Debentures,
as the case may be, for a price less than 100% of the aggregate stated
liquidation amount or aggregate principal amount of such Capital Securities or
Debentures, respectively, plus accumulated and unpaid distributions or accrued
and unpaid interest, as the case may be. The proceeds of such remarketing shall
be paid to the Collateral Agent in accordance with Section 4.6 of the Pledge
Agreement and Section 5.4 of the Purchase Contract Agreement (each of which
Sections are incorporated herein by reference). The right of each holder of
Capital Securities or Debentures to have Capital Securities or Debentures, as
the case may be, tendered for purchase shall be limited to the extent that (i)
the Remarketing Agent conducts a remarketing pursuant to the terms of this
Agreement, (ii) Capital Securities or Debentures, as the case may be, tendered
have not been called for redemption, (iii) the Remarketing Agent is able to find
a purchaser or purchasers for tendered Capital Securities or Debentures, as the
case may be, and (iv) such purchaser or purchasers deliver the purchase price
therefor to the Remarketing Agent. The Remarketing Agent is not obligated to
purchase any Capital Securities or Debentures that would otherwise remain unsold
in a remarketing. Neither the Trust, any Trustee, the Sponsor nor the
Remarketing Agent shall be obligated in any case to provide funds to make
payment upon tender of Capital Securities or Debentures for remarketing.
Section 3. Fees. With respect to the Remarketing, the Remarketing
Agent shall retain as Remarketing Fee an amount not exceeding 50 basis points
(.50%), of the aggregate stated liquidation amount of the remarketed securities
from any amount received in connection with such Remarketing in excess of the
aggregate stated liquidation amount or aggregate principal amount of such
remarketed Capital Securities or Debentures plus any accrued and unpaid
(including deferred) distributions or any accrued and unpaid interest (including
any deferred interest), as the case may be. In addition, the Reset Agent shall
receive from the Company a reasonable and customary fee as the Reset Agent Fee
(the "Reset Agent Fee"); provided, however, that if the Remarketing Agent shall
also act as the Reset Agent, then the Reset Agent shall not be entitled to
receive any such Reset Agent Fee. Payment of such Reset Agent Fee shall be made
by the Company on the third Business Day immediately preceding the Purchase
Contract Settlement Date in immediately available funds or, upon the
instructions of the Reset Agent by certified or official bank check or checks or
by wire transfer.
Section 4. Replacement and Resignation of Remarketing Agent. (a) The
Company may in its absolute discretion replace Merrill Lynch as the Remarketing
Agent and/or as the Reset Agent in its capacity hereunder by giving notice prior
to 3:00 p.m., New York City time,
3
<PAGE> 3
on the eleventh Business Day immediately prior to the Purchase Contract
Settlement Date. Any such replacement shall become effective upon the Company's
appointment of a successor to perform the services that would otherwise be
performed hereunder by the Remarketing Agent and/or the Reset Agent. Upon
providing such notice, the Company shall use all reasonable efforts to appoint
such a successor and to enter into a remarketing agreement with such successor
as soon as reasonably practicable.
(b) Merrill Lynch may resign at any time and be discharged from its
duties and obligations hereunder as the Remarketing Agent and/or as the Reset
Agent by giving notice prior to 3:00 p.m., New York City time, on the eleventh
Business Day immediately prior to the Purchase Contract Settlement Date. Any
such resignation shall become effective upon the Company's appointment of a
successor to perform the services that would otherwise be performed hereunder by
the Remarketing Agent and/or the Reset Agent. Upon receiving notice from the
Remarketing Agent and/or the Reset Agent that it wishes to resign hereunder, the
Company shall appoint such a successor and enter into a remarketing agreement
with it as soon as reasonably practicable.
Section 5. Dealing in the Securities. The Remarketing Agent, when
acting hereunder or under the Remarketing Underwriting Agreement or acting in
its individual or any other capacity, may, to the extent permitted by law, buy,
sell, hold or deal in any of the Capital Securities or Debentures, as the case
may be. With respect to any Capital Securities or Debentures, as the case may
be, owned by it, the Remarketing Agent may exercise any vote or join in any
action with like effect as if it did not act in any capacity hereunder. The
Remarketing Agent, in its individual capacity, either as principal or agent, may
also engage in or have an interest in any financial or other transaction with
the Company as freely as if it did not act in any capacity hereunder.
Section 6. Registration Statement and Prospectus. In connection with
the Remarketing, if and to the extent required (in the opinion of counsel for
either the Remarketing Agent or the Company) by applicable law, regulations or
interpretations in effect at the time of such Remarketing, the Company shall use
its reasonable efforts to have a registration statement relating to the Capital
Securities effective under the Securities Act of 1933 by the third Business Day
immediately preceding the Purchase Contract Settlement Date, shall furnish a
current prospectus and/or prospectus supplement to be used in such Remarketing
by the remarketing underwriter or underwriters under the Remarketing
Underwriting Agreement, and shall pay all expenses relating thereto.
Section 7. Conditions to the Remarketing Agent's Obligations. (a)
The obligations of the Remarketing Agent and any other remarketing underwriters
to purchase and remarket the Capital Securities or the Debentures, as the case
may be, shall be subject to the terms and conditions of the Remarketing
Underwriting Agreement.
(b) If at any time during the term of this Agreement, any Indenture
Event of Default or Declaration Event of Default, or event that with the passage
of time or the giving of notice or both would become an Indenture Event of
Default or Declaration Event of Default, has occurred and is continuing under
the Indenture or the Declaration, then the obligations and duties of the
Remarketing Agent under this Agreement shall be suspended until such default or
event has been
4
<PAGE> 4
cured. The Company will cause the Indenture Trustee and the Institutional
Trustee to give the Remarketing Agent notice of all such defaults and events of
which the Trustee is aware.
Section 8. Termination of Remarketing Agreement. This Agreement
shall terminate as to any Remarketing Agent which is replaced on the effective
date of its replacement pursuant to Section 4(a) hereof or pursuant to Section
4(b) hereof. Notwithstanding any such termination, the obligations set forth in
Section 3 hereof shall survive and remain in full force and effect until all
amounts payable under said Section 3 shall have been paid in full.
