<PAGE> 1
PROSPECTUS
LOGO(R)
2,000,000 PREFERRED SECURITIES
FINOVA FINANCE TRUST
5 1/2% CONVERTIBLE TRUST ORIGINATED PREFERRED
SECURITIES(SM) ("CONVERTIBLE TOPRS(SM)")
(LIQUIDATION AMOUNT $50 PER PREFERRED SECURITY)
GUARANTEED BY, AND EXCHANGEABLE UPON CERTAIN EVENTS
INTO 5 1/2% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2016
OF, IN EACH CASE TO THE EXTENT SET FORTH HEREIN,
AND CONVERTIBLE INTO COMMON STOCK OF,
THE FINOVA GROUP INC.(R)
------------------------
The 5 1/2% Convertible Trust Originated Preferred Securities(SM) (the
"Convertible TOPrS (SM)" or "Preferred Securities") offered hereby represent
preferred undivided beneficial interests in the assets of FINOVA Finance Trust,
a statutory business trust formed under the laws of the State of Delaware (the
"Trust"). The FINOVA Group Inc., a Delaware corporation (the "Company"), will
directly or indirectly own all the common securities (the "Common Securities"
and, together with the Preferred Securities, the "Trust Securities")
representing undivided beneficial interests in the assets of the Trust. Upon an
event of a default under the Declaration (as defined herein), the holders of
Preferred Securities will have a preference over the holders of the Common
Securities with respect to distributions and payments upon redemption,
liquidation and otherwise. The Trust exists for the sole purpose of issuing the
Trust Securities and investing the proceeds thereof in an equivalent amount of
5 1/2% Convertible Subordinated Debentures due 2016 (the "Convertible
Debentures") of the Company. The Preferred Securities have no maturity date,
although they are subject to mandatory redemption upon the repayment at maturity
of the Convertible Debentures as described below.
Each Preferred Security is convertible in the manner described herein at the
option of the holder thereof, at any time prior to the earlier of (i) 5:00 p.m.
(New York City time) on the Business Day (as defined herein) immediately
preceding the date of repayment of such Preferred Security, whether at maturity
or upon redemption, and (ii) 5:00 p.m. (New York City time) on the Conversion
Termination Date (as defined herein), if any, into shares of the Company's
common stock, par value $.01 per share (the "Common Stock"), at a conversion
rate of .6387 shares of Common Stock for each Preferred Security (equivalent to
a conversion price of $78.28 per share of Common Stock), subject to adjustment
in certain circumstances. See "Description of the Preferred
Securities -- Conversion Rights." The Common Stock is listed on the New York
Stock Exchange (the "NYSE") under the symbol "FNV." On December 5, 1996, the
last reported sale price of the Common Stock on the NYSE was $62 5/8 per share.
The Preferred Securities have been approved for listing on the NYSE, subject to
official notice of issuance, under the symbol "FNVprA." See "Underwriting."
(Continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 15 OF THIS PROSPECTUS FOR CERTAIN
INFORMATION RELEVANT TO AN INVESTMENT IN THE PREFERRED SECURITIES.
------------------------
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.
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<TABLE>
<S> <C> <C> <C>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) COMMISSION(2) TRUST(3)(4)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Per Preferred Security............................. $50.00 (3) $50.00
- ---------------------------------------------------------------------------------------------------------
Total(5)........................................... $100,000,000 (3) $100,000,000
- ---------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Plus accrued distributions, if any, from December 11, 1996.
(2) The Trust and the Company have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(3) In view of the fact that the proceeds of the sale of the Preferred
Securities will be invested in Convertible Debentures, the Company has
agreed to pay to the Underwriters as compensation (the "Underwriters'
Compensation") for their arranging the investment therein of such proceeds
$1.25 per Preferred Security (or $2,500,000 in the aggregate). See
"Underwriting."
(4) Before deducting expenses of the offering payable by the Company, estimated
to be $500,000.
(5) The Trust and the Company have granted the Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
300,000 additional Preferred Securities solely to cover over-allotments, if
any. If the option is exercised in full, the total Price to Public,
Underwriters' Compensation and Proceeds to Trust will be $115,000,000,
$2,875,000 and $115,000,000, respectively. See "Underwriting."
------------------------
The Preferred Securities offered hereby are offered by the Underwriters, as
specified herein, subject to receipt and acceptance by the Underwriters and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the Preferred Securities will be made only in book-entry form
through the facilities of The Depository Trust Company, on or about December 11,
1996.
------------------------
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
MORGAN STANLEY & CO.
INCORPORATED
------------------------
The date of this Prospectus is December 5, 1996.
- ---------------
(SM) "Convertible Trust Originated Preferred Securities" and "Convertible TOPrS"
are service marks of Merrill Lynch & Co., Inc.
<PAGE> 2
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of 5 1/2% of the liquidation amount of $50 per
Preferred Security, accruing from December 11, 1996 and payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year,
commencing March 31, 1997. See "Description of the Preferred
Securities -- Distributions." The payment of distributions out of moneys held by
the Trust and payments on liquidation of the Trust or the redemption of
Preferred Securities, as described below, are guaranteed by the Company (the
"Guarantee") to the extent described under "Description of the Guarantee." The
Guarantee covers payments of distributions and other payments on the Preferred
Securities only if and to the extent that assets of the Trust are available for
distribution to holders of Preferred Securities. The Guarantee, when taken
together with the Company's obligations under the Convertible Debentures and the
Indenture (as defined herein) 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), provide a full and
unconditional guarantee of amounts due on the Preferred Securities. See "Risk
Factors -- Rights Under the Guarantee." The obligations of the Company under the
Guarantee are subordinate and junior in right of payment to all other
liabilities of the Company and pari passu with the most senior preferred or
preference stock issued, from time to time, if any, by the Company. The
obligations of the Company under the Convertible Debentures are subordinate and
junior in right of payment to all present and future Senior Indebtedness (as
defined herein) of the Company and rank pari passu with the Company's other
general unsecured creditors. At September 30, 1996, the Company had no Senior
Indebtedness outstanding. The obligations of the Company under the Convertible
Debentures and the Guarantee are also effectively subordinated to all existing
and future indebtedness and other liabilities, including trade payables, of the
Company's subsidiaries. At September 30, 1996, the indebtedness and other
liabilities of such subsidiaries aggregated approximately $6.73 billion. The
Convertible Debentures purchased by the Trust may be subsequently distributed
pro rata to holders of the Preferred Securities and Common Securities in
connection with the dissolution of the Trust upon the occurrence of certain
events.
The distribution rate, distribution payment dates and other payment dates
for the Preferred Securities will correspond to the interest rate, interest
payment dates and other payment dates on the Convertible Debentures, which will
be the sole assets of the Trust. As a result, if principal or interest is not
paid on the Convertible Debentures, no amounts will be paid on the Preferred
Securities. If the Company does not make principal or interest payments on the
Convertible Debentures, the Trust will not have sufficient funds to make
distributions on the Preferred Securities, in which event the Guarantee will not
apply to such distributions until the Trust has sufficient funds available
therefor.
The Company has the right to defer payments of interest on the Convertible
Debentures by extending the interest payment period on the Convertible
Debentures at any time for up to 20 consecutive quarters (each, an "Extension
Period") during which no interest shall be due and payable; provided, that no
such Extension Period may extend beyond the maturity date of the Convertible
Debentures. If interest payments are so deferred, distributions on the Preferred
Securities will also be deferred. During such Extension Period, distributions on
the Preferred Securities will continue to accrue (with interest thereon,
compounded quarterly at the distribution rate, to the extent permitted by
applicable law), and during any Extension Period, holders of Preferred
Securities will be required to include such deferred income in their gross
income for federal income tax purposes in advance of receipt of the cash
distributions with respect to such deferred payments. There could be multiple
Extension Periods of varying lengths throughout the term of the Convertible
Debentures. See "Risk Factors -- Option to Extend Interest Payment Periods,"
"Description of the Convertible Debentures -- Option to Extend Interest Payment
Periods" and "Certain Federal Income Tax Considerations -- Interest Income and
Original Issue Discount."
If for at least 20 trading days within any period of 30 consecutive trading
days ending on or after December 31, 1999, including the last trading day of
such period, the Closing Price (as defined herein) of the Common Stock exceeds
120% of the then applicable conversion price of the Preferred Securities, the
Company may, at its option, terminate the right to convert the Convertible
Debentures into Common Stock, in which case the right to convert the Preferred
Securities into Common Stock will likewise terminate. To exercise this
conversion termination option, the Company must cause the Trust to issue a press
release announcing the date upon which conversion rights will expire (the
"Conversion Termination Date"), prior to
2
<PAGE> 3
the opening of business on the second trading day after a period in which the
condition in the preceding sentence has been met, but in no event may such press
release be issued prior to December 31, 1999. The Conversion Termination Date
shall be a Business Day not less than 30 and not more than 60 days following the
date of the press release described above. See "Description of the Preferred
Securities -- Conversion Rights."
In the event that, at any time after the Conversion Termination Date (if
any), the number of outstanding Preferred Securities is less than 10% of the
number of Preferred Securities originally issued (including any Preferred
Securities issued upon exercise of the Underwriters' over-allotment option), the
Company shall have the right, at its option, to redeem the Convertible
Debentures, in whole but not in part, at a redemption price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest thereon to the date
fixed for redemption. The Convertible Debentures are also redeemable by the
Company at its option, in whole but not in part, in certain circumstances upon
the occurrence of a Tax Event (as defined herein) at a redemption price equal to
100% of the principal amount thereof plus accrued and unpaid interest thereon to
the date fixed for redemption. If the Company redeems Convertible Debentures,
the Trust must redeem the Trust Securities at a redemption price of $50 per
Preferred Security plus accrued and unpaid distributions thereon (including, if
distributions shall have been deferred as the result of an Extension Period,
interest thereon to the extent permitted by applicable law) to the date fixed
for redemption. See "Description of the Preferred Securities -- Redemption." The
Convertible Debentures mature on December 31, 2016 at which time the Trust must
redeem the Trust Securities in whole. In addition, upon the occurrence of a
Special Event (as defined herein), unless the Convertible Debentures are
redeemed in the limited circumstances described herein, the Trust shall be
dissolved, with the result that the Convertible Debentures will be distributed
to the holders of the Trust Securities, on a pro rata basis, in lieu of any cash
distribution. If the Convertible Debentures are distributed to the holders of
the Preferred Securities, the Company will use its best efforts to have the
Convertible Debentures listed on the NYSE or on such other exchange as the
Preferred Securities are then listed. See "Description of the Preferred
Securities -- Special Event Redemption or Distribution" and "Description of the
Convertible Debentures."
In the event of the involuntary or voluntary dissolution, winding up or
termination of the Trust, the holders of the Preferred Securities will be
entitled to receive for each Preferred Security, after satisfaction of
liabilities of the Trust to its creditors, a liquidation amount of $50 plus
accrued and unpaid distributions thereon (including interest, if any, thereon)
to the date of payment, unless, in connection with such dissolution, winding up
or termination of the Trust, the Convertible Debentures are distributed to the
holders of the Preferred Securities. See "Description of the Preferred
Securities -- Liquidation Distribution Upon Dissolution."
3
<PAGE> 4
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED
SECURITIES AND OF THE COMPANY'S COMMON STOCK AT LEVELS ABOVE THOSE WHICH MIGHT
OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE
NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
------------------------
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities offered
by this Prospectus. This Prospectus does not contain all the information set
forth in the Registration Statement and exhibits thereto. In addition, certain
documents filed by the Company with the Commission have been incorporated in
this Prospectus by reference. See "Incorporation of Certain Documents by
Reference." For further information with respect to the Company and the
securities offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, and the documents incorporated herein by
reference. Statements contained in this Prospectus as to the contents of any
instrument, agreement or other document do not purport to be complete and in
each instance reference is made to the copy of such instrument, agreement or
other document, copies of which are available from the Company as described
below, each such statement being qualified in all respects by such reference.
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 and information statements and other information
with the Commission. Such reports, proxy and information statements and other
information can be inspected and copied at Room 1024 at the public reference
facilities maintained by the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as the Regional Offices of the Commission at Citicorp
Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661-2511 and 7
World Trade Center, New York, New York 10048, and copies can be obtained by mail
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission also maintains a
World Wide Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of such site is http://www.sec.gov. The Common Stock of
the Company is listed on the NYSE. Reports and other information concerning the
Company can also be inspected at the office of the NYSE, 20 Broad Street, New
York, New York 10005.
No separate financial statements of the Trust have been included herein.
The Company does not consider that such financial statements would be material
to holders of Preferred Securities because (i) all of the voting securities of
the Trust will be owned, directly or indirectly, by the Company, a reporting
company under the Exchange Act, (ii) the Trust has no independent operations and
exists for the sole purpose of issuing securities representing undivided
beneficial interests in the assets of the Trust and investing the proceeds
thereof in the Convertible Debentures issued by the Company and (iii) the
obligations of the Trust under the Trust Securities are fully and
unconditionally guaranteed by the Company to the extent that the Trust has funds
available to meet such obligations and such guarantee, when taken together with
the Company's obligations under the Convertible Debentures, the Indenture and
the Declaration, will provide a full and unconditional guarantee on a
subordinated basis by the Company of payments due on the Trust Securities. See
"FINOVA Finance Trust," "Description of the Guarantee" and "Description of the
Convertible Debentures."
4
<PAGE> 5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Incorporated herein by reference are the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995 (the "1995 Form 10-K"),
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996, June 30,
1996 and September 30, 1996 and Current Reports on Form 8-K dated January 23,
1996, April 16, 1996, July 16, 1996, October 16, 1996 and October 21, 1996 filed
pursuant to Section 13 of the Exchange Act with the Commission.
All documents subsequently filed by the Company pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of the offering
of the securities offered hereby shall be deemed to be incorporated by reference
in this Prospectus 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 superseded
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 such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge upon written or oral request by any
person to whom this Prospectus is delivered a copy of any or all of the
documents described above which have been incorporated by reference in this
Prospectus, other than exhibits to such documents. Such request should be
directed to the Company at its principal executive offices, to the attention of
Robert J. Fitzsimmons, Senior Vice President-Treasurer, The FINOVA Group Inc.,
1850 N. Central Avenue, P.O. Box 2209, Phoenix, Arizona 85002-2209, telephone
number (602) 207-4900.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in documents incorporated herein by
reference and under the captions "Prospectus Summary -- The Company," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this Prospectus that are not
historical facts, including, without limitation, statements of future
expectations, projections of results of operations and financial condition,
statements of future economic performance and other forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995, are
subject to known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of the Company to differ
materially from those contemplated in such forward-looking statements. In
addition to the specific matters referred to herein, including, without
limitation, those noted under the caption "Risk Factors," important factors
which may cause actual results to differ from those contemplated in such
forward-looking statements include: (i) the results of the Company's efforts to
implement its business strategy; (ii) the effect of economic conditions and the
performance of borrowers; (iii) actions of the Company's competitors and the
Company's ability to respond to such actions; (iv) the cost of the Company's
capital, which may depend in part on the Company's portfolio quality, ratings,
prospects and outlook; (v) changes in governmental regulation, tax rates and
similar matters; and (vi) other risks detailed in the Company's other filings
with the Commission.
5
<PAGE> 6
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the more
detailed information appearing elsewhere in, or incorporated by reference into,
this Prospectus. See "Incorporation of Certain Documents by Reference." Unless
otherwise expressly stated, all information in this Prospectus assumes that the
over-allotment option granted to the Underwriters is not exercised. See
"Underwriting."
THE COMPANY
The FINOVA Group Inc., a Delaware corporation (the "Company"), is a
financial services company which, through its wholly-owned subsidiaries,
provides collateralized financing and leasing products to commercial enterprises
in focused market niches, principally in the United States. The Company extends
revolving credit facilities, term loans and equipment and real estate financing
to "middle-market" businesses with financing needs falling generally between
$500,000 to $35 million. The Company also offers sales financing programs to
manufacturers, distributors, vendors and franchisors which facilitate sales of
their products to customers. The Company currently operates primarily in 13
specific industry or market niches in which its expertise in evaluating the
creditworthiness of prospective customers and its ability to provide value-added
services enables it to differentiate itself from its competitors and to command
product pricing which provides a satisfactory spread over the Company's
borrowing costs.
The Company seeks to maintain a high quality portfolio and to minimize
nonearning assets and write-offs by using clearly defined underwriting criteria,
stringent portfolio management techniques and by diversifying its lending
activities geographically and among a range of industries, customers and loan
products. Because of the diversity of the Company's portfolio, the Company
believes it is better able to manage competitive changes in its markets and to
withstand the impact of deteriorating economic conditions on a regional or
national basis, although there can be no assurance that competitive changes,
borrowers' performance or economic conditions will not result in an adverse
impact on the Company's results of operations or financial condition.
The Company is the successor to the former financial services business of
The Dial Corp ("Dial"). On March 18, 1992, Dial consummated the spin-off (the
"Spin-Off") of the Company (at that time known as GFC Financial Corporation) to
its stockholders. Following the Spin-Off, the Company decided to focus its
resources and capital on its domestic commercial finance activities. The Company
embarked on a program of selling or winding down those activities included in
the Spin-Off that were not associated with the Company's core businesses. The
Company concentrated on redeploying the capital previously invested in such
businesses and raised additional capital to support internal portfolio growth
and to make complementary acquisitions. This strategy has resulted in (i) the
managed liquidation and sale of FINOVA Capital Limited ("FCL"), Dial's former
European financial business, and the Latin American loan portfolios, (ii) an
increase (excluding acquisitions) in the Company's domestic loan portfolio each
year, (iii) the acquisition of the asset based lending activity of U.S. Bancorp,
(iv) the sale of Verex Corporation, Dial's discontinued mortgage insurance
subsidiary, (v) the acquisition of Ambassador Factors Corporation
("Ambassador"), the former factoring and asset based lending subsidiary of Fleet
Financial Group, Inc., (vi) the acquisition of TriCon Capital Corporation
("TriCon"), the former commercial finance and leasing subsidiary of Bell
Atlantic Corporation, (vii) portfolio purchases of $262 million in 1995, (viii)
the acquisition of LINC Financial Services, Inc. ("LINC"), a provider of
accounts receivable financing to health care providers, (ix) the acquisition of
Financing for Science International, Inc. ("FSI"), a specialty leasing company
servicing the high technology, life sciences, health care and environmental
technology industries and (x) the sale of the Company's Manufacturer & Dealer
Services business as described below under "-- Recent Developments."
The Company's strategy of focusing its efforts on its domestic core lending
activities through internal growth and acquisitions has resulted in increasing
the Company's total assets to approximately $7 billion at December 31, 1995
compared with total assets of $2.6 billion at December 31, 1992, representing a
compounded annual growth rate of 39%. During the same three year period
subsequent to the Spin-Off, income from continuing operations grew at a
compounded annual growth rate of 38% to $98 million in 1995 compared with $37
million in 1992. Management believes the Company now ranks among the largest
independent commercial finance companies in the United States based on total
assets.
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<PAGE> 7
The principal executive offices of the Company are located at 1850 North
Central Avenue, P.O. Box 2209, Phoenix, Arizona 85002-2209, and its telephone
number is (602) 207-4900.
RECENT DEVELOPMENTS
As of November 30, 1996, the Company sold its Manufacturer & Dealer
Services business ("MDS") to Green Tree Financial Corporation for approximately
$620 million, including the assumption of certain liabilities. The purchase
price reflects a premium of approximately $58 million over the book value of
MDS's assets, prior to allocation and accrual of related costs and expenses. MDS
is a provider of vendor-oriented sales finance programs involving small-ticket
leasing and financing products for commercial end-user customers.
THE OFFERING
The Issuer................. FINOVA Finance Trust (the "Trust"), a Delaware
statutory business trust. The assets of the Trust
will consist solely of the Convertible Debentures
of the Company.
Securities Offered......... 2,000,000 5 1/2% Convertible Trust Originated
Preferred Securities(SM) (the "Convertible
TOPrS(SM)" or the "Preferred Securities"). The
Trust and the Company have granted the Underwriters
an option, exercisable within 30 days after the
date of this Prospectus, to purchase up to an
additional 300,000 Preferred Securities at the
initial public offering price solely to cover
over-allotments, if any.
Distributions.............. Distributions on the Preferred Securities will
accrue from December 11, 1996 (the "Original Issue
Date") and will be payable at the annual rate of
5 1/2% (the "distribution rate") of the liquidation
amount of $50 per Preferred Security. Subject to
the extension of distribution payment periods
described below, distributions will be payable
quarterly in arrears on each March 31, June 30,
September 30 and December 31 (each, a "distribution
payment date"), commencing March 31, 1997. Because
distributions on the Preferred Securities will
constitute interest (or original issue discount)
for federal income tax purposes, corporate holders
thereof will not be entitled to a
dividends-received deduction. See "Certain Federal
Income Tax Considerations -- Interest Income and
Original Issue Discount."
Option to Extend
Distribution Payment
Periods.................. The ability of the Trust to pay distributions on
the Preferred Securities is solely dependent on its
receipt of interest payments from the Company on
the Convertible Debentures. The Company has the
right to defer interest payments from time to time
on the Convertible Debentures for successive
periods not exceeding 20 consecutive quarters for
each such Extension Period during which no interest
shall be due and payable; provided that no such
Extension Period may extend beyond the maturity
date of the Convertible Debentures. Prior to the
termination of any Extension Period of less than 20
consecutive quarters, the Company may further
extend such Extension Period; provided that no such
Extension Period, together with all previous and
further extensions thereof, may exceed 20
consecutive quarters or extend beyond the maturity
date of the Convertible Debentures. Upon the
termination of any Extension Period and the payment
of all amounts then due, the Company may select a
new Extension Period, subject to the conditions
described herein. As a consequence of any such
extension, quarterly distributions on the Pre-
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<PAGE> 8
ferred Securities would be deferred by the Trust
but would continue to accrue (with interest
thereon, compounded quarterly at the distribution
rate, to the extent permitted by applicable law)
during any such Extension Period. See "Risk
Factors -- Option to Extend Interest Payment
Periods," "Description of the Preferred
Securities -- Distributions" and "Description of
the Convertible Debentures -- Option to Extend
Interest Payment Periods." If an extension of an
interest payment period occurs, the holders of the
Preferred Securities will continue to accrue income
for federal income tax purposes in advance of any
corresponding cash distribution. See "Risk
Factors -- Option to Extend Interest Payment
Periods" and "-- Trading Characteristics of
Preferred Securities" and "Certain Federal Income
Tax Considerations -- Interest Income and Original
Issue Discount."
Rights Upon Extension of
Distribution Payment
Periods.................. During any Extension Period, interest on the
Convertible Debentures will continue to accrue
(compounded quarterly at the interest rate borne by
the Convertible Debentures, to the extent permitted
by applicable law), and quarterly distributions on
the Preferred Securities will continue to accrue
(with interest thereon, compounded quarterly at the
distribution rate, to the extent permitted by
applicable law). As more fully described below
under "-- Convertible Debentures," the Company has
agreed that, during an Extension Period, it will
not, among other things, declare or pay dividends
on or repurchase or redeem any of its capital
stock, subject to certain exceptions. See
"Description of the Guarantee -- Certain Covenants
of the Company" and "Description of the Convertible
Debentures -- Option to Extend Interest Payment
Periods."
Conversion into Common
Stock.................... Each Preferred Security is convertible at the
option of the holder thereof, at any time prior to
the earlier of (i) 5:00 p.m. (New York City time)
on the Business Day (as defined herein) immediately
preceding the date of repayment of such Preferred
Security, whether at maturity or upon redemption,
and (ii) 5:00 p.m. (New York City time) on the
Conversion Termination Date (if any) into shares of
Common Stock at a conversion rate of .6387 shares
of Common Stock for each Preferred Security
(equivalent to a conversion price of $78.28 per
share of Common Stock), subject to adjustment in
certain circumstances. On December 5, 1996, the
last reported sale price of the Common Stock on the
NYSE was $62 5/8 per share. In connection with any
conversion of a Preferred Security, the Conversion
Agent (as defined herein) will exchange such
Preferred Security for the appropriate principal
amount of Convertible Debentures held by the Trust
and immediately convert such Convertible Debentures
into shares of Common Stock. No fractional shares
of Common Stock will be issued as a result of
conversion, but in lieu thereof such fractional
interest will be paid by the Company in cash. See
"Description of the Preferred
Securities -- Conversion Rights." Holders of
Preferred Securities at 5:00 p.m. (New York City
time) on a distribution record date will be
entitled to receive the distribution payable upon
such Preferred Securities on the corresponding
distribution payment date notwithstanding the
conversion of such Preferred Securities following
such distribution record date but on or prior to
such distribution payment date. Except as provided
in the immediately preceding sentence, neither the
Trust nor the Company will make, or be required to
make, any payment, allowance or adjustment for
accumulated and unpaid distributions, whether or
not
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<PAGE> 9
in arrears, on converted Preferred Securities;
provided, however, that if notice of redemption of
Preferred Securities is mailed or otherwise given
to holders of Preferred Securities or the Trust
issues a press release announcing a Conversion
Termination Date, then, if any holder of Preferred
Securities converts any Preferred Securities into
Common Stock on any date on or after the date on
which such notice of redemption is mailed or
otherwise given or the date of such press release,
as the case may be, and if such date of conversion
falls on any day from and including the first day
of an Extension Period and on or prior to the
distribution payment date upon which such Extension
Period ends, such converting holder shall be
entitled to receive either (i) if the date of such
conversion falls after a distribution record date
and on or prior to the next succeeding distribution
payment date, all accrued and unpaid distributions
on such Preferred Securities (including interest
thereon, if any, to the extent permitted by
applicable law) to such distribution payment date
or (ii) if the date of such conversion does not
fall on a date described in clause (i) above, all
accrued and unpaid distributions on such Preferred
Securities (including interest thereon, if any, to
the extent permitted by applicable law) to the most
recent distribution payment date prior to the date
of such conversion, which distributions shall, in
either such case, be paid to such converting holder
unless the date of conversion of such Preferred
Securities is on or prior to the distribution
payment date upon which such Extension Period ends
and after the distribution record date for such
distribution payment date, in which case such
distributions shall be paid to the person who was
the holder of such Preferred Securities (or one or
more predecessor Preferred Securities) at 5:00 p.m.
(New York City time) on such distribution record
date. See "Description of the Convertible
Debentures -- Optional Redemption," "Description of
the Preferred Securities -- Conversion Rights" and
"-- Redemption."
Termination of Conversion
Rights................... If for at least 20 trading days within any period
of 30 consecutive trading days ending on or after
December 31, 1999, including the last trading day
of such period, the Closing Price (as defined
herein) of the Common Stock exceeds 120% of the
then applicable conversion price of the Preferred
Securities, the Company may, at its option,
terminate the right to convert the Convertible
Debentures into Common Stock, in which case the
right to convert the Preferred Securities into
Common Stock will likewise terminate. To exercise
this conversion termination option, the Company
must cause the Trust to issue a press release
announcing the date upon which conversion rights
will expire (the "Conversion Termination Date"),
prior to the opening of business on the second
trading day after a period in which the condition
in the preceding sentence has been met, but in no
event may such press release be issued prior to
December 31, 1999. The Conversion Termination Date
shall be a Business Day not less than 30 and not
more than 60 days following the date of the press
release described above. See "Description of the
Preferred Securities -- Conversion Rights."
Liquidation Amount......... In the event of the liquidation of the Trust,
holders will be entitled to receive, after
satisfaction of liabilities of the Trust to its
creditors, $50 per Preferred Security plus an
amount equal to any accrued and unpaid
distributions thereon to the date of payment,
unless Convertible Debentures are distributed to
such holders. See "Description of the Preferred
Securities -- Liquidation Distribution Upon
Dissolution."
