FILED PURSUANT TO RULE 424B5
FILE NO. 333-07753
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED JULY 24, 1996
$100,000,000
MACSAVER FINANCIAL SERVICES, INC.
7.40% NOTES DUE FEBRUARY 15, 2002
[Heilig-Meyers Logo Here]
GUARANTEED AS TO PAYMENT
OF PRINCIPAL AND INTEREST BY
HEILIG-MEYERS COMPANY
------------------------
The Notes are being offered by MacSaver Financial Services, Inc. Interest
on the Notes is payable on February 15 and August 15 of each year, commencing
August 15, 1997. The Notes are not redeemable prior to maturity and do not
provide for any sinking fund.
The Notes will be issued in fully registered, book-entry form in
denominations of $1,000 and integral multiples thereof. The Notes will be
represented by one or more global notes (the "Global Notes") registered in the
name of a nominee of The Depository Trust Company ("DTC"). Beneficial interests
in the Notes will be shown on, and transfers thereof will be effected only
through, records maintained by DTC and its participants. Except as described
herein, Notes in certificated form will not be issued. See "Description of
Notes."
------------------------
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 SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(2) COMPANY(1)(3)
-------------------- -------------------- ----------------
Per Note......... 99.832% 0.875% 98.957%
Total............ $99,832,000 $875,000 $98,957,000
- ---------------
(1) Plus accrued interest, if any, from February 15, 1997.
(2) MacSaver Financial Services, Inc. and Heilig-Meyers Company have each agreed
to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933.
(3) Before deducting estimated expenses of $120,000 payable by MacSaver
Financial Services, Inc.
------------------------
The Notes 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 the Global
Notes will be ready for delivery in New York, New York on or about February 25,
1997, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
NATIONSBANC CAPITAL MARKETS, INC.
SALOMON BROTHERS INC
------------------------
The date of this Prospectus Supplement is February 20, 1997.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
THE COMMISSIONER OF INSURANCE OF THE STATE OF NORTH CAROLINA HAS NOT
APPROVED OR DISAPPROVED THIS OFFERING NOR HAS THE COMMISSIONER PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
------------------------
THE ISSUER
MacSaver Financial Services, Inc. ("MacSaver") is a Delaware corporation
and a wholly-owned subsidiary of Heilig-Meyers Company ("Heilig-Meyers"). The
principal business of MacSaver is to obtain financing for the operations of
Heilig-Meyers and its other subsidiaries. In addition, MacSaver generally
acquires and holds the aggregate principal amount of installment credit accounts
generated by Heilig-Meyers' operating subsidiaries. The executive offices of
MacSaver are located at 2 Reads Way, Suite 224, New Castle, Delaware 19720. The
telephone number is (302) 325-3841.
HEILIG-MEYERS COMPANY
Heilig-Meyers is the nation's largest publicly held specialty retailer of
home furnishings, with 795 Heilig-Meyers and 105 Rhodes stores in 32 states as
of January 31, 1997. Heilig-Meyers also operated 32 Berrios retail furniture
stores in Puerto Rico as of January 31, 1997. Heilig-Meyers' executive offices
are located at 2235 Staples Mill Road, Richmond, Virginia 23230. The telephone
number is (804) 359-9171.
USE OF PROCEEDS
MacSaver intends to use the net proceeds from the sale of the Notes to
repay a portion of MacSaver's short-term bank debt having a weighted average
interest rate of 5.77% and a weighted average maturity of 8 days as of February
20, 1997.
RECENT DEVELOPMENTS
On December 31, 1996, Rhodes, Inc. ("Rhodes"), a Georgia corporation, one
of the largest specialty furniture retailers in the United States, became a
wholly-owned subsidiary of Heilig-Meyers. Rhodes will be operated as a separate
division of Heilig-Meyers and approximately 4.6 million shares of Heilig-Meyers
common stock will be issued to former Rhodes' shareholders in connection with
this transaction. As of January 31, 1997, Rhodes operated 105 stores in 15
southern, midwestern and western states and 11 associated regional distribution
centers. While Rhodes' stores are primarily located in metropolitan areas,
Heilig-Meyers plans to continue its strategy of locating stores primarily in
small towns and rural markets. Including the Rhodes stores, approximately 75% of
Heilig-Meyers' stores are located in towns with populations under 50,000 and
more than 25 miles from a metropolitan market as of January 31, 1997.
On February 18, 1997, Heilig-Meyers acquired certain assets relating to 10
stores operating in central Texas under the name "The RoomStore." The RoomStore
operates under a "rooms concept," displaying and selling furniture in complete
room packages. Heilig-Meyers plans to maintain The RoomStore name and continue
to operate these stores under this format.
S-2
CAPITALIZATION
The following table sets forth the capitalization of Heilig-Meyers at
November 30, 1996, and as adjusted to give effect to the application of
estimated net proceeds of $100,000,000, prior to deduction of underwriters'
compensation and expenses, from the sale of the Notes offered hereby.
NOVEMBER 30, 1996
------------------------
AS
ACTUAL ADJUSTED
---------- ----------
(UNAUDITED, $ IN THOUSANDS)
Cash........................................................................................... $ 9,858 $ 9,858
---------- ----------
---------- ----------
Short-term debt:
Notes payable................................................................................ $ 153,750 $ 53,750
Long-term debt due within one year........................................................... 99,246 99,246
---------- ----------
Total short-term debt..................................................................... 252,996 152,996
Long-term debt................................................................................. 448,531 548,531
---------- ----------
Total debt................................................................................ 701,527 701,527
---------- ----------
Stockholders' equity:
Preferred stock, $10 par value; authorized shares, 3,000,000; outstanding shares, none.......
Common stock, $2 par value; authorized shares, 250,000,000; outstanding shares, 48,622,771... 97,246 97,246
Capital in excess of par value............................................................... 121,505 121,505
Retained earnings............................................................................ 320,404 320,404
---------- ----------
Total stockholders' equity................................................................ 539,155 539,155
---------- ----------
Total capitalization.................................................................... $1,240,682 $1,240,682
---------- ----------
---------- ----------
S-3
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF HEILIG-MEYERS
The selected consolidated financial information set forth below is
qualified in its entirety by and should be read in conjunction with the audited
consolidated financial statements and notes thereto, and the unaudited
consolidated financial statements and the notes thereto for the nine month
period ending November 30, 1996, in each case included in the documents
incorporated by reference into the Prospectus accompanying this Prospectus
Supplement. The selected financial data for the five years ended February
29(28), 1996 are derived from the consolidated financial statements of
Heilig-Meyers which have been audited by Deloitte & Touche LLP, independent
certified public accountants. See "Experts."
SUMMARY FINANCIAL INFORMATION OF HEILIG-MEYERS
NINE MONTHS
ENDED NOVEMBER
30, (UNAUDITED) YEAR ENDED FEBRUARY 28/29,
---------------- ----------------------------------------------
1996 1995 1996 1995 1994 1993 1992
------ ------ ------ ------ ------ ------ ------
($ IN MILLIONS, EXCEPT PERCENTAGES AND RATIOS)
Consolidated Statement of Earnings Data
Revenues
Sales............................................. $ 939 $ 854 $1,138 $ 956 $ 724 $ 550 $ 437
Other income...................................... 176 165 221 196 140 108 83
------ ------ ------ ------ ------ ------ ------
Total revenues................................. 1,115 1,019 1,359 1,152 864 658 520
Costs and expenses
Costs of sales.................................... 613 559 752 618 460 351 277
S,G&A............................................. 363 324 436 350 260 200 160
Interest.......................................... 33 30 41 33 24 23 21
Provision for doubtful accounts................... 60 47 65 45 32 24 20
------ ------ ------ ------ ------ ------ ------
Total costs and expenses....................... 1,069 960 1,294 1,046 776 598 478
------ ------ ------ ------ ------ ------ ------
Earnings before income taxes........................ 46 60 65 106 88 60 42
Provision for income taxes.......................... 16 21 23 39 33 22 15
------ ------ ------ ------ ------ ------ ------
Net earnings........................................ $ 30 $ 39 $ 42 $ 67 $ 55 $ 38 $ 27
------ ------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------ ------
Other Data
EBITDA.............................................. $ 103 $ 112 $ 135 $ 163 $ 132 $ 98 $ 76
Depreciation and amortization....................... 24 22 29 24 21 16 14
EBIT................................................ 79 90 106 139 111 82 62
Capital expenditures................................ 53 44 40 49 36 27 24
Acquisitions........................................ 53 12 52 132 75 26 39
Ratio of net debt to prior 12 months EBITDA......... 5.6x 4.0x 4.0x 3.2x 3.4x 3.4x 3.5x
Ratio of EBITDA to interest......................... 3.1 3.7 3.3 4.9 5.5 4.3 3.6
Ratio of earnings to fixed charges.................. 1.8 2.1 1.6 2.3 2.5 2.4 2.1
Total debt to total capitalization.................. 56.5% 53.2% 51.9% 52.3% 51.4% 52.6% 50.4%
Net debt to net capitalization...................... 56.2 52.7 51.2 51.8 51.1 52.3 50.1
Return on assets.................................... 3.6 4.5 5.4 7.8 7.7 7.5 7.1
Return on equity.................................... 5.6 7.6 8.2 14.5 14.9 13.3 12.0
Number of stores.................................... 827 714 716 647 570 425 374
Balance Sheet Data (at end of period)
Cash................................................ $ 10 $ $11 $ 16 $ 10 $ 6 $ 4 $ 3
Accounts receivable, net............................ 617 576 519 538 535 398 316
Inventory........................................... 346 299 293 254 184 132 120
Property, plant and equipment, net.................. 262 223 216 203 168 127 109
Total assets........................................ 1,517 1,343 1,289 1,209 1,050 766 637
Notes payable....................................... 154 220 190 140 173 113 29
Long-term debt (incl. current portion).............. 548 371 370 399 286 226 240
Total debt.......................................... 702 590 560 539 459 339 269
Total stockholders' equity.......................... 539 519 519 490 433 306 264
S-4
PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined statements of earnings for the
year ended February 29, 1996 and the nine months ended November 30, 1996 give
effect to (i) acquisitions of certain assets from various entities by
Heilig-Meyers and by Rhodes that have occurred and (ii) the acquisition of
Rhodes (the "Merger"). The pro forma information is based on the historical
financial statements of Heilig-Meyers and Rhodes giving effect to the Merger
under the purchase method of accounting and the assumptions and adjustments
described in the accompanying notes to the unaudited pro forma financial
statements. The following unaudited pro forma combined balance sheet gives
effect to the acquisition of Rhodes as if it had been completed as of November
30, 1996.
The unaudited pro forma statements have been prepared by the management of
Heilig-Meyers and Rhodes based upon the historical information included herein
and other financial information. These pro forma statements do not purport to be
indicative of the results of operations or financial position which would have
occurred had the acquisition been made at the beginning of the periods or as of
the date indicated or of the financial position or results of operations which
may be obtained in the future.
Heilig-Meyers will account for the transaction under the purchase method of
accounting. Accordingly, the cost to acquire Rhodes will be allocated to the
assets acquired and liabilities assumed according to their respective fair
values. The final allocation of the purchase price is dependent upon certain
valuations and other studies that have not progressed to a stage where there is
sufficient information to make such a complete allocation in the accompanying
pro forma statements. Accordingly, the purchase allocation adjustments are
preliminary and have been made solely for the purpose of preparing such pro
forma statements.
HEILIG-MEYERS COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEAR ENDED FEBRUARY 29, 1996
HEILIG-MEYERS RHODES
---------------------------------------- -----------------------------------------
OTHER OTHER PRO FORMA
HISTORICAL ACQUISITIONS (A) PRO FORMA HISTORICAL ACQUISITIONS (B) PRO FORMA ADJUSTMENTS (C)
---------- ---------------- ---------- ---------- ---------------- --------- ---------------
(IN THOUSANDS)
REVENUES:
Sales............... $1,138,506 $ 92,750 $1,231,256 $ 430,193 $ 76,015 $ 506,208
Other Income........ 220,843 7,900 228,743 5,822 5,822
---------- ---------------- ---------- ---------- ---------------- ---------
Total Revenues.... 1,359,349 100,650 1,459,999 436,015 76,015 512,030
---------- ---------------- ---------- ---------- ---------------- ---------
COSTS AND EXPENSES:
Costs of sales...... 752,317 62,400 814,717 225,953 46,161 272,114 55,450 (D)
(550)(E)
Selling, general and
administrative.... 436,361 32,400 468,761 190,445 29,678 220,123 (55,450)(D)
(2,325)(F)
2,300 (G)
Interest............ 40,767 4,950 45,717 6,898 1,884 8,782 (1,825)(H)
Non-recurring
charge............ 2,400 2,400
Provision for
doubtful
accounts.......... 65,379 1,600 66,979 167 61 228
---------- ---------------- ---------- ---------- ---------------- --------- ---------------
Total costs and
expenses........ 1,294,824 101,350 1,396,174 425,863 77,784 503,647 (2,400)
---------- ---------------- ---------- ---------- ---------------- --------- ---------------
EARNINGS (LOSS) BEFORE
INCOME TAXES........ 64,525 (700) 63,825 10,152 (1,769) 8,383 2,400
Provision for income
taxes............... 23,021 (250) 22,771 4,162 (726) 3,436 960 (I)
---------- ---------------- ---------- ---------- ---------------- --------- ---------------
NET EARNINGS (LOSS)... $ 41,504 $ (450) $ 41,054 $ 5,990 $ (1,043) $ 4,947 $ 1,440
---------- ---------------- ---------- ---------- ---------------- --------- ---------------
---------- ---------------- ---------- ---------- ---------------- --------- ---------------
PRO FORMA
COMBINED
----------
REVENUES:
Sales............... $1,737,464
Other Income........ 234,565
----------
Total Revenues.... 1,972,029
----------
COSTS AND EXPENSES:
Costs of sales...... 1,141,731
Selling, general and
administrative.... 633,409
Interest............ 52,674
Non-recurring
charge............ 2,400
Provision for
doubtful
accounts.......... 67,207
----------
Total costs and
expenses........ 1,897,421
----------
EARNINGS (LOSS) BEFORE
INCOME TAXES........ 74,608
Provision for income
taxes............... 27,167
----------
NET EARNINGS (LOSS)... $ 47,441
----------
----------
See notes to pro forma condensed consolidated statements of earnings.