Section 9. Remarketing Agent's Performance; Duty of Care. The duties
and obligations of the Remarketing Agent hereunder shall be determined solely by
the express provisions of this Agreement and the Remarketing Underwriting
Agreement.
Section 10. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
Section 11. Term of Agreement. Unless otherwise terminated in
accordance with the provisions hereof and except as otherwise provided herein,
this Agreement shall remain in full force and effect from the date hereof until
the first day thereafter on which no Capital Securities are outstanding.
Section 12. Successors and Assigns. The rights and obligations of
the Company hereunder may not be assigned or delegated to any other person
without the prior written consent of the Remarketing Agent and/or as the Reset
Agent. The rights and obligations of the Remarketing Agent and/or as the Reset
Agent hereunder may not be assigned or delegated to any other person without the
prior written consent of the Company. This Agreement shall inure to the benefit
of and be binding upon the Company and the Remarketing Agent and/or as the Reset
Agent and their respective successors and assigns. The terms "successors" and
"assigns" shall not include any purchaser of Securities merely because of such
purchase.
Section 13. Headings. Section headings have been inserted in this
Agreement as a matter of convenience of reference only, and it is agreed that
such section headings are not a part of this Agreement and will not be used in
the interpretation of any provision of this Agreement.
Section 14. Severability. If any provision of this Agreement shall
be held or deemed to be or shall, in fact, be invalid, inoperative or
unenforceable as applied in any particular case in any or all jurisdictions
because it conflicts with any provisions of any constitution, statute, rule or
public policy or for any other reason, such circumstances shall not have the
effect of rendering the provision in question invalid, inoperative or
unenforceable in any other case, circum stances or jurisdiction, or of rendering
any other provision or provisions of this Agreement invalid, inoperative or
unenforceable to any extent whatsoever.
Section 15. Counterparts. This Agreement may be executed in
counterparts, each of which shall be regarded as an original and all of which
shall constitute one and the same document.
5
<PAGE> 5
Section 16. Amendments. This Agreement may be amended by any
instrument in writing signed by the parties hereto.
Section 17. Notices. Unless otherwise specified, any notices,
requests, consents or other communications given or made hereunder or pursuant
hereto shall be made in writing or transmitted by any standard form of
telecommunication, including telephone, telegraph or telecopy, and confirmed in
writing. All written notices and confirmations of notices by telecommunication
shall be deemed to have been validly given or made when delivered or mailed,
registered or certified mail, return receipt requested and postage prepaid. All
such notices, requests, consents or other communications shall be addressed as
follows: if to the Company, to Kaufman and Broad Home Corporation, 10990
Wilshire Blvd., Los Angeles, CA 90024, Attention: Chief Financial Officer, with
a copy to Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York,
NY 10022, Attention: Vincent J. Pisano; if to the Remarketing Agent or Reset
Agent (if Merrill Lynch & Co. is the Remarketing Agent or the Reset Agent), to
Merrill Lynch & Co. at 3300 Hillview Avenue, Suite 150, Palo Alto, CA
94304-1203, Attention: Mathew Pendo, Managing Director, with a copy to Brown &
Wood LLP, 555 California Street. Sam Francisco, CA 94104 Attention: Eric S.
Haueter; and if to the Purchase Contract Agent, to The First National Bank of
Chicago, Corporate Trust Services Division, One First National Plaza, Suite
0126, Chicago IL 60670-0126, or to such other address as any of the above shall
specify to the other in writing.
6
<PAGE> 6
IN WITNESS WHEREOF, each of the Company and the Remarketing Agent
has caused this Agreement to be executed in its name and on its behalf by one of
its duly authorized officers as of the date first above written.
KAUFMAN AND BROAD HOME CORPORATION
By:
-----------------------------------
Name:
Title:
KBHC FINANCING I
By:
-----------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: MERRILL LYNCH, PIERCE FENNER & SMITH
INCORPORATED
By:
------------------------------
Authorized Signatory
THE FIRST NATIONAL BANK OF CHICAGO
not individually but solely as Purchase Contract
Agent and as attorney-in-fact for the holders of
the Purchase Contracts
By:
-----------------------------------
Name:
Title:
<PAGE> 7
Exhibit A to
Remarketing Agreement
FORM OF REMARKETING UNDERWRITING AGREEMENT
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner, & Smith Incorporated
(the "Remarketing Underwriter") hereby agrees to purchase the Capital Securities
or, if a Tax Event Redemption has occurred prior to the Purchase Contract
Settlement Date, the Debentures (such Capital Securities or Debentures, as the
case may be, being hereinafter referred to as the "Securities"), that have been
tendered by the holders of the Income PRIDES for sale on _____ 16, 2001.
1. Definitions. Capitalized terms used and not defined in this Agreement
shall have the meanings assigned to them in the purchase contract agreement (the
"Purchase Contract Agreement"), the pledge agreement (the "Pledge Agreement"),
the underwriting agreement (the "Underwriting Agreement"), the amended and
restated declaration of trust (the "Declaration") and the indenture (the
"Indenture"), each as identified in Schedule I hereto.
2. Registration Statement and Prospectus. If required (in the opinion of
counsel to either the Remarketing Underwriter or the Company) by applicable law,
the Company and the Trust have filed with the Securities and Exchange
Commission, and there has become effective, a registration statement on Form S-3
(Nos. 333-51825 and 333-51825-01), including a prospectus, relating to the
Securities. Such registration statement, as amended to the date of this
Agreement, is hereinafter referred to as the "Registration Statement", the
prospectus included in the Registration Statement is hereinafter referred to as
the "Basic Prospectus" and the Basic Prospectus, as amended or supple mented to
the date of this Agreement to relate to the Securities and to the remarketing of
the Securities, is hereinafter referred to as the "Final Prospectus" (including
in each case all documents incorporated by reference).
