KBK CAPITAL CORP, S-2, 1998-09-30

KBK CAPITAL CORP
S-2, 1998-09-30
SHORT-TERM BUSINESS CREDIT INSTITUTIONS

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<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1998

REGISTRATION NO. 333-
REGISTRATION NO. 333- -01
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549

------------------------------

FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

------------------------------

KBK CAPITAL CORPORATION KBK CAPITAL TRUST I
(EXACT NAME OF REGISTRANT (EXACT NAME OF CO-REGISTRANT
AS SPECIFIED IN ITS CHARTER) AS SPECIFIED IN ITS CHARTER)

DELAWARE DELAWARE
(STATE OR OTHER JURISDICTION OF (STATE OR OTHER JURISDICTION
INCORPORATION OR ORGANIZATION) OF INCORPORATION OR ORGANIZATION)

75-2416103 APPLIED FOR
(I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)

301 COMMERCE STREET, SUITE 2200, FORT WORTH, TEXAS 76102 (817) 258-6000

(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S AND CO-REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)

------------------------------------------------------------

JAY K. TURNER
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
KBK CAPITAL CORPORATION
2200 CITY CENTER II
301 COMMERCE STREET
FORT WORTH, TEXAS 76102
(817) 258-6000

(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

------------------------------------------------------------

WITH COPIES TO:

GENE G. LEWIS, ESQ. CATHERINE S. GALLAGHER, ESQ.
LAURA MCBURNETT, ESQ. JULIE N. PAPA, ESQ.
LIDDELL, SAPP, ZIVLEY, HILL & LABOON, L.L.P. ANDREWS & KURTH, L.L.P.
3400 CHASE TOWER 1701 PENNSYLVANIA AVENUE, N.W.
600 TRAVIS WASHINGTON, D.C. 20006
HOUSTON, TEXAS 77002 (202) 662-2700
(713) 226-1200
------------------------------------------------------------
<PAGE> 2
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [ ]

If the registrant elects to deliver its latest annual report to
security holders, or a complete and legible facsimile thereof, pursuant to Item
11(a) (1) of this Form, check the following box. [ ]

If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]

<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Trust Preferred Securities of
KBK Capital Trust I . . . . . . 920,000(1) $25.00 $23,000,000 $6,785(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Subordinated Debentures of
KBK Capital Corporation . . . . (3) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Guarantee of KBK Capital
Corporation with respect to
Trust Preferred Securities . . . (4) -- -- --
====================================================================================================================================
</TABLE>

(1) Includes 120,000 Trust Preferred Securities which may be sold by KBK
Capital Trust I to cover over-allotments.
(2) Calculated pursuant to Rule 457 under the Securities Act of 1933.
(3) The Subordinated Debentures will be purchased by KBK Capital Trust I
with the proceeds of the sale of the Trust Preferred Securities.
Such securities may later be distributed for no additional
consideration to the holders of the Trust Preferred Securities of KBK
Capital Trust I upon its dissolution and the distribution of its
assets.
(4) This Registration Statement is deemed to cover the rights of holders
of the Trust Preferred Securities under the Guarantee and back-up
undertakings, consisting of obligations by KBK Capital Corporation to
provide certain indemnities in respect of, and pay and be responsible
for certain expenses, costs, liabilities and debts of KBK Capital
Trust I, as set forth in the Declaration of Trust and the Subordinated
Debt Indenture, in each case as further described in the Registration
Statement. No separate consideration will be received for the
Guarantee or any back-up undertaking.

THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This preliminary prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.

SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1998

800,000 TRUST PREFERRED SECURITIES

KBK CAPITAL TRUST I
% TRUST PREFERRED SECURITIES
(LIQUIDATION AMOUNT $25 PER TRUST PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY

KBK CAPITAL CORPORATION

The % Trust Preferred Securities (the "Trust Preferred
Securities") offered hereby represent preferred undivided beneficial ownership
interests in the assets of KBK Capital Trust I, a statutory business trust
formed under the laws of the State of Delaware (the "Trust"). KBK Capital
Corporation, a Delaware corporation (the "Company" or "KBK"), will own all the
common securities (the "Trust Common Securities" and, together with the Trust
Preferred Securities, the "Trust Securities") representing subordinated
undivided beneficial ownership interests in the assets of the Trust. The Trust
exists for the sole purpose of issuing the Trust Securities, making
distributions to the holders thereof and investing the proceeds as described
below and engaging in activities incidental thereto. The proceeds from the sale
of the Trust Securities (including the proceeds, if any, from the exercise of
the Underwriters' over-allotment option) together with the proceeds from the
issuance to KBK of the Trust Common Securities will be used by the Trust to
purchase % Subordinated Debentures of KBK due 2028 (the "Debentures").

Application will be made to list the Trust Preferred Securities for
trading on the American Stock Exchange, subject to official notice of issuance,
under the symbol "_____."
(continued on next page)

----------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE TRUST
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.

<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds
Public (1) Commissions (2) to Trust(3)
<S> <C> <C> <C>
Per Trust Preferred Security . . . . . . . . . . . $ $ (4) $
Total(5) . . . . . . . . . . . . . . . . . . . . . $ $ (4) $
</TABLE>
(1) Plus accumulated distributions, if any, from , 1998.
(2) The Trust and the Company have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended. See "Underwriting."
(3) Before deducting expenses of the offering payable by the Company,
estimated at $ .
(4) In view of the fact that the proceeds of the sale of the Trust
Preferred Securities will be ultimately invested in investment
instruments of the Company, the Underwriting Agreement provides that
the Company will pay to the Underwriters, as compensation for their
services, $ per Trust Preferred Security (or $ in
the aggregate) (the "Underwriters' Compensation"). See "Underwriting."
(5) The Trust has granted the Underwriters an option for 30 days to
purchase up to an additional 120,000 Trust Preferred Securities at the
price to public solely to cover over-allotments. If such option is
exercised in full, the total price to public, aggregate Underwriters'
Compensation and proceeds to the Trust will be $ , $ and
$ , respectively. See "Underwriting."

----------------------------

The Trust Preferred Securities offered hereby are offered severally by
the Underwriters, as specified herein, subject to receipt and acceptance by
them and subject to their right to reject any order in whole or in part. It is
expected that delivery of the Trust Preferred Securities will be made only in
book-entry form through the facilities of The Depository Trust Company ("DTC")
on or about , 1998.

----------------------------

FRIEDMAN, BILLINGS, RAMSEY & CO., INC. J.J.B. HILLIARD, W.L. LYONS, INC.

, 1998

<PAGE> 4
Holders of the Trust Preferred Securities will be entitled to receive
cumulative cash distributions accumulating from the closing of this offering
and payable quarterly in arrears on each , , and ,
commencing 1999, at an annual rate of % of the liquidation amount of
$25 per Trust Preferred Security (equivalent to $ per Trust Preferred Security
per annum), if, as and when the Trust has funds legally available for payment.
See "Description of the Trust Preferred Securities -- Distributions."
Distributions not paid on the scheduled payment date will accumulate and
compound quarterly at a rate per annum equal to % and, except to the extent
the context otherwise requires, when used herein the term "distributions"
includes any such additional amounts. The distribution rate and the distribution
payment dates and other payment dates for the Trust Preferred Securities will
correspond to the interest rate and interest payment dates and other payment
dates for the Debentures, which will be the sole assets of the Trust. The
Debentures will provide that payments of interest may be deferred at any time,
and from time to time, by KBK for a period not exceeding 20 consecutive quarters
(referred to herein as an "Extension Period"). During any extension period,
holders of Trust Preferred Securities will recognize original issue discount
("OID"). See "Certain Federal Income Tax Consequences."

The payment of distributions by the Trust and payments on liquidation
of the Trust or the redemption of Trust Preferred Securities, as described
below, are guaranteed on a subordinated basis by the Company (the "Guarantee")
to the extent the Trust has funds legally available therefor as described under
"Description of the Guarantee." The Company's obligation under the Guarantee
is subordinate and junior in right of payment to all other liabilities of the
Company (except for the guarantee of the Trust Common Securities (as defined
herein)) and ranks pari passu with the most senior preferred stock, if any,
issued from time to time by the Company. The Company's obligations under the
Debentures are subordinate and junior in right of payment to all Senior Debt
(as defined herein) of the Company. At June 30, 1998, the Company had
outstanding Senior Debt aggregating approximately $38.4 million. See "Risk
Factors -- Ranking of Subordinate Obligations under the Guarantee and the
Debentures." The term "Senior Debt" means any indebtedness of the Company,
except for trade credit and any such indebtedness that is by its terms
subordinated to or pari passu with the Debentures, as the case may be. See
"Description of the Debentures -- Subordination."

The Company has covenanted in the Guarantee that, if (a) for any
distribution period, full distributions on a cumulative basis on any Trust
Preferred Securities have not been paid or declared and set apart for payment,
(b) an event of default has occurred and is continuing under the indenture
under which the Debentures are issued (the "Subordinated Indenture"), (c) the
Company is in default of its obligations under the Guarantee or the guarantee
of the Trust Common Securities, or (d) the Company has given notice of its
selection of an Extension Period, then during such period, subject to certain
exceptions, the Company shall not (i) declare or pay dividends or distributions
on, or redeem, purchase, acquire or make a liquidation payment with respect to,
any of its capital stock nor (ii) make any payment of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities of the
Company that rank pari passu with or junior to the Debentures. See "Description
of the Guarantee -- Certain Covenants of KBK."

Except as provided below, the Trust Preferred Securities may not be
redeemed by the Trust prior to , 2001. The Trust Preferred Securities are
subject to mandatory redemption, in whole or in part, on or after such date, at
100% of the liquidation amount thereof plus accrued and unpaid distributions,
if any, upon any permitted redemption by KBK of the Debentures. See
"Description of the Trust Preferred Securities -- Optional Redemption." In
addition, the Trust Preferred Securities are subject to mandatory redemption
upon the repayment at maturity or as a result of acceleration of the
Debentures. See "Description of the Trust Preferred Securities -- Mandatory
Redemption."

Under certain circumstances following the occurrence of a Trust
Special Event (as defined herein), the Trust Preferred Securities are also
subject to exchange, at the option of the Trust in the manner described herein,
for the Debentures (see "Description of the Trust Preferred Securities -- Trust
Special Event Exchange"). At any time, KBK will have the right to terminate
the Trust and cause the Debentures to be distributed to the holders of the
Trust Preferred Securities in liquidation of the Trust. See "Description of the
Trust Preferred Securities -- Mandatory Redemption" and " -- Distribution of
Debentures."

In the event of any liquidation, dissolution, winding up or
termination of the Trust, the holders of the Trust Preferred Securities will be
entitled to receive (after payment by the Trust of all of its liabilities to
the extent required by applicable law) for each Trust Preferred Security a
liquidation amount of $25 plus accumulated and unpaid distributions thereon,
unless the Debentures are distributed in connection with such liquidation,
dissolution, winding up or termination of the Trust. Upon a default by the
Company on any of its obligations under the Guarantee or the Debentures, the
holders of the Trust Preferred Securities will have a preference over the
holders of the Trust Common Securities with respect to payments upon
liquidation of the Trust. See "Description of the Trust Preferred Securities --
Liquidation Distribution Upon Dissolution."

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
TRUST PREFERRED SECURITIES. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE
PURCHASE OF TRUST PREFERRED SECURITIES TO COVER SYNDICATE SHORT POSITIONS AND
THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."

2
<PAGE> 5
AVAILABLE INFORMATION

KBK is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the
Commission: 7 World Trade Center, Suite 1300, New York, New York 10048; and
Northwestern Atrium, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material also may be obtained at prescribed rates
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Such material also may be accessed electronically by
means of the Commission's home page on the Internet at http://www.sec.gov.
KBK's common stock, par value $.01 per share (the "Common Stock"), is listed
for trading on the American Stock Exchange and the Pacific Stock Exchange under
the trading symbol "KBK," and reports, proxy statements and other information
concerning KBK may be inspected at the offices of the American Stock Exchange,
86 Trinity Place, New York, New York 10005 and at the offices of the Pacific
Stock Exchange, 301 Pine Street, San Francisco, CA 94104.

The Trust and the Company have filed a registration statement on Form
S-2 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"). This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. Reference is made to such
Registration Statement for further information with respect to KBK and the
Trust Preferred Securities offered hereby. Statements contained herein
concerning the provisions of documents are necessarily summaries of such
documents, and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the Commission.

The Company will provide Quarterly Reports containing unaudited
financial statements to the holders of Trust Preferred Securities if such
reports are furnished to the holders of the Company's Common Stock, and Annual
Reports containing financial statements audited by the Company's independent
auditors. The Company will also furnish Annual Reports on Form 10-KSB and
Quarterly Reports on Form 10-QSB free of charge to holders of Trust Preferred
Securities who so request in writing addressed to the Secretary of the Company.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Company hereby incorporates by reference the following documents
filed with the Commission pursuant to the Exchange Act:

1. The Company's Annual Reports on Form 10-KSB for the
years ended December 31, 1997 and 1996.

2. The Company's Quarterly Reports on Form 10-QSB for the
quarters ended March 31, 1998 and June 30, 1998.

The Company will provide without charge to each person to whom a copy
of this Prospectus is delivered, upon their written or oral request, a copy of
any or all of the documents incorporated herein by reference. Written requests
for such copies should be addressed to Jay K. Turner, KBK Capital Corporation,
301 Commerce Street, 2200 City Center II, Fort Worth, Texas 76102, telephone
(817) 258-6000.

FORWARD-LOOKING STATEMENTS

This Prospectus contains forward-looking statements within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act.
Where any such forward-looking statement includes a statement of the
assumptions or bases underlying such forward-looking statement, KBK cautions
that, while such assumptions or bases

3
<PAGE> 6
are believed to be reasonable and are made in good faith, assumed facts or
bases almost always vary from the actual results, and the differences between
assumed facts or bases and actual results can be material, depending upon the
circumstances. Where, in any forward-looking statement, KBK, including its
subsidiaries, or its management expresses an expectation or belief as to future
results, such expectation or belief is expressed in good faith and is believed
to have a reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished. The words
"may," "will," "expects," "anticipates," "intends," "plans," "estimates,"
"should" and words of similar import may identify forward-looking statements.

Important factors that could cause actual results to differ materially
from those in the forward-looking statements herein include industry
conditions, general economic conditions, interest rates, competition and the
ability of the Company to successfully manage its growth.

4
<PAGE> 7
PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus
and incorporated by reference herein. When the context requires, the terms
"Company" and "KBK" shall be deemed to mean KBK Capital Corporation and its
wholly-owned subsidiaries, including KBK Financial, Inc. ("KBK Financial") and
KBK Receivables Corporation ("KBK Receivables") and their predecessors. In
addition, the information in this Prospectus assumes that the Underwriters'
over-allotment option is not exercised. See "Underwriting."

THE COMPANY

KBK Capital Corporation is a holding company of an independent
financial services company that provides a broad line of financial products and
services to middle market commercial businesses with credit needs of less than
$10 million. The Company was founded in 1962 as a factoring company for
energy-related receivables in Texas. Factoring has served as the cornerstone
of KBK's growth. In 1994, the Company began introducing new products in an
effort to meet the needs of its clients and diversify its product mix. These
products include purchase revolvers, working capital and term loans, mezzanine
loans and equipment leasing. Factoring, purchase revolvers, working capital
loans and term loans represented approximately 38%, 21%, 16%, and 25%,
respectively, of the Company's earning assets at June 30, 1998. "Earning
assets" means owned and managed factoring facilities, purchase revolvers,
commercial loans and mezzanine loans.

KBK's client base consists primarily of businesses with annual
revenues ranging from $1 million to $50 million. The Company's clients
typically have rapidly expanding operations which drive their need for capital.
KBK strives to provide fast, flexible and creative solutions that are tailored
to meet these needs. This approach has provided KBK with a strong reputation
in the middle market and a well-diversified client base. The Company's clients
are located in eleven states and are engaged in a range of businesses,
including energy-related, manufacturing, wholesale and retail, and other
businesses. As of June 30, 1998, no one client represented more than 8.3% of
the Company's earning assets.

The Company's long-term goal is to be a leader in providing financial
products and services to middle market businesses in the largest United States
markets. KBK's growth strategies include increasing market penetration and
expanding its market presence, extending its product line and pursuing
strategic acquisitions and partnerships which will complement or leverage the
Company's product portfolio or client relationships.

The Company has consistently employed a disciplined credit approach
which has enabled it to increase earning assets, minimize credit losses and
generate 36 consecutive years of profitability. The Company's earning assets
have grown from $23.0 million at December 31, 1993 to $143.2 million as of June
30, 1998. The ratio of net charge-offs to average earning assets over the same
period has declined from 2.0% in 1994 to 1.0% for the twelve months ended June
30, 1998. The Company has also maintained prudent credit reserves. As of June
30, 1998, KBK's allowance for credit losses was $2.0 million or 1.4% of total
earning assets.

The Company's factoring facilities generally involve an on-going or
revolving agreement to purchase eligible new receivables. Factoring involves
the Company's purchase and the client's true sale of accounts receivable which
usually are individually ledgered, invoice-by-invoice, on the Company's books.
The Company offers a full range of factoring products and services including:
notification, non-notification, verification, non-verification and non-
recourse factoring as well as several other hybrid variations. The obligors or
"debtors" of the factored receivables typically represent large, financially
strong businesses, many of which are ranked in Fortune Magazine's Fortune 1000
list. As of June 30, 1998, KBK's portfolio of owned and managed receivables
purchased under factoring facilities totaled $53.0 million. The Company's
yield on its factoring portfolio was 20.2% in 1997 and 22.4% for the six months
ended June 30, 1998.

In addition to factoring or purchasing accounts receivable on a
specific "invoice-by-invoice" ledgered basis, the Company also purchases
accounts receivable as a revolving "pool." Under this arrangement, the client
sells all receivables as and when they are generated by the business and KBK
makes periodic advances upon a request by the client, in aggregate amounts up
to the client's maximum availability limit. The Company's yield on purchase
revolvers was 14.2% in 1997 and 13.4% for the six months ended June 30, 1998.

5
<PAGE> 8
KBK's commercial loan portfolio includes working capital and term loan
facilities that are typically secured by a first lien on accounts receivable,
inventory, equipment, owner-occupied real estate or other assets. The working
capital lines of credit have maturities of up to two years, while term loans
are structured with monthly payments and maturities which typically range from
one to five years. Most of the Company's commercial loan products are priced
on a floating rate basis over the Company's announced base rate. During 1997
and the six months ended June 30, 1998, the Company's yield on its commercial
loan portfolio was 12.1% and 13.0%, respectively.

The Company's mezzanine loan product, which was introduced in 1998,
offers an attractive financing alternative for customers whose growth has
outpaced their borrowing capacity from senior debt sources. The Company's
strategy with respect to mezzanine loans is to extend the duration of its
current relationships and offer the Company's traditional products to new
customers. It is anticipated that KBK's mezzanine financings will typically
have fixed interest rates as well as warrants to acquire equity in the
borrower. Since introducing the product in the first quarter of 1998, the
Company has reviewed approximately 130 transactions. To date, the Company has
funded two loans for an aggregate investment of $5.0 million.

In 1997, the Company established a secured credit facility through a
conduit commercial paper issuer to diversify its funding sources and reduce its
cost of capital. Under this arrangement, KBK sells receivables to the conduit
on a non-recourse basis; the KBK receivables are pooled with similar types of
receivables acquired by the conduit from other unaffiliated companies and serve
as collateral for revolving commercial paper issuances. KBK continues to
manage and service the receivables sold by KBK to the conduit in exchange for a
fee based on the balance of such receivables. As of June 30, 1998, KBK had
$70.0 million of receivables outstanding in the conduit facility and during
1997 and the first six months of 1998 the Company had received approximately
$6.3 million and $4.0 million, respectively, in fees related to managing and
servicing such assets. Currently, the Company has the ability to fund up to
$75.0 million through the conduit facility and expects this limit to increase
as growth in total net earning assets continues. The financing provided by
this facility is off-balance sheet and the Company realizes no gain on transfer
of the receivables to the conduit. Servicing income is credited as received.
The Company believes that the conduit facility will enable it to significantly
expand its owned and managed portfolio while simultaneously minimizing its
balance sheet leverage.

Over the past five years, the Company has posted strong growth in
revenue and consistent profitability within reasonable leverage levels.
Revenues have increased from $6.3 million for 1993 to $15.2 million for 1997
and $8.7 million for the six months ended June 30, 1998. This growth was
largely attributed to an increase in KBK's total earning assets, which rose
from $23.0 million as of December 31, 1993 to $143.2 million as of June 30,
1998. Operating profit increased from $1.4 million in 1993 to $2.1 million in
1997 and $1.4 million for the six months ended June 30, 1998. The Company's
ratio of earnings to fixed charges was 3.9x at December 31, 1993 and 3.0x at
June 30, 1998.

The Company is incorporated in the state of Delaware and its
headquarters are located at 301 Commerce Street, 2200 City Center II, Fort
Worth, Texas 76102. The Company's general telephone number is (817) 258-6000.
KBK maintains six offices: three in Texas, and one in each of Louisiana,
California and Missouri.

6
<PAGE> 9
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
The Trust . . . . . . . . . . . . . . . . KBK Capital Trust I, a Delaware statutory business trust. The principal
assets of the Trust will be the % Subordinated Debentures of KBK due
2028.

Securities Offered . . . . . . . . . . . 800,000 % Trust Preferred Securities (920,000 if the
Underwriters' over-allotment option is exercised in full).

Liquidation Amount . . . . . . . . . . . $25 per Trust Preferred Security. See "Description of the Trust Preferred
Securities -- Liquidation Distribution Upon Dissolution."

Distributions . . . . . . . . . . . . . . Distributions on the Trust Preferred Securities will accumulate from the
closing of this offering and will be payable at the annual rate of %
of the liquidation amount of $25 per Trust Preferred Security (equivalent
to $ per Trust Preferred Security per annum) if, as and when the
Trust has funds legally available for payment. Distributions will be
payable quarterly in arrears on each , ,
and , commencing ,
1999. Distributions not made on the scheduled payment date will
accumulate and compound quarterly at a rate per annum equal to
%.

The ability of the Trust to pay distributions on the Trust Preferred
Securities is entirely dependent on its receipt of payments with respect
to the Debentures held by the Trust. The Debentures will provide that
payments of interest may be deferred at any time, and from time to time,
by KBK for a period not exceeding 20 consecutive quarters. See "-- The
Offering -- Debentures," "Risk Factors -- Option to Extend Interest
Payment Period; Tax Consequences; Trading Price" and "Description of the
Trust Preferred Securities -- Distributions."

Rights Upon Non-Payment of
Distributions and Certain
Defaults; Covenants of the
Company . . . . . . . . . . . . . . . . If, at any time, KBK or any successor is in default on any of its
obligations under the Guarantee, then the Trust Guarantee Trustee (as
defined herein), as the holder of the Guarantee, shall have the right to
enforce such Guarantee, including the right to enforce the covenant
restricting certain payments by KBK described below.

In the Guarantee, the Company has agreed that if (a) for any distribution
period, full distributions on a cumulative basis on any Trust Preferred
Securities have not been paid, (b) an event of default has occurred and
is continuing under the Subordinated Indenture (a "Debenture Event of
Default"), (c) the Company is in default of its obligations under the
Guarantee or the guarantee of the Trust Common Securities (together with
the Guarantee, the "Guarantees") or (d) notice of an Extension Period has
been given and shall not have been rescinded or such Extension Period is
continuing, then, during such period the Company shall not (i) declare or
pay dividends on, make distributions with respect to, or redeem, purchase
or acquire,
</TABLE>

7
<PAGE> 10
<TABLE>
<S> <C>
or make a liquidation payment with respect to any of its capital stock
(except for dividends or distributions in shares of, or options, warrants
or rights to subscribe for or purchase shares of, its capital stock and
conversions or exchanges of common stock of one class into common stock
of another class) or (ii) make any payments of principal, interest or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees of indebtedness for money borrowed) of the Company
that rank pari passu with or junior to the Debentures (other than (v) any
redemption, liquidation, interest, principal or guarantee payment by the
Company where the payment is made by way of securities (including capital
stock) that rank pari passu with or junior to the securities on which
such redemption, liquidation, interest, principal or guarantee payment is
being made, (w) payments under the Guarantees, (x) purchases of Common
Stock related to the issuance of Common Stock under any of the Company's
benefit plans for its directors, officers or employees, (y) as a result
of a reclassification of the Company's capital stock or the exchange or
conversion of one series or class of the Company's capital stock for
another series or class of the Company's capital stock, and (z) 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). See "Description of the
Guarantee -- Certain Covenants of KBK."

Redemption . . . . . . . . . . . . . . . The Trust Preferred Securities will be redeemable for cash, at the option
of the Trust, in whole or in part, from time to time on or after
, 2001 at a redemption price of $25 per Trust Preferred
Security together with accumulated and unpaid distributions to the date
of redemption. See "Description of the Trust Preferred Securities --
Optional Redemption." The Trust Preferred Securities will also be
redeemable upon the repayment either at maturity of the Debentures or as
a result of the acceleration of the Debentures upon an event of default,
at a redemption price of $25 per Trust Preferred Security together with
accumulated and unpaid distributions thereon to the date of redemption.
See "Description of the Trust Preferred Securities -- Mandatory
Redemption."

Trust Special Event Exchange . . . . . . Upon the occurrence of a Trust Tax Event (as defined herein) or a Trust
Investment Company Event (as defined herein), the Regular Trustees (as
defined herein) shall direct the Exchange Agent (as defined herein) to
exchange all outstanding Trust Preferred Securities for Debentures and to
terminate the Trust, provided that, in the case of a Trust Tax Event, KBK
shall have the right to direct that less than all of the Trust Preferred
Securities be so exchanged if and for so long as KBK shall have elected
to pay Additional Sums (as defined herein) such that the amounts received
by the holders of Trust Preferred Securities that remain outstanding are
not reduced thereby and shall not have revoked any such election or
failed to make such payments. See "Description of the Trust Preferred
Securities -- Trust Special Event Exchange."
</TABLE>

8
<PAGE> 11
<TABLE>
<S> <C>
Distribution of Debentures . . . . . . . At any time, KBK will have the right to dissolve the Trust and, after
satisfaction of the liabilities of creditors of the Trust as provided by
applicable law, cause the Debentures to be distributed to the holders of
the Trust Preferred Securities in liquidation of the Trust. See
"Description of the Trust Preferred Securities -- Distribution of Debentures."

Guarantee . . . . . . . . . . . . . . . . Pursuant to the Guarantee, the Company will irrevocably guarantee, on a
subordinated basis, the payment in full of (i) any accumulated and unpaid
distributions on the Trust Preferred Securities to the extent of funds of
the Trust legally available therefor, (ii) the amount payable upon
redemption of the Trust Preferred Securities to the extent of funds of
the Trust legally available therefor and (iii) generally, the liquidation
amount of the Trust Preferred Securities to the extent of the assets of
the Trust legally available for distribution to holders of Trust
Preferred Securities. See "Description of the Guarantee."

The Company's obligation under the Guarantee is subordinate and junior in
right of payment to all other liabilities of the Company and ranks pari
passu with the most senior preferred stock, if any, issued from time to
time by the Company.

Voting Rights . . . . . . . . . . . . . . Holders of Trust Preferred Securities will generally have limited voting
rights relating only to the modification of the Trust Preferred
Securities. Holders of Trust Preferred Securities will not be entitled to
vote to appoint, remove or replace the Regular Trustees or the Delaware
Trustee, which voting rights are vested exclusively in KBK as holder of
the Trust Common Securities. The holders of a majority in aggregate
liquidation amount of the Trust Preferred Securities will, however, have
the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or direct
the exercise of any power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee as holder
of the Debentures (i) to exercise the remedies available to it under the
Subordinated Indenture as holder of the Debentures and (ii) to consent to
any amendment, modification or termination of the Subordinated Indenture
or the Debentures, where such consent shall be required. See "Description
of the Trust Preferred Securities -- Voting Rights; Amendment of the
Declaration."

Debentures . . . . . . . . . . . . . . . The Debentures will have a maturity of 30 years from the date of original
issuance and will bear interest at the rate of % per annum payable
quarterly in arrears. KBK has the right from time to time to select an
interest payment period or periods longer than one quarter (during which
period or periods interest will compound quarterly), provided that no
such Extension Period will exceed 20 consecutive quarters and provided
further that no such deferral of interest payments may extend beyond the
stated maturity of the Debentures.
</TABLE>

9
<PAGE> 12
<TABLE>
<S> <C>
Accordingly, distribution payments on the Trust Preferred Securities may
not be deferred beyond the stated maturity of the Debentures. If KBK
defers interest payments longer than one quarter, subject to certain
exceptions, it will be prohibited from paying dividends on any of its
capital stock and making certain other restricted payments until
quarterly interest payments are resumed and all accumulated and unpaid
interest on the Debentures is brought current. SHOULD AN EXTENSION PERIOD
OCCUR, THE HOLDERS OF TRUST PREFERRED SECURITIES WILL BE REQUIRED TO
ACCRUE INTEREST INCOME IN THEIR GROSS INCOME FOR UNITED STATES FEDERAL
INCOME TAX PURPOSES IN ADVANCE OF RECEIPT OF THE CASH DISTRIBUTIONS WITH
RESPECT TO SUCH DEFERRED INTEREST PAYMENTS. See "Certain Federal Income
Tax Consequences - Interest Income and Original Issue Discount."

In addition, on and after 2001, the Debentures are
redeemable at the option of KBK at any time, in whole or in part, at a
redemption price equal to 100% of the principal amount of Debentures
being redeemed together with accrued and unpaid interest thereon to the
date fixed for redemption. See "Description of the Debentures -- Optional
Redemption." The Debentures are also redeemable, in whole or in part,
upon the occurrence and continuation of a Trust Tax Event. See
"Description of the Trust Preferred Securities -- Trust Special Event
Exchange" and "Description of the Debentures -- Optional Redemption."

The payment of the principal of and interest on the Debentures will be
subordinated in right of payment to all Senior Debt of KBK. As of June
30, 1998, on a pro forma basis and after giving effect to this offering
of Trust Preferred Securities and the application of the proceeds
therefrom (assuming the Underwriters' over-allotment option is not
exercised), KBK had outstanding approximately $ million of Senior
Debt. See "Risk Factors -- Ranking of Subordinate Obligations under the
Guarantee and the Debentures." While the Trust Preferred Securities are
outstanding, the Property Trustee will not have the right to amend the
Subordinated Indenture or the terms of the Debentures in a way that
adversely affects the holders of the Trust Preferred Securities or to
waive a Debenture Event of Default without the consent of holders of at
least a majority in aggregate liquidation amount of the Trust Preferred
Securities and, in certain cases, the Trust Common Securities then
outstanding. See "Description of the Debentures -- Modification of the
Subordinated Indenture."