S-5
HEILIG-MEYERS COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE NINE MONTHS ENDED NOVEMBER 30, 1996
HEILIG-MEYERS
------------------------------------------
OTHER RHODES PRO FORMA PRO FORMA
HISTORICAL ACQUISITIONS (A) PRO FORMA HISTORICAL ADJUSTMENTS (C) COMBINED
---------- ---------------- ---------- ---------- --------------- ----------
(IN THOUSANDS)
REVENUES:
Sales............................... $ 939,406 $ 44,900 $ 984,306 $ 375,258 $1,359,564
Other Income........................ 175,506 3,650 179,156 4,998 184,154
---------- ---------------- ---------- ---------- ----------
Total Revenues................... 1,114,912 48,550 1,163,462 380,256 1,543,718
---------- ---------------- ---------- ---------- ----------
COSTS AND EXPENSES:
Costs of sales...................... 613,032 30,550 643,582 206,191 55,750 (D) 905,023
(500)(E)
Selling, general and
administrative................... 362,445 15,500 377,945 176,317 (55,750)(D) 498,337
(1,900)(F)
1,725 (G)
Interest............................ 33,415 2,500 35,915 7,170 (1,660)(H) 41,425
Provision for doubtful accounts..... 60,027 700 60,727 330 61,057
---------- ---------------- ---------- ---------- --------------- ----------
Total costs and expenses......... 1,068,919 49,250 1,118,169 390,008 (2,335) 1,505,842
---------- ---------------- ---------- ---------- --------------- ----------
EARNINGS (LOSS) BEFORE INCOME TAXES... 45,993 (700) 45,293 (9,752) 2,335 37,876
Provision for income taxes............ 16,384 (250) 16,134 (3,998) 934(I) 13,070
---------- ---------------- ---------- ---------- --------------- ----------
NET EARNINGS (LOSS)................... $ 29,609 $ (450) $ 29,159 $ (5,754) $ 1,401 $ 24,806
---------- ---------------- ---------- ---------- --------------- ----------
---------- ---------------- ---------- ---------- --------------- ----------
See notes to pro forma condensed consolidated statements of earnings.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(A) Amounts reflect the pro forma results of other Heilig-Meyers
acquisitions that have occurred. These amounts include pro forma
adjustments to reflect the amortization of goodwill and additional
interest expense that would have been incurred had the acquisitions
been completed at the beginning of the period.
(B) Amounts reflect the acquisition of certain assets of Weberg by Rhodes
during fiscal year 1996. These amounts include pro forma adjustments
to reclassify certain revenue and expense amounts to conform to
Rhodes' presentation. Additionally, amounts reflect the amortization
of goodwill and additional interest expense that would have occurred
had the acquisition been completed at the beginning of the period.
(C) Heilig-Meyers expects to achieve certain synergies in relation to the
business combination. Such synergies are not included in the pro forma
adjustments.
(D) Rhodes occupancy, warehouse and delivery expenses have been
reclassified from selling, general and administrative expenses to cost
of sales to be consistent with the Heilig-Meyers presentation.
(E) Elimination of the effect of LIFO inventory on cost of goods sold.
(F) Elimination of amortization of Rhodes' historical goodwill and other
intangible assets.
(G) Amortization of estimated goodwill attributable to the transaction.
(H) To give effect to refinancing of certain Rhodes long term notes
payable.
(I) To tax effect pro forma adjustments at the statutory rate adjusted for
the tax treatment of goodwill.
S-6
HEILIG-MEYERS COMPANY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF NOVEMBER 30, 1996
HEILIG-MEYERS RHODES PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS (A) COMBINED
------------- ---------- --------------- ----------
(AMOUNTS IN THOUSANDS)
ASSETS:
Current assets:
Cash............................................................ $ 9,858 $ 508 $ 10,366
Accounts receivable, net........................................ 617,431 8,380 625,811
Inventories..................................................... 345,953 82,029 (12,168)(B) 415,814
Other........................................................... 69,316 11,983 14,383 (C) 95,682
------------- ---------- --------------- ----------
Total Current Assets......................................... 1,042,558 102,900 2,215 1,147,673
------------- ---------- --------------- ----------
Property, plant & equipment, net.................................. 261,843 83,862 345,705
Excess cost over net assets acquired
and other, net.................................................. 212,857 71,594 (61,373)(D) 306,550
92,111 (D)
(8,639)(E)
------------- ---------- --------------- ----------
$ 1,517,258 $ 258,356 $ 24,314 $1,799,928
------------- ---------- --------------- ----------
------------- ---------- --------------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Notes payable................................................... $ 153,750 $ 15,219 $ 168,969
Long-term debt due within one year.............................. 99,246 99,246
Accounts payable................................................ 121,598 51,753 173,351
Accrued expenses and other...................................... 103,373 42,997 18,000 (F) 166,020
1,650 (G)
------------- ---------- --------------- ----------
Total Current Liabilities.................................... 477,967 109,969 19,650 607,586
------------- ---------- --------------- ----------
Long-term debt/capital leases..................................... 448,531 76,992 525,523
Deferred income taxes............................................. 51,605 6,862 58,467
Stockholders' equity:
Common stock, at par............................................ 97,246 9,150 (H) 106,396
Capital in excess of par value.................................. 121,505 99,976 60,047 (H) 181,552
(99,976)(H)
Retained earnings (accumulated deficit)......................... 320,404 (35,443) 35,443 (H) 320,404
------------- ---------- --------------- ----------
Total stockholders' equity................................... 539,155 64,533 4,664 608,352
------------- ---------- --------------- ----------
$ 1,517,258 $ 258,356 $ 24,314 $1,799,928
------------- ---------- --------------- ----------
------------- ---------- --------------- ----------
See notes to pro forma condensed consolidated balance sheet.
S-7
HEILIG-MEYERS COMPANY
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(A) The final allocation of the purchase price is dependent upon certain
valuations and other studies that have not progressed to a stage where
there is sufficient information to make such a complete allocation in
the condensed consolidated pro forma balance sheet. Accordingly, the
purchase price allocation adjustments are preliminary and have been
made solely for the purpose of preparing such pro forma balance sheet.
(B) To adjust Rhodes' LIFO inventory to a FIFO average cost basis net of
allowances for obsolescence, shrinkage and damaged goods.
(C) To record the estimated deferred income tax effects of adjustments
described in (B) and (D) through (G) herein.
(D) To remove Rhodes' net goodwill balance of $61,373 and to reflect the
net effect of pro forma adjustments that impact the excess purchase
price and other direct expenses of the Merger over the fair value of
net assets acquired which is an estimated $92,111.
(E) To adjust certain Rhodes' intangibles and other assets to estimated
fair value.
(F) To record liability for direct out-of-pocket costs and contractual
obligations arising due to the change in control of Rhodes and
estimated incremental costs associated with severance and relocation.
(G) To accrue prepayment penalities related to long term debt obligations
of Rhodes.
(H) To record consideration for the Merger and remove Rhodes stockholders'
equity balances:
Heilig-Meyers shares to be issued in exchange for Rhodes common stock....................... 4,575
Market value per share of Heilig-Meyers Common Stock on announcement date................... $15.125
-------
Total value of stock exchange............................................................. $69,197
-------
-------
S-8
DESCRIPTION OF NOTES
THE FOLLOWING DESCRIPTION OF THE PARTICULAR TERMS OF THE NOTES OFFERED
HEREBY SUPPLEMENTS, AND TO THE EXTENT INCONSISTENT THEREWITH REPLACES, THE
DESCRIPTION OF THE GENERAL TERMS AND PROVISIONS OF DEBT SECURITIES SET FORTH IN
THE PROSPECTUS, TO WHICH DESCRIPTION REFERENCE IS HEREBY MADE. CAPITALIZED TERMS
NOT DEFINED IN THIS PROSPECTUS SUPPLEMENT HAVE THE MEANINGS ASSIGNED TO SUCH
TERMS IN THE PROSPECTUS.
The Notes are to be issued under an Indenture, dated as of August 1, 1996
(the "Indenture"), among MacSaver, Heilig-Meyers and First Union National Bank
of Virginia, as Trustee (the "Trustee"), which is more fully described in the
accompanying Prospectus under "Description of Debt Securities."
GENERAL
The Notes are a separate series of Debt Securities under the Indenture
described in the Prospectus and will be limited to $100,000,000 aggregate
principal amount. The Notes will be issued only in book-entry form in
denominations of $1,000 and integral multiples of $1,000, will bear interest
from February 15, 1997 at the annual rate set forth on the cover page of this
Prospectus Supplement, and will mature on February 15, 2002. Interest will be
payable semi-annually on February 15 and August 15 of each year, commencing
August 15, 1997, to the persons in whose names the Notes are registered at the
close of business on the February 1 or August 1 next preceding such interest
payment date. The Notes will not be redeemable prior to their stated maturity
date and will not be entitled to any sinking fund.
Principal of and interest on the Notes will be payable at the office or
agency of MacSaver to be maintained in the Borough of Manhattan, The City of New
York, initially at First Union National Bank, 40 Broad Street, 5th Floor, Suite
500, New York, New York 10004; provided, however, that at the option of MacSaver
payment of interest may be made by check mailed to the registered Holders of the
Notes.
RANKING
The Notes will be unsecured obligations of MacSaver, will rank equally and
ratably with other unsecured and unsubordinated indebtedness of MacSaver and
will be unconditionally guaranteed as to payment of principal and interest by
Heilig-Meyers. The Guarantees will be unsecured obligations of Heilig-Meyers and
will rank equally and ratably with all other unsecured and unsubordinated
indebtedness of Heilig-Meyers.
BOOK-ENTRY PROCEDURES
Upon issuance, all Notes will be represented by one or more fully
registered global notes (the "Global Notes"). Each such Global Note will be
deposited with, or on behalf of, The Depositary Trust Company, as Depositary
("DTC" or the "Depositary"), registered in the name of the Depositary or a
nominee thereof. Unless and until it is exchanged in whole or in part for Notes
in definitive form, no Global Note may be transferred except as a whole by the
Depositary to a nominee of such Depositary or by a nominee of such Depositary to
such Depositary.
The Depositary has advised MacSaver as follows: the Depositary is a
limited-purpose trust company organized under the Banking Law of the State of
New York, a "banking organization" within the meaning of the Banking Law of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. The Depositary was created to hold securities of its participants
(defined below) and to facilitate the clearance and settlement transactions
among its participants in such securities through electronic book-entry changes
in accounts of the participants, thereby eliminating the need for physical
movement of securities certificates. The Depositary's participants include
securities brokers and dealers (including the Underwriters), banks, trust
companies, clearing corporations, and certain other organizations, some of whom
(and/or their representatives) own the Depositary. Access to the Depositary's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly.
Ownership of beneficial interests in the Notes will be limited to persons
that have accounts with the Depositary ("participants") or other persons that
may hold interests through participants. The Depositary has advised MacSaver
that upon the issuance of the Global Notes representing the Notes, the
Depositary will credit, on its book-entry registration and transfer system, the
participants' accounts with the respective principal amounts of the
S-9
Notes. Ownership of beneficial interests in such Global Notes will be shown on,
and the transfer of such ownership interests will be effected only through,
records maintained by the Depositary (with respect to interests of participants)
and on the records of participants (with respect to interests of persons holding
through participants). The laws of some states may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and such laws may impair the ability to own, transfer or
pledge beneficial interests in Global Notes.
So long as the Depositary, or its nominee, is the registered owner of a
Global Note, the Depositary or its nominee, as the case may be, will be
considered the sole owner or Holder of the Notes represented by such Global Note
for all purposes under the Indenture. Except as provided below, owners of
beneficial interests in a Global Note will not be entitled to have the Notes
represented by such Global Notes registered in their names, will not receive or
be entitled to receive physical delivery of the Notes in definitive form and
will not be considered the owners or Holders thereof under the Indenture.
Accordingly, each Person owning a beneficial interest in a Global Note must rely
on the procedures of the Depositary and, if such Person is not a participant, on
the procedures of the participant through which such person owns its interest,
to exercise any rights of a Holder under the Indenture. MacSaver understands
that under existing industry practices, in the event that MacSaver requests any
action of Holders or that an owner of a beneficial interest in such a Global
Note desires to give or take any action which a Holder is entitled to give or
take under the Indenture, the Depositary would authorize the participants
holding the relevant beneficial interests to give or take such action, and such
participants would authorize beneficial owners owning through such participants
to give or take such action or would otherwise act upon the instructions of
beneficial owners holding through them.
Payment of principal of, and interest on, Notes registered in the name of
the Depositary or its nominee will be made to the Depositary or its nominee, as
the case may be, as the Holder of the Global Notes representing such Notes. None
of MacSaver, the Trustee or any other agent of MacSaver or agent of the Trustee
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests or for
supervising or reviewing any records relating to such beneficial ownership
interests. The Depositary, upon receipt of any payment of principal or interest
in respect of a Global Note, will credit the accounts of the participants with
payment in amounts proportionate to their respective beneficial interests in
such Global Notes as shown on the records of the Depositary. Payments by
participants to owners of beneficial interests in a Global Note will be governed
by standing customer instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or registered
in "street name," and will be the responsibility of such participants.
If (x) the Depositary is at any time unwilling or unable to continue as
Depositary with respect to Global Notes or the Depositary ceases to be a
clearing agency registered under the Exchange Act, (y) MacSaver executes and
delivers to the Trustee a Company Order to the effect that the Global Notes
shall be transferable and exchangeable or (z) there shall have occurred and be
continuing an Event of Default or an event which after notice or lapse of time,
or both, would constitute an Event of Default with respect to the Notes, the
Global Notes will be transferable or exchangeable for Notes in definitive form
of like tenor in an equal aggregate principal amount. Such definitive Notes
shall be registered in such name or names as the Depositary shall instruct the
Trustee. It is expected that such instructions may be based upon directions
received by the Depositary from participants with respect to ownership of
beneficial interests in such Global Notes.
ADDITIONAL COVENANTS OF HEILIG-MEYERS
In addition to the covenants set forth in the Prospectus, the following
covenants will be applicable to the Notes.
LEVERAGE RATIO. Heilig-Meyers must maintain, as of the last day of each
fiscal year of Heilig-Meyers, a ratio of Consolidated Debt to Consolidated Total
Capital of not more than 0.65 to 1.00.
"Consolidated Debt" means the aggregate amount of all Debt of
Heilig-Meyers, MacSaver and the other Restricted Subsidiaries determined on a
consolidated basis in accordance with generally accepted accounting principles
consistently applied.
"Debt" means Indebtedness less all accounts payable and expenses incurred
in the ordinary course of business which would otherwise be included as
Indebtedness.
S-10
"Consolidated Total Capital" means the sum of Consolidated Debt plus the
aggregate amount of total stockholders' equity of Heilig-Meyers, MacSaver and
the other Restricted Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles consistently applied.