3. Provisions Incorporated by Reference.
(a) Subject to Section 3(b), the provisions of the Underwriting
Agreement shall be incorporated, as applicable into this Agreement and made
applicable to the obligations of the Remarketing Underwriter, except as
explicitly amended hereby.
(b) With respect to the provisions of the Underwriting Agreement
incorporated herein, for the purposes hereof, (i) all references therein to the
"Underwriter" or "Underwriters" or the "Representative" or "Representatives", as
the case may be, shall be deemed to refer to the Remarketing Underwriter; (ii)
all references therein to the "Securities" which are the subject thereof shall
be deemed to refer to the Securities as defined herein; (iii) all references
therein to the "Closing Date" shall be deemed to refer to the Remarketing
Closing Date specified in Schedule I hereto (the "Remarketing Closing Date");
(iv) all references therein to the "Registration Statement" the "Basic
Prospectus" and the "Final Prospectus" shall be deemed to refer to the
Registration Statement, the Basic Prospectus and the Final Prospectus,
respectively, as defined herein.
4. Purchase and Sale; Remarketing Underwriting Fee. Subject to the terms
and conditions and in reliance upon the representations and warranties herein
set forth or incorporated
<PAGE> 8
herein, the Remarketing Underwriter agrees to purchase from the registered
holder or holders thereof in the manner specified in Section 5 hereof, the
principal amount of Securities set forth in Schedule I hereto at a purchase
price not less than 100% of such Securities, aggregate stated liquidation amount
or aggregate principal amount, as the case may be, plus any accrued and unpaid
distributions or interest, as applicable, thereon. In connection therewith, the
registered holder or holders thereof agree, in the manner specified in Section 5
hereof, to pay to the Remarketing Underwriter a Remarketing underwrit ing Fee
equal to an amount not exceeding 25 basis points (.25%), from any amount
received in connection from such Remarketing in excess of the aggregate stated
liquidation amount or aggregate principal amount, as the case may be, of the
Securities. The right of each holder of Securities to have Securities tendered
for purchase shall be limited to the extent that (i) the Remarketing Agent
conducts a remarketing pursuant to the terms of the Remarketing Agreement, (ii)
Securities tendered have not been called for redemption, (iii) the Remarketing
Agent is able to find a purchaser or purchasers for tendered Securities and (iv)
such purchaser or purchasers deliver the purchase price therefor to the
Remarketing Agent. The Remarketing Agent is not obligated to purchase any
Securities that would otherwise remain unsold in a remarketing. Neither the
Trust, any Trustee, the Sponsor nor the Remarketing Agent shall be obligated in
any case to provide funds to make payment upon tender of Securities for
remarketing.
5. Delivery and Payment. Delivery of payment for the remarketed Securities
and payment of the Remarketing Underwriting Fee shall be made on the Remarketing
Closing Date at the location and time specified in Schedule I hereto (or such
later date not later than five business days after such date as the Remarketing
representatives shall designate), which date and time may be postponed by
agreement between the Remarketing Underwriter, the Company, the Trust and the
[registered holder or holders thereof]. Delivery of the remarketed Securities
and payment of the Remarketing [Underwriting] Fee shall be made to the
Remarketing Underwriter [to or upon the order of the [registered holder or
holders of the Remarketed Securities] by certified or official bank check or
checks drawn on or by a New York Clearing House bank and payable in immediately
available funds] [in immediately available funds by wire transfer to an account
or accounts designated by the [Com pany] [Trustee] [registered holder or holders
of the remarketed Securities]] or, if the remarketed Securities are represented
by a Global Security, by any method of transfer agreed upon by the Remarketing
Underwriter and the Depositary for the Securities under the Declaration or
Indenture, as applicable.
[It is understood that any registered holder or, if the Securities are
represented by a Global Security, any beneficial owner, that has an account at
the Remarketing Underwriter and tenders its Securities through such account will
not be required to pay any fee or commission to the Remarketing Underwriter.]
If the Securities are not represented by a Global Security, certificates
for the Securities shall be registered in such names and denominations as the
Remarking Representatives may request not less than three full business days in
advance of the Remarketing Closing Date, and the Company, the Trust and the
[registered holder or holders thereof] agree to have such certificates available
for inspection, packaging and checking by the Remarketing Underwriter in New
York, New York not later than 1:00 p.m. on the Business Day prior to the
Remarketing Closing Date.
6. Notices. Unless otherwise specified, any notices, requests, consents or
other communications given or made hereunder or pursuant hereto shall be made in
writing or transmitted by
A-2
<PAGE> 9
any standard form of telecommunication, including telephone, telegraph or
telecopy, and confirmed in writing. All written notices and confirmations of
notices by telecommunication shall be deemed to have been validly given or made
when delivered or mailed, registered or certified mail, return receipt requested
and postage prepaid. All such notices, requests, consents or other
communications shall be addressed as follows: if to the Company, to Kaufman and
Broad Home Corporation, 10990 Wilshire Blvd., Los Angeles, CA 90024, Attention:
Chief Financial Officer, with a copy to Skadden, Arps, Slate, Meagher & Flom
LLP, 919 Third Avenue, New York, NY 10022, Attention: Vincent J. Pisano; if to
the Remarketing Agent or Reset Agent (if Merrill Lynch & Co. is the Remarketing
Agent or the Reset Agent), to Merrill Lynch & Co. at 3300 Hillview Avenue, Suite
150, Palo Alto, CA 94304-1203, Attention: Mathew Pendo, Managing Director, with
a copy to Brown & Wood LLP, 555 California Street, San Francisco, CA 94104,
Attention: Eric S. Haueter; and if to the Purchase Contract Agent, to The First
National Bank of Chicago, Corporate Trust Services Division, One First National
Plaza, Suite 0126, Chicago IL 60670-0126, or to such other address as any of the
above shall specify to the other in writing.
A-3
<PAGE> 10
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement among the
Company and the several Remarketing Underwriters.