Use of Proceeds . . . . . . . . . . . . . All of the proceeds from the sale of the Trust Preferred Securities will
be invested by the Trust in the Debentures. Such proceeds will be used by
KBK to repay certain of its outstanding indebtedness and for general
corporate purposes. See "Use of Proceeds."
</TABLE>

10
<PAGE> 13
<TABLE>
<S> <C>
Form of Trust Preferred
Securities . . . . . . . . . . . . . . The Trust Preferred Securities will be represented by a global
certificate or certificates registered in the name of Cede & Co., as
nominee for DTC. Beneficial interests in the Trust Preferred Securities
will be evidenced by, and transfers thereof will be effected only
through, records maintained by the participants in DTC. Except as
described herein, Trust Preferred Securities in certificated form will
not be issued in exchange for the global certificate or certificates. See
"Description of the Trust Preferred Securities -- Book-Entry Only
Issuance -- The Depository Trust Company."

Listing . . . . . . . . . . . . . . . . . Application will be made to list the Trust Preferred Securities for
trading on the American Stock Exchange.

Proposed Trading Symbol . . . . . . . . . " ."

Risk Factors . . . . . . . . . . . . . . . Prospective purchasers of Trust Preferred Securities should carefully
consider the specific risk factors relating to an investment in the Trust
Preferred Securities. See "Risk Factors."
</TABLE>

11
<PAGE> 14
SUMMARY FINANCIAL AND OPERATING DATA

The following table sets forth summary historical consolidated
financial data of the Company as of the dates and for the periods indicated.
The summary historical consolidated financial data as of and for each of the
six month periods ended June 30, 1998 and 1997 were derived from the unaudited
interim financial statements of the Company and its subsidiaries for those
periods. In the opinion of the Company's management, the Company's summary
historical consolidated financial data as of and for the unaudited six month
periods ended June 30, 1998 and 1997 include all adjustments (consisting only
of normal recurring adjustments) necessary to present fairly the information
set forth therein. The information presented below should be read in
conjunction with the Company's historical consolidated financial statements and
notes thereto incorporated by reference herein and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
----------------- ---------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
OPERATING DATA: (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Earned discount income . . . . . . $ 1,042 $ 2,927 $ 3,777 $ 9,778 $10,634 $ 6,625 $ 6,204
Interest income - loans . . . . . 1,924 1,564 3,119 1,369 144 70 115
Servicing fees . . . . . . . . . . 4,046 1,803 6,314 -- -- -- --
Other income - fees . . . . . . . 1,721 953 1,981 1,054 166 201 --
------- ------- ------- ------- ------- ------- -------
Total revenue . . . . . . . 8,733 7,247 15,191 12,201 10,944 6,896 6,319

Interest expense . . . . . . . . . . 1,170 1,700 2,666 2,590 1,652 806 762
------- ------- ------- ------- ------- ------- -------
Income after interest expense . . . . 7,563 5,547 12,525 9,611 9,292 6,090 5,557
Provision for credit losses . . . . . 700 275 875 245 600 65 588
------- ------- ------- ------- ------- ------- -------
Income after interest expense and
provision for credit losses . . . 6,863 5,272 11,650 9,366 8,692 6,025 4,969

Operating Expenses:
Salaries and employee benefits . . 2,458 2,121 4,431 3,545 2,997 1,960 1,569
Amortization of intangible assets 197 189 379 361 410 276 275
Occupancy and equipment . . . . . 728 613 1,285 847 587 423 241
Professional fees . . . . . . . . 187 102 251 344 584 181 159
Other . . . . . . . . . . . . . . 945 810 1,852 1,812 1,089 691 507
------- ------- ------- ------- ------- ------- -------
Total operating expenses . . 4,515 3,835 8,198 6,909 5,667 3,531 2,751
------- ------- ------- ------- ------- ------- -------
Income before income taxes . . . . . 2,348 1,437 3,452 2,457 3,025 2,494 2,218
Income tax expense . . . . . . . . . 925 587 1,388 906 1,177 863 783
------- ------- ------- ------- ------- ------- -------

Net income . . . . . . . . . . . . . $ 1,423 $ 850 $ 2,064 $ 1,551 $ 1,848 $ 1,631 $ 1,435
======= ======= ======= ======= ======= ======= =======
BALANCE SHEET DATA:
Total assets . . . . . . . . . . . $80,939 $55,632 $56,401 $89,747 $62,212 $61,080 $26,494
Long term debt . . . . . . . . . . -- -- -- -- -- -- --
Short term debt . . . . . . . . . 41,900 22,000 21,000 58,000 33,000 29,926 11,993
Stockholders' equity . . . . . . . 25,090 22,990 24,569 22,140 21,288 20,374 8,797

PROFITABILITY RATIOS:
Net yield on average earning
assets . . . . . . . . . . . . . 22.0% 21.0% 21.0% 24.0% 33.0% 33.0% 33.0%
Return on average assets . . . . . 4.5(1) 2.3(1) 3.2 2.4 3.0 3.7 5.7
Return on average equity . . . . . 11.6(1) 7.5(1) 8.9 7.1 8.9 11.2 17.8

ASSET QUALITY RATIOS:
Allowance for credit losses as a
percentage of non-performing
assets . . . . . . . . . . . . . 64.7% 82.6% 89.9% 124.6% 348.1% 360.8% 307.7%
Net charge-offs as a percentage of
average earning assets . . . . . 1.0(2) 0.5(2) 0.7 0.7 1.6 1.6 2.1

Ratio of earnings to fixed
charges(3) . . . . . . . . . . . 3.0x 1.8x 2.3x 1.9x 2.8x 4.1x 3.9x
</TABLE>

(1) Percentage shown has been annualized.
(2) For the twelve months ended June 30, 1998 and 1997.
(3) For purposes of calculating these ratios: (i) "fixed charges"
represent interest expense and (ii) "earnings" represent the
aggregate of income before income taxes and interest expense.

12
<PAGE> 15
RISK FACTORS

Before investing in the Trust Preferred Securities offered hereby,
prospective investors should give special consideration, in addition to the
information set forth elsewhere in this Prospectus, to the information set
forth below. The Company cautions the reader, however, that this list of
factors may not be exhaustive.

The risk factors set forth below and elsewhere in this Prospectus
should be read as accompanying all forward-looking statements made in this
Prospectus. These forward-looking statements can be identified by the use of
forward-looking terminology such as "may," "will," "expects," "anticipates,"
"intends," "plans," "estimates," "should" and words of similar import. The
Company's actual results could differ materially from those anticipated in such
forward-looking statements for the reasons set forth below and for other
reasons.

RISK FACTORS RELATING TO THE TRUST PREFERRED SECURITIES

RANKING OF SUBORDINATE OBLIGATIONS UNDER THE GUARANTEE AND THE DEBENTURES

The obligations of KBK under the Guarantee issued by KBK for the
benefit of the holders of the Trust Preferred Securities are unsecured and rank
subordinate and junior in right of payment to all other liabilities of KBK and
pari passu with the most senior preferred stock, if any, issued from time to
time by KBK. The obligations of KBK under the Debentures are subordinate and
junior in right of payment to all present and future Senior Debt. As of June
30, 1998, on a pro forma basis and after giving effect to this Offering and the
application of the proceeds therefrom (assuming the Underwriters'
over-allotment option is not exercised), KBK had no Senior Debt other than its
guarantee of indebtedness of KBK Financial which was $38.4 million at June 30,
1998, excluding accounts payable and accrued expenses, deferred income taxes
and other liabilities. The ability of the Trust to pay amounts due on the
Trust Preferred Securities is solely dependent upon KBK making payments on the
Debentures as and when required. Because the Company is a holding company, the
right of the Company to participate in any distribution of assets of any
subsidiary, including KBK Financial, upon such subsidiary's liquidation or
reorganization or otherwise (and thus the ability of holders of the Trust
Preferred Securities to benefit indirectly from such distribution), is subject
to the prior claims of creditors of that subsidiary, except to the extent that
the Company may itself be recognized as a creditor of that subsidiary.
Accordingly, the Debentures and the Guarantee will be effectively subordinated
to all existing and future liabilities of the Company's subsidiaries, and
holders of the Debentures should look only to the assets of the Company for
payments on the Debentures. None of the Subordinated Indenture, the Guarantee
or the Declaration places any limitation on the amount of secured or unsecured
debt, including Senior Debt, that may be incurred by KBK. See "Description of
the Guarantee -- Status of the Guarantee" and "Description of the Debentures --
Subordination."

OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES; TRADING PRICE

So long as there is no continuing event of default under the
Debentures, KBK has the right under the Subordinated Indenture to defer the
payment of interest on the Debentures beyond the regular quarterly period (the
"Interest Payment Period") at any time or from time to time for a period not
exceeding 20 consecutive quarters, provided that no such Extension Period may
extend beyond the stated maturity of the Debentures. Upon the termination of
any Extension Period and the payment on the Interest Payment Date (as defined
herein) coinciding with or next following the end of such Extension Period
(whichever is earlier) of all amounts then due to the persons in whose names
the Debentures are registered at the close of business on the regular record
date next preceding such Interest Payment Date, KBK may select a new Extension
Period and terminate the payments of all amounts then due subject to the
requirements described herein. As a consequence of any such deferral, quarterly
distributions on the Trust Preferred Securities by the Trust will be deferred
(and the amount of distributions to which holders of the Trust Preferred
Securities are entitled will accumulate additional distributions) during any
such Extension Period.

13
<PAGE> 16
Should an Extension Period occur, a holder of Trust Preferred
Securities will continue to accrue income (in the form of OID) in respect of
its pro rata share of the deferred interest allowable to the Debentures held by
the Trust for United States federal income tax purposes. As a result, a holder
of Trust Preferred Securities will include such income in gross income for
United States federal income tax purposes in advance of the receipt of cash,
and will not receive the cash related to such income from the Trust if the
holder disposes of the Trust Preferred Securities prior to the record date for
the payment of distributions. See "Certain Federal Income Tax Consequences --
Interest Income and Original Issue Discount."

KBK has no current intention of invoking an Extension Period. Should
KBK elect to exercise such right in the future, however, the market price of
the Trust Preferred Securities is likely to be adversely affected. A holder
that disposes of its Trust Preferred Securities during an Extension Period,
therefore, might not receive the same return on its investment as a holder that
continues to hold its Trust Preferred Securities. In addition, as a result of
the existence of KBK's right to invoke an Extension Period, the market price of
the Trust Preferred Securities (which represent preferred undivided beneficial
interests in the Debentures) may be more volatile than the market prices of
other securities that are not subject to such deferrals.

TRUST SPECIAL EVENT EXCHANGE

Under certain circumstances following the occurrence and continuation
of a Trust Special Event (as defined herein), the Trust Preferred Securities
are also subject to exchange in whole or in part, in the manner described
herein, for the Debentures, which exchange will result in termination of the
Trust. See "Description of the Trust Preferred Securities -- Trust Special
Event Exchange."

There can be no assurance as to the market prices for Trust Preferred
Securities or Debentures that may be distributed in exchange for Trust
Preferred Securities if a liquidation of the Trust occurs or if the Trust
Preferred Securities are exchanged for Debentures in connection with a Trust
Special Event. Accordingly, the Trust Preferred Securities that an investor may
purchase, whether pursuant to the offer made hereby or in the secondary market,
or the Debentures that a holder of Trust Preferred Securities may receive on
liquidation of the Trust, may trade at a discount to the price that the
investor paid to purchase the Trust Preferred Securities offered hereby.
Because holders of Trust Preferred Securities may receive Debentures on
dissolution of the Trust or if the Trust Preferred Securities are exchanged for
Debentures in connection with a Trust Special Event, prospective purchasers of
Trust Preferred Securities are also making an investment decision with regard
to the Debentures and should carefully consider all of the information
contained herein regarding the Debentures. See "Description of the Trust
Preferred Securities -- Trust Special Event Exchange" and "Description of the
Debentures -- General."

LIMITATIONS OF THE GUARANTEE

Pursuant to the Guarantee, KBK guarantees on a subordinated basis to
the holders of the Trust Preferred Securities the following payments, to the
extent not paid by the Trust: (i) any accumulated and unpaid distributions
required to be paid on the Trust Preferred Securities, to the extent that the
Trust has funds on hand legally available therefor at such time; (ii) the
redemption price with respect to any Trust Preferred Securities called for
redemption, to the extent that the Trust has funds on hand legally available
therefor at such time; and (iii) upon a voluntary or involuntary termination,
dissolution, winding-up or liquidation of the Trust (unless the Debentures are
distributed to holders of the Trust Preferred Securities), the lesser of (a)
the aggregate of the liquidation amount of the Trust Preferred Securities and
all accumulated and unpaid distributions thereon to the date of payment to the
extent that the Trust has funds on hand legally available therefor at such time
and (b) the amount of assets of the Trust remaining available for distribution
to holders of the Trust Preferred Securities in liquidation of the Trust.

Pursuant to the Guarantee, KBK agrees that it will honor all
obligations described therein relating to the exchange of the Trust Preferred
Securities for Debentures.

14
<PAGE> 17
The holders of a majority in aggregate liquidation amount of the Trust
Preferred Securities have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trust Guarantee
Trustee (as defined herein) in respect of the Guarantee or to direct the
exercise of any trust power conferred upon the Trust Guarantee Trustee under
the Guarantee. If the Trust Guarantee Trustee fails to enforce the Guarantee,
any holder of Trust Preferred Securities may institute a proceeding directly
against KBK to enforce its rights under the Guarantee without first instituting
a proceeding against the Trust, the Trust Guarantee Trustee or any other person
or entity. If KBK were to default on its obligation to pay amounts payable
under the Debentures, the Trust would lack funds for the payment of
distributions or amounts payable on redemption of the Trust Preferred
Securities or otherwise, and, in such event, holders of the Trust Preferred
Securities would not be able to rely upon the Guarantee for payment of such
amount. Instead, in the event a Debenture Event of Default shall have occurred
and be continuing, a holder of Trust Preferred Securities would be required to
rely on enforcement by the Property Trustee of its rights as registered holder
of Debentures against KBK pursuant to the terms of the Subordinated Indenture
and the Debentures. If, however, such event is attributable to the failure of
KBK to pay interest on or principal of the Debentures on the payment date on
which such payment is due and payable, then a holder of Trust Preferred
Securities may directly institute a proceeding against KBK for enforcement of
payment to such holder of the interest on or principal of such Debentures
having a principal amount equal to the aggregate liquidation amount of the
Trust Preferred Securities of such holder (a "Legal Action"). In connection
with such Legal Action, KBK will be subrogated to the rights of such holder of
Trust Preferred Securities under the Declaration to the extent of any payment
made by KBK to such holder of Trust Preferred Securities in such Legal Action.
Except as set forth herein, holders of Trust Preferred Securities will not be
able to exercise directly any other remedy available to the holders of
Debentures or assert directly any other rights in respect of the Debentures.
See "Description of the Trust Preferred Securities -- Trust Enforcement Events;
Notice" and "-- Enforcement of Certain Rights by Holders of Trust Preferred
Securities" and "Description of the Guarantee" and "Description of the
Debentures -- Events of Default." The Declaration provides that each holder of
Trust Preferred Securities by acceptance thereof agrees to the provisions of
the Guarantee and the Subordinated Indenture.

ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES

If a Debenture Event of Default occurs and is continuing, then the
holders of Trust Preferred Securities would rely on the enforcement by the
Property Trustee of its rights as the holder of the Debentures against KBK. In
addition, the holders of a majority in aggregate liquidation preference of the
Trust 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 holder of the
Debentures. If the Property Trustee fails to enforce its rights as holder of
the Debentures after a request therefor by a holder of Trust Preferred
Securities, such holder may proceed to enforce such rights directly against
KBK. Notwithstanding the foregoing, if a Debenture Event of Default occurs that
results from the failure of KBK to pay principal of or interest on the
Debentures when due (or in the case of a redemption, on the redemption date),
during the continuance of such an event of default a holder of Trust Preferred
Securities may institute a Legal Action against KBK to obtain payment to such
holder of such principal or interest on Debentures having a principal amount
equal to the aggregate liquidation amount of the Trust Preferred Securities
owned of record by such holder. See "Description of the Trust Preferred
Securities -- Trust Enforcement Events; Notice," "-- Enforcement of Certain
Rights by Holders of Trust Preferred Securities" and "-- Voting Rights;
Amendment of the Declaration."

LIMITED VOTING RIGHTS

Holders of the Trust Preferred Securities will generally have limited
voting rights, primarily in connection with directing the activities of the
Property Trustee as the holder of the Debentures. Holders of the Trust
Preferred Securities will not be entitled to vote to appoint, remove or replace
the Property Trustee, which voting rights are vested exclusively in KBK as
holder of the Trust Common Securities, provided that, upon the occurrence and
during the continuance of a Trust Enforcement Event (as defined herein), the
Property Trustee may be removed and a successor appointed only by the holders
of a majority in liquidation amount of the Trust Preferred Securities. The
holders of a majority in liquidation amount of the Trust Preferred Securities
will, however, have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Property Trustee, or
direct the exercise of any power

15
<PAGE> 18
conferred upon the Property Trustee including the right to direct the Property
Trustee as holder of the Debentures, (i) to exercise the remedies available to
it under the Subordinated Indenture as holder of the Debentures and (ii) to
consent to any amendment, modification or termination of the Subordinated
Indenture or the Debentures, where such consent shall be required. See
"Description of the Trust Preferred Securities -- Voting Rights; Amendment of
the Declaration."

PROPOSED TAX LEGISLATION

As a part of President Clinton's Fiscal 1999 Budget Proposal, the
Treasury Department has proposed legislation (the "Proposed Legislation") that,
among other things, will treat as equity for United States federal income tax
purposes certain debt instruments that are not shown as indebtedness on the
consolidated balance sheet of the Trust. A similar proposal was included in
President Clinton's Fiscal 1998 Budget Proposal but was not included in either
the Taxpayer Relief Act of 1997 or the IRS Capital Restructuring and Reform
Bill of 1998. No assurance can be given that the Proposed Legislation will not
ultimately be enacted in the future, that such future legislation would not
have a retroactive effective date and that such future legislation would not
prevent KBK from deducting interest on the Debentures. Such an event would
constitute a Trust Tax Event and would permit the Trust to exchange the Trust
Preferred Securities, in whole or in part, for the Debentures.

TRADING PRICE OF TRUST PREFERRED SECURITIES

The Trust Preferred Securities may trade at a price that does not
fully reflect the value of accrued but unpaid interest with respect to the
underlying Debentures. A holder disposing of Trust Preferred Securities between
record dates for payments of distributions thereon will be required for United
States federal income tax purposes to include accrued but unpaid interest on
the Debentures through the date of disposition in income as ordinary income
(i.e., original issue discount), and to add such amount to the adjusted tax
basis in the holder's Trust Preferred Securities. To the extent the selling
price is less than the holder's adjusted tax basis (which will include, in the
form of original issue discount, all accrued but unpaid interest), a holder
will 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. See "Certain Federal Income Tax Consequences -- Sales of
Trust Preferred Securities."

NO PRIOR MARKET FOR THE TRUST PREFERRED SECURITIES

The Trust Preferred Securities constitute a new issue of securities
with no established trading market. Application will be made to list the Trust
Preferred Securities on the American Stock Exchange. There can be no assurance
that an active market for the Trust Preferred Securities will develop or be
sustained in the future on the American Stock Exchange. No assurance can be
given as to the liquidity of, or trading markets for, the Trust Preferred
Securities.

RISK FACTORS RELATING TO THE COMPANY

CREDIT RISK

A primary risk facing the Company, and financial institutions in
general, is credit risk, that is the risk of losing principal, discount income
and interest due to a client's breach under a receivables purchase facility, a
debtor's failure to pay or borrower's failure to perform according to the terms
of such borrower's loan or factoring agreement. The Company is exposed to the
risk that customers to whom it has made loans will be unable to repay those
loans according to their terms and that collateral securing such loans may not
be sufficient in value to assure repayment. The Company is also exposed to
risk from client fraud. The Company is exposed to similar credit risks with
respect to the account debtors on the accounts receivable purchased by the
Company. Credit losses could have a material adverse effect on the Company's
operating results. While management has taken measures intended to limit
exposure to any one client or account debtor, there can be no assurance that
such measures will be effective in avoiding undue credit risk. In addition,
there can be no assurance that the Company's allowance for credit losses is
adequate to absorb all future

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<PAGE> 19
charge-offs arising from the Company's accounts and loans receivable. At
December 31, 1997, the Company's earning assets in each of the energy-related,
wholesale and retail sales, and manufacturing sectors represented over 10% of
the Company's earning assets. A downturn in any of these sectors could have a
material adverse effect on the Company's operating results.

COMPETITION

The Company encounters significant competition from factoring
companies, asset based lenders, commercial banks and other financial
institutions engaged in secured lending. Due to the size of facilities offered
by the Company and the size of target clients, the Company competes with a
large number of local and regional sources of financing, as well as large
national competitors. Many of these competitors have significantly greater
financial and other resources than the Company and have access to capital at a
lower cost than the Company. See "The Company - Competition."

IMPACT OF INTEREST RATE CHANGES

The Company's results of operations are principally dependent on net
interest and discount income, calculated as the difference between interest
earned on loans and investments and discounts earned on accounts receivable
purchased and the interest expense paid on borrowings. Like other financial
institutions, the Company's interest and discount income and interest expense
are affected by general economic and financial conditions. While management
has taken measures intended to manage the risks of operating in a changing
interest rate environment, there can be no assurance that such measures will be
effective in avoiding undue interest rate risk.

VOLATILITY OF RECEIVABLES PORTFOLIO AND OPERATING RESULTS

The size of the Company's receivables portfolio and the Company's
aggregate volume of receivables purchased can vary significantly during a year
due to differences in timing of collections and purchases of receivables and
the volume of receivables available to be purchased from clients. The
Company's results of operations can also vary significantly, and unpredictably,
from quarter to quarter.

REGULATORY RISKS

The financial industry is subject to compliance with state usury laws,
which generally limit the amount of interest that a creditor may contract for,
charge or receive in connection with the loan of money. Compliance with state
usury laws affects the operational profitability of the Company. In addition,
certain receivables acquired by the Company in connection with certain of its
clients whose account debtors include the United States or departments or
agencies thereof (the "Federal Government") are subject to the Federal
Assignment of Claims Act ("FACA"). FACA is primarily intended to protect the
Federal Government, not shareholders or other creditors. Non-compliance with
FACA causes the Company to lose any right it may have to receive payments
directly from the Federal Government. Regulations affecting the financial
industry are undergoing continuous change, and the ultimate effect of such
changes cannot be predicted. Regulations and laws affecting the Company may be
modified at any time, and new legislation affecting financial institutions may
be proposed and enacted. There is no assurance that such modifications or new
laws will not materially and adversely affect the business, conditions, or
operations of the Company. See "The Company -- Government Regulation."

EXPOSURE TO LOCAL ECONOMIC CONDITIONS

The success of the Company is dependent to a certain extent upon the
general economic conditions of the geographic markets they serve. Unlike
larger financial institutions which are more geographically diversified, the
Company provides financial services to clients located primarily in Texas,
California and the Gulf Coast. No assurance can be given concerning the
economic conditions which will exist in such markets.

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<PAGE> 20
CONCENTRATION OF OWNERSHIP

The Company's senior management and directors own approximately 42% of
the outstanding shares of Common Stock. Accordingly, these stockholders, if
they vote together, will have significant influence over matters requiring
stockholder approval, including election of the Company's directors and certain
extraordinary transactions. The Company's charter does not permit cumulative
voting, which may adversely affect stockholders' ability to elect a particular
nominee to the board of directors of the Company. Additionally, the Company's
charter and bylaws contain provisions which may make changes in management and
control of the Company more difficult than would be the case absent such
provisions.

DEPENDENCE ON KEY OFFICERS

The success of the Company's business is dependent in significant part
on the efforts and abilities of its Chief Executive Officer, Robert J. McGee.
The loss of the services of Mr. McGee could have a material adverse effect on
the Company.

YEAR 2000

KBK is subject to risks associated with the year 2000 problem, a term
which refers to uncertainties about the ability of various data processing
hardware and software systems to interpret dates correctly after the beginning
of the year 2000. Although the Company has initiated a company-wide program to
prepare the Company's computer systems and applications for the year 2000 and
believes that its year 2000 conversion project will be completed by July 1,
1999, there can be no guarantee that year 2000 compliance issues that may be
created by clients, debtors and financial institutions with whom the Company
does business will be resolved. Disruptions caused by system failure or
miscalculation as a result of year 2000 noncompliance could have a significant
impact on the Company's operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Impact of the Year 2000
Issue."

USE OF PROCEEDS

The proceeds to be received by the Trust from the sale of the Trust
Securities will be used by the Trust to purchase the Debentures. The Company
will use the proceeds from the sale of such Debentures to repay approximately $
million of short-term indebtedness, and for general corporate purposes.

THE COMPANY

OVERVIEW

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<PAGE> 21
KBK with a strong reputation in the middle market and a well-diversified client
base. The Company's clients are located in eleven states and are engaged in a
range of businesses, including energy-related, manufacturing, wholesale and
retail, and other businesses. As of June 30, 1998, no one client represented
more than 8.3% of the Company's "earning assets"

The Company's factoring facilities generally involve an on-going or
revolving agreement to purchase eligible new receivables. Factoring involves
the Company's purchase and the client's true sale of accounts receivable which
usually are individually ledgered, invoice-by-invoice on the Company's books.
The Company offers a full range of factoring products and services including:
notification, non-notification, verification, non-verification and non-
recourse factoring as well as several other hybrid variations. The obligors or
"debtors" of the factored receivables typically represent large, financially
strong businesses, many of which are ranked in Fortune Magazine's Fortune 1000
list. As of June 30, 1998, KBK's portfolio of owned and managed receivables
purchased under factoring facilities totaled $53.0 million. The Company's
yield on its factoring portfolio was 20.2% in 1997 and 22.4% for the six months
ended June 30, 1998.

KBK's commercial loan portfolio includes working capital and term loan
facilities that are typically secured by a first lien on accounts receivable,
inventory, equipment, owner-occupied real estate or other assets. The working
capital lines of credit have maturities of up to two years, while term loans
are structured with monthly payments and maturities which typically range from
one to five years. Most of the Company's commercial loan products are priced
on a floating rate basis over the Company's announced base rate. During 1997
and the six months ended June 30, 1998, the Company's yield on its commercial
loan portfolio was 12.1% and 13.0%, respectively.

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<PAGE> 22
continues. The financing provided by this facility is off-balance sheet and
the Company realizes no gain on transfer of the receivables to the conduit.
Servicing income is credited as received. The Company believes that the
conduit facility will enable it to significantly expand its owned and managed
portfolio while simultaneously minimizing its balance sheet leverage.

STRATEGY

The Company's long-term goal is to be a leader in providing financial
products and services to middle market businesses in the United States. By
serving the financial and capital needs of this growing segment, the Company
believes that it can achieve strong growth and generate a return on assets
above other financial institutions. During the course of the past five years,
the Company has leveraged its existing market presence into new product lines
to enable its clients to transition into lower-priced financial products and
services as their business expanded and credit quality improved. Additionally,
the Company expanded its geographic presence in key metropolitan markets
through both new office openings and the development of relationships with
regional correspondent banks. The Company remains committed to focusing on its
core middle market commercial finance business. Going forward, KBK's growth
strategies include increasing market penetration, introducing additional
products and services, expanding market presence and pursuing strategic
acquisitions and partnerships.

Increase Market Penetration. A critical aspect of KBK's long-term
growth objective is to increase its earning asset base from existing markets.
The Company's strategy is to (i) continue improving the productivity of its
marketing force through extensive market planning and a compensation program
tied directly to targeted objectives, (ii) add additional marketing
professionals and (iii) train its marketing force to cross-sell existing and
new products. Each year, KBK's account officers are required to develop a
marketing plan with respect to existing customer business and new business
prospects. This active business development program is designed to enable KBK
account officers to identify an ample number of new high-quality business
opportunities, thereby improving selectivity and increasing market penetration.
In order to meet their objectives, account officers are provided with on-going
training in the areas of credit analysis, product application and relationship
development and retention.

Expand Product Line. Another element of KBK's growth plan is the
continued introduction of new products and services. Since 1995, the Company
has introduced a variety of commercial finance products and services designed
to meet the needs of its core middle market client, broaden its client base and
diversify its portfolio mix. Many of these products enable KBK's former
factoring clients to transition to other financial products and services as
their credit quality improves and, accordingly, have allowed the Company to
lengthen the duration of its relationships. In addition, a growing component
of KBK's portfolio is comprised of conventional commercial loans extended to
clients with more than two years of tenure with the Company. The mezzanine
market has also generated a number of high quality conventional commercial loan
prospects. See " -- Products."

Expand Market Presence. Today, KBK maintains a significant presence
in six large metropolitan areas (Los Angeles, Dallas/Fort Worth, Houston, New
Orleans, San Antonio and St. Louis). KBK's goal is to have a physical presence
in a substantial number of the nation's largest markets. The Company has a
two-step approach that enables

20
<PAGE> 23
KBK to establish wholesale client relationships and an asset base prior to
committing to the overhead expenses associated with opening a new office.
Through its Correspondent Banker(TM) Program, KBK has established a network of
local or regional commercial banks to source deals in exchange for a
participation in the deal or an origination fee. Once an adequate portfolio
has been established to justify incremental costs, the Company may establish a
new marketing office.

The foundation of the Correspondent Banker(TM) Program is a
computer-based scanning and imaging system for factoring across the Internet.
This system was originally developed for use in the Company's own marketing
offices. However, in late 1996, the Company began prototyping the system and
filed a patent application covering the process in 1998. Under this method,
the bank identifies prospective factoring clients. Both KBK and the bank
underwrite each new client, and KBK also reviews and underwrites each
individual invoice. After the credit analysis and underwriting are performed,
the bank funds the invoice. KBK administers the collection process and the
bank and KBK split revenue and any losses. The Company's St. Louis area
office, opened in early 1998, is primarily focused on marketing this system to
community banks across the country. Currently, KBK has four banks operating
under contracts for the system.

Pursue Strategic Acquisitions and Partnerships. Also important to the
Company's long-term goal is the pursuit of strategic acquisitions and formation
of key partnerships. The Company will focus on acquisition candidates who can
expand KBK's origination capabilities, product line, cross-selling potential
and market penetration, rather than those which merely add to its asset base.

In addition to acquisitions, KBK will continue to explore partnerships
which complement or leverage the Company's product portfolio or client
relationships. During the past several years, KBK has formed a number of
important partnerships. For example, KBK currently offers equipment lease
financing through third party equipment leasing companies. KBK also originates
real estate loans to its clients and sells such loans to an unaffiliated real
estate lender. KBK collects an origination or placement fee from its client or
the third party.