FIXED CHARGE COVERAGE RATIO. Heilig-Meyers may not, and may not permit any
Restricted Subsidiary to, issue, assume, guarantee, incur, create or otherwise
become liable in respect of any Debt unless the ratio of Cash Flow to Fixed
Charge, calculated for the immediately preceding period of four consecutive
fiscal quarters, after giving effect, on a pro forma basis as if incurred at the
beginning of such period, to such Debt and to any other Debt incurred since the
end of such period, would equal or exceed 1.15 to 1.00, except that
Heilig-Meyers or any Restricted Subsidiary may issue, assume, guarantee, incur,
create or otherwise become liable in respect of (i) Debt of a Restricted
Subsidiary payable to Heilig-Meyers or to a Restricted Subsidiary, (ii) Debt
arising under bank loan facilities existing on the date of the Indenture or
established after such date in accordance with the Indenture (as such facilities
may be increased, extended, renewed or otherwise amended, supplemented or
modified from time to time) (the aggregate principal amount of loans outstanding
or available under such facilities on January 31, 1997 was $495,000,000, which
amount may be increased in the future), (iii) Debt of any corporation or other
entity outstanding at the time such corporation or other entity became a
Restricted Subsidiary (and not incurred in contemplation thereof), (iv) Debt
incurred to finance the purchase, construction or other acquisition of assets if
such Debt could be secured by such assets in accordance with the Indenture (see
"RESTRICTIONS ON LIENS" in the Prospectus), (v) Attributable Debt otherwise
permitted under the Indenture (see "RESTRICTIONS ON SALE AND LEASEBACK
TRANSACTIONS" in the Prospectus), (vi) deferred payment obligations representing
the unpaid purchase price of property, assets or services or Debt arising under
any conditional sale or other title retention agreement, (vii) Debt not
otherwise permitted by clauses (i) through (vi) above in an aggregate
outstanding principal amount not to exceed $50,000,000 and (viii) Debt incurred
in connection with any extension, renewal, refinancing, replacement or refunding
(including successive extensions, renewals, refinancings, replacements or
refundings), in whole or in part, of any Indebtedness of Heilig-Meyers or any
Restricted Subsidiary (other than Indebtedness incurred pursuant to clause (vii)
above), provided that (A) the principal amount of such Debt does not exceed the
sum of the principal amount of the Indebtedness so extended, renewed,
refinanced, replaced or refunded plus all interest accrued thereon and all
related fees and expenses (including, without limitation, any payments made in
connection with the procurement of any required lender or similar consents), and
(B) for purposes of this clause (viii), Debt arising under bank loan facilities
may only be refinanced, replaced or refunded with other bank loan facilities or
with Debt that is subordinated to the Notes.
"Cash Flow" means, for any period, the sum of (i) the consolidated net
income of Heilig-Meyers, MacSaver and the other Restricted Subsidiaries for such
period plus (ii) Lease Expense for such period plus (iii) Interest Expense for
such period plus (iv) the aggregate amount deducted in determining such
consolidated net income in respect of income taxes, depreciation or
amortization.
"Lease Expense" means, for any period, the consolidated lease expense of
Heilig-Meyers, MacSaver and the other Restricted Subsidiaries for such period
(excluding any portion of lease expense in respect of capitalized leases).
"Interest Expense" means, for any period, the consolidated interest expense
of Heilig-Meyers, MacSaver and the other Restricted Subsidiaries for such period
(including, without limitation, the portion of any obligation under capitalized
leases allocable to interest expense in accordance with generally accepted
accounting principles).
"Fixed Charge" means, for any period, the sum of (i) Lease Expense for such
period plus (ii) Interest Expense for such period.
S-11
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
and the Pricing Agreement, MacSaver has agreed to sell to each of the
Underwriters named below, and each of such Underwriters has severally agreed to
purchase, the respective principal amounts of Notes set forth opposite its name
below:
PRINCIPAL
AMOUNT
UNDERWRITER OF NOTES
- -------------------------------------------------------------- ------------
Goldman, Sachs & Co............................................ $ 33,334,000
NationsBanc Capital Markets, Inc............................... 33,333,000
Salomon Brothers Inc........................................... 33,333,000
------------
Total........................................................ $100,000,000
------------
------------
Under the terms and conditions of the Underwriting Agreement and the
Pricing Agreement, the Underwriters are committed to take and pay for all of the
Notes, if any are taken.
The Underwriters propose to offer the Notes in part directly to the public
at the initial public offering price set forth on the cover page of this
Prospectus Supplement and in part to certain securities dealers at such price
less a concession of 0.50% of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a concession not to exceed
0.25% of the principal amount of the Notes to certain brokers and dealers. After
the Notes are released for sale to the public, the offering price and other
selling terms may from time to time be varied by the Underwriters.
The Notes are a new issue of securities with no established trading market.
MacSaver and Heilig-Meyers have been advised by the Underwriters that they
intend to make markets in the Notes but are not obligated to do so and may
discontinue market making with respect to the Notes at any time without notice.
No assurance can be given as to the liquidity of the trading market for the
Notes.
Each of Heilig-Meyers and MacSaver has agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
From time to time Heilig-Meyers has retained each of the Underwriters, and
MacSaver has retained certain of the Underwriters, to perform various investment
banking and financial advisory services, for which they have received customary
fees. Charles A. Davis, a director of Heilig-Meyers, is a limited partner of
Goldman, Sachs & Co.
NationsBanc Capital Markets, Inc. is an affiliate of NationsBank, N.A., an
agent and lender under a credit agreement with MacSaver and Heilig-Meyers.
MacSaver intends to use more than 10% of the net proceeds from the sale of the
Notes to repay indebtedness owed by it to NationsBank, N.A. Accordingly, the
offering of the Notes is being made in compliance with the requirements of Rule
2710(c)(8) of the National Association of Securities Dealers, Inc.
VALIDITY OF SECURITIES
The validity of the Notes and related Guarantees offered hereby will be
passed upon for MacSaver and Heilig-Meyers by McGuire, Woods, Battle & Boothe,
L.L.P., One James Center, Richmond, Virginia 23219, and for the Underwriters by
Sullivan & Cromwell, 1701 Pennsylvania Avenue, Washington, D.C. 20006. Sullivan
& Cromwell will rely as to all matters governed by Virginia law on the opinion
of McGuire, Woods, Battle & Boothe, L.L.P.
S-12
$400,000,000
[LOGO]
HEILIG MEYERS COMPANY
COMMON STOCK AND WARRANTS
MACSAVER FINANCIAL SERVICES, INC.
(A SUBSIDIARY OF HEILIG-MEYERS COMPANY)
GUARANTEED DEBT SECURITIES
UNCONDITIONALLY GUARANTEED AS TO PAYMENT OF PRINCIPAL, PREMIUM,
IF ANY, AND INTEREST, IF ANY, BY HEILIG-MEYERS COMPANY
------------------------
Heilig-Meyers Company (the "Company") may offer and sell from time to time,
together or separately, (i) shares of its common stock, $2 par value per share
(the "Common Stock") and (ii) warrants to purchase Common Stock (the
"Warrants"). MacSaver Financial Services, Inc., a wholly-owned subsidiary of the
Company ("MacSaver"), may offer and sell from time to time its debt securities
consisting of debentures, notes and/or other unsecured evidences of indebtedness
("Debt Securities"). The Debt Securities will be unconditionally guaranteed (the
"Guarantees") as to payment of principal of, and premium and interest on, if
any, the Debt Securities by the Company. The Common Stock, Warrants and Debt
Securities (collectively, together with the Guarantees, the "Securities") may be
offered, separately or together, at prices and terms to be set forth in one or
more supplements to this Prospectus (each a "Prospectus Supplement") up to an
aggregate initial offering price of $400,000,000 (or its equivalent, based on
the applicable exchange rate at the time of sale, in one or more foreign
currencies, currency units or composite currencies as shall be designated by the
Company or MacSaver, as the case may be).
Specific terms of the Securities for which this Prospectus is being
delivered are set forth in the accompanying Prospectus Supplement including,
where applicable, (i) in the case of Debt Securities, the specific designation,
aggregate principal amount, denominations, currency, maturity, premium, rate of
interest (or method of calculation) and time of payment thereof, terms for
redemption at the option of MacSaver or the holder, the form of the Debt
Securities (which may be in registered or permanent global form), the initial
public offering price and certain other terms of the offering and sale of the
Debt Securities and the terms of the Guarantees in respect of which this
Prospectus is being delivered; (ii) in the case of Common Stock, the number of
shares and initial public offering price of the Common Stock and (iii) in the
case of Warrants, the number of shares of Common Stock which are issuable upon
exercise, the exercise period, the methods of distribution, the initial public
offering or purchase price and the exercise price and detachability if issued
with other Securities, of Warrants for which the Prospectus Supplement is being
delivered. The Prospectus Supplement will also contain information, as
applicable, about any listing on a securities exchange of the Securities for
which the Prospectus Supplement is being delivered.
The Securities may be sold by the Company and MacSaver directly or
indirectly through agents, underwriters or dealers as designated from time to
time or through a combination of such methods. See "Plan of Distribution." The
accompanying Prospectus Supplement sets forth the names of any underwriters,
dealers or agents involved in the sale of the Securities in respect of which
this Prospectus is being delivered and any applicable fee, commission or
discount arrangements with them.
This Prospectus may not be used to consummate sales of Securities unless
accompanied or, to the extent permitted by applicable law, preceded by a
Prospectus Supplement.
------------------------
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.
------------------------
The date of this Prospectus is July 24, 1996.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549; and at the Commission's regional offices at
500 West Madison Street, Chicago, Illinois 60606; and 7 World Trade Center, 13th
Floor, New York, New York 10048. Copies of such material can be obtained by mail
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Company's common stock is
listed on the New York and Pacific Stock Exchanges, and such material may also
be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005 and the Pacific Stock Exchange, Incorporated, 301 Pine
Street, San Francisco, California 94104.
The Company and MacSaver have filed with the Commission a Registration
Statement on Form S-3 (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") under the Securities Act of 1933,
as amended (the "Securities Act"), of which this Prospectus constitutes a part.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is made to the Registration Statement.
In accordance with Staff Accounting Bulletin No. 53, relating to financial
statement requirements in filings involving the guarantee of securities by a
parent corporation, separate financial statements for MacSaver are not included
in this Prospectus.
The Company intends to ask the staff of the Commission for a "no-action"
letter that it would not raise any objection if MacSaver does not file periodic
reports under Sections 13 and 15(d) of the Exchange Act. Accordingly, MacSaver
is not expected to file periodic reports under the Exchange Act.
------------------------
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company are hereby
incorporated by reference into this Prospectus:
(a) the annual report on Form 10-K for the fiscal year ended February
29, 1996;
(b) the quarterly report on Form 10-Q for the quarter ended May 31,
1996;
(c) the description of the Common Stock contained in the Registration
Statement on Form 8-A filed with the Commission on April 26, 1983 (File No.
1-8484), as amended by amendments on Form 8, filed with the Commission on
April 9, 1985, February 23, 1988, September 20, 1989, July 31, 1990, August
6, 1992 and July 28, 1994, respectively; and
(d) the description of the Rights to Purchase Preferred Stock, Series
A contained in the Registration Statement on Form 8-A (File No. 1-8484)
filed with the Commission on February 23, 1988 as amended by an amendment
on Form 8 filed with the Commission on September 20, 1989.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Securities shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
respective dates of filing of such documents. Any statement contained herein or
in a document all or any portion of which is incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such earlier statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated herein by reference (other
than certain exhibits to such documents). Requests for such copies should be
directed to Heilig-Meyers Company, 2235 Staples Mill Road, Richmond, Virginia
23230; Attention: Paige H. Wilson, Secretary, telephone (804) 359-9171.
2
HEILIG-MEYERS COMPANY
BUSINESS
GENERAL
The Company is the nation's largest publicly held specialty retailer of
home furnishings with 739 stores (as of May 31, 1996), in 26 states and Puerto
Rico. The Company's stores are primarily located in small towns and rural
markets in the Southeast, Midwest, West and Southwest of the continental United
States. The Company's operating strategy includes: (1) offering a broad
selection of competitively priced home furnishings including furniture, consumer
electronics, appliances, bedding and floor coverings; (2) locating stores
primarily in small towns and rural markets which are at least 25 miles from a
metropolitan area; (3) offering in-house credit programs to provide flexible
financing to its customers; (4) utilizing centralized inventory and distribution
systems in strategic regional locations to support store inventory and
merchandise delivery options; and (5) emphasizing customer service, including
free delivery on most major purchases and repair service for consumer
electronics and other mechanical items. The Company believes this strategy of
offering selection, credit, delivery and service generally allows it to have the
largest market share among home furnishings retailers in most of its small-town
markets.
The Company has undertaken several programs to enhance operating
efficiencies, reduce costs, improve management controls, and manage the growth
of its business. These programs have included: a prototype store program
featuring the latest in display techniques and construction efficiencies; a
remodeling program under which stores are typically remodeled on a seven year
schedule; improved distribution management with eight state-of-the-art
distribution centers which are designed to service stores typically located
within 250 miles of such centers (a ninth distribution center is under
construction and expected to be completed by the end of the current fiscal
year); information systems improvements including a sales and inventory control
system and a company wide hardware upgrade which have allowed numerous system
enhancements including satellite communications; a new purchasing strategy of
consolidating vendors for purchasing advantages due to scale economies and
improved inventory management including electronic data interchange (EDI)
ordering and just-in-time ordering; and increased use of market segmentation
techniques to identify prospective customers and to permit a more targeted
direct mail advertising program.
The Company's executive offices are located at 2235 Staples Mill Road,
Richmond, Virginia 23230. The telephone number is (804) 359-9171. MacSaver is a
Delaware corporation and a wholly-owned subsidiary of the Company through which
financing is obtained for the operations of the Company and its other
subsidiaries. The executive offices of MacSaver are located at 2 Reads Way,
Suite 224, New Castle, Delaware 19720. The telephone number is (302) 325-3841.
STORE OPERATIONS
GENERAL
The Company believes that locating stores in small towns and rural markets
provides an important competitive advantage. Currently, approximately 80% of all
stores are located in towns with populations under 50,000 and more than 25 miles
from a metropolitan market. As the majority of other home furnishings chains
locate their stores in larger cities, competition in these small towns largely
comes from locally-owned store operations which generally lack the financial
strength to compete effectively with the Company. The Company believes that its
stores have the largest market share among home furnishings retailers in the
majority of their areas.
The Company's stores generally range in size from 10,000 to 35,000 square
feet, with the average being approximately 20,000 square feet. A store's
attached or nearby warehouse usually measures from 3,000 to 5,000 square feet. A
typical store is designed to give the customer an urban shopping experience in a
rural location. The Company's existing store remodeling program, under which
stores are remodeled on a rotational basis, provides the Company's older stores
with a fresh look and up-to-date displays on a periodic basis.
DISTRIBUTION
The Company currently operates seven distribution centers in the
continental U.S. and one center in Puerto Rico, each of which has cantilever
racking and computer-controlled random-access inventory storage. Over the past
two years, the Company expanded three of its distribution centers to handle
increased sales levels. A ninth
3
distribution center, currently being constructed in Athens, Texas, is scheduled
to be completed by the end of the current fiscal year.
CREDIT OPERATIONS
The Company believes that offering flexible, in-house credit is an
important part of its business strategy which provides a significant competitive
advantage. Because installment credit is administered at the store level, terms
can generally be tailored to meet the customer's ability to pay. The Company
believes its credit program fosters customer loyalty and repeat business.
Historically, approximately 80% of the Company's sales have been made through
the Company's installment credit program.
The following table sets forth certain data regarding the Company's credit
operations:
FISCAL YEARS ENDED
-----------------------------------------------------
FEB. FEB. FEB. FEB.