Verly truly yours,
KAUFMAN AND BROAD HOME CORPORATION
By:
-----------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: MERRILL LYNCH, PIERCE FENNER & SMITH
INCORPORATED
By:
------------------------------
Authorized Signatory
THE FIRST NATIONAL BANK OF CHICAGO
not individually but solely as Purchase Contract
Agent and as attorney-in-fact for the holders of
the Purchase Contracts
By:
-----------------------------------
Name:
Title:
A-4
<PAGE> 11
SCHEDULE I
Purchase Contract Agreement, dated as of
__________ , 1998 by and between
Kaufman and Broad Home Corporation, a Delaware corporation, and
The First National Bank of Chicago, a national banking
association
Pledge Agreement dated as of _______, 1998
by and between Kaufman and Broad Home
Corporation, a Delaware corporation,
The First National Bank of Chicago,
a national banking association, and
The Bank of New York
Amended and Restated Declaration of Trust dated as
of ________ , 1998 of KBHC Financing I,
a Delaware business trust
Indenture dated as of __________ , 1998
by and between Kaufman and Broad Home Corporation, a Delaware
corporation, and The First National Bank of Chicago
First Supplemental Indenture, dated as of _________,
1998 by and between Kaufman and Broad Home Corporation, a Delaware
corporation, and The First National Bank of Chicago
Registration Statement Nos. 333-51825 and 333-51825-01
Principal Amount of Securities: $__________
Underwriting Agreement, dated as of ___________ , 1998, among KBHC Financing I,
and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
Remarketing [Underwriting] Fee: % ($ )
Remarketing Closing Date, Time and Location:
A-5
<PAGE> 1
Exhibit 8.1
June 12, 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 12, 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
(3) 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
<PAGE> 3
Kaufman and Broad Home Corporation
June 12, 1998
Page 3
opinion, such discussion constitutes, in all material respects, a
fair 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 in connection with the 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 Matters" 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 12
STATEMENT OF COMPUTATION OF RATIO OF
EARNINGS TO FIXED CHARGES
(In thousands, except ratios)
<TABLE>
<CAPTION>
Three Months
Ended
February 28, Years Ended November 30,
-------------- ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings
Pretax Income (Loss) ...... $12,698 $ 6,944 $ 91,030 $(95,744) $ 45,459 $ 73,850 $ 64,321
Less undistributed income
of unconsolidated joint
ventures ................ 62 39 -- -- -- -- --
------- ------- -------- -------- -------- -------- --------
Pretax income as adjusted $12,760 $ 6,983 $ 91,030 $(95,744) $ 45,459 $ 73,850 $ 64,321
Add:
Interest incurred ....... 14,144 14,514 59,438 72,074 73,008 54,425 50,963
Portion of rent expenses
considered to be
interest .............. 1,682 1,212 5,758 3,830 3,190 2,971 2,665
Amortization of
previously capitalized
interest .............. 6,925 5,742 25,480 24,893 18,508 16,156 17,617
Deduct:
Interest capitalized .... (5,216) (4,777) (22,639) (26,937) (37,128) (27,561) (24,432)
------- ------- -------- -------- -------- -------- --------
$30,295 $23,674 $159,067 $(21,884) $103,037 $119,841 $111,134
======= ======= ======== ======== ======== ======== ========
Fixed Charges:
Interest incurred ....... $14,144 $14,514 $ 59,438 $ 73,074 $ 73,008 $ 54,425 $ 50,963
Portion of rent expenses
considered to be
interest ............... 1,682 1,212 5,758 3,830 3,190 2,971 2,665
------- ------- -------- -------- -------- -------- --------
$15,826 $15,726 $ 65,196 $ 75,904 $ 76,198 $ 57,396 $ 53,628
------- ------- -------- -------- -------- -------- --------
Ratio of earnings to fixed
charges ................... 1.91x 1.51x 2.44x (0.29x) 1.35x 2.09x 2.07x
======= ======= ======= ======== ======== ======== ========
</TABLE>
For purposes of calculating the ratio of earnings to fixed charges,
earnings are computed by adding fixed charges (except capitalized interest and
the effect of preferred 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.
In computing the ratio of earnings to fixed charges, 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
<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 12, 1998
<PAGE> 1
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)
THE FIRST NATIONAL BANK OF CHICAGO
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
A NATIONAL BANKING ASSOCIATION 36-0899825
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
ONE FIRST NATIONAL PLAZA, CHICAGO, ILLINOIS 60670-0126
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
THE FIRST NATIONAL BANK OF CHICAGO
ONE FIRST NATIONAL PLAZA, SUITE 0286
CHICAGO, ILLINOIS 60670-0286
ATTN: LYNN A. GOLDSTEIN, LAW DEPARTMENT (312) 732-6919
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
KAUFMAN AND BROAD HOME CORPORATION
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-3666267
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
10990 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
DEBENTURES
(TITLE OF INDENTURE SECURITIES)
<PAGE> 2
ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING
INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR
SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT.
Comptroller of the Currency, Washington, D.C., Federal Deposit
Insurance Corporation, Washington, D.C., The Board of
Governors of the Federal Reserve System, Washington D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE
CORPORATE TRUST POWERS.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR
IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
No such affiliation exists with the trustee.
ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART
OF THIS STATEMENT OF ELIGIBILITY.
1. A copy of the articles of association of the
trustee now in effect.*
2. A copy of the certificates of authority of the trustee to
commence business.*
3. A copy of the authorization of the trustee to exercise
corporate trust powers.*
4. A copy of the existing by-laws of the trustee.*
5. Not Applicable.
6. The consent of the trustee required by Section 321(b) of
the Act.
2
<PAGE> 3
7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.
8. Not Applicable.
9. Not Applicable.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, The First National Bank of Chicago, a national
banking association organized and existing under the laws of the United
States of America, has duly caused this Statement of Eligibility to be
signed on its behalf by the undersigned, thereunto duly authorized, all
in the City of Chicago and State of Illinois, on the 4th day of May,
1998.
THE FIRST NATIONAL BANK OF CHICAGO,
TRUSTEE
By /s/ John R. Prendiville
----------------------------------
John R. Prendiville
Vice President
* Exhibit 1, 2, 3 and 4 are herein incorporated by reference to Exhibits bearing
identical numbers in Item 16 of the Form T-1 of The First National Bank of
Chicago, filed as Exhibit 25.1 to the Registration Statement on Form S-3 of
SunAmerica Inc., filed with the Securities and Exchange Commission on October
25, 1996 (Registration No. 333-14201).