Balanced Asset Management Principles. The Company believes that it
has been very successful in achieving an appropriate balance between asset
growth, asset quality and profitability. The Company's earning assets have
grown from $23.0 million as of December 31, 1993 to $143.2 million as of June
30, 1998. In 1997 and for the twelve months ended June 30, 1998, KBK's ratios
of net charge-offs to average net earning assets were 0.7% and 1.0%,
respectively. Such quality has been achieved through strict adherence to
proven systems for origination, underwriting and monitoring. The Company's
profits have increased from $1.4 million in 1993 to $2.1 million in 1997 and
$1.4 million for the six months ended June 30, 1998.

PRODUCTS

The Company currently offers factoring facilities; purchase revolver
facilities; commercial loans secured by accounts receivable, inventory,
equipment, owner-occupied real estate or other assets of the borrower; and
mezzanine loans. The Company intends to offer a broad line of financing
products to commercial businesses in the middle market in order to provide a
single source of financing for these businesses. The Company also sells third
party products to existing customers on a fee basis. KBK believes that this
breadth of financing services for middle market clients differentiates the
Company from its competitors and enables its clients to transition between
products as their businesses expand and credit quality improves. Factoring,
purchase revolvers, working capital loans and term loans represented
approximately 38%, 21%, 16% and 25%, respectively, of the Company's earning
assets at June 30, 1998. The Company's four main product categories are
described below.

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<PAGE> 24
Factoring

Management believes KBK operates the largest and oldest independent
commercial factoring portfolio in the southwestern region of the United States.
KBK offers a full range of factoring products and services from traditional
"old-line" notification factoring to non-recourse, non-notification and
non-verification factoring. The Company's factoring facilities generally
involve an on-going or revolving agreement to purchase eligible new
receivables. These agreements generally are cancelable by KBK upon 30 days
notice and range between $500,000 and $2 million in facility size. The
facilities involve the purchase of receivables and therefore qualify for
off-balance sheet treatment on the client's books and provide KBK with some
insulation from consolidation and other risks in the event of client
bankruptcy.

Factored receivables are individually ledgered on an
"invoice-by-invoice" basis in the Company's proprietary data processing system
and all collections are matched and posted against the original invoice. This
proprietary system includes a management information system which tracks
performance and risk trends by customer or "client", by obligor or "debtor", as
well as measures the performance of the aggregate portfolio. The factoring
system also allows KBK account executives and senior management to select from
a broad menu of reports and analytical tools. Many of these system reports are
also provided to the Company's clients via the Internet. The Company's
electronic client files track purchase volume, customer concentrations, account
agings, dilution and other key data for each of the Company's clients and
provides a trendline perspective over the span of the client relationship. The
Company's debtor files include a data base with active files covering more than
20,000 U.S. businesses. These files are regularly updated and include (a)
financial information gathered directly from the debtor, rating agencies,
credit services and other public and private data sources, (b) payment habits
and patterns developed by profiling KBK's historical experience with the
particular debtor spanning across all clients and time periods, which helps the
Company identify when a particular debtor begins stretching trade payables' and
may be experiencing a deterioration in financial capacity, and (c) reference
checks with trade, industry sources as well as other factoring companies.
Perpetual maintenance of these debtor files allows the Company to establish
maximum debtor exposure limits prior to receiving a specific purchase request
from any particular client. Each debtor exposure limit is refreshed
periodically on a pre-determined schedule, allowing spontaneous response to
individual client requests.

The Company purchases individual accounts receivable for a negotiated
price which is less than the face amount, based upon the size, age and type of
accounts being purchased, the quality of client documentation and the Company's
knowledge of the payment history and judgment of the creditworthiness of the
account debtors. KBK generates revenue through a combination of discounts and
fees that are negotiated on a client-by-client basis.

The following describes the factoring products offered by the Company
in the course of its factoring business. These products are blended in various
combinations, on a case by case basis, to formulate the particular structure
most appropriate for a particular client's needs and risk profile.

Notification Factoring is most appropriate for small businesses that
lack the capacity to provide a lender with the financial information required
to evaluate their capacity to repay debt through cash flow. In this style of
factoring, the Company typically notifies or instructs the debtor to remit
payments directly to KBK. Notification can be accomplished by stamping a
notice of the assignment and remittance instructions on the face of the
original invoice transmitted to the debtor or by sending a separate letter,
usually by certified mail, to the debtor. Irrespective of the method of
notification, once properly notified of the assignment, the debtor is obligated
to remit payment for assigned receivables directly to KBK or risk liability for
double payment. The operational burden and expense incurred in this
notification process is greatly reduced by KBK's automated systems.

Non-notification Factoring is when the debtor of the accounts
receivable is not notified of the purchase. Instead, KBK purchases the
receivables, relying principally on documentation and representations provided
by the client. Although this reliance on client documentation and
representations exposes the Company to the possibility of conversion fraud by
dishonest clients, non-notification factoring is intended for higher quality
clients. Such clients view

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<PAGE> 25
notification as potentially disruptive to sensitive customer relationships, who
may perceive such notification from a factor as an indicator of weakness in
their vendor. Consequently, clients seek to avoid this intrusion whenever
possible. Non-notification transactions have historically comprised the
majority of KBK's factoring portfolio and management believes this form of
factoring differentiates KBK's facilities from its competitors, allowing the
Company to build and retain a portfolio of higher quality clients. However,
even in non-notification transactions, KBK always reserves the right to place
the debtor on notice of the assignment. KBK's due diligence, reference
checking, automated risk management systems and frequent audits have allowed
the Company to limit its losses during the past 36 years.

Verification Factoring typically entails contacting the debtor prior
to purchase, and confirming that the individual invoices underlying the
receivables offered for sale are valid, due and payable at par without offset.
Verification is a labor intensive exercise, normally accomplished by phone
conversation directly with the debtor. However, written verification is
occasionally required. Most verification factoring accounts also require
debtor notification as a precedent to purchase. Verification factoring
represents a small proportion of KBK's portfolio, limited primarily to troubled
higher risk clients. Even in such accounts, KBK normally limits the
verification process to a sampling of large or unusual receivables.

Non-verification Factoring, like non-notification factoring, may
subject the Company to greater reliance on client documentation and
representations and consequently exposes the Company to the possibility of
fraud by dishonest clients. However, clients view the verification process at
least as disruptive to sensitive customer relationships as the notification
process. Consequently, KBK's willingness to forgo intrusive debtor
verification in exchange for upfront due diligence, reference checking and
frequent audits differentiates KBK's facilities from its competitors.
Management believes this form of factoring has allowed the Company to build and
retain a portfolio of higher quality clients. Just as non-notification
transactions can be converted to notification accounts at KBK's discretion,
non- verification accounts can become verification accounts as circumstances
warrant. KBK typically engages in non- verification factoring.

Recourse Factoring, which is commonly practiced across the factoring
industry, is not a prevalent aspect of KBK's factoring business. In recourse
transactions, the client is fully liable for repayment of all factoring
advances in the event of non-collection of an account. This style of factoring
is virtually indistinguishable from specific receivable lending. It is KBK's
view that full recourse to the client may substantially weaken defendability of
the transaction as a true sale, exposing the factor to the risk of
consolidation, and other risks, in the event of a client bankruptcy.

Non-recourse Factoring entails the purchase of receivables without
recourse to the seller for some or all elements of risk in the event of
non-payment. This transference of some element(s) of risk is generally the
primary determinant in distinguishing between a sale and a loan transaction.
KBK's factoring transactions are typically structured as non-recourse
transactions, in which the Company assumes the burden of credit risk for the
debtor's inability to pay, subject to the Company's right to offset any credit
loss against any pre-established client reserves. However, the risk of
non-payment resulting from the delivery of faulty merchandise or deficient
services remains the responsibility of the client, as well as any debtor
offsets or reductions the debtor may have from the original invoice amount.
While KBK bears the full burden of the debtor credit risk in such transactions,
it is the Company's view that assumption of this risk is controllable because
KBK has the right to refuse to purchase receivables payable by low quality,
high risk debtors.

During 1997 and the first six months of 1998, KBK purchased
receivables with a face-amount totaling approximately $400.0 million and $238.0
million, respectively, from clients spanning a broad range of industries. In
1997 and for the first six months of 1998, KBK's yield on these factoring
facilities was 20.2% and 22.4%, respectively.

Purchase Revolver Facilities

In addition to factoring or purchasing accounts receivable on a
specific invoice-by-invoice ledgered basis, the Company also purchases accounts
receivable as a revolving "pool." These purchases are sometimes referred to as
revolving purchase facilities, pooled purchase facilities or batch purchase
facilities and closely resemble a conduit

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<PAGE> 26
financing structure in which the client transfers ownership of all of its
receivables to KBK and receives off-balance sheet treatment for the
transaction. Under this arrangement, the client sells all receivables as and
when they are generated by their business and KBK makes periodic advances upon
request by the client, in aggregate amounts up to the client's maximum
availability limit. The maximum availability limit under these facilities is
similar to a borrowing base availability limit and is typically calculated at
approximately 80% of eligible receivables, less the current balance of prior
advances. Generally these transactions are entered into with clients who have
greater financial stability, larger volumes of invoices, and more sophisticated
management information and reporting systems. When such purchases are
transacted, KBK does not perform an individual review of each purchased invoice
and associated documentation. Rather, the documentation is held in trust by
the client and the Company earns discounts on the amount paid for purchased
receivables. KBK's yield during 1997 and the first six months of 1998 for
revolving purchase facilities was 14.2% and 13.4%, respectively.

Commercial Finance

The Company offers a variety of financings that are similar to those
offered by commercial banking institutions and asset-based lenders. The
following describes these in further detail.

Working Capital Lines of Credit. KBK provides working capital for
rapidly growing companies through borrowing base lines of credit. The amount
of the financing is predicated on the current value of the underlying
receivable and inventory collateral. Generally, the Company advances up to 80%
against its clients' eligible accounts receivable and up to 50% on eligible
inventory. Typically, aggregate inventory advances cannot exceed aggregate
advances against receivables. The monitoring frequency on lines of credit
varies from daily to monthly, depending upon the underlying financial condition
of each particular borrower. The term of these facilities generally does not
exceed two years for accounts receivable and one year for inventory, and the
interest rate is typically floating based upon a spread over the KBK base rate
and is payable monthly. The Company's average yield on this product was
approximately 12.1% in 1997 and 13.0% for the first six months of 1998.

Term Loans. KBK provides term loans with variable rates and terms to
finance the purchase of equipment, machinery and other general corporate
purposes. These term loans generally have maturities of up to five years. KBK
provides capital expenditure lines, which are pre-approved commitments for new
equipment purchases, refinancing of existing equipment and other capital
expansion needs. Loan amounts and repayment terms are based on the type and
appraised value of the underlying collateral. All term loans are supported by
independent collateral appraisals and require monthly payments which are
direct-debited (through automatic clearinghouse debits) from each client's bank
account. The Company's yield on this product was 11.2% in 1997 and 13.0% for
the first six months of 1998.

Letters of Credit. KBK provides stand-by and documentary letters of
credit ("L/Cs") on behalf of its clients. These L/Cs generally support the
client's import or export activity and are fully secured by collateral
acceptable to KBK. Typically, KBK arranges the issuance of the letters of
credit through one of KBK's lenders. On occasion, however, KBK may issue the
letter of credit directly and have it confirmed, if required, by one of its
lenders. Typically, KBK charges a flat fee of between 2.0% and 3.0% for each
L/C and pays 1.0% per annum to the issuing or confirming bank.

Equipment Leasing. KBK offers equipment leases on negotiated terms
based on those available from the Company's leasing company correspondents.
Currently, KBK refers these opportunities to the equipment leasing companies in
exchange for an origination or referral fee.

Mezzanine Loans

KBK's new mezzanine product offers financing alternative for customers
whose growth has outpaced their borrowing capacity from traditional senior debt
sources. The Company's strategy for mezzanine loans is to extend the length
and depth of current relationships and provide the Company's traditional
products to new customers. KBK's mezzanine financings will generally not
exceed $5.0 million and will have fixed interest rates and bullet maturities.
In

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<PAGE> 27
addition to upfront closing fees and a current coupon, KBK seeks to receive
warrants to acquire equity in the borrowers. KBK will consider participating
as a lead or co-investor in larger transactions, which tend to be expansion
financings, recapitalizations and divestitures, or leveraged and/or management
buyouts. Since introducing the product in the first quarter of 1998, the
Company has reviewed approximately 130 transactions. The Company has funded
two mezzanine loans, representing an aggregate principal investment amount of
$5.0 million.

EARNING ASSETS ANALYSIS

KBK has significantly expanded its portfolio over the past five years.
As of June 30, 1998, the Company's owned and managed portfolio was $143.2
million, comprised of $73.2 million of net receivables owned and $70.0 million
of net receivables under management.

From an asset management perspective, the Company does not
differentiate between its owned and managed portfolio. Although all
receivables sold to the conduit facility are non-recourse to KBK, the Company
monitors concentration limits and credit quality and determines credit losses
on the combined amount of owned and managed assets. This conservative approach
enables the Company to track the performance of its portfolio on a consistent
basis year over year.

The following chart summarizes the Company's owned and managed
portfolio over the past five years:

OWNED AND MANAGED EARNING ASSETS PORTFOLIO
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------
JUNE 30,
1998 1997 1996 1995 1994 1993
-------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Accounts Receivable(1) . . . . . $ 82,944 $ 75,383 $53,926 $40,378 $51,739 $22,240
Loans Receivable and
Other (2) . . . . . . . . . 57,147 35,204 27,376 5,610 241 431
Non-Performing Assets . . . . . 3,093 2,176 1,658 496 460 377
-------- -------- ------- ------- ------- -------
Gross Earnings Assets . . . . . 143,184 112,763 82,960 46,484 52,440 23,048
Allowance for Credit
Losses . . . . . . . . . . . 1,960 1,929 1,608 1,729 1,658 1,161
-------- -------- ------- ------- ------- -------
Total Net Earnings Assets . . . $141,224 $110,834 $81,352 $44,755 $50,782 $21,887
======== ======== ======= ======= ======= =======
</TABLE>
- --------------------------

(1) Includes factoring and purchase revolvers; includes $66,991 and $69,374 of
managed assets sold to the conduit facility outstanding as of December 31, 1997
and June 30, 1998, respectively.

(2) Includes $12,130 and $14,230 of managed assets sold to the conduit
facility outstanding as of December 31, 1997 and June 30, 1998, respectively.

Diversification

The Company seeks to diversify its portfolio of earning assets so as
to limit exposure to any one specific industry. On the purchased accounts
receivable portfolio, the Company tracks concentration by the industry of the
account debtor as shown in the following table.

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<PAGE> 28
GROSS ACCOUNTS RECEIVABLE(1)
(MANAGED & OWNED) BY INDUSTRY OF ACCOUNT DEBTORS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
INDUSTRY OF OUTSTANDING AS OF PERCENTAGE OF OUTSTANDING AS OF PERCENTAGE OF
ACCOUNT DEBTORS DECEMBER 31, 1997 TOTAL DECEMBER 31, 1996 TOTAL
--------------- ----------------- ----- ----------------- -----
<S> <C> <C> <C> <C>
Wholesale, Retail Sales $17,860 23.7% $ 8,717 16.2%
Energy Related 10,365 13.8 9,655 17.9
Transportation 5,298 7.0 6,234 11.6
Services 4,507 6.0 4,273 7.9
Manufacturing 3,509 4.7 7,513 13.9
Other 3,304 4.4 5,151 9.6
Engineering & Construction 3,286 4.3 1,773 3.3
Federal, State & Local Govt. 1,332 1.8 1,687 3.1
Environmental Services 805 1.0 79 0.1
Communications 611 0.8 119 0.2
Agriculture 7 0.0 405 0.7
Pool Purchases 24,499 32.5 8,320 15.5
------- ------ -------- ------

Total $75,383 100.0% $ 53,926 100.0%
</TABLE>

- --------------------------

(1) Includes factoring and purchase revolvers.

As of December 31, 1997, the Company's ten largest account debtors
represented 9.0% of total net purchases and 26.6% of the net receivables
balance. No single debtor accounted for more than 7.0% of receivables under
management as of December 31, 1997.

TEN LARGEST ACCOUNT DEBTORS
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
TOTAL 1997 PERCENTAGE OF RECEIVABLE PERCENTAGE OF
RECEIVABLE TOTAL BALANCE DECEMBER 31,
DEBTOR PURCHASES NET PURCHASES DECEMBER 31, 1997 1997 BALANCE
------ --------- ------------- ----------------- ------------
<S> <C> <C> <C> <C>
Ocean Marine Navigation Company $ 7,052 1.7% $ 3,559 7.0%
Builders Square 6,825 1.6 1,267 2.5
Sam's Club 5,669 1.3 1,810 3.6
Home Depot Inc. 5,452 1.3 1,025 2.0
Otto Candies 3,832 0.9 1,030 2.0
Majestic Athletic 2,626 0.6 765 1.5
Hughes Christensen 2,413 0.6 743 1.5
Apex Resources 1,972 0.5 1,107 2.2
Bayship Management 1,383 0.3 1,383 2.7
Keystone Shipping 951 0.2 825 1.6
------- --- ------- -----

Total $38,175 9.0% $13,514 26.6%
</TABLE>

In the loans receivable portfolio, the Company tracks the
concentration of the borrowers, as shown in the following table.

26
<PAGE> 29
GROSS LOANS RECEIVABLE (MANAGED & OWNED)
BY INDUSTRY OF CLIENTS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
Outstanding as of Percentage of Outstanding as of Percentage of
Industry of Clients December 31, 1997 Total December 31, 1996 Total
------------------- ----------------- ----- ----------------- -----
<S> <C> <C> <C> <C>
Energy Related $12,793 36.3% $ 7,524 27.5%
Manufacturing 11,734 33.3 6,265 22.9
Engineering and Construction 7,111 20.2 8,067 29.5
Wholesale and Retail Sales 1,006 2.9 2,686 9.8
Agriculture 1,000 2.9 -- --
Other 1,560 4.4 2,834 10.3
------- ----- ------- -----

Total $35,204 100.0% $27,376 100.0%
</TABLE>

Credit Quality

KBK's history of strong credit quality is a function of its stringent
underwriting standards and diligent administrative processes after funding.
The Company's underwriting procedures consist of a detailed credit analysis of
the client, the receivables and debtor bases (for a factoring facility) and the
collateral (for a loan), as well as extensive reference checks. Generally, the
proposed transactions with new clients must be reviewed by the Company's
centralized underwriting department and receive a majority vote by the
underwriting committee prior to approval. The multi-step approval process is
designed to ensure that all proposed transactions conform with KBK's credit and
collateral standards. See " -- Underwriting and Operations and Controls."

After funding, the credit quality of the Company's portfolio is
closely monitored by KBK's asset quality committee. The committee regularly
re-evaluates the initial risk grade assigned to each client transaction. These
ratings are either reaffirmed or changed based upon the client's financial
condition, previous history or experience with the client, the quality of the
underlying collateral, as well as any other relevant factors.

Delinquencies and Charge-off Policies

The asset quality committee reviews all delinquent accounts on a
weekly basis. Any purchased account that is owned for more than 45 days
requires the appropriate credit officer to submit a full explanation of the
circumstances surrounding the delinquency and specific steps implemented to
rectify the problem. When the asset quality committee determines that an
account is doubtful as to its collection, including discount or interest
income, the entire amount of the account is placed on non-performing status.
After an account is placed on non-performing status, no income is accrued until
circumstances indicate that such income is collectible. Upon an asset becoming
non-performing, the Company commences aggressive collection efforts, including
negotiated resolutions with its clients and prompt liquidation of collateral or
purchased accounts receivable.

Accounts are charged off when the Company believes that it can
reasonably expect to incur a loss or if it expects to incur substantial
collection or other expenses to collect the amount due. Accounts are written
down to the net realizable value or charged-off completely when the Company
believes that such treatment is warranted. As a matter of policy, all accounts
that are more than 120 days past-due are charged off, unless the Chief Credit
Officer determines that collection is in process and the balance has a
reasonable probability of collection. Historically, KBK has not experienced
large concentrations of past due accounts. As of June 30, 1998, past dues in
excess of 90 days were 0.5% of total net receivables.

27
<PAGE> 30
Allowance for Credit Losses

The allowance for credit losses is an amount which, in the judgment of
senior management, is adequate to absorb the estimated losses from KBK's
portfolio of earning assets. The amount of the provision for possible credit
loss charged to earnings is determined each quarter based on the adequacy of
the reserve relative to the quality and size of the portfolio.

The adequacy of KBK's allowance for credit losses is reviewed on a
quarterly basis by the Board of Directors' asset quality committee utilizing a
matrix approach. The matrix measures the Company's actual loss experience over
the past three, five and seven year periods and calculates an optimum required
reserve for each asset class based upon the greater of (i) the Company's actual
loss experience over any of the three time periods or (ii) the Board of
Directors' approved minimum reserve. In determining this minimum reserve the
Board of Directors considers the size of the portfolio, the level of
non-performing assets and any known portfolio loss exposures. The matrix also
performs stress test analyses on the allowance to discern the impact of various
growth scenarios. In addition to this matrix, the committee also takes into
account subjective factors, such as known and inherent risks in the portfolio,
adverse situations that may affect repayment, the potential for additional
costs to perfect title to collateral and current and prospective economic
situations, as well as such other factors as the Board of Directors may from
time to time deem appropriate. Management's goal is to maintain an allowance
for credit losses within the range of the calculated minimum and maximum
optimum reserve; however, from time to time, the reserve may be below or above
the optimum band.

ALLOWANCE FOR CREDIT LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED ---------------------------------------------------------
JUNE 30, 1998 1997 1996 1995 1994 1993
------------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $1,929 $ 1,608 $1,729 $1,658 $1,161 $1,000
Provision for credit losses 700 875 245 600 65 588
Charge-offs (670) (764) (404) (541) (470) (569)
Recoveries 1 210 38 12 41 142
Reserve from acquisition -- -- -- -- 861 --
------ ------- ------ ------ ------ ------
Balance at end of period $1,960 $ 1,929 $1,608 $1,729 $1,658 $1,161
====== ======= ====== ====== ====== ======
Allowance for credit losses
as a percentage of gross
receivables at end of
period 2.7%(1) 4.2%(1) 1.9% 3.7% 3.2% 5.0%
</TABLE>

- -------------------

(1) The allowance for credit losses as a percentage of owned and managed
accounts and loans receivable was 1.4% as of June 30, 1998 and 1.7% as of
December 31, 1997.

SALES AND MARKETING

KBK's sales and marketing efforts are conducted through six offices
located in Houston, Fort Worth, New Orleans, San Antonio, the Los Angeles area
and the St. Louis area. These offices allow the Company to establish and
maintain close personal relationships with each client and the network of
referral sources.

The Company markets its services through direct solicitation of
prospective new clients, as well as the solicitation of referrals from
providers of various services to middle-market businesses, such as commercial
bankers, lawyers and accountants. Management believes these sources refer
quality clients who are likely to have the financial information and reporting
systems necessary for the Company to make a sound credit evaluation. In
addition, due to the Company's long-standing reputation in the business, the
Company also receives referrals from current and former clients and direct
inquiries from potential clients. The Company has also begun to develop a
formal network of correspondent community and regional banks throughout the
United States that generate prospective client opportunities for KBK. Such
correspondent banks receive a fee, or participate in the transaction.

28
<PAGE> 31
UNDERWRITING AND OPERATIONS AND CONTROLS

Underwriting

In addition to marketing responsibilities, each account officer is
responsible for performing initial credit evaluations and submitting the
required documentation for underwriting committee approval. Generally, the
account officers are most familiar with an individual customer's business, the
accounts receivable/collateral to be used in the financing as well as local
economic conditions. The Company maintains control over the quality of its
portfolio by utilizing a uniform set of evaluation steps and standards in the
underwriting process and well-established control mechanisms and audits to
monitor the financings after funding.

The account officers rely on their own due diligence and in-depth
credit investigations, supplemented by the use of outside credit reporting
firms which provide credit reports on potential clients and their principals.
Once such preliminary information is gathered, the account officers then submit
this information to the Company's central underwriting department for
independent evaluation. Typically, the underwriting department focuses its
evaluation on the following items: (a) the client's financial condition; (b)
the quality of the client's debtor base; (c) the nature and enforceability of
the client's sales transactions; and (d) reference checks with major customers,
vendors, attorneys, accountants and other service providers.

For loan facilities, KBK's credit analysis focuses on (i) the
prospective client's past and anticipated ability to generate sufficient cash
flow to adequately service its debt in the ordinary course of business and (ii)
the value of collateral pledged as a secondary source of repayment. For
factoring facilities, the credit evaluation focuses on an analysis of the (a)
debtor's capacity to pay, (b) the debtor's obligation to pay and (c) the
client's level of financial stress which might provide a motive for
misrepresentation of, or the unauthorized conversion of, factored receivables.
The debtor evaluation process principally consists of reference checks, review
of debtor debt ratings and a close analysis of the debtor's financial
statements, if available. In addition, the Company maintains online
proprietary information systems and active credit files covering the payment
patterns of more than 20,000 domestic and foreign debtors. The underwriting
department relies on these independent sources and typically does not contact
or notify the debtor during this process. Once the underwriting department
feels comfortable with the credit of the debtor, the focus is shifted to the
client in order to analyze the client's cash flows and financial statements.
The client's accounts receivable payment trends are also reviewed to determine
the historical dilution ratio of the client's receivable base. The final step
in the credit evaluation process is determining whether the client/debtor
relationship is a good fit with KBK's business focus. This subjective decision
is based upon past customer experience as well as the business and industry
fit.

Once the review of the underwriting department's component evaluations
are satisfactorily completed, then an audit of the prospect is completed by
KBK's internal auditors. Upon review of the audit, the account officer
prepares a written presentation, summarizing the component evaluations and
submits the presentation to the underwriting committee for approval.

The voting members of the underwriting committee are comprised of
senior executive officers, and approval is based upon a majority vote of the
committee members. Client relationships in which KBK's aggregate commitment
amount exceeds $3.0 million require the approval of the designated members of
the Board of Directors in addition to the approval of the underwriting
committee.

29
<PAGE> 32
Operations and Controls

The operations and controls of the Company are centralized in Fort
Worth, Texas at the corporate headquarters. The responsibilities of the
operational area include reviewing all requests for advances under working
capital lines of credit and factoring facilities and supporting documents
(invoices, purchase orders, delivery evidence, sales journal, collection
reports, etc.) and monitoring the collateral and financial covenants. This
unit of the Company is segmented into two divisions, the funding division and
the item processing division.

For factoring facilities, extensive operational and control mechanisms
are required. In conjunction with the credit evaluation process, KBK's funding
division closely reviews all the potential receivables documentation, including
purchase orders, invoices, shipment notification and proof of sales and receipt
of goods. In addition, the funding division and the credit division must
approve all invoices prior to purchase. The funding division is responsible
for authenticating all documentation, and the credit division evaluates each
debtor's capacity to pay the invoice. Once advance approvals are granted by
the funding division and the credit division, an account executive from the
credit department must also approve each request prior to funding, and
depending on the client grade, management approval may also be required.

Once the funding occurs, the item processing division monitors and
collects the receivables through an established lock box system. The Company
has a proprietary sophisticated computer system to assist in this process.
This system tracks the incoming payment flows and generates daily reports such
as agings, collection, concentration, turnover, dilution and exception
reporting.

When funding and monitoring a loan, the control process principally
involves evaluation and monitoring of the collateral pledged. When a client
desires funding on a working capital line of credit, an availability
certificate is completed by the client to verify accuracy. Based upon these
results the purchasing desk then calculates availability under the loan.
Depending upon availability, the client requests an advance, which must be
approved by the account executive prior to funding. Financial covenants are
set for these facilities and reviewed on a daily, weekly or monthly basis. All
working capital facilities are regularly audited for compliance.

Prior to funding a term loan, an independent appraisal is received.
Based upon the valuation of the appraisal, the type of collateral financed and
the current and anticipated market for the collateral, an advance rate is
determined. The account officer and/or the audit department typically inspects
the equipment prior to funding. The client must show adequate current, past
and projected cash flow to service the debt. The maximum term for any term
loan is typically five years. Once approved by the underwriting committee, the
term loan is funded. All payments are collected through an automatic
clearinghouse transfer. The asset quality committee reviews all delinquent
payments.

The Company also performs periodic on-site audits of all clients. The
auditing process is a diligent and detailed analysis similar to the credit
analysis performed prior to approval of the facility. The frequency of the
audit is dependent upon the risk rating of the client.

COMPETITION

The Company's larger competitors include Comerica Bank, Heller
Financial, CIT, Congress Financial, FINOVA, the Foothill Group, a subsidiary of
Norwest, and Fremont Financial. Smaller regional competitors vary broadly from
market to market. The competition for earning assets has had the effect of
reducing yields due to the competitive nature of the business and the
increasing strength of many clients in the current economic expansion.

30
<PAGE> 33
GOVERNMENT REGULATION

Federal Assignment of Claims Act. In connection with certain of its
clients whose account debtors include the United States or departments or
agencies thereof, certain receivables acquired by the Company are subject to
FACA. FACA provides that an assignment of a client's contractual claim for
monies due from the Federal Government will be enforceable against the Federal
Government by a third party assignee of such client only under very limited
circumstances. Certain aspects of the Company's purchases of receivables make
compliance with FACA impractical or impossible, or make the protections
afforded by FACA unavailable to the Company. As a result, the Company does not
always comply with FACA when it purchases receivables where the Federal
Government is the account debtor, causing all assignments of receivables
purchased by the Company to which the Federal Government is the account debtor
to be unenforceable by the Company against the Federal Government. Such failure
to comply with FACA has no effect on the validity of the assignment among the
Company, the client and third parties other than the Federal Government. Non-
compliance with FACA causes the Company to lose any right it may have to
receive payments directly from the Federal Government or cause the Federal
Government to acknowledge the Company's claim in such receivables. However,
FACA does not limit the Company's ability to require its clients to direct
payments made by the Federal Government to a lockbox controlled by the Company.
The Federal Government also has significant rights of setoff in connection with
its contractual payments. Typically, the Company can protect itself from
certain rights of setoff by account debtors, either by pursuing its rights
against clients for breach of representation regarding the absence of setoffs
with respect to purchased receivables, or sending the account debtors a notice
of assignment pursuant to the Uniform Commercial Code. In cases where the
Federal Government is the account debtor, an assignee must comply with FACA in
order to protect itself from such setoffs, and thus the Company is unable to
avail itself of such protection (other than by pursuing its rights against
clients for breach of representations). The Federal Government has broad setoff
rights, including setoffs for unpaid taxes and setoffs arising from other
contracts between the client and the Federal Government. During 1997 and 1996,
respectively, the Federal Government comprised 1.7% and 4.0% of the account
debtors for the Company's total volume of purchased receivables under
management. The Company has not experienced a disproportionate dilution rate
with respect to such receivables compared to other of the Company's
receivables.