9
<PAGE> 10
Redemption................. In the event that, at any time after the Conversion
Termination Date (if any), the number of
outstanding Preferred Securities is less than 10%
of the number of Preferred Securities originally
issued (including any Preferred Securities issued
upon exercise of the Underwriters' over-allotment
option), the Company shall have the right, at its
option, to redeem the Convertible Debentures, in
whole but not in part, at a redemption price equal
to 100% of the principal amount thereof, plus
accrued and unpaid interest thereon to the date
fixed for redemption. The Convertible Debentures
are also redeemable by the Company at its option,
in whole but not in part, in certain circumstances
upon the occurrence of a Tax Event, at a redemption
price equal to 100% of the principal amount
thereof, plus accrued and unpaid interest thereon
to the date fixed for redemption. If the Company
redeems Convertible Debentures, the Trust must
redeem the Trust Securities at a redemption price
of $50 per Preferred Security plus accrued and
unpaid distributions thereon (including, if
distributions shall have been deferred as the
result of an Extension Period, interest thereon to
the extent permitted by applicable law) to the date
fixed for redemption (the "Redemption Price"). See
"Description of the Preferred
Securities -- Redemption" and " -- Special Event
Redemption or Distribution." The Preferred
Securities have no maturity date, although they are
subject to mandatory redemption upon repayment of
the Convertible Debentures at their stated maturity
(which is December 31, 2016), and upon acceleration
or earlier redemption of the Convertible
Debentures. See "Description of the Preferred
Securities -- Redemption" and "Description of the
Convertible Debentures -- Redemption."
Guarantee.................. The Company will irrevocably guarantee, on a
subordinated basis and to the extent set forth
herein, the payment in full of (i) any accrued and
unpaid distributions on the Preferred Securities to
the extent of funds of the Trust available
therefor, (ii) the Redemption Price to the extent
of funds of the Trust available therefor and (iii)
generally, the liquidation amount of the Preferred
Securities to the extent of the assets of the Trust
available for distribution to holders of Preferred
Securities. The Guarantee will be unsecured and
will rank (i) subordinate and junior in right of
payment to all other liabilities of the Company
except any liabilities that may be made pari passu
expressly by their terms, (ii) pari passu with the
most senior preferred or preference stock issued
from time to time by the Company and with any
guarantee now or hereafter entered into by the
Company in respect of any preferred or preference
stock or preferred securities of any affiliate of
the Company and (iii) senior to the Common Stock.
Upon the liquidation, dissolution or winding up of
the Company, its obligations under the Guarantee
will rank junior to all of its other liabilities,
except as aforesaid, and, as a result, funds may
not be available for payment under the Guarantee.
The Guarantee, when taken together with the
Company's obligations under the Convertible
Debentures, the Indenture and the Declaration, will
provide a full and unconditional guarantee on a
subordinated basis by the Company of payments due
on the Trust Securities. See "Risk
Factors -- Ranking of Subordinate Obligations Under
the Guarantee and Convertible Debentures" and
"Description of the Guarantee."
Voting Rights.............. Holders of the Preferred Securities will have
limited voting rights. See "Description of the
Preferred Securities -- Voting Rights."
10
<PAGE> 11
Tax Event or Investment
Company Event
Distribution;
Tax Event Redemption..... Upon the occurrence of a Tax Event or an Investment
Company Event (each as defined herein and each a
"Special Event"), except in certain limited
circumstances, the Company will cause the Issuer
Trustees (as defined herein) to liquidate the Trust
and cause Convertible Debentures to be distributed
to the holders of the Preferred Securities. In
certain circumstances involving a Tax Event, the
Company will have the right to redeem the
Convertible Debentures, in whole but not in part,
at 100% of the principal amount plus accrued and
unpaid interest, in lieu of a distribution of the
Convertible Debentures, in which event the Trust
Securities will be redeemed at the Redemption
Price. See "Description of the Preferred
Securities -- Special Event Redemption or
Distribution."
Convertible Debentures..... The Convertible Debentures will mature on December
31, 2016 and will bear interest at the rate of
5 1/2% per annum, payable quarterly in arrears. The
Convertible Debentures will have provisions with
respect to interest, redemption, conversion into
Common Stock and certain other terms substantially
similar or analogous to those of the Preferred
Securities. See "Description of the Convertible
Debentures." Interest payment periods may be
extended from time to time by the Company for
successive periods not exceeding 20 consecutive
quarters for each such period, during which
interest on the Convertible Debentures will
continue to accrue (compounded quarterly at the
interest rate borne by the Convertible Debentures,
to the extent permitted by applicable law);
provided that no such Extension Period may extend
beyond the maturity date of the Convertible
Debentures. Prior to the termination of any
Extension Period of less than 20 consecutive
quarters, the Company may further extend such
Extension Period; provided that such Extension
Period, together with all previous and further
extensions thereof, may not exceed 20 consecutive
quarters and may not extend beyond the maturity
date of the Convertible Debentures. Upon the
termination of any Extension Period and the payment
of all amounts then due, the Company may select a
new Extension Period, subject to the preceding
sentence. No interest shall be due and payable
during an Extension Period. During an Extension
Period, the Company has agreed (a) not to declare
or pay dividends on, or make a distribution with
respect to, or redeem or purchase or acquire, or
make a liquidation payment with respect to, any of
its capital stock (other than (i) purchases or
acquisitions of shares of Common Stock (or Common
Stock equivalents) 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 requiring the
Company to purchase shares of Common Stock (or
Common Stock equivalents) (provided that such
contract is in effect or such security is
outstanding at least 60 days prior to the
commencement of such Extension Period), (ii)
purchases of shares of Common Stock (or Common
Stock equivalents) from officers or employees of
the Company or its subsidiaries upon termination of
employment or retirement not pursuant to any
obligation under any contract or security requiring
the Company to purchase shares of Common Stock (or
Common Stock equivalents) (provided that such
purchases by the Company upon termination of
employment or retirement shall be made at a price
not to exceed the market value on the date of any
such purchase and shall not exceed $7.5 million in
the aggregate for all officers and employees),
(iii) as a result of
11
<PAGE> 12
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,
(iv) dividends or distributions of shares of Common
Stock on Common Stock or (v) 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 (or make any
guarantee payments with respect to the foregoing)),
(b) not to make any payment of interest, principal
or premium, if any, on or repay, repurchase or
redeem any debt securities (including guarantees)
issued by the Company that rank pari passu with or
junior to the Convertible Debentures and (c) not to
make any guarantee payments with respect to the
foregoing (other than pursuant to the Guarantee).
The obligations of the Company under the
Convertible Debentures are subordinate and junior
in right of payment to all present and future
Senior Indebtedness (as defined herein) of the
Company and rank pari passu with the Company's
other general unsecured creditors. At September 30,
1996, the Company had no Senior Indebtedness
outstanding.
Holding Company
Structure.................. The Company is a holding company which conducts
substantially all of its operations through
subsidiaries. As a result, the ability of the
Company to pay the principal of and interest on the
Convertible Debentures, and therefore the ability
of the Trust to make distributions and other
payments on the Preferred Securities, will depend
in large part upon the Company's ability to obtain
funds from its subsidiaries. In addition, the
ability of certain subsidiaries to provide funds to
the Company is 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. In particular, the
Company's principal subsidiary, FINOVA Capital
Corporation ("FINOVA Capital"), is limited in its
ability to pay dividends to the Company pursuant to
various restrictive covenants contained in certain
of its debt instruments. See "Risk
Factors -- Holding Company Structure" and "Price
Range of Common Stock and Dividends."
The obligations of the Company under the
Convertible Debentures and the Guarantee are
effectively subordinated to all existing and future
indebtedness and other liabilities, including trade
payables, of the Company's subsidiaries. At
September 30, 1996, the indebtedness and other
liabilities of such subsidiaries aggregated
approximately $6.73 billion. See "Risk
Factors -- Ranking of Subordinate Obligations under
the Guarantee and Convertible Debentures,"
"-- Holding Company Structure," "Capitalization"
and "Description of the Convertible Debentures."
Form of Preferred
Securities................. The Preferred Securities will be represented by a
global certificate or certificates (each a "Global
Preferred Security") registered in the name of Cede
& Co., as nominee for The Depository Trust Company
("DTC"). Beneficial interests in the Preferred
Securities will be evidenced by, and transfers
thereof will be effected only through, records
maintained by the participants in DTC. Except under
the limited circumstances described herein,
Preferred Securities in certificated form (each a
"Certificated Preferred Security") will not be
issued in exchange for Global Preferred Securities.
See "Description of the Preferred
Securities -- Book-Entry Only Issuance -- The
Depository Trust Company."
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<PAGE> 13
Use of Proceeds............ All of the proceeds from the sale of the Preferred
Securities will be invested by the Trust in the
Convertible Debentures. The Company intends to
contribute the net proceeds from the sale of the
Convertible Debentures to FINOVA Capital, which
intends to use such net proceeds to repay
commercial paper or other indebtedness. See "Use of
Proceeds."
Listing.................... The Preferred Securities have been approved for
listing on the NYSE, subject to official notice of
issuance, under the symbol "FNVprA." See
"Underwriting."
Risk Factors............... See "Risk Factors" for a discussion of certain
risks involved in the purchase of Preferred
Securities.
13
<PAGE> 14
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
The following summary selected consolidated financial data as of and for
the five years ended December 31, 1995 have been derived from the audited
consolidated financial statements of the Company and its subsidiaries.
References to the Company contained in the footnotes below mean the Company and
its consolidated subsidiaries. The following summary selected consolidated
financial data as of and for the nine months ended September 30, 1995 and 1996
have been derived from the unaudited consolidated financial statements of the
Company which, in the opinion of management, include all normal recurring
adjustments necessary to present fairly the information required to be set forth
therein. Results of operations and financial condition as of and for the nine
months ended September 30, 1996 do not purport to be indicative of results of
operations or financial condition to be expected for the year ending December
31, 1996. The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's consolidated financial statements and the notes thereto
incorporated by reference herein. See "Incorporation of Certain Documents by
Reference." Per share data for income and dividends and average outstanding
common and equivalent shares has not been presented in 1991, as the Company was
not a publicly held company prior to the Spin-Off from Dial in 1992.
<TABLE>
<CAPTION>
AS OF AND FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, AS OF AND FOR THE YEAR ENDED DECEMBER 31,
-------------------------- ------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Interest and income earned
from financing
transactions.............. $ 640,462 $ 551,737 $ 761,855 $ 503,351 $ 255,216 $ 243,337 $ 251,472
Interest margins earned..... 295,154 244,989 339,815 244,414 124,847 104,699 93,912
Provision for possible
credit losses(1).......... 38,800 28,800 47,300 16,670 5,706 6,740 77,687
Gains on sale of assets..... 10,253 11,699 19,726 9,045 5,439 3,362 6,684
Income (loss) from
continuing operations..... 85,005 71,147 97,629 74,313 37,846 36,750 (38,742)
Income from continuing
operations per common and
equivalent share.......... $ 3.04 $ 2.56 $ 3.51 $ 2.94 $ 1.80 $ 1.71
Dividends declared per
common share.............. $ .68 $ .62 $ 0.84 $ 0.74 $ 0.68 $ 0.42
Average outstanding common
and equivalent shares..... 27,971,000 27,845,000 27,832,000 25,307,000 20,332,000 20,464,000
FINANCIAL POSITION:
Funds employed.............. $ 7,635,276 $ 6,609,220 $ 6,819,057 $ 5,667,644 $ 2,846,571 $ 2,428,523 $2,281,872
Nonaccruing assets.......... 172,766 169,180 167,872 168,761 102,607 100,422 111,296
Reserve for possible credit
losses(1)................. 156,339 131,564 140,333 122,233 64,280 69,291 87,600
Total assets................ 7,875,848 6,773,647 7,036,514 5,821,343 2,834,322 2,641,668 2,414,484
Deferred income taxes....... 247,574 202,561 209,512 188,887 178,972 172,727 198,366
Total debt.................. 6,350,043 5,403,323 5,649,368 4,573,354 2,079,286 1,883,709 1,750,178
Stockholders' equity........ 896,581 805,313 825,184 770,252 503,300 488,396 371,576
Managed assets(2)........... 7,970,193 6,742,271 7,122,361 5,921,030 2,846,571 2,428,523 2,281,872
RATIOS:
Ratio of earnings to fixed
charges(3)................ 1.46x 1.43x 1.43x 1.55x 1.53x 1.37x (3)
Reserve for possible credit
losses/ending managed
assets.................... 2.0% 2.0% 2.0% 2.1% 2.3% 2.9% 3.8%
Nonaccruing assets/ending
managed assets............ 2.2% 2.5% 2.4% 2.9% 3.6% 4.1% 4.9%
Total debt to stockholders'
equity.................... 7.1x 6.7x 6.8x 5.9x 4.1x 3.9x 4.7x
Return on average equity
(annualized).............. 13.2% 12.0% 12.2% 11.1% 7.5% 11.4% (12.9)%
</TABLE>
- ---------------
(1) In 1991, the Company recorded a special provision for possible credit losses
of $65 million and recorded write-offs of $15 million related to nonearning
assets in the FCL portfolio and a $47.8 million write-down to reduce Latin
American assets to current market value.
(2) Managed assets consist of funds employed and assets sold under
securitization agreements that are managed by the Company.
(3) For purposes of the computation of these ratios, earnings consist of income
before income taxes and fixed charges; and fixed charges include interest
and related debt expense and a portion of rental expense determined to be
representative of interest. For the year ended December 31, 1991, earnings
were inadequate to cover combined fixed charges by $37.0 million.
14
<PAGE> 15
RISK FACTORS
Prospective purchasers of Preferred Securities should carefully review the
information contained elsewhere in this Prospectus and should, in particular,
consider the following risk factors.
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE GUARANTEE AND CONVERTIBLE
DEBENTURES
The Company's obligations under the Guarantee are subordinate and junior in
right of payment to all liabilities of the Company (except any liabilities that
may be made pari passu expressly by their terms) and pari passu with the most
senior preferred or preference stock issued, from time to time, if any, by the
Company. The obligations of the Company under the Convertible Debentures are
subordinate and junior in right of payment to all present and future Senior
Indebtedness of the Company and pari passu with obligations to or rights of the
Company's other general unsecured creditors. No payment of principal of
(including redemption payments, if any) or interest on the Convertible
Debentures may be made if (i) any Senior Indebtedness of the Company is not paid
when due and any applicable grace period with respect to such default has ended
with such default not having been cured or waived or ceasing to exist, or (ii)
the maturity of any Senior Indebtedness has been accelerated because of a
default. At September 30, 1996, the Company had no Senior Indebtedness
outstanding, but it continues to have access to a $25 million line of credit
which, if drawn upon, would constitute Senior Indebtedness. In addition, because
the Company's operations are conducted through its subsidiaries and the
subsidiaries have not guaranteed the payment of the Convertible Debentures, all
liabilities of such subsidiaries, including trade payables, are effectively
senior to the Convertible Debentures and the Guarantee. See "-- Holding Company
Structure" below. There are no terms in the Preferred Securities, the
Convertible Debentures or the Guarantee that limit the Company's or any
subsidiary's ability to incur additional indebtedness, including indebtedness
that ranks senior to the Convertible Debentures and the Guarantee. See
"Description of the Guarantee -- Status of the Guarantee; Subordination" and
"Description of the Convertible Debentures -- Subordination."
HOLDING COMPANY STRUCTURE
The Company is a holding company which conducts substantially all of its
operations through subsidiaries. As a result, the ability of the Company to pay
the principal of and interest on its indebtedness (including the Convertible
Debentures) and to pay amounts due in respect of its other obligations
(including the Guarantee), and therefore the ability of the Trust to make
distributions and other payments on the Preferred Securities, will depend in
large part on the results of operations of the Company's subsidiaries and the
distribution of funds by such subsidiaries to the Company. The ability of
certain subsidiaries to provide funds to the Company is 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. In particular, the Company's principal subsidiary, FINOVA
Capital, is limited in its ability to pay dividends to the Company pursuant to
various restrictive covenants contained in certain of its debt instruments. See
"Price Range of Common Stock and Dividends."
The obligations of the Company under the Convertible Debentures and the
Guarantee are effectively subordinated to all existing and future indebtedness
and other liabilities, including trade payables, of the Company's subsidiaries.
At September 30, 1996, the indebtedness and other liabilities of such
subsidiaries aggregated approximately $6.73 billion. See "-- Ranking of
Subordinate Obligations under the Guarantee and Convertible Debentures."
RIGHTS UNDER THE GUARANTEE
The Guarantee will be qualified as an indenture under the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). Fleet National Bank will
act as indenture trustee under the Guarantee (the "Guarantee Trustee") 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
Preferred Securities.
The Guarantee guarantees to the holders of the Preferred Securities the
payment of (i) any accrued and unpaid distributions that are required to be paid
on the Preferred Securities, to the extent the Trust has funds
15
<PAGE> 16
available therefor, (ii) the Redemption Price, including all accrued and unpaid
distributions with respect to Preferred Securities called for redemption by the
Trust, to the extent the Trust has funds available therefor, and (iii) upon a
voluntary or involuntary dissolution, winding-up or termination of the Trust
(other than in connection with the distribution of Convertible Debentures to the
holders of Preferred Securities or a redemption of all the Preferred
Securities), the lesser of (a) the aggregate of the liquidation amount and all
accrued and unpaid distributions on the Preferred Securities to the date of the
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
Preferred Securities in liquidation of the Trust. The holders of a majority in
liquidation amount of the Preferred Securities 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,
if the Company has failed to make a payment under the Guarantee, any holder of
Preferred Securities may directly institute a legal proceeding directly against
the Company to enforce the obligations of the Company 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 Convertible Debentures, the Trust would
lack available funds for the payment of distributions or amounts payable on
redemption of the Preferred Securities or otherwise, and, in such event holders
of the Preferred Securities would not be able to rely upon the Guarantee for
payment of such amounts. Instead, holders of the Preferred Securities would rely
on the enforcement by (i) the Property Trustee of its rights as registered
holder of the Convertible Debentures against the Company pursuant to the terms
of the Convertible Debentures or (ii) such holder of its right against the
Company under certain circumstances to enforce payments on Convertible
Debentures. See "-- Enforcement of Certain Rights by Holders of Preferred
Securities," "Description of the Guarantee" and "Description of the Convertible
Debentures." The Declaration provides that each holder of Preferred Securities,
by acceptance thereof, agrees to the provisions of the Guarantee, including the
subordination provisions thereof, and the Indenture.
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, then the holders of Preferred Securities would rely on the
enforcement by the Property Trustee of its rights as a holder of the Convertible
Debentures against the Company. In addition, the holders of a majority in
liquidation amount of the Preferred Securities will have the right to direct the
time, method, and place of conducting any proceeding for any remedy available to
the Property Trustee or to direct the exercise of any trust or power conferred
upon the Property Trustee under the Declaration, including the right to direct
the Property Trustee to exercise the remedies available to it as a holder of the
Convertible Debentures. If the Property Trustee fails to enforce its rights
under the Convertible Debentures, after a holder of Preferred Securities has
made a written request, such holder of Preferred Securities may directly
institute a legal proceeding against the Company to enforce the Property
Trustee's rights under the Convertible Debentures without first instituting any
legal proceeding against the Property 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 Convertible 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 Preferred Securities may directly institute a
proceeding for enforcement of payment to such holder of the principal of or
interest on the Convertible Debentures having a principal amount equal to the
aggregate liquidation amount of the Preferred Securities of such holder (a
"Direct Action") on or after the respective due date specified in the
Convertible Debentures. In connection with such Direct Action, the Company will
be subrogated to the rights of such holder of Preferred Securities under the
Declaration to the extent of any payment made by the Company to such holder of
Preferred Securities in such Direct Action. The holders of Preferred Securities
will not be able to exercise directly any other remedy available to the holders
of the Convertible Debentures. The Indenture provides that the Indenture Trustee
(as defined herein) shall give holders of the Convertible Debentures notice of
all uncured defaults or events of default within 30 days after occurrence.
However, except in the case of a default or an event of default in payment on
the Convertible Debentures, the Indenture Trustee is
16
<PAGE> 17
protected in withholding such notice if its officers or directors in good faith
determine that withholding of such notice is in the interest of the holders. See
"Description of the Convertible Debentures -- Events of Default."
OPTION TO EXTEND INTEREST PAYMENT PERIODS; CERTAIN TAX CONSEQUENCES
The Company has the right under the Indenture to defer payments of interest
on the Convertible Debentures by extending the interest payment period at any
time, and from time to time, on the Convertible Debentures. As a consequence of
such an extension, quarterly distributions on the Preferred Securities would be
deferred by the Trust (but despite such deferral would continue to accrue, with
interest thereon, compounded quarterly at the distribution rate, to the extent
permitted by applicable law) during any such extended interest payment period.
Such right to extend the interest payment period for the Convertible Debentures
is limited to a period not exceeding 20 consecutive quarters, during which no
interest shall be due and payable, provided, that no such Extension Period may
extend beyond the maturity date of the Convertible Debentures. In the event that
the Company exercises this right to defer interest payments, the Company has
agreed (a) not to declare or pay dividends on, or make a distribution with
respect to, or redeem or purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock (other than (i) purchases or acquisitions
of shares of Common Stock (or Common Stock equivalents) 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 requiring the Company to purchase shares of Common Stock (or Common
Stock equivalents) (provided that such contract is in effect or such security is
outstanding at least 60 days prior to the commencement of such Extension
Period), (ii) purchases of shares of Common Stock (or Common Stock equivalents)
from officers or employees of the Company or its subsidiaries upon termination
of employment or retirement not pursuant to any obligation under any contract or
security requiring the Company to purchase shares of Common Stock (or Common
Stock equivalents) (provided that such purchases by the Company upon termination
of employment or retirement shall be made at a price not to exceed the market
value on the date of any such purchase and shall not exceed $7.5 million in the
aggregate for all officers and employees), (iii) 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, (iv) dividends or distributions of shares of
Common Stock on Common Stock or (v) 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
(or make any guarantee payments with respect to the foregoing)), (b) not to make
any payment of interest, principal or premium, if any, on or repay, repurchase
or redeem any debt securities (including guarantees) issued by the Company that
rank pari passu with or junior to the Convertible Debentures and (c) not to 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 previous and further extensions thereof, may not
exceed 20 consecutive quarters or extend beyond the maturity date of the
Convertible Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, the Company may select a new Extension Period,
subject to the above requirements. See "Description of the Preferred
Securities -- Distributions" and "Description of the Convertible
Debentures -- Option to Extend Interest Payment Periods."
Should the Company exercise its right to defer payments of interest by
extending the interest payment period or should the Convertible Debentures be
deemed to have originally been issued with original issue discount ("OID"),
under recently issued Treasury regulations, each holder of Preferred Securities
would be required to accrue in income (as OID) the amount of the deferred stated
interest allocable to its Preferred Securities for federal income tax purposes,
which will be allocated but not distributed, to holders of record of Preferred
Securities. As a result, each such holder of Preferred Securities will recognize
income for federal income tax purposes in advance of the receipt of cash and
will not receive the cash from the Trust related to such income if such holder
disposes of its Preferred Securities prior to the record date for the date on
which distributions of such amounts are made. Similarly, all payments of stated
interest made thereafter will be treated as OID. The Company has no current
intention of exercising its right to defer payments of interest by extending the
interest payment period on the Convertible Debentures. However, should the
Company
17
<PAGE> 18
determine to exercise such right in the future, the market price of the
Preferred Securities is likely to be affected. A holder that disposes of its
Preferred Securities during an Extension Period, therefore, might not receive
the same return on its investment as a holder that continues to hold its
Preferred Securities. In addition, as a result of the existence of the Company's
right to defer interest payments, the market price of the Preferred Securities
(which represent an undivided beneficial interest in the Convertible Debentures)
may be more volatile than other securities on which OID accrues that do not have
such rights. See "Certain Federal Income Tax Considerations -- Interest Income
and Original Issue Discount."
SPECIAL EVENT DISTRIBUTION; TAX EVENT REDEMPTION
Upon the occurrence of a Special Event, the Trust shall be dissolved,
except in the limited circumstances described below, with the result that
Convertible Debentures would be distributed to the holders of the Trust
Securities in connection with the liquidation of the Trust. In the case of a
Special Event which is a Tax Event, the Company shall have the right in certain
circumstances to redeem the Convertible Debentures, in whole but not in part, in
lieu of a distribution of the Convertible Debentures by the Trust, in which
event the Trust will redeem the Trust Securities. See "Description of the
Preferred Securities -- Special Event Redemption or Distribution."
Under current federal income tax law, a distribution of Convertible
Debentures upon the dissolution of the Trust would not be a taxable event to
holders of the Preferred Securities. A dissolution of the Trust in which holders
of the Preferred Securities receive cash would be a taxable event to such
holders. See "Certain Federal Income Tax Considerations -- Receipt of
Convertible Debentures or Cash Upon Liquidation of the Trust." If, however, the
Trust is characterized for United States federal income tax purposes as an
association taxable as a corporation at the time of its dissolution, the
distribution of the Convertible Debentures may constitute a taxable event to
holders of Preferred Securities.
There can be no assurance as to the market prices for the Preferred
Securities or the Convertible Debentures that may be distributed in exchange for
Preferred Securities if a dissolution or liquidation of the Trust were to occur.
Accordingly, the Preferred Securities or the Convertible Debentures may trade at
a discount to the price that the investor paid to purchase the Preferred
Securities offered hereby. Because holders of Preferred Securities may receive
Convertible Debentures upon the occurrence of a Special Event, prospective
purchasers of Preferred Securities are also making an investment decision with
regard to the Convertible Debentures and should carefully review all the
information regarding the Convertible Debentures contained in this Prospectus.
See "Description of the Preferred Securities -- Special Event Redemption or
Distribution" and "Description of the Convertible Debentures -- General."
TERMINATION OF CONVERSION RIGHTS
On and after December 31, 1999, the Company may, subject to certain
conditions, at its option, cause the conversion rights of holders of Convertible
Debentures to terminate, provided that the Closing Price of the Common Stock
exceeds 120% of the then applicable conversion price of the Preferred Securities
for a specified period, in which case the right to convert the Preferred
Securities into Common Stock will likewise terminate. See "Description of the
Preferred Securities -- Termination of Conversion Rights."
PROPOSED TAX LEGISLATION
On March 19, 1996, President Clinton proposed certain legislation (the
"Proposed Legislation") that would, among other things, generally deny corporate
issuers a deduction for interest in respect of certain debt obligations with a
maximum term of more than 20 years that are not shown as indebtedness on the
consolidated balance sheet of the issuer and that are issued on or after
December 7, 1995. On March 29, 1996, Senate Finance Committee Chairman William
V. Roth, Jr. and House Ways and Means Committee Chairman Bill Archer issued a
joint statement (the "Joint Statement") indicating their intent that the
Proposed Legislation, if adopted by either of the tax-writing committees of
Congress, would have an effective date that is no earlier than the date of
"appropriate Congressional action." In addition, subsequent to the publication
of the Joint Statement, Senator Daniel Patrick Moynihan and Representatives Sam
M. Gibbons
18
<PAGE> 19
and Charles B. Rangel wrote letters to Treasury officials concurring with the
views expressed in the Joint Statement (the "Democrat Letters"). Based upon the
Joint Statement and the Democrat Letters, it is expected that if the Proposed
Legislation were to be enacted, such legislation would not apply to the
Convertible Debentures because they will be issued prior to the date of any
"appropriate Congressional action." Furthermore, even if the Proposed
Legislation were enacted in its current form with effective date provisions
making it applicable to the Convertible Debentures, it would not affect the
Company's ability to deduct the interest payable on the Convertible Debentures
because their maximum term will not exceed 20 years. There can be no assurance,
however, that any proposed legislation enacted after the date hereof will not
adversely affect the ability of the Company to deduct the interest payable on
the Convertible Debentures. Accordingly, there can be no assurance that a Tax
Event will not occur. See "Description of the Preferred Securities -- Special
Event Redemption or Distribution."
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have limited voting rights and will
not be entitled to vote to appoint, remove or replace, or to increase or
decrease the number of, trustees of the Trust (the "Issuer Trustees"), which
voting rights are vested exclusively in the holder of the Common Securities. See
"Description of the Preferred Securities -- Voting Rights."