3
<PAGE> 4
EXHIBIT 6
THE CONSENT OF THE TRUSTEE REQUIRED
BY SECTION 321(b) OF THE ACT
May 4, 1998
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In connection with the qualification of an indenture of Kaufman and Broad Home
Corporation, the undersigned, in accordance with Section 321(b) of the Trust
Indenture Act of 1939, as amended, hereby consents that the reports of
examinations of the undersigned, made by Federal or State authorities authorized
to make such examinations, may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ John R. Prendiville
----------------------------------------
John R. Prendiville
Vice President
4
<PAGE> 5
<TABLE>
<CAPTION>
EXHIBIT 7
<S> <C> <C>
Legal Title of Bank: The First National Bank of Chicago Call Date: 12/31/97 ST-BK: 17-1630 FFIEC 031
Address: One First National Plaza, Ste 0303 Page RC-1
City, State Zip: Chicago, IL 60670
FDIC Certificate No.: 0/3/6/1/8
</TABLE>
Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for December 31,1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
Schedule RC-Balance Sheet
<TABLE>
<CAPTION>
DOLLAR AMOUNTS IN C400
THOUSANDS RCFD BIL MIL THOU
--------- ---- ------------
<S> <C> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A):
a. Noninterest-bearing balances and currency and coin(1). 0081 4,267,336 1.a.
b. Interest-bearing balances(2)......................... 0071 6,893,837 1.b.
2. Securities
a. Held-to-maturity securities(from Schedule RC-B, column A) 1754 0 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D)..... 1773 5,691,722 2.b.
3. Federal funds sold and securities purchased under agreements to
resell 1350 6,339,940 3.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule
RC-C)................................................... RCFD 2122 25,202,984 4.a.
b. LESS: Allowance for loan and lease losses............ RCFD 3123 419,121 4.b.
c. LESS: Allocated transfer risk reserve................ RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income, allowance, and
reserve (item 4.a minus 4.b and 4.c)................. 2125 24,783,863 4.d.
5. Trading assets (from Schedule RD-D)..................... 3545 6,703,332 5.
6. Premises and fixed assets (including capitalized leases) 2145 743,426 6.
7. Other real estate owned (from Schedule RC-M) 2150 7,727 7.
8. Investments in unconsolidated subsidiaries and associated
companies (from Schedule RC-M).......................... 2130 134,959 8.
9. Customers' liability to this bank on acceptances outstanding 2155 644,340 9.
10. Intangible assets (from Schedule RC-M).................. 2143 268,501 10.
11. Other assets (from Schedule RC-F)....................... 2160 2,004,432 11.
12. Total assets (sum of items 1 through 11)................ 2170 58,483,415 12.
</TABLE>
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 6
<TABLE>
<S> <C> <C>
Legal Title of Bank: The First National Bank of Chicago Call Date: 09/30/97 ST-BK: 17-1630 FFIEC 031
Address: One First National Plaza, Ste 0303 Page RC-2
City, State Zip: Chicago, IL 60670
FDIC Certificate No.: 0/3/6/1/8
</TABLE>
Schedule RC-Continued
<TABLE>
<CAPTION>
Dollar Amounts in
Thousands Bil Mil Thou
--------- ------------
<S> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C .........
from Schedule RC-E, part 1).................................... RCON 2200 21,756,846 13.a
(1) Noninterest-bearing(1)..................................... RCON 6631 9,197,227 13.a.1
(2) Interest-bearing........................................... RCON 6636 559,619 13.a.2
b. In foreign offices, Edge and Agreement subsidiaries, and
IBFs (from Schedule RC-E, part II)............................. RCFN 2200 14,811,410 13.b.
(1) Noninterest bearing........................................ RCFN 6631 332,801 13.b.1
(2) Interest-bearing........................................... RCFN 6636 14,478,609 13.b.2
14. Federal funds purchased and securities sold under agreements
to repurchase: ................................................... RCFD 2800 4,535,42214
15. a. Demand notes issued to the U.S. Treasury ................. RCON 2840 43,763 15.a
b. Trading Liabilities(from Schedule RC-D).............. ......... RCFD 3548 6,523,239 15.b
16. Other borrowed money: .......................................
a. With a remaining maturity of one year or less ................ RCFD 2332 1,360,165 16.a
b. With a remaining maturity of than one year through three years. A547 576,492 16.b
. c. With a remaining maturity of more than three years ...... A548 703,981 16.c
17. Not applicable ..............................................
18. Bank's liability on acceptance executed and outstanding ..... RCFD 2920 644,341 18
19. Subordinated notes and debentures (2) ....................... RCFD 3200 1,700,000 19
20. Other liabilities (from Schedule RC-G) ...................... RCFD 2930 1,322,077 20
21. Total liabilities (sum of items 13 through 20) .............. RCFD 2948 53,987,736 21
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus ............... RCFD 3838 0 23
24.Common stock....................................................... RCFD 3230 200,858 24
25. Surplus (exclude all surplus related to preferred stock) .... RCFD 3839 2,999,001 25
26. a. Undivided profits and capital reserves ........................ RCFD 3632 1,273,239 26.a.
b. Net unrealized holding gains (losses) on available-for-sale
securities.................................................... RCFD 8434 24,096 26.b.
27. Cumulative foreign currency translation adjustments ......... RCFD 3284 (1,515) 27
28. Total equity capital (sum of items 23 through 27) ........... RCFD 3210 4,495,679 28
29. Total liabilities and equity capital (sum of items 21 and 28). RCFD 3300 58,483,415 29
</TABLE>
Memorandum
To be reported only with the March Report of
Condition.