FEB. 29, 28, 28, 28, 29,
1996 1995 1994 1993 1992
--------- ------- ------- ------- -------
Average number of installment accounts receivable(1)............ 1,220,660 972,418 799,501 652,569 557,027
Average initial term of account (in months)(2).................. 17.2 16.6 16.7 16.6 16.5
Provision for doubtful accounts as % of sales................... 5.7% 4.8% 4.5% 4.4% 4.6%
Net charge-offs as % of sales................................... 5.0 4.6 4.1 4.1 4.3
- ---------------
(1) Includes securitized accounts receivable which are still serviced by the
Company.
(2) For installment contracts originated during the indicated fiscal year,
calculated at the date of origination.
MERCHANDISING
The Company's merchandising strategy is to offer a broad selection of
competitively priced home furnishings, including furniture and accessories,
consumer electronics, appliances, bedding, and other items such as jewelry,
small appliances and seasonal goods. The table below sets forth the percentage
of sales of these items during the last five years:
FISCAL YEARS ENDED
--------------------------------------------
FEB. 29, FEB. 28, FEB. 28, FEB. 28,
1996 1995 1994 1993
-------- -------- -------- --------
Furniture and accessories................................................. 58% 59% 59% 59%
Consumer electronics...................................................... 12 11 12 13
Appliances................................................................ 9 8 8 8
Bedding................................................................... 11 10 10 10
Other items............................................................... 10 12 11 10
FEB. 29,
1992
--------
Furniture and accessories................................................. 58%
Consumer electronics...................................................... 13
Appliances................................................................ 8
Bedding................................................................... 9
Other items............................................................... 12
ADVERTISING AND PROMOTION
In fiscal 1996, the Company distributed over 160 million direct mail
circulars. This included monthly circulars sent by direct mail to over ten
million households on the Company's mailing list and special private sale
circulars mailed to over two million of these households each month, as well as
during special promotional periods. During fiscal 1996, the Company continued to
utilize market segmentation techniques (begun in fiscal 1994) to identify
prospective customers by matching their demographics to those of existing
customers. Management believes ongoing market research and improved mailing
techniques enhance the Company's ability to place circulars in the hands of
potential customers most likely to make a purchase. The Company believes that
availability, as well as the terms of credit, are key determinants in the
purchase decision, and therefore, promotes credit availability by disclosing
monthly payment terms in its circulars. Historically, expenses for advertising
and promotion have been between 6% and 8% of sales. Advertising expense was
above its historical levels in fiscal 1996 at approximately 8.4% of sales.
CORPORATE EXPANSION
The Company has grown from 322 stores at February 28, 1991, to 716 stores
at February 29, 1996. Over this time period, the Company has expanded from its
traditional Southeast operating region into the Midwest, West, Southwest and
outside the continental United States into Puerto Rico. The Company currently
operates stores in
4
Alabama, Arizona, Arkansas, California, Colorado, Florida, Georgia, Illinois,
Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, Nevada, New Mexico,
North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas,
Virginia, West Virginia, Wisconsin and Puerto Rico. Management believes that the
Company's size and geographically diverse store locations are competitive
advantages and allow for greater stability in its operations.
USE OF PROCEEDS
Except as otherwise provided in the applicable Prospectus Supplement, the
net proceeds from the sale of the Securities will be used for general corporate
purposes, which may include repayment of outstanding indebtedness, capital
expenditures, working capital requirements and possible future acquisitions. The
precise amount and timing of the application of such proceeds will depend upon
the funding requirements of the Company or MacSaver, as the case may be, and the
availability and cost of other funds. Allocation of the proceeds of particular
Securities, or the principal reasons for the offering if no such allocation has
been made, will be described in the applicable Prospectus Supplement.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratios of earnings to fixed charges for
the years indicated:
YEAR ENDED FEBRUARY (28)29
------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Ratio of Earnings to Fixed Charges..................................................... 1.62x 2.28x 2.50x 2.35x 2.06x
For purposes of this ratio, earnings are calculated by adding fixed charges
(excluding capitalized leases) to income before income taxes and extraordinary
items. Fixed charges consist of interest on indebtedness (including amortization
of debt discount and premium) and the portion of rental expense representative
of an interest factor.
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions
of the Debt Securities to which any Prospectus Supplement may relate. The
particular terms of the Debt Securities offered by any Prospectus Supplement and
the extent, if any, to which such general provisions may not apply to the Debt
Securities so offered will be described in the Prospectus Supplement relating to
such Debt Securities.
The Debt Securities and related Guarantees are to be issued under an
Indenture (the "Indenture"), among MacSaver, the Company and First Union
National Bank of Virginia, as trustee (the "Trustee"). A copy of the Indenture
is filed as an exhibit to the Registration Statement of which this Prospectus is
a part. The following summaries of certain provisions of the Debt Securities and
the Indenture do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all the provisions of the
Indenture, including the definitions therein of certain terms. Wherever
particular Sections, Articles or defined terms of the Indenture are referred to,
such Sections, Articles or defined terms are incorporated herein by reference.
Article and Section references used herein are references to Articles and
Sections of the Indenture. Capitalized terms not otherwise defined herein shall
have the meanings given in the Indenture.
Unless otherwise indicated, currency amounts in this Prospectus and any
Prospectus Supplement are stated in United States dollars ("$", "U.S. Dollars"
or "dollars").
GENERAL
The Indenture does not limit the aggregate principal amount of Debt
Securities which may be issued thereunder and provides that Debt Securities may
be issued thereunder up to an aggregate principal amount which may be authorized
from time to time by MacSaver. The Debt Securities will be unsecured
unsubordinated obligations of MacSaver and will rank on a parity in right of
payment with all other unsecured and unsubordinated indebtedness of MacSaver.
The Debt Securities will be unconditionally guaranteed by the Company as to
payment of principal, premium, if any, and interest. See "Guarantees."
5
Reference is made to the applicable Prospectus Supplement relating to the
series of Debt Securities offered thereby for specific terms, including (where
applicable): (1) the title or designation of such Debt Securities; (2) any limit
on the aggregate principal amount of such Debt Securities; (3) the price or
prices (expressed as a percentage of the principal amount thereof) at which such
Debt Securities will be issued; (4) the date or dates on which the principal of
and premium, if any, on such Debt Securities will be payable, or the method or
methods, if any, by which such date or dates will be determined; (5) the rate or
rates (which may be fixed or variable) at which such Debt Securities will bear
interest, if any, or the method or methods, if any, by which such rate or rates
are to be determined, the date or dates, if any, from which such interest will
accrue, or the method or methods, if any, by which such date or dates are to be
determined, and whether and under what circumstances Additional Amounts on such
Debt Securities will be payable, and the basis upon which interest will be
calculated if other than that of a 360-day year of twelve 30-day months; (6) the
dates on which such interest, if any, will be payable and the record dates
therefor; (7) the place or places where the principal of, premium, if any, and
interest, if any, on such Debt Securities will be payable and the place or
places where such Debt Securities may be surrendered for registration of
transfer and exchange, if other than The City of New York; (8) the date or dates
on which, the period or periods within which, the price or prices at which and
the other terms and conditions upon which such Debt Securities may be redeemed
at the option of MacSaver or are subject to repurchase at the option of the
holders; (9) the terms of any sinking fund or analogous provision; (10) if other
than U.S. dollars, the Currency for which the Debt Securities may be purchased
and the Currency in which the payment of principal thereof and premium, if any,
and interest, if any, thereon may be made, and the ability, if any, of MacSaver,
or the holders of Debt Securities to have payments made in any Currency other
than those in which the Debt Securities are stated to be payable; (11) any
addition to, or modification or deletion of, any covenant or Event of Default
with respect to such Debt Securities; (12) whether any such Debt Securities are
to be issuable in registered or bearer form or both and, if in bearer form, the
terms and conditions relating thereto and any limitations on issuance of such
Bearer Securities (including in exchange for Registered Securities of the same
series); (13) whether any such Debt Securities will be issued in temporary or
permanent global form and, if so, the identity of the depositary for such global
Debt Security; (14) the applicability, if any, of the defeasance or covenant
defeasance provisions of the Indenture applicable to such Debt Securities; (15)
the person to whom any interest on any Registered Securities of the series shall
be payable, if other than the person in whose name the Registered Security (or
one or more Predecessor Securities) is registered at the close of business on
the Regular Record Date for such interest, the manner in which, or the person to
whom, any interest on any Bearer Security of the series shall be payable, if
other than upon presentation and surrender of the coupons appertaining thereto
as they severally mature, and the extent to which, or the manner in which, any
interest payable on a temporary global Debt Security will be paid if other than
in the manner provided in the Indenture; (16) the portion of the principal
amount of Debt Securities which shall be payable upon acceleration thereof if
other than the full principal amount thereof; (17) the authorized denominations
in which Debt Securities will be issuable, if other than denominations of $1,000
and any integral multiple thereof (in the case of Registered Securities) or
$5,000 (in the case of Bearer Securities); (18) the terms, if any, upon which
Debt Securities may be exchangeable for other Securities; (19) whether the
amount of payments of principal of, premium, if any, and interest, if any, on
Debt Securities may be determined with reference to an index, formula or other
method or methods (any Debt Securities being hereinafter called "Indexed
Securities") and the manner in which such amounts will be determined; (20) the
terms of the Guarantees in respect of which this Prospectus is being delivered;
and (21) any other terms of such Debt Securities.
As used in this Prospectus and any Prospectus Supplement relating to the
offering of any Debt Securities, references to the principal of and premium, if
any, and interest, if any, on Debt Securities will be deemed to include mention
of the payment of Additional Amounts, if any, required by the terms of Debt
Securities in such context.
Debt Securities may be issued as Original Issue Discount Securities (as
defined in the Indenture) to be sold at a substantial discount below their
principal amount. In the event of an acceleration of the maturity of any
Original Issue Discount Security, the amount payable to the holder thereof upon
such acceleration will be determined in the manner described in the applicable
Prospectus Supplement. Special United States federal income tax considerations
applicable to Debt Securities issued at an original issue discount, including
Original Issue Discount Securities, and special United States tax considerations
applicable to any Debt Securities which are denominated in a currency or
currency unit other than United States dollars, are described below under
"United States Taxation."
If the purchase price of any Debt Securities is payable in a Currency other
than U.S. dollars or if principal of, or premium, if any, or interest, if any,
on any of the Debt Securities is payable in any Currency other than U.S.
dollars,
6
the specific terms and other information with respect to such Debt Securities
and such Foreign Currency will be specified in the Prospectus Supplement
relating thereto.
Under the Indenture, the terms of the Debt Securities of any series may
differ and MacSaver, without the consent of the holders of the Debt Securities
of any series, may reopen a previous series of Debt Securities and issue
additional Debt Securities of such series.
The Indenture does not contain any provisions which may afford the holders
of any of the Debt Securities protection in the event of a highly leveraged
transaction or similar transaction involving the Company or MacSaver. Any such
provisions, if applicable to any Debt Securities, will be described in the
Prospectus Supplement or Prospectus Supplements relating thereto.
GUARANTEES; HOLDING COMPANY STRUCTURE
The Company will unconditionally guarantee the due and punctual payment of
principal of, premium, if any, and interest on the Debt Securities, when and as
the same shall become due and payable, whether at the maturity date, by
declaration of acceleration, call for redemption or otherwise. The Guarantees
will remain in effect until the entire principal of, premium, if any, and
interest on the Debt Securities shall have been paid in full or otherwise
discharged in accordance with the provisions of the Indenture.
The Company conducts its operations primarily through its wholly-owned
subsidiaries, including MacSaver, and substantially all of the Company's
consolidated assets are held by its subsidiaries. Accordingly, the cash flow of
the Company and the consequent ability to service its debt, including its
obligations under the Guarantees, are largely dependent upon the earnings of
such subsidiaries.
Because the Company is a holding company, the Company's obligations under
the Guarantees will be effectively subordinated to all existing and future
indebtedness, trade payables, guarantees, lease obligations and letter of credit
obligations of the Company's subsidiaries. Therefore, the Company's rights and
the rights of its creditors, including the holders of the Debt Securities under
the Guarantees, to participate in the assets of any subsidiary (other than
MacSaver) upon the latter's liquidation or reorganization will be subject to the
prior claims of such subsidiary's creditors, except to the extent that the
Company may itself be a creditor with recognized claims against the subsidiary,
in which case the claims of the Company would still be effectively subordinate
to any security interest in, or mortgages or other liens on, the assets of such
subsidiary and would be subordinate to any indebtedness of such subsidiary
senior to that held by the Company. Although certain debt instruments to which
the Company and its subsidiaries are parties impose limitations on the
incurrence of additional indebtedness, both the Company and its subsidiaries
retain the ability to incur substantial additional indebtedness and lease and
letter of credit obligations.
REGISTRATION, TRANSFER, PAYMENT AND PAYING AGENT
Unless otherwise indicated in the applicable Prospectus Supplement, each
series of Debt Securities will be issued in registered form only, without
coupons. The Indenture, however, provides that MacSaver may also issue Debt
Securities in bearer form only, or in both registered and bearer form. Bearer
Securities may not be offered, sold, resold or delivered in connection with
their original issuance in the United States or to any United States person (as
defined below) other than offices located outside the United States of certain
United States financial institutions. As used herein, "United States person"
means any citizen or resident of the United States, any corporation, partnership
or other entity created or organized in or under the laws of the United States,
or any estate or trust, the income of which is subject to United States federal
income taxation regardless of its source, and "United States" means the United
States of America (including the states thereof and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction.
Purchasers of Bearer Securities will be subject to certification procedures and
may be affected by certain limitations under United States tax laws. Such
procedures and limitations will be described in the Prospectus Supplement
relating to the offering of the Bearer Securities.
Unless otherwise indicated in the applicable Prospectus Supplement,
Registered Securities will be issued in denominations of $1,000 or any integral
multiple thereof, and Bearer Securities will be issued in denominations of
$5,000.
Unless otherwise indicated in the applicable Prospectus Supplement, the
principal, premium, if any, and interest, if any, of or on the Debt Securities
will be payable, and Debt Securities may be surrendered for registration of
7
transfer or exchange, at an office or agency to be maintained by MacSaver in the
Borough of Manhattan, The City of New York, provided that payments of interest
with respect to any Registered Security may be made at the option of MacSaver by
check mailed to the address of the person entitled thereto or by transfer to an
account maintained by the payee with a bank located in the United States. No
service charge shall be made for any registration of transfer or exchange of
Debt Securities, but MacSaver may require payment of a sum sufficient to cover
any tax or other governmental charge and any other expenses that may be imposed
in connection therewith.