TRADING CHARACTERISTICS OF PREFERRED SECURITIES
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Convertible Debentures. In addition, as a result of the Company's right to defer
interest payments, the market price of the Preferred Securities (which represent
an undivided interest in the Convertible Debentures) may be more volatile than
other similar securities where the issuer does not have such right to defer
interest payments. To the extent that a holder sells Preferred Securities at a
price that is less than the holder's adjusted tax basis, and assuming that the
Preferred Securities are held as capital assets by such holder, such holder will
generally recognize a capital loss. Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for federal income
tax purposes. See "Certain Federal Income Tax Considerations -- Interest Income
and Original Issue Discount" and "-- Sales of Preferred Securities."
19
<PAGE> 20
FINOVA FINANCE TRUST
FINOVA Finance Trust is a statutory business trust formed under the laws of
the State of Delaware pursuant to (i) a declaration of trust executed by The
FINOVA Group Inc., as sponsor of the Trust, and the Issuer Trustees and (ii) a
certificate of trust filed with the Secretary of State of the State of Delaware.
Prior to the issuance of the Preferred Securities, such declaration 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 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 Common Securities will rank
pari passu, and payment will be made thereon pro rata, with the Preferred
Securities, except that, upon the occurrence and during the continuance of an
event of default under the Declaration, the rights of the holders of the Common
Securities to payment in respect of distributions and payments upon liquidation,
redemption and otherwise will be subordinated to the rights of the holders of
the Preferred Securities. The assets of the Trust will consist solely of the
Convertible Debentures. The Trust exists for the exclusive purpose of (i)
issuing the Trust Securities representing undivided beneficial interests in the
assets of the Trust, (ii) investing the gross proceeds of the Trust Securities
in the Convertible Debentures and (iii) engaging in only those other activities
necessary or incidental thereto.
Pursuant to the Declaration, the number of Issuer Trustees will initially
be four. Two of the Issuer Trustees (the "Regular Trustees") will be individuals
who are employees or officers of or who are affiliated with the Company. The
third trustee will be a financial institution that is unaffiliated with the
Company (the "Property Trustee"). The fourth trustee will be an entity that
maintains its principal place of business in the State of Delaware (the
"Delaware Trustee"). Initially, Fleet National Bank, a national banking
association, will act as Property Trustee and First Union Bank of Delaware, a
Delaware banking corporation, will act as Delaware Trustee, until, in each case,
removed or replaced by the holder of the Common Securities. Fleet National Bank
will also act as indenture trustee under the Guarantee (the "Guarantee Trustee")
and under the Indenture (the "Indenture Trustee"). See "Description of the
Preferred Securities" and "Description of the Guarantee."
The Property Trustee will hold title to the Convertible 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 Convertible Debentures. In addition, the Property Trustee will maintain
exclusive control of a segregated non-interest bearing bank account (the
"Property Account") to hold all payments made in respect of the Convertible
Debentures for the benefit of the holders of the Trust Securities. The Guarantee
Trustee will hold the Guarantee for the benefit of the holders of the Preferred
Securities. The Company, as the holder of all the Common Securities, will have
the right to appoint, remove or replace any of the Issuer Trustees and to
increase or decrease the number of trustees, provided, that the number of
trustees shall be at least two. The Company will pay all fees and expenses
related to the Trust and the offering of the Preferred Securities. See
"Description of the Convertible Debentures."
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are as set forth in the
Declaration and the Delaware Business Trust Act, as amended (the "Trust Act").
See "Description of the Preferred Securities." The Declaration, the Indenture
and the Guarantee also incorporate by reference the terms of the Trust Indenture
Act.
The place of business and the telephone number of the Trust are the
principal executive offices and telephone number of the Company.
ACCOUNTING TREATMENT
The financial statements of the Trust will be reflected in the Company's
consolidated financial statements, with the Preferred Securities shown as
Company-Obligated Mandatorily Redeemable Convertible Preferred Securities of
Subsidiary Trust Holding Solely Convertible Debentures of the Company. A
footnote to such consolidated financial statements will indicate that the sole
assets of the Trust are 5 1/2% Convertible Subordinated Debentures due 2016 of
the Company with an original principal amount of $103,092,800 ($118,556,750 if
the Underwriters' over-allotment option is exercised in full) and that the
Guarantee, when
20
<PAGE> 21
taken together with the Company's obligations under the Convertible Debentures,
the Indenture and the Declaration, provide a full and unconditional guarantee on
a subordinated basis by the Company of the Trust's obligations under the
Preferred Securities. See "Capitalization."
USE OF PROCEEDS
The proceeds from the sale of the Preferred Securities offered hereby will
be invested by the Trust in the Convertible Debentures. The Company intends to
contribute the net proceeds from the sale of the Convertible Debentures,
estimated to be approximately $97 million ($111.6 million if the Underwriters'
over-allotment option is exercised in full) to FINOVA Capital, which intends to
use such net proceeds to repay commercial paper or other indebtedness. As of
September 30, 1996, the weighted average interest rate on such borrowings was
6.69% per annum.
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock of the Company is traded on the NYSE. The following tables
summarize the high and low sale prices per share of Common Stock as reported on
the NYSE Composite Tape and the cash dividends declared per share of Common
Stock for the periods indicated.
<TABLE>
<CAPTION>
CASH
DIVIDENDS
HIGH LOW DECLARED
---- --- ---------
<S> <C> <C> <C>
1994:
First Quarter................................................. $33 3/4 $28 1/4 $ .18
Second Quarter................................................ 34 3/8 29 1/8 .18
Third Quarter................................................. 39 33 1/8 .18
Fourth Quarter................................................ 35 7/8 29 1/8 .20
1995:
First Quarter................................................. $34 $30 5/8 $ .20
Second Quarter................................................ 38 1/2 31 3/4 .20
Third Quarter................................................. 45 3/4 34 7/8 .22
Fourth Quarter................................................ 49 1/2 44 5/8 .22
1996:
First Quarter................................................. $56 $46 1/4 $ .22
Second Quarter................................................ 56 3/8 48 .22
Third Quarter................................................. 60 1/2 48 1/4 .24
Fourth Quarter (through December 5, 1996)..................... 67 1/4 59 5/8 .24
</TABLE>
As of November 1, 1996, there were approximately 25,000 holders of record
of the Common Stock. The last reported sale price of the Common Stock on the
NYSE as of a recent date is set forth on the cover pages of this Prospectus.
Following the Spin-Off, the Company has paid quarterly dividends on the
first business day of each calendar quarter. It is anticipated that the Company
will continue to pay regular quarterly dividends on the first business day of
January, April, July and October. The declaration of dividends and their amounts
will be at the discretion of the Board of Directors of the Company, and there
can be no assurance that additional dividends will be declared.
FINOVA Capital, the Company's principal subsidiary, is limited in its
ability to pay dividends to its sole stockholder, the Company. The agreements
pertaining to long-term debt of FINOVA Capital include various restrictive
covenants and require the maintenance of certain defined financial ratios with
which FINOVA Capital has complied. Under one of these covenants, dividend
payments are generally limited to 50% of the sum of accumulated earnings and
proceeds from equity issued after December 31, 1991.
21
<PAGE> 22
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization,
including deferred income taxes, of the Company and its consolidated
subsidiaries at September 30, 1996, and as adjusted to give effect to the sale
of the Preferred Securities offered hereby and the application of the estimated
net proceeds therefrom as described in "Use of Proceeds." The table should be
read in conjunction with the historical consolidated financial statements of the
Company and related notes included in the 1995 Form 10-K and the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. See
"Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1996
---------------------------
AS
ACTUAL ADJUSTED
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Senior debt....................................................... $6,350,043 $6,253,043
Deferred income taxes............................................. 247,574 247,574
Company-Obligated Mandatorily Redeemable Convertible Preferred
Securities of Subsidiary Trust(1)............................... -- 100,000
Stockholders' equity:
Preferred stock-- $.01 par value; authorized 5,000,000 shares;
none outstanding............................................. -- --
Common stock -- $.01 par value; authorized 100,000,000 shares;
28,422,000 shares issued(2).................................. 284 284
Additional capital.............................................. 684,493 684,493
Retained income................................................. 250,758 250,758
Cumulative translation adjustments.............................. (5,228) (5,228)
Common stock in treasury (951,000 shares)....................... (33,726) (33,726)
---------- ----------
Total stockholders' equity................................... 896,581 896,581
---------- ----------
Total capitalization....................................... $7,494,198 $7,497,198
========== ==========
</TABLE>
- ---------------
(1) As described herein, the sole assets of the Trust will be 5 1/2% Convertible
Subordinated Debentures due 2016 of the Company with an original principal
amount of $103,092,800 ($118,556,750 if the Underwriters' over-allotment
option is exercised in full) and, upon redemption thereof, an equal amount
of the Preferred Securities will be mandatorily redeemable.
(2) Does not include approximately 1,767,000 shares of Common Stock reserved for
issuance under the Company's 1992 Stock Incentive Plan and the shares of
Common Stock reserved for issuance upon conversion of the Preferred
Securities.
22
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of and for the five
years ended December 31, 1995 have been derived from the audited consolidated
financial statements of the Company and its subsidiaries. References to the
Company contained in the footnotes below mean the Company and its consolidated
subsidiaries. The following selected consolidated financial data as of and for
the nine months ended September 30, 1995 and 1996 have been derived from the
unaudited consolidated financial statements of the Company which, in the opinion
of management, include all normal recurring adjustments necessary to present
fairly the information required to be set forth therein. Results of operations
and financial condition as of and for the nine months ended September 30, 1996
do not purport to be indicative of results of operations or financial condition
to be expected for the year ending December 31, 1996. The following data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's consolidated financial
statements and the notes thereto. See "Incorporation of Certain Documents by
Reference." Per share data for income and dividends and average outstanding
common and equivalent shares has not been presented for 1991, as the Company was
not a publicly held company prior to the Spin-Off from Dial in 1992.
<TABLE>
<CAPTION>
AS OF AND FOR THE
NINE MONTHS
ENDED SEPTEMBER 30, AS OF AND FOR THE YEAR ENDED DECEMBER 31,
------------------------- ------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- ----------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Interest and income earned from
financing transactions......... $ 640,462 $ 551,737 $ 761,855 $ 503,351 $ 255,216 $ 243,337 $ 251,472
Interest expense................. 298,158 267,857 366,822 222,200 123,853 136,107 157,560
Depreciation..................... 47,150 38,891 55,218 36,737 6,516 2,531 --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Interest margins earned.......... 295,154 244,989 339,815 244,414 124,847 104,699 93,912
Provision for possible credit
losses(1)...................... 38,800 28,800 47,300 16,670 5,706 6,740 77,687
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest margins earned...... 256,354 216,189 292,515 227,744 119,141 97,959 16,225
Gains on sale of assets.......... 10,253 11,699 19,726 9,045 5,439 3,362 6,684
Selling, administrative and other
operating expenses............. 129,992 112,578 155,001 113,018 58,158 50,728 59,923
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes....... 136,615 115,310 157,240 123,771 66,422 50,593 (37,014)
Income taxes..................... 51,610 44,163 59,611 49,458 28,576 13,843 1,728
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from continuing
operations..................... $ 85,005 $ 71,147 $ 97,629 $ 74,313 $ 37,846 $ 36,750 $ (38,742)
=========== =========== =========== =========== =========== =========== ===========
Income per common and equivalent
share:
Income from continuing
operations before preferred
dividends.................... $ 3.04 $ 2.56 $ 3.51 $ 2.94 $ 1.86 $ 1.80
Preferred dividends............ -- -- -- -- .06 .09
----------- ----------- ----------- ----------- ----------- -----------
Income from continuing
operations................... $ 3.04 $ 2.56 $ 3.51 $ 2.94 $ 1.80 $ 1.71
=========== =========== =========== =========== =========== ===========
Dividends declared per common
share........................ $ .68 $ .62 $ .84 $ .74 $ .68 $ .42
Average outstanding common and
equivalent shares............ 27,971,000 27,845,000 27,832,000 25,307,000 20,332,000 20,464,000
Ratio of earnings to fixed
charges (2).................... 1.46x 1.43x 1.43x 1.55x 1.53x 1.37x (2)
FINANCIAL POSITION:
ASSETS
Cash and cash equivalents........ $ 56,852 $ 20,293 $ 90,280 $ 49,875 $ 929 $ 18,203 $ 37,903
Investment in financing
transactions:
Loans and other financing
contracts, net............... 5,041,061 4,707,898 4,794,181 4,034,648 2,343,755 1,919,371 1,739,978
Direct finance leases.......... 1,016,546 758,763 828,713 774,834 71,812 138,871 201,327
Operating leases............... 506,399 431,297 460,798 412,782 147,222 100,911 75,204
Leveraged leases............... 456,898 323,760 366,196 287,518 283,782 269,370 265,363
Factored receivables........... 614,372 387,502 369,169 157,862
----------- ----------- ----------- ----------- ----------- ----------- -----------
7,635,276 6,609,220 6,819,057 5,667,644 2,846,571 2,428,523 2,281,872
Less reserve for possible credit
losses(1)...................... (156,339) (131,564) (140,333) (122,233) (64,280) (69,291) (87,600)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Investment in financing
transactions - net............. 7,478,937 6,477,656 6,678,724 5,545,411 2,782,291 2,359,232 2,194,272
Investment in and advances to
Verex Corporation.............. 221,312 152,171
Other assets and deferred
charges........................ 340,059 275,698 267,510 226,057 51,102 42,921 30,138
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total assets..................... $ 7,875,848 $ 6,773,647 $ 7,036,514 $ 5,821,343 $ 2,834,322 $ 2,641,668 $2,414,484
=========== =========== =========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts payable and accrued
expenses....................... $ 94,057 $ 120,987 $ 125,349 $ 134,501 $ 49,131 $ 42,774 $ 58,151
Due to clients................... 255,827 208,614 181,548 116,639 -- -- --
Due to The Dial Corp............. 10,727
Interest payable................. 31,766 32,849 45,553 37,710 23,633 29,062 25,486
Senior and subordinated debt..... 6,350,043 5,403,323 5,649,368 4,573,354 2,079,286 1,883,709 1,750,178
Deferred income taxes............ 247,574 202,561 209,512 188,887 178,972 172,727 198,366
----------- ----------- ----------- ----------- ----------- ----------- -----------
6,979,267 5,968,334 6,211,330 5,051,091 2,331,022 2,128,272 2,042,908
Redeemable preferred stock....... -- -- -- -- -- 25,000 --
Stockholders' equity............. 896,581 805,313 825,184 770,252 503,300 488,396 371,576
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity........... $ 7,875,848 $ 6,773,647 $ 7,036,514 $ 5,821,343 $ 2,834,322 $ 2,641,668 $2,414,484
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
- ---------------
(1) In 1991, the Company recorded a special provision for possible credit losses
of $65 million and recorded write-offs of $15 million related to nonearning
assets in its FCL portfolio and a $47.8 million write-down to reduce Latin
American assets to current market value.
(2) For purposes of the computation of these ratios, earnings consist of income
before income taxes and fixed charges; and fixed charges include interest
and related debt expense and a portion of rental expense determined to be
representative of interest. For the year ended December 31, 1991, earnings
were inadequate to cover combined fixed charges by $37.0 million.
23
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FINOVA GROUP INC.
For purposes of Management's Discussion and Analysis of Financial Condition
and Results of Operations only, references to "FINOVA" or the "Company" mean,
collectively, The FINOVA Group Inc. and its subsidiaries, including FINOVA
Capital Corporation and its subsidiaries (collectively, "FINOVA Capital").
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995
Net income for the nine months ended September 30, 1996 was $85.0 million
($3.04 per common and equivalent share), compared to $71.1 million ($2.56 per
common and equivalent share) for the first nine months of 1995, representing a
19% increase in net income and earnings per share. The increase in earnings was
primarily due to portfolio growth, higher interest margins earned, lower
nonearnings and improved operating efficiencies (operating expenses as a
percentage of interest margins earned), as detailed below.
Interest Margins Earned. Interest margins earned, which represent the
difference between (a) interest and income earned from financing transactions
and operating leases and (b) interest expense and depreciation, were $295.2
million for the nine months ended September 30, 1996, compared with $245.0
million during the same period in 1995, an increase of 20%. The increase in
interest margins earned was primarily due to a 19% growth in average managed
assets (funds employed and assets sold under securitization agreements that are
managed by the Company) and an increase in the interest margin as a percentage
of average earning assets, which increased to 5.9% for the nine months ended
September 30, 1996 from 5.8% for the same period in 1995.
Non-Interest Expense. The provision for possible credit losses, which
increases the reserve for possible credit losses, increased to $38.8 million for
the first nine months of 1996 from $28.8 million in 1995, primarily due to the
increase in managed assets. The reserve for possible credit losses as a
percentage of nonaccruing assets increased to 90.5% at September 30, 1996 from
77.8% at September 30, 1995.
Selling, administrative and other operating expenses were higher during the
first nine months of 1996 than in 1995, due primarily to the growth in managed
assets and higher incentive compensation expenses related to the Company's
improved results and stock performance. As a percentage of interest margins
earned, these expenses decreased to 44.0% in the first nine months of 1996, from
46.0% during the same period in 1995.
Gains on Sale of Assets. Gains on sale of assets were lower in 1996
compared to 1995, primarily due to the amount and type of assets coming off
lease during the respective periods. The timing of such gains is sporadic in
nature.
Income Taxes. Income taxes increased during the nine months ended
September 30, 1996, primarily due to the increase in pre-tax income, partially
offset by a lower effective tax rate. The lower effective tax rate, which
decreased from 38.3% in 1995 to 37.8% in the first nine months of 1996, was
primarily related to lower foreign tax effects and increased tax exempt
municipal income.
1995 Compared to 1994
Net income increased 31% during 1995 to $97.6 million ($3.51 per common and
equivalent share) from $74.3 million ($2.94 per common and equivalent share) in
1994. The 1994 results include income from Ambassador and Tri-Con from the
acquisition dates.
Interest Margins Earned. Interest margins earned increased by 39% in 1995
to $339.8 million from $244.4 million in 1994. This increase was driven by a 20%
growth in managed assets which included Ambassador (which the Company acquired
on February 14, 1994) and TriCon (which the Company acquired on April 30, 1994)
for the entire year. The primary source of the growth in managed assets was new
business,
24
<PAGE> 25
which totaled $2.6 billion for 1995 compared to $1.8 billion for 1994, an
increase of 43%. Also contributing to the improved margins were the fees
associated with the factoring business, which recorded factoring volume of $1.1
billion in 1995 compared to $847 million in 1994 and the inventory finance
business, which recorded floor planning volume of $898 million in 1995 compared
to $283 million in 1994.
Interest margins earned as a percentage of average earning assets were 5.8%
in 1995, compared to 6.0% in 1994. This reduction in the interest margin
percentage was expected in 1995 primarily due to the cost of hedges that the
Company entered into to lock in the spread between its lending and borrowing
rates on $1.5 billion of its floating-rate debt and to the diminishing ratio of
the higher yielding business relative to the total portfolio. Growth in interest
margins earned more than offset the higher provisions for possible credit losses
and the higher selling, administrative and other operating expenses in the 1995
period.
Non-Interest Expense. Loss provisions, which increase the reserve for
possible credit losses, were greater by $30.6 million during 1995 compared to
1994 primarily due to the growth in managed assets. See Note D of Notes to
Consolidated Financial Statements in the Company's 1995 Form 10-K incorporated
herein by reference.
Selling, administrative and other operating expenses increased by $42
million in 1995 due to the growth of the Company, the large volume of new
business added and the inclusion of TriCon and Ambassador for the full year. As
a percentage of interest margins earned, these costs decreased to 45.6% in 1995
from 46.2% in the previous year. See Note M of Notes to Consolidated Financial
Statements in the Company's 1995 Form 10-K incorporated herein by reference.
Gains on Sale of Assets. Gains on sale of assets were $10.7 million higher
in 1995 compared to 1994 primarily due to the inclusion of TriCon for the full
year and the amount and type of assets coming off lease. The 1994 gains of $9.0
million included $4.0 million (pre-tax) from the securitization of assets in
June 1994.
Income Taxes. Income taxes for 1995 increased to $59.6 million from $49.5
million in 1994. This increase was caused by the increase in pre-tax income,
partially offset by certain tax credits recognized during 1995. The 1995 overall
effective income tax rate for the Company approximated 37.9% compared to 40.0%
in 1994. The decrease in the effective rate is primarily related to lower
foreign tax effects and an increase in tax exempt municipal income. See Note I
of Notes to Consolidated Financial Statements in the Company's 1995 Form 10-K
incorporated herein by reference.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Managed assets grew by $847.8 million during the first nine months of 1996
and totaled $7.97 billion at September 30, 1996. The increase was attributable
primarily to new business of $2.10 billion during the period, compared to $1.69
billion for the nine months ended September 30, 1995 and the addition of $318
million of acquired portfolios through the acquisition of LINC and FSI,
partially offset by portfolio prepayments and amortization.
The reserve for possible credit losses increased to $156.3 million at
September 30, 1996 from $140.3 million at December 31, 1995, primarily due to
the increase in managed assets. Write-offs during the nine months ended
September 30, 1996 were $31.0 million compared to $22.9 million during 1995,
while recoveries increased to $2.1 million for the first nine months of 1996
from $1.7 million in 1995. Nonaccruing assets increased to $172.8 million at
September 30, 1996, compared to $167.9 million at the end of 1995; however,
nonaccruing assets as a percentage of managed assets decreased to 2.2% from 2.4%
at December 31, 1995.
Growth in funds employed is generally financed by the Company's internally
generated cash flow and new borrowings. During the nine months ended September
30, 1996, FINOVA Capital issued $565 million in new long-term borrowings and
recognized a net increase in commercial paper borrowings of approximately $467
million. Repayments of long-term debt totaled $586 million during the first nine
months of 1996. The Company had total debt of $6.35 billion at September 30,
1996 compared to year-end 1995 debt of $5.65 billion. At September 30, 1996, the
Company also had deferred income taxes of $247.6 million, generally used to
reduce debt and, therefore, help finance lending activities.
25
<PAGE> 26
FINOVA satisfies a significant portion of its cash requirements from a
diversified group of worldwide funding sources and is not dependent upon any one
lender. Additionally, FINOVA relies on the issuance of commercial paper as a
major funding source. During the first nine months of 1996, FINOVA Capital
issued $16.4 billion of commercial paper (with an average of $2.5 billion
outstanding during the nine-month period) and raised $565 million, as noted
above, through new long-term financings of one to 10 year durations. At
September 30, 1996 and December 31, 1995, commercial paper and short-term bank
borrowings totaling $2.9 billion and $2.4 billion, respectively, were supported
by available unused revolving credit lines which, if not renewed, are
convertible to long-term debt at FINOVA's option.
In 1995, FINOVA Capital filed a shelf-registration statement with the
Commission that allowed for the issuance of $1.5 billion of senior debt
securities, $815 million of which remained available as of September 30, 1996.
Also in 1995, the Company, under a securitization agreement, sold a $200 million
undivided proportionate interest in a loan portfolio totaling approximately
$610.5 million; and in the first quarter of 1996, the Company sold an additional
$100 million under the same securitization agreement. See Note C of Notes to
Consolidated Financial Statements in the Company's 1995 Form 10-K incorporated
herein by reference.
FINOVA Capital currently maintains three five-year revolving credit
facilities with numerous lenders, in the aggregate principal amount of $2.4
billion. Separately, FINOVA Capital also has a 364-day revolving credit facility
with the same lenders in the aggregate principal amount of $1.0 billion. These
facilities support FINOVA's outstanding commercial paper and short-term
borrowings. The Company intends to borrow under the revolving credit agreements
to refinance commercial paper and short-term bank loans to the extent that it
experiences significant difficulties in rolling over its outstanding commercial
paper and short-term bank loans. The Company has rarely borrowed under these
facilities. The 364-day $1.0 billion revolving credit facility will be subject
to renewal in 1997, while the five-year credit facilities are subject to renewal
in 2001.
The agreements pertaining to long-term debt of FINOVA Capital include
various restrictive covenants and require the maintenance of certain defined
financial ratios with which FINOVA Capital has complied. Under one such
covenant, dividend payments are limited to 50 percent of accumulated earnings
after December 31, 1991.
FINOVA Capital's aggregate cost of funds decreased to 6.8% for the first
nine months of 1996 from 7.2% for 1995 partially as a result of maturing of
higher coupon debt, a ratings upgrade and the expiration of certain hedges. The
Company's cost of and access to capital is dependent, in a large part, on its
credit ratings. FINOVA Capital has maintained investment grade ratings since
1976, and received an upgrade in those ratings from Standard & Poor's Ratings
Group in 1995 and 1996 and Moody's Investor Service, Inc. in 1995. FINOVA
Capital currently has investment-grade ratings from the following agencies:
<TABLE>
<CAPTION>
COMMERCIAL SENIOR
PAPER DEBT
---------- ------
<S> <C> <C>
Duff & Phelps Credit Rating Co..................................... D1- A-
Fitch Investors Service, L.P....................................... F1 A
Moody's Investors Service, Inc..................................... P2 Baa1
Standard & Poor's Ratings Group.................................... A2 A-
</TABLE>
At September 30, 1996, FINOVA Capital had outstanding 55 interest rate
conversion agreements with notional principal amounts totaling $3.2 billion.
Twenty-one agreements with notional principal amounts of $954 million were
arranged to effectively convert certain floating interest rate obligations into
fixed interest rate obligations and require interest payments on the stated
principal amount at rates ranging from 4.21% to 9.10% (remaining terms of one
month to five years) in return for receipts calculated on the same notional
amounts at floating interest rates. In addition, 27 agreements with notional
principal amounts of $1.35 billion were arranged to effectively convert certain
fixed interest rate obligations into floating interest rate obligations and
require interest payments on the stated principal amount at the three month or
six month London interbank offered rates ("LIBOR") (remaining terms of six
months to 10 years) in return for receipts calculated on the same notional
amounts at fixed interest rates of 5.51% to 7.59%. FINOVA Capital has also
entered into seven basis swap agreements with notional principal amounts of $878
million and remaining terms of three months to two years.
26
<PAGE> 27
In 1995, FINOVA Capital hedged $750 million of floating-rate debt through
five basis swap agreements expiring through 1998, to lock in a spread between
its lending and borrowing rates. FINOVA's assets are primarily prime based while
a significant portion of its liabilities are tied to the 30-day commercial paper
composite rate. The agreements enable FINOVA to hedge against a narrowing of the
spread between the prime rate (lending rate) and its borrowing rate (30-day
commercial paper). See Note F of Notes to Consolidated Financial Statements in
the Company's 1995 Form 10-K incorporated herein by reference.
The Company announced in 1992 that it intended to repurchase its securities
on the open market, from time to time, to fund its obligations pursuant to
employee stock options, benefit plans and similar obligations. Under this
program, 611,600, 602,800 and 349,909 shares were acquired during the years
ended December 31, 1995, 1994 and 1993, respectively, and no shares were
acquired during the nine months ended September 30, 1996. The program may be
discontinued at any time.
27
<PAGE> 28
BUSINESS
GENERAL
The Company is a financial services holding company incorporated in
Delaware in December 1991, which through its direct and indirect subsidiaries is
primarily engaged in providing collateralized financing and leasing products to
commercial enterprises in focused market niches, principally in the United
States. Through its principal subsidiary, FINOVA Capital, the Company has been
engaged in collateralized lending and equipment leasing and financing for over
42 years.
The Company extends revolving credit facilities, term loans and equipment
and real estate financing to "middle-market" businesses with financing needs
falling generally between $500,000 to $35 million. The Company also offers sales
financing programs to manufacturers, distributors, vendors and franchisors which
facilitate sales of their products to customers. The Company currently operates
primarily in 13 specific industry or market niches in which its expertise in
evaluating the creditworthiness of prospective customers and its ability to
provide value-added services enables it to differentiate itself from its
competitors and to command product pricing which provides a satisfactory spread
over the Company's borrowing costs.
The Company seeks to maintain a high quality portfolio and to minimize
nonearning assets and write-offs by using clearly defined underwriting criteria,
stringent portfolio management techniques and by diversifying its lending
activities geographically and among a range of industries, customers and loan
products. Because of the diversity of the Company's portfolio, the Company
believes it is better able to manage competitive changes in its markets and to
withstand the impact of deteriorating economic conditions on a regional or
national basis, although there can be no assurance that competitive changes,
borrowers' performance or economic conditions will not result in an adverse
impact on the Company's results of operations or financial condition.