1. Indicate in the box at the right the number of the statement below that best
describes the most comprehensive level of auditing work performed for the bank
by independent external Number auditors as of any date
during 1996 ..............................RCFD 6724 N/A N/A M.1
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified
public accounting firm which statements by external submits a report on
the consolidated holding company (but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with
generally accepted auditing standards by a certified public accounting
firm (may be required by state chartering authority)
4. = Directors' examination of the bank performed by other external
auditors (may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
- ---------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
6
<PAGE> 1
Exhibit 25.2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)
THE FIRST NATIONAL BANK OF CHICAGO
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
A NATIONAL BANKING ASSOCIATION 36-0899825
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
ONE FIRST NATIONAL PLAZA, CHICAGO, ILLINOIS 60670-0126
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
THE FIRST NATIONAL BANK OF CHICAGO
ONE FIRST NATIONAL PLAZA, SUITE 0286
CHICAGO, ILLINOIS 60670-0286
ATTN: LYNN A. GOLDSTEIN, LAW DEPARTMENT (312) 732-6919
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
KBHC FINANCING I
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS TRUST AGREEMENT)
DELAWARE APPLIED FOR
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
10990 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
CAPITAL SECURITIES OF KBHC FINANCING I
(TITLE OF INDENTURE SECURITIES)
<PAGE> 2
ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO
THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING
AUTHORITY TO WHICH IT IS SUBJECT.
Comptroller of the Currency, Washington, D.C., Federal Deposit
Insurance Corporation, Washington, D.C., The Board of
Governors of the Federal Reserve System, Washington D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST
POWERS.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE
OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION.
No such affiliation exists with the trustee.
ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART OF
THIS STATEMENT OF ELIGIBILITY.
1. A copy of the articles of association of the trustee now
in effect.*
2. A copy of the certificates of authority of the trustee to
commence business.*
3. A copy of the authorization of the trustee to exercise
corporate trust powers.*
4. A copy of the existing by-laws of the trustee.*
5. Not Applicable.
6. The consent of the trustee required by Section 321(b) of
the Act.
2
<PAGE> 3
7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.
8. Not Applicable.
9. Not Applicable.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, The First National Bank of Chicago, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this Statement of Eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of Chicago
and State of Illinois, on the 4th day of May, 1998.
THE FIRST NATIONAL BANK OF CHICAGO,
TRUSTEE
BY /s/ John R. Prendiville
----------------------------------------------
JOHN R. PRENDIVILLE
VICE PRESIDENT
* EXHIBIT 1, 2, 3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS BEARING
IDENTICAL NUMBERS IN ITEM 16 OF THE FORM T-1 OF THE FIRST NATIONAL BANK OF
CHICAGO, FILED AS EXHIBIT 25.1 TO THE REGISTRATION STATEMENT ON FORM S-3 OF
SUNAMERICA INC., FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER
25, 1996 (REGISTRATION NO. 333-14201).
3
<PAGE> 4
EXHIBIT 6
THE CONSENT OF THE TRUSTEE REQUIRED
BY SECTION 321(b) OF THE ACT
May 4, 1998
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In connection with the qualification of the Amended and Restated Declaration of
Trust of KBHC Financing I, the undersigned, in accordance with Section 321(b) of
the Trust Indenture Act of 1939, as amended, hereby consents that the reports of
examinations of the undersigned, made by Federal or State authorities authorized
to make such examinations, may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO
BY: /s/ John R. Prendiville
------------------------------------------
JOHN R. PRENDIVILLE
VICE PRESIDENT
4
<PAGE> 5
EXHIBIT 7
LEGAL TITLE OF BANK: THE FIRST NATIONAL BANK OF CHICAGO
ADDRESS: ONE FIRST NATIONAL PLAZA, STE 0303
CITY, STATE ZIP: CHICAGO, IL 60670
FDIC CERTIFICATE NO.: 0/3/6/1/8
CALL DATE: 12/31/97 ST-BK: 17-1630 FFIEC 031
PAGE RC-1
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED
SAVINGS BANKS FOR DECEMBER 31,1997
ALL SCHEDULES ARE TO BE REPORTED IN THOUSANDS OF DOLLARS. UNLESS OTHERWISE
INDICATED, REPORT THE AMOUNT OUTSTANDING AS OF THE LAST BUSINESS DAY OF THE
QUARTER.
SCHEDULE RC-BALANCE SHEET
<TABLE>
<CAPTION>
DOLLAR AMOUNTS IN C400
THOUSANDS RCFD BIL MIL THOU
--------- ---- ------------
<S> <C> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule RC-A):
a. Noninterest-bearing balances and currency and coin(1) ............. 0081 4,267,336 1.a.
b. Interest-bearing balances(2) ...................................... 0071 6,893,837 1.b.
2. Securities
a. Held-to-maturity securities(from Schedule RC-B, column A) ......... 1754 0 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D) ...... 1773 5,691,722 2.b.
3. Federal funds sold and securities purchased under agreements to
resell ............................................................... 1350 6,339,940 3.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule
RC-C) ............................................................. RCFD 2122 25,202,984 4.a.
b. LESS: Allowance for loan and lease losses ......................... RCFD 3123 419,121 4.b.
c. LESS: Allocated transfer risk reserve ............................. RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income, allowance, and
reserve (item 4.a minus 4.b and 4.c) .............................. 2125 24,783,863 4.d.
5. Trading assets (from Schedule RD-D) .................................. 3545 6,703,332 5.
6. Premises and fixed assets (including capitalized leases) ............. 2145 743,426 6.
7. Other real estate owned (from Schedule RC-M) ......................... 2150 7,727 7.
8. Investments in unconsolidated subsidiaries and associated
companies (from Schedule RC-M) ....................................... 2130 134,959 8.