State Usury Laws. Usury laws generally limit the amount of interest
that a creditor may contract for, charge or receive in connection with the loan
of money. In the State of Texas (in which the Company's primary offices are
presently located), state law prohibits creditors from contracting for,
charging, reserving, taking or receiving interest at a rate in excess of a
varying index. For loans in which the interest rate is fixed, the usury ceiling
is equal to the index preceding the week in which the contract is entered into.
For varying rate loans, the index floats. Under the provisions of Texas law,
the index may never exceed 24% per year (or, in the case of business purpose
loans exceeding $250,000, 28% per year). If the index is less than 18% per
year, the creditor may, nevertheless, charge interest pursuant to a written
agreement at the rate of 18% per year. Because of the low interest rate
environment, the Texas usury ceiling has, since early in 1985, prohibited a
business creditor from contracting for, charging, reserving, taking or
receiving interest at a rate in excess of 18% per year. Section 339.004 of the
Texas Finance Code defines an "account purchase transaction" as an agreement in
which a commercial enterprise sells accounts receivable at a discount with or
without a related repurchase obligation. This law provides that the amount of
any discount associated with the purchase is not interest. Also, the law
provides that the parties' characterization of an account purchase transaction
as a purchase is conclusive that the transaction is not a loan.

EMPLOYEES

The Company had 72 full-time and two part-time employees at September
15, 1998, of whom six were employed in executive and administrative positions
and 17 (including one executive officer) were employed in marketing. None of
the Company's employees is a party to any collective bargaining agreement, and
the Company considers its relations with employees to be satisfactory.

31
<PAGE> 34
PROPERTIES

The Company leases its offices at each of its locations in Fort Worth,
Houston and San Antonio, Texas, New Orleans, Louisiana, the Los Angeles area
and the St. Louis area under lease agreements expiring at various dates through
2004. The Company believes that its facilities are adequate to meet the
Company's needs in these markets; however, office space may be expanded in the
Fort Worth office, and space will be required at the location of any new
marketing office opened by the Company.

LEGAL PROCEEDINGS

The Company is not a party to any litigation other than routine
proceedings incidental to its business, and the Company does not expect that
these proceedings will have a material adverse effect on the Company.

RATIO OF EARNINGS TO FIXED CHARGES

YEAR ENDED DECEMBER 31,
-----------------------
SIX MONTHS ENDED
JUNE 30, 1998(1) 1997 1996 1995 1994 1993
---------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges(2) . . . . 3.0x 2.3x 1.9x 2.8x 4.1x 3.9x
</TABLE>
- --------------------
(1) The ratio for the six month period may not necessarily be indicative
of the ratio that will result for the full year 1998.

(2) The ratio of earnings to combined fixed charges and preferred stock
dividend requirements for the periods presented is the same as the
ratio of earnings to fixed charges since KBK has no outstanding
preferred stock and, therefore, no dividend requirements.

For purposes of calculating these ratios: (i) "fixed charges"
represent interest expense and (ii) "earnings" represent the aggregate of
income before income taxes and interest expense.

32
<PAGE> 35
CAPITALIZATION

The following table sets forth the consolidated capitalization of KBK
as of June 30, 1998 and as adjusted to reflect the issuance and sale of the
Trust Preferred Securities offered hereby and the application by KBK of the
proceeds from the sale of the Debentures as described in "Use of Proceeds." The
table is unaudited and should be read in conjunction with the financial
statements and notes thereto incorporated by reference herein and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
JUNE 30, 1998
--------------------------------------
ACTUAL AS ADJUSTED(a)
------ --------------
(DOLLARS IN THOUSANDS)
<S> <C>
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . $41,900 $

Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . -- --

Company-obligated mandatorily redeemable preferred and
common securities of subsidiary . . . . . . . . . . . . . . . -- (b)
------- -----------

Stockholders' equity:
Common Stock, par value $.01 per share; authorized
10,000,000 shares; issued 3,548,600 shares (c) . . . . . . 35 35
Additional paid-in capital . . . . . . . . . . . . . . . . . . 16,595 16,595
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 10,724 10,724
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . (2,264) (2,264)
------- -----------
Total stockholders' equity . . . . . . . . . . . . . . . 25,090 25,090
------- -----------

Total capitalization . . . . . . . . . . . . . . . . . . $66,990 $
======= ===========
</TABLE>

- -------------
(a) Adjusted to reflect the application of $ million of the
estimated net proceeds from the sale by KBK of the Debentures to the
Trust.
(b) Gives effect to the issuance of 800,000 Trust Preferred Securities.
The sole assets of the Trust will be the Debentures having an
outstanding principal amount of $ million and, upon
redemption or maturity of the Debentures, the Trust Preferred
Securities will be mandatorily redeemable.
(c) Does not include 948,000 shares of Common Stock issuable upon the
exercise of outstanding stock options granted to certain directors and
employees of the Company pursuant to the Company's stock option plans.

SELECTED FINANCIAL DATA

The following table sets forth selected historical consolidated
financial data of the Company. The historical financial data as of December
31, 1997 and 1996 and for each of the three fiscal years in the period ended
December 31, 1997 are derived from the Company's audited financial statements
incorporated by reference herein. The financial data as of and for each of the
six month periods ended June 30, 1998 and 1997 were derived from the Company's
unaudited interim financial statements incorporated by reference herein and in
the opinion of the management, include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the information set
forth therein.

The information presented below should be read in conjunction with the
Company's historical financial statements and notes incorporated by reference
herein and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

33
<PAGE> 36
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------- ----------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Unaudited)
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenue:
Earned discount income ...... $ 1,042 $ 2,927 $ 3,777 $ 9,778 $ 10,634 $ 6,625 $ 6,204
Interest income - loans ..... 1,924 1,564 3,119 1,369 144 70 115
Servicing fees .............. 4,046 1,803 6,314 -- -- -- --
Other income - fees ......... 1,721 953 1,981 1,054 166 201 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue .......... $ 8,733 $ 7,247 $ 15,191 $ 12,201 $ 10,944 $ 6,896 $ 6,319

Interest expense ............... 1,170 1,700 2,666 2,590 1,652 806 762
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income after interest
expense ........................ 7,563 5,547 12,525 9,611 9,292 6,090 5,557
Provision for credit losses .... 700 275 875 245 600 65 588
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income after interest
expense and provision
for credit losses ........... 6,863 5,272 11,650 9,366 8,692 6,025 4,969

Operating Expenses:
Salaries and employee
benefits .................... 2,458 2,121 4,431 3,545 2,997 1,960 1,569
Amortization of
intangible assets ........... 197 189 379 361 410 276 275
Occupancy and equipment ..... 728 613 1,285 847 587 423 241
Professional fees ........... 187 102 251 344 584 181 159
Other ....................... 945 810 1,852 1,812 1,089 691 507
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses 4,515 3,835 8,198 6,909 5,667 3,531 2,751
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes ..... 2,348 1,437 3,452 2,457 3,025 2,494 2,218
Income tax expense ............. 925 587 1,388 906 1,177 863 783
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income ............. $ 1,423 $ 850 $ 2,064 $ 1,551 $ 1,848 $ 1,631 $ 1,435
========== ========== ========== ========== ========== ========== ==========

PER SHARE DATA:
Earnings per share -
basic ....................... $ 0.43 $ 0.26 $ 0.62 $ 0.47 $ 0.52 $ 0.61 N/A
Weighted-average common
shares - outstanding -
basic ....................... 3,296,000 3,310,000 3,309,000 3,334,000 3,526,000 2,672,000 N/A
Earnings per share -
diluted ..................... $ 0.37 $ 0.26 $ 0.60 $ 0.45 $ 0.51 $ 0.56 N/A
Weighted-average common
shares - outstanding -
diluted ..................... 3,820,000 3,316,000 3,428,000 3,436,000 3,659,000 2,929,000 N/A

BALANCE SHEET DATA:
Total assets ................ $ 80,939 $ 55,632 $ 56,401 $ 89,747 $ 62,212 $ 61,080 $ 26,494
Long term debt .............. -- -- -- -- -- -- --
Short term debt ............. 41,900 22,000 21,000 58,000 33,000 29,926 11,993
Stockholders' equity ........ 25,090 22,990 24,569 22,140 21,288 20,374 8,797
Book value per share ........ $ 7.66 $ 6.95 $ 7.35 $ 6.69 $ 6.27 $ 5.74 N/A

PROFITABILITY RATIOS:
Net yield on average
earning assets .............. 22.0% 21.0% 21.0% 24.0% 33.0% 33.0% 33.0%
Return on average assets ....... 4.5(1) 2.3(1) 3.2 2.4 3.0 3.7 5.7
Return on average equity ....... 11.6(1) 7.5(1) 8.9 7.1 8.9 11.2 17.8

ASSET QUALITY RATIOS:
Allowance for credit losses
as a percentage of non-
performing assets ........... 64.7% 82.6% 89.9% 124.6% 348.1% 360.8% 307.7%
Net charge-offs as a percentage
of average earning assets ... 1.0(2) 0.5(2) 0.7 0.7 1.6 1.6 2.1

Ratio of earnings to
fixed charges(3) ........... 3.0x 1.8x 2.3x 1.9x 2.8x 4.1x 3.9x
</TABLE>

- ---------------
(1) Percentage shown has been annualized.
(2) For the twelve months ended June 30, 1998 and 1997.
(3) For purposes of calculating these ratios: (i) "fixed charges" represent
interest expense and (ii) "earnings" represent the aggregate of income
before income taxes and interest expense.

34
<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997

The following table sets forth the results of operations and certain
other data of the Company for the six months ended June 30, 1998 and 1997.

<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997
(UNAUDITED) (UNAUDITED)
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Average Net Earning Assets
Managed and Owned .............................. $ 106,909 $ 76,831
Owned .......................................... 41,810 57,703

Total revenue ....................................... $ 8,733 100.0% $ 7,247 100.0%
Interest expense .................................... 1,170 13.4 1,700 23.5
Provision for credit losses ......................... 700 8.0 275 3.8
Operating expenses .................................. 4,515 51.7 3,835 52.9
Income taxes ........................................ 925 10.6 587 8.1
---------- ---------- ---------- ----------

Net income .......................................... $ 1,423 16.3% $ 850 11.7%
========== ========== ========== ==========
</TABLE>

Average net earning assets (managed and owned) increased 39% to $106.9
million for the six months ended June 30, 1998 from $76.8 million for the six
months ended June 30, 1997. Reflecting this increase in earning assets, total
revenue increased 20%, or $1.5 million to $8.7 million for the six months ended
June 30, 1998 compared to $7.2 million for the same period in 1997. Although
average net earning assets owned for the six months ended June 30, 1998
decreased by $15.9 million compared to the same period in 1997, the growth in
average net earning assets owned and managed was $30.1 million, which was offset
by the assets sold into the conduit facility during the six months ended June
30, 1998.

Interest expense decreased 31% to $1.2 million for the six months
ended June 30, 1998 from $1.7 million for the same period of 1997. This
decrease is primarily due to a $16.6 million decrease in the average
outstanding balance under the line of credit to $25.3 million for the six
months ended June 30, 1998 from $41.9 million for the same period in 1997
resulting from the sale of assets into the conduit facility beginning in April
1997.

A provision for credit losses of $700,000 was recorded for the six
months ended June 30, 1998, as compared to $275,000 for the same period of
1997. During the six months ended June 30, 1998, the Company had net
charge-offs of $669,000 compared to $82,000 of net charge-offs for the same
period of 1997. The allowance for credit losses at June 30, 1998 of $2.0
million represents 2.7% of total outstanding loans and accounts receivable and
4.8% of average net earning assets owned for the six months then ended. The
allowance for credit losses at June 30, 1997 of $1.8 million represented 3.8%
of total outstanding loans and accounts receivable and 3.1% of average earning
assets owned for the six months then ended. Management believes the current
allowance is adequate to cover potential losses which might result from the
purchased accounts receivable and loan portfolio at June 30, 1998.

Operating expense of $4.5 million for the six months ended June 30,
1998 increased $679,000, or 18%, compared with $3.8 million for the same period
of 1997. Employment related expense increased $338,000 to $2.5 million for the
six months ended June 30, 1998, compared to $2.1 million for the same period of
1997. Most of this

35
<PAGE> 38
increase relates to the expansion of the marketing staff subsequent to the
second quarter of 1997. Occupancy expense increased $115,000 to $728,000 for
the six months ended June 30, 1998, from $613,000 for the same period of 1997
resulting primarily from the increased depreciation for equipment and systems
required in the Fort Worth office. Other operating expenses increased $135,000
or 17% to $945,000 for the six months ended June 30, 1998 from $810,000 in the
same period of 1997 due to the increased marketing expenses related to the
Company's growth. This growth also generated an $85,000 increase in
professional fees from $102,000 during the six months ended June 30, 1997 to
$187,000 for the same period in 1998.

Income taxes of $925,000 for the six months ended June 30, 1998 were
58% more than the $587,000 of income taxes for the same period of 1997, due to
the 63% increase in income before taxes for the six months ended June 30, 1998
compared to the six months ended June 30, 1997.

As a result of the foregoing, net income of the Company for the six
months ended June 30, 1998 increased $574,000, or 68%, to $1,423,000 from
$850,000 for the same period in 1997.

Total assets increased 43% from $56.4 million at December 31, 1997 to
$80.9 million at June 30, 1998. This increase is primarily related to the net
change in accounts receivable and loans receivable during the quarter from
$43.9 million at December 31, 1997 to $71.2 million at June 30, 1998. This
increase in assets was funded by a $17.4 million increase in bank borrowing and
$3.5 million in commercial paper during the first six months of 1998.

Stockholders' equity increased $521,000, from $24.6 million at
December 31, 1997 to $25.1 million at June 30, 1998 resulting from net income
of $1.4 million and a reduction of $912,000 for treasury stock purchases during
the six months ended June 30, 1998. The Company paid no dividends on its common
stock for the six months ended June 30, 1998.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

The following table sets forth the results of operations and certain
other data of the Company for the years ended December 31, 1997 and December
31, 1996.

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Average Net Earning Assets
Managed and Owned . . . . . . . . . . $85,621 $50,941
Owned . . . . . . . . . . . . . . . . 46,582 50,941

Total revenue . . . . . . . . . . . . . . $15,191 100% $12,201 100%
Interest expense . . . . . . . . . . . . 2,666 17 2,590 21
Provision for credit losses . . . . . . . 875 6 245 2
Operating expenses . . . . . . . . . . . 8,198 54 6,909 57
Income taxes . . . . . . . . . . . . . . 1,388 9 906 7
------ --- ------ ---
Net income . . . . . . . . . . . . . . . $2,064 14% $1,551 13%
====== === ====== ===
</TABLE>

Average net earning assets under management increased 68.1% to $85.6
million for the year ended December 31, 1997, from $50.9 million for the year
ended December 31, 1996. Reflecting the increase in assets, total revenue
increased 24.5%, or $3.0 million, for the year ended December 31, 1997, from
the year ended December 31, 1996 total revenue of $12.2 million. Although
largely offset by $34.7 million growth in average assets owned and managed,
average net earning assets owned for the year ended December 31, 1997 decreased
$4.4 million from the year ended December 31, 1996, due to the assets sold into
the conduit facility. The sale of assets resulted in a $9.0 million adjustment
to interest income and a $2.7 million adjustment to interest expense, which
netted to $6.3 million in servicing spread income during the year ended
December 31, 1997.

36
<PAGE> 39
Interest expense increased slightly to $2.7 million for the year ended
December 31, 1997 compared with $2.6 million for the year ended December 31,
1996. Although average funded debt decreased from $34.7 million in 1996 to
$31.2 million in 1997 due to significant financing through the conduit
facility, rising interest rates during the year generated the increase in
interest expense. Interest expense improved to 17.5% of total revenue for 1997
from 21.2% of total revenue for 1996.

The provision for credit losses was $875,000 for 1997 compared to
$245,000 for 1996, representing a 257.1% increase. During 1997, the Company had
charge-offs of $765,000 while recovering $210,000. Net charge-offs for 1997 of
$555,000 and a provision of $875,000 for 1997 resulted in an allowance for
credit losses of $1.9 million or 4.2% of gross receivables outstanding as of
December 31, 1997 (3.4% of average receivables). During 1996, the Company had
charge-offs of $404,000 while recovering $38,000, resulting in net charge-offs
of $366,000. The Company's 1996 provision for credit losses of $245,000 brought
the allowance for credit losses to $1.6 million, or 1.9% of gross receivables
outstanding (2.7% of average receivables outstanding during December 31, 1996).

Operating expenses increased $1.3 million, or 18.7%, to $8.2 million
or 54.0% of total revenue for 1997 compared with $6.9 million or 57.0% of total
revenue for 1996. This increase was primarily a result of increased salaries
and benefits and other employment expenses of $886,000, related to support
staff and management added in 1997 to support the Company's growth and
increased business activity. Occupancy expenses increased $196,000, resulting
primarily from increased lease expense associated with the expansion of the
corporate offices. Also related to this expansion was a $242,000 increase in
amortization and depreciation expense for 1997 due to the leasehold
improvements and addition of fixed assets.

Income taxes of $1.4 million for 1997 were 53.2% higher than the
income taxes of $906,000 for 1996 due to higher income before taxes.

As a result of the above, net income of the Company for 1997 increased
$513,000, or 33.1%, to $2.1 million or 13.6% of total revenue, from $1.6
million or 12.7% of total revenue in 1996.

Total assets decreased 37% from December 31, 1996 to $56.4 million as
of December 31, 1997. This decrease was the result of the sale of $66.7
million in assets into the conduit facility, which was partially offset by
additional fundings on accounts receivable and loans receivable during 1997.

Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

The following table sets forth the results of operations and certain
other data of the Company for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Average Net Earning Assets ...... $50,941 $33,973

Total revenue ................... $12,201 100% $10,944 100%
Interest expense ................ 2,590 21 1,652 15
Provision for credit losses ..... 245 2 600 5
Operating expenses .............. 6,909 57 5,667 52
Income taxes .................... 906 7 1,177 11
------- ------- ------- -------
Net income ...................... $ 1,551 13% $ 1,848 17%
======= ======= ======= =======
</TABLE>

37
<PAGE> 40
Receivables purchased in 1996 averaged $46.7 million, approximately
$6.6 million, or 16.5%, over the 1995 average purchased receivables balance of
$40.1 million. This growth in average receivables purchased in 1996 was
primarily attributable to growth in the Louisiana, California and Fort Worth
receivables portfolios. Revenue derived from earned discount income was $9.8
million in 1996 compared to $10.6 million in 1995, a 7% decrease. This
percentage decreased notwithstanding the increase in average receivables
purchased because of lower pricing on purchases from existing and new clients.
These reduced yields were due in part to the strengthening of the credit
quality of the existing portfolio, as well as competitive pressures.

In an effort to meet the financing needs of its clients and lengthen
the duration of the relationship, the Company continues to broaden the range of
its product line. Loans receivable increased $21.8 million to $27.4 million
outstanding at December 31, 1996 from $5.6 million outstanding at December 31,
1995. Revenue derived from these loans increased from $144,000 for 1995 to
$1.4 million for 1996.

Interest expense increased $938,000, or 56.8%, to $2.6 million for
1996 compared with $1.7 million for 1995. Interest expense was 21.0% of total
revenue for 1996 and 15.0% of total revenue for 1995. The increase was due
mainly to the borrowings used to finance the higher levels of earning assets
funded during 1996. During 1996, the Company had an average outstanding
balance of bank debt of $34.7 million at a weighted average interest rate of
7.5%. During 1995, the Company had average outstanding balance of bank debts
of $19.8 million at a weighted average interest rate of 7.8%.

During 1996, the Company provided $245,000 for credit losses compared
to $600,000 for 1995, representing a 59.0% decrease. During 1996, the Company
recorded charge-offs of $404,000 while recovering $38,000. Net charge-offs for
1996 of $366,000 and a provision of $245,000 for 1996 resulted in an allowance
for credit losses of $1.6 million or 1.9% of gross receivables outstanding as
of December 31, 1996 (2.7% of average receivables). During 1995, the Company
recorded charge-offs of $542,000 while recovering $12,000, resulting in net
charge-offs of $530,000. The Company's 1995 provision for credit losses of
$600,000 brought the allowance for credit losses to $1.7 million, or 3.7% of
gross receivables outstanding (4.1% of average receivables outstanding at
December 31, 1995).

Operating expenses increased $1.2 million, or 21.0%, to $6.9 million,
or 57.0% of total revenue for 1996 compared with $5.7 million or 52.0% of total
revenue for 1995. This increase was primarily a result of increased salaries
and benefits and other employment expenses of $783,000, of which $281,000
related to the opening of offices in Irvine and Santa Clara, California and
$502,000 related to support staff and management added in 1996 to support
increased business activity. Occupancy expenses increased $109,000, resulting
from the addition of the California offices and increased rental expense
associated with the corporate offices. Amortization and depreciation expense
for 1996 increased $102,000 due to the addition of fixed assets in Fort Worth
and California. The remaining increase in operating expenses of $206,000 is
comprised of a $54,000 increase in direct marketing and marketing support
expenses such as travel, entertainment, telephone, and postage, a $65,000
increase in advertising, and an $87,000 increase in general overhead such as
insurance, office expenses and directors fees.

Income taxes of $906,000 for 1996 were 24.5% lower than the income
taxes of $1.2 million for 1995 due to lower income before taxes.

As a result of the above, net income of the Company for 1996 decreased
$300,000, or 16.0%, to $1.6 million or 13.0% of total revenue, from $1.9
million or 17.0% of total revenue in 1995.

Total assets increased 44% from December 31, 1995 to $89.7 million at
December 31, 1996. This growth was the result of the $14.7 million increase in
purchased receivables and the $21.8 million increase in loans receivable
outstanding at December 31, 1996 due to increased borrowings. Although average
assets increased 40% in 1996 over 1995, fluctuation of outstanding purchased
receivable balances decreased in 1996 due to the addition of loans receivable
which enhance the stability of the balance sheet and subject the Company to
less of the seasonality inherent in purchased accounts receivable.

38
<PAGE> 41
The balance of the deferred tax asset (included in other assets) of
$427,000 at year-end 1996 decreased by 21.0% from the 1995 balance of $540,000
largely due to the decrease in the deferred tax asset related to the temporary
differences for book and tax purposes in the deductibility of provisions for
credit losses.

LIQUIDITY AND CAPITAL RESOURCES

The Company's capital requirements generally increase proportionately
to the increase in earning assets. The method of funding the portfolio changed
significantly during 1997 with the implementation of the asset sale. As a
result of the assets sold into the securitization conduit, total average net
earning assets owned decreased $15.9 million, from $57.7 million during the
first half of 1997 to $41.8 million in the first half of 1998, while average
net earning assets managed and owned increased from $76.8 million to $106.9
million during the same period.

KBK Financial maintains a $55.0 million, multi-bank line of credit
("Credit Facility") which had $45.0 million committed and $35.0 million
outstanding at September 25, 1998, $14.0 million more than the $21.0 million
outstanding at December 31, 1997. The Credit Facility is comprised of a $40.0
million Revolving Credit Facility ("Revolving Facility"), and a $5.0 million
Over Advance Facility which allows for borrowing base availability to fund
amounts in excess of client concentration limits. The Revolving Facility
includes a $5.0 million bridge facility for funding certain mezzanine loans at
the banks' prime rate plus 1.25%. As of September 25, 1998, there was $34.0
million outstanding under the Revolving Facility, $1.0 million outstanding
under the Over Advance Facility, and there were $1.7 million in letters of
credit outstanding under the Revolving Facility. The Credit Facility provides
for maximum borrowings of the lesser of (i) $45.0 million or (ii) the amount of
a borrowing base (based on a percentage of eligible loans and accounts
receivable, as defined in the loan agreement governing the Credit Facility, net
of excluded amounts). There was $8.1 million in available credit under this
line as of September 25, 1998. Borrowings under the Revolving Facility portion
of the Credit Facility bear interest at the agent bank's prime rate or
applicable LIBOR plus 1.75% at KBK Financial's discretion and expire on May 31,
2000. Borrowings under the Over Advance Facility portion of the Credit Facility
bear interest at the agent banks' prime rate plus 1.25% and expire on May 14,
1999; however, the lenders may terminate this portion of the facility at any
time upon 120 days prior written notice to KBK Financial.

Borrowings under the Credit Facility are secured by all accounts
receivable of KBK Financial (including all accounts receivable purchased by KBK
Financial from its clients) which are not sold to KBK Receivables, all notes
receivable of KBK Financial which are not sold to KBK Receivables, all
inventory of KBK Financial now owned or acquired, all instruments, chattel
paper, documents and general intangibles of KBK Financial now owned or
acquired, an assignment of all security interests, mortgages and liens securing
the foregoing and all proceeds of the foregoing. The Credit Facility provides
that KBK Financial is permitted to contribute and sell, free of liens, and
grant security interests in, accounts, chattel paper, instruments and general
intangibles to KBK Receivables pursuant to the purchase and sale agreement. The
terms of the Credit Facility require KBK Financial to comply with certain
financial covenants and include the maintenance of a certain tangible net
worth, limitations on its debt to tangible net worth, and an interest coverage
ratio which requires that KBK Financial's ratio of income before interest and
taxes to interest expense, over the last four quarters, be no less than 1.5 to
1. Additionally, the Credit Facility restricts the payment of dividends in any
fiscal year by KBK Financial to the lesser of (i) KBK Financial's after tax
income for such fiscal year or (ii) 50.0% of the amount by which KBK
Financial's after tax income exceeds the cumulative amount of dividends
permitted to be paid under such tests, but not so paid.

Thus, KBK Financial is effectively restricted in its ability to pay
cash dividends to the Company. The Company has not paid dividends on its Common
Stock and currently does not intend to pay cash dividends; rather, it intends
to retain its cash for the continued expansion of its business and the
continuation of the stock repurchase program initiated in November 1995.

Under the Company's stock repurchase program, the Company may buy back
in open market transactions, block trades or private transactions, up to
500,000 shares (15% of the outstanding shares at year end 1997) of the
Company's Common Stock. At September 25, 1998, 314,567 shares of Common Stock
had been repurchased and placed

39
<PAGE> 42
in the treasury at a cost of $2.6 million (net of 100,000 shares issued to the
former shareholders of Coastal Financial Resources, Inc., which was acquired by
the Company in 1994). All of such purchases have been funded out of the general
funds of the Company, which had the result of increasing the
outstanding balance under the Credit Facility.

In May 1998, the Company, through its subsidiary, KBK Financial,
reinstated its private commercial paper program ("CP Program"). During the 19
year period preceding mid-1994, KBK used the proceeds from the private issuance
of short-term, unrated commercial paper to finance a portion of its portfolio.
The CP Program was canceled by management concurrent with the Company's June
1994 initial public offering of common stock. Under the CP Program,
certificates may be issued for tenures ranging from 30 to 270 days at interest
rates comparable to the Company's alternative unsecured funding sources. The
certificates are placed directly by the Company; however, the Company reserves
the right to name a placement agent in the future. The certificates are not
rated by any independent agency and the Company does not maintain a back-up
liquidity facility to support outstanding certificates. During the second
quarter, KBK Financial issued certificates aggregating $3.5 million to
qualified investors. Outstanding certificates carry a coupon rate of 10% per
annum and currently mature on October 15 and December 14, 1998.

Future sources of liquidity to fund growth in earning assets will come
from the sale of earning assets, the issuance of unsecured and secured
corporate debt obligations, preferred and common stock, as well as from
traditional bank financing.

EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS

In June of 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) 130 "Reporting Comprehensive
Income," which is required to be adopted for fiscal years beginning after
December 15, 1997. This statement establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. The adoption of SFAS 130 did not have a
material impact on the Company's consolidated financial statements.

IMPACT OF THE YEAR 2000 ISSUE

The Company is currently working to resolve the potential impact of
the year 2000 on the processing of date-sensitive data by the Company's
computerized information systems. The year 2000 is critical to these systems
as many computer programs are written using two digits rather than four to
define the applicable year. As a result, any of the Company's computer
applications that have date-sensitive programs may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculation causing disruptions, including but not limited to a
temporary inability to process transactions, communicate with customers and
financial institutions and update internal accounting systems. If not
corrected, such disruptions could have a significant impact on the Company's
operations.

The Company has initiated a Company-wide program to prepare the
Company's computer systems and applications for the year 2000. Based on
present information, the Company believes that it will be able to achieve year
2000 compliance through modification of some existing programs and the
replacement of other programs with new programs that are already year 2000
compliant. The Company will utilize both internal and external resources to
reprogram, or replace, and test software for year 2000 compliance. The Company
plans to complete the year 2000 conversion project by July 1, 1999. The total
project costs are estimated to be immaterial and will be expensed as incurred.

The Company is taking steps to resolve year 2000 compliance issues
that may be created by clients, debtors and financial institutions with whom
the Company does business. However, there can be no guarantee that the systems
of other entities will be converted timely. A failure to convert by another
entity could have a significant adverse effect on the Company.

40
<PAGE> 43
The costs of the year 2000 conversion project and the date on which
the Company plans to complete the project are based on management's best
estimates, which were derived using numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. There can be no guarantee that these
estimates will be achieved and actual results could vary significantly from
current estimates.

The Company does not have a written contingency plan to address the
issues that could arise should the Company or any of its clients or debtors not
be prepared to accommodate year 2000 issues timely. The Company believes that
in an emergency it could revert to the use of manual systems that do not rely
on computers.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Prospectus, including the documents incorporated by reference
herein, contains forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act. These statements
are identified by words such as "may," "will," "expects," "anticipates,"
"intends," "plans," "estimates" "should" and words of similar import.
Forward-looking statements are inherently subject to risks and uncertainties,
many of which cannot be predicted with accuracy and some of which might not
even be anticipated. Future events and actual results, financial and
otherwise, may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference
include, but are not limited to, those discussed in this section and "Risk
Factors."

MANAGEMENT

ROBERT J. MCGEE, 43, has served as Chairman of the Board, Director and Chief
Executive Officer of the Company since the Company acquired KBK Financial in
February 1992 and was elected President in January 1994. Prior to his
association with the Company, Mr. McGee was Chairman of the Board of Texas
Commerce Bank, Fort Worth, National Association from September 1989 to April
1992.