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of, premium, if any, and interest, if any, on Bearer Securities
will be made, subject to any applicable laws and regulations, at such office or
agency outside the United States as specified in the Prospectus Supplement and
as MacSaver may designate from time to time. Unless otherwise indicated in the
applicable Prospectus Supplement, payment of interest due on Bearer Securities
on any Interest Payment Date will be made only against surrender of the coupon
relating to such Interest Payment Date. Unless otherwise indicated in the
applicable Prospectus Supplement, no payment of principal, premium or interest
with respect to any Bearer Security will be made at any office or agency in the
United States or by check mailed to any address in the United States or by
transfer to an account maintained with a bank located in the United States;
provided, however, that if amounts owing with respect to any Bearer Securities
shall be payable in U.S. dollars, payment with respect to any such Bearer
Securities may be made at the Corporate Trust Office of the applicable Trustee
or at any office or agency designated by MacSaver in the Borough of Manhattan,
The City of New York, if (but only if) payment of the full amount of such
principal, premium or interest at all offices outside of the United States
maintained for such purpose by MacSaver is illegal or effectively precluded by
exchange controls or similar restrictions.
Unless otherwise indicated in the applicable Prospectus Supplement,
MacSaver will not be required to (i) issue, register the transfer of or exchange
Debt Securities of any series during a period beginning at the opening of
business 15 days before any selection of Debt Securities of that series of like
tenor to be redeemed and ending at the close of business on the day of that
selection; (ii) register the transfer of or exchange any Registered Security, or
portion thereof, called for redemption, except the unredeemed portion of any
Registered Security being redeemed in part; (iii) exchange any Bearer Security
called for redemption, except to exchange such Bearer Security for a Registered
Security of that series and like tenor that is simultaneously surrendered for
redemption; or (iv) issue, register the transfer of or exchange any Debt
Security which has been surrendered for repayment at the option of the holder,
except the portion, if any, of such Debt Security not to be so repaid.
GLOBAL SECURITIES
The Debt Securities may be issued in whole or in part in the form of one or
more global securities that will be deposited with, or on behalf of, a
depositary (the "Depositary") identified in the Prospectus Supplement relating
to such series. Global Debt Securities may be issued in either registered or
bearer form and in either temporary or permanent form. Unless and until it is
exchanged in whole or in part for individual certificates evidencing Debt
Securities in definitive form represented thereby, a global Debt Security may
not be transferred except as a whole by the Depositary for such global Debt
Security to a nominee of such Depositary or by a nominee of such Depositary to
such Depositary or another nominee of such Depositary or by such Depositary or
any such nominee to a successor of such Depositary or a nominee of such
successor.
The specific terms of the depositary arrangement with respect to a series
of global Debt Securities and certain limitations and restrictions relating to a
series of global Bearer Securities will be described in the Prospectus
Supplement relating to such series.
OUTSTANDING DEBT SECURITIES
In determining whether the holders of the requisite principal amount of
outstanding Debt Securities have given any request, demand, authorization,
direction, notice, consent or waiver under the Indenture, or whether a quorum is
present at a meeting of the holders thereunder, (i) the portion of the principal
amount of an Original Issue Discount Security that shall be deemed to be
outstanding for such purposes shall be that portion of the principal amount
thereof that could be declared to be due and payable upon a declaration of
acceleration thereof pursuant to the terms of such Original Issue Discount
Security as of the date of such determination, (ii) the principal amount of any
Indexed Security that shall be deemed to be outstanding for such purpose shall
be the principal face amount
8
of such Indexed Security determined on the date of its original issuance, (iii)
the principal amount of a Debt Security denominated in a Currency other than
U.S. dollars shall be the U.S. dollar equivalent, determined on the date of
original issue of such Debt Security, of the principal amount of such Debt
Security and (iv) any Debt Security beneficially owned by the Company or
MacSaver or by any obligor on such Debt Security or any Affiliate of the Company
or MacSaver or such other obligor shall be deemed not to be outstanding.
REDEMPTION AND REPURCHASE
The Debt Securities of any series may be redeemable at the option of
MacSaver, may be subject to mandatory redemption pursuant to a sinking fund or
otherwise, or may be subject to repurchase by MacSaver at the option of the
holders, in each case upon the terms, at the times and at the prices set forth
in the applicable Prospectus Supplement.
CERTAIN COVENANTS OF THE COMPANY
RESTRICTED AND UNRESTRICTED SUBSIDIARIES. The various restrictive
provisions of the Indenture applicable to the Company and the Restricted
Subsidiaries do not apply to Unrestricted Subsidiaries. The assets of
Unrestricted Subsidiaries are not consolidated with those of the Company and the
Restricted Subsidiaries in calculating Consolidated Net Tangible Assets, and
investments by the Company or by the Restricted Subsidiaries in Unrestricted
Subsidiaries are excluded in calculating Consolidated Net Tangible Assets. A
"Restricted Subsidiary" is MacSaver and any other subsidiary of the Company or
MacSaver which is organized under the laws of the United States or any state
thereof or Canada or Puerto Rico, which conducts substantially all of its
business and has substantially all of its assets within the United States or
Canada or Puerto Rico, of which more than 80% (by number of votes) of the voting
securities or other similar ownership interests is owned by the Company and/or
one or more Restricted Subsidiaries and which is not designated by the Company
as an Unrestricted Subsidiary in accordance with the Indenture. An "Unrestricted
Subsidiary" is a subsidiary of the Company or MacSaver which is designated by
the Company as an Unrestricted Subsidiary in accordance with the Indenture or
which does not come within the definition of a Restricted Subsidiary. (Section
101)
The Company may designate any Restricted Subsidiary, other than MacSaver,
as an Unrestricted Subsidiary if, immediately after such designation, (i) such
subsidiary does not hold or own, directly or indirectly, any Funded Debt or
capital stock of any Restricted Subsidiary, (ii) the Company could incur
additional Secured Funded Debt in compliance with the Indenture, (iii) neither
the Company nor any Restricted Subsidiary guarantees any obligations of such
subsidiary and (iv) no Default or Event of Default would exist. The Guarantor
may not designate any Unrestricted Subsidiary as a Restricted Subsidiary unless,
immediately after giving effect to such designation, such subsidiary is in
compliance with all of the covenants of the Indenture applicable to Restricted
Subsidiaries, the Company could incur additional Secured Funded Debt (without
securing the Debt Securities equally and ratably) in compliance with the
Indenture and no Default or Event of Default would exist. The Company must at
all times ensure that MacSaver is a wholly-owned Restricted Subsidiary. (Section
1010)
RESTRICTIONS ON SECURED FUNDED DEBT. The Company may not, and may not
permit any Restricted Subsidiary to, issue, assume, guarantee, incur, create or
otherwise become liable in respect of any Secured Funded Debt, unless the Debt
Securities are secured equally and ratably with (or prior to) such Secured
Funded Debt, except (i) Secured Funded Debt of a Restricted Subsidiary
outstanding at the date of the Indenture (there was no such Secured Funded Debt
outstanding as of June 28, 1996), (ii) Secured Funded Debt of a Restricted
Subsidiary payable to the Company or to a Restricted Subsidiary, (iii) Secured
Funded Debt of any corporation or other entity outstanding at the time such
corporation or other entity became a Restricted Subsidiary (and not incurred in
contemplation thereof), (iv) Secured Funded Debt otherwise permitted under the
Indenture (see "RESTRICTIONS ON LIENS"), (v) Attributable Debt otherwise
permitted under the Indenture (see "RESTRICTIONS ON SALE AND LEASEBACK
TRANSACTIONS"), (vi) Secured Funded Debt not otherwise permitted by clauses (i)
through (v) above, provided that, (1) at the time of the issuance, assumption,
guarantee, incurrence or creation thereof no Default or Event of Default is
continuing or would be created thereby and (2) after giving effect thereto and
to the application of the proceeds thereof, no Default or Event of Default shall
have occurred and be continuing and the aggregate amount of all Secured Funded
Debt does not exceed 5% of Consolidated Net Tangible Assets as of the end of the
immediately preceding fiscal quarter and (vii) renewals, extensions and
refundings of Secured Funded Debt permitted by clauses (i) through (vi) above,
provided that the amount of such Secured Funded Debt is not increased unless
otherwise permitted by such clauses. (Section 1007)
9
"Secured Funded Debt" means Funded Debt of any Restricted Subsidiary (other
than MacSaver) or which is secured by a mortgage, security interest, pledge,
conditional sale or other title retention agreement or other lien upon any
assets of the Company, MacSaver or any other Restricted Subsidiary (other than
liabilities in connection with capital lease obligations or industrial
development bonds). (Section 101)
"Funded Debt" means Indebtedness having a final maturity of more than one
year from the date of determination thereof or which is renewable or extendible
at the option of the obligor for a period or periods more than one year from
such date of determination. (Section 101)
"Indebtedness" means all obligations of the Company, MacSaver or any other
Restricted Subsidiary which, in accordance with generally accepted accounting
principles consistently applied, are classified as liabilities on the most
recently available consolidated balance sheet of the Company and the Restricted
Subsidiaries (other than liabilities for minority interests or deferred taxes),
together with the following obligations of the Company, MacSaver or any other
Restricted Subsidiary, determined in accordance with generally accepted
accounting principles consistently applied, whether or not classified as
liabilities (other than obligations with respect to leases of real property or
interests therein that are classified as operating leases in accordance with
generally accepted accounting principles consistently applied): (i) indebtedness
for borrowed money and deferred payment obligations representing the unpaid
purchase price of property, assets or services; (ii) capitalized lease
obligations; (iii) guarantees and endorsements of obligations of others,
directly or indirectly, and all other repurchase agreements and indebtedness in
effect guaranteed through an agreement, contingent or otherwise, to purchase
such indebtedness, or to purchase or sell property, or to purchase or sell
services, primarily for the purpose of enabling the debtor to make payment of
the indebtedness or to assure the owner of the indebtedness against loss, or to
supply funds to or in any manner invest in the debtor, or otherwise to assure a
creditor against loss (but excluding guarantees and endorsements of notes, bills
and checks made in the ordinary course of business and of obligations of
Restricted Subsidiaries); and (iv) indebtedness secured by any mortgage, lien,
pledge, conditional sale agreement, title retention agreement, or other security
interest or encumbrance upon property owned by the Company, MacSaver or any
other Restricted Subsidiary, even though such indebtedness has not been assumed
and notwithstanding that the rights and remedies of the seller, lender or lessor
under such agreement in the event of default may be limited to repossession or
sale of such property. (Section 101)
"Attributable Debt" means the obligations incurred by the Company, MacSaver
or any other Restricted Subsidiary as lessee in connection with sale and
leaseback transactions, in each case valued at the lesser of (i) the fair market
value of the property subject to such transaction or (ii) the present value
(discounted to present value in accordance with generally accepted accounting
principles consistently applied) of the obligation of the lessee for rental
payments (other than contingent rental payments and amounts required to be paid
on account of maintenance, repairs, insurance, taxes, assessments and similar
charges) during the term of such lease. (Section 101)
"Consolidated Net Tangible Assets" means the total amount of all assets of
the Company, MacSaver and the other Restricted Subsidiaries determined on a
consolidated basis in accordance with generally accepted accounting principles
consistently applied, less the sum (without duplication) of (i) the amount, if
any, at which intangible assets (including goodwill, trade names, trademarks,
patents, organization expenses and other similar intangibles) and unamortized
debt discount and expense appear on a consolidated balance sheet, (ii) any
write-up of tangible assets after the date of the Indenture, (iii) all
investments, loans or advances made by the Company, MacSaver or any other
Restricted Subsidiary in or to any Unrestricted Subsidiary (valued at the book
value thereof) and (iv) all liabilities other than minority interests, deferred
taxes and the aggregate amount of Funded Debt of the Company, MacSaver and the
other Restricted Subsidiaries on a consolidated basis (eliminating intercompany
items). (Section 101)
RESTRICTIONS ON LIENS. The Company may not, and may not permit any
Restricted Subsidiary to, create or incur, or suffer to be incurred or to exist,
any mortgage, pledge, security interest, lien, encumbrance or charge of any kind
on its or such Restricted Subsidiary's property or assets, whether now owned or
hereafter acquired, or upon any income or profits therefrom, or transfer any
property for the purpose of subjecting the same to the payment of obligations in
priority to the payment of its or any Restricted Subsidiary's general creditors,
or acquire or agree to acquire any property or assets upon conditional sale
agreements or other title retention devices, except (i) liens securing
Indebtedness existing on the date of the Indenture (the principal amount of such
Indebtedness outstanding on May 31, 1996 was $3,842,816), (ii) liens securing
Indebtedness incurred to finance the purchase, construction or other acquisition
of assets after the date of the Indenture, provided that (A) any such lien shall
10
attach only to such asset and (B) at the time of acquisition of such asset, the
amount remaining unpaid on the Indebtedness secured by such lien shall not
exceed 100% of the lesser of the total purchase price or fair market value of
such asset, (iii) liens for property taxes and assessments or governmental
charges or levies, and liens securing claims or demands of mechanics, suppliers,
carriers, landlords and other like Persons, provided that payment thereof is
being contested in good faith by appropriate proceedings and adequate reserves
have been set aside with respect thereto, (iv) liens incurred or deposits made
in the ordinary course of business (A) in connection with worker's compensation,
unemployment insurance, social security and other like laws or (B) to secure the
performance of letters of credit, bids, tenders, sales contracts, leases,
statutory obligations, surety, appeal and performance bonds and other similar
obligations, in each case not incurred in connection with the borrowing of
money, the obtaining of advances or the payment of the deferred purchase price
of property, (v) attachment, judgment and other similar liens arising in
connection with court proceedings, provided that execution and other enforcement
are effectively stayed and all claims which the liens secure are being actively
contested in good faith by appropriate proceedings, (vi) liens securing
Indebtedness of a Restricted Subsidiary to the Company or to a Restricted
Subsidiary, (vii) liens on real property, interests therein or related fixtures
and equipment subject to leases that are classified as operating leases in
accordance with generally accepted accounting principles consistently applied,
(viii) minor reservations, exceptions, encroachments, easements, rights-of-way,
covenants, conditions, restrictions and other minor title exceptions and (ix)
liens securing Indebtedness incurred after the date of the Indenture and not
otherwise permitted by clauses (i) through (viii) above, provided that, (1) at
the time of the issuance, assumption, guarantee, incurrence or creation thereof
no Default or Event of Default is continuing or would be created thereby, and
(2) after giving effect thereto and to the application of the proceeds thereof,
the aggregate amount of all such Indebtedness does not exceed 10% of
Consolidated Net Tangible Assets as of the end of the immediately preceding
fiscal quarter. (Section 1008)
The Company, MacSaver or any other Restricted Subsidiary may subject any of
its properties to any lien or encumbrance otherwise prohibited by the foregoing
paragraph provided that, concurrently with the imposition of any such lien, the
Debt Securities are secured equally and ratably with all other obligations
secured thereby (as evidenced by an opinion of counsel). (Section 1008)
RESTRICTIONS ON SALE AND LEASEBACK TRANSACTIONS. The Company may not, and
may not permit any Restricted Subsidiary to, sell any property and then lease
back that property or similar property under a lease that (i) is entered into
more than 365 days after the later of the date of acquisition of such property
by the Company, MacSaver or any other Restricted Subsidiary or the date of
completion and occupancy by the Company, MacSaver or any other Restricted
Subsidiary of improvements constructed on such property and (ii) has a term of
more than three years, or is renewable or extendible for a total term of more
than three years, unless, after giving effect to such transaction and to the
application of the proceeds thereof, no Default or Event of Default shall have
occurred and be continuing and the aggregate amount of all Attributable Debt
does not exceed 10% of Consolidated Net Tangible Assets as of the end of the
immediately preceding fiscal quarter. (Section 1009)
RESTRICTIONS ON MERGERS, CONSOLIDATIONS, CONVEYANCES AND TRANSFERS. The
Company may not, and may not permit any Restricted Subsidiary to, merge or
consolidate with or into any other Person or convey, transfer or lease its
properties or assets substantially as an entirety to any other Person, except
(i) any Restricted Subsidiary may merge or consolidate with or into the Company
or any wholly-owned Restricted Subsidiary so long as, in any merger or
consolidation involving the Company, the Company is the surviving or continuing
corporation, (ii) any wholly-owned Restricted Subsidiary formed solely to
facilitate transfers of properties or assets accounted for as sales under
generally accepted accounting principles consistently applied may convey or
transfer such properties or assets substantially as an entirety to any other
Person and (iii) the Company or any Restricted Subsidiary may merge or
consolidate with or into any other Person or convey, transfer or lease its
properties or assets substantially as an entirety to any other Person if (A) the
Person into which the Company or such Restricted Subsidiary is merged or the
Person formed by such consolidation, or the Person that acquires by conveyance
or transfer, or that leases, the properties or assets of the Company or such
Restricted Subsidiary substantially as an entirety, is organized and validly
existing under the laws of the United States and expressly assumes, by written
instrument, all of the obligations of the Company or MacSaver, as the case may
be, under the Indenture, (B) at the time of such transaction and after giving
effect thereto, no Default or Event of Default shall have occurred and be
continuing and (C) certain other conditions are met. (Article VIII)
11
EVENTS OF DEFAULT
An Event of Default with respect to the Debt Securities of any series is
defined in the Indenture as being: (i) default for 30 days in payment of any
interest with respect to any Debt Security of such series; (ii) default in
payment of principal or any premium with respect to any Debt Security of such
series when due upon maturity, redemption or otherwise; (iii) default in making
any sinking fund payment or payment under any analogous provision when due with
respect to any Debt Security of such series; (iv) default by the Company or
MacSaver in the performance, or breach, of any other covenant or warranty in the
Indenture (other than a covenant or warranty included therein solely for the
benefit of series of Debt Securities other than that series) or any Debt
Security of such series which shall not have been remedied for a period of 60
days after notice to MacSaver and the Company by the Trustee or the holders of
not less than 25% in aggregate principal amount of the Debt Securities of such
series then outstanding; (v) certain events of bankruptcy, insolvency or
reorganization of the Company or MacSaver; (vi) any acceleration of the maturity
of any Indebtedness of the Company, MacSaver or any other Restricted Subsidiary
for borrowed money in an aggregate principal amount exceeding $20,000,000, or a
failure to pay such Indebtedness at its stated maturity; provided, that an Event
of Default shall not be deemed to occur with respect to the acceleration of the
maturity of any such Indebtedness if the event that caused such acceleration
shall be cured or such acceleration shall be rescinded within 10 days; or (vii)
any other Event of Default established for the Debt Securities of such series.