9. Customers' liability to this bank on acceptances outstanding ......... 2155 644,340 9.
10. Intangible assets (from Schedule RC-M) ............................... 2143 268,501 10.
11. Other assets (from Schedule RC-F) .................................... 2160 2,004,432 11.
12. Total assets (sum of items 1 through 11) ............................. 2170 58,483,415 12.
</TABLE>
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 6
LEGAL TITLE OF BANK: THE FIRST NATIONAL BANK OF CHICAGO
ADDRESS: ONE FIRST NATIONAL PLAZA, STE 0303
CITY, STATE ZIP: CHICAGO, IL 60670
FDIC CERTIFICATE NO.: 0/3/6/1/8
CALL DATE: 09/30/97 ST-BK: 17-1630 FFIEC 031
PAGE RC-2
SCHEDULE RC-CONTINUED
<TABLE>
<CAPTION>
DOLLAR AMOUNTS IN
THOUSANDS BIL MIL THOU
--------- ------------
<S> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C
from Schedule RC-E, part 1) ....................................... RCON 2200 21,756,846 13.a
(1) Noninterest-bearing(1) ........................................ RCON 6631 9,197,227 13.a.1
(2) Interest-bearing .............................................. RCON 6636 559,619 13.a.2
b. In foreign offices, Edge and Agreement subsidiaries, and
IBFs (from Schedule RC-E, part II) ................................ RCFN 2200 14,811,410 13.b.
(1) Noninterest bearing ........................................... RCFN 6631 332,801 13.b.1
(2) Interest-bearing .............................................. RCFN 6636 14,478,609 13.b.2
14. Federal funds purchased and securities sold under agreements
to repurchase: ....................................................... RCFD 2800 4,535,422 14
15. a. Demand notes issued to the U.S. Treasury .......................... RCON 2840 43,763 15.a
b. Trading Liabilities(from Schedule RC-D) ........................... RCFD 3548 6,523,239 15.b
16. Other borrowed money:
a. With a remaining maturity of one year or less .................... RCFD 2332 1,360,165 16.a
b. With a remaining maturity of than one year through three years A547 576,492 16.b
. c. With a remaining maturity of more than three years A548 703,981 16.c
17. Not applicable
18. Bank's liability on acceptance executed and outstanding .............. RCFD 2920 644,341 18
19. Subordinated notes and debentures (2) ................................ RCFD 3200 1,700,000 19
20. Other liabilities (from Schedule RC-G) ............................... RCFD 2930 1,322,077 20
21. Total liabilities (sum of items 13 through 20) ....................... RCFD 2948 53,987,736 21
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus ........................ RCFD 3838 0 23
24. Common stock............................. ............................ RCFD 3230 200,858 24
25. Surplus (exclude all surplus related to preferred stock) ............. RCFD 3839 2,999,001 25
26. a. Undivided profits and capital reserves ............................ RCFD 3632 1,273,239 26.a.
b. Net unrealized holding gains (losses) on available-for-sale
securities............................. ........................... RCFD 8434 24,096 26.b.
27. Cumulative foreign currency translation adjustments .................. RCFD 3284 (1,515) 27
28. Total equity capital (sum of items 23 through 27) .................... RCFD 3210 4,495,679 28
29. Total liabilities and equity capital (sum of items 21 and 28) ........ RCFD 3300 58,483,415 29
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below
that best describes the most comprehensive level of auditing work
performed for the bank by independent external Number auditors
as of any date during 1996 RCFD 6724 N/A M.1
</TABLE>
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4.= Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
<PAGE> 1
Exhibit 25.3
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)
THE FIRST NATIONAL BANK OF CHICAGO
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
A NATIONAL BANKING ASSOCIATION 36-0899825
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
ONE FIRST NATIONAL PLAZA, CHICAGO, ILLINOIS 60670-0126
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
THE FIRST NATIONAL BANK OF CHICAGO
ONE FIRST NATIONAL PLAZA, SUITE 0286
CHICAGO, ILLINOIS 60670-0286
ATTN: LYNN A. GOLDSTEIN, LAW DEPARTMENT (312) 732-6919
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
KAUFMAN AND BROAD HOME CORPORATION
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-3666267
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
10990 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
GUARANTEE OF CAPITAL SECURITIES OF KBHC FINANCING I
(TITLE OF INDENTURE SECURITIES)
<PAGE> 2
ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING
INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO
WHICH IT IS SUBJECT.
Comptroller of the Currency, Washington, D.C., Federal Deposit
Insurance Corporation, Washington, D.C., The Board of Governors of
the Federal Reserve System, Washington D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR
IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH
SUCH AFFILIATION.
No such affiliation exists with the trustee.
ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART OF
THIS STATEMENT OF ELIGIBILITY.
1. A copy of the articles of association of the
trustee now in effect.*
2. A copy of the certificates of authority of the trustee to
commence business.*
3. A copy of the authorization of the trustee to exercise corporate
trust powers.*
4. A copy of the existing by-laws of the trustee.*
5. Not Applicable.
6. The consent of the trustee required by Section 321(b) of the Act.
2
<PAGE> 3
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or
examining authority.
8. Not Applicable.
9. Not Applicable.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, The First National Bank of Chicago, a national
banking association organized and existing under the laws of the United
States of America, has duly caused this Statement of Eligibility to be
signed on its behalf by the undersigned, thereunto duly authorized, all in
the City of Chicago and State of Illinois, on the 4th day of May, 1998.
THE FIRST NATIONAL BANK OF CHICAGO,
TRUSTEE
By /s/ John R. Prendiville
--------------------------------------
John R. Prendiville
Vice President
* EXHIBIT 1, 2, 3 AND 4 ARE HEREIN INCORPORATED BY REFERENCE TO EXHIBITS BEARING
IDENTICAL NUMBERS IN ITEM 16 OF THE FORM T-1 OF THE FIRST NATIONAL BANK OF
CHICAGO, FILED AS EXHIBIT 25.1 TO THE REGISTRATION STATEMENT ON FORM S-3 OF
SUNAMERICA INC., FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER
25, 1996 (REGISTRATION NO. 333-14201).