KENNETH H. JONES, JR., 63, has served as Vice Chairman of the Company and as a
director since January 1995. Prior to his employment by the Company, Mr. Jones
was a partner at the Fort Worth law firm of Decker, Jones, McMackin, McClane,
Hall and Bates, P.C., where he remains of counsel. Mr. Jones is a director of
AmeriCredit Corporation, an automobile finance company. Mr. Jones is also a
director of Hallmark Financial Services, Inc., an insurance premium finance and
claims adjusting company.

J. DUGAN SMITH, 38, has served as President of KBK Financial since September
1997. He joined KBK Financial in May 1996 as Executive Vice President and Chief
Credit Officer of the Company. Prior to joining the Company, Mr. Smith was
Executive Vice President and Senior Credit Officer for Victoria Bank & Trust
Company in Victoria, Texas, from 1987 to May 1996 and prior thereto was employed
by Texas Commerce Bancshares in Houston for almost 10 years.

L. ALLEN JARBOE, 45, was named Executive Vice President and Chief Credit
Officer of the Company effective April, 1998. Prior to joining the Company,
Mr. Jarboe was with First City Bank in Houston, NationsBank -- San Antonio and
Barnett Bank in Jacksonville, Florida.

JACK R. ROPER, 44, has served as Executive Vice President of Servicing of the
Company since January 1994, and has been an executive of KBK Financial since
1989.

JAY K. TURNER, 43, joined the Company in February 1998 as Executive Vice
President and Chief Financial Officer. Prior to joining the Company, Mr.
Turner was Director of Investment Banking with Rauscher Pierce Refsnes in
Dallas, Texas for two years and prior to that served as Managing Director of
Corporate Finance for KPMG Peat Marwick in New York and Texas.

41
<PAGE> 44
The Board of Directors of the Company is divided into three classes.
At each annual meeting of the stockholders, directors constituting one class
are elected for a three-year term. The Board of Directors currently consists
of eight members. The following table sets forth certain information
respecting directors of the Company as of June 30, 1998:

<TABLE>
<CAPTION>
DIRECTOR YEAR TERM
NAME AGE SINCE EXPIRES PRESENT PRINCIPAL OCCUPATION
---- --- ----- ------- ----------------------------
<S> <C> <C> <C> <C>
Robert J. McGee 43 1992 1999 Chairman of the Board, Director and
Chief Executive Officer of the Company

Kenneth H. Jones, Jr. 63 1995 2000 Vice Chairman of the Company

Daniel R. Feehan 47 1992 1999 President, Chief Operating Officer and a
Director of Cash America International,
Inc.

Thomas L. Healey 64 1994 1999 Private investments

Martha V. Leonard 61 1996 2000 Private investments

R. Earl Cox, III 64 1996 2000 Chairman of Tandy Crafts, Inc.

Harris A. Kaffie 48 1996 2001 Partner in Kaffie Brothers

Thomas M. Simmons 45 1995 2001 Managing Director in Houston Office of
Spencer Stuart & Co.
</TABLE>

Of the 3.3 million shares of the Common Stock outstanding,
approximately 42% is held by senior management and directors with the remaining
58% held by institutional and public holders.

KBK CAPITAL TRUST I

KBK Capital Trust I (the "Trust") is a statutory business trust formed
under Delaware law pursuant to (i) an original declaration of trust, as amended
and restated (the "Declaration") executed by KBK, as sponsor of the Trust (the
"Sponsor"), the Delaware Trustee (as defined herein) and the Regular Trustees
(as defined herein) of the Trust and (ii) the filing of a certificate of trust
with the Secretary of State of the State of Delaware. The Company will directly
or indirectly acquire Trust Common Securities in an aggregate liquidation
amount equal to 3.0% of the total capital of the Trust. The Trust Common
Securities will rank pari passu, and payment will be made thereon pro rata,
with the Trust Preferred Securities, except that, upon the occurrence and
during the continuance of a Debenture Event of Default or a default by KBK
under the Guarantee, the rights of the holders of the Trust 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 Trust Preferred Securities. The assets of the Trust will consist
principally of the 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 Debentures, (iii) making distributions to holders of Trust
Securities and (iv) engaging in only those other activities necessary or
incidental thereto.

The Trust initially will have five trustees. A majority of the
trustees of the Trust are individuals who are employees or officers of or who
are affiliated with KBK (the "Administrative Trustees"). Pursuant to the
Declaration, the number of Administrative Trustees initially is three. The
fourth trustee is a financial institution that is unaffiliated with KBK and
that acts as property trustee and indenture trustee (the "Property Trustee"
and, together with the Administrative Trustees, the "Regular Trustees") for
purposes of the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The fifth trustee is an entity that maintains its principal place of
business in the State of Delaware

42
<PAGE> 45
(the "Delaware Trustee"). Initially, The First National Bank of Chicago, a
national banking association, is the Property Trustee and Wilmington Trust
Company, a Delaware banking corporation, is the Delaware Trustee until, in each
case, removed or replaced by the Administrative Trustees. The First National
Bank of Chicago will also act as indenture trustee under the Guarantee (the
"Trust Guarantee Trustee") and under the Subordinated Indenture (the
"Subordinated Debt Trustee"). See "Description of the Guarantee" and
"Description of the Trust Preferred Securities."

The Property Trustee will hold title to the Debentures for the benefit
of the holders of the Trust Securities, and the Property Trustee will have the
power to exercise all rights, powers and privileges under the Subordinated
Indenture as the holder of the 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
Debentures for the benefit of the holders of Trust Securities. KBK, as the
direct or indirect holder of all of the Trust Common Securities, will have the
right to appoint, remove or replace any of the Regular Trustees and the
Delaware Trustee and to increase or decrease the number of Regular Trustees
(except that upon the occurrence and during the continuance of a Trust
Enforcement Event, the Property Trustee may be removed and a successor
appointed only by the holders of a majority in liquidation amount of the Trust
Preferred Securities), provided that the number of Regular Trustees shall be at
least three, the majority of which shall be Administrative Trustees. KBK will
pay all fees and expenses related to the Trust and this offering. See
"Description of the Debentures."

The rights of the holders of the Trust Preferred Securities, including
economic rights, rights to information and voting rights, if any, are as set
forth in the Declaration and the Delaware Business Trust Act, as amended (the
"Trust Act"). See "Description of the Trust Preferred Securities." The
Declaration, the Subordinated Indenture and the Guarantee will be qualified
under and also incorporate by reference the terms of the Trust Indenture Act.
The Property Trustee will act as indenture trustee for the Debentures, the
Declaration and the Guarantee for purposes of complying with the Trust
Indenture Act.

The place of business and telephone number of the Trust are the
principal executive offices and telephone number of KBK. See "The Company."

DESCRIPTION OF THE TRUST PREFERRED SECURITIES

This summary of certain provisions of the Trust Preferred Securities
and the Declaration does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the
Declaration (a copy of which is filed as an exhibit to the registration
statement of which this Prospectus is a part, and a copy of which may be
obtained from the corporate trust office of the Property Trustee in New York,
New York), the Trust Act and the Trust Indenture Act which is incorporated by
reference in the Declaration. Wherever particular defined terms of the
Declaration are referred to herein, such defined terms are incorporated herein
by reference.

GENERAL

Pursuant to the terms of the Declaration, the Administrative Trustees,
on behalf of the Trust, will issue the Trust Preferred Securities and the Trust
Common Securities. The Trust Preferred Securities will represent preferred
undivided beneficial interests in the assets of the Trust and the Trust Common
Securities will represent subordinated undivided beneficial interests in the
assets of the Trust. All of the Trust Common Securities will be owned by KBK.
The Trust Preferred Securities will rank pari passu, and payments will be made
thereon pro rata, with the Trust Common Securities except as described under
the caption "-- Subordination of Trust Common Securities." Legal title to the
Debentures will be held by the Property Trustee in trust 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 Trust Preferred
Securities or liquidation of the Trust, are guaranteed by KBK to the extent
described under "Description of the Guarantee." The Guarantee is held by The
First National Bank of Chicago, as the Trust Guarantee Trustee, for the benefit
of the holders of the Trust Preferred Securities. The Guarantee does not cover
payment of distributions when

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<PAGE> 46
the Trust does not have sufficient and legally available funds to pay such
distributions. The remedy of a holder of Trust Preferred Securities in such an
event is as described under the captions "-- Trust Enforcement Events; Notice,"
"- - Enforcement of Certain Rights by Holders of Trust Preferred Securities"
and "-- Voting Rights; Amendment of the Declaration" below.

DISTRIBUTIONS

Distributions on the Trust Preferred Securities will be payable at the
annual rate of % of the liquidation amount of $25 per Trust Preferred
Security. Distributions will accumulate from the date of the original issuance
of the Trust Preferred Securities and will be payable quarterly in arrears on
, , and of each year to holders of record on the
applicable record date, commencing , 1999 when, as and if legally
available for payment by the Property Trustee, except as otherwise described
below. Distributions to which holders of the Trust Preferred Securities are
entitled but are not paid on the scheduled payment date will accumulate
additional distributions thereon at % per annum, compounded quarterly from
the relevant Distribution Date. The amount of distributions payable for any
period will be computed on the basis of a 360-day year of twelve 30- day
months. In the event that any date on which distributions are payable on the
Trust Preferred Securities is not a Business Day, the payment of the
distributions payable on such date will be made on the next succeeding day that
is a Business Day and without any additional distributions or other payment in
respect of any such delay, except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such payment date (each date on which distributions are payable in
accordance with the foregoing, a "Distribution Date"). A "Business Day" shall
mean any day other than a Saturday or a Sunday, or a day on which banking
institutions in the City of New York are authorized or required by law or
executive order to remain closed or a day on which the corporate trust office
of the Property Trustee or the Subordinated Debt Trustee (as defined herein) is
closed for business.

So long as no Debenture Event of Default has occurred and is
continuing, KBK has the right under the Subordinated Indenture to defer the
payment of interest on the Debentures at any time or from time to time for a
period not exceeding 20 consecutive quarters with respect to each Extension
Period, provided that no Extension Period may extend beyond the stated maturity
of the Debentures. As a consequence of any such election, quarterly
distributions on the Trust Preferred Securities will be deferred by the Trust
during any such Extension Period. Deferred distributions to which holders of
the Trust Preferred Securities are entitled will accumulate additional
distributions thereon at % per annum, compounded quarterly from the relevant
Distribution Date. The term "distributions" as used herein shall include any
such additional distributions. During any such Extension Period, KBK may not,
and may not cause any of its subsidiaries to, (i) declare or pay any dividends
or distributions on, or redeem, purchase or acquire, or make a liquidation
payment with respect to, any of KBK's capital stock (except for dividends or
distributions in shares of, or options, warrants or rights to subscribe for or
purchase shares of, its capital stock and conversions or exchanges of common
stock of one class into common stock of another class) or (ii) make any payment
of principal, interest or premium, if any, on or repay, repurchase or redeem
any debt securities (including guarantees of indebtedness for money borrowed)
of KBK that rank pari passu with or junior to the Debentures (other than (a)
any redemption, liquidation, interest, principal or guarantee payment by KBK
where the payment is made by way of securities (including capital stock) that
rank pari passu with or junior to the securities on which such, redemption,
liquidation, interest, principal or guarantee payment is being made; (b)
payments under the Guarantee; (c) purchases of Common Stock related to the
issuance of Common Stock under any of KBK's benefit plans for its directors,
officers or employees; (d) as a result of a reclassification of KBK's capital
stock or the exchange or conversion of one series or class of KBK's capital
stock for another series or class of KBK's capital stock; or (e) the purchase
of fractional interests in shares of KBK's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged). Prior to the termination of any such Extension Period,
KBK may further extend such Extension Period, provided that no Extension Period
may exceed 20 consecutive quarters or extend beyond the stated maturity of the
Debentures. Upon the termination of any such Extension Period and the payment
on the next Interest Payment Date coinciding with or next following the end of
such Extension Period (whichever is earliest) of all amounts then due to the
persons in whose names the Debentures are registered at the close of business
on the regular record date next preceding such Interest Payment Date, KBK may
elect to begin a new Extension Period. See "Description of the Debentures --
Option to Extend Interest Payment Period" and "Certain Federal Income Tax
Consequences -- Original Issue Discount."

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<PAGE> 47
KBK has no current intention of invoking an Extension Period.

Distributions with respect to the Trust Preferred Securities must be
paid on the dates payable to the extent that the Trust has funds legally
available for the payment of such distributions in the Property Account. The
funds of the Trust legally available for distribution to holders of the Trust
Preferred Securities will be limited to payments under the Debentures in which
the Trust will invest the proceeds from the issuance and sale of the Trust
Securities. See "Description of the Debentures." If KBK does not make interest
payments on such Debentures, the Property Trustee will not have funds legally
available to pay distributions on the Trust Preferred Securities. The payment
of distributions (if and to the extent the Trust has funds on hand legally
available for the payment of such distributions) is guaranteed by KBK as set
forth herein under the caption "Description of the Guarantee."

Distributions on the Trust Preferred Securities will be payable to the
holders thereof as they appear on the register of the Trust on the relevant
record dates, which shall be the fifteenth day (whether or not a Business Day)
of the month of the relevant Distribution Date. As long as the Trust Preferred
Securities remain in book-entry form, subject to any applicable laws and
regulations and the provisions of the Declaration, each such payment will be
made as described under the caption "-- Book-Entry Only Issuance -- The
Depository Trust Company."

TRUST SPECIAL EVENT EXCHANGE

At any time following the occurrence and the continuation of a Trust
Tax Event or a Trust Investment Company Event (each as defined herein), the
Regular Trustees shall direct the Property Trustee or such other person then
serving as exchange agent acting on behalf of the holders of the Trust
Preferred Securities (in such capacity, the "Exchange Agent") to exchange all
outstanding Trust Preferred Securities for Debentures and to dissolve the
Trust, provided that, in the case of a Trust Tax Event, KBK shall have the
right to direct that less than all, or none, of the Trust Preferred Securities
be so exchanged if and for so long as KBK shall have elected to pay any
Additional Sums such that the net amounts received by the holders of Trust
Preferred Securities not so exchanged in respect of distributions are not
reduced as a result of such Trust Tax Event, and shall not have revoked any
such election or failed to make such payments.

A "Trust Special Event" means a Trust Tax Event or a Trust Investment
Company Event. A "Trust Tax Event" means the delivery to the Property Trustee,
on behalf of the Trust, of an opinion of counsel, rendered by a law firm having
a national tax and securities practice (which opinion shall not have been
rescinded by such law firm), to the effect that, as a result of 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 affecting taxation, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
such pronouncement or decision is announced on or after the date of the
original issuance of the Trust Preferred Securities, there is more than an
insubstantial risk in each case after the date hereof that (i) the Trust is, or
will be within 90 days of the date thereof, subject to United States federal
income tax with respect to income received or accrued on the 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 KBK on such Debentures is not, or within 90 days
of the date thereof will not be, deductible by KBK, in whole or in part, for
United States federal income tax purposes. A "Trust Investment Company Event"
means the delivery to the Property Trustee, on behalf of the Trust, of an
opinion of counsel, rendered by a law firm having a recognized national tax and
securities practice and experienced in matters under the Investment Company Act
of 1940, as amended (the "Investment Company Act") (which opinion shall not
have been rescinded by such law firm), to the effect 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 within 90 days of the date
thereof considered an "investment company" that is required to be registered
under the Investment Company Act, which Change in 1940 Act Law becomes
effective on or after the date of the original issuance of the Trust Preferred
Securities.

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"Additional Sums" means the additional amounts (which shall constitute
part of the payments on the Debentures) as may be necessary in order that the
amount of distributions then due and payable by the Trust on the outstanding
Trust Securities shall not be reduced as a result of any additional taxes,
duties and other governmental charges to which the Trust has become subject as
a result of a Trust Tax Event.

Holders of Trust Preferred Securities, by purchasing such Trust
Preferred Securities, will be deemed to have agreed to be bound by these
exchange provisions in regard to the exchange of such Trust Preferred
Securities for Debentures on the terms described above. See "Risk Factors --
Special Event Exchange or Redemption."

DISTRIBUTION OF DEBENTURES

At any time, KBK will have the right to dissolve the Trust and, after
satisfaction of the liabilities of creditors of the Trust as provided by
applicable law, cause the Debentures to be distributed to the holders of the
Trust Preferred Securities in liquidation of the Trust. There can be no
assurance as to the market price for the Debentures distributed to the holders
of the Trust Preferred Securities after such a termination of the Trust. Under
current United States federal income tax law and interpretations and assuming,
as expected, the Trust is treated as a grantor trust, a distribution of the
Debentures should not be a taxable event to the Trust and holders of the Trust
Preferred Securities. Should there be a change in law, a change in legal
interpretation, a Trust Special Event or other circumstances, however, the
distribution could be a taxable event to holders of the Trust Preferred
Securities. See "Certain Federal Income Tax Consequences -- Redemption of Trust
Preferred Securities for Debentures or Cash Upon Liquidation of the Trust."

After the liquidation date fixed for any distribution of Debentures
for Trust Preferred Securities (i) such Trust Preferred Securities will no
longer be deemed to be outstanding, (ii) DTC or its nominee, as the record
holder of such Trust Preferred Securities, will receive a registered Global
Certificate or certificates representing the Debentures to be delivered upon
such distribution and (iii) any certificates representing such Trust Preferred
Securities not held by DTC or its nominee will be deemed to represent the
Debentures having a principal amount equal to the liquidation amount of such
Trust Preferred Securities, and bearing accrued and unpaid interest in an
amount equal to the accrued and unpaid distributions on such Trust Preferred
Securities until such certificates are presented to the Property Trustee for
transfer or reissuance.

OPTIONAL REDEMPTION

Except as provided under the caption "-- Mandatory Redemption" below,
the Trust Preferred Securities may not be redeemed by the Trust prior to
, 2001.

On and after such date, upon any permitted redemption by KBK of
Debentures, the Trust Preferred Securities are subject to redemption, in whole
or in part, at 100% of the liquidation amount thereof plus accrued and unpaid
distributions, if any, to the date fixed for redemption.

The Trust may not redeem the Trust Preferred Securities in part unless
all accumulated and unpaid distributions have been paid in full on all
outstanding Trust Preferred Securities. If fewer than all the outstanding Trust
Preferred Securities are to be redeemed, the Trust Preferred Securities to be
so redeemed will be selected as described under the captions "-- Book-Entry
Only Issuance -- The Depository Trust Company" and "-- Redemption Procedures."

MANDATORY REDEMPTION

Upon repayment of the Debentures at maturity or as a result of the
acceleration of the Debentures upon the occurrence of a Debenture Event of
Default, the proceeds from such repayment will be applied to redeem Trust

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Securities having an aggregate liquidation amount equal to the aggregate
principal amount of Debentures so repaid at a price equal to the respective
liquidation amount of the Trust Preferred Securities together with accumulated
and unpaid distributions on the Trust Securities to the date of redemption. In
the case of acceleration of the Debentures, the Trust Preferred Securities will
be redeemed only when the proceeds of repayment of the Debentures have actually
been received by the Trust. In addition, as described above under the caption
"-- Trust Special Event Exchange or Redemption," upon the occurrence of a Trust
Special Event, Trust Preferred Securities shall be exchanged for Debentures
unless, in the case of a Trust Tax Event, KBK shall have elected to (a) pay any
Additional Sums such that the net amounts of distributions received by the
holders of any Trust Preferred Securities not so exchanged are not reduced as a
result of such Tax Event and shall not have revoked any such election or failed
to make such payments or (b) redeem the Trust Preferred Securities as further
set forth under "-- Trust Special Event Exchange or Redemption" above.

REDEMPTION PROCEDURES

Trust Preferred Securities redeemed on the date fixed for redemption
shall be redeemed at the redemption price with the applicable proceeds from the
contemporaneous redemption of the Debentures. Redemptions of the Trust
Preferred Securities shall be made and the redemption price shall be payable on
the redemption date only to the extent that the Trust has funds on hand legally
available for the payment of such redemption price. See also "-- Subordination
of Trust Common Securities."

Notice of any redemption (optional or mandatory) of Trust Preferred
Securities (which notice will be irrevocable) will be given by the Property
Trustee to each record holder of Trust Preferred Securities that are being
redeemed not fewer than 30 nor more than 60 days prior to the redemption date.
If the Property Trustee or the organization then serving as the depository for
the Trust Preferred Securities (the "Clearing Agency") gives a notice of
redemption in respect of the Trust Preferred Securities and the Property
Trustee has received for deposit legally available funds sufficient for such
redemption by 10:00 a.m., New York City time, on the redemption date, then, by
12:00 noon, New York City time, on the redemption date, to the extent funds are
legally available, the Property Trustee will deposit irrevocably with DTC or
the Clearing Agency, as the case may be, funds sufficient to pay the applicable
redemption price and will give DTC or the Clearing Agency, as the case may be,
irrevocable instructions and authority to pay the redemption price to the
holders of such Trust Preferred Securities. See "-- Book-Entry Only Issuance --
The Depository Trust Company." If such Trust Preferred Securities are no longer
in book-entry form, the Property Trustee, to the extent funds are legally
available, will irrevocably deposit with the entity designated as paying agent
(the "Paying Agent") funds sufficient to pay the applicable redemption price
and will give the Paying Agent irrevocable instructions and authority to pay
the redemption price to the holders thereof upon surrender of their
certificates evidencing such Trust Preferred Securities. Notwithstanding the
foregoing, distributions payable on or prior to the redemption date for any
Trust Preferred Securities called for redemption shall be payable to the
holders of such Trust Preferred Securities as of the relevant record date for
the related Distribution Date. If notice of redemption shall have been given
and funds deposited as required, then upon the date of such deposit, all rights
of the holders of such Trust Preferred Securities so called for redemption will
cease (including the accumulation of distributions on the Trust Preferred
Securities), except the right of the holders of such Trust Preferred Securities
to receive the redemption price, but without interest on such redemption price,
and such Trust Preferred Securities will cease to be outstanding. In the event
that any date fixed for redemption of Trust Preferred Securities is not a
Business Day, then payment of the redemption price on such date will be made on
the next succeeding day which is a Business Day (and without any interest or
other payment in respect of any such delay), except that, if such Business Day
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 Trust Preferred Securities called for redemption is improperly
withheld or refused and not paid either by the Trust or by KBK pursuant to the
Guarantee as described under "Description of the Guarantee" herein,
distributions on such Trust Preferred Securities will continue to accumulate at
% per annum, from the redemption date originally established by the Trust to
the date such redemption price is actually paid, in which case the actual
payment date will be the date fixed for redemption for purposes of calculating
the redemption price.

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Subject to applicable law (including, without limitation, United
States federal securities law), KBK, or its subsidiaries, may at any time and
from time to time purchase outstanding Trust Preferred Securities by tender, in
the open market or by private agreement.

Payment of the redemption price on the Trust Preferred Securities and
any distribution or exchange of Debentures to holders of Trust Preferred
Securities shall be made to the applicable record holders thereof as they
appear on the register for such Trust Preferred Securities on the relevant
record date, which shall be the fifteenth day (whether or not a Business Day)
prior to the redemption date or liquidation date, as applicable.

If less than all of the Trust Securities are to be redeemed on a
redemption date, then the aggregate liquidation amount of such Trust Securities
to be redeemed shall be allocated pro rata among the Trust Securities. The
particular Trust Preferred Securities to be redeemed shall be selected not more
than 60 days prior to the redemption date by the Property Trustee from the
outstanding Trust Preferred Securities not previously called for redemption, by
lot or by such method as the Property Trustee shall deem fair and appropriate
and which may provide for the selection for redemption of portions (equal to
$25 or an integral multiple of $25 in excess thereof) of the liquidation amount
of the Trust Preferred Securities. The Property Trustee shall promptly notify
the Exchange Agent in writing of the Trust Preferred Securities selected for
redemption and, in the case of any Trust Preferred Securities selected for
partial redemption, the liquidation amount thereof to be redeemed; it being
understood that, in the case of Trust Preferred Securities held by DTC (or any
successor) or its nominee, the distribution of the proceeds of such redemption
will be made in accordance with the procedures of DTC or its nominee. For all
purposes of the Declaration, unless the context otherwise requires, all
provisions relating to the redemption of Trust Preferred Securities shall
relate, in the case of any Trust Preferred Securities redeemed or to be
redeemed only in part, to the portion of the aggregate liquidation amount of
Trust Preferred Securities which has been or is to be redeemed.

Notice of any redemption of Debentures will be mailed at least 30 days
but not more than 60 days before the redemption date to each holder of
Debentures to be redeemed at its registered address. Unless KBK defaults in
payment of the redemption price, on and after the redemption date interest
ceases to accrue on such Debentures or portions thereof called for redemption.

SUBORDINATION OF TRUST COMMON SECURITIES

Payment of distributions on, and the redemption price of, the Trust
Securities, as applicable, shall be made pro rata based on the liquidation
amount of such Trust Securities; provided, however, that if on any Distribution
Date or redemption date, a Debenture Event of Default or an event of default
under the Guarantee shall have occurred and be continuing, no payment of any
distribution on, or redemption price of, any of the Trust Common Securities,
and no other payment on account of the redemption, liquidation or other
acquisition of such Trust Common Securities, shall be made unless payment in
full in cash of all accumulated and unpaid distributions on all of the
outstanding Trust Preferred Securities for all distribution periods terminating
on or prior thereto, or in the case of payment of the redemption price the full
amount of such redemption price on all of the outstanding Trust Preferred
Securities then called for redemption, 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 redemption price of, the
Trust Preferred Securities then due and payable.

LIQUIDATION DISTRIBUTION UPON DISSOLUTION

In the event of any voluntary or involuntary dissolution of the Trust
(each, a "Liquidation"), the holders of the Trust Preferred Securities at that
time will be entitled to receive out of the assets of the Trust, after
satisfaction of liabilities to creditors of the Trust as provided by applicable
law, distributions in an amount equal to the aggregate of the stated
liquidation amount of $25 per Trust Preferred Security plus accumulated and
unpaid distributions thereon to the date of payment (the "Liquidation
Distribution"), unless, in connection with such Liquidation, after satisfaction
of liabilities to creditors of the Trust as provided by applicable law,
Debentures in an aggregate unpaid principal amount equal to the aggregate
stated liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued

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and unpaid interest equal to accumulated and unpaid distributions on, the Trust
Preferred Securities, have been distributed on a pro rata basis to the holders
of Trust Preferred Securities in exchange for such Trust Preferred Securities.
See "-- Distribution of Debentures."

If such Liquidation Distribution can be paid only in part because the
Trust has insufficient assets legally available to pay in full the aggregate
Liquidation Distribution, then the amounts payable directly by the Trust on the
Trust Preferred Securities shall be paid on a pro rata basis. KBK, as holder of
the Trust Common Securities, will be entitled to receive Liquidation
Distributions upon any such liquidation pro rata with the holders of the Trust
Preferred Securities, except that if a Debenture Event of Default or an event
of default under the Guarantee has occurred and is continuing, the Trust
Preferred Securities shall have a priority over the Trust Common Securities.

Pursuant to the Declaration, the Trust shall automatically dissolve
upon expiration of its term and shall dissolve on the first to occur of: (i)
certain events of bankruptcy, dissolution or liquidation of KBK; (ii) upon
receipt by the Property Trustee of written direction from KBK, as sponsor of
the Trust, to dissolve the Trust (which direction is optional and wholly within
the discretion of KBK, as sponsor); (iii) the redemption, conversion or
exchange of all of the Trust Securities; (iv) the entry by a court of competent
jurisdiction of an order for the dissolution of the Trust; and (v) the
occurrence of a Trust Special Event except in the case of a Trust Tax Event
following which KBK has elected to pay any Additional Sums such that the net
amount received by holders of Trust Preferred Securities in respect of
distributions is not reduced as a result of such Trust Tax Event and KBK has
not revoked any such election or failed to make such payment.

TRUST ENFORCEMENT EVENTS; NOTICE

Within 90 days after the occurrence of any Trust Enforcement Event
(that is, the occurrence of a Debenture Event of Default) or a default by KBK
in respect of any of its obligations under the Guarantee actually known to the
Property Trustee, the Property Trustee shall transmit notice of such event to
the holders of the Trust Preferred Securities, the Administrative Trustees and
KBK, as sponsor, unless such event shall have been cured or waived. KBK, as
sponsor, and the Administrative Trustees, on behalf of the Trust, are required
to file annually with the Property Trustee a certificate as to whether or not
they are in compliance with all the conditions and covenants applicable to them
under the Declaration.

If a Debenture Event of Default or a default under the Guarantee has
occurred and is continuing, the Trust Preferred Securities shall have a
preference over the Trust Common Securities upon dissolution of the Trust as
described above. See "-- Liquidation Distribution Upon Dissolution." The
existence of a Debenture Event of Default does not entitle the holders of Trust
Preferred Securities to accelerate the maturity thereof except to the extent
described below under the caption "-- Enforcement of Certain Rights by Holders
of Trust Preferred Securities."

In the case of any Debenture Event of Default, KBK as holder of the
Trust Common Securities will be deemed to have waived any right to act with
respect to any such Debenture Event of Default until such Debenture Event of
Default with respect to the Trust Preferred Securities has been cured, waived
or otherwise eliminated. Until any such Debenture Event of Default with respect
to the Trust Preferred Securities has been so cured, waived or otherwise
eliminated, the Property Trustee shall act solely on behalf of the holders of
the Trust Preferred Securities and not on behalf of KBK as holder of the Trust
Common Securities, and only the holders of the Trust Preferred Securities will
have the right to direct the Property Trustee to act on their behalf.

ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES

If a Debenture Event of Default has occurred and is continuing, the
Property Trustee, as the sole holder of the Debentures, shall have the right
under the Subordinated Indenture to declare the principal of and interest on
the Debentures immediately due and payable, and, accordingly, the holders of
Trust Preferred Securities would rely on the enforcement by the Property
Trustee of its rights as a holder of the Debentures against KBK. In addition,
the holders

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of a majority in aggregate liquidation amount of the Trust 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 Debentures. If the Property Trustee
fails to enforce its rights as holder of the Debentures after a request
therefor by a holder of Trust Preferred Securities, such holder may proceed to
enforce such rights directly against KBK. Notwithstanding the foregoing, if a
Debenture Event of Default has occurred and is continuing and such event is
attributable to the failure of KBK to pay interest or principal on the
Debentures on the date such interest or principal is otherwise payable (or in
the case of redemption, on the redemption date), then a holder of Trust
Preferred Securities may directly institute a Legal Action against KBK for
enforcement of payment to such holder of the principal of or interest on the
Debentures having a principal amount equal to the aggregate liquidation amount
of the Trust Preferred Securities of such holder on or after the respective due
date specified in the Debentures. In connection with such Legal Action, KBK
will be subrogated to the rights of such holder of Trust Preferred Securities
under the Declaration to the extent of any payment made by KBK to such holder
of Trust Preferred Securities in such Legal Action. The holders of Trust
Preferred Securities will not be able to exercise directly against KBK any
other remedy available to the Property Trustee unless the Property Trustee
first fails to do so.