The Company generates interest income, other income and gains through
charges assessed on outstanding loans, loan servicing, leasing and other fees
and disposition of equipment upon termination of leases or in other
circumstances. The Company's primary expenses are the costs of funding its loan
and lease business (including interest paid on debt), provisions for possible
credit losses, marketing expenses, salaries and employee benefits, servicing and
other operating expenses and income taxes.
LINES OF BUSINESS
The Company's activities currently include the following principal lines of
business:
- Commercial Equipment Finance offers equipment leases, loans and "turnkey"
financing to the supermarket, manufacturing, packaging and general
aviation industries. Through its acquisition of FSI (now known as FINOVA
Technology Finance), the Company offers equipment leasing and other
financing products to the high technology, life sciences, health care and
environmental technology industries. Typical transaction sizes are
$500,000 to $15 million.
- Commercial Finance offers collateral-oriented revolving credit facilities
and term loans for manufacturers, distributors, wholesalers and service
companies. Typical transaction sizes range from $500,000 to $3 million.
- Commercial Real Estate Finance provides cash-flow-based financing
primarily for acquisitions and refinancings to experienced real estate
developers and owner/occupants of income-producing properties in the
United States. The Company concentrates on secured financing
opportunities, generally between $5 million and $25 million, involving
senior mortgage term loans on owner occupied commercial real estate. The
Company's portfolio of real estate leveraged leases is also managed as
part of the commercial real estate portfolio.
- Communications Finance specializes in radio and television financing.
Other markets include cable television, print and outdoor media services
in the United States. The Company extends secured loans to communications
businesses requiring funds for recapitalizations, refinancings or
acquisitions. Loan sizes generally are from $1 million to $40 million.
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<PAGE> 29
- Corporate Finance provides financing, generally in the range of $2
million to $40 million, focusing on middle market businesses nationally,
including distribution, wholesale, specialty retail, manufacturing and
services industries. The group's lending is primarily in the form of
revolving credit facilities and term loans secured by the assets of the
borrower, with significant emphasis on the borrower's cash flow as the
source of repayment of the secured loan.
- Factoring Services provides full service factoring and accounts
receivable management services for entrepreneurial and larger firms,
operating primarily in the textile and apparel industries. The annual
factored volume of these companies is generally between $5 million and
$25 million.
- Franchise Finance offers equipment, real estate and acquisition financing
programs for operators of established franchise concepts. The equipment
leased to the ultimate end-user is typically purchased by the Company
from the equipment manufacturer, vendor or dealer selected by the
end-user. Typical transaction sizes range from $500,000 to $15 million.
- Government Finance provides primarily tax-exempt financing to state and
local governments and non-profit corporations. Typical transaction sizes
range from $100,000 to $5 million.
- Inventory Finance provides inventory financing, combined
inventory/accounts receivable lines of credit and purchase order
financing for equipment distributors, value-added resellers and dealers.
Transaction sizes generally range from $500,000 to $30 million.
- Medical Finance offers a full range of equipment and real estate
financing and asset management services for the U.S. health care
industry, targeting middle market health care providers in the United
States. Through the acquisition of LINC, the Company now finances medical
accounts receivable. Transaction sizes typically range from $500,000 to
$25 million.
- Rediscount Finance offers $1 million to $35 million revolving credit
lines to regional consumer finance companies, which in turn extend credit
to consumers. The Company's customers provide credit to consumers to
finance home improvements, automobile purchases, insurance premiums and a
variety of other financial needs.
- Resort Finance focuses on successful, experienced resort developers,
primarily of timeshare resorts, second home resort communities, golf
resorts and resort hotels. Extending funds through a variety of lending
options, Resort Finance provides loans and lines of credit ranging from
$5 million to $30 million for construction, acquisitions, receivables
financing and purchases and other uses. Through FINOVA Portfolio
Services, Inc., Resort Finance offers expanded convenience and service to
its customers. Professional receivables collections and cash management
give developers the ability of having loan-related administrative
functions performed for them by the Company.
- Transportation Finance/Capital Services structures secured financings for
specialized areas of the transportation industry, principally involving
domestic and foreign used aircraft, some new aircraft, as well as
domestic short-line railroads including new and used rail equipment.
Typical transactions range from $5 million to $30 million and involve
financing up to 80% of the fair market value of used equipment and as
equity participants in leveraged lease transactions. Traditionally
focused on the domestic marketplace, FINOVA Transportation Finance has
been active in international aircraft lending and leasing since 1992
through an office in London, England. Through its Capital Services
activity, FINOVA also provides leveraged lease financing on
transportation equipment.
29
<PAGE> 30
PORTFOLIO COMPOSITION
The total assets under management of the Company consist of the Company's
net investment in financing contracts plus certain assets that are owned by
others but managed by the Company which are not reflected on the Company's
balance sheet. A breakdown of the Company's investment in financing transactions
by line of business as of September 30, 1996 (before giving effect to the sale
of its Manufacturer & Dealer Services business, as described under "Prospectus
Summary -- Recent Developments") was as follows:
<TABLE>
<CAPTION>
TOTAL
CARRYING AMOUNT
LINE OF BUSINESS (DOLLARS IN THOUSANDS)
-------------------------------------------------- ----------------------
<S> <C>
Transportation Finance............................ $1,222,595
Resort Finance.................................... 1,096,100
Commercial Real Estate Finance.................... 765,932
Corporate Finance................................. 705,820
Manufacturer & Dealer Services.................... 576,970
Medical Finance................................... 557,960
Commercial Equipment Finance...................... 517,520
Communications Finance............................ 505,994
Rediscount Finance................................ 412,868
Franchise Finance................................. 365,080
Inventory Finance................................. 275,920
Factoring Services................................ 240,247
Commercial Finance................................ 202,051
Government Finance................................ 139,481
Other............................................. 50,738
----------
Total........................................... $7,635,276
==========
</TABLE>
The Company's geographic portfolio diversification at September 30, 1996
was as follows:
<TABLE>
<S> <C>
West.............................................. 24.1%
Southeast......................................... 23.6%
Northeast......................................... 22.9%
Midwest........................................... 15.6%
Southwest......................................... 13.8%
------
Total........................................... 100.0%
================
</TABLE>
BUSINESS STRATEGY
Following the Spin-Off, the Company decided to focus its resources and
capital on its core domestic commercial finance activities. The Company embarked
on a program of selling or winding down those businesses included in the
Spin-Off not associated with the Company's core businesses. The Company has
concentrated on redeploying the capital previously invested in such businesses
and raised additional capital to support internal portfolio growth and to make
complimentary acquisitions. This strategy has resulted in (i) the managed
liquidation and sale of FCL and Latin American loan portfolios, (ii) an increase
(excluding acquisitions) in the Company's domestic loan portfolio, (iii) the
acquisition of the asset based lending activity of U.S. Bancorp, (iv) the sale
of Verex Corporation, Dial's discontinued mortgage insurance subsidiary, (v) the
acquisition of Ambassador, the former factoring and asset based lending
subsidiary of Fleet Financial Group, Inc., (vi) the acquisition of TriCon, the
former commercial finance and leasing subsidiary of Bell Atlantic Corporation,
(vii) portfolio purchases of $262 million in 1995, (viii) the acquisition of
LINC, a provider of accounts receivable financing to healthcare providers, (ix)
the acquisition of FSI, a specialty leasing company servicing the high
technology, life sciences, health care and environmental technology
30
<PAGE> 31
industries and (x) the sale of the Company's Manufacturer & Dealer Services
business as described under "Prospectus Summary -- Recent Developments."
The Company seeks to achieve superior financial performance on a consistent
basis by adhering to certain fundamental principles in managing its commercial
finance business:
- Niche Focus. The Company seeks to compete in industry or market niches
in which its expertise in evaluating the creditworthiness of prospective
customers and its ability to provide value-added services enables the
Company to differentiate itself from its competitors and command loan
pricing which provides a satisfactory spread over the Company's borrowing
costs. The Company generally avoids competing solely on the basis of the
interest rate or fees charged to the customer for the Company's loan
products and services. The Company makes a determination of return on
equity for each new financing transaction which it funds. The
determination of the expected return on equity on any one transaction
takes into account loan origination and administration costs, historical
write-off experience in each of the Company's business segments, overhead
allocations, the size and expected term of the financing and the
effective tax rate.
- Maintenance of Asset Quality. The Company seeks to maintain a high
quality loan portfolio and to minimize nonearning assets and write-offs
by using clearly defined underwriting criteria for each of the Company's
business segments, a stringent underwriting process and limited
delegation of credit authority. In addition, the Company actively manages
its portfolio by diversifying its financing activities geographically and
among a range of industries, customers and loan products. Because of the
diversity of the Company's portfolio, the Company believes it is better
able to manage competitive changes in its markets and to withstand the
impact of deteriorating economic conditions on a regional or national
basis.
- Asset/Liability Management. The Company seeks to maintain a match-funded
position in its financing transactions and borrowings so as to minimize
exposure to changing interest rates. The Company generally follows a
policy of funding floating rate assets with floating rate borrowings and
funding fixed rate assets with fixed rate debt, deferred tax liabilities
and with its equity capital. Substantially all of the Company's floating
rate assets are priced using the prime rate, which is set by major U.S.
banks, while its floating rate debt is generally priced using LIBOR,
which is dictated by market conditions. From time to time, the Company
hedges against a contraction in favorable spreads between prime and
LIBOR. Management believes that the Company's results of operations
should not be materially affected by changing interest rates because of
its asset/liability management policies.
- Cost Controls. The Company actively attempts to maximize employee
productivity and to manage selling, administrative and other operating
expenses actively so as to optimize earnings and to enhance its
competitive position. Management believes its operating costs are lower
than many of its competitors when viewed either as a percentage of total
assets or as a percentage of net interest margins earned. As a result,
while certain of the Company's larger competitors may enjoy a lower cost
of funds, management believes that advantage is often offset, at least in
part, by the Company's lower operating costs.
- Acquisitions. Management considers selective acquisitions which
complement the Company's core commercial finance businesses to be an
element in its overall business strategy. Acquisitions permit the Company
to secure a presence in a particular industry or market niche quickly
while simultaneously giving the Company a seasoned loan portfolio,
experienced management and an existing loan origination, underwriting and
administrative infrastructure. The Company does not anticipate making any
significant acquisitions during the balance of 1996. However, management
will consider appropriate opportunities as they arise, and acquisitions
are expected to continue to represent one component of the Company's
longer-term growth strategy.
31
<PAGE> 32
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Declaration. The Declaration will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee, Fleet National Bank, will act as Indenture
Trustee for the Preferred Securities under the Declaration for purposes of
compliance with the provisions of the Trust Indenture Act. The terms of the
Preferred 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 terms and provisions of the Preferred Securities does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
Declaration, a form of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
GENERAL
The Preferred Securities will be issued in fully registered form without
interest coupons. Bearer Preferred Securities will not be issued.
The Declaration authorizes the Regular Trustees to issue the Trust
Securities on behalf of the Trust. The Preferred Securities represent undivided
beneficial ownership interests in the assets of the Trust and entitle the
holders thereof to a preference in certain circumstances with respect to
distributions and amounts payable on redemption or liquidation over the Common
Securities, as well as other benefits as described in the Declaration.
All of the Common Securities will be owned, directly or indirectly, by the
Company. The Common Securities rank pari passu, and payments will be made
thereon on a pro rata basis, with the Preferred Securities, except that upon the
occurrence of a Declaration 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 Preferred Securities. See "-- Subordination of Common Securities."
Title to the Convertible Debentures will be held by the Property Trustee for the
benefit of the holders of the Trust 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. The payment of distributions
out of money held by the Trust, and payments upon redemption of the Preferred
Securities or liquidation of the Trust, are guaranteed by the Company to the
extent described under "Description of the Guarantee." The Guarantee will be
held by Fleet National Bank, the Guarantee Trustee, for the benefit of the
holders of the Preferred 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 Indenture provides that the remedy of a
holder of Preferred Securities is to (i) vote to direct the Property Trustee to
enforce the Property Trustee's rights under the Convertible Debentures or (ii)
if the failure of the Trust to pay distributions is attributable to the failure
of the Company to pay interest or principal on the Convertible Debentures, to
institute a proceeding directly against the Company for enforcement of payment
to such holder of the principal of or interest on the Convertible Debentures
having a principal amount equal to the aggregate liquidation amount of the
Preferred Securities of such holder on or after the respective due date
specified in the Convertible Debentures. See "-- Voting Rights."
DISTRIBUTIONS
Distributions on Preferred Securities will be fixed at a rate per annum of
5 1/2% of the stated liquidation amount of $50 per Preferred Security.
Distributions in arrears for more than one quarter will bear interest thereon at
a rate per annum of 5 1/2% thereof compounded quarterly. The term "distribution"
as used herein includes any such interest payable unless otherwise stated or the
context shall otherwise require. The amount of distributions payable for any
period will be computed on the basis of a 360-day year of twelve 30-day months
and, for any period shorter than a full quarterly distribution period, will be
computed on the basis of the actual number of days elapsed in such a 30-day
month.
Distributions on the Preferred Securities will be cumulative, will accrue
from the Original Issue Date and will be payable quarterly in arrears on each
March 31, June 30, September 30 and December 31, commencing March 31, 1997,
when, as and if available for payment, by the Property Trustee, except as
otherwise described below. The Company has the right under the Indenture to
defer interest payments from time to time
32
<PAGE> 33
on the Convertible Debentures for successive periods not exceeding 20
consecutive quarters during which no interest shall be due and payable;
provided, that no such Extension Period may extend beyond the maturity date of
the Convertible Debentures. Each Extension Period, if any, will end on an
Interest Payment Date (as defined herein) for the Convertible Debentures; such
date will also be a distribution payment date for the Preferred Securities. As a
consequence of such extension, quarterly distributions on the Preferred
Securities would be deferred, although such distributions on the Preferred
Securities would continue to accrue (with interest thereon, compounded quarterly
at the distribution rate, to the extent permitted by applicable law). In the
event that the Company exercises this right, then, during such Extension Period
the Company has agreed (a) not to declare or pay dividends on, or make a
distribution with respect to, or redeem or purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of Common Stock (or Common Stock
equivalents) 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 requiring the Company to
purchase shares of Common Stock (or Common Stock equivalents) (provided that
such contract is in effect or such security is outstanding at least 60 days
prior to the commencement of such Extension Period), (ii) purchases of shares of
Common Stock (or Common Stock equivalents) from officers or employees of the
Company or its subsidiaries upon termination of employment or retirement not
pursuant to any obligation under any contract or security requiring the Company
to purchase shares of Common Stock (or Common Stock equivalents) (provided that
such purchases by the Company upon termination of employment or retirement shall
be made at a price not to exceed the market value on the date of any such
purchase and shall not exceed $7.5 million in the aggregate for all officers and
employees), (iii) 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, (iv)
dividends or distributions of shares of Common Stock on Common Stock or (v) 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 (or make any guarantee payments with
respect to the foregoing)), (b) not to make any payment of interest, principal
or premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by the Company that rank pari passu with or junior
to the Convertible Debentures and (c) not to 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 such
Extension Period; provided that such Extension Period, together with all
previous and further extensions thereof, may not exceed 20 consecutive quarters
or extend beyond the maturity date of the Convertible Debentures. Upon the
termination of any Extension Period and the payment of all amounts then due, the
Company may select a new Extension Period, subject to the above requirements.
Consequently, there could be multiple Extension Periods of varying lengths
throughout the term of the Convertible Debentures. See "Description of the
Convertible Debentures -- Interest" and "Description of the Convertible
Debentures -- Option to Extend Interest Payment Periods." If distributions are
deferred, the deferred distributions and, to the extent permitted by applicable
law, accrued interest thereon shall be paid to the holders of record of
Preferred Securities as they appear on the books and records of the Trust at
5:00 p.m. (New York City time) on the record date for the distribution payment
date upon which such Extension Period terminates.
Distributions on the Preferred Securities will be made to the extent that
the Trust has funds available for the payment of such distributions in the
Property Account. Amounts available to the Trust for distribution to the holders
of the Preferred Securities will be limited to payments received by the Trust
from the Company on the Convertible Debentures. See "Description of the
Convertible Debentures." The payment of distributions out of funds held by the
Trust is guaranteed by the Company to the extent set forth under "Description of
the Guarantee."
Because the Company is a holding company substantially all of whose
operations are conducted through its subsidiaries, the ability of the Company to
pay the principal of and interest on the Convertible Debentures, and therefore
the ability of the Trust to pay distributions on the Preferred Securities, will
depend in large part upon the ability of such subsidiaries to provide funds to
the Company. The ability of certain subsidiaries to provide funds to the Company
is subject to contractual and other limitations, is contingent upon the results
of operations and financial condition of such subsidiaries, and is subject to
various other business considerations.
33
<PAGE> 34
See "Risk Factors -- Holding Company Structure" and "-- Ranking of Subordinate
Obligations Under the Guarantee and Convertible Debentures."
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of the Trust at 5:00 p.m. (New
York City time) on the relevant record dates, which, so long as the Preferred
Securities remain solely in book-entry form, will be one Business Day prior to
the relevant payment dates. In the event that the Preferred Securities do not
continue to remain solely in book-entry form, the record date for each
distribution shall be the day 15 calendar days prior to the relevant payment
date; provided that, if such record date does not conform to the rules of any
securities exchange on which the Preferred Securities are then listed, such
record date shall be changed to conform to the rules of such securities
exchange. 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. In the
event that any date on which distributions are payable on the Preferred
Securities is not a Business Day, payment of the distribution payable on such
date will be made on the next succeeding day which is a Business Day (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. A "Business Day" shall mean any day other than a
Saturday, Sunday or any other day on which banking institutions in The City of
New York or in Wilmington, Delaware are authorized or required by law to close.
CONVERSION RIGHTS
General. Preferred Securities will be convertible at any time prior to the
earlier of (i) 5:00 p.m. (New York City time) on the Business Day immediately
preceding the date of repayment of such Preferred Securities, whether at
maturity or upon redemption, and (ii) 5:00 p.m. (New York City time) on the
Conversion Termination Date (if any), at the option of the holders thereof and
in the manner described below, into shares of Common Stock at the conversion
rate set forth on the cover page of this Prospectus, subject to adjustment as
described under "-- Conversion Price Adjustments" below. The Trust will covenant
in the Declaration not to convert Convertible Debentures held by it except
pursuant to a notice of conversion delivered to the Property Trustee, as initial
conversion agent (the "Conversion Agent") by a holder of Preferred Securities.
A holder of a Preferred Security wishing to exercise its conversion right
shall deliver an irrevocable conversion notice, together, if the Preferred
Security is a Certificated Preferred Security, with such Certificated Preferred
Security, to the Conversion Agent which shall, on behalf of such holder,
exchange such Preferred Security for an equivalent amount of the Convertible
Debentures (based on an exchange ratio of $50 principal amount of Convertible
Debentures for each $50 liquidation amount of Preferred Securities) and
immediately convert such Convertible Debentures into Common Stock. Holders may
obtain copies of the required form of the conversion notice from the Conversion
Agent. So long as a book-entry system for the Preferred Securities is in effect,
however, procedures for converting book-entry Preferred Securities into shares
of Common Stock will differ, as described under "-- Book-Entry Only
Issuance -- The Depository Trust Company."
Holders of Preferred Securities at 5:00 p.m. (New York City time) on a
distribution record date will be entitled to receive the distribution payable on
such Preferred Securities on the corresponding distribution payment date
notwithstanding the conversion of such Preferred Securities following such
distribution record date but on or prior to such distribution payment date.
Except as provided in the immediately preceding sentence, neither the Trust nor
the Company will make, or be required to make, any payment, allowance or
adjustment for accumulated and unpaid distributions, whether or not in arrears,
on converted Preferred Securities; provided, however, that if notice of
redemption of Preferred Securities is mailed or otherwise given to holders of
Preferred Securities or the Trust issues a press release announcing a Conversion
Termination Date, then, if any holder of Preferred Securities converts any
Preferred Securities into Common Stock on any date on or after the date on which
such notice of redemption is mailed or otherwise given or the date of such press
release, as the case may be, and if such date of conversion falls on any day
from and including the first day of an Extension Period and on or prior to the
distribution payment date upon which such Extension Period ends, such converting
holder shall be entitled to receive either (i) if the date of such conversion
falls after a
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distribution record date and on or prior to the next succeeding distribution
payment date, all accrued and unpaid distributions on such Preferred Securities
(including interest thereon, if any, to the extent permitted by applicable law)
to such distribution payment date or (ii) if the date of such conversion does
not fall on a date described in clause (i) above, all accrued and unpaid
distributions on such Preferred Securities (including interest thereon, if any,
to the extent permitted by applicable law) to the most recent distribution
payment date prior to the date of such conversion, which distributions shall, in
either such case, be paid to such converting holder unless the date of
conversion of such Preferred Securities is on or prior to the distribution
payment date upon which such Extension Period ends and after the distribution
record date for such distribution payment date, in which case such distributions
shall be paid to the person who was the holder of such Preferred Securities (or
one or more predecessor Preferred Securities) at 5:00 p.m. (New York City time)
on such distribution record date. See "Description of the Convertible
Debentures -- Redemption," and "Description of Preferred
Securities -- Conversion Rights." The Company will make no payment or allowance
for distributions on the shares of Common Stock issued upon such conversion,
except to the extent that such shares of Common Stock are held of record on the
record date for any such distributions. Each conversion will be deemed to have
been effected immediately prior to 5:00 p.m. (New York City time) on the day on
which the related conversion notice was received by the Conversion Agent.
No fractional shares of Common Stock will be issued as a result of
conversion, but in lieu thereof such fractional interest will be paid by the
Company in cash based on the Closing Price of Common Stock on the date such
Preferred Securities are converted.
Until the Rights Distribution Date (as defined below under "Description of
Capital Stock -- Shareholder Rights Plan") or the earlier expiration, exchange
or redemption of the Rights (as defined under such caption), one Right will be
issued with each share of Common Stock issued upon conversion of the Preferred
Securities. See "Description of Capital Stock -- Shareholder Rights Plan."
Conversion Price Adjustments -- General. The conversion price is subject
to adjustment in certain events, including (a) the issuance of shares of Common
Stock as a dividend or a distribution with respect to Common Stock, (b)
subdivisions, combinations and reclassification of Common Stock, (c) the
issuance to all holders of Common Stock of rights or warrants entitling them
(for a period not exceeding 45 days) to subscribe for or purchase shares of
Common Stock at less than the then Current Market Price (as defined below) of
the Common Stock, (d) the distribution to all holders of Common Stock of
evidences of indebtedness, capital stock, cash or assets (including securities,
but excluding those rights, warrants, dividends and distributions referred to
above and dividends and distributions paid exclusively in cash), (e) the payment
of dividends (and other distributions) on Common Stock paid exclusively in cash,
excluding cash dividends if the annualized per share amount thereof does not
exceed 15% of the Current Market Price of Common Stock as of the trading day
immediately preceding the date of declaration of such dividend, and (f) payment
to holders of Common Stock in respect of a tender or exchange offer (other than
an odd-lot offer) by the Company for Common Stock at a price in excess of 110%
of the then Current Market Price of Common Stock as of the trading day next
succeeding the last date tenders or exchanges may be made pursuant to such
tender or exchange offer.
"Current Market Price" means, in general, the average of the daily Closing
Prices (as defined below) for the five consecutive trading days selected by the
Company commencing not more than 20 trading days before, and ending not later
than, the earlier of the day in question or, if applicable, the day before the
"ex" date (as defined) with respect to the issuance or distribution in question.
The Company from time to time may reduce the conversion price of the
Convertible Debentures (and thus the conversion price of the Preferred
Securities) by any amount selected by the Company for any period of at least 20
days, in which case the Company shall give at least 15 days' notice of such
reduction. The Company may, at its option, make such reductions in the
conversion price, in addition to those set forth above, as the Company deems
advisable to avoid or diminish any income tax to holders of Common Stock
resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for income tax purposes. See "Certain
Federal Income Tax Considerations -- Adjustment of Conversion Price."
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No adjustment of the conversion price will be made upon the issuance of any
shares of Common Stock pursuant to any present or future plan providing for the
reinvestment of dividends or interest payable on securities of the Company and
the investment of additional optional amounts in shares of Common Stock under
any such plan, or upon the issuance of any shares of Common Stock or options or
rights pursuant to any employee benefit plan or program, or pursuant to any
option, warrant, right or any exercisable, exchangeable or convertible security
outstanding as of the date on which the Convertible Debentures are first issued.
No adjustment of the conversion price will be made upon the issuance of Rights
pursuant to the Rights Agreement (as defined herein) or upon the issuance of
similar rights issued under any analogous successor shareholder rights plan. No
adjustment in the conversion price will be required unless adjustment would
require a change of at least one percent (1%) in the price then in effect;
provided, however, that any adjustment that would not be required to be made
shall be carried forward and taken into account in any subsequent adjustment. If
any action would require adjustment of the conversion price pursuant to more
than one of the provisions described above, only one adjustment shall be made
with respect to that action and such adjustment shall be the amount of
adjustment that has the highest absolute value to the holder of the Preferred
Securities.
Conversion Price Adjustment -- Merger, Consolidation or Sale of Assets of
the Company. In the event that the Company shall be a party to any transaction
(including, without limitation, and with certain exceptions, (a) a
recapitalization or reclassification of the Common Stock, (b) consolidation of
the Company with, or merger of the Company into, any other person, or any merger
of another person into the Company, (c) any sale, transfer or lease of all or
substantially all of the assets of the Company or (d) any compulsory share
exchange) pursuant to which the Common Stock is converted into the right to
receive other securities, cash or other property (each of the foregoing being
referred to as a "Transaction"), then the holders of Preferred Securities then
outstanding shall have the right to convert the Preferred Securities into the
kind and amount of securities, cash or other property receivable upon the
consummation of such Transaction by a holder of the number of shares of Common
Stock issuable upon conversion of such Preferred Securities immediately prior to
such Transaction.
In the case of a Transaction, each Preferred Security would become
convertible into the securities, cash or property receivable by a holder of the
number of shares of the Common Stock into which such Preferred Security was
convertible immediately prior to such Transaction. This change could
substantially lessen or eliminate the value of the conversion privilege
associated with the Preferred Securities in the future. For example, if the
Company were acquired in a cash merger, each Preferred Security would become
convertible solely into cash and would no longer be convertible into securities
whose value would vary depending on the future prospects of the Company and
other factors.
Conversion price adjustments or omissions in making such adjustments may,
under certain circumstances, be deemed to be distributions that could be taxable
as dividends to holders of Preferred Securities or to the holders of Common
Stock. See "Certain Federal Income Tax Considerations."
Termination of Conversion Rights. On and after December 31, 1999, and
provided the Trust is current in the payment of distributions on the Preferred
Securities (except to the extent that the payment of distributions may have been
duly deferred as the result of an Extension Period), the Company may, at its
option, terminate the right to convert the Convertible Debentures into Common
Stock, in which case the right to convert the Preferred Securities into Common
Stock will likewise terminate. The Company may exercise this option only if for
at least 20 trading days within any period of 30 consecutive trading days ending
on or after December 31, 1999, including the last trading day of such period,
the Closing Price of the Common Stock exceeds 120% of the then applicable
conversion price of the Preferred Securities. To exercise this conversion
termination option, the Company must cause the Trust to issue a press release
for publication on the Dow Jones News Service or on a comparable news service
announcing the Conversion Termination Date prior to the opening of business on
the second trading day after a period in which the condition in the preceding
sentence has been met, but in no event may such press release be issued prior to
December 31, 1999. The press release shall announce the Conversion Termination
Date and provide the conversion price and the Closing Price of the Preferred
Securities and the Common Stock, in each case as of the close of business on the
trading day next preceding the date of the press release.