No Event of Default with respect to any particular series of Debt Securities
necessarily constitutes an Event of Default with respect to any other series of
Debt Securities. The Indenture provides that the Trustee thereunder may withhold
notice to the holders of the Debt Securities of any series of the occurrence of
a default with respect to the Debt Securities of such series (except a default
in payment of principal, premium, if any, interest, if any, or sinking fund
payments, if any) if the Trustee considers it in the interest of the holders to
do so.
The Indenture provides that if an Event of Default with respect to any
series of Debt Securities issued thereunder shall have occurred and be
continuing, either the Trustee or the holders of at least 25% in principal
amount of the Debt Securities of such series then outstanding may declare the
principal amount (or if any Debt Securities of such series are Original Issue
Discount Securities, such lesser amount as may be specified in the terms
thereof) of all the Debt Securities of such series to be due and payable
immediately; provided that in the case of certain events of bankruptcy,
insolvency or reorganization, such principal amount (or portion thereof) shall
automatically become due and payable. However, at any time after an acceleration
with respect to the Debt Securities of any series has occurred, but before a
judgment or decree based on such acceleration has been obtained, the holders of
a majority in principal amount of the outstanding Debt Securities of such series
may, under certain circumstances, rescind and annul such acceleration. (Section
502) For information as to waiver of defaults, see "Description of Debt
Securities -- Modification, Waiver and Meetings." Reference is made to the
Prospectus Supplement relating to each series of Debt Securities which are
Original Issue Discount Securities or Indexed Securities for the particular
provisions relating to acceleration of the Maturity of a portion of the
principal amount of such Original Issue Discount Securities or Indexed
Securities upon the occurrence of an Event of Default and the continuation
thereof.
Subject to the provisions of the Trust Indenture Act of 1939 requiring the
Trustee, during an Event of Default under the Indenture, to act with the
requisite standard of care, a Trustee is under no obligation to exercise any of
its rights or powers under the Indenture at the request or direction of any of
the holders of Debt Securities of any series unless such holders have offered
such Trustee reasonable indemnity. Subject to the foregoing, holders of a
majority in principal amount of the then outstanding Debt Securities of any
series shall have the right, subject to certain limitations, to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee under the Indenture with respect to such series.
No holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the Indenture, or for the appointment of a
receiver or a trustee, or for any other remedy thereunder, unless (i) such
holder has previously given to the Trustee written notice of a continuing Event
of Default with respect to the Debt Securities of that series, (ii) the holders
of at least 25% in aggregate principal amount of the outstanding Debt Securities
of that series have made written request, and such holder or holders have
offered reasonable indemnity, to such Trustee to institute such proceeding as
trustee and (iii) such Trustee has failed to institute such proceeding, and has
not received from the holders of a majority in aggregate principal amount of the
outstanding Debt Securities of that series a direction inconsistent with such
request, within 60 days after such notice, request and offer. (Section 507)
However, such limitations do not apply to a suit instituted by a holder of a
Debt Security for the
12
enforcement of payment of the principal of or any premium or interest on such
Debt Security on or after the applicable due date specified in such Debt
Security. (Section 508)
The Company and MacSaver each will be required to furnish to the Trustee
annually a statement by certain of its officers as to whether or not, to their
knowledge, it is in default in the performance or observance of any of the
terms, provisions and conditions of the Indenture and, if so, specifying all
such known defaults. (Section 1005)
MODIFICATION, WAIVERS AND MEETINGS
The Indenture contains provisions permitting the Company or MacSaver and
the Trustee thereunder, with the consent of the holders of a majority in
principal amount of the outstanding Debt Securities of each series and affected
by a modification or amendment, to modify or amend any of the provisions of the
Indenture or of the Debt Securities of such series or the rights of the holders
of the Debt Securities of such series under the Indenture, PROVIDED that no such
modification or amendment shall, among other things, (i) change the stated
maturity of the principal of, or premium, if any, or any installment of
interest, if any, on any Debt Securities or reduce the principal amount thereof
or any premium thereon, or reduce the rate of interest thereon, or reduce the
amount of principal of any Debt Securities that would be due and payable upon an
acceleration of the maturity thereof, or adversely affect any right of repayment
at the option of any holder, or change any place where, or the Currency in
which, any Debt Securities issued under the Indenture are payable, or impair the
holder's right to institute suit to enforce the payment of any such Debt
Securities, or (ii) reduce the aforesaid percentage of Debt Securities of any
series, the consent of the holders of which is required for any such
modification or amendment or the consent of whose holders is required for any
waiver (of compliance with certain provisions of the Indenture or certain
defaults thereunder and their consequences) or reduce the requirements for a
quorum or voting at a meeting of holders of such Debt Securities. The Indenture
also contains provisions permitting the Company, MacSaver, and the Trustee,
without the consent of the holders of any Debt Securities issued thereunder, to
modify or amend the Indenture in order to, among other things, (a) add to the
Events of Default or the covenants of the Company or MacSaver for the benefit of
the holders of all or any series of Debt Securities; (b) to add or change any
provisions of the Indenture to facilitate the issuance of Bearer Securities; (c)
to establish the form or terms of Debt Securities of any series and any related
coupons; (d) to cure any ambiguity or correct or supplement any provision
therein which may be inconsistent with other provisions therein, or to make any
other provisions with respect to matters or questions arising under the
Indenture which shall not adversely affect the interests of the holders of any
series of Debt Securities in any material respect; or (e) to amend or supplement
any provision contained in the Indenture, provided that such amendment or
supplement does not apply to any outstanding Debt Securities issued prior to the
date of such amendment or supplement and entitled to the benefits of such
provision.
The holders of a majority in aggregate principal amount of the outstanding
Debt Securities of any series may waive, insofar as that series is concerned,
compliance by the Company or MacSaver with certain restrictive provisions of the
Indenture. The holders of a majority in aggregate principal amount of the
outstanding Debt Securities of any series may, on behalf of all holders of Debt
Securities of that series, waive any past default under the Indenture with
respect to Debt Securities of that series and its consequences, except a default
in the payment of the principal of, or premium, if any, or interest, if any, on
any Debt Securities of such series or in respect of a covenant or provision
which cannot be modified or amended without the consent of the holder of each
outstanding Debt Securities of such series affected.
The Indenture contains provisions for convening meetings of the holders of
Debt Securities of each series. A meeting may be called at any time by the
Trustee, and also, upon request, by MacSaver or the holders of at least 10% in
principal amount of the outstanding Debt Securities of such series, in any such
case upon notice given in accordance with the provisions of the Indenture.
Except for any consent which must be given by the holder of each outstanding
Debt Security affected thereby, as described above, any resolution presented at
a meeting or adjourned meeting duly reconvened at which a quorum (as described
below) is present may be adopted by the affirmative vote of the holders of a
majority in principal amount of the outstanding Debt Securities of that series;
provided, however, that any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action which may be
made, given or taken by the holders of a specified percentage, which is less
than a majority, in principal amount of the outstanding Debt Securities of a
series may be adopted at a meeting or adjourned meeting duly reconvened at which
a quorum is present by the affirmative vote of the holders of such specified
percentage in principal amount of the outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting of holders of
Debt Securities of any series duly held in accordance with
13
the Indenture will be binding on all holders of Debt Securities of that series
and the related coupons. The quorum at any meeting called to adopt a resolution,
and at any reconvened meeting, will be persons holding or representing a
majority in principal amount of the outstanding Debt Securities of a series,
subject to certain exceptions.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Upon the direction of MacSaver, the Indenture shall cease to be of further
effect with respect to any series of Debt Securities issued thereunder specified
by MacSaver (subject to the survival of certain provisions thereof, including
the obligation to pay Additional Amounts to the extent described below) when (i)
either (A) all outstanding Debt Securities of such series and, in the case of
Bearer Securities, all coupons appertaining thereto, have been delivered to the
Trustee for cancellation (subject to certain exceptions) or (B) all Debt
Securities of such series have become due and payable or will become due and
payable at their stated maturity within one year or are to be called for
redemption within one year and MacSaver has deposited with the Trustee, in
trust, funds in U.S. dollars or in such other currency in which such Debt
Securities are payable in an amount sufficient to pay the entire indebtedness on
such Debt Securities in respect of principal (and premium, if any) and interest,
if any, (and, to the extent that (x) the Debt Securities of such series provide
for the payment of Additional Amounts upon the occurrence of certain events of
taxation, assessment or governmental charge with respect to payments on such
Debt Securities and (y) the amount of any such Additional Amounts is at the time
of deposit reasonably determinable by MacSaver, any such Additional Amounts) to
the date of such deposit (if such Debt Securities have become due and payable)
or to the Maturity thereof, as the case may be, (ii) MacSaver or the Company, as
the case may be, has paid all other sums payable under the Indenture with
respect to the Debt Securities of such series, and (iii) certain other
conditions are met. If the Debt Securities of any such series provide for the
payment of Additional Amounts, MacSaver will remain obligated, following such
deposit, to pay (and the Guarantee of the Company will continue to apply to such
payment of) Additional Amounts on such Debt Securities to the extent that the
amount thereof exceeds the amount deposited in respect of such Additional
Amounts as aforesaid.
Unless otherwise provided in the applicable Prospectus Supplement, MacSaver
may elect with respect to any series of Debt Securities either (a) to defease
and be discharged from any and all obligations with respect to such Debt
Securities (except for, among other things, the obligation to pay Additional
Amounts, if any, upon the occurrence of certain events of taxation, assessment
or governmental charge with respect to payments on such Debt Securities to the
extent that the amount thereof exceeds the amount deposited in respect of such
Additional Amounts as provided below, and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities, to hold moneys for payment in trust, and, if
applicable, to exchange or convert such Debt Securities into other securities in
accordance with their terms) ("defeasance"), or (b) to omit to comply with its
obligations with respect to certain restrictive covenants in Section 1005
(Statement as to Compliance), Section 1011 (Waiver of Certain Covenants), and,
to the extent specified pursuant to Section 301 (Amount Unlimited; Issuable in
Series), and any other covenant applicable to such Debt Securities in the
Indenture and, if indicated in the applicable Prospectus Supplement, its
obligations with respect to any other covenant applicable to the Debt Securities
of such series, and any omission to comply with such obligations shall not
constitute a Default or an Event of Default with respect to the Debt Securities
of such series ("covenant defeasance"), in either case upon the irrevocable
deposit with the Trustee (or other qualifying trustee), in trust for such
purpose, of an amount, in U.S. dollars or in such other currency in which such
Debt Securities are payable at Stated Maturity, and/or Government Obligations
(as defined in the Indenture) which through the payment of principal and
interest in accordance with their terms will provide money, in an amount
sufficient to pay the principal of and any premium and any interest on (and, to
the extent that (x) the Debt Securities of such series provide for the payment
of Additional Amounts and (y) the amount of any such Additional Amounts is at
the time of deposit reasonably determinable by MacSaver, any such Additional
Amounts with respect to) such Debt Securities, and any mandatory sinking fund or
analogous payments thereon, on the due dates therefor, whether upon maturity,
redemption or otherwise.
Such defeasance or covenant defeasance shall only be effective if, among
other things, (i) it shall not result in a breach or violation of, or constitute
a default under, the Indenture or any other material agreement to which MacSaver
or the Company is a party or is bound, and (ii) MacSaver has delivered to the
Trustee an opinion of counsel (as specified in the Indenture) to the effect that
the holders of such Debt Securities will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance or covenant
defeasance, as the case may be, and will be subject to federal income tax on the
same amounts, in the same manner and at the
14
same times as would have been the case if such defeasance or covenant defeasance
had not occurred. It shall also be a condition to the effectiveness of such
defeasance or covenant defeasance that no Event of Default or event which with
notice or lapse of time or both would become an Event of Default with respect to
Debt Securities of such series shall have occurred and been continuing on the
date of such deposit and, with respect to defeasance only, at any time during
the period ending on the 91st day after the date of such deposit into trust.