MERGER OR CONSOLIDATION OF TRUSTEES

Any corporation into which the Property Trustee, Delaware Trustee or
any Administrative Trustee that is not a natural person may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Property Trustee,
Delaware Trustee or any Administrative Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of such Trustee, shall be the successor of such Trustee under the Declaration,
provided such corporation shall be otherwise qualified and eligible.

MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF THE TRUST

The Trust may not merge with or into, consolidate, amalgamate or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to any corporation or other person, except as
described below. The Trust may, with the consent of the Administrative
Trustees and without the consent of the Property Trustee or the holders of the
Trust Preferred Securities, merge with or into, consolidate, amalgamate, be
replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to a trust organized as such under the laws of any
state, provided that (i) if the Trust is not the survivor of such transaction,
such successor entity either (a) expressly assumes all of the obligations of
the Trust with respect to the Trust Securities or (b) substitutes for the Trust
Preferred Securities other securities having substantially the same terms as
the Trust Preferred Securities (the "Successor Securities") so long as the
Successor Securities rank the same as the Trust Preferred Securities rank in
priority with respect to distributions and payments upon liquidation,
redemption and otherwise; (ii) KBK expressly appoints a trustee of such
successor entity possessing the same powers and duties as the Property Trustee
as the holder of the Debentures; (iii) the Successor Securities are listed, or
any Successor Securities will be listed upon notification of issuance, on any
national securities exchange or other organization on which the Trust Preferred
Securities are then listed, if any; (iv) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not cause the
Trust Preferred Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating organization; (v)
such merger, consolidation, amalgamation, replacement, conveyance, transfer or
lease does not adversely affect the rights, preferences and privileges of the
holders of the Trust 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
identical to that of the Trust; (vii) prior to such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease, KBK has received an
opinion from nationally recognized independent counsel to the Trust experienced
in such matters to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease will not adversely
affect the rights, preferences and privileges of the holders of the Trust
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), (b) following such merger, consolidation, amalgamation,

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replacement, conveyance, transfer or lease, neither the Trust nor such
successor entity will be required to register as an investment company under
the Investment Company Act, and (c) following such merger, consolidation,
amalgamation or replacement, the Trust (or such successor entity) will not be
taxable as a corporation for United States federal income tax purposes; and
(viii) KBK or any permitted successor or assignee owns all of the trust common
securities of such successor entity and guarantees the obligations of such
successor entity under the Successor Securities at least to the extent provided
by the Guarantees. Notwithstanding the foregoing, the Trust shall not, except
with the consent of holders of 100% in aggregate liquidation amount of the
Trust Preferred Securities, consolidate, amalgamate, merge with or into, be
replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it, if such
consolidation, amalgamation, merger, replacement, conveyance, transfer or lease
would cause the Trust or the successor entity to be taxable as a corporation
for United States federal income tax purposes.

VOTING RIGHTS; AMENDMENT OF THE DECLARATION

Except as provided below and under the caption "Description of the
Guarantee -- Amendments and Assignment" and as otherwise required by law and
the Declaration, the holders of the Trust Preferred Securities will have no
voting rights.

The Declaration may be amended from time to time by a majority of the
Administrative Trustees (and in certain circumstances, the Property Trustee and
the Delaware Trustee), without the consent of the holders of the Trust
Preferred Securities, (i) to cure any ambiguity or to correct or supplement any
provisions in the Declaration that may be defective or inconsistent with any
other provision, or to amend any other provisions with respect to matters or
questions arising under the Declaration that shall not be inconsistent with the
other provisions of the Declaration; (ii) to add to the covenants, restrictions
or obligations of KBK; (iii) to conform to any change in the Investment Company
Act or written change in interpretation or application of the rules and
regulations promulgated thereunder by any legislative body, court, government
agency or regulatory authority; (iv) to conform to any change in the Trust
Indenture Act or written change in interpretation or application of the rules
and regulations promulgated thereunder by any legislative body, court,
government agency or regulatory authority; or (v) to modify, eliminate or add
to any provision of the Declaration to such extent as may be necessary;
provided, however, that such amendments do not have a material adverse effect
on the rights, preferences or privileges of any holder of Trust Securities, and
any amendments of the Declaration shall become effective when notice thereof is
given to the holders of Trust Securities. Notwithstanding the foregoing, if
any proposed amendment provides for, or the Administrative 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 aggregate liquidation amount of the Trust Securities
affected thereby; provided that if any amendment or proposal referred to in
clause (i) above would adversely affect only the Trust Preferred Securities or
the Trust 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 aggregate liquidation
amount of such class of the Trust Securities.

No amendment or modification may be made to the Declaration if such
amendment or modification would (i) cause the Trust to fail to be classified as
a grantor trust for United States federal income tax purposes, (ii) cause the
Trust to be taxable as a corporation for such purposes, (iii) reduce or
otherwise adversely affect the powers of the Property Trustee in contravention
of the Trust Indenture Act or (iv) cause the Trust to be deemed an "investment
company" which is required to be registered under the Investment Company Act.

Subject to the requirement of the Property Trustee obtaining the
opinion described in the last sentence of this paragraph, the holders of a
majority in aggregate liquidation amount of Trust 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

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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, as holder of the Debentures, (i) to exercise the remedies available to
it under the Subordinated Indenture as holder of the Debentures and (ii) to
consent to any amendment, modification, or termination of the Subordinated
Indenture or the Debentures where such consent shall be required; provided,
however, that where a consent or action under the Subordinated Indenture would
require the consent or act of the holders of more than a majority of the
aggregate principal amount of Debentures affected thereby, only the holders of
the percentage of the aggregate liquidation amount of the Trust Preferred
Securities which is at least equal to the percentage required under the
Subordinated Indenture may direct the Property Trustee to give such consent or
take such action on behalf of the Trust; provided, further, however, that under
certain circumstances the Property Trustee shall have the right to decline to
follow any such direction. The Property Trustee shall notify all holders of the
Trust Preferred Securities of any notice of any Trust Enforcement Event
received from KBK with respect to the Debentures. Except with respect to
directing the time, method and place of conducting a proceeding for a remedy as
described above, the Property Trustee shall be under no obligation to take any
of the actions described in clauses (i) or (ii) 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 be taxable as a corporation for
United States federal income tax purposes and that after such action each
holder of Trust Securities will continue to be treated as owning an undivided
beneficial ownership interest in the Debentures.

A waiver of a Debenture Event of Default will constitute a waiver of
the corresponding Trust Enforcement Event. Any required approval or direction
of holders of Trust Preferred Securities may be given at a separate meeting of
holders of Trust Preferred Securities convened for such purpose, at a meeting
of all of the holders of Trust Securities or pursuant to written consent. The
Administrative Trustees will cause a notice of any meeting at which holders of
Trust 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 Trust 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 Trust Preferred Securities will
be required for the Trust to redeem and cancel the Trust Preferred Securities
in accordance with the Declaration.

Notwithstanding that holders of Trust Preferred Securities are
entitled to vote or consent under any of the circumstances described above, any
of the Trust Preferred Securities that are beneficially owned at such time by
KBK or any entity directly or indirectly controlled by, or under direct or
indirect common control with, KBK shall not be entitled to vote or consent and
shall, for purposes of such vote or consent, be treated as if such Trust
Preferred Securities were not outstanding, except for Trust Preferred
Securities purchased or acquired by KBK or its affiliates in connection with
transactions effected by or for the account of customers of KBK or any of its
subsidiaries or in connection with the distribution or trading of such Trust
Preferred Securities; provided, however, that persons (other than affiliates of
KBK) to whom KBK or any of its subsidiaries have pledged Trust Preferred
Securities may vote or consent with respect to such pledged Trust Preferred
Securities pursuant to the terms of such pledge.

The procedures by which holders of Trust Preferred Securities may
exercise their voting rights are described below. See "-- Book-Entry Only
Issuance -- The Depository Trust Company."

Holders of the Trust Preferred Securities will have no rights to
appoint or remove the Regular Trustees or the Delaware Trustee, who may be
appointed, removed or replaced solely by KBK, as the holder of all the Trust
Common Securities, provided that, upon the occurrence and during the
continuance of a Trust Enforcement Event, the Property Trustee may be removed
and a successor appointed only by the holders of a majority in aggregate
liquidation amount of the Trust Preferred Securities.

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BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY

The Depository Trust Company ("DTC") will act as securities depository
(the "Depository") for the Trust Preferred Securities. The Trust Preferred
Securities will be issued only as fully-registered securities registered in the
name of Cede & Co. (DTC's nominee). One or more fully-registered global Trust
Preferred Securities certificates ("Global Certificates"), representing the
total aggregate number of Trust Preferred Securities, will be issued and will
be deposited with DTC.

DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of section 17A of the Exchange
Act. 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 American Stock Exchange, the New
York Stock Exchange, 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 Trust Preferred Securities within the DTC system must be
made by or through Participants, which will receive a credit for the Trust
Preferred Securities on DTC's records. The ownership interest of each actual
purchaser of Trust 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 confirmations 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 Trust Preferred Securities. Transfers of ownership interests
in the Trust 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 Trust Preferred Securities, except in the event that use
of the book-entry system for the Trust Preferred Securities is discontinued.

DTC has no knowledge of the actual Beneficial Owners of the Trust
Preferred Securities; DTC's records reflect only the identity of the
Participants to whose accounts such Trust 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 Certificate, DTC or such nominee, as the case may be, will be considered
the sole owner or holder of the Trust Preferred Securities represented thereby
for all purposes under the Declaration and the Trust Preferred Securities. No
Beneficial Owner of an interest in a Global Certificate 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 Trust Preferred Securities (including the presentation
of Trust 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 Certificates are credited and only in respect of such portion of the
aggregate liquidation amount of Trust Preferred Securities as to which such
Participant or Participants has or have given such direction. Also, if there is
a Trust Enforcement Event under the Trust Preferred Securities, DTC will
exchange the Global Certificates for Certificated Securities, which it will
distribute to its Participants in accordance with its customary procedures.

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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 Trust Preferred Securities held
in book-entry form will be sent to Cede & Co. If less than all of the Trust
Preferred Securities are being redeemed, DTC will determine the amount of the
interest of each Participant to be redeemed in accordance with its procedures.

Although voting with respect to the Trust Preferred Securities is
limited, in those cases where a vote is required, neither DTC nor Cede & Co.
will itself consent or vote with respect to Trust 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 Trust
Preferred Securities are allocated on the record date (identified in a listing
attached to the Omnibus Proxy).

Distributions on the Trust Preferred Securities held in book-entry
form 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 payments 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 any distributions to DTC is the
responsibility of the Trust, disbursement of such payments to Participants is
the responsibility of DTC, and disbursement of such payments to the Beneficial
Owners is the responsibility of Participants and Indirect Participants.

Except as described, a Beneficial Owner of an interest in a Global
Certificate will not be entitled to receive physical delivery of Trust
Preferred Securities. Accordingly, each Beneficial Owner must rely on the
procedures of DTC to exercise any rights under the Trust Preferred Securities.

Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Certificates among Participants
of DTC, 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 nor the Trust 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 Trust Preferred Securities at any time by giving
notice to the Trust. Under such circumstances in the event that a successor
securities depository is not obtained, Trust Preferred Security certificates
are required to be printed and delivered to the Property Trustee.
Additionally, the Trust (with the consent of the Company) may decide to
discontinue use of the system of book-entry transfers through DTC or any
successor depository. In that event, certificates for the Trust Preferred
Securities will be printed and delivered to the Property Trustee. In each of
the above circumstances, the Company will appoint a Paying Agent with respect
to the Trust Preferred Securities.

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 Trust
Preferred Securities as represented by a Global Certificate.

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PAYMENT

Payments in respect of the Trust Preferred Securities represented by
the Global Certificates shall be made to DTC, which shall credit the relevant
accounts at DTC on the scheduled payment dates or, in the case of certificated
securities, if any, such payments shall be made by check mailed to the address
of the holder entitled thereto as such address shall appear on the books and
records of the Trust. The Paying Agent shall be permitted to resign as Paying
Agent upon 30 days written notice to the Administrative Trustees. In the event
that The First National Bank of Chicago shall no longer be the Paying Agent,
the Administrative Trustees shall appoint a successor to act as Paying Agent
(which shall be a bank or trust company).

REGISTRAR, TRANSFER AGENT, AND PAYING AGENT

The Property Trustee will act as Registrar, Transfer Agent and Paying
Agent for the Trust Preferred Securities.

Registration of transfers of Trust 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 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 Trust Preferred Securities after such Trust Preferred
Securities have been called for redemption.

INFORMATION CONCERNING THE PROPERTY TRUSTEE

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 Trust Preferred Securities, unless
offered reasonable indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The holders of Trust 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 Trust Enforcement Event.

GOVERNING LAW

The Declaration and the Trust 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 United States 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 Trust Preferred
Securities.

Holders of the Trust Preferred Securities have no preemptive rights.

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DESCRIPTION OF THE GUARANTEE

The Guarantee will be executed and delivered by KBK concurrently with
the issuance by the Trust of the Trust Preferred Securities for the benefit of
the holders from time to time of such Trust Preferred Securities. The First
National Bank of Chicago will act as trustee ("Trust Guarantee Trustee") under
the Guarantee. This summary of certain provisions of the Guarantee does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, all of the provisions of the Guarantee (a copy of which is filed
as an exhibit to the registration statement of which this Prospectus is a part,
and a copy of which may be obtained from the Trust Guarantee Trustee in New
York, New York). The Trust Guarantee Trustee will hold the Guarantee for the
benefit of the holders of the Trust Preferred Securities.

GENERAL

KBK will irrevocably agree to pay in full on a subordinated basis, to
the extent set forth herein, the Guarantee Payments (as defined herein) to the
holders of the Trust Preferred Securities, as and when due, regardless of any
defense, right of set-off or counterclaim that the Trust may have or assert
other than the defense of payment. The following payments with respect to the
Trust Preferred Securities, to the extent not paid by or on behalf of the Trust
(the "Guarantee Payments"), will be subject to the Guarantee: (i) any
accumulated and unpaid distributions required to be paid on the Trust Preferred
Securities, to the extent that the Trust has funds on hand legally available
therefor at such time, (ii) the redemption price with respect to any Trust
Preferred Securities called for redemption to the extent that the Trust has
funds on hand legally available therefor at such time, or (iii) upon a
voluntary or involuntary dissolution, winding up or liquidation of the Trust
(unless the Debentures are distributed to holders of the Trust Preferred
Securities), the lesser of (a) the Liquidation Distribution, to the extent that
the Trust has funds on hand legally available therefor at such time, and (b)
the amount of assets of the Trust remaining available for distribution to
holders of Trust Preferred Securities. KBK's obligation to make a Guarantee
Payment may be satisfied by direct payment of the required amounts by KBK to
the holders of the Trust Preferred Securities or by causing the Trust to pay
such amounts to such holders.

The Guarantee will be an irrevocable guarantee on a subordinated basis
of the Trust's obligations under the Trust Preferred Securities, but will apply
only to the extent that the Trust has funds legally sufficient to make such
payments, and is not a guarantee of collection. If KBK does not make interest
payments on the Debentures held by the Trust, the Trust will not be able to pay
distributions on the Trust Preferred Securities and will not have funds legally
available therefor.

KBK has, through the Guarantee, the Declaration, the Debentures and
the Subordinated Indenture, taken together, fully, irrevocably and
unconditionally guaranteed all of the Trust's obligations under the Trust
Preferred Securities. No single document standing alone or operating in
conjunction with fewer than all of the other documents constitutes such
guarantee. It is only the combined operation of these documents that has the
effect of providing a full, irrevocable and unconditional guarantee of the
Trust's obligations under the Trust Preferred Securities. See "Relationship
Among the Trust Preferred Securities, the Debentures and the Guarantee."

The Company has also agreed separately to irrevocably and
unconditionally guarantee the obligations of the Trust with respect to the
Trust Common Securities to the same extent as the Guarantee, except that upon
the occurrence and during the continuation of a Trust Enforcement Event or a
default under the Guarantee, holders of Trust Preferred Securities shall have
priority over holders of Trust Common Securities with respect to distributions
and payments on liquidation, redemption or otherwise.

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STATUS OF THE GUARANTEE

The Guarantee will constitute an unsecured obligation of KBK and will
rank subordinate and junior in right of payment to all other liabilities of KBK
(except the guarantee of the Trust Common Securities) and will rank pari passu
with the most senior preferred stock, if any, issued from time to time by KBK
and senior to the Common Stock of KBK. The terms of the Trust Preferred
Securities provide that each holder by acceptance thereof, consents and agrees
to the subordination and other provisions of the Guarantee.

The Guarantee will constitute a guarantee of payment and not of
collection (i.e., the guaranteed party may institute a legal proceeding
directly against the Guarantor to enforce its rights under the Guarantee
without first instituting a legal proceeding against any other person or
entity). The Guarantee will be held for the benefit of the holders of the Trust
Preferred Securities. The Guarantee will not be discharged except by payment of
the Guarantee Payments in full to the extent not paid by the Trust or upon
distribution of the Debentures to the holders of the Trust Preferred
Securities. The Guarantee does not place a limitation on the amount of
additional indebtedness that may be incurred by KBK or any of its subsidiaries.

AMENDMENTS AND ASSIGNMENT

Except with respect to any changes which do not materially adversely
affect the rights of holders of the Trust Preferred Securities (in which case
no vote will be required), the Guarantee may not be amended without the prior
approval of the holders of not less than a majority in aggregate liquidation
amount of the outstanding Trust Preferred Securities. The manner of obtaining
any such approval will be as set forth under "Description of the Trust
Preferred Securities -- Voting Rights; Amendment of the Declaration." All
guarantees and agreements contained in the Guarantee shall bind the successors,
assigns, receivers, trustees and representatives of KBK and shall inure to the
benefit of the holders of the Trust Preferred Securities then outstanding.

CERTAIN COVENANTS OF KBK

KBK will covenant in the Guarantee that if and so long as (i) the
Trust is the holder of all the Debentures, (ii) a Trust Tax Event in respect of
the Trust has occurred and is continuing, and (iii) KBK has elected, and has
not revoked such election, to pay Additional Sums in respect of the Trust
Securities, KBK will pay to the Trust such Additional Sums. KBK will also
covenant that it will not, and it will not cause any of its subsidiaries to,
(I) declare or pay any dividends on, make distributions with respect to, or
redeem, purchase or acquire, or make a liquidation payment with respect to, any
of KBK's capital stock (except for dividends or distributions in shares of, or
options, warrants or rights to subscribe for or purchase shares of, its capital
stock and conversions or exchanges of common stock of one class into common
stock of another class) or (II) make any payments of principal, interest or
premium, if any, on or repay or repurchase or redeem any debt securities
(including guarantees of indebtedness for money borrowed) of KBK that rank pari
passu with or junior to the Debentures (other than (a) any redemption,
liquidation, interest, principal or guarantee payment by KBK where the payment
is made by way of securities (including capital stock) that rank pari passu
with or junior to the securities on which such dividend, redemption, interest,
principal or guarantee payment is being made; (b) payments under the
Guarantees; (c) purchases of Common Stock related to the issuance of Common
Stock under any of KBK's benefit plans for its directors, officers or
employees; (d) as a result of a reclassification of KBK's capital stock or the
exchange or conversion of one series or class of KBK's capital stock for
another series or class of KBK's capital stock; and (e) the purchase of
fractional interests in shares of KBK's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged), if at such time (i) for any distribution period, full
distributions on a cumulative basis on any Trust Securities have not been paid,
(ii) there shall have occurred and be continuing any Debenture Event of Default
or any event of which KBK has actual knowledge that, with the giving of notice
or the lapse of time, or both, would constitute a Debenture Event of Default,
(iii) KBK shall be in default of any obligations under the Guarantees, or (iv)
KBK shall have given notice of its selection of an Extension Period as provided
in the Subordinated Indenture with respect to the Debentures and shall not have
rescinded such notice, or such Extension Period, or any extension thereof,
shall be continuing.

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For so long as Trust Preferred Securities are outstanding, KBK will
covenant (i) to maintain directly or indirectly 100% ownership of the Trust
Common Securities, provided that certain successors which are permitted
pursuant to the Subordinated Indenture may succeed to KBK's ownership of the
Trust Common Securities and (ii) not to voluntarily terminate, wind-up or
liquidate the Trust, except in connection with (a) a distribution of the
Debentures to the holders of the Trust Securities in liquidation of the Trust,
(b) the redemption of all Trust Securities or (c) certain mergers,
consolidations or amalgamations permitted by the Declaration. KBK will also
covenant to use its commercially reasonable efforts, consistent with the terms
and provisions of the Declaration, to cause the Trust to remain classified as a
grantor trust and not taxable as a corporation for United States federal income
tax purposes. As part of the Guarantee, KBK will agree that it will honor all
obligations described therein relating to the exchange of the Trust Securities
for Debentures.

GUARANTEE EVENTS OF DEFAULT

An event of default under the Guarantee will occur upon the failure of
KBK to perform any of its payment or other obligations thereunder. The holders
of a majority in aggregate liquidation amount of the Trust Preferred Securities
have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trust Guarantee Trustee in respect
of the Guarantee or to direct the exercise of any trust or power conferred upon
the Trust Guarantee Trustee under the Guarantee.

If the Trust Guarantee Trustee fails to enforce the Guarantee, any
holder of the Trust Preferred Securities may institute a legal proceeding
directly against KBK to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Trust, the Trust Guarantee Trustee
or any other person or entity. In addition, any record holder of Trust
Preferred Securities shall have the right, which is absolute and unconditional,
to proceed directly against KBK to obtain Guarantee Payments, without first
waiting to determine if the Trust Guarantee Trustee has enforced the Guarantee
or instituting a legal proceeding against the Trust, the Trust Guarantee
Trustee or any other person or entity. KBK has waived any right or remedy to
require that any action be brought first against the Trust, or any other person
or entity, before proceeding directly against KBK.

KBK, as guarantor, is required to file annually with the Trust
Guarantee Trustee a certificate as to whether or not KBK is in compliance with
all the conditions and covenants applicable to it under the Guarantee.

INFORMATION CONCERNING THE TRUST GUARANTEE TRUSTEE

The Trust Guarantee Trustee, other than during the occurrence and
continuance of a default by KBK in performance of the Guarantee, undertakes to
perform only such duties as are specifically set forth in the Guarantee and,
after default with respect to the Guarantee, must exercise the same degree of
care and skill as a prudent person would exercise or use under the
circumstances in the conduct of his or her own affairs. Subject to this
provision, the Trust 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
Trust Preferred Securities unless it is offered reasonable indemnity against
the costs, expenses and liabilities that might be incurred thereby.

TERMINATION OF THE GUARANTEE

The Guarantee will terminate and be of no further force and effect (i)
upon full payment of the redemption price of the Trust Preferred Securities,
(ii) upon distribution of Debentures to the holders of all of the Trust
Preferred Securities in exchange for all of the Trust Preferred Securities or
(iii) upon full payment of the amounts payable upon liquidation of the Trust.
The Guarantee will continue to be effective or will be reinstated, as the case
may be, if at any time any holder of Trust Preferred Securities must restore
payment of any sums under such Trust Preferred Securities or the Guarantee.

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GOVERNING LAW

The Guarantee will be governed by and construed in accordance with the
laws of the State of New York.

DESCRIPTION OF THE DEBENTURES

The Debentures are to be issued under a Subordinated Indenture, as
supplemented by the First Supplemental Indenture (collectively, the
"Subordinated Indenture"), between KBK and The First National Bank of Chicago,
as trustee (the "Subordinated Debt Trustee"), a copy of which is filed as an
exhibit to the registration statement of which this Prospectus is a part, and
copies of which may be obtained from the Subordinated Debt Trustee at its
corporate trust office in New York, New York. The terms of the Debentures
include those stated in the Subordinated Indenture and made a part thereof by
reference to the Trust Indenture Act in effect on the date of the Subordinated
Indenture. This summary of certain terms of the Debentures and the Subordinated
Indenture does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the Subordinated Indenture, including the
definitions of certain terms therein, and the Trust Indenture Act. Capitalized
terms used in this section and not otherwise defined in this section have the
respective meanings assigned to them in the Subordinated Indenture.

GENERAL

The Debentures will be unsecured and will rank junior and be
subordinate in right of payment to all Senior Debt of KBK. The Debentures will
be limited in aggregate principal amount to $ million ($ million if the
Underwriters' over-allotment option is exercised in full), such amount being
the sum of the aggregate stated liquidation amount of the Trust Preferred
Securities and capital contributed by KBK in exchange for the Trust Common
Securities. The Subordinated Indenture does not limit the incurrence or
issuance of other secured or unsecured debt of KBK, whether under the
Subordinated Indenture or any existing or other indenture that KBK may enter
into in the future or otherwise. See "-- Subordination" below.

Concurrently with the issuance of the Trust Preferred Securities, the
Trust will invest the proceeds thereof and the consideration paid by KBK for
the Trust Common Securities in the Debentures. The Debentures will be in the
principal amount equal to the aggregate stated liquidation amount of the Trust.

The Debentures are not subject to any sinking fund provision. The
entire principal amount of the Debentures will mature, and become due and
payable, together with any accrued and unpaid interest thereon, on
, 2028.

INTEREST

The Debentures will bear interest at the annual rate of % per
annum, payable quarterly in arrears on , , and
of each year, commencing on , 1999 (each, an "Interest Payment
Date"), to the person in whose name each Debenture is registered at the close
of business on the fifteenth day (whether or not a Business Day) of the month
of such Interest Payment Date (the "Regular Record Date"), subject to certain
exceptions. It is anticipated that, until the Liquidation, if any, of the
Trust, each Debenture will be held in the name of the Property Trustee in trust
for the benefit of the holders of the Trust Securities. The amount of interest
payable for any period will be computed on the basis of a 360-day year of twelve
30-day months. In the event that any date on which interest is payable on the
Debentures is not a Business Day, then payment of the interest payable on such
date will be made on the next succeeding day that is a Business Day (and without
any interest or other payment in respect of any such delay), except that if such
Business Day is in the next succeeding calendar year, then such payment shall be
made on the immediately preceding Business Day, in each case with the same force
and effect as if made on such Interest Payment Date. Accrued interest that is
not paid on the applicable Interest Payment Date will bear additional interest
on the amount thereof (to the extent permitted by law) at % per annum,
compounded quarterly. The term "interest" as used herein shall include quarterly
interest payments, interest on quarterly interest payments not paid on the
applicable Interest Payment Date and Additional Sums, as applicable.

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GLOBAL SECURITIES

If distributed to holders of the Trust 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 Trust Special
Event, the Debentures will be issued in the same form as the Trust Preferred
Securities that such Debentures replace. Any Global Certificate will be
replaced by one or more global securities (each, a "Global Security")
registered in the name of the depository or its nominee. Except under the
limited circumstances described below, the Debentures represented by the Global
Security will not be exchangeable for, and will not otherwise be issuable as,
Debentures in definitive form. The Global Securities described above may not be
transferred except by the depository to a nominee of the depository or by a
nominee of the depository to the depository or another nominee of the
depository or to a successor depository or its nominee.

Except as provided below, owners of beneficial interests in a Global
Security will not be entitled to receive physical delivery of Debentures in
definitive form and will not be considered the holders thereof for any purpose
under the Subordinated Indenture, and no Global Security representing
Debentures shall be exchangeable, except for another Global Security of like
denomination and tenor to be registered in the name of the depository or its
nominee or to a successor depository or its nominee. Accordingly, each
beneficial owner of Trust Preferred Securities must rely on the procedures of
DTC, or if such person is not a Participant, on the procedures of the
Participant through which such person owns its interest to exercise any rights
of a holder under the Subordinated Indenture.

If Debentures are distributed to holders of Trust Preferred Securities
in liquidation of such holders' interests in the Trust and a Global Security is
issued, DTC will act as securities depository for the Debentures represented by
such Global Security. For a description of DTC and the specific terms of the
depository arrangements, see "Description of the Trust 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 Trust Preferred Securities apply in all material respects to any
debt obligations represented by one or more Global Securities held by DTC. KBK
may appoint a successor to DTC or any successor depository in the event DTC or
such depository is unable or unwilling to continue as a depository for the
Global Securities.

None of KBK, the Subordinated Debt Trustee, any Paying Agent or the
Securities Registrar will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial ownership
interests of the Global Security representing such Debentures or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.

A Global Security shall be exchangeable for Debentures registered in
the names of persons other than DTC or its nominee only if (i) DTC notifies KBK
that it is unwilling or unable to continue as a depository for such Global
Debenture and no successor depository shall have been appointed by KBK within
90 days, or if at any time DTC ceases to be a "clearing agency" registered
under the Exchange Act at a time when DTC is required to be so registered to
act as such depository and no such successor depository has been appointed
within 90 days by the Company, (ii) KBK in its sole discretion determines that
such Global Security shall be so exchangeable, or (iii) there shall have
occurred and be continuing an Event of Default with respect to such Global
Security. Any Global Security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for definitive certificates registered in such
names as DTC shall direct. It is expected that such instructions will be based
upon directions received by DTC from its Participants with respect to ownership
of beneficial interests in such Global Security. In the event that Debentures
are issued in definitive form, such Debentures will be in denominations of $25
and integral multiples thereof and may be transferred or exchanged at the
offices described in "-- Payment and Paying Agent" below.

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PAYMENT AND PAYING AGENT

Payments on Debentures represented by a Global Security will be made
to DTC, as the depository for the Debentures. In the event Debentures are
issued in definitive form, principal of and any interest on Debentures will be
payable, the transfer of the Debentures will be registrable, and the Debentures
will be exchangeable for Debentures of other denominations of a like aggregate
principal amount at the corporate office of the Subordinated Debt Trustee in
the City of New York or at the office of such Paying Agent or Paying Agents as
KBK may designate, except that at the option of KBK payment of any interest may
be made (i) by check mailed to the address of the Person entitled thereto as
such address shall appear in the Security Register or (ii) by wire transfer to
an account maintained by the Person entitled thereto as specified in the
Security Register, provided that proper transfer instructions have been
received by the Regular Record Date. Payment of any interest on Debentures will
be made to the Person in whose name such Debentures are registered at the close
of business on the Regular Record Date for such interest, except in the case of
Defaulted Interest. The Regular Record Date for the interest payable on any
Interest Payment Date shall be the fifteenth day (whether or not a Business
Day) of the month of such Interest Payment Date. KBK may at any time designate
additional Paying Agents or rescind the designation of any Paying Agent.