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Notice of the termination of conversion rights will be given by first-class
mail to the holders of the Preferred Securities not more than four Business Days
after the Trust issues the press release. The "Conversion Termination Date" will
be a Business Day selected by the Company not less than 30 nor more than 60 days
after the date on which the Trust issues the press release announcing its
intention to terminate conversion rights of Preferred Security holders. In the
event that the Company exercises its conversion termination option, conversion
rights will expire at 5:00 p.m. (New York City time) on the Conversion
Termination Date. In the event the Company has not exercised its conversion
termination option and the Preferred Securities are otherwise called for
redemption, the Preferred Securities will be convertible at any time prior to
5:00 p.m. (New York City time) on the Business Day immediately preceding the
date of such redemption.
"Closing Price" of any security on any day means the last reported sale
price, regular way, on such day or, if no sale takes place on such day, the
average of the reported closing bid and asked prices on such day, regular way,
in either case as reported on the NYSE Composite Tape, or, if such security is
not listed or admitted to trading on the NYSE, on the principal national
securities exchange on which such security is listed or admitted to trading, or
if such security is not listed or admitted to trading on a national securities
exchange, on the National Market System of the National Association of
Securities Dealers, Inc. or, if such security is not quoted or admitted to
trading on such quotation system, on the principal quotation system on which
such security is listed or admitted to trading or quoted, or, if not listed or
admitted to trading or quoted on any national securities exchange or quotation
system, the average of the closing bid and asked prices of such security in the
over-the-counter market on the day in question as reported by the National
Quotation Bureau Incorporated, or a similar generally accepted reporting
service, or, if not so available in such manner, as furnished by any NYSE member
firm selected from time to time by the Board of Directors of the Company for
that purpose or, if not so available in such manner, as otherwise determined in
good faith by the Board of Directors of the Company.
REDEMPTION
The Preferred Securities have no stated maturity date but will be redeemed
upon the repayment of the Convertible Debentures at their maturity or to the
extent that the Convertible Debentures are redeemed or repaid upon acceleration.
The Convertible Debentures will mature on December 31, 2016. In addition, in the
event that, at any time after the Conversion Termination Date (if any), the
number of outstanding Preferred Securities is less than 10% of the number of
Preferred Securities originally issued (including any Preferred Securities
issued upon exercise of the Underwriters' over-allotment option), the Company
shall have the right, at its option, to redeem the Convertible Debentures, in
whole but not in part, at a redemption price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest thereon (including, if interest
payments shall have been deferred as a result of an Extension Period, compounded
interest to the extent permitted by law) to the date fixed for redemption. The
Convertible Debentures are also redeemable by the Company at its option, in
whole but not in part, under certain circumstances upon the occurrence of a Tax
Event at a redemption price equal to 100% of the principal amount thereof, plus
accrued and unpaid interest thereon (including, if interest payments shall have
been deferred as a result of an Extension Period, compounded interest to the
extent permitted by law) to the date fixed for redemption. Upon the repayment of
Convertible Debentures, whether at maturity or upon redemption or acceleration,
the Trust must redeem the Trust Securities at the Redemption Price; provided
that holders of Trust Securities shall be given not less than 30 nor more than
60 days notice of such redemption. See "Description of the Convertible
Debentures -- Redemption."
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
If, at any time, a Tax Event or an Investment Company Event shall occur and
be continuing, the Trust shall, unless the Convertible Debentures are redeemed
in the limited circumstances described below, be dissolved with the result that,
after satisfaction of creditors, if any, of the Trust, Convertible 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, and
having the same record dates for payment as, the Preferred Securities and the
Common Securities outstanding at such time would be distributed on a pro rata
basis to the holders of the Preferred Securities and
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the Common Securities in liquidation of such holders' interests in the Trust,
within 90 days following the occurrence of such Special Event; provided,
however, that in the case of the occurrence of a Tax Event, as a condition of
such dissolution and distribution, the Regular Trustees shall have received an
opinion of nationally recognized independent tax counsel experienced in such
matters (a "No Recognition Opinion"), which opinion may rely on published
revenue rulings of the Internal Revenue Service, to the effect that the holders
of the Preferred Securities will not recognize any income, gain or loss for
Federal income tax purposes as a result of such dissolution and distribution of
Convertible Debentures; and, provided, further, that if at the time there is
available to the Trust the opportunity to eliminate, within such 90-day period,
the Special Event by taking some ministerial action, such as filing a form or
making an election, or pursuing some other similar reasonable measure which in
the sole judgment of the Company has or will cause no adverse effect on the
Trust, the Company or the holders of the Trust Securities and will involve no
material cost, the Trust will pursue such measure in lieu of dissolution.
Furthermore, if in the case of the occurrence of a Tax Event, (i) the Regular
Trustees have received an opinion (a "Redemption Tax Opinion") of nationally
recognized independent tax counsel experienced in such matters that, as a result
of a Tax Event, there is more than an insubstantial risk that the Company would
be precluded from deducting the interest on the Convertible Debentures for
Federal income tax purposes even if the Convertible Debentures were distributed
to the holders of Preferred Securities and Common Securities in liquidation of
such holders' interests in the Trust as described above or (ii) the Regular
Trustees shall have been informed by such tax counsel that a No Recognition
Opinion cannot be delivered to the Trust, the Company shall have the right, upon
not less than 30 nor more than 60 days' notice, to redeem the Convertible
Debentures, in whole but not in part for cash, within 90 days following the
occurrence of such Tax Event, and promptly following such redemption, the
Preferred Securities and Common Securities will be redeemed by the Trust at the
Redemption Price; provided, however, that if at the time there is available to
the Company or the Trust the opportunity to eliminate, within such 90-day
period, the Tax Event by taking some ministerial action, such as filing a form
or making an election, or pursuing some other similar reasonable measure which
in the sole judgment of the Company has or will cause no adverse effect on the
Trust, the Company or the holders of the Trust Securities and will involve no
material costs, the Company or the Trust will pursue such measure in lieu of
redemption.
"Tax Event" means that the Regular Trustees shall have received an opinion
of nationally recognized independent tax counsel experienced in such matters (a
"Dissolution Tax Opinion") to the effect that as a result of (a) any amendment
to, or change (including any announced prospective change) in, the laws or any
regulations thereunder of the United States or any political subdivision or
taxing authority thereof or therein, (b) any amendment to, or change in, an
interpretation or application of any such laws or regulations by any legislative
body, court, governmental agency or regulatory authority (including the
enactment of any legislation and the publication of any judicial decision or
regulatory determination), (c) any interpretation or pronouncement that provides
for a position with respect to such laws or regulations that differs from the
theretofore generally accepted position or (d) any action taken by any
governmental agency or regulatory authority, which amendment or change is
enacted, promulgated, issued or announced or which interpretation or
pronouncement is issued or announced or which action is taken, in each case, on
or after the date of this Prospectus (collectively, a "Change in Tax Law"),
there is more than an insubstantial risk that (i) the Trust is, or will be
within 90 days of the date thereof, subject to federal income tax with respect
to interest accrued or received on the Convertible Debentures, (ii) the Trust
is, or will be within 90 days of the date thereof, subject to more than a de
minimis amount of other taxes, duties or other governmental charges or (iii)
interest payable by the Company to the Trust on the Convertible Debentures is
not, or within 90 days of the date thereof will not be, deductible by the
Company for Federal income tax purposes.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of nationally recognized independent counsel experienced in
practice under the Investment Company Act of 1940, as amended (the "1940 Act"),
that as a result of the occurrence of a change in law or regulation or a 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"),
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 1940 Act,
which Change in 1940 Act Law becomes effective on or after the date of this
Prospectus.
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On the date fixed for any distribution of Convertible Debentures upon
dissolution of the Trust, (i) the Preferred Securities will no longer be deemed
to be outstanding, (ii) DTC or its nominee, as the record holder of the
Preferred Securities held in book-entry form, will receive a registered global
certificate or certificates representing the Convertible Debentures to be
delivered upon such distribution and (iii) any certificates representing
Preferred Securities not held by DTC or its nominee will be deemed to represent
beneficial interests in Convertible Debentures having an aggregate principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate identical to the distribution rate of, with accrued and unpaid interest
equal to accrued and unpaid distributions on, and having the same record dates
for payment as, such Preferred Securities until such certificates are presented
to the Company or its agent for transfer or reissuance.
There can be no assurance as to the market price for either the Preferred
Securities or the Convertible Debentures which may be distributed in exchange
for Preferred Securities if a dissolution and liquidation of the Trust were to
occur. Accordingly, the Preferred Securities that an investor may purchase,
whether pursuant to the offer made hereby or in the secondary market, or the
Convertible Debentures, which an investor may subsequently receive on
dissolution and liquidation of the Trust, may trade at a discount to the price
that the investor paid to purchase the Preferred Securities offered hereby. If
the Convertible Debentures are distributed to the holders of the Preferred
Securities, the Company will use its best efforts to cause the Convertible
Debentures to be listed on the NYSE or on any such other national securities
exchange or similar organization as the Preferred Securities are then listed or
quoted.
REDEMPTION PROCEDURES
If the Trust gives a notice of redemption in respect of Preferred
Securities (which notice will be irrevocable), and if the Company has paid to
the Property Trustee a sufficient amount of cash in connection with the related
redemption or maturity of the Convertible Debentures, then, by 12:00 noon, New
York time, on the redemption date, the Trust will irrevocably deposit with DTC
funds sufficient to pay the Redemption Price of all Global Preferred Securities
and will give DTC irrevocable instructions and authority to pay the Redemption
Price in respect of the Global Preferred Securities (see "Book-Entry Only
Issuance -- The Depository Trust Company"), and, in the event that the Preferred
Securities are not solely in book-entry form, the Trust will irrevocably deposit
with the paying agent for the Preferred Securities funds sufficient to pay the
Redemption Price in respect of any Certificated Preferred Securities and will
give such paying agent irrevocable instructions and authority to pay the
Redemption Price to the holders of Certificated Preferred Securities upon
surrender of their certificates. If notice of redemption shall have been given
and funds are deposited as required, then upon the date of such deposit all
rights of holders of such Preferred Securities so called for redemption will
cease, except the right of the holders of such Preferred Securities to receive
the Redemption Price, but without interest on such Redemption Price. In the
event that any date fixed for redemption of Preferred Securities is not a
Business Day, then payment of the Redemption Price payable on such date will be
made on the next succeeding day which 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 the event that payment of the Redemption Price in
respect of Preferred Securities is improperly withheld or refused and not paid
either by the Trust or by the Company pursuant to the Guarantee described under
"Description of the Guarantee," distributions on such Preferred Securities will
continue to accrue at the then applicable rate, from the original redemption
date to the date of payment, in which case the actual payment date will be
considered the date fixed for redemption for purposes of calculating the
Redemption Price.
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), the Company or its subsidiaries may, at
any time and from time to time, purchase outstanding Preferred Securities by
tender, in the open market or by private agreement.
SUBORDINATION OF COMMON SECURITIES
Payment of distributions on, and the amount payable upon redemption of, the
Trust Securities, as applicable, shall be made pro rata based on the liquidation
amount of the Trust Securities; provided, however, that, if on any distribution
date or redemption date a Declaration Event of Default shall have occurred and
be continuing, no payment of any distribution on, or amount payable upon
redemption of, any Common Security,
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and no other payment on account of the redemption, liquidation or other
acquisition of any Common Security shall be made unless payment in full in cash
of all accumulated and unpaid distributions on all outstanding Preferred
Securities for all distribution periods terminating on or prior thereto, or in
the case of payment of the amount payable upon redemption of the Preferred
Securities, the full Redemption Price in respect of all outstanding Preferred
Securities shall have been made or provided for, and all funds available to the
Property Trustee shall first be applied to the payment in full in cash of all
distributions on, or the amount payable upon redemption of, Preferred Securities
then due and payable.
In the case of any Declaration Event of Default, the holder of Common
Securities will be deemed to have waived any such Declaration Event of Default
until all such Declaration Events of Default with respect to the Preferred
Securities have been cured, waived or otherwise eliminated. Until any such
Declaration Events of Default with respect to the Preferred Securities have been
so cured, waived or otherwise eliminated, the Property Trustee shall act solely
on behalf of the holders of the Preferred Securities and not the holder of the
Common Securities, and only the holders of the Preferred Securities will have
the right to direct the Property Trustee to act in accordance with the terms of
the Preferred Securities and the Common Securities.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Liquidation"), the then holders
of the Preferred Securities will be entitled to receive out of the assets of the
Trust, after satisfaction of liabilities to creditors, distributions in an
amount equal to the aggregate of the stated liquidation amount of $50 per
Preferred Security plus accrued and unpaid distributions thereon (including, if
distributions shall have been deferred as the result of an Extension Period,
interest thereon to the extent permitted by applicable law) to the date of
payment (the "Liquidation Distribution"), unless, in connection with such
Liquidation, Convertible Debentures in an aggregate principal amount equal to
the aggregate stated liquidation amount of, with an interest rate identical to
the distribution rate of, with accrued and unpaid interest equal to accrued and
unpaid distributions on, and having the same record dates for payment as, the
Preferred Securities have been distributed on a pro rata basis to the holders of
the Preferred Securities.
If, upon any such Liquidation, 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 the amounts payable directly by the
Trust on the Preferred Securities shall be paid on a pro rata basis. The holders
of the Common Securities will be entitled to receive distributions upon any such
dissolution pro rata with the holders of the Preferred Securities, except that
if a Declaration Event of Default has occurred and is continuing, the Preferred
Securities shall have a preference over the Common Securities with regard to
such distributions.
Pursuant to the Declaration, the Trust shall terminate (i) on November 1,
2021, 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 the equivalent with respect to the Company or the
holder of the Common Securities, the filing of a certificate of cancellation
with respect to the Trust after having obtained the consent of at least a
majority in liquidation amount of the Trust Securities, voting together as a
single class, to file such certificate of cancellation, or the revocation of the
charter of the Company or the holder of the Common Securities and the expiration
of 90 days after the date of revocation without a reinstatement thereof, (iv)
upon the distribution of all of the Convertible Debentures upon the occurrence
of a Special Event, (v) upon the entry of a decree of a judicial dissolution of
the Company or the Trust or the holder of the Common Securities, (vi) upon
conversion of all of the outstanding Preferred Securities into Common Stock in
accordance with the provisions of the Declaration, or (vii) upon the redemption
of all the Trust Securities.
MERGER, CONSOLIDATION OR AMALGAMATION OF THE TRUST
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety, to any corporation or other entity,
except as described below. 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 Trust Securities, the Property Trustee
or the Delaware Trustee consolidate, amalgamate, merge with or into, or be
replaced by a
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trust organized as such under the laws of any State of the United States;
provided, that (i) if the Trust is not the survivor, such successor entity
either (x) expressly assumes all of the obligations of the Trust under the Trust
Securities or (y) substitutes for the Preferred Securities other securities
having substantially the same terms as the Preferred Securities (the "Successor
Securities"), so long as the Successor Securities rank the same as the Preferred
Securities rank with respect to distributions, assets 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
Property Trustee as the holder of the Convertible Debentures, (iii) the
Preferred Securities or any Successor Securities are listed, or any Successor
Securities will be listed upon notification of issuance, on any national
securities exchange or with another organization on which the Preferred
Securities are then listed or quoted, (iv) such merger, consolidation,
amalgamation or replacement does not cause the Preferred 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 Preferred Securities (including any Successor Securities) in
any material respect (other than with respect to any dilution of the holders'
interest in the new entity), (vi) such successor entity has a purpose
substantially identical to that of the Trust, (vii) the Company guarantees the
obligations of such successor entity under the Successor Securities at least to
the extent provided by the Guarantee, and (viii) prior to such merger,
consolidation, amalgamation or replacement, the Company has received an opinion
of a nationally recognized counsel to the Trust reasonably acceptable to the
Property Trustee experienced in such matters to the effect that: (A) such
merger, consolidation, amalgamation or replacement will 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 such successor trust) will be treated
as a grantor trust for United States Federal income tax purposes.
Notwithstanding the foregoing, the Trust shall not, except with the consent of
holders of 100% in 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.
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 Preferred Securities have been
cured, waived or otherwise eliminated. Until such Declaration Events of Default
with respect to the Preferred Securities have been so cured, waived or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf of
the holders of the Preferred Securities and only the holders of the Preferred
Securities will have the right to direct the Property Trustee with respect to
certain matters under the Declaration and, therefore, the Indenture.
If the Property Trustee fails to enforce its rights under the Convertible
Debentures after a holder of Preferred Securities has made a written request,
such holder of record of Preferred Securities may directly institute a legal
proceeding against the Company to enforce the Property Trustee's rights under
the Convertible Debentures without first instituting any legal proceeding
against the Property 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 Convertible 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 Preferred Securities may directly institute a proceeding for
enforcement of payment to such holder directly of the principal of or interest
on the Convertible Debentures having a principal amount equal to the aggregate
liquidation amount of the Preferred Securities of
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such holder on or after the respective due date specified in the Convertible
Debentures. In connection with such Direct Action, the Company will be
subrogated to the rights of such holder of Preferred Securities under the
Declaration to the extent of any payment made by the Company to such holder of
Preferred Securities in such Direct Action. The holders of Preferred Securities
will not be able to exercise directly any other remedy available to the holders
of the Convertible Debentures.
Upon the occurrence of a Declaration Event of Default, the Property Trustee
as the sole holder of the Convertible Debentures will have the right under the
Indenture to declare the principal of and interest on the Convertible Debentures
to be immediately due and payable. The Company and the Trust are each required
to file annually with the Property Trustee an officer's certificate as to its
compliance with all conditions and covenants under the Declaration.
VOTING RIGHTS
Except as described herein, under the Trust Act, the Trust Indenture Act
and under "Description of the Guarantee -- Amendments and Assignment," and as
otherwise required by law and the Declaration, the holders of the Preferred
Securities will have no voting rights.
Subject to the requirement of the Property Trustee obtaining a tax opinion
in certain circumstances set forth in the last sentence of this paragraph, the
holders of a majority in aggregate liquidation amount of the Preferred
Securities, voting separately as a class, have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Property Trustee, and direct the exercise of any trust or power conferred upon
the Property Trustee under the Declaration, including the right to direct the
Property Trustee, as holder of the Convertible Debentures, to (i) exercise the
remedies available to it under the Indenture as holder of the Convertible
Debentures, (ii) waive any past Indenture Event of Default and its consequences
that is waiveable under the Indenture and (iii) exercise any right to rescind or
annul a declaration that the principal of all the Convertible Debentures shall
be due and payable; provided, however, that where a consent or action under the
Indenture would require the consent or act of the holders of more than a
majority of the aggregate principal amount of Convertible Debentures affected
thereby, only the holders of the percentage of the aggregate stated liquidation
amount of the Preferred Securities which is at least equal to the percentage
required under the Indenture may direct the Property Trustee to give such
consent or take such action. If the Property Trustee fails to enforce its rights
under the Convertible Debentures after a holder of record of Preferred
Securities has made a written request, such holder of record of Preferred
Securities may directly institute a legal proceeding directly against the
Company to enforce the Property Trustee's rights under the Convertible
Debentures without first instituting any legal proceeding against the Property
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
Convertible 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
Preferred Securities may directly institute a proceeding for enforcement of
payment to such holder of the principal of or interest on the Convertible
Debentures having a principal amount equal to the aggregate liquidation amount
of the Preferred Securities of such holder on or after the respective due date
specified in the Convertible Debentures. The Property Trustee shall notify all
holders of the Preferred Securities of any notice of default received from the
Indenture Trustee with respect to the Convertible 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 available to the Property Trustee or the
Indenture Trustee, the Property Trustee shall be under no obligation to take any
of the actions described in clause (i), (ii) or (iii) above unless the Property
Trustee has obtained an opinion of independent tax counsel 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 and each holder will be
treated as owning an undivided beneficial interest in the Convertible
Debentures.
In the event the consent of the Property Trustee, as the holder of the
Convertible Debentures, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture or the Convertible
Debentures, the Property Trustee shall request the direction of the holders of
the Trust Securities
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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 Trust Securities voting together as a single class;
provided, however, that where a consent under the Indenture would require the
consent of the holders of more than a majority of the aggregate principal amount
of the Convertible Debentures, the Property Trustee may only give such consent
at the direction of the holders of at least the same proportion in aggregate
stated liquidation amount of the Trust Securities. The Property Trustee shall be
under no obligation to take any such action in accordance with the direction of
the holders of the Trust Securities unless the Property 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.
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 Preferred Securities may
be given at a separate meeting of holders of Preferred 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 Preferred 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 Preferred 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 Preferred Securities will be required for the Trust to redeem
and cancel Preferred Securities or distribute Convertible Debentures in
accordance with the Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
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 Preferred Securities
were not outstanding.
The procedures by which holders of Global Preferred Securities may exercise
their voting rights are described below. See "-- Book-Entry Only Issuance -- The
Depository Trust Company."
Holders of the Preferred Securities will have no right to appoint or remove
the Issuer 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 or, if there are more than two Regular Trustees, a majority of the
Regular Trustees (and in certain circumstances the Property Trustee and 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, winding-up or termination of the Trust other than pursuant to
the terms of the Declaration, then 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 liquidation amount of the Trust Securities
affected thereby, voting together as a single class; provided, that if any
amendment or proposal referred to in clause (i) above would adversely affect
only the Preferred 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
liquidation amount of such class of Securities.
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 for purposes of United States Federal
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income taxation as other than a grantor trust, (ii) reduce or otherwise
adversely affect the powers of the Property Trustee or (iii) cause the Trust to
be deemed an "investment company" which is required to be registered under the
1940 Act.
BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depository for
the Preferred Securities. The Preferred Securities will be issued only as
fully-registered securities registered in the name of Cede & Co. (DTC's
nominee), except under the limited circumstances described below. One or more
fully-registered Global Preferred Securities certificates, representing the
total aggregate number of Preferred Securities, will be issued and will be
deposited with DTC.
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 Preferred
Securities.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of 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. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
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. Participants in DTC
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. DTC is owned by a number of its
Participants and by the NYSE, the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others such as securities brokers and dealers, banks and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants"). The rules
applicable to DTC and its Participants are on file with the Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through Participants, which will receive a credit for the Preferred Securities
on DTC's records. The ownership interest of each actual purchaser of Preferred
Securities ("Beneficial Owner") is in turn to be recorded on the Participants'
and Indirect Participants' records. Beneficial Owners will not receive written
confirmation from DTC of their purchases, but Beneficial Owners are expected to
receive written conformations providing details of the transactions, as well as
periodic statements of their holdings, from the Participants or Indirect
Participants through which the Beneficial Owners purchased Preferred Securities.
Transfers of ownership interests in the Preferred Securities are to be
accomplished by entries made on the books of Participants and Indirect
Participants acting on behalf of Beneficial Owners. Beneficial Owners will not
receive certificates representing their ownership interests in Preferred
Securities, except in the event that use of the book-entry system for the
Preferred Securities is discontinued.
DTC has no knowledge of the actual Beneficial Owners of the Preferred
Securities; DTC's records reflect only the identity of the Participants to whose
accounts such Preferred Securities are credited, which may or may not be the
Beneficial Owners. The Participants and Indirect Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Preferred Security, DTC or such nominee, as the case may be, will be
considered the sole owner or holder of the Preferred Securities represented
thereby for all purposes under the Declaration and the Preferred Securities. No
beneficial owner of an interest in a Global Preferred Security will be able to
transfer that interest except in accordance with DTC's applicable procedures, in
addition to those provided for under the Declaration.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Preferred Securities (including the presentation of
Preferred Securities for exchange as described below) only at the direction of
one or more Participants to whose account the DTC interests in the Global
Preferred Securities
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are credited and only in respect of such portion of the aggregate liquidation
amount of Preferred Securities as to which such Participant or Participants has
or have given such direction. However, if there is a Declaration Event of
Default under the Preferred Securities, DTC will exchange the Global Preferred
Securities for Certificated Preferred Securities which it will distribute to its
Participants.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants, and by Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Redemption notices in respect of the Global Preferred Securities will be
sent to Cede & Co.
Although voting rights with respect to the Preferred Securities are
limited, in those cases where a vote is required, neither DTC nor Cede & Co.
will itself consent or vote with respect to the Preferred Securities. Under its
usual procedures, DTC 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 Participants to whose accounts the
Preferred Securities are credited on the record date (identified in a listing
attached to the Omnibus Proxy).
Distributions on the Global Preferred Securities will be made to DTC in
immediately available funds. DTC's practice is to credit Participants' accounts
on the relevant payment date in accordance with their respective holdings shown
on DTC's records unless DTC has reason to believe that it will not receive
payment on such payment date. Payments by Participants and Indirect Participants
to Beneficial Owners will be governed by standing instructions and customary
practices and will be the responsibility of such Participants and Indirect
Participants and not of DTC, the Trust or the Company, subject to any statutory
or regulatory requirements as may be in effect from time to time. Payment of
distributions to DTC is the responsibility of the Trust, disbursement of such
payments to Participants is the responsibility of DTC, and disbursements of such
payments to the Beneficial Owners is the responsibility of Participants and
Indirect Participants.
Except as provided herein, a Beneficial Owner of an interest in a Global
Preferred Security will not be entitled to receive physical delivery of
Preferred Securities. Accordingly, each Beneficial Owner must rely on the
procedures of DTC to exercise any rights under the Preferred Securities.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interest in the Global Preferred Securities among Participants, DTC
is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company, the Trust
nor the Trustee will have any responsibility for the performance by DTC or its
Participants or Indirect Participants under the rules and procedures governing
DTC. DTC may discontinue providing its services as securities depository with
respect to the Preferred Securities at any time by giving notice to the Trust.
In the event that (i) DTC notifies the Trust that it is unwilling or unable to
continue as a depositary for the Global Preferred Securities or if at any time
DTC ceases to be a clearing agency registered as such under the Securities
Exchange Act of 1934, and no successor depositary shall have been appointed
within 90 days of such notification or of the Trust becoming aware of DTC's
ceasing to be so registered, as the case may be, (ii) the Trust (with the
consent of the Company) in its sole discretion determines that the Global
Preferred Securities shall be exchanged for Certificated Preferred Securities or
(iii) there shall have occurred and be continuing a Declaration Event of
Default, certificates for the Preferred Securities will be printed and delivered
in exchange for interests in the Global Preferred Security and the Company will
appoint a Paying Agent, Registrar or co-registrar and Conversion Agent in the
Borough of Manhattan, The City of New York (if the Company does not at the time
have a Paying Agent, Registrar or co-registrar and Conversion Agent in such
location) with respect to the Preferred Securities.
PAYMENT AND PAYING AGENCY
Payments in respect of the Global Preferred Securities shall be made to
DTC, which shall credit the relevant accounts at DTC on the applicable
distribution dates or, in the case of Certificated Preferred Securities (if
any), such payments shall be made by check mailed to the address of the holders
entitled
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thereto as such address shall appear on the Security Register or, at the option
of the Trust, by wire transfer to an account appropriately designated by the
holder entitled thereto (except that payments due upon redemption of
Certificated Preferred Securities shall be made against surrender of such
Certificated Preferred Securities at the office of the Paying Agent). The Paying
Agent shall be permitted to resign as Paying Agent upon 30 days' written notice
to the Issuer Trustees. In the event that Fleet National Bank 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).
REGISTRAR, PAYING AGENT AND CONVERSION AGENT
The Property Trustee will initially act as Registrar, Paying Agent and
Conversion Agent for the Preferred Securities.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Trust, but upon payment (with the giving of such
indemnity as the Trust or the Company may require) in respect of any tax or
other government charges which may be imposed in relation to it.
The Trust will not be required to register or cause to be registered the
transfer of Preferred Securities after such Preferred Securities have been
called for redemption.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
Fleet National Bank, the Property Trustee, is a participant in FINOVA
Capital's credit facilities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." In addition, certain of the
Company's subsidiaries maintain deposit accounts and conduct other banking
transactions with Fleet National Bank or its affiliates in the ordinary course
of their business. The Property Trustee, prior to the occurrence of a default
with respect to the Trust Securities, 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 Property Trustee is
under no obligation to exercise any of the powers vested in it by the
Declaration at the request of any holder of Preferred Securities, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The holders of Preferred Securities will not be
required to offer such indemnity in the event such holders, by exercising their
voting rights, direct the Property Trustee to take any action following a
Declaration Event of Default.