3
<PAGE> 4
EXHIBIT 6
THE CONSENT OF THE TRUSTEE REQUIRED
BY SECTION 321(b) OF THE ACT
May 4, 1998
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In connection with the qualification of a Guarantee Agreement of Kaufman and
Broad Home Corporation with respect to the Capital Securities of KBHC Financing
I, the undersigned, in accordance with Section 321(b) of the Trust Indenture Act
of 1939, as amended, hereby consents that the reports of examinations of the
undersigned, made by Federal or State authorities authorized to make such
examinations, may be furnished by such authorities to the Securities and
Exchange Commission upon its request therefor.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ John R. Prendiville
----------------------------------
John R. Prendiville
Vice President
4
<PAGE> 5
EXHIBIT 7
<TABLE>
<S> <C> <C>
LEGAL TITLE OF BANK: THE FIRST NATIONAL BANK OF CHICAGO CALL DATE: 12/31/97 ST-BK: 17-1630 FFIEC 031
ADDRESS: ONE FIRST NATIONAL PLAZA, STE 0303 PAGE RC-1
CITY, STATE ZIP: CHICAGO, IL 60670
FDIC CERTIFICATE NO.: 0/3/6/1/8
</TABLE>
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR DECEMBER 31,1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC-BALANCE SHEET
<TABLE>
<CAPTION>
DOLLAR AMOUNTS IN C400
THOUSANDS RCFD BIL MIL THOU
--------- ------ --------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
1. Cash and balances due from depository
institutions (from Schedule RC-A):
a. Noninterest-bearing balances and
currency and coin(1) ........................ 0081 4,267,336 1.a.
b. Interest-bearing balances(2) ................ 0071 6,893,837 1.b.
2. Securities
a. Held-to-maturity securities(from
Schedule RC-B, column A) .................... 1754 0 2.a.
b. Available-for-sale securities
(from Schedule RC-B, column D) .............. 1773 5,691,722 2.b.
3. Federal funds sold and securities
purchased under agreements to resell ........ 1350 6,339,940 3.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income
(from Schedule RC-C) ........................ RCFD 2122 25,202,984 4.a.
b. LESS: Allowance for loan and lease losses ... RCFD 3123 419,121 4.b.
c. LESS: Allocated transfer risk reserve ....... RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income,
allowance, and reserve (item 4.a minus 4.b
and 4.c) 2125 24,783,863 4.d.
5. Trading assets (from Schedule RD-D). ........ 3545 6,703,332 5.
6. Premises and fixed assets (including ........
capitalized leases) 2145 743,426 6.
7. Other real estate owned (from Schedule RC-M) 2150 7,727 7.
8. Investments in unconsolidated subsidiaries ..
and associated companies (from Schedule RC-M) 2130 134,959 8.
9. Customers' liability to this bank on
acceptances outstanding ..................... 2155 644,340 9.
10. Intangible assets (from Schedule RC-M) ...... 2143 268,501 10.
11. Other assets (from Schedule RC-F) ........... 2160 2,004,432 11.
12. Total assets (sum of items 1 through 11) .... 2170 58,483,415 12.
</TABLE>
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 6
<TABLE>
<S> <C> <C>
LEGAL TITLE OF BANK: THE FIRST NATIONAL BANK OF CHICAGO CALL DATE: 09/30/97 ST-BK: 17-1630 FFIEC 031
ADDRESS: ONE FIRST NATIONAL PLAZA, STE 0303 PAGE RC-2
CITY, STATE ZIP: CHICAGO, IL 60670
FDIC CERTIFICATE NO.: 0/3/6/1/8
</TABLE>
SCHEDULE RC-CONTINUED
<TABLE>
<CAPTION>
DOLLAR
AMOUNTS IN
THOUSANDS BIL MIL THOU
--------- --------------------------------------
<S> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C
from Schedule RC-E, part 1) RCON 2200 21,756,846 13.a
(1) Noninterest-bearing(1) RCON 6631 9,197,227 13.a.1
(2) Interest-bearing.... RCON 6636 559,619 13.a.2
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from
Schedule RC-E, part II) RCFN 2200 14,811,410 13.b.
(1) Noninterest bearing. RCFN 6631 332,801 13.b.1
(2) Interest-bearing.... RCFN 6636 14,478,609 13.b.2
14. Federal funds purchased and securities sold under agreements
to repurchase: RCFD 2800 4,535,422 14
15. a. Demand notes issued to the U.S. Treasury RCON 2840 43,763 15.a
b. Trading Liabilities(from Schedule RC-D) RCFD 3548 6,523,239 15.b
16. Other borrowed money:
a. With a remaining maturity of one year or less RCFD 2332 1,360,165 16.a
b. With a remaining maturity of than one year through three years A547 576,492 16.b
c. With a remaining maturity of more than three years A548 703,981 16.c
17. Not applicable
18. Bank's liability on acceptance executed and outstanding RCFD 2920 644,341 18
19. Subordinated notes and debentures (2) RCFD 3200 1,700,000 19
20. Other liabilities (from Schedule RC-G) RCFD 2930 1,322,077 20
21. Total liabilities (sum of items 13 through 20) RCFD 2948 53,987,736 21
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus RCFD 3838 0 23
24. Common stock............... RCFD 3230 200,858 24
25. Surplus (exclude all surplus related to preferred stock) RCFD 3839 2,999,001 25
26. a. Undivided profits and capital reserves RCFD 3632 1,273,239 26.a.
b. Net unrealized holding gains (losses) on available-for-sale
securities RCFD 8434 24,096 26.b.
27. Cumulative foreign currency translation adjustments RCFD 3284 (1,515) 27
28. Total equity capital (sum of items 23 through 27) RCFD 3210 4,495,679 28
29. Total liabilities and equity capital (sum of items 21 and 28) RCFD 3300 58,483,415 29
</TABLE>
MEMORANDUM
To be reported only with the March Report of Condition.
<TABLE>
<S> <C> <C>
1. Indicate in the box at the right the number of the statement below that best
describes the most comprehensive level of auditing work performed for the bank Number
by independent external auditors as of any date during 1996 . . . . . . . . . . . . . . FD 6724 . . . . . M.1
</TABLE>
- -----------------
N/A
- -----------------
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified
public accounting firm which submits a report on the consolidated
holding company (but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with
generally accepted auditing standards by a certified public accounting
firm (may be required by state chartering authority)
4. = Directors' examination of the bank performed by other external auditors
(may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus.