Any monies deposited with the Subordinated Debt Trustee or any Paying
Agent, or then held by KBK in trust, for the payment of the principal of or
interest on any Debentures and remaining unclaimed for two years after such
principal or interest has become due and payable shall, at the request of KBK,
be repaid to KBK and the holder of such Debentures shall thereafter look, as a
general unsecured creditor, only to KBK for payment thereof.

OPTION TO EXTEND INTEREST PAYMENT PERIOD

During any such Extension Period, any default under either of the
Guarantees or any Debenture Event of Default (or there shall have occurred and
be continuing any event of which KBK has actual knowledge that, with the giving
of notice or lapse of time, or both, would constitute a Debenture Event of
Default), KBK shall not, and shall not permit any subsidiary to, (i) declare or
pay any dividends or distributions on, or redeem, purchase or acquire, or make
a liquidation payment with respect to, any of KBK's capital stock (except for
dividends or distributions in shares of, or options, warrants or rights to
subscribe for or purchase shares of, its capital stock and conversions or
exchanges of common stock of one class into common stock of another class) or
(ii) make any payment of principal, interest or premium, if any, on or repay,
repurchase or redeem any debt securities (including guarantees of indebtedness
for money borrowed) of KBK that rank pari passu with or junior to the
Debentures (other than (a) any redemption, liquidation, interest, principal or
guarantee payment by KBK where the payment is made by way of securities
(including capital stock) that rank pari passu with or junior to the securities
on which such dividend, redemption, interest, principal or guarantee payment is
being made; (b) payments under the Guarantees; (c) purchases of Common Stock
related to the issuance of Common Stock under any of KBK's benefit plans for
its directors, officers or employees; (d) as a result of a reclassification of
KBK's capital stock or the exchange or conversion of one series or class of
KBK's capital stock for another series or class of KBK's capital stock; or (e)
the purchase of fractional interests in shares of KBK's capital stock pursuant
to the conversion or exchange provisions of such capital stock or the security
being converted or exchanged).

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Prior to the termination of any such Extension Period, KBK may further
extend the Interest Payment Period, provided that no Extension Period may
exceed 20 consecutive quarters or extend beyond the stated maturity of the
Debentures. Upon the termination of any such Extension Period and the payment
of all amounts then due on any Interest Payment Date, KBK may elect to begin a
new Extension Period subject to the above requirements. No interest shall be
due and payable during an Extension Period, except at the end thereof. KBK
shall give the Property Trustee and the Subordinated Debt Trustee notice of its
election to begin any Extension Period at least one Business Day prior to the
earlier of (i) the record date for the date distributions on the Trust
Preferred Securities (or, if no Trust Preferred Securities are outstanding, for
the date interest on the Debentures) would have been payable except for the
election to begin such Extension Period and (ii) the date the Property Trustee
is (or, if no Trust Preferred Securities are outstanding, the Subordinated Debt
Trustee is) required to give notice to the American Stock Exchange or other
applicable self-regulatory organization or to holders of such Trust Preferred
Securities (or, if no Trust Preferred Securities are outstanding, to the
holders of such Debentures) of such election. The Subordinated Debt Trustee and
the Property Trustee shall give notice of KBK's election to begin an Extension
Period to the holders of the Debentures and the Trust Preferred Securities,
respectively.

MANDATORY REPAYMENT

Upon repayment of the Debentures at maturity or as a result of
acceleration upon the occurrence of a Debenture Event of Default, KBK will pay
a price equal to 100% of the principal amount of the Debentures, together with
any accrued and unpaid interest thereon. Any payment pursuant to this provision
shall be made prior to 12:00 noon, New York City time, on the date of maturity
or acceleration or at such other time on such earlier date as the parties
thereto shall agree. The Debentures are not entitled to the benefit of any
sinking fund or, except as set forth above or as a result of acceleration, any
other provision for mandatory prepayment.

OPTIONAL REDEMPTION

On and after , 2001 and subject to the next succeeding
sentence, KBK will have the right, at any time and from time to time, to redeem
the Debentures, in whole or in part, upon notice given as provided below,
beginning on at 100% of the principal amount of
the Debentures being redeemed, together with any accrued but unpaid interest on
the portion being redeemed.

For so long as the Trust is the holder of all the outstanding
Debentures, the proceeds of any such redemption will be used by the Trust to
redeem Trust Securities in accordance with their terms. KBK may not redeem the
Debentures in part unless all accrued and unpaid interest has been paid in full
on all outstanding Debentures. See "Description of the Trust Preferred
Securities -- Optional Redemption."

If, at the time of any optional redemption or mandatory repayment of
the Debentures, the Trust Securities remain outstanding, the redemption or
repayment proceeds shall be used to redeem the Trust Securities.

REDEMPTION PROCEDURES

Notices of any redemption of the Debentures and the procedures for
such redemption shall be as provided with respect to the Trust Preferred
Securities under the caption "Description of the Trust Preferred Securities --
Redemption Procedures." Notice of any redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each holder of
Debentures to be redeemed at its registered address. Unless KBK defaults in
payment of the redemption price, on and after the redemption date interest
ceases to accrue and conversion rights cease on such Debentures or portions
thereof called for redemption.

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DISTRIBUTION OF DEBENTURES

At any time, KBK will have the right to dissolve the Trust and cause
the Debentures to be distributed to the holders of the Trust Preferred
Securities in liquidation of the Trust after satisfaction of liabilities to
creditors of the Trust as provided by applicable law. If distributed to holders
of Trust Preferred Securities in liquidation, the Debentures will initially be
issued in the form of one or more Global Securities and DTC, or any successor
depository for the Trust Preferred Securities, will act as depository for the
Debentures. It is anticipated that the depository arrangements for the
Debentures would be substantially identical to those in effect for the Trust
Preferred Securities. There can be no assurance as to the market price of any
Debentures that may be distributed to the holders of Trust Preferred
Securities. For a description of DTC and the terms of the depository
arrangement, see "Description of the Trust Preferred Securities -- Book-Entry
Only Issuance -- The Depository Trust Company."

CERTAIN COVENANTS

For a description of certain covenants by KBK that apply if (a) a
Debenture Event of Default has occurred and is continuing (or there shall have
occurred and be continuing any event of which KBK has actual knowledge that,
with the giving of notice or lapse of time, or both, would constitute a
Debenture Event of Default), (b) KBK is in default of its obligations under the
Guarantee or the guarantee of the Trust Common Securities or (c) KBK shall have
given notice of its election to defer payments of interest on the Debentures by
extending the Interest Payment Period, see "-- Option to Extend Interest
Payment Period."

So long as Trust Preferred Securities remain outstanding KBK will
covenant (i) to maintain directly or indirectly 100% ownership of the Trust
Common Securities, provided that certain successors which are permitted
pursuant to the Subordinated Indenture may succeed to KBK's ownership of the
Trust Common Securities; and (ii) not to voluntarily terminate, wind-up or
liquidate the Trust, except in connection with (A) a distribution of the
Debentures to the holders of Trust Securities in liquidation of the Trust, (B)
the redemption of all Trust Securities or (C) certain mergers, consolidations
or amalgamations permitted by the Declaration. KBK will also covenant to use
its commercially reasonable efforts, consistent with the terms and provisions
of the Declaration, to cause the Trust to remain classified as a grantor trust
and not taxable as a corporation for United States federal income tax purposes.

CONSOLIDATION, MERGER AND SALE OF ASSETS

The Subordinated Indenture provides that KBK may, without the consent
of the Subordinated Debt Trustee or the holders of any Debenture consolidate or
merge with, or sell, lease or transfer its properties and assets as, or
substantially as, an entirety to, any Person, provided that (i) either KBK is
the surviving entity or such successor Person expressly assumes or becomes a
co-obligor jointly and severally liable with respect to the due and punctual
payment of the principal of and interest on, the Debentures and the performance
or observance of every covenant and condition of the Subordinated Indenture on
the part of KBK to be performed or observed, (ii) immediately after giving
effect to the transaction, no Default or Event of Default exists, and (iii) KBK
has delivered the Officer's Certificate and Opinion of Counsel required by the
Subordinated Indenture. Any such successor Person shall succeed to and be
substituted for, and may exercise every right and power of, KBK under the
Subordinated Indenture with the same effect as if it had been named a party in
the Subordinated Indenture and KBK shall, except in the case of a lease, be
released and discharged from all its obligations under the Debentures and the
Subordinated Indenture. Notwithstanding the foregoing, the predecessor Person
may, in the alternative, elect not to be so released from such obligations,
provided that the predecessor Person and the successor Person shall agree,
pursuant to a supplemental Subordinated Indenture, to be co- obligors jointly
and severally with respect to all such obligations.

DEBENTURE EVENTS OF DEFAULT

An "Event of Default" will occur under the Subordinated Indenture with
respect to the Debentures upon: (a) default in the payment of the principal of
the Debentures at their maturity (whether or not prohibited by the

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subordination provisions thereof); (b) default in the payment of any interest
on the Debentures when they become due and payable and continuance of such
default for a period of 30 days (whether or not prohibited by the subordination
provisions thereof); (c) default in the performance, or breach, of any term,
covenant or warranty contained in the Subordinated Indenture for a period of 60
days upon giving written notice as provided in the Subordinated Indenture; (d)
the occurrence of certain events of bankruptcy; or (e) upon the voluntary or
involuntary dissolution, winding-up or termination of the Trust, except in
connection with the distribution of the Debentures to the holders of Trust
Securities in liquidation of the Trust, the redemption or exchange of all of
the Trust Securities, or certain mergers, consolidations or amalgamations, each
as permitted by the Declaration.

The Subordinated Indenture provides that if an Event of Default with
respect to the Debentures shall have occurred and be continuing, either the
Subordinated Debt Trustee or the holders of not less than 25% in principal
amount of the Debentures then outstanding may declare the principal amount of
all the Debentures to be due and payable immediately upon giving written notice
as provided in the Subordinated Indenture. The Subordinated Indenture provides
that the holders of a majority in principal amount of the Debentures then
outstanding may rescind and annul such declaration and its consequences under
certain circumstances.

The holders of a majority in principal amount of the Debentures then
outstanding may waive past defaults under the Subordinated Indenture and its
consequences (except a continuing default in the payment of principal of or
interest on the Debentures or a default in respect of any covenant or provision
of the Subordinated Indenture which cannot be modified or amended by a
supplemental Subordinated Indenture without the consent of the holder of each
outstanding Debenture affected thereby).

Pursuant to the Subordinated Indenture, the holders of a majority in
aggregate principal amount of all the Debentures then outstanding may direct
the time, method, and place of conducting any proceeding for any remedy
available to the Subordinated Debt Trustee or exercising any trust or power
conferred on the Trustee, provided that such direction shall not be in conflict
with any rule of law or the Subordinated Indenture. Before proceeding to
exercise any right or power under the Subordinated Indenture at the direction
of any holders, the Subordinated Debt Trustee shall be entitled to receive from
such holders reasonable security or indemnity against the costs, expenses, and
liabilities which might be incurred by it in compliance with any such
direction.

Under the terms of the Subordinated Indenture, KBK is required to
furnish to the Subordinated Debt Trustee annually an Officer's Certificate to
the effect that, to the best of such officer's knowledge, KBK is not in default
in the performance and observance of the terms, provisions and conditions of
the Subordinated Indenture or, if such officer has knowledge that KBK is in
default, specifying such default. The Subordinated Indenture requires the
Subordinated Debt Trustee to give to all holders of Debentures outstanding
thereunder notice of any Default by KBK in the manner provided in the
Subordinated Indenture, unless such Default shall have been cured or waived;
however, except in the case of a default in the payment of principal of or
interest on any Debentures outstanding thereunder, the Subordinated Debt
Trustee is entitled to withhold such notice in the event that the board of
directors, the executive committee, or a trust committee of directors or
certain officers of the Subordinated Debt Trustee in good faith determine that
withholding such notice is in the interest of the holders of such outstanding
Debentures.

ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF TRUST PREFERRED SECURITIES

If a Debenture Event of Default has occurred and is continuing and
such event is attributable to the failure of KBK to pay principal or interest
on the Debentures on the date such principal or interest is otherwise payable,
a holder of Trust Preferred Securities may institute a Legal Action for payment
after the respective due date specified in the Debentures. KBK may not amend
the Subordinated Indenture to remove the foregoing right to bring a Legal
Action without the prior written consent of the holders of all of the Trust
Preferred Securities. Notwithstanding any payment made to such holder of Trust
Preferred Securities by KBK in connection with a Legal Action, KBK shall remain
obligated to pay the principal of or interest on the Debentures held by the
Trust or the Property Trustee and KBK shall be subrogated to the rights of the
holder of such Trust Preferred Securities with respect to payments on the Trust
Preferred Securities to the extent of any payments made by KBK to such holder
in any Legal Action.

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SUBORDINATION

In the Subordinated Indenture, KBK has covenanted and agreed that any
Debentures issued thereunder will be subordinate and junior in right of payment
to all Senior Debt of KBK whether now existing or hereafter incurred. Upon any
payment or distribution of assets to creditors upon any liquidation,
dissolution, winding-up, reorganization, assignment for the benefit of
creditors, marshaling of assets or any bankruptcy, insolvency, debt
restructuring or similar proceedings in connection with any insolvency or
bankruptcy proceeding of KBK, the holders of Senior Debt will first be entitled
to receive payment in full of principal of and premium, if any, and interest,
if any, on such Senior Debt before the Property Trustee, on behalf of the
holders of the Debentures, will be entitled to receive or retain any payment in
respect of the principal of or interest on the Debentures.

In the event of the acceleration of the maturity of any Debentures,
the holders of all Senior Debt outstanding at the time of such acceleration
will first be entitled to receive payment in full of all amounts due thereon
(including any amounts due upon acceleration) before the holders of Debentures
will be entitled to receive or retain any payment in respect of the principal
of or interest on the Debentures.

No payment on account of principal or interest in respect of the
Debentures may be made if there shall have occurred and be continuing a default
in any payment with respect to Senior Debt, or an event of default with respect
to any Senior Debt resulting in the acceleration of the maturity thereof, or if
any judicial proceeding shall be pending with respect to any such default.

CHANGE IN CONTROL AND HIGHLY LEVERAGED TRANSACTIONS

The Subordinated Indenture contains no covenants or other provisions
to afford protection to holders of the Debentures in the event of a highly
leveraged transaction or a change in control of the Company.

MODIFICATION OF THE SUBORDINATED INDENTURE

The Subordinated Indenture provides that KBK and the Subordinated Debt
Trustee may enter into supplemental indentures without the consent of the
holders of Debentures to: (a) evidence the succession of another Person to KBK
under the Subordinated Indenture and the Debentures and the assumption by such
successor Person of the obligations of KBK thereunder; (b) evidence another
Person's becoming a co-obligor with respect to the obligations of KBK under the
Subordinated Indenture and the Debentures; (c) add covenants and Events of
Default for the benefit of the holders of all the Debentures or to surrender
any right or power conferred by the Subordinated Indenture upon KBK; (d) cure
any ambiguity or correct any inconsistency in the Subordinated Indenture; (e)
evidence the acceptance of appointment by a successor (including as a
co-obligor) Subordinated Debt Trustee; and (f) qualify the Subordinated
Indenture under the Trust Indenture Act.

The Subordinated Indenture also provides that KBK and the Subordinated
Debt Trustee, with the consent of the holders of a majority in aggregate
principal amount of all outstanding Debentures to modify the Subordinated
Indenture or the rights of the holders of the Debentures; provided that KBK and
the Subordinated Debt Trustee may not, without the consent of the holder of
each outstanding Debenture affected thereby: (a) change the stated maturity of
the principal of or any installment of interest on any Debenture, or reduce the
principal amount thereof or the rate of interest thereon, (b) reduce the
percentage in principal amount of Debentures required for any such supplemental
Subordinated Indenture or for any waiver provided for in the Subordinated
Indenture, (c) change KBK's obligation to maintain an office or agency for
payment of Debentures and the other matters specified therein, or (d) modify
any of the provisions of the Subordinated Indenture relating to the execution
of supplemental indentures with the consent of holders of Debentures which are
discussed in this paragraph or modify any provisions relating to the waiver by
holders of past

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defaults and certain covenants, except to increase any required percentage or
to provide that certain other provisions of the Subordinated Indenture cannot
be modified or waived without the consent of the holder of each outstanding
Debenture.

SATISFACTION AND DISCHARGE; LEGAL AND COVENANT DEFEASANCE

Under the terms of the Subordinated Indenture, KBK may satisfy and
discharge certain obligations to holders of Debentures which have not already
been delivered to the Subordinated Debt Trustee for cancellation and which have
either become due and payable or are by their terms due and payable within one
year or are to be called for redemption within one year by (i) depositing or
causing to be deposited with the Subordinated Debt Trustee funds in an amount
sufficient to pay the principal and interest to the date of such deposit (in
case of Debentures which have become due and payable) or to the Stated Maturity
or Redemption Date, as the case may be, (ii) paying or causing to be paid all
other sums payable under the Subordinated Indenture with respect to such
Debentures, and (iii) delivering to the Subordinated Debt Trustee an Officer's
Certificate and Opinion of Counsel relating to such satisfaction and discharge.

The Subordinated Indenture also provides that KBK and any other
obligor, if any, will be discharged from any and all obligations in respect of
the Debentures issued thereunder (excluding, however, certain obligations, such
as the obligation to register the transfer or exchange of such outstanding
Debentures, to replace stolen, lost, mutilated or destroyed certificates, to
pay principal and interest on the original stated due dates or specified
redemption date, to make any sinking fund payments, and to maintain paying
agencies) on the 91st day following the deposit referred to in the following
clause (i), subject to the following conditions: (i) the irrevocable deposit,
in trust, of cash or U.S. Government Obligations (or a combination thereof)
which through the payment of interest and principal thereof in accordance with
their terms will provide cash in an amount sufficient to pay the principal and
interest on the outstanding Debentures on the Stated Maturity of such payments
in accordance with the terms of the Subordinated Indenture and the outstanding
Debentures or on any Redemption Date established pursuant to clause (iii)
below; (ii) KBK's receipt of an Opinion of Counsel based on the fact that (A)
KBK has received from, or there has been published by, the Internal Revenue
Service a ruling, or (B) since the date of the Subordinated Indenture, there
has been a change in the applicable federal income tax law, in either case, to
the effect that, and confirming that, the holders of the Debentures will not
recognize income, gain or loss for federal income tax purposes as a result of
such deposit and defeasance and will be subject to federal income tax on the
same amount and in the same manner and at the same times, as would have been
the case if such deposit and defeasance had not occurred; (iii) if the
Debentures are to be redeemed prior to Stated Maturity, notice of such
redemption shall have been duly given pursuant to the Subordinated Indenture or
provision therefor satisfactory to the Subordinated Debt Trustee shall have
been made; (iv) no Event of Default or event which with notice or lapse of time
or both would become an Event of Default will have occurred and be continuing
on the date of such deposit; and (v) KBK's delivery to the Subordinated Debt
Trustee of an Officer's Certificate and an Opinion of Counsel, each stating
that the conditions precedent under the Subordinated Indenture have been
complied with.

Under the Subordinated Indenture, KBK also may discharge its
obligations referred to above under the captions "-- Certain Covenants" and "--
Consolidation, Merger and Sale of Assets" included in this Prospectus, as well
as certain of its obligations relating to reporting obligations under the
Subordinated Indenture in respect of the Debentures on the 91st day following
the deposit referred to in clause (i) in the immediately preceding paragraph,
subject to satisfaction of the conditions described in clauses (i), (iii), (iv)
and (v) in the immediately preceding paragraph with respect to the Debentures
and the delivery of an Opinion of Counsel confirming that the holders of the
Debentures will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and covenant defeasance and will be
subject to federal income tax on the same amount and in the same manner and at
the same times, as would have been the case if such deposit and covenant
defeasance had not occurred.

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NO PERSONAL, LIABILITY OF OFFICERS, DIRECTORS, EMPLOYEES OR STOCKHOLDERS

No director, officer, employee or stockholder, as such, of KBK or any
of its affiliates shall have any personal liability in respect of the
obligations of KBK under the Subordinated Indenture or the Debentures by reason
of his, her or its status as such.

APPLICABLE LAW

The Subordinated Indenture is, and the Debentures offered hereby will
be, governed by, and construed in accordance with, the laws of the State of New
York.

CONCERNING THE SUBORDINATED DEBT TRUSTEE

The Subordinated Indenture provides that, except during the
continuance of an Event of Default, the Subordinated Debt Trustee will perform
only such duties as are specifically set forth in the Subordinated Indenture.
If an Event of Default has occurred and is continuing, the Subordinated Debt
Trustee will use the same degree of care and skill in its exercise of the
rights and powers vested in it by the Subordinated Indenture as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.

The Subordinated Indenture contains limitations on the rights of the
Subordinated Debt Trustee, should it become a creditor of KBK, to obtain
payment of claims in certain cases or to realize on certain property received
by it in respect of such claims, as security or otherwise. The Subordinated
Debt Trustee is permitted to engage in other transactions; provided, however,
that if it acquires any conflicting interest, it must eliminate such conflict
or resign.

The First National Bank of Chicago, a national banking association, is
the Subordinated Debt Trustee under the Subordinated Indenture.

RELATIONSHIP AMONG THE TRUST PREFERRED SECURITIES,
THE DEBENTURES AND THE GUARANTEE

As long as KBK makes payments of interest and other payments when due
on the Debentures, such payments will be sufficient to cover distributions and
other payments due on the Trust Preferred Securities, primarily because (i) the
aggregate principal amount of the Debentures will be equal to the sum of the
aggregate stated liquidation preference of the Trust Preferred Securities; (ii)
the interest rate and interest and other payment dates of the Debentures will
match the distribution rate and distribution and other payment dates for the
Trust Preferred Securities; (iii) KBK shall pay for all and any costs, expenses
and liabilities of the Trust except the Trust's obligations to holders of the
Trust Preferred Securities; and (iv) the Declaration of the Trust further
provides that the Trust will not engage in any activity that is not consistent
with the limited purposes of the Trust.

Payments of distributions and other amounts due on the Trust Preferred
Securities (to the extent the Trust has funds available for the payment of such
distributions) are irrevocably guaranteed by KBK as and to the extent set forth
under "Description of the Guarantee." Taken together, KBK's obligations under
the Debentures, the Subordinated Indenture, the Declarations of the Trust and
the Trust Guarantees provide a full, irrevocable and unconditional guarantee of
payments of distributions and other amounts due on the Trust Preferred
Securities. No single document standing alone or operating in conjunction with
fewer than all of the other documents constitutes such guarantee. It is only
the combined operation of these documents that has the effect of providing a
full, irrevocable and unconditional guarantee of each of the Trust's
obligations under the Trust Preferred Securities. If and to the extent that KBK
does not make payments on the Debentures, the Trust will not pay distributions
or other amounts due on the Trust Preferred Securities. The Guarantee does not
cover payment of distributions when the Trust does not have legally sufficient
funds to pay such distributions. In such event, the remedies of a holder of the
Trust Preferred Securities of the Trust are described herein under "Description
of the Guarantee -- Guarantee Events of Default." The obligations of KBK under
the Guarantees are unsecured and are subordinate and junior in right of payment
to all other liabilities of KBK.

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Notwithstanding anything to the contrary in the Subordinated Indenture
and to the extent set forth therein, KBK has the right to set-off any payment
it is otherwise required to make thereunder with and to the extent KBK has
theretofore made, or is concurrently on the date of such payment making, a
payment under the Guarantee.

A holder of Trust Preferred Securities may institute a legal
proceeding directly against KBK to enforce its rights under the Guarantee
without first instituting a legal proceeding against the Trust Guarantee
Trustee, the Trust or any other person or entity.

The Trust Preferred Securities evidence a beneficial interest in the
Trust. The Trust exists for the sole purpose of issuing the Trust Preferred
Securities, investing the proceeds thereof in the Debentures and making
distributions to holders. A principal difference between the rights of a holder
of Trust Preferred Securities and a holder of the Debentures is that a holder
of the Debentures is entitled to receive from KBK the principal amount of and
interest accrued on the Debentures held, while a holder of Trust Preferred
Securities is entitled to receive distributions from the Trust (or from KBK
under the Trust Guarantee) if and to the extent the Trust has funds legally
available for the payment of such distributions.

Upon any voluntary or involuntary termination, winding-up or
liquidation of the Trust involving the liquidation of the Debentures, the
holders of the Trust Preferred Securities will be entitled to receive, out of
assets held by the Trust and after satisfaction of liabilities to creditors of
the Trust as provided by applicable law, the liquidation distribution in cash.
See "Description of Trust Preferred Securities." Upon any voluntary or
involuntary liquidation or bankruptcy of KBK, the Property Trustee, as holder
of the Debentures of such Trust, would be a subordinated creditor of KBK,
subordinated in right of payment to all Senior Debt of KBK, but entitled to
receive payment in full of principal and interest, before any shareholders of
KBK receive payments or distributions. Since KBK is the guarantor under the
Trust Guarantees and has agreed to pay for all costs, expenses and liabilities
of the Trust (other than the Trust's obligations to the holders of the Trust
Preferred Securities), the positions of a holder of Trust Preferred Securities
and a holder of the Debentures relative to other creditors and to shareholders
of KBK in the event of liquidation or bankruptcy of KBK would be substantially
the same.

A default or event of default under any Senior Debt of KBK will not
constitute a Default or Event of Default under the Subordinated Indenture.
However, in the event of payment defaults under, or acceleration of, Senior
Debt of KBK, the subordination provisions of the Subordinated Indenture provide
that no payments may be made in respect of the Debentures until Senior Debt has
been paid in full or any payment default thereunder has been cured or waived.
Failure to make required payments on the Debentures would constitute an Event
of Default under the Subordinated Indenture.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following is a summary of material United States federal income
tax consequences of the purchase, ownership and disposition of the Trust
Preferred Securities. Unless otherwise stated, this summary deals only with
Trust Preferred Securities held as capital assets by holders who purchase the
Trust Preferred Securities upon original issuance. It does not deal with
special classes of holders such as banks, thrifts, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, tax-exempt investors, foreign corporations and
persons who are not citizens or residents of the United States (except to the
extent discussed under the heading "-- Certain United States Tax Consequences
to Non-United States Holders") or persons that will hold the Trust Preferred
Securities as a position in a "straddle," as part of a "synthetic security" or
"hedge," as part of a "conversion transaction" or other integrated investment,
or as other than a capital asset. This summary also does not address the tax
consequences to persons that have a functional currency other than the United
States Dollar. 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

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<PAGE> 71
foreign government that may be applicable to the Trust 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.

INVESTORS ARE ADVISED TO CONSULT THEIR TAX ADVISORS AS TO THE UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF
TRUST PREFERRED SECURITIES IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AS WELL
AS THE EFFECT OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.

CLASSIFICATION OF THE DEBENTURES

KBK has taken the position that the Debentures will be classified for
United States federal income tax purposes as indebtedness of KBK under current
law and, by acceptance of Trust Preferred Securities, each holder covenants to
treat the Debentures as indebtedness and the Trust Preferred Securities as
evidence of an indirect beneficial ownership interest in the Debentures. No
assurance can be given, however, that such position of KBK will not be
challenged by the Internal Revenue Service ("IRS") or, if challenged, that such
a challenge will not be successful. The remainder of this discussion assumes
that the Debentures will be classified as indebtedness of KBK for United States
federal income tax purposes.

CLASSIFICATION OF THE TRUST

In connection with the issuance of the Trust Preferred Securities,
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., United States tax counsel to the
Trust and KBK, 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 Subordinated Indenture (and certain other documents), 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 Trust Preferred Securities generally will
be considered the owner of an undivided interest in the Debentures, and each
holder will be required to include in its gross income any stated interest or
original issue discount (as noted below) with respect to its allocable share of
those Debentures.

INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT

Except as described below, stated interest on the Debentures generally
will be taxable to a holder as ordinary income at the time it is accrued or
paid in accordance with the holder's regular method of tax accounting.

Under current 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 such stated interest is "qualified stated interest" and whether a debt
instrument is issued with OID. The Company believes that the likelihood of its
exercising its option to defer payments of interest is remote. Based on the
foregoing, the Company believes that stated interest on the Debentures will
constitute qualified stated interest and that the Debentures will not be
considered to be issued with OID at the time of their original issuance and,
accordingly, a holder should include in gross income such holder's allocable
share of stated interest on the Debentures in accordance with such holder's
regular method of tax accounting.

Under the Regulations, if the Company exercised its option to defer
any payment of interest, the Debentures would at that time be treated as having
been reissued with OID, and all stated interest on the Debentures would
thereafter be treated as OID as long as the Debentures remained outstanding. In
such event, all of a holder's interest income with respect to the Debentures
would be accounted for as OID on an economic accrual basis regardless of such
holder's method of tax accounting, and actual distributions of stated interest
would not be reported as income. Consequently, a holder would be required to
include stated interest on the Debentures in gross income, as OID, even though
the Company would not make any actual cash payments with respect to such
interest during an Extension Period.

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<PAGE> 72
The Regulations specific to such treatment have not been addressed in
any rulings or other interpretations by the IRS, and it is possible that the
IRS could take a position contrary to the interpretation herein.

Subsequent use of the term "interest" in this summary includes income
in the form of OID.

Because income on the Debentures will constitute interest or original
issue discount, corporate holders will not be entitled to a dividends-received
deduction with respect to any income recognized with respect to the Debentures.

REDEMPTION OF TRUST PREFERRED SECURITIES
FOR DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST

Under certain circumstances, the Debentures may be distributed to
holders in exchange for the Trust Preferred Securities. Under current law, such
a distribution to holders, 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 Debentures distributed equal to such holder's
aggregate tax basis in its Trust Preferred Securities exchanged therefor. A
holder's holding period in the Debentures so received would include the period
during which the Trust Preferred Securities were held by such holder. If,
however, the exchange is caused by a Trust Tax Event which results in the Trust
being treated as an association taxable as a corporation, the distribution
would likely constitute a taxable event to the Trust and holders of the Trust
Preferred Securities.

Under certain circumstances described herein (see "Description of the
Trust Preferred Securities -- Trust Special Event Exchange or Redemption"), the
Debentures may be redeemed for cash and the proceeds of such redemption
distributed to holders in redemption of their Trust Preferred Securities. Under
current law, such a redemption would, for United States federal income tax
purposes, constitute a taxable disposition of the redeemed Trust Preferred
Securities, and a holder would recognize gain or loss in the same manner as if
it sold such redeemed Trust Preferred Securities for cash. See "-- Sales of
Trust Preferred Securities" below.