GOVERNING LAW
The Declaration and the Preferred 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 conduct the affairs of
and to operate the Trust in such a way that the Trust will not be deemed to be
an "investment company" required to be registered under the 1940 Act or
characterized as other than a grantor trust for Federal income tax purposes so
that the Convertible Debentures will be treated as indebtedness of the Company
for Federal income tax purposes. In this connection, the Regular Trustees are
authorized to take any action, not inconsistent with applicable law, the
certificate of trust or the Declaration that the Regular Trustees determine in
their discretion to be necessary or desirable for such purposes as long as such
action does not adversely affect the interests of the holders of the Preferred
Securities.
Holders of the Preferred Securities have no preemptive rights.
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DESCRIPTION OF THE GUARANTEE
Set forth below is a summary of certain terms of the Guarantee which will
be executed and delivered by the Company for the benefit of the holders from
time to time of Preferred Securities. The following summary of certain terms of
the Guarantee does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Guarantee, a form of which has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part. The Guarantee incorporates by reference the terms of the Trust
Indenture Act. The Guarantee will be qualified under the Trust Indenture Act.
Fleet National Bank, as the Guarantee Trustee, will hold the Guarantee for the
benefit of the holders of the Preferred Securities.
GENERAL
Pursuant to and to the extent set forth in the Guarantee, the Company will
irrevocably agree to pay in full to the holders of the Preferred Securities
(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 (the "Guarantee Payments"), without duplication: (i) any
accrued and unpaid distributions that are required to be paid on the Preferred
Securities to the extent the Trust has funds available therefor, (ii) the
Redemption Price, with respect to any Preferred Securities called for redemption
by the Trust, to the extent the Trust has funds available therefor and (iii)
upon a voluntary or involuntary dissolution, winding-up or termination of the
Trust (other than in connection with the distribution of Convertible Debentures
to the holders of Preferred Securities or the redemption of all the Preferred
Securities), the lesser of (a) the aggregate of the liquidation amount and all
accrued and unpaid distributions on the Preferred 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
Preferred Securities upon the liquidation of the Trust. The holders of a
majority in liquidation amount of the Preferred Securities 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. Any holder of
Preferred Securities may directly institute a legal proceeding against the
Company to enforce the obligations of the Company 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 Convertible Debentures, the Trust would lack
available funds for the payment of distributions or amounts payable on
redemption of the Preferred Securities or otherwise, and in such event holders
of the Preferred Securities would not be able to rely upon the Guarantee for
payment of such amounts. Instead, a holder of the Preferred Securities would be
required to rely on the enforcement (1) by the Property Trustee of its rights,
as registered holder of the Convertible Debentures, against the Company pursuant
to the terms of the Convertible Debentures or (2) by such holder of Preferred
Securities of its right against the Company to enforce payments on Convertible
Debentures. See "Description of the Convertible Debentures." The Declaration
provides that each holder of Preferred Securities, by acceptance thereof, agrees
to the provisions of the Guarantee, including the subordination provisions
thereof, and the Indenture.
The Guarantee will be a guarantee on a subordinated basis with respect to
the Preferred Securities from the time of issuance of such Preferred Securities
but will not apply to any payment of distributions or Redemption Price, or to
payments upon the dissolution, winding-up or termination of the Trust, except to
the extent the Trust shall have funds available therefor. If the Company does
not make interest payments on the Convertible Debentures, the Trust will not pay
distributions on the Preferred Securities and will not have funds available
therefor. See "Description of the Convertible Debentures." The Guarantee, when
taken together with the Company's obligations under the Convertible Debentures,
the Indenture and the Declaration, including its obligations to pay costs,
expenses, debts and liabilities of the Trust (other than with respect to the
Trust Securities), will provide a full and unconditional guarantee on a
subordinated basis by the Company of payments due on the Preferred Securities
issued by the Trust.
The Company has also agreed separately to irrevocably guarantee the
obligations of the Trust with respect to the Common Securities (the "Common
Securities Guarantee") to the same extent as the Guarantee, except that upon the
occurrence and during the continuation of an Indenture Event of Default,
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holders of Preferred Securities shall have priority over holders of Common
Securities with respect to Guarantee Payments.
CERTAIN COVENANTS OF THE COMPANY
In the Guarantee, the Company has covenanted that, so long as any Preferred
Securities remain outstanding, if (x) there shall have occurred and be
continuing any event that constitutes or, with the giving of notice or the lapse
of time or both, would constitute an Indenture Event of Default or an event of
default (as defined) under the Guarantee or (y) the Company has exercised its
option to defer interest payments on the Convertible Debentures by extending the
interest payment period and such period, or any extension thereof, shall be
continuing, then the Company (a) shall not declare or pay dividends on, or make
a distribution with respect to, or redeem or purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of Common Stock (or Common Stock
equivalents) 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 requiring the Company to
purchase shares of Common Stock (or Common Stock equivalents) (provided that
such contract is in effect or such security is outstanding at least 60 days
prior to the occurrence of any event described in clause (x) above or the
commencement of an Extension Period referred to in clause (y) above, as the case
may be), (ii) purchases of shares of Common Stock (or Common Stock equivalents)
from officers or employees of the Company or its subsidiaries upon termination
of employment or retirement not pursuant to any obligation under any contract or
security requiring the Company to purchase shares of Common Stock (or Common
Stock equivalents) (provided that such purchases by the Company upon termination
of employment or retirement shall be made at a price not to exceed the market
value on the date of any such purchase and shall not exceed $7.5 million in the
aggregate for all officers and employees), (iii) 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, (iv) dividends or distributions of shares of
Common Stock on Common Stock or (v) 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
(or make any guarantee payments with respect to the foregoing)), (b) shall not
make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities (including guarantees) issued by the
Company that rank pari passu with or junior to the Convertible Debentures and
(c) shall not make any guarantee payments with respect to the foregoing (other
than pursuant to the Guarantee).
As part of the Guarantee, the Company will agree that it will honor all
obligations described therein relating to the conversion of the Preferred
Securities into Common Stock as described in "Description of the Preferred
Securities -- Conversion Rights."
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of Preferred Securities (in which case no vote will be
required), the Guarantee may be amended only with the prior approval of the
holders of at least a majority in liquidation amount of all the outstanding
Preferred Securities. The manner of obtaining any such approval of holders of
the Preferred Securities will be as set forth under "Description of the
Preferred Securities -- Voting Rights." 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 Preferred Securities then outstanding. Except in connection with any
permitted merger or consolidation of the Company with or into another entity or
any permitted sale, transfer or lease of the Company's assets to another entity
as described under "Description of the Convertible Debentures -- Consolidation,
Merger and Sale of Assets," the Company may not assign its rights or delegate
its obligations under the Guarantee without the prior approval of the holders of
at least a majority of the aggregate stated liquidation amount of the Preferred
Securities then outstanding.
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TERMINATION OF THE GUARANTEE
The Guarantee will terminate as to each holder of Preferred Securities (i)
upon full payment of the Redemption Price of all Preferred Securities; or (ii)
upon distribution of the Convertible Debentures held by the Trust to the holders
of the Preferred Securities; or (iii) upon liquidation of the Trust; or (iv)
upon the distribution of Common Stock to such holder in respect of conversion of
such holder's Preferred Securities into Common Stock, and will terminate
completely upon full payment of the amounts payable in accordance with the
Declaration. The Guarantee will continue to be effective or will be reinstated,
as the case may be, if at any time any holder of Preferred Securities must
restore payment of any sum paid under such Preferred Securities or such
Guarantee.
STATUS OF THE GUARANTEE; SUBORDINATION
The Guarantee will constitute an unsecured obligation of the Company and
will rank (i) subordinate and junior in right of payment to all other
liabilities of the Company except any liabilities that may be pari passu
expressly by their terms, (ii) pari passu with the most senior preferred or
preference stock issued from time to time by the Company and with any guarantee
now or hereafter entered into by the Company in respect of any preferred or
preference stock or preferred securities of any affiliate of the Company and
(iii) senior to the Common Stock. The terms of the Preferred Securities provide
that each holder of Preferred Securities by acceptance thereof agrees to the
subordination provisions and other terms of the Guarantee. See, also, "Risk
Factors -- Holding Company Structure" and "-- Ranking of Subordinate Obligations
Under the Guarantee and Convertible Debentures."
The Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may directly institute a legal proceeding against
the Company to enforce its rights under the Guarantee without instituting a
legal proceeding against any other person or entity).
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 with respect to the Guarantee, shall
exercise the same degree of care as a prudent person would exercise in the
conduct of his or her own affairs. Subject to such provision, 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 Preferred Securities unless it is
offered reasonable indemnity against the costs, expenses and liabilities that
might be incurred thereby.
See "Description of the Preferred Securities -- Information Concerning the
Property Trustee" for information as to the relationship between the Guarantee
Trustee and the Company.
GOVERNING LAW
The Guarantee will be governed by, and construed in accordance with, the
laws of the State of New York.
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DESCRIPTION OF THE CONVERTIBLE DEBENTURES
Set forth below is a summary of certain terms of the Convertible Debentures
in which the Trust will invest the proceeds from the issuance and sale of the
Trust Securities. The following summary of certain terms of the Convertible
Debentures does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the Indenture (the "Indenture") between the
Company and Fleet National Bank, as trustee (the "Indenture Trustee"), a form of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. Certain capitalized terms used herein are defined in the
Indenture.
Under certain circumstances involving the dissolution of the Trust
following the occurrence of a Special Event, Convertible Debentures may be
distributed to the holders of the Trust Securities in liquidation of the Trust.
See "Description of the Preferred Securities -- Special Event Redemption or
Distribution."
If the Convertible Debentures are distributed to the holders of Preferred
Securities, the Company will use its best efforts to have the Convertible
Debentures listed on the NYSE or on such other national securities exchange or
similar organization on which the Preferred Securities are then listed or
quoted.
GENERAL
The Convertible Debentures will be issued as unsecured debt under the
Indenture. The Convertible Debentures will be limited in aggregate principal
amount to $103,092,800 ($118,556,750 if the Underwriters' over-allotment option
is exercised in full), such amount being the sum of the aggregate stated
liquidation amount of the Preferred Securities and the Common Securities.
The Convertible Debentures are not subject to a sinking fund provision. The
entire principal amount of the Convertible Debentures will become due and
payable, together with any accrued and unpaid interest thereon, including
Compounded Interest (as defined herein), if any, and Additional Interest (as
defined herein), if any, on December 31, 2016.
The Convertible Debentures, if distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust, will
initially be issued in the same form as the Preferred Securities that such
Convertible Debentures replace. See "-- Book-Entry and Settlement." Under
certain limited circumstances, Convertible Debentures may be issued in
certificated form ("Certificated Convertible Debentures") in exchange for
Convertible Debentures in book-entry form ("Global Convertible Debentures"). In
the event that Convertible Debentures are issued in certificated form, such
Convertible Debentures will be in denominations of $50 and integral multiples
thereof and may be transferred or exchanged at the offices described below.
Payments on Global Convertible Debentures will be made to DTC, a successor
depositary or, in the event that no depositary is used, to a Paying Agent for
the Convertible Debentures. In the event Convertible Debentures are issued in
certificated form, principal and interest will be payable, the transfer of the
Convertible Debentures will be registrable, Convertible Debentures will be
exchangeable for Convertible Debentures of other denominations of a like
aggregate principal amount, and the Convertible Debentures may be surrendered
for conversion into Common Stock, at an office or agency of the Company
maintained for such purpose in the Borough of Manhattan, The City of New York;
provided, that payment of interest may be made at the option of the Company by
check mailed to the address of the persons entitled thereto or by wire transfer
to an account appropriately designated by the holder entitled thereto.
There are no covenants or provisions in the Indenture that afford holders
of Convertible 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 Convertible Debenture will bear interest at the rate of 5 1/2% per
annum from the Original Issue Date, payable quarterly in arrears on each March
31, June 30, September 30 and December 31 (each, an "Interest Payment Date"),
commencing March 31, 1997, to the person in whose name such Convertible
Debenture is registered, subject to certain exceptions, at the close of business
on the Business Day next
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preceding such Interest Payment Date. In the event that the Convertible
Debentures do not continue to remain solely in book-entry form, the record date
for each payment of interest thereon shall be the day 15 calendar days prior to
the relevant Interest Payment Date; provided that, if such record date does not
conform to the rules of any securities exchange on which the Convertible
Debentures are then listed, if any, such record date shall be changed to conform
to the rules of such securities exchange.
The amount of interest payable for any period will be computed on the basis
of a 360-day year 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 a
30-day month. In the event that any Interest Payment Date, Redemption Date,
Conversion Termination Date or stated maturity date of the Convertible
Debentures is not a Business Day, then payment of the interest or principal or
conversion of the Convertible Debentures need not be made on such date, but may
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 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.
OPTION TO EXTEND INTEREST PAYMENT PERIODS
The Company shall have the right at any time during the term of the
Convertible Debentures to defer interest payments from time to time by extending
the interest payment period for successive periods not exceeding 20 consecutive
quarters for each such period; provided, no Extension Period may extend beyond
the maturity date of the Convertible Debentures. Each Extension Period, if any,
will end on an Interest Payment Date. At the end of each Extension Period, the
Company shall pay all interest then accrued and unpaid (including Additional
Interest, if any) together with interest thereon, compounded quarterly at the
interest rate borne by the Convertible Debentures, to the extent permitted by
applicable law ("Compounded Interest"); provided, that during any Extension
Period, the Company (a) shall not declare or pay dividends on, or make a
distribution with respect to, or redeem or purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of Common Stock (or Common Stock
equivalents) 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 requiring the Company to
purchase shares of Common Stock (or Common Stock equivalents) (provided that
such contract is in effect or such security is outstanding at least 60 days
prior to the commencement of such Extension Period), (ii) purchases of shares of
Common Stock (or Common Stock equivalents) from officers or employees of the
Company or its subsidiaries upon termination of employment or retirement not
pursuant to any obligation under any contract or security requiring the Company
to purchase shares of Common Stock (or Common Stock equivalents) (provided that
such purchases by the Company upon termination of employment or retirement shall
be made at a price not to exceed the market value on the date of any such
purchase and shall not exceed $7.5 million in the aggregate for all officers and
employees), (iii) 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, (iv)
dividends or distributions of shares of Common Stock on Common Stock or (v) 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 (or make any guarantee payments with
respect to the foregoing)), (b) shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem any debt
securities (including guarantees) issued by the Company that rank pari passu
with or junior to the Convertible Debentures and (c) 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 such Extension Period; provided that such Extension Period,
together with all previous and further extensions thereof, may not exceed 20
consecutive quarters or extend beyond the maturity date of the Convertible
Debentures. Upon the termination of any Extension Period and the payment of all
amounts then due, the Company may select a new Extension Period, subject to the
above requirements. No interest shall be due and payable during an Extension
Period. The Company has no current intention of exercising its right to defer
payments of interest by extending the interest payment period on the Convertible
Debentures. If the Property Trustee shall be the sole holder of the Convertible
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Debentures, the Company shall give the Regular Trustees, the Indenture Trustee
and the Property Trustee notice of its selection of such Extension Period at
least one Business Day prior to the earlier of (i) the date the distributions on
the Preferred Securities are payable or (ii) the date the Trust is required to
give notice to the NYSE (or any applicable self-regulatory organization) or to
holders of the Preferred Securities of the record date or the date such
distribution is payable, but in any event not less than ten Business Days prior
to such record date. The Company shall cause the Trust to give notice of the
Company's selection of such Extension Period to the holders of the Preferred
Securities. If the Property Trustee shall not be the sole holder of the
Convertible Debentures, the Company shall give the Indenture Trustee, the
Property Trustee and the holders of the Convertible Debentures notice of its
selection of such Extension Period at least ten Business Days prior to the
earlier of (i) the next succeeding Interest Payment Date or (ii) the date the
Company is required to give notice to the NYSE (or any applicable
self-regulatory organization) or to holders of the Convertible Debentures of the
record or payment date of such related interest payment, but in any event not
less than two Business Days prior to such record date.
PROPOSED TAX LEGISLATION
On March 19, 1996, President Clinton proposed certain legislation (the
"Proposed Legislation") that would, among other things, generally deny corporate
issuers a deduction for interest in respect of certain debt obligations, with a
maximum term of more than 20 years that are not shown as indebtedness on the
consolidated balance sheet of the issuer and that are issued on or after
December 7, 1995. On March 29, 1996, Senate Finance Committee Chairman William
V. Roth, Jr. and House Ways and Means Committee Chairman Bill Archer issued a
joint statement (the "Joint Statement") indicating their intent that the
Proposed Legislation, if adopted by either of the tax-writing committees of
Congress, would have an effective date that is no earlier than the date of
"appropriate Congressional action." In addition, subsequent to the publication
of the Joint Statement, Senator Daniel Patrick Moynihan and Representatives Sam
M. Gibbons and Charles B. Rangel wrote letters to Treasury officials concurring
with the views expressed in the Joint Statement (the "Democrat Letters"). Based
upon the Joint Statement and the Democrat letters, it is expected that if the
Proposed Legislation were to be enacted, such legislation would not apply to the
Convertible Debentures because they will be issued prior to the date of any
"appropriate Congressional action." Furthermore, even if the Proposed
Legislation were enacted in its current form with effective date provisions
making it applicable to the Convertible Debentures, it would not affect the
Company's ability to deduct the interest payable on the Convertible Debentures
because their maximum term will not exceed 20 years. There can be no assurance,
however, that any proposed legislation enacted after the date hereof will not
adversely affect the ability of the Company to deduct the interest payable on
the Convertible Debentures. Accordingly, there can be no assurance that a Tax
Event will not occur. See "Description of the Preferred Securities -- Special
Event Redemption or Distribution."
ADDITIONAL INTEREST
If at any time while the Property Trustee is the sole holder of the
Convertible Debentures, the Trust would be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in any
such case, the Company will pay as additional interest ("Additional Interest")
on the Convertible Debentures such additional amounts as shall be required so
that the net amounts received and retained by the Trust after paying any such
taxes, duties, assessments or governmental charges will be not less than the
amounts the Trust would have received had no such taxes, duties, assessments or
governmental charges been imposed.
CONVERSION OF THE CONVERTIBLE DEBENTURES
Convertible Debentures will be convertible at any time prior to the earlier
of (i) 5:00 p.m. (New York City time) on the Business Day immediately preceding
the date of repayment of such Convertible Debentures, whether at maturity or
upon redemption, and (ii) 5:00 p.m. (New York City time) on the Conversion
Termination Date (if any), into Common Stock at the option of the holders of the
Convertible Debentures at the conversion price set forth on the cover page of
this Prospectus, subject to the conversion
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price adjustments described under "Description of the Preferred
Securities -- Conversion Rights." The Trust will covenant not to convert
Convertible Debentures held by it except pursuant to a notice of conversion
delivered to the Conversion Agent by a holder of Preferred Securities. Upon
surrender of a Preferred Security to the Conversion Agent for conversion, the
Trust will distribute $50 principal amount of the Convertible Debentures to the
Conversion Agent on behalf of the holder of the Preferred Security so converted,
whereupon the Conversion Agent will convert such Convertible Debentures into
Common Stock on behalf of such holder. The Company's delivery to the holders of
the Convertible Debentures (through the Conversion Agent) of the fixed number of
shares of Common Stock into which the Convertible Debentures are convertible
(together with the cash payment, if any, in lieu of fractional shares) will be
deemed to satisfy the Company's obligation to pay the principal amount of the
Convertible Debentures so converted, and the accrued and unpaid interest thereon
attributable to the period from the last date to which interest has been paid or
duly provided for; provided, however, that if any Convertible Debenture is
converted after a record date for payment of interest, the interest payable on
the related Interest Payment Date with respect to such Convertible Debenture
shall be paid to the Trust (which will distribute such interest to the holder of
such Convertible Debentures on the record date) or other holder of such
Convertible Debenture on the record date, as the case may be, despite such
conversion; provided, further, that if notice of redemption of Convertible
Debentures is mailed or otherwise given to holders of Convertible Debentures or
the Trust issues a press release announcing a Conversion Termination Date, then,
if any holder of Convertible Debentures converts any Convertible Debentures into
Common Stock on any date on or after the date on which such notice of redemption
is mailed or otherwise given or the date of such press release, as the case may
be, and if such date of conversion falls on any day from and including the first
day of an Extension Period and on or prior to the Interest Payment Date on which
such Extension Period ends, such converting holder shall be entitled to receive
either (i) if the date of such conversion falls after a record date and on or
prior to the next succeeding Interest Payment Date, all accrued and unpaid
interest on such Convertible Debentures (including Additional Interest, if any,
and Compounded Interest, if any) to such Interest Payment Date or (ii) if the
date of such conversion does not fall on a date described in clause (i) above,
all accrued and unpaid interest on such Convertible Debentures (including
Additional Interest, if any, and Compounded Interest, if any) to the most recent
Interest Payment Date prior to the date of such conversion, which interest
shall, in either such case, be paid to such converting holder, unless the date
of conversion of such Convertible Debentures is on or prior to the Interest
Payment Date upon which such Extension Period ends and after the record date for
such Interest Payment Date, in which case such interest shall be paid to the
person who was the holder of such Convertible Debentures (or one or more
predecessor Convertible Debentures) at 5:00 p.m. (New York City time) on such
record date, which amount shall be simultaneously distributed to the holders of
the Preferred Securities so that any holder of Preferred Securities who
delivers such Preferred Securities for conversion (or who held such converted
Preferred Securities at 5:00 p.m. (New York City time) on the record date for
the Interest Payment Date upon which such Extension Period ends, as the case
may be) under the circumstances and during the periods described above will be
entitled to receive accumulated and unpaid distributions in a corresponding
amount. See "Description of the Preferred Securities -- Conversion Rights" and
"-- Redemption."
On and after December 31, 1999, the Company may, at its option, terminate
the conversion rights of holders of the Convertible Debentures if (i) the
Company is then current in the payment of interest on the Convertible Debentures
(including Additional Interest and Compounded Interest, if any) (except to the
extent that the payment of interest has been duly deferred as the result of an
Extension Period) and (ii) for at least 20 trading days within any period of 30
consecutive trading days ending on or after December 31, 1999, including the
last trading day of such period, the Closing Price of the Common Stock shall
have exceeded 120% of the then applicable conversion price of the Convertible
Debentures. In order to exercise this conversion termination option, the Company
must cause the Trust to issue (or, if the Convertible Debentures shall have been
distributed to holders of the Preferred Securities following a Special Event,
the Company must issue) a press release for publication on the Dow Jones News
Service or on a comparable news service announcing the Conversion Termination
Date prior to the opening of business on the second trading day after a period
in which the condition in the preceding sentence has been met, but in no event
prior to December 31, 1999. The press release shall announce the Conversion
Termination Date and provide the conversion price and
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the Closing Price of the Preferred Securities and the Common Stock, in each case
as of the close of business on the trading day next preceding the date of the
press release. The Company is also required to give notice by first-class mail
to holders of the Convertible Debentures in the manner provided for holders of
Preferred Securities under "Description of the Preferred
Securities -- Conversion Rights -- Termination of Conversion Rights." The
Conversion Termination Date will be a Business Day selected by the Company which
is not less than 30 nor more than 60 calendar days after the date on which such
press release is issued. In the event that the Company exercises its conversion
termination option, conversion rights will expire at 5:00 p.m. (New York City
time) on the Conversion Termination Date. In the event that the Company has not
exercised its conversion termination option and the Convertible Debentures are
otherwise called for redemption, the Convertible Debentures will be convertible
at any time prior to 5:00 p.m. (New York City time) on the Business Day
immediately preceding the date of such redemption and in any other case at any
time prior to 5:00 p.m. (New York City time) on the Business Day immediately
preceding the stated maturity date of the Convertible Debentures.
REDEMPTION
In the event that, at any time after any Conversion Termination Date (if
any), the number of outstanding Preferred Securities is less than 10% of the
number of Preferred Securities originally issued (including any Preferred
Securities issued upon exercise of the Underwriters' over-allotment option) (or,
if the Convertible Debentures have been distributed to holders of Preferred
Securities following the occurrence of a Special Event, the aggregate principal
amount of the outstanding Convertible Debentures is less than 10% of the
aggregate principal amount of Convertible Debentures purchased by the Trust with
the proceeds from the sale of the Preferred Securities, including any Preferred
Securities issued upon exercise of such over-allotment option), the Company may,
at its option, redeem the Convertible Debentures, in whole but not in part, at a
redemption price equal to 100% of the principal amount thereof plus accrued and
unpaid interest (including Additional Interest, if any, and Compounded Interest,
if any) to the date fixed for redemption. The Convertible Debentures also may be
redeemed, at the option of the Company, in whole but not in part, in certain
circumstances upon the occurrence of a Tax Event as described under "Description
of the Preferred Securities -- Special Event Redemption or Distribution," at a
redemption price equal to 100% of the principal amount thereof plus accrued and
unpaid interest (including Additional Interest, if any and Compounded Interest,
if any) to the date fixed for redemption. Any redemption of Convertible
Debentures shall be made on not less than 30 nor more than 60 days' notice to
the holders of the Convertible Debentures. Upon the repayment of the Convertible
Debentures, whether at maturity or upon redemption, the proceeds from such
repayment shall simultaneously be applied to redeem Trust Securities having an
aggregate liquidation amount equal to the aggregate principal amount of the
Convertible Debentures so repaid or redeemed at the Redemption Price.
SUBORDINATION
The Indenture provides that the Convertible Debentures are subordinate and
junior in right of payment to all existing and future Senior Indebtedness of the
Company. No payment of principal of (including redemption payments, if any) or
interest on the Convertible Debentures may be made if (i) any Senior
Indebtedness of the Company is not paid when due and any applicable grace period
with respect to such default has ended and such default has not been cured or
waived or ceased to exist or (ii) the maturity of any Senior Indebtedness of the
Company has been accelerated because of a default. Upon any distribution of
assets of the Company to creditors upon any dissolution, winding up, liquidation
or reorganization, whether voluntary or involuntary or in bankruptcy,
insolvency, receivership or other proceedings, all principal of, and premium, if
any, and interest due or to become due on all Senior Indebtedness of the Company
must be paid in full before the holders of the Convertible Debentures are
entitled to receive or retain any payment. Upon satisfaction of all claims
related to all Senior Indebtedness of the Company then outstanding, the rights
of the holders of the Convertible Debentures will be subrogated to the rights of
the holders of Senior Indebtedness of the Company to receive payments or
distributions applicable to Senior Indebtedness until all amounts owing on the
Convertible Debentures are paid in full.
The Indenture does not limit the amount of indebtedness, including Senior
Indebtedness, which may be incurred by the Company. At September 30, 1996, the
Company had no Senior Indebtedness outstanding.
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The term "Senior Indebtedness" shall mean, with respect to the Company: (i)
the principal, premium, if any, and interest in respect of (A) indebtedness of
such obligor for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by such obligor, (ii) all
capital lease obligations of such obligor, (iii) all obligations of such obligor
issued or assumed as the deferred purchase price of property, all conditional
sale obligations of such obligor and all obligations of such obligor under any
title retention agreement (but excluding trade accounts payable arising in the
ordinary course of business), (iv) all obligations of such obligor for the
reimbursement on any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction, (v) all obligations of the type referred
to in clauses (i) through (iv) above of other persons for the payment of which
such obligor is responsible or liable as obligor, guarantor or otherwise, and
(vi) all obligations of the type referred to in clauses (i) through (v) above of
other persons secured by any lien on any property or asset of such obligor
(whether or not such obligation is assumed by such obligor), except for (1) any
such indebtedness that is by its terms subordinated to or pari passu with the
Convertible Debentures and (2) any indebtedness between or among such obligor or
its affiliates, including all other debt securities and guarantees in respect of
those debt securities, issued to any other trust, or a trustee of such trust,
partnership, limited liability company or other entity affiliated with the
Company that is a financing vehicle of the Company (a "financing entity") in
connection with the issuance by such financing entity of preferred securities or
other securities that rank, or the Company's guarantee of which ranks, pari
passu with, or junior to, the Preferred Securities or the Guarantee,
respectively. Such Senior Indebtedness shall continue to be Senior Indebtedness
and shall be entitled to the benefits of the subordination provisions
irrespective of any amendment, modification or waiver of any term of such Senior
Indebtedness.