Unless otherwise provided in the applicable Prospectus Supplement, if after
MacSaver has deposited funds and/or Government Obligations to effect defeasance
or covenant defeasance with respect to Debt Securities of any series, (a) the
holder of a Debt Security of such series is entitled to, and does, elect
pursuant to the Indenture or the terms of such Debt Security to receive payment
in a Currency other than that in which such deposit has been made in respect of
such Debt Security, or (b) a Conversion Event (as defined below) occurs in
respect of the Foreign Currency in which such deposit has been made, the
indebtedness represented by such Debt Security shall be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest, if any, on such Debt Security as such Debt
Security becomes due out of the proceeds yielded by converting the amount so
deposited in respect of such Debt Security into the currency in which such Debt
Security becomes payable as a result of such election or such Conversion Event
based on (x) in the case of payments made pursuant to clause (a) above, the
applicable market exchange rate for such Foreign Currency in effect on the
second business day prior to such payment date, or (y) with respect to a
Conversion Event, the applicable market exchange rate for such Foreign Currency
in effect (as nearly as feasible) at the time of the Conversion Event.
"Conversion Event" means the cessation of use of (i) a Foreign Currency both by
the government of the country or the confederation which issued such Foreign
Currency and for the settlement of transactions by a central bank or other
public institutions of or within the international banking community, (ii) the
ECU both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Union or (iii) any
currency unit or composite currency other than the ECU for the purposes for
which it was established.
In the event MacSaver effects covenant defeasance with respect to any Debt
Securities and such Debt Securities are declared due and payable because of the
occurrence of any Event of Default other than an Event of Default with respect
to any other covenant as to which there has been covenant defeasance, the amount
of monies and/or Government Obligations deposited with the Trustee to effect
such covenant defeasance may not be sufficient to pay amounts due on such Debt
Securities at the time of any acceleration resulting from such Event of Default.
However, MacSaver would remain liable to make payment of such amounts due at the
time of acceleration.
The applicable Prospectus Supplement may further describe the provisions,
if any, permitting or restricting such defeasance or covenant defeasance with
respect to the Debt Securities of a particular series.
TITLE
The Company, MacSaver, the Trustee and any agent of any of them may treat
the person in whose name a registered Debt Security is registered as the
absolute owner thereof (whether or not such Debt Security may be overdue) for
the purpose of making payment and for all other purposes. (Section 308)
GOVERNING LAW
The Indenture and the Debt Securities will be governed by, and construed in
accordance with, the laws of the State of New York.
REGARDING THE TRUSTEE
The Trust Indenture Act of 1939 contains limitations on the rights of a
trustee, should it become a creditor of the Company or MacSaver, as the case may
be, to obtain payment of claims in certain cases or to realize on certain
property received by it in respect of any such claims, as security or otherwise.
The Trustee is permitted to engage in other transactions with MacSaver, the
Company and its other subsidiaries from time to time, provided that if such
Trustee acquires any conflicting interest it must eliminate such conflict upon
the occurrence of an Event of Default under the Indenture, or else resign. In
that event, MacSaver would be required to appoint a successor Trustee.
15
DESCRIPTION OF COMMON STOCK
The Company has authorized 250,000,000 shares of Common Stock, par value
$2.00 per share. As of May 31, 1996, there were 48,596,271 shares of Common
Stock outstanding. The following brief description of the Common Stock does not
purport to be complete and is subject in all respects to applicable Virginia law
and to the provisions of the Company's Restated Articles of Incorporation and
its By-laws, copies of which have been filed with the Commission.
Holders of Common Stock are entitled to such dividends as may be declared
by the Board of Directors out of funds legally available therefor after payment
of dividends on any outstanding Preferred Stock and are entitled to one vote for
each share of Common Stock held by them with respect to all matters upon which
they are entitled to vote.
The Company's Restated Articles of Incorporation contain a provision that
reduces the shareholder vote required for amending the Articles of Incorporation
in certain circumstances from the two-thirds vote generally applicable to a
simple majority vote. The majority vote will be applicable except when the
effect of the amendment is (a) to reduce the shareholder vote required to
approve a merger, a statutory share exchange, a sale of all or substantially all
of the assets of the Company or the dissolution of the Company, or (b) to delete
all or any part of such provision. In addition, the vote required by other
provisions of the Restated Articles of Incorporation is necessary if such
provisions require the approval of more than a majority of the votes entitled to
be cast.
PREFERRED STOCK
The Company has authorized 3,000,000 shares of Preferred Stock, par value
$10.00 per share. As of May 31, 1996, there were no shares of Preferred Stock
outstanding. The Board of Directors of the Company, without further action by
the stockholders, is authorized to designate and issue in series Preferred Stock
and to fix as to any series the dividend rate, redemption prices, preferences on
dissolution, the terms of any sinking fund, conversion rights, voting right, and
any other preferences of special rights and qualifications. Shares of Common
Stock would be subject to the preferences, rights and powers of any such shares
of Preferred Stock as set forth in the Company's Restated Articles of
Incorporation and the resolutions establishing one or more series of Preferred
Stock. Holders of the Preferred Stock, if and when issued, will be entitled to
vote as required under applicable Virginia law. Such law includes provisions for
the voting of the Preferred Stock in the case of any amendment to the Restated
Articles of Incorporation affecting the rights of holders of the Preferred
Stock, the payment of certain stock dividends, merger or consolidation, sale of
all or substantially all of the Company's assets and dissolution. There are no
agreements or understandings for the designation of series of Preferred Stock or
the issuance of shares thereunder, except pursuant to the Shareholders' Rights
Plan discussed below.
SHAREHOLDERS' RIGHTS PLAN
The following summary of certain provisions of the Company's Shareholders'
Rights Plan and the Rights Agreement dated as of February 17, 1988 between the
Company and Crestar Bank as Rights Agent, as amended by Supplements No. 1
through No. 4 dated as of September 15, 1989 (together, as amended, the "Rights
Agreement"), does not purport to be complete and is qualified in its entirety by
reference to the Rights Agreement, including the form of Rights Certificate
attached thereto, each of which has been filed with the Commission and is
incorporated by reference herein.
On February 17, 1988 the Board of Directors of the Company declared a
dividend distribution of one preferred share purchase right (a "Right") on each
outstanding share of Common Stock pursuant to a Shareholders' Rights Plan. The
Rights are exercisable only upon the attainment of, or the commencement of a
tender offer to attain, a specified ownership interest in the Company by a
person or group. When exercisable, each Right would entitle its holder to
purchase one-hundredth of a newly issued share of cumulative Participating
Preferred Stock, Series A, par value $10.00 per share (the "Series A Preferred
Stock") at an exercise price of $75, subject to adjustment. A total of 750,000
shares of Series A Preferred Stock has been reserved. Each share of Series A
Preferred Stock shall entitle the holder to 100 votes and has an aggregate
dividend rate of 100 times the amount paid to holders of the Common Stock. Upon
occurrence of certain events, each holder of a Right will become entitled to
purchase shares of Common Stock having a value of twice the Right's then current
exercise price in lieu of Series A Preferred Stock. Each share of Common Stock
offered pursuant to this Prospectus and an accompanying Prospectus Supplement
shall have one Right attached to it.
16
VIRGINIA STOCK CORPORATION ACT
The Virginia Stock Corporation Act contains provisions governing
"Affiliated Transactions." These provisions, with several exceptions discussed
below, require approval of certain material transactions between a Virginia
corporation and any beneficial holder of more than 10% of any class of its
outstanding voting shares (an "Interested Shareholder") by the holders of at
least two-thirds of the remaining voting shares. Affiliated Transactions subject
to this approval requirement include mergers, share exchanges, material
dispositions of corporate assets not in the ordinary course of business, any
dissolution of the corporation proposed by or on behalf of an Interested
Shareholder, or any reclassification, including reverse stock splits,
recapitalization or merger of the corporation with its subsidiaries which
increases the percentage of voting shares owned beneficially by an Interested
Shareholder by more than 5%.
For three years following the time that an Interested Shareholder becomes
an owner of 10% of the outstanding voting shares, a Virginia corporation cannot
engage in an Affiliated Transaction with such Interested Shareholder without
approval of two-thirds of the voting shares other than those shares beneficially
owned by the Interested Shareholder, and majority approval of the "Disinterested
Directors." A Disinterested Director means, with respect to a particular
Interested Shareholder, a member of the Company's Board of Directors who was (1)
a member on the date on which an Interested Shareholder became an Interested
Shareholder and (2) recommended for election by, or was elected to fill a
vacancy and received the affirmative vote of, a majority of the Disinterested
Directors then on the Board. At the expiration of the three year period, the
statute requires approval of Affiliated Transactions by two-thirds of the voting
shares other than those beneficially owned by the Interested Shareholder.
The principal exceptions to the special voting requirement apply to
transactions proposed after the three year period has expired and require either
that the transaction be approved by a majority of the corporation's
Disinterested Directors or that the transaction satisfy the fair-price
requirements of the statute. In general, the fair-price requirements provide
that in a two-step acquisition transaction, the Interested Shareholder must pay
the shareholders in the second step either the same amount of cash or the same
amount and type of consideration paid to acquire the Virginia corporation's
shares in the first step.
None of the foregoing limitations and special voting requirements applies
to a transaction with an Interested Shareholder who has been an Interested
Shareholder since the effective date of the statute (January 26, 1988) or who
became an Interested Shareholder by gift or inheritance from such a person or
whose acquisition of shares making such person an Interested Shareholder was
approved by a majority of the Virginia corporation's Disinterested Directors.
These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the statute provides that, by affirmative vote of a
majority of the voting shares other than shares owned by any Interested
Shareholder, a corporation can adopt an amendment to its articles of
incorporation or bylaws providing that the Affiliated Transactions provisions
shall not apply to the corporation. The Company has not "opted out" of the
Affiliated Transactions provisions.
Virginia law provides that shares acquired in a transaction that would
cause the acquiring person's voting strength to meet or exceed any of three
thresholds (20%, 33 1/3% or 50%) have no voting rights unless granted by a
majority vote of shares not owned by the acquiring person or any officer or
employee-director of the Virginia corporation. This provision empowers an
acquiring person to require the Virginia corporation to hold a special meeting
of shareholders to consider the matter within 50 days of its request. The Board
of Directors of a Virginia corporation can opt out of this provision at any time
before four days after receipt of a control share acquisition notice.
TRANSFER AGENT
The transfer agent for the Common Stock is Wachovia Bank of North Carolina,
N.A.
DESCRIPTION OF WARRANTS
The Company may issue (either separately or together with other Securities)
warrants for the purchase of Common Stock (the "Warrants"). The Warrants are to
be issued under warrant agreements (each a "Warrant Agreement") to be entered
into between the Company and a bank or trust company, as warrant agent ("Warrant
Agent"), all as set forth in the Prospectus Supplement relating to the
particular issue of Warrants. The form of Warrant Agreement, including the form
of certificates representing the Warrants ("Warrant Certificates"), that will
17
be entered into with respect to a particular offering of Warrants will be filed
as an exhibit to or incorporated by reference in the Registration Statement. The
following summary of certain provisions of the Warrant Agreement and the
Warrants and the summary of certain terms of the particular Warrant Agreement
and Warrants set forth in the applicable Prospectus Supplement do not purport to
be complete and are subject to, and are qualified in their entirety by reference
to, all the provisions of the particular Warrant Agreement and the related
Warrant Certificates, all of which are incorporated herein by reference.
The following description of the Warrants sets forth certain general terms
and provisions of the Warrants and the related Warrant Agreement to which any
Prospectus Supplement may relate. Certain other terms of any Warrants and the
related Warrant Agreement will be described in the applicable Prospectus
Supplement. If so indicated in the accompanying Prospectus Supplement, the terms
of the Warrants offered thereby and the related Warrant Agreement may differ
from the terms set forth below.
GENERAL
Reference is made to the applicable Prospectus Supplement for the terms of
the Warrants offered thereby, including (where applicable): (1) the title and
aggregate number of such Warrants; (2) the number of shares of Common Stock that
may be purchased upon exercise of each such Warrant; (3) the price, or the
manner of determining the price, at which such shares may be purchased upon such
exercise; (4) if other than cash, the property and manner in which the exercise
price of such Warrants may be paid; and any minimum number of such Warrants that
are exercisable at any one time; (5) the time or times at which, or period or
periods during which, such Warrants may be exercised and the expiration date of
such Warrants; (6) the terms of any right of the Company to redeem such
Warrants; (7) the terms of any right of the Company to accelerate the exercise
of such Warrants upon the occurrence of certain events; (8) whether such
Warrants will be sold with any other Securities, and the date, if any, on and
after which such Warrants and any such other Securities will be separately
transferable; (9) whether Warrants will be issued in registered or bearer form;
(10) a discussion of certain Federal income tax, accounting and other special
considerations, procedures and limitations relating to such Warrants; and (11)
any other terms of such Warrants.
Warrant Certificates may be surrendered for transfer or exchange for new
Warrant Certificates of authorized denominations at any office or agency of the
relevant Warrant Agent maintained for such purpose, subject to the terms of the
related Warrant Agreement. Unless otherwise specified in the applicable
Prospectus Supplement, Warrant Certificates will be issued in denominations
evidencing any whole number of Warrants. No service charge will be made for any
permitted transfer or exchange of Warrant Certificates, but the Company or the
Warrant Agent may require payment of any tax or other governmental charge
payable in connection therewith.
EXERCISE OF WARRANTS
Each Warrant will entitle the holder to purchase such number of shares of
Common Stock at such exercise price as shall in each case be set forth in, or be
determinable from, the Prospectus Supplement relating to such Warrants, by
payment of such exercise price in the Currency and in the manner specified in
the Prospectus Supplement. Warrants may be exercised at any time up to the date
and time specified in the applicable Prospectus Supplement for the expiration
thereof. After the specified expiration time on the specified date of
expiration, unexercised Warrants will become void.
Upon receipt at an office or agency indicated in the applicable Prospectus
Supplement of (i) payment of the exercise price and (ii) the Warrant Certificate
properly completed and duly executed, the Company will, as soon as practicable,
issue and deliver the shares of Common Stock purchasable upon such exercise.
Unless otherwise indicated in the applicable Prospectus Supplement, fractional
shares of Common Stock will not be issued upon the exercise of Warrants and, in
lieu thereof, the Company will make a cash payment in an amount determined as
provided in the applicable Prospectus Supplement. If less than all of the
Warrants represented by such Warrant Certificate are exercised, a new Warrant
Certificate will be issued for the remaining number of Warrants. The holder of a
Warrant will be required to pay any tax or other governmental charge that may be
imposed in connection with any transfer involved in the issuance of Common Stock
purchased upon such exercise.