SALES OF TRUST PREFERRED SECURITIES

A holder that sells Trust Preferred Securities will recognize gain or
loss equal to the difference between the amount realized on the sale of the
Trust Preferred Securities and the holder's adjusted tax basis in such Trust
Preferred Securities. A holder's adjusted tax basis in the Trust Preferred
Securities generally will be its initial purchase price increased by any
original issue discount previously includible in such holder's gross income to
the date of disposition and decreased by payments other than qualified stated
interest received on the Trust Preferred Securities to the date of disposition.
In general, such gain or loss will be a capital gain or loss. Any capital gain
will be (a) long-term capital gain if the holder held the Trust Preferred
Securities for more than 12 months or (b) short-term capital gain if the holder
held the Trust Preferred Securities for 12 months or less as of the effective
date of the Merger. Long-term capital gain of individuals currently is taxed at
a maximum rate of 20%. Short-term capital gain of individuals is taxed as
ordinary income. Ordinary income of individuals is currently taxed at a maximum
rate of 39.6%.

The Trust Preferred Securities may trade at a price that does not
accurately reflect the value of accrued but unpaid interest with respect to the
underlying Debentures. A holder who disposes of his Trust Preferred Securities
between record dates for payments of distributions thereon will be required to
include accrued but unpaid interest on the Debenture 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 Debentures deemed
disposed of. To the extent the selling price is less than the holder's
adjusted tax basis (which basis will include, in the form of original issue
discount, all accrued but unpaid interest), a holder will 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.

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MARKET DISCOUNT AND BOND PREMIUM

Holders that purchase the Trust Preferred Securities at a price that
is greater or less than the adjusted issue price of such holder's proportionate
share of the Debentures (which generally should approximate the face amount
plus accrued but unpaid interest on the Debentures) may be considered to have
acquired their undivided interests in the Debentures with market discount or
acquisition premium as such phrases are defined for United States federal
income tax purposes. Such holders are advised to consult their tax advisors as
to the income tax consequences of the ownership and disposition of the Trust
Preferred Securities.

INFORMATION REPORTING TO HOLDERS

The Trust will report the original issue discount, if any, that
accrued during the year with respect to the Debentures, and any gross proceeds
received by the Trust from the retirement or redemption of the Debentures,
annually to the holders of record of the Trust Preferred Securities and the
IRS. The Trust currently intends to deliver such reports to holders of record
prior to January 31, following each calendar year. It is anticipated that
persons who hold Trust Preferred Securities as nominees for Beneficial Owners
will report the required tax information to Beneficial Owners on Form 1099.

BACKUP WITHHOLDING

Payments made on, and proceeds from the sale of, Trust Preferred
Securities may be subject to a "backup" withholding tax of 31% unless the
holder complies with certain identification requirements. Any withheld amounts
will generally be allowed as a credit against the holder's federal income tax
provided the required information is timely filed with the IRS.

POSSIBLE TAX LEGISLATION

As a part of President Clinton's Fiscal 1999 Budget Proposal, the
Treasury Department has proposed legislation that, among other things, will
treat as equity for United States federal income tax purposes certain debt
instruments that are not shown as indebtedness on the consolidated balance sheet
of the Trust. A similar proposal was included in President Clinton's Fiscal 1998
Budget Proposal but was not included in either the Taxpayer Relief Act of 1997
or the IRS Restructuring and Reform Bill of 1998. No assurance can be given that
the Proposed Legislation will not ultimately be enacted in the future, that such
future legislation will not have a retroactive effective date and that such
future legislation will not prevent KBK from deducting interest on the
Debentures. Such an event would constitute a Trust Tax Event and would permit
the Trust to exchange the Trust Preferred Securities, in whole or in part, for
the Debentures or redeem, in whole or in part, the Trust Preferred Securities
and corresponding Debentures.

CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS

General. The following is a general discussion of certain United
States federal income and estate tax consequences of the ownership and
disposition of Trust Preferred Securities by a "Non-United States Holder" and
does not deal with tax consequences arising under the laws of any foreign,
state, or local jurisdiction. As used herein, a "Non- United States Holder" is
a person or entity that, for United States federal income tax purposes, is not
a citizen or resident of the United States, a corporation, partnership, or
other entity created or organized under the laws of the United States or a
political subdivision thereof, or an estate or trust, the income of which is
subject to United States federal income taxation regardless of its source, or
that otherwise is subject to United States federal income taxation on a net
basis in respect of the Trust Preferred Securities. The tax treatment of the
holders of the Trust Preferred Securities may vary depending upon their
particular situations. Certain holders (including insurance companies, tax
exempt organizations, financial institutions and broker-dealers) may be subject
to special rules not discussed below. Prospective investors who are Non-United
States Holders are urged to consult their tax advisors regarding the United
States federal tax consequences of owning and disposing of Trust Preferred
Securities, as well as any tax consequences that may arise under the laws of
any foreign, state, local or other taxing jurisdiction.

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Interest. Interest (including original issue discount) received or
accrued by a Non-United States Holder of Trust Preferred Securities will not be
subject to United States federal income or withholding tax if such interest is
not effectively connected with the conduct of a trade or business within the
United States by such Non-United States Holder and (i) the Non-United States
Holder does not actually or constructively own 10% or more of the total voting
power of all voting stock of KBK and is not a controlled foreign corporation
with respect to which KBK is a "related person" within the meaning of the Code
and (ii) the beneficial owner of the Trust Preferred Securities certifies,
under penalty of perjury, that the beneficial owner is not a United States
person and provide the beneficial owner's name and address.

Gain on Disposition of Trust Preferred Securities. A Non-United States
Holder will generally not be subject to United States federal income tax on
gain recognized on a sale, redemption or other disposition of a Trust Preferred
Security unless (i) the gain is effectively connected with the conduct of a
trade or business within the United States by the Non-United States Holder and
(ii) in the case of a Non-United States Holder who is a nonresident alien
individual and holds the Trust Preferred Security as a capital asset, such
holder is present in the United States for 183 or more days in the taxable year
and certain other requirements are met.

Federal Estate Taxes. A Trust Preferred Security beneficially owned by
an individual who is a Non-United States Holder at the time of his or her death
generally will not be subject to United States federal estate tax as a result
of such individual's death, provided that (i) such individual does not actually
or constructively own 10% or more of the total combined voting power of all
classes of stock of KBK entitled to vote within the meaning of section
871(h)(3) of the Code, and (ii) interest payments (including payments of
original issue discount) with respect to the Debentures would not have been, if
received at the time of such individual's death, effectively connected with the
conduct of a U.S. trade or business within the United States by such
individual.

Information Reporting and Backup Withholding. KBK must report
annually to the IRS and to each Non-United States Holder the amount of interest
paid to such holder and the amount of any tax withheld. These information
reporting requirements apply regardless of whether withholding is required.
Copies of the information returns reporting such interest and withholding may
also be made available to the tax authorities in the country in which the
Non-United States Holder resides under the provisions of an applicable income
tax treaty.

In the case of payments of interest to Non-United States Holders,
temporary Treasury regulations provide that the 31% backup withholding tax and
certain information reporting will not apply to such payments with respect to
which either the requisite certification, as described above, has been received
or an exemption has otherwise been established; provided that neither KBK nor
its payment agent has actual knowledge that the holder is a United States
person or that the conditions of any other exemption are not in fact satisfied.
Under temporary Treasury regulations, these information reporting and backup
withholding requirements will apply, however, to the gross proceeds paid to a
Non-United States Holder on the disposition of the Trust Preferred Securities
by or through a United States office of a United States or foreign broker,
unless the holder certifies to the broker under penalty of perjury as to its
name, address and status as a foreign person or the holder otherwise
establishes an exemption. Information reporting requirements, but not backup
withholding, will also apply to a payment of the proceeds of a disposition of
the Trust Preferred Securities by or through a foreign office of a United
States broker or foreign brokers with certain types of relationships to the
United States. Neither information reporting nor backup withholding generally
will apply to a payment of the proceeds of a disposition of the Trust Preferred
Securities by or through a foreign office or foreign broker not subject to the
preceding sentence.

Backup withholding is not an additional tax. Any amounts withheld
under the backup withholding rules may be refunded or credited against the
Non-United States Holder's United States federal income tax liability, provided
that the required information is furnished to the IRS.

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ERISA CONSIDERATIONS

The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain requirements on pension, profit-sharing and other
employee benefit plans to which it applies (the "Plans") and on those persons
who are fiduciaries with respect to such Plans.

A fiduciary of a Plan should consider the fiduciary standards of ERISA
in the context of the Plan's particular circumstances before authorizing an
investment in the Trust Preferred Securities. Among other factors, such
fiduciary should consider (i) whether the investment satisfies the prudence
requirements of Section 404(a)(1)(B) of ERISA, (ii) whether the investment
satisfies the diversification requirements of Section 404(a)(1)(C) of ERISA and
(iii) whether the investment is in accordance with the documents and
instruments governing the Plan as required by Section 404(a)(1)(D) of ERISA.

A fiduciary of a Plan must also consider whether the acquisition of
Trust Preferred Securities and/or the operation of the Trust might result in
direct or indirect prohibited transactions under Section 406 of ERISA and
Section 4975 of the Code. In order to determine whether there are such
prohibited transactions, a fiduciary must determine the "plan assets" involved
in the transaction. The Department of Labor has promulgated regulations (the
"DOL Regulations") concerning whether or not a Plan's assets would be deemed to
include an interest in the underlying assets of an entity for purposes of ERISA
if the Plan acquires an "equity interest" in such entity (such as by acquiring
Trust Preferred Securities). The DOL Regulations provide a number of exceptions
to these "plan asset" rules. One exception states that the underlying assets
of an entity such as the Trust will not be considered "plan assets" if the
Trust Preferred Securities are publicly offered. For this purpose, the Trust
Preferred Securities are "publicly offered" if they are part of a class of
securities that is (1) widely held, (2) freely transferable, and (3) registered
under Section 12(b) or 12(g) of the Exchange Act. It is expected that all of
these requirements will be satisfied with respect to the Trust Preferred
Securities offered hereunder and that the Trust Preferred Securities will not
be subject to the DOL Regulation's "plan asset" rules. There can be no
assurance, however, that such expectations will prove to be true. Due to the
complexity of these rules and the penalties imposed upon persons involved in
prohibited transactions, it is particularly important that potential Plan
investors consult with their counsel regarding the consequences under ERISA of
their acquisition and ownership of Trust Preferred Securities.

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting
Agreement relating to the Trust Preferred Securities, the Trust has agreed to
sell to each of the underwriters named below (the "Underwriters"), and each of
the Underwriters, for whom Friedman, Billings, Ramsey & Co., Inc. and J.J.B.
Hilliard, W.L. Lyons, Inc. are acting as representatives (the
"Representatives"), has severally agreed to purchase, the number of Trust
Preferred Securities offered hereby set forth opposite its name:

<TABLE>
<CAPTION>
Number of Trust
Preferred
Underwriter Securities
----------- ----------
<S> <C>
Friedman, Billings, Ramsey & Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
J.J.B. Hilliard, W.L. Lyons, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . .

-------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 800,000
=======

</TABLE>

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The Underwriting Agreement provides that the obligations of the
several Underwriters to pay for and accept delivery of the Trust Preferred
Securities offered hereby are subject to the approval of certain legal matters
by counsel and to certain other conditions. If any of the Trust Preferred
Securities are purchased by the Underwriters pursuant to the Underwriting
Agreement, all such Trust Preferred Securities (other than the Trust Preferred
Securities covered by the over-allotment option described below) must be so
purchased.

The Company has been advised that the Underwriters propose to offer
the Trust Preferred Securities to the public initially at the price to the
public set forth on the cover page of this Prospectus and to certain dealers
(who may include the Underwriters) at such price less a concession not to
exceed $ per Trust Preferred Security. The Underwriters may allow, and
such dealers may reallow, a discount not in excess of $ per Trust
Preferred Security to any other Underwriter and certain other dealers. After
the completion of the Offering, the offering price and other selling terms may
be changed by the Underwriters.

In view of the fact that the proceeds of the sale of the Trust
Preferred Securities will ultimately be used to purchase the Debentures of the
Company, the Underwriting Agreement provides that the Company will pay as
Underwriters' Compensation to the Underwriters, an amount in immediately
available funds of $ per Trust Preferred Security (or $ in
the aggregate) for the accounts of the several Underwriters.

The Trust has granted to the Underwriters an option to purchase up to
120,000 additional Trust Preferred Securities at the public offering price set
forth on the cover page hereof solely to cover over-allotments for which the
Underwriters will receive additional Underwriters' Compensation as described
above. Such option may be exercised once at any time until 30 days after the
date of this Prospectus. To the extent that the Underwriters exercise such
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase a number of option shares proportionate to such
Underwriter's initial commitment as indicated in the preceding table.

The Company and the Trust have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments that the Underwriters may be required to make in
respect thereof. Such indemnification provisions would require the Company and
the Trust to hold the Underwriters harmless from and against any and all
losses, claims, damages, liabilities and judgments caused by any untrue
statement contained in this Prospectus or by any omission to state a material
fact herein, except for untrue statements or omissions based upon information
relating to any Underwriter furnished in writing to the Company and the Trust
by such Underwriter expressly for use in this Prospectus and subject to certain
other limitations.

Other than in the United States, no action has been taken in any
jurisdiction by the Company, the Trust or the Underwriters that would permit a
public offering of the Trust Preferred Securities offered hereby in any
jurisdiction where action for that purpose is required. The distribution of
this Prospectus and the offering or sale of the Trust Preferred Securities
offered hereby in certain jurisdictions may be restricted by law. Accordingly,
the Trust Preferred Securities offered hereby may not be offered or sold,
directly or indirectly, and neither this Prospectus nor any other offering
material or advertisements in connection with the Trust Preferred Securities
may be distributed or published, in or from any jurisdiction, except under
circumstances that will result in compliance with applicable rules and
regulations of any such jurisdiction. Persons into whose possession this
Prospectus comes are required by the Company, the Trust and the Underwriters to
inform themselves about and to observe any applicable restrictions. This
Prospectus does not constitute an offer of, or an invitation to subscribe for
purchase of, any Trust Preferred Securities and may not be used for the purpose
of an offer to, or solicitation by, anyone in any jurisdiction or in any
circumstances in which such offer or solicitation is not authorized or is
unlawful.

The Representatives have advised the Company that the Underwriters
will not confirm sales of Trust Preferred Securities to accounts over which
they exercise discretionary authority.

74
<PAGE> 77
In connection with this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Trust Preferred Securities. Specifically, the Underwriters may bid for and
purchase Trust Preferred Securities in the open market to cover syndicate short
positions. In addition, the Underwriters may bid for and purchase Trust
Preferred Securities in the open market to stabilize the price of the Trust
Preferred Securities. These activities may stabilize or maintain the market
price of the Trust Preferred Securities above independent market levels. The
Underwriters are not required to engage in these activities and may end these
activities at any time.

Prior to this offering, there has been no public market for the Trust
Preferred Securities. Therefore, no assurance can be given as to the liquidity
of the trading market for the Trust Preferred Securities or that an active
public market will develop.

Application will be made to list the Trust Preferred Securities on the
American Stock Exchange under the symbol " ."

LEGAL MATTERS

Certain matters of Delaware law relating to the legality of the Trust
Preferred Securities, the validity of the Declaration, the formation of the
Trust and the legality under state law of the Trust Preferred Securities are
being passed upon by Potter Anderson & Corroon LLP, Wilmington, Delaware,
special Delaware counsel to the Trust and KBK. The legality under state law of
the Trust Guarantee and the Debentures will be passed upon on behalf of the
Trust and KBK by Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., Houston, Texas.
Certain United States federal income taxation matters will be passed upon on
behalf of the Trust and KBK by Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
Certain legal matters will be passed upon on behalf of the Underwriters by
Andrews & Kurth L.L.P., Washington, D.C., counsel to the Underwriters.

EXPERTS

The consolidated financial statements of the Company and its
subsidiaries as of December 31, 1997, 1996 and 1995, and for each of the years
in the three-year period ended December 31, 1997, have been incorporated by
reference herein in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.

75
<PAGE> 78

================================================================================

No dealer, salesperson or other person has been authorized in
connection with the offering made hereby to give any information or to make any
representation not contained in this Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company, the Trust or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby to any person or by anyone in any jurisdiction in
which it is unlawful to make such offer or solicitation. Neither the delivery of
this Prospectus nor any offer or sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any date subsequent to the date hereof.

----------

TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information ................................................ 3
Incorporation of Certain Documents
by Reference ....................................................... 3
Forward-Looking Statements ........................................... 3
Prospectus Summary ................................................... 5
Risk Factors ......................................................... 13
Use of Proceeds ...................................................... 18
The Company .......................................................... 18
Ratio of Earnings to Fixed Charges ................................... 32
Capitalization ....................................................... 33
Selected Financial Data .............................................. 33
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ......................................................... 35
Management ........................................................... 41
KBK Capital Trust I .................................................. 42
Description of the Trust Preferred Securities ........................ 43
Description of the Guarantee ......................................... 56
Description of the Debentures ........................................ 59
Relationship Among the Trust Preferred
Securities, the Debentures and the Guarantee ....................... 67
Certain Federal Income Tax Consequences .............................. 68
ERISA Considerations ................................................. 73
Underwriting ......................................................... 73
Legal Matters ........................................................ 75
Experts .............................................................. 75
</TABLE>
================================================================================

800,000 TRUST PREFERRED SECURITIES

KBK CAPITAL TRUST I

% TRUST PREFERRED SECURITIES

Guaranteed to the Extent
Set Forth Herein by

KBK CAPITAL CORPORATION

Liquidation Amount
$25 per Trust Preferred Security

-------------------

PROSPECTUS

-------------------

FRIEDMAN, BILLINGS,
RAMSEY & CO., INC.

J.J.B. HILLIARD, W.L. LYONS, INC.

, 1998

================================================================================

<PAGE> 79
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

<TABLE>
<S> <C>
SEC Registration Fee ............................................. $6,785.00
NASD Filing Fee .................................................. 2,800.00
American Stock Exchange Listing Fee .............................. *
Blue Sky Qualification Fees and Expenses ......................... *
Accounting Fees and Expenses ..................................... *
Legal Fees and Expenses .......................................... *
Trustees' Fees and Expenses ...................................... *
Printing and Engraving Expenses .................................. *
Miscellaneous .................................................... *
---------

Total ................................... $ *
=========
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees and
individuals against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement in connection with specified actions, rules, or
proceedings, whether civil, criminal, administrative, or investigative (other
than action by or in the right of the corporation -- a "derivative action"), if
they acted in good faith and in a manner they reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. A similar standard is applicable in the case of derivative
actions, except that indemnification only extends to expenses (including
attorneys' fees) incurred in connection with the defense or settlement of such
action, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's charter, by-laws,
disinterested director vote, stockholder vote, agreement, or otherwise.

Article VI of KBK's Bylaws provide that each person who was or is made a
party or is threatened to be made a party to or is involved in any proceeding
by reason of the fact that he or she is or was or has agreed to become an
officer or director of the Company or is or was serving or has agreed to serve
at the request of the Company as a director, officer, employee or agent of
another enterprise, shall be indemnified and held harmless by the Company to
the fullest extent authorized by the Delaware General Corporation Law, as from
time to time in effect, against all expense, liability and loss reasonably
incurred or suffered by such person in connection therewith. The Bylaws of KBK
also provide that the Company may, by action of its Board of Directors, provide
indemnification to employees and agents of the Company with the same scope and
effect as the indemnification of directors and officers.

II-1

<PAGE> 80
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability for (i) any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
payment of unlawful dividends or unlawful stock purchases or redemptions, or
(iv) any transaction from which the director derived an improper personal
benefit.

Article 7 of KBK's Restated Certificate of Incorporation, as amended,
provides that to the fullest extent that the Delaware General Corporation Law,
as it now exists or may hereafter be amended, permits the limitation or
elimination of the liability of directors, a director of the Company shall not
be personally liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. Any amendment to or repeal of
such Article 7 shall not adversely affect any right or protection of a director
of KBK for or with respect to any acts or omissions of such director occurring
prior to such amendment or repeal.

KBK maintains directors' and officers' liability insurance which provides
for payment, on behalf of the directors and officers of KBK and its
subsidiaries, of certain losses of such persons (other than matters uninsurable
under law) arising from claims, including claims arising under the Securities
Act, for acts or omissions by such persons while acting as directors or
officers of KBK and/or its subsidiaries, as the case may be.

The Company has entered into written indemnification agreements with each
of its directors. Pursuant to such agreements, the Company will indemnify each
director when he or she was or is involved in any manner or is threatened to be
made so involved in any actual or threatened proceeding by reason of the fact
that he or she is or was or had agreed to become a director, officer, employee
or agent of the Company, or is or was serving at the request of the Company as
a director, officer, employee or agent of another enterprise, against any and
all costs, charges, and expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
such proceeding. In addition, the Company will indemnify such persons when he
or she was or is involved in any manner in any proceeding by or in the right of
the Company to procure a judgment in its favor against any and all costs,
charges and expenses actually and reasonably incurred by him or her in
connection with the defense or settlement of such proceeding.

II-2
<PAGE> 81
Reference is made to Exhibit 1.1 hereto which contains provisions for
indemnification of KBK, and its directors, officers, and any controlling
persons, against certain liabilities for information furnished by the
underwriters expressly for use in the Prospectus.

ITEM 16. EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
- ----------- -------
<S> <C>
1.1 Form of Underwriting Agreement*
4.1 Form of Subordinated Indenture dated , 1998 between KBK and The First National Bank of
Chicago, as Trustee (including form of Debentures)*
4.2 Certificate of Trust of KBK Capital Trust I*
4.3 Declaration of Trust of KBK Capital Trust I, dated as of September 30, 1998*
4.4 Amended and Restated Declaration of Trust (including form of Trust Preferred Security)*
4.5 Form of Trust Preferred Securities Guarantee Agreement to be issued by KBK*
5.1 Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. as to the legality of the Debentures and the
Guarantee*
5.2 Opinion of Potter Anderson & Corroon LLP as to the legality of the Trust Preferred Securities*
8.1 Opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. as to certain federal income tax matters*
10.1 1992 Key Employee Stock Option Plan of the Company (terminated), and forms of stock option
agreements and amendments thereto (incorporated by reference to Exhibit 10.1 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-77378-D)
10.2 1993 Non-Employee Director Stock Option Plan of the Company (terminated), and form of stock
option agreement (incorporated by reference to Exhibit 10.2 to the Registrant's Registration
Statement on Form SB-2, Registration No. 33-77378-D)
10.3 1994 Stock Option Plan of the Company, and forms of stock option agreements (incorporated by
reference to Exhibit 10.3 to the Registrant's Registration Statement on Form SB-2, Registration
No. 33-77378-D)
10.4 Form of Indemnification Agreement between the Company and each of its directors (incorporated
by reference to Exhibit 10.4 to the Registrant's Registration Statement on Form SB-2,
Registration No. 33-77378-D)
10.5 Stock Purchase Agreement dated as of April 2, 1992 among the Company, KBK, Inc. and R. Doyle
Kelley (incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement on
Form SB-2, Registration No. 33-77378-D)
</TABLE>

II-3
<PAGE> 82

<TABLE>

<S> <C>
10.6 Employment and Non-Competition Agreement dated April 7, 1992 between the Company and R. Doyle
Kelley (incorporated by reference to Exhibit 10.6 to the Registrant's Registration Statement on
Form SB-2, Registration No. 33-77378-D)
10.7 Documents (incorporated by reference to Exhibit 10.7 to the Registrant's Registration Statement
on Form SB-2, Registration No. 33-77378-D)
10.8 Form of Warrants of the Company (incorporated by reference to Exhibit 10.8 to the Registrant's
Registration Statement on Form SB-2, Registration No. 33-77378-D)
10.9 Stock Exchange Agreement among KBK Capital Corporation and Coastal, Inc. and the Owners of the
outstanding capital stock of Coastal Financial Resources, Inc. dated as of December 30, 1994
(incorporated by reference to Exhibit 10.9 to the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1994)
10.10 Amended and Restated Letter Loan Agreement dated as of August 21, 1997 among KBK Financial,
Inc., as borrower, and KBK Capital Corporation, as guarantor, and the Banks listed on the
signature pages thereof and Bank One, Texas, N.A. as Agent (incorporated by reference to
Exhibit 10.10 to the Registrant's Annual Report on Form 10-KSB for the year ended December 31,
1997)
11.1 Statement regarding computation of per share earnings*
12.1 Computation of Ratio of Earnings to Fixed Charges*
13.1 Annual Report of KBK Capital Corporation on Form 10-KSB for the year ended December 31, 1996,
as filed on March 28, 1998
13.2 Annual Report of KBK Capital Corporation on Form 10-KSB for the year ended December 31, 1997,
as filed on March 27, 1998
13.3 Quarterly Report of KBK Capital Corporation on Form 10-QSB for the quarter ended March 31,
1998, as filed on May 14, 1998
13.4 Quarterly Report of KBK Capital Corporation on Form 10-QSB for the quarter ended June 30, 1998,
as filed on August 13, 1998
21.1 Subsidiary of the Company (incorporated by reference to Exhibit 21.1 to the Registrant's
Registration Statement on Form SB-2, Registration No. 33-77378-D)
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. (included in Exhibits 5.1 and 8.1)*
23.3 Consent of Potter Anderson & Corroon LLP (included in Exhibit 5.2)*
24.1 Powers of Attorney (included on page II-5)
25.1 Form T-1 Statement of Eligibility of The First National Bank of Chicago*
25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company*
</TABLE>

- -------------
* To be filed by amendment.

II-4
<PAGE> 83
ITEM 17. UNDERTAKINGS.

(a) The undersigned registrant hereby undertakes to deliver or
cause to be delivered with the prospectus, to each person to whom the
prospectus is sent or given, the latest annual report to security holders that
is incorporated by reference in the prospectus and furnished pursuant to and
meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities
Exchange Act of 1934; and, where interim financial information required to be
presented by Article 3 of Regulation S-X is not set forth in the prospectus, to
deliver, or cause to be delivered to each person to whom the prospectus is sent
or given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial information.

(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling persons
of the Registrant pursuant to the provisions described in Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

(c) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(d) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

II-5
<PAGE> 84
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Fort Worth, State of Texas, on September 30,
1998.

KBK CAPITAL CORPORATION

By: /s/ Jay K. Turner
----------------------------------
Jay K. Turner, Executive Vice
President and Chief Financial
Officer

Each person whose individual signature appears below hereby authorizes Jay
K. Turner as attorney-in-fact with full power of substitution, to execute in
the name and on behalf of such person, individually and in each capacity stated
below, and to file, any and all amendments to this Registration Statement,
including any and all post-effective amendments.

Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates as indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C>
/s/ Robert J. McGee Chairman and Chief Executive Officer September 30, 1998
- --------------------------------
Robert J. McGee

/s/ Jay K. Turner Executive Vice President and Chief September 30, 1998
- -------------------------------- Financial Officer (principal financial
Jay K. Turner officer)

/s/ Deborah B. Wilkinson Vice President and Controller September 30, 1998
- -------------------------------- (principal accounting officer)
Deborah B. Wilkinson

/s/ Kenneth H. Jones, Jr. Vice Chairman and Director September 30, 1998
- --------------------------------
Kenneth H. Jones, Jr.

/s/ Thomas M. Simmons Director September 30, 1998
- --------------------------------
Thomas M. Simmons
</TABLE>

II-6
<PAGE> 85
<TABLE>
<S> <C> <C>
/s/ Daniel R. Feehan Director September 30, 1998
- --------------------------------
Daniel R. Feehan

/s/ Thomas L. Healey Director September 30, 1998
- --------------------------------
Thomas L. Healey

/s/ Martha V. Leonard Director September 30, 1998
- --------------------------------
Martha V. Leonard

/s/ R. Earl Cox, III Director September 30, 1998
- --------------------------------
R. Earl Cox, III

/s/ Harris A. Kaffie Director September 30, 1998
- --------------------------------
Harris A. Kaffie
</TABLE>

II-7

<PAGE> 86

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, KBK
Capital Trust I certifies that it has reasonable grounds to believe that it
meets the requirements for filing on Form S-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Fort Worth, State of Texas, on September 30,
1998.

KBK CAPITAL TRUST I

By: KBK CAPITAL CORPORATION, as Sponsor

By: /s/ Jay K. Turner
----------------------------------
Jay K. Turner, Executive Vice
President and Chief Financial
Officer

II-8
<PAGE> 87
LIST OF EXHIBITS

<PAGE> 88

<TABLE>

<S> <C>
10.7 Documents (incorporated by reference to Exhibit 10.7 to the Registrant's Registration Statement
on Form SB-2, Registration No. 33-77378-D)
10.8 Form of Warrants of the Company (incorporated by reference to Exhibit 10.8 to the Registrant's
Registration Statement on Form SB-2, Registration No. 33-77378-D)
10.9 Stock Exchange Agreement among KBK Capital Corporation and Coastal, Inc. and the Owners of the
outstanding capital stock of Coastal Financial Resources, Inc. dated as of December 30, 1994
(incorporated by reference to Exhibit 10.9 to the Registrant's Annual Report on Form 10-KSB for
the year ended December 31, 1994)
10.10 Amended and Restated Letter Loan Agreement dated as of August 21, 1997 among KBK Financial,
Inc., as borrower, and KBK Capital Corporation, as guarantor, and the Banks listed on the
signature pages thereof and Bank One, Texas, N.A. as Agent (incorporated by reference to
Exhibit 10.10 to the Registrant's Annual Report on Form 10-KSB for the year ended December 31,
1997)
11.1 Statement regarding computation of per share earnings*
12.1 Computation of Ratio of Earnings to Fixed Charges*
13.1 Annual Report of KBK Capital Corporation on Form 10-KSB for the year ended December 31, 1996,
as filed on March 28, 1998
13.2 Annual Report of KBK Capital Corporation on Form 10-KSB for the year ended December 31, 1997,
as filed on March 27, 1998
13.3 Quarterly Report of KBK Capital Corporation on Form 10-QSB for the quarter ended March 31,
1998, as filed on May 14, 1998
13.4 Quarterly Report of KBK Capital Corporation on Form 10-QSB for the quarter ended June 30, 1998,
as filed on August 13, 1998
21.1 Subsidiary of the Company (incorporated by reference to Exhibit 21.1 to the Registrant's
Registration Statement on Form SB-2, Registration No. 33-77378-D)
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. (included in Exhibits 5.1 and 8.1)*
23.3 Consent of Potter Anderson & Corroon LLP (included in Exhibit 5.2)*
24.1 Powers of Attorney (included on page II-6)
25.1 Form T-1 Statement of Eligibility of The First National Bank of Chicago*
25.2 Form T-1 Statement of Eligibility of Wilmington Trust Company*
</TABLE>

- -------------
* To be filed by amendment.

<PAGE> 1

INDEPENDENT AUDITORS' CONSENT

The Board of Directors
KBK Capital Corporation:

We consent to the use of our reports incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the prospectus.

/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP

Fort Worth, Texas
September 30, 1998