In addition, the Company is a holding company which conducts substantially
all of its operations through subsidiaries. As a result, the obligations of the
Company under the Convertible Debentures are effectively subordinated to all
existing and future indebtedness and other liabilities, including trade
payables, of the Company's subsidiaries. At September 30, 1996, the indebtedness
and other liabilities of such subsidiaries aggregated approximately $6.73
billion. See "Risk Factors -- Holding Company Structure."
CERTAIN COVENANTS
In the Indenture, the Company has covenanted that, so long as any
Convertible Debentures are outstanding, if (x) there shall have occurred and be
continuing any event that constitutes or, with the giving of notice or the lapse
of time or both, would constitute an Indenture Event of Default, (y) the Company
shall be in default with respect to its payment of any obligations under the
Guarantee, or (z) the Company has exercised its option to defer interest
payments on the Convertible Debentures by extending the interest payment period
and such period, or any extension thereof, shall be continuing, then the Company
(a) shall not declare or pay dividends on, or make a distribution with respect
to, or redeem or purchase or acquire, or make a liquidation payment with respect
to, any of its capital stock (other than (i) purchases or acquisitions of shares
of Common Stock (or Common Stock equivalents) 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 requiring the Company to purchase shares of Common Stock (or Common
Stock equivalents) (provided that such contract is in effect or such security is
outstanding at least 60 days prior to the occurrence of any event described in
clause (x) above, the occurrence of any default described in clause (y) above or
the commencement of any Extension Period referred to in clause (z) above, as the
case may be), (ii) purchases of shares of Common Stock (or Common Stock
equivalents) from officers or employees of the Company or its subsidiaries upon
termination of employment or retirement not pursuant to any obligation under any
contract or security requiring the Company to purchase shares of Common Stock
(or Common Stock equivalents) (provided that such purchases by the Company upon
termination of employment or retirement shall be made at a price not to exceed
the market value on the date of any such purchase and shall not exceed $7.5
million in the aggregate for all officers and employees), (iii) 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, (iv) dividends or distributions of shares of
Common Stock on Common Stock or (v) 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
(or make any guarantee payments with respect to the foregoing)), (b) shall not
make any payment of interest, principal or premium, if any, on or repay,
repurchase
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or redeem any debt securities (including guarantees) issued by the Company that
rank pari passu with or junior to the Convertible Debentures and (c) shall not
make any guarantee payments with respect to the foregoing (other than pursuant
to the Guarantee).
The Company will covenant (i) to maintain 100% ownership, directly or
indirectly, of the Common Securities of the Trust; provided however, that any
permitted successor of the Company under the Indenture may succeed to the
Company's ownership of such Common Securities, (ii) to use its reasonable
efforts to cause the Trust (x) to remain a statutory business trust, except in
connection with the distribution of Convertible Debentures to the holders of
Trust Securities in liquidation of the Trust, the redemption of all of the Trust
Securities of the Trust, or certain mergers, consolidations or amalgamations,
each as permitted by the Declaration, and (y) to otherwise continue to be
classified as a grantor trust for United States Federal income tax purposes and
(iii) to use its reasonable efforts to cause each holder of Trust Securities to
be treated as owning an undivided beneficial interest in the Convertible
Debentures.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that the Company will not consolidate with or merge
into any other person or entity or convey, transfer or lease all or
substantially all of its properties and assets on a consolidated basis to any
person unless (a)(i) the Company is the surviving corporation in any such merger
or (ii) if the Company is not the survivor, the successor is a corporation
organized in the United States and expressly assumes the due and punctual
payment of the principal of and interest (including Additional Interest and
Compounded Interest, if any) on all Convertible Debentures issued thereunder and
the performance of every other covenant of the Indenture on the part of the
Company, (b) immediately thereafter 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 and (c) the Company has
delivered to the Trustee the officers' certificate and opinion of counsel
required by the Indenture. Upon any such consolidation, merger, conveyance,
transfer or lease, the successor corporation shall succeed to and be substituted
for the Company under the Indenture and thereafter (except in the case of a
lease) the predecessor corporation shall be relieved of all obligations and
covenants under the Indenture and the Convertible Debentures.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of the Preferred Securities in connection with
the involuntary or voluntary dissolution, winding-up or liquidation of the Trust
as a result of the occurrence of a Special Event, the Convertible Debentures
will be issued in the same form as the Preferred Securities which such
Convertible Debentures replace. Any Global Preferred Security will be replaced
by one or more Global Convertible Debentures registered in the name of the
depositary or its nominee. Except under the limited circumstances described
below, the Global Convertible Debentures will not be exchangeable for, and will
not otherwise be issuable as, Certificated Convertible Debentures. The Global
Convertible Debentures 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 require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in such a Global
Convertible Debenture.
Except as provided below, owners of beneficial interests in such a Global
Convertible Debenture will not be entitled to receive physical delivery of
Convertible Debentures in definitive form and will not be considered the holders
thereof for any purpose under the Indenture, and no Global Convertible Debenture
shall be exchangeable, except for another Global Convertible Debenture 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 DTC or, if such person is not a
Participant, on the procedures of the Participant and, if applicable, Indirect
Participant through which such person owns its interest to exercise any rights
of a holder under the Indenture.
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THE DEPOSITARY
If Convertible Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust and a Global
Convertible Debenture is issued, DTC will act as securities depositary for such
Global Convertible Debenture. For a description of DTC and the specific terms of
the depositary arrangements, see "Description of the Preferred
Securities -- Book-Entry Only Issuance -- The Depository Trust Company." As of
the date of this Prospectus, the description therein of DTC's book-entry system
and DTC's practices as they relate to purchases, transfers, notices and payments
with respect to the Preferred Securities apply in all material respects to any
debt obligations represented by one or more Global Convertible Debentures held
by DTC. The Company may appoint a successor to DTC or any successor depositary
in the event DTC or such successor depositary is unable or unwilling to continue
as a depositary for the Global Convertible Debentures.
None of the Company, the Trust, the Indenture Trustee, any paying agent and
any other agent of the Company or the Indenture 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
Convertible Debenture or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
DISCONTINUANCE OF THE DEPOSITARY'S SERVICES
A Global Convertible Debenture shall be exchanged for Certificated
Convertible Debentures registered in the names of persons other than DTC or any
successor depositary (each, a "Depositary") or its nominee only if (i) the
Depositary notifies the Company that it is unwilling or unable to continue as
depositary for the Global Convertible Debentures or if at any time the
Depositary ceases to be a clearing agency registered as such under the
Securities Exchange Act of 1934, and no successor Depositary shall have been
appointed within 90 days of such notification or of the Company becoming aware
of the Depositary's ceasing to be so registered, as the case may be, (ii) the
Company in its sole discretion determines that the Global Convertible Debentures
shall be exchanged for Certificated Convertible Debentures or (iii) there shall
have occurred and be continuing an Indenture Event of Default. Any Global
Convertible Debenture that is exchanged pursuant to the preceding sentence shall
be exchanged for Certificated Convertible 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 Convertible Debenture.
EVENTS OF DEFAULT
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Indenture Event of
Default" with respect to the Convertible Debentures: (i) failure for 30 days to
pay interest on any Convertible Debentures, including any Additional Interest
and Compounded Interest in respect thereof, when due, provided that a valid
extension of an interest payment period will not constitute a default in the
payment of interest (including any Additional Interest and Compounded Interest,
if any,) for this purpose; or (ii) failure to pay principal of any Convertible
Debentures when due, whether at maturity, upon redemption, by declaration or
otherwise; or (iii) failure to observe or perform any other covenant contained
in the Indenture for 90 days after notice to the Company by the Indenture
Trustee or by the holders of not less than 25% in aggregate outstanding
principal amount of the Convertible Debentures; or (iv) failure by the Company
to deliver shares of Common Stock upon an election by a holder of Preferred
Securities to convert such Preferred Securities; or (v) the dissolution, winding
up or termination of the Trust, except in connection with the distribution of
Convertible Debentures to the holders of Preferred Securities in liquidation of
the Trust upon the occurrence of a Special Event, upon the redemption of all
outstanding Preferred Securities, upon the conversion of all outstanding
Preferred Securities or in connection with certain mergers, consolidations or
amalgamations permitted by the Declaration; or (vi) certain events in
bankruptcy, insolvency or reorganization of the Company.
The Indenture Trustee or the holders of not less than 25% in aggregate
principal amount of the outstanding Convertible Debentures may declare the
principal of and interest on the Convertible Debentures
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due and payable immediately on the occurrence of an Indenture Event of Default;
provided, however, that, after such acceleration, but before a judgment or
decree based on acceleration is obtained, the holders of a majority in aggregate
principal amount of outstanding Convertible Debentures may, under certain
circumstances, rescind and annul such acceleration if all Indenture Events of
Default, other than the nonpayment of accelerated principal and interest, have
been cured or waived as provided in the Indenture.
Notwithstanding the foregoing, if an Indenture 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 Convertible Debentures on the date
such interest or principal is otherwise payable, the Company acknowledges that,
in such event, a holder of Preferred Securities may institute a Direct Action
for payment on or after the respective due date specified in the Convertible
Debentures. The Company may not amend the Indenture to remove the foregoing
right to bring a Direct Action without the prior written consent of all the
holders of Preferred Securities. Notwithstanding any payment made to such holder
of Preferred Securities by the Company in connection with a Direct Action, the
Company shall remain obligated to pay the principal of and interest on the
Convertible Debentures held by the Trust or the Property Trustee and the Company
shall be subrogated to the rights of the holder of such Preferred Securities
with respect to payments on the Preferred Securities to the extent of any
payments made by the Company to such holder in any Direct Action. The holders of
Preferred Securities will not be able to exercise directly any other remedy
available to the holders of the Convertible Debentures.
The Holders of not less than a majority in aggregate principal amount of
the outstanding Convertible Debentures may, on behalf of the holders of all the
Convertible Debentures, waive any past defaults except (a) a default in payment
of the principal of or interest on any Convertible Debentures 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 Convertible Debenture
affected; provided, however, that if the Convertible Debentures are held by the
Trust or a trustee of such Trust, such waiver shall not be effective until the
holders of a majority in aggregate liquidation amount of Trust Securities shall
have consented to such waiver; provided, further, that if the consent of the
holder of each outstanding Convertible Debenture is required, such waiver shall
not be effective until each holder of the Trust Securities shall have consented
to such waiver.
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
Indenture Trustee in case an Indenture Event of Default shall occur and be
continuing, the Indenture 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 Convertible Debentures, unless such holders shall have offered to the
Indenture Trustee reasonable indemnity. Subject to such provisions for the
indemnification of the Indenture Trustee, the holders of a majority in aggregate
principal amount of the Convertible Debentures then outstanding will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Indenture Trustee, or exercising any trust or power
conferred on the Indenture Trustee.
No holder of any Convertible 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 Indenture Trustee written
notice of a continuing Indenture Event of Default, (ii) if the Trust is not the
sole holder of Convertible Debentures, the holders of at least 25% in aggregate
principal amount of the Convertible Debentures then outstanding shall have made
written request to the Indenture Trustee to institute proceedings, (iii) such
holder has offered reasonable indemnity to the Indenture Trustee to institute
such proceeding as Indenture Trustee, (iv) the Indenture Trustee shall have
failed to institute such proceeding within 60 days of such notice and offer of
indemnity, and (v) the Indenture Trustee shall not have received from the
holders of a majority in aggregate principal amount of the outstanding
Convertible Debentures a direction inconsistent with such request. However, such
limitations do not apply to a suit instituted by a holder of a Convertible
Debenture for enforcement of payment of the principal of or interest on such
Convertible Debenture on or after the respective due dates expressed in such
Convertible Debenture.
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The Company is required to file annually with the Indenture Trustee and the
Property Trustee a certificate as to whether or not the Company is in compliance
with all the conditions and covenants under the Indenture.
MODIFICATIONS AND AMENDMENTS OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Indenture
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding Convertible Debentures, to modify
the Indenture or the rights of the holders of Convertible Debentures; provided,
however, that no such modification may, without the consent of the holder of
each outstanding Convertible Debenture affected thereby, (i) extend the stated
maturity of the Convertible Debentures or reduce the principal amount thereof,
or reduce the rate or extend the time of payment of interest thereon, or (ii)
adversely affect the right to convert Convertible Debentures or modify the
provisions of the Indenture with respect to subordination of the Convertible
Debentures in any manner adverse to the holders or (iii) reduce the percentage
in aggregate principal amount of outstanding Convertible Debentures, the holders
of which are required to consent to any such supplemental indenture.
In addition, the Company and the Indenture Trustee may execute, without the
consent of any holder of Convertible Debentures, any supplemental indenture to
cure any ambiguities, comply with the Trust Indenture Act and for certain other
customary purposes.
GOVERNING LAW
The Indenture and the Convertible Debentures will be governed by, and
construed in accordance with, the laws of the State of New York.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee, prior to default, undertakes to perform only such
duties as are specifically set forth in the Indenture 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 provision, the Indenture
Trustee is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Convertible Debentures, unless offered
reasonable indemnity by such holder against the costs, expenses and liabilities
which might be incurred thereby. The Indenture 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 Indenture Trustee reasonably believes that
repayment or adequate indemnity is not reasonably assured to it.
See "Description of the Preferred Securities -- Information Concerning the
Property Trustee" for information as to the relationship between the Indenture
Trustee and the Company.
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EFFECT OF OBLIGATIONS UNDER THE CONVERTIBLE 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
Convertible Debentures.
As long as payments of interest and other payments are made when due on the
Convertible 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 Convertible 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 Convertible
Debentures will match the distribution rate and distribution and other payment
dates for the Preferred Securities; (iii) pursuant to the Indenture, the Company
shall pay all, and the Trust shall not be obligated to pay, directly or
indirectly, any, costs, expenses, debt and obligations of the Trust other than
with respect to the Trust Securities; and (iv) the Declaration further provides
that the Issuer Trustees will not 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 Preferred 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 Convertible Debentures purchased by the Trust, it is expected that the
Trust will not have sufficient funds to pay distributions on the Preferred
Securities. The Guarantee is a guarantee on a subordinated basis with respect to
the Preferred Securities from the time of its issuance but does not apply to any
payment of distributions unless and until the Trust has sufficient funds for the
payment of such distributions.
The Guarantee covers the payment of distributions and other payments on the
Preferred Securities only if and to the extent that the Company has made a
payment of interest or principal on the Convertible Debentures held by the Trust
as its sole asset. The Guarantee, when taken together with the Company's
obligations under the Convertible 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), will provide a full and unconditional guarantee of amounts on
the Preferred Securities.
If the Company fails to make interest or other payments on the Convertible
Debentures when due (taking account of any Extension Period), the Declaration
provides a mechanism whereby the holders of the Preferred Securities, using the
procedures described in "Description of the Preferred Securities -- Book-Entry
Only Issuance -- The Depository Trust Company" and "Description of the Preferred
Securities -- Voting Rights," may direct the Property Trustee to enforce its
rights under the Convertible Debentures. If the Property Trustee fails to
enforce its rights under the Convertible Debentures, any holder of Preferred
Securities may directly institute a legal proceeding against the Company to
enforce the Property Trustee's rights under the Convertible Debentures without
first instituting any legal proceeding against the Property 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 Convertible
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 Preferred
Securities may institute a Direct Action for payment on or after the respective
due date specified in the Convertible Debentures. In connection with such Direct
Action, the Company will be subrogated to the rights of such holder of Preferred
Securities under the Declaration to the extent of any payment made by the
Company to such holder of Preferred Securities in such Direct Action. The
Company, under the Guarantee, acknowledges that the Guarantee Trustee shall
enforce the Guarantee on behalf of the holders of the Preferred Securities. If
the Company fails to make payments under the Guarantee, the Guarantee provides a
mechanism whereby the holders of the Preferred Securities may direct the
Guarantee Trustee to enforce its rights thereunder. If the Guarantee Trustee
fails to enforce the Guarantee, any holder of Preferred Securities may directly
institute a legal proceeding against the Company to enforce the Guarantee
Trustee's rights under the Guarantee without first instituting a legal
proceeding against the Trust, the Guarantee Trustee, or any other person or
entity.
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DESCRIPTION OF CAPITAL STOCK
The following summary of certain provisions of the Common Stock, the
Preferred Stock, the Junior Participating Preferred Stock and the Rights does
not purport to be complete and is subject to, and qualified in its entirety by
reference to, the Company's Restated Certificate of Incorporation, as amended
(the "Certificate of Incorporation"), the certificate of designation for the
Junior Participating Preferred Stock and the Rights Agreement dated as of
February 15, 1992, as amended and restated as of September 14, 1995 (the "Rights
Agreement"), between the Company and Harris Trust & Savings Bank as successor
Rights Agent, copies of which have been filed or incorporated by reference as
exhibits to the Registration Statement of which this Prospectus is a part, and
are available from the Company as described under "Available Information," and
which are incorporated herein by reference.
The Company is authorized by the Certificate of Incorporation to issue an
aggregate of 105,000,000 shares of stock, consisting of 5,000,000 shares of
Preferred Stock, par value $.01 per share ("Preferred Stock"), and 100,000,000
shares of Common Stock. As of September 30, 1996, there were 27,471,000 shares
of Common Stock outstanding (excluding 951,000 treasury shares held by the
Company) and no shares of Preferred Stock outstanding. However, the Company has
authorized 600,000 shares of Junior Participating Preferred Stock which have
been reserved for issuance upon the exercise of the Rights.
COMMON STOCK
The holders of the Common Stock are entitled to one vote per share. The
Certificate of Incorporation does not provide for cumulative voting in the
election of directors. Subject to any preferential rights of any outstanding
shares of Preferred Stock, the holders of Common Stock are entitled to such
dividends as may be declared from time to time by the Board of Directors (the
"Board") from funds legally available therefor, and upon liquidation are
entitled to receive pro rata all assets of the Company remaining after payment
or provision for liabilities and amounts owing in respect of any outstanding
Preferred Stock. The holders of shares of Common Stock do not have preemptive
rights to subscribe for or purchase any shares of capital stock or other
securities of the Company.
PREFERRED STOCK
Under the Certificate of Incorporation, the Board is authorized, without
stockholder action, to cause the issuance of Preferred Stock in one or more
series, with such designations, powers, preferences, rights, qualifications,
limitations and restrictions as shall be determined by the Board. Thus, the
Board, without stockholder approval, could authorize the issuance of Preferred
Stock with voting, conversion and other rights that could adversely affect the
voting power and other rights of the holders of the Common Stock or that could
make it more difficult for another company to effect certain business
combinations with the Company. See "-- Certain Other Provisions of the
Certificate of Incorporation, the Bylaws and Delaware Law -- Preferred Stock"
below.
SHAREHOLDER RIGHTS PLAN
In 1992, a dividend of one junior participating preferred share purchase
right (a "Right") was paid in respect of each then outstanding share of Common
Stock. Likewise, until the Rights Distribution Date (as defined below) or the
expiration, exchange or redemption of the Rights as described below, one Right
has been and will be issued with each newly issued share of Common Stock
(including Common Stock issuable upon conversion of the Preferred Securities).
Each Right entitles the registered holder to purchase from the Company 1/100th
of a share of Junior Participating Preferred Stock, par value $.01 per share
(the "Junior Participating Preferred Stock"), of the Company at a price of $135
per 1/100th of a share (the "Junior Participating Preferred Stock Purchase
Price"), subject to adjustment under certain circumstances. The terms of the
Rights are set forth in the Rights Agreement.
Until the earlier to occur of (i) 10 days following a public announcement
(the "Shares Acquisition Date") that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired beneficial ownership of
20% or more of the then outstanding shares of the Common Stock or (ii) 10
business
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days (or such later date as may be determined by action of the Board prior to
such time as any person or group becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of the outstanding shares of the
Common Stock (the earlier of such dates being called the "Rights Distribution
Date"), the Rights will be evidenced by the certificates representing shares of
Common Stock. The Rights Agreement provides that, until the Rights Distribution
Date (or earlier redemption, exchange or expiration of the Rights), the Rights
will be transferred with and only with the shares of Common Stock.
The Rights will not be exercisable until the Rights Distribution Date. The
Rights will expire on February 28, 2002 (the "Final Expiration Date"), unless
the Final Expiration Date is extended or unless the Rights are earlier redeemed
or exchanged by the Company, in each case, as described below.
Because of the nature of the dividend, liquidation and voting rights of
Junior Participating Preferred Stock, the value of the 1/100th interest in a
share of Junior Participating Preferred Stock purchasable upon exercise of each
Right should approximate the value of one share of Common Stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person (unless the event causing such person to become an
Acquiring Person is an acquisition of Common Stock pursuant to a tender or
exchange offer for all outstanding Common Stock at a price and on terms
determined to be fair and otherwise in the best interests of the Company and its
shareholders by the independent directors), proper provision will be made so
that each holder of a Right, other than Rights beneficially owned by the
Acquiring Person (which will thereafter be void), will thereafter have the right
to receive upon exercise thereof at the then current exercise price that number
of shares of Common Stock having a market value of two times the exercise price
of the Right (such right being referred to as a "Flip-in Right"). In the event
that, at any time on or after the date that any person has become an Acquiring
Person, the Company is acquired in a merger or other business combination
transaction (unless (i) the acquisition of Common Stock was pursuant to a tender
or exchange offer for all outstanding Common Stock at a price determined to be
fair and otherwise in the best interests of the Company and its shareholders by
the independent directors, (ii) the price per share of Common Stock offered is
not less than the price per share of Common Stock paid to all holders of Common
Stock whose shares were purchased pursuant to such tender or exchange offer and
(iii) the form of consideration being offered to the remaining holders of Common
Stock pursuant to such transaction is the same as the form paid pursuant to such
tender or exchange offer, in which case all Rights shall expire) or 50% or more
of its consolidated assets or earning power are sold, proper provision will be
made so that each holder of a Right will thereafter have the right to receive,
upon the exercise thereof at the then current exercise price of the Right, that
number of shares of common stock of the acquiring company which at the time of
such transaction will have a market value of two times the exercise price of the
Right.
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person and prior to the acquisition by such person or group
of 50% or more of the outstanding shares of Common Stock, the Board may exchange
the Rights (other than Rights owned by such person or group which will have
become void), in whole or in part, at an exchange ratio of one share of Common
Stock, or 1/100th of a share of Junior Participating Preferred Stock, per Right
(subject to adjustment).
At any time prior to the earlier of (i) the close of business on the
fifteenth day following the Shares Acquisition Date or (ii) the Final Expiration
Date, the Board may redeem the Rights in whole, but not in part, at a price of
$.01 per Right (the "Junior Preferred Stock Redemption Price"). The redemption
of the Rights may be made effective at such time, on such basis and with such
conditions as the Board in its sole discretion may establish. The Board may at
its option, pay the Redemption Price in cash, Common Stock or any other form of
consideration it deems appropriate. Immediately upon any redemption of the
Rights, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the Junior Preferred Stock 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.
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The Rights have certain antitakeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
and thereby effect a change in the composition of the Board on terms not
approved by the Board, including by means of a tender offer at a premium to the
market price, other than an offer conditioned on a substantial number of Rights
being acquired. The Rights should not interfere with any merger or business
combination approved by the Board since the Rights may be redeemed by the
Company at the Junior Preferred Stock Redemption Price prior to the time that a
person or group has become an Acquiring Person.
In the event that the Rights become exercisable, the Company intends to
register the shares of Junior Preferred Stock for which the Rights may be
exercised, in accordance with applicable law.
CERTAIN OTHER PROVISIONS OF THE CERTIFICATE OF INCORPORATION, THE BYLAWS AND
DELAWARE LAW
The Certificate of Incorporation and Bylaws contain certain provisions that
could make more difficult the acquisition of the Company by means of a tender
offer, a proxy contest or otherwise. The description set forth below is intended
as a summary only, does not purport to be complete, and is subject to, and is
qualified in its entirety by reference to, the Certificate of Incorporation and
the Bylaws of the Company, which are incorporated by reference as exhibits to
the Registration Statement of which this Prospectus forms a part.
Delaware law permits a corporation to eliminate or limit the personal
liability of its directors to the corporation or to any of its stockholders for
monetary damages for a breach of fiduciary duty as a director, except (i) for
breach of the director's duty of loyalty, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for certain unlawful dividends and stock purchases and redemptions or (iv)
for any transaction from which the director derived an improper personal
benefit. The Company's Certificate of Incorporation provides that no director
will be personally liable to the Company or its stockholders for monetary
damages for any breach of his fiduciary duty as a director, except as provided
by Delaware law.
Classified Board of Directors. The Certificate of Incorporation and Bylaws
of the Company provide that the Board will be divided into three classes of
directors, with the classes to be as nearly equal in number as possible. The
Certificate of Incorporation and the Bylaws provide that one class of directors
will be elected each year for a three-year term.
The classification of directors will have the effect of making it more
difficult for stockholders to change the composition of the Board. At least two
annual meetings of stockholders, instead of one, will generally be required to
effect a change in a majority of the Board. Such a delay may help ensure that
the Company's directors, if confronted by a holder attempting to force a proxy
contest, a tender or exchange offer, or an extraordinary corporate transaction,
would have sufficient time to review the proposal as well as any available
alternatives to the proposal and to act in what they believe to be the best
interest of the stockholders. The classification provisions will apply to every
election of directors, however, regardless of whether a change in the
composition of the Board would be beneficial to the Company and its stockholders
and whether or not a majority of the Company's stockholders believe that such a
change would be desirable.
The classification provisions could also have the effect of discouraging a
third party from initiating a proxy contest, making a tender offer or otherwise
attempting to obtain control of the Company, even though such an attempt might
be beneficial to the Company and its stockholders. The classification of the
Board could thus increase the likelihood that incumbent directors will retain
their positions. In addition, because the classification provisions may
discourage accumulations of large blocks of the Company's stock by purchasers
whose objective is to take control of the Company and remove a majority of the
Board, the classification of the Board could tend to reduce the likelihood of
fluctuations in the market price of the Common Stock that might result from
accumulations of large blocks. Accordingly, stockholders could be deprived of
certain opportunities to sell their shares of Common Stock at a higher market
price than might otherwise be the case.
Number of Directors; Removal; Filling Vacancies. The Certificate of
Incorporation provides that, subject to any rights of holders of Preferred Stock
to elect additional directors under specified circumstances, the number of
directors will be fixed in the manner provided in the Bylaws. The Bylaws provide
that, subject to
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any rights of holders of Preferred Stock to elect directors under specified
circumstances, the number of directors will be fixed from time to time
exclusively pursuant to a resolution adopted by directors constituting a
majority of the total number of directors that the Company would have if there
were no vacancies on the Board (the "Whole Board"), but must consist of not more
than seventeen nor less than three directors. In addition, the Bylaws provide
that, subject to any rights of holders of Preferred Stock, and unless the Board
otherwise determines, any vacancies will be filled only by the affirmative vote
of a majority of the remaining directors, though less than a quorum.
Accordingly, absent an amendment to the Bylaws, the Board could prevent any
stockholder from enlarging the Board and filling the new directorships with such
stockholder's own nominees.
Under the Delaware General Corporation Law (the "Delaware Law"), unless
otherwise provided in the Certificate of Incorporation, directors serving on a
classified board may only be removed by the stockholders for cause. In addition,
the Certificate of Incorporation and the Bylaws of the Company provide that
directors may be removed only for cause and only upon the affirmative vote of
holders of at least 80% of the voting power of all the then outstanding shares
of stock entitled to vote generally in the election of directors ("Voting
Stock"), voting together as a single class.
No Stockholder Action by Written Consent; Special Meetings. The
Certificate of Incorporation and the Bylaws provide that, subject to the rights
of any holders of Preferred Stock to elect additional directors under specified
circumstances, stockholder action can be taken only at an annual or special
meeting of stockholders and prohibit stockholder action by written consent in
lieu of a meeting. The Bylaws provide that, subject to the rights of holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, special meetings of stockholders can be called only by the
Chairman of the Board or by the Board pursuant to a resolution adopted by a
majority of the Whole Board. Stockholders are not permitted to call a special
meeting or to require that the Board call a special meeting of stockholders.
Moreover, the business permitted to be conducted at any special meeting of
stockholders is limited to the business brought before the meeting pursuant to
the notice of meeting given by the Company.
The provisions of the Certificate of Incorporation and the Bylaws
prohibiting stockholder action by written consent may have the effect of
delaying consideration of a stockholder proposal until the next annual meeting
unless a special meeting is called by the Chairman or at the request of a
majority of the Whole Board. These provisions would also prevent the holders of
a majority of the voting power of the Voting Stock from unilaterally using the
written consent procedure to take stockholder action and from taking action by
consent. Moreover, a stockholder could not force stockholder consideration of a
proposal over the opposition of the Chairman and the Board by calling a special
meeting of stockholders prior to the time the Chairman or a majority of the
Whole Board believes such consideration to be appropriate.
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals. The Bylaws establish an advance notice procedure for stockholders to
make nominations of candidates for election as directors, or bring other
business before an annual meeting of stockholders of the Company (the
"Stockholder Notice Procedure").
The Stockholder Notice Procedure provides that only persons who are
nominated by, or at the direction of, the Board, or by a stockholder who has
given timely written notice to the Secretary of the Company prior to the meeting
at which directors are to be elected, will be eligible for election as directors
of the Company. The Stockholder Notice Procedure provides that at an annual
meeting only such business may be conducted as has been brought before the
meeting by, or at the direction of, the Chairman or the Board or by a
stockholder who has given timely written notice to the Secretary of the Company
of such stockholder's intention to bring such business before such meeting.
Under the Stockholder Notice Procedure, for notice of stockholder nominations to
be made at an annual meeting to be timely, such notice must be received by the
Company not less than 70 days nor more than 90 days prior to the first
anniversary of the previous year's annual meeting (or, if the date of the annual
meeting is advanced by more than 20 days, or delayed by more than 70 days, from
such anniversary date, not earlier than the 90th day prior to such meeting and
not later than the later of (x) the 70th day prior to such meeting and (y) the
10th day after public announcement of the date of such meeting is first made).
Notwithstanding the foregoing, in the event that the number of directors to be
elected is increased
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and there is no public announcement naming all of the nominees for directors or
specifying the size of the increased Board made by the Company at least 80 days
prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice will be timely, but only with respect to nominees for any
new positions created by such increase, if it is received by the Company not
later than the 10th day after such public announcement is first made by the
Company. Under the Stockholder Notice Procedure, for notice of a stockholder
nomination to be made at a special meeting at which directors are to be elected
to be timely, such notice must be received by the Company not earlier than the
90th day before such meeting and not later than the later of (x) the 70th day
prior to such meeting and (y) the 10th day after public announcement of the date
of such meeting is first made.
Under the Stockholder Notice Procedure, a stockholder's notice to the
Company proposing to nominate a person for election as a director must contain
certain information, including, without limitation, the identity and address of
the nominating stockholder, the class and number of shares of stock of the
Company which are owned by such stockholder, and all information regarding the
proposed nominee that would be required to be included in a proxy statement
soliciting proxies for the proposed nominee. Under the Stockholder Notice
Procedure, a stockholder's notice relating to the conduct of business other than
the nomination of directors must contain certain information about such business
and about the proposing stockholder, including, without limitation, a brief
description of the business the stockholder proposes to bring before the
meeting, the reasons for conducting such business at such meeting, the name and
address of such stockholder, the class and number of shares of stock of the
Company beneficially owned by such stockholder, and any material interest of
such stockholder in the business so proposed. If the Chairman of the Board or
other officer presiding at a meeting determines that a person was not nominated,
or other business was not brought before the meeting, in accordance with the
Stockholder Notice Procedure, such person will not be eligible for election as a
director, or such business will not be conducted at such meeting, as the case
may be.
By requiring advance notice of nominations by stockholders, the Stockholder
Notice Procedure will afford the Board an opportunity to consider the
qualifications of the proposed nominees and, to the extent deemed necessary or
desirable by the Board, to inform stockholders about such qualifications. By
requiring advance notice of other proposed business, the Stockholder Notice
Procedure will also provide a more orderly procedure for conducting annual
meetings of stockholders and, to the extent deemed necessary or desirable by the
Board, will provide the Board with an opportunity to inform stockholders, prior
to such meetings, of any business proposed to be conducted at such meetings,
together with any recommendations as to the Board's position regarding action to
be taken with respect to such business, so that stockholders can better decide
whether to attend such a meeting or to grant a proxy regarding the disposition
of any such business.
Although the Bylaws do not give the Board any power to approve or
disapprove stockholder nominations for the election of directors or proposals
for action, they may have the effect of precluding a contest for the election of
directors or the consideration of stockholder proposals if the proper procedures
are not followed, and of discouraging or deterring a third party from conducting
a solicitation of proxies to elect its own slate of directors or to approve its
own proposal, without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to the Company and its stockholders.
Preferred Stock. The Certificate of Incorporation authorizes the Board to
establish one or more series of Preferred Stock and to determine, with respect
to any series of Preferred Stock, the terms and rights of such series, including
(i) the designation of the series, (ii) the number of shares of the series,
which number the Board may thereafter (except where otherwise provided by the
terms of such series) increase or decrease (but not below the number of shares
thereof then outstanding), (iii) whether dividends, if any, will be cumulative
or noncumulative and the dividend rate of the series, if any, (iv) the dates at
which dividends, if any, will be payable, (v) the redemption rights and price or
prices, if any, for shares of the series, (vi) the terms and amounts of any
sinking fund provided for the purchase or redemption of shares of the series,
(vii) the amounts payable on shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Company, (viii) whether the shares of the series will be convertible into shares
of any other class or series, or any other security, of the Company or any other
corporation, and, if so, the specification of such other class or series or such
other security, the conversion price or prices or rate or rates, any adjustments
thereof, the date or dates as of which such shares shall be convertible and all
other terms and
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<PAGE> 66
conditions upon which such conversion may be made, (ix) restrictions on the
issuance of shares of the same series or of any other class or series, and (x)
the voting rights, if any, of the holders of such series.
The Company believes that the ability of the Board to issue one or more
series of Preferred Stock will provide the Company with flexibility in
structuring possible future financings and acquisitions, and in meeting other
corporate needs which might arise. The authorized shares of Preferred Stock, as
well as shares of Common Stock, will be available for issuance without further
action by the Company's stockholders, unless such action is required by
applicable law or the rules of any stock exchange or automated quotation system
on which the Company's securities may be listed or traded. The NYSE currently
requires stockholder approval as a prerequisite to listing shares in several
instances, including where the present or potential issuance of shares could
result in an increase in the number of shares of common stock, or in the amount
of voting securities, outstanding of at least 20%, subject to certain
exceptions. If the approval of the Company's stockholders is not required for
the issuance of shares of Preferred Stock or Common Stock, the Board may
determine not to seek stockholder approval.
Although the Board has no intention at the present time of doing so, it
could issue a series of Preferred Stock that could, depending on the terms of
such series, impede the completion of a merger, tender offer or other takeover
attempt. The Board will make any determination to issue such shares based on its
judgment as to the best interests of the Company and its stockholders. The
Board, in so acting, could issue Preferred Stock having terms that could
discourage an acquisition attempt through which an acquiror may be able to
change the composition of the Board, including a tender offer or other
transaction that some, or a majority, of the Company's stockholders might
believe to be in their best interests or in which stockholders might receive a
premium for their stock over the then current market price of such stock.
Merger/Sale of Assets. The Certificate of Incorporation provides that
certain "business combinations" (as defined) must be approved by the holders of
at least 66 2/3% of the voting power of the shares not owned by an "interested
shareholder" (as defined), unless the business combinations are approved by the
"Continuing Directors" (as defined) or meet certain requirements regarding price
and procedure.
Amendment of Certain Provisions of the Certificate of Incorporation and
Bylaws. Under the Delaware Law, the stockholders have the right to adopt, amend
or repeal the bylaws and, with the approval of the board of directors, the
certificate of incorporation of a corporation. In addition, if the certificate
of incorporation so provides, the bylaws may be adopted, amended or repealed by
the board of directors. The Certificate of Incorporation provides that the
affirmative vote of the holders of at least 80% of the voting power of the
outstanding shares of Voting Stock, voting together as a single class, is
required to amend provisions of the Certificate of Incorporation relating to the
prohibition of stockholder action without a meeting; the number, election and
term of the Company's directors; the removal of directors; the affirmative vote
of the holders of at least 66 2/3% of the voting power of the outstanding shares
of Voting Stock, voting together as a single class (including the affirmative
vote of the holders of 66 2/3% of the voting power of the outstanding Voting
Stock not owned by any interested shareholder), is required to amend the
provisions of the Certificate of Incorporation relating to required approvals of
certain business combinations; and the vote of the holders of a majority of the
voting power of the outstanding shares of Voting Stock is required to amend all
other provisions of the Certificate of Incorporation. The Certificate of
Incorporation further provides that the Bylaws may be amended by the Board or by
the affirmative vote of the holders of at least 80% of the voting power of the
outstanding shares of Voting Stock, voting together as a single class. These 80%
voting requirements will have the effect of making more difficult any amendment
by stockholders of the Bylaws or of any of the provisions of the Certificate of
Incorporation described above, even if a majority of the Company's stockholders
believe that such amendment would be in their best interests.
Antitakeover Legislation. Section 203 of the Delaware Law provides that,
subject to certain exceptions specified therein, a corporation shall not engage
in any business combination with any "interested stockholder" for a three-year
period following the date that such stockholder becomes an interested
stockholder unless (i) prior to such date, the board of directors of the
corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested
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<PAGE> 67
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding certain shares), or
(iii) on or subsequent to such date, the business combination is approved by the
board of directors of the corporation and by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. Except as specified in Section 203 of the Delaware Law, an
interested stockholder is defined to include (x) any person that is the owner of
15% or more of the outstanding voting stock of the corporation, or is an
affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation, at any time within three years
immediately prior to the relevant date and (y) the affiliates and associates of
any such person.
Under certain circumstances, Section 203 of the Delaware Law makes it more
difficult for a person who would be an "interested stockholder" to effect
various business combinations with a corporation for a three-year period,
although the stockholders may elect to adopt an amendment to a corporation's
certificate of incorporation or bylaws excluding the corporation from the
restrictions imposed thereunder. However, the Certificate of Incorporation and
Bylaws do not exclude the Company from the restrictions imposed under Section
203 of the Delaware Law. It is anticipated that the provisions of Section 203 of
the Delaware Law may encourage companies interested in acquiring the Company to
negotiate in advance with the Board, since the stockholder approval requirement
would be avoided if a majority of the directors then in office approve either
the business combination or the transaction which results in the stockholder
becoming an interested stockholder.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of certain of the material United States federal
income tax consequences of the purchase, ownership, disposition and conversion
of Preferred Securities. Unless otherwise stated, this summary deals only with
Preferred Securities held as capital assets by holders who purchase the
Preferred Securities upon original issuance. This summary addresses the United
States Federal income tax considerations to holders of Preferred Securities who
are citizens or residents of the United States, corporations, partnerships or
other entities created or organized in or under the laws of the United States or
any political subdivision thereof or therein, or estates or trusts the income of
which is subject to United States federal income taxation regardless of its
source or other holders who are otherwise subject to United States federal
income taxation on a net income basis with respect to Preferred Securities
(collectively "U.S. Holders") and does not address the tax consequences to
holders of Preferred Securities who are not U.S. Holders. This summary does not
deal with special classes of holders such as banks, thrift institutions, real
estate investment trusts, regulated investment companies, insurance companies,
dealers in securities or currencies, tax-exempt investors, or persons that will
hold the Preferred Securities as other than a capital asset. This summary also
does not address tax consequences to persons that have a functional currency
other than the U.S. Dollar or the tax consequences to shareholders, partners or
beneficiaries of a holder of Preferred Securities. Further, it does not include
any description of any alternative minimum tax consequences or the tax laws of
any state or local government or of any foreign government that may be
applicable to the Preferred Securities. This summary is based on the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury regulations thereunder
and administrative and judicial interpretations thereof, as of the date hereof,
all of which are subject to change, possibly on a retroactive basis.
CLASSIFICATION OF THE CONVERTIBLE DEBENTURES
In connection with the issuance of the Convertible Debentures, Skadden,
Arps, Slate, Meagher & Flom LLP, tax counsel to the Company, will render its
opinion to the effect that, under then current law and assuming full compliance
with the Indenture, the Convertible Debentures will be classified for United
States federal income tax purposes as indebtedness of the Company. An opinion of
tax counsel, however, is not binding on the Internal Revenue Service (the "IRS")
or the courts. Prospective investors should note that no rulings have been or
are expected to be sought from the IRS with respect to any of these issues, and
no assurance can be given that the IRS will not take contrary positions. No
assurance can be given, however, that any of the opinions expressed herein will
not be challenged by the IRS or, if challenged, that such a challenge would not
be successful.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Preferred Securities, Skadden, Arps,
Slate, Meagher & Flom LLP, tax counsel to the Company and the Trust, will render
its opinion generally to the effect that, under then current law and assuming
full compliance with the terms of the Declaration and the Indenture (and certain
other documents), and based on certain facts and assumptions contained in such
opinion, the Trust will be classified for United States federal income tax
purposes as a grantor trust and not as an association taxable as a corporation.
Accordingly, for United States federal income tax purposes, each holder of
Preferred Securities generally will be considered the owner of an undivided
interest in the Convertible Debentures, and each holder will be required to
include in its gross income any interest (including OID accrued) with respect to
its allocable share of those Convertible Debentures.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under recently issued Treasury regulations applicable to debt instruments
issued on or after August 13, 1996 (the "Regulations"), a "remote" contingency
that stated interest will not be timely paid will be ignored in determining
whether a debt instrument is issued with OID. The Company believes that the
likelihood of its exercising its option to defer interest payments is remote
within the meaning of the Regulations. Based on the
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<PAGE> 69
foregoing, the Company believes that, although the matter is not free from
doubt, the Convertible Debentures will not be considered to be issued with OID
at the time of their original issuance and, accordingly, that a holder of the
Preferred Securities should include in gross income such holder's allocable
share of interest on the Convertible Debentures in accordance with such holder's
method of tax accounting.
Under the Regulations, if the option to defer any payment of interest was
determined not to be "remote" or if the Company exercised such option, the
Convertible Debentures would be treated as issued with OID at the time of
issuance or at the time of such exercise, as the case may be, and all stated
interest on the Convertible Debentures would thereafter be treated as OID as
long as the Convertible Debentures remained outstanding. In such event, all of a
holder's taxable interest income with respect to the Convertible Debentures
would constitute OID that would have to be included in income on an economic
accrual basis before the receipt of the cash attributable to the interest,
regardless of such holder's method of tax accounting, and actual distributions
of stated interest would not be reported as taxable income. Consequently, a
holder of Preferred Securities would be required to include in gross income OID
even though the Company would not make any actual cash payments during an
Extension Period.
No rulings or other interpretation have been issued by the IRS which have
addressed the meaning of the term "remote" as used in the Regulations, and it is
possible that the IRS could take a position contrary to the interpretation
herein.
Because income on the Preferred Securities will constitute interest (or
OID), corporate holders of Preferred Securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the Preferred Securities.
RECEIPT OF CONVERTIBLE DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Description of
the Preferred Securities -- Special Event Redemption or Distribution," the
Convertible Debentures may be distributed to holders in exchange for the
Preferred Securities and in liquidation of the Trust. Under current law, such a
distribution, for United States federal income tax purposes, would be treated as
a nontaxable event to each holder, and each holder would receive an aggregate
tax basis in the Convertible Debentures equal to such holder's aggregate tax
basis in its Preferred Securities. A holder's holding period in the Convertible
Debentures so received in liquidation of the Trust would include the period
during which the Preferred Securities were held by such holder. If, however, the
Trust is characterized for United States federal income tax purposes as an
association taxable as a corporation at the time of its dissolution, the
distribution of the Convertible Debentures may constitute a taxable event to
holders of Preferred Securities and a holder's holding period for the
Convertible Debentures would begin on the date such Convertible Debentures were
received.
Under certain circumstances described under "Description of the Preferred
Securities -- Special Event Redemption or Distribution," the Convertible
Debentures may be redeemed for cash and the proceeds of such redemption
distributed to holders in redemption of their Preferred Securities. Under
current law, such a redemption of the Convertible Debentures would, for United
States federal income tax purposes, constitute a taxable disposition of the
redeemed Preferred Securities, and a holder could recognize gain or loss as if
it sold such redeemed Preferred Securities for cash. See "-- Sales of Preferred
Securities."
SALES OF PREFERRED SECURITIES
A holder that sells Preferred Securities will recognize gain or loss equal
to the difference between its adjusted tax basis in the Preferred Securities and
the amount realized on the sale of such Preferred Securities. Assuming the
Convertible Debentures are not deemed to be issued with OID, a holder's adjusted
tax basis in the Preferred Securities generally will be its initial purchase
price. If the Convertible Debentures are deemed to be issued with OID (either
upon original issuance or at the time the Company exercises its option to defer
interest payments), a holder's tax basis in the Preferred Securities generally
will be its initial issue price, increased by OID previously includible in such
holder's gross income to the date of disposition and decreased by payments
received on the Preferred Securities from and including the date the Convertible
Debentures
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were deemed to be issued with OID. Such gain or loss generally will be a capital
gain or loss and generally will be a long-term capital gain or loss if the
Preferred Securities have been held for more than one year.
If the Preferred Securities are deemed to include OID, such Preferred
Securities may trade at a price that does not accurately reflect the value of
accrued but unpaid interest with respect to the underlying Convertible
Debentures. In such event, a holder who disposes of his Preferred Securities
between record dates for payments of distributions thereon will be required to
include accrued but unpaid interest on the Convertible Debentures through the
date of disposition in income as ordinary income and to add such amount to his
adjusted tax basis in his pro rata share of the underlying Convertible
Debentures deemed disposed of. To the extent that a holder sells Preferred
Securities at a price that is less than the holder's adjusted tax basis (which
will include, in the form of OID, all accrued but unpaid interest) a holder will
generally recognize a capital loss. Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for United States
federal income tax purposes.
CONVERSION OF PREFERRED SECURITIES
A holder of Preferred Securities generally will not recognize income, gain
or loss upon the conversion, through the Conversion Agent, of its Preferred
Securities into Common Stock. A holder will, however, recognize gain upon the
receipt of cash in lieu of a fractional share of Common Stock equal to the
amount of cash received less the holder's tax basis in such fractional share. A
holder's tax basis in the Common Stock received upon exchange and conversion
will generally be equal to the holder's tax basis in the Preferred Securities
delivered to the Conversion Agent for exchange less the basis allocated to any
fractional share for which cash is received, and a holder's holding period in
the Common Stock received upon exchange and conversion will generally begin on
the date the holder acquired the Preferred Securities delivered to the
Conversion Agent for exchange.
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under Section 305 of the Code would treat
holders of Preferred Securities as having received a constructive distribution
from the Company in the event the conversion ratio of the Convertible Debentures
were adjusted if (i) as a result of such adjustment, the proportionate interest
(measured by the quantum of Common Stock into or for which the Convertible
Debentures are convertible or exchangeable) of the holders of the Preferred
Securities in the assets or earnings and profits of the Company were increased,
and (ii) the adjustment was not made pursuant to a bona fide, reasonable
antidilution formula. An adjustment in the conversion ratio would not be
considered made pursuant to such a formula if the adjustment was made to
compensate for certain taxable distributions with respect to the Common Stock.
Thus, under certain circumstances, a reduction in the conversion price for the
holders may result in deemed dividend income to holders to the extent of the
current or accumulated earnings and profits of the Company. Holders of the
Preferred Securities would be required to include their allocable share of such
deemed dividend income in gross income but would not receive any cash related
thereto.
PROPOSED TAX LEGISLATION
On March 19, 1996, President Clinton proposed certain legislation (the
"Proposed Legislation") that would, among other things, generally deny corporate
issuers a deduction for interest in respect of certain debt obligations with a
maximum term of more than 20 years that are not shown as indebtedness on the
consolidated balance sheet of the issuer and that are issued on or after
December 7, 1995. On March 29, 1996, Senate Finance Committee Chairman William
V. Roth, Jr. and House Ways and Means Committee Chairman Bill Archer issued a
joint statement (the "Joint Statement") indicating their intent that the
Proposed Legislation, if adopted by either of the tax-writing committees of
Congress, would have an effective date that is no earlier than the date of
"appropriate Congressional action." In addition, subsequent to the publication
of the Joint Statement, Senator Daniel Patrick Moynihan and Representatives Sam
M. Gibbons and Charles B. Rangel wrote letters to Treasury officials concurring
with the views expressed in the Joint Statement (the "Democrat Letters"). Based
upon the Joint Statement and the Democrat Letters, it is expected that if the
Proposed Legislation were to be enacted, such legislation would not apply to the
Convertible Debentures because they will be issued prior to the date of any
"appropriate Congressional action." Furthermore, even if the Proposed
Legislation were enacted in its current form with effective date
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provisions making it applicable to the Convertible Debentures, it would not
affect the Company's ability to deduct the interest payable on the Convertible
Debentures because their maximum term will not exceed 20 years. There can be no
assurance, however, that any proposed legislation enacted after the date hereof
will not adversely affect the ability of the Company to deduct the interest
payable on the Convertible Debentures. Accordingly, there can be no assurance
that a Tax Event will not occur. See "Description of the Preferred
Securities -- Special Event Redemption or Distribution."
INFORMATION REPORTING AND BACKUP WITHHOLDING
Generally, income on the Preferred Securities will be reported to holders
on Forms 1099, which forms should be mailed to holders of Preferred Securities
by January 31 following each calendar year.
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification requirements. Any withheld amounts will be allowed
as a credit against the holder's United States Federal income tax, provided the
required information is provided to the Internal Revenue Service on a timely
basis.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER
TAX LAWS.
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UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), the Trust has agreed to sell to each of the Underwriters
named below, and each of the Underwriters has severally agreed to purchase the
number of Preferred Securities set forth opposite its name below. In the
Purchase Agreement, the several Underwriters have agreed, subject to the terms
and conditions set forth therein, to purchase all the Preferred Securities
offered hereby if any of the Preferred Securities are purchased. In the event of
default by an Underwriter, the Purchase Agreement provides that, in certain
circumstances, the purchase commitments of the nondefaulting Underwriters may be
increased or the Purchase Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
UNDERWRITERS SECURITIES
-------------------------------------------------------------------------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................................. 1,000,000
Montgomery Securities..................................................... 500,000
Morgan Stanley & Co. Incorporated......................................... 500,000
---------
Total........................................................ 2,000,000
=========
</TABLE>
The Underwriters propose initially to offer the Preferred Securities to the
public at the initial public offering price set forth on the cover page of this
Prospectus, and to certain dealers at such price less a concession not in excess
of $.75 per Preferred Security. The Underwriters may allow, and such dealers may
reallow, a discount not in excess of $.10 per Preferred Security on sales to
certain other dealers. After the initial public offering, the public offering
price, concession and discount may be changed.
The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase up to an additional
300,000 Preferred Securities solely to cover over-allotments, if any. To the
extent that the Underwriters exercise their option, each Underwriter will have a
firm commitment, subject to certain conditions, to purchase approximately the
same percentage of such additional Preferred Securities as the number set forth
next to such Underwriter's name in the preceding table bears to the total number
of Preferred Securities shown in such table.
In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Convertible Debentures of the Company,
the Purchase Agreement provides that the Company will pay as compensation
("Underwriters' Compensation") to the Underwriters, for the Underwriters'
arranging the investment therein of such proceeds, an amount in same day funds
of $1.25 per Preferred Security (or $2,500,000 in the aggregate, or $2,875,000
in the aggregate if the Underwriters' over-allotment option is exercised in
full) for the accounts of the several Underwriters.
The Trust and the Company have agreed that they will not, for a period of
90 days after the date of the Prospectus, except with 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,
(a) any trust certificates or other securities of the Trust (other than the
Preferred Securities offered hereby and the Common Securities issued to the
Company), (b) any preferred stock or any other security of the Company that is
substantially similar to the Preferred Securities, (c) any shares of any class
of common stock of the Company (other than (i) shares of Common Stock issuable
upon conversion of the Preferred Securities or pursuant to the exercise of
options or warrants outstanding on the date of this Prospectus, and (ii) the
grant of stock options or other stock-based awards (and the exercise thereof) to
directors, officers and employees of the Company or any of its subsidiaries) or
(d) any debt securities of the Company that are substantially similar to the
Convertible Debentures (other than the Convertible Debentures issued to the
Trust). In addition, Mr. Samuel L. Eichenfield, Chairman, President and Chief
Executive Officer of the Company, has agreed, subject to certain exceptions,
that he will not, for a period of 90 days after the date of this Prospectus,
except with the prior written consent of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, directly or indirectly sell, offer
72
<PAGE> 73
to sell, grant any option for the sale of, or otherwise dispose of, any shares
of Common Stock or any securities which are convertible into, or exercisable or
exchangeable for, Common Stock.
The Preferred Securities have been approved for listing on the NYSE,
subject to official notice of issuance, under the symbol "FNVprA." Prior to this
offering, there has been no public market for the Preferred Securities. To meet
one of the requirements for listing the Preferred Securities on the NYSE, the
Underwriters will undertake to sell lots of 100 or more Preferred Securities to
a minimum of 400 beneficial holders.
The Company and the Trust have agreed to indemnify the Underwriters
against, or 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.
LEGAL MATTERS
Certain legal matters with respect to the Company will be passed upon for
the Company by William J. Hallinan, Esq., Senior Vice President -- General
Counsel of the Company. Certain legal matters with respect to the Preferred
Securities, the Convertible Debentures, the Common Stock issuable upon
conversion thereof and the Guarantee will be passed upon for the Company and the
Trust by Skadden, Arps, Slate, Meagher & Flom (Illinois) and Skadden, Arps,
Slate, Meagher & Flom LLP. Brown & Wood LLP, San Francisco, California will act
as counsel for the Underwriters. Skadden, Arps, Slate, Meagher & Flom (Illinois)
and Skadden, Arps, Slate, Meagher & Flom LLP have from time to time represented,
and may continue to represent, certain of the Underwriters.
EXPERTS
The financial statements incorporated in this Prospectus by reference from
the Company's Annual Report on Form 10-K for the year ended December 31, 1995
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
73
<PAGE> 74
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS 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 OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
----
<S> <C>
Available Information................. 4
Incorporation of Certain Documents By
Reference........................... 5
Special Note Regarding Forward-Looking
Statements.......................... 5
Prospectus Summary.................... 6
Risk Factors.......................... 15
FINOVA Finance Trust.................. 20
Accounting Treatment.................. 20
Use of Proceeds....................... 21
Price Range of Common Stock and
Dividends........................... 21
Capitalization........................ 22
Selected Consolidated Financial
Data................................ 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 24
Business.............................. 28
Description of the Preferred
Securities.......................... 32
Description of the Guarantee.......... 47
Description of the Convertible
Debentures.......................... 50
Effect of Obligations under the
Convertible Debentures and the
Guarantee........................... 60
Description of Capital Stock.......... 61
Certain Federal Income Tax
Considerations...................... 68
Underwriting.......................... 72
Legal Matters......................... 73
Experts............................... 73
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
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2,000,000 PREFERRED SECURITIES
LOGO(R)
FINOVA FINANCE TRUST
5 1/2% CONVERTIBLE TRUST
ORIGINATED PREFERRED
SECURITIES(SM) ("CONVERTIBLE TOPrS(SM)")
GUARANTEED BY, AND EXCHANGEABLE
UPON CERTAIN EVENTS INTO 5 1/2%
CONVERTIBLE SUBORDINATED DEBENTURES
DUE 2016 OF, IN EACH CASE
TO THE EXTENT SET FORTH HEREIN,
AND CONVERTIBLE INTO
COMMON STOCK OF,
THE FINOVA GROUP INC.(R)
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
MORGAN STANLEY & CO.
INCORPORATED
DECEMBER 5, 1996
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