18
MODIFICATIONS
Any Warrant Agreement and the terms of the related Warrants may be modified
or amended by the Company and the applicable Warrant Agent, without the consent
of any holder of the related Warrants, for the purpose of curing any ambiguity,
or of curing, correcting or supplementing any defective or inconsistent
provision contained therein, or in any other manner that the Company deems
necessary or desirable and that will not materially and adversely affect the
interests of the holders of the related Warrants.
The Company and the applicable Warrant Agent may also modify or amend the
applicable Warrant Agreement and the terms of the related Warrants with the
consent of the holders of not less than a majority in number of the then
outstanding unexercised Warrants affected thereby; PROVIDED THAT no such
modification or amendment that accelerates the expiration date, increases the
exercise price, or reduces the number of outstanding Warrants the consent of
whose holders is required for any such amendment or modification, may be made
without the consent of each holder affected thereby.
NO RIGHTS AS HOLDERS
Holders of Warrants for the purchase of shares of Common Stock are not
entitled, by virtue of being such holders, to vote, consent or receive notice as
stockholders of the Company in respect of any meeting of stockholders for the
election of directors of the Company or any other matter, or to exercise any
other rights whatsoever as stockholders of the Company, or to receive any
dividends or distributions, if any, on the Common Stock.
UNITED STATES TAXATION
The following summary of the principal United States federal income tax
consequences of ownership of Debt Securities is based upon the opinion of
McGuire, Woods, Battle & Boothe, L.L.P., special tax counsel to the Company and
MacSaver. It deals only with Debt Securities held as capital assets, and not
with special classes of holders, such as dealers in securities or currencies,
banks, tax-exempt organizations, life insurance companies, persons that hold
Debt Securities that are part of a hedge or that are hedged against currency
risks or that are part of a straddle or conversion transaction, or persons whose
functional currency is not the U.S. dollar. It also does not deal with Holders
other than original purchasers who purchase Debt Securities at the original
offering price and thus does not deal with the "market discount rules."
Moreover, the summary deals only with Debt Securities that are due to mature not
later than 30 years from the date on which they are issued. The United States
federal income tax consequences of ownership of Debt Securities that are due to
mature more than 30 years from their date of issue will be discussed in an
applicable Prospectus Supplement. The summary is based on the Internal Revenue
Code of 1986, as amended (the "Code"), its legislative history, existing and
proposed regulations thereunder, judicial decisions, and published rulings and
other administrative guidance issued by the Internal Revenue Service (the
"Service"), as currently in effect, all of which are subject to change at any
time, possibly with retroactive effect. Additionally, the discussions below
under "Original Issue Discount -- Debt Securities Subject to Contingencies
Including Optional Redemption" and "Original Issue Discount -- Variable Debt
Securities" take into account Treasury Regulations that were issued as final
regulations on June 11, 1996 and that will apply to Debt Securities issued on or
after August 13, 1996.
Prospective purchasers of Debt Securities should consult their own tax
advisors concerning the consequences of ownership of Debt Securities, in their
particular circumstances, under the Code and the applicable laws of any State,
local or foreign taxing jurisdiction.
The federal income tax consequences of ownership of other Securities,
including Common Stock and Warrants, will be discussed in an applicable
Prospectus Supplement.
UNITED STATES HOLDERS
PAYMENTS OF INTEREST
Except as provided below under "Original Issue Discount", interest on a
Debt Security (including "qualified stated interest" on a "Discount Debt
Security", as defined below) will be taxable to a United States Holder as
ordinary income at the time it is received or accrued, depending on the holder's
method of accounting for tax purposes. A United States Holder is a beneficial
owner who or that is (i) a citizen or resident of the United States,
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(ii) a domestic corporation or (iii) otherwise subject to United States federal
income taxation on a net income basis in respect of the Debt Security.
If an interest payment is denominated in, or determined by reference to, a
currency, composite currency or basket of currencies other than the U.S. dollars
(a "foreign currency"), the amount of income recognized by a cash basis United
States Holder will be the U.S. dollar value of the interest payment, based on
the exchange rate in effect on the date of receipt, regardless of whether the
payment is in fact converted into U.S. dollars.
An accrual basis United States Holder may determine the amount of income
recognized with respect to an interest payment denominated in, or determined by
reference to, a foreign currency in accordance with either of two methods. Under
the first method, the amount of income accrued will be based on the average
exchange rate in effect during the interest accrual period (or, with respect to
an accrual period that spans two taxable years, the part of the period within
the taxable year).
Under the second method, the United States Holder may elect to determine
the amount of income accrued on the basis of the exchange rate in effect on the
last day of the accrual period or, in the case of an accrual period that spans
two taxable years, the exchange rate in effect on the last day of the part of
the period within the taxable year. Additionally, if a payment of interest is
actually received within five business days of the last day of the accrual
period or taxable year, an electing accrual basis United States Holder may
instead translate such accrued interest into U.S. dollars at the exchange rate
in effect on the day of actual receipt. Any such election must apply to all debt
instruments held by the United States Holder at the beginning of the first
taxable year to which the election applies or thereafter acquired by the United
States Holder, and may not be revoked without the consent of the Service.
Upon receipt of an interest payment (including a payment attributable to
accrued but unpaid interest upon the sale or retirement of a Debt Security)
denominated in, or determined by reference to, a foreign currency, the accrual
basis United States Holder will recognize ordinary income or loss measured by
the difference between (x) the average exchange rate used to accrue the interest
income represented by such payment, or the exchange rate as determined under the
second method described above if the United States Holder elects that method,
and (y) the exchange rate in effect on the date of receipt, regardless of
whether the payment is in fact converted into U.S. dollars.
ORIGINAL ISSUE DISCOUNT
GENERAL. A Debt Security with a maturity of more than one year from the
date of issue will be treated as issued at an original issue discount (a
"Discount Debt Security") if its "stated redemption price at maturity" exceeds
its issue price by more than a "de minimis amount" (as defined below).
Generally, the issue price of a Debt Security will be the first price at which a
substantial amount of Debt Securities included in the issue of which the Debt
Security is a part are sold to persons other than bond houses, brokers, or
similar persons or organizations acting in the capacity of underwriters,
placement agents, or wholesalers. The stated redemption price at maturity of a
Debt Security is the total of all payments provided by the Debt Security that
are not payments of "qualified stated interest." A qualified stated interest
payment generally is any one of a series of stated interest payments on a Debt
Security that are unconditionally payable at least annually at a single fixed
rate (with certain exceptions for lower rates paid during some periods) applied
to the outstanding principal amount of the Debt Security. Special rules for
determining qualified stated interest payable on certain Debt Securities bearing
interest at a variable rate are described below under "Original Issue
Discount -- Variable Rate Debt Securities".
In general, if a Debt Security's stated redemption price at maturity
exceeds its issue price by less than an amount equal to 1/4 of 1 percent of the
Debt Security's stated redemption price at maturity multiplied by the number of
complete years to its maturity (the "de minimis amount"), then such excess, if
any, constitutes "de minimis original issue discount" and the Debt Security is
not a Discount Debt Security. Unless the election described below under
"Election to Treat All Interest as Original Issue Discount" is made, a United
States Holder of a Debt Security with de minimis original issue discount must
include such de minimis original issue discount in income as stated principal
payments on the Debt Security are made. The includible amount with respect to
each such payment will equal the total amount of the Debt Security's de minimis
original issue discount multiplied by a fraction, the numerator of which is the
amount of the principal payment made and the denominator of which is the stated
principal amount of the Debt Security.
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United States Holders of Discount Debt Securities having a maturity of more
than one year from their date of issue must, generally, include in computing
their taxable income original issue discount ("OID") calculated on a
constant-yield method before the receipt of cash attributable to such income,
and generally will have to include in income increasingly greater amounts of OID
over the life of the Debt Security. The amount of OID includible in income by a
United States Holder of a Discount Debt Security is the sum of the daily
portions of OID with respect to the Discount Debt Security for each day during
the taxable year or portion of the taxable year on which the United States
Holder holds such Discount Debt Security ("accrued OID"). The daily portion is
determined by allocating to each day in any "accrual period" a pro rata portion
of the OID allocable to that accrual period. Accrual periods with respect to a
Debt Security may be of any length selected by the United States Holder and may
vary in length over the term of the Debt Security as long as (i) no accrual
period is longer than one year and (ii) each scheduled payment of interest or
principal on the Debt Security occurs on either the final or first day of an
accrual period. The amount of OID allocable to an accrual period equals the
excess of (a) the product of the Discount Debt Security's adjusted issue price
at the beginning of the accrual period and such Debt Security's yield to
maturity (determined on the basis of compounding at the close of each accrual
period and properly adjusted for the length of the accrual period) over (b) the
sum of the payments of qualified stated interest on the Debt Security allocable
to the accrual period. The "adjusted issue price" of a Discount Debt Security at
the beginning of any accrual period is the issue price of the Debt Security
increased by (x) the amount of accrued OID for each prior accrual period and
decreased by (y) the amount of any payments previously made on the Debt Security
that were not qualified stated interest payments. For purposes of determining
the amount of OID allocable to an accrual period, if an interval between
payments of qualified stated interest on the Debt Security contains more than
one accrual period, the amount of qualified stated interest payable at the end
of the interval (including any qualified stated interest that is payable on the
first day of the accrual period immediately following the interval) is allocated
pro rata on the basis of relative lengths of each accrual period in the
interval, and the adjusted issue price at the beginning of each accrual period
in the interval must be increased by the amount of any qualified stated interest
that has accrued prior to the first day of the accrual period but that is not
payable until the end of the interval. The amount of OID allocable to an initial
short accrual period may be computed using any reasonable method if all other
accrual periods other than a final short accrual period are of equal length. The
amount of OID allocable to the final accrual period is the difference between
(x) the amount payable at the maturity of the Debt Security (other than any
payment of qualified stated interest) and (y) the Debt Security's adjusted issue
price as of the beginning of the final accrual period.
ACQUISITION PREMIUM. A United States Holder that purchases a Debt Security
for an amount less than or equal to the sum of all amounts payable on the Debt
Security after the purchase date (other than payments of qualified stated
interest) but in excess of its adjusted issue price (any such excess being
"acquisition premium") and that does not make the election described below under
"Election to Treat All Interest as Original Issue Discount" is permitted to
reduce the daily portions of OID by a fraction, the numerator of which is the
excess of the United States Holder's adjusted basis in the Debt Security
immediately after its purchase over the adjusted issue price of the Debt
Security, and the denominator of which is the excess of the sum of all amounts
payable on the Debt Security after the purchase date, other than payments of
qualified stated interest, over the Debt Security's adjusted issue price.
PRE-ISSUANCE ACCRUED INTEREST. If (i) a portion of the initial purchase
price of a Debt Security is attributable to pre-issuance accrued interest, (ii)
the first stated interest payment on the Debt Security is to be made within one
year of the Debt Security's issue date and (iii) the payment will equal or
exceed the amount of pre-issuance accrued interest, then the United States
Holder may elect to decrease the issue price of the Debt Security by the amount
of pre-issuance accrued interest. In that event, a portion of the first stated
interest payment will be treated as a return of the excluded pre-issuance
accrued interest and not as an amount payable on the Debt Security.
DEBT SECURITIES SUBJECT TO CONTINGENCIES INCLUDING OPTIONAL REDEMPTION. In
the case of Debt Securities issued on or after August 13, 1996, in general, if a
Debt Security provides for an alternative payment schedule or schedules
applicable upon the occurrence of a contingency or contingencies (other than a
remote or incidental contingency) and the timing and amounts of the payments
that comprise each payment schedule are known as of the issue date, special
rules apply for purposes of determining the yield and maturity of the Debt
Security. If, based on all the facts and circumstances as of the issue date, a
single payment schedule, including the stated payment schedule, is significantly
more likely than not to occur, then, in general, the yield and maturity of the
Debt Security are computed based on that payment schedule.
21
If there is no single payment schedule that is significantly more likely
than not to occur (other than because of a mandatory sinking fund), the amount
of interest taken into account for each accrual period would be determined by
constructing a projected payment schedule for the Debt Security and applying
rules similar to those for accruing OID on a noncontingent debt instrument. This
method is applied by first determining the yield at which MacSaver would issue a
fixed rate debt instrument with terms and conditions similar to the contingent
payment Debt Security (the comparable yield) and then determining a payment
schedule as of the issue date that would produce the comparable yield.
Notwithstanding the general rules for determining yield and maturity in the
case of Debt Securities subject to contingencies, if MacSaver or the Holder has
an unconditional option or options that, if exercised, would require payments to
be made on the Debt Security under an alternative payment schedule or schedules,
then (i) in the case of an option or options of MacSaver, MacSaver will be
deemed to exercise or not exercise an option or combination of options in the
manner that minimizes the yield on the Debt Security and (ii) in the case of an
option or options of the Holder, the Holder will be deemed to exercise or not
exercise an option or combination of options in the manner that maximizes the
yield on the Debt Security. If both MacSaver and the Holder have options
described in the preceding sentence, those rules apply to such options in the
order in which they may be exercised. For purposes of those calculations, the
yield on the Debt Security is determined by using any date on which the Debt
Security may be redeemed or repurchased as the maturity date and the amount
payable on such date in accordance with the terms of the Debt Security as the
principal amount payable at maturity.
If a contingency (including the exercise of an option) fails to occur, or
actually occurs but in a manner inconsistent with the assumption made according
to the above rules (a "change in circumstances") then, except to the extent that
a portion of the Debt Security is repaid as a result of the change in
circumstances and solely for purposes of the accrual of OID, the yield and
maturity of the Debt Security are redetermined by treating the Debt Security as
having been retired and reissued on the date of the change in circumstances for
an amount equal to the Debt Security's adjusted issue price on that date.
The federal income tax treatment of Debt Securities providing for
alternative payment schedules applicable upon the occurrence of one or more
contingencies will be described in greater detail in the applicable Prospectus
Supplement.
ELECTION TO TREAT ALL INTEREST AS ORIGINAL ISSUE DISCOUNT. A United States
Holder may elect to include in gross income all interest that accrues on a Debt
Security using the constant-yield method described above under the heading
"Original Issue Discount -- General", with the modifications described below.
For purposes of this election, interest includes stated interest, OID, de
minimis original issue discount, market discount, de minimis market discount and
unstated interest, as adjusted by any amortizable bond premium (described below
under "Debt Securities Purchased at a Premium") or acquisition premium.
In applying the constant-yield method to a Debt Security with respect to
which this election has been made, the issue price of the Debt Security will
equal the electing United States Holder's adjusted basis in the Debt Security
immediately after its acquisition, the issue date of the Debt Security will be
the date of its acquisition by the electing United States Holder, and no
payments on the Debt Security will be treated as payments of qualified stated
interest. This election will generally apply only to the Debt Security with
respect to which it is made and may not be revoked without the consent of the
Service. If this election is made with respect to a Debt Security with
amortizable bond premium, then the electing United States Holder will be deemed
to have elected to apply amortizable bond premium against interest with respect
to all debt instruments with amortizable bond premium (other than debt
instruments the interest on which is excludible from gross income) held by the
electing United States Holder as of the beginning of the taxable year in which
the Debt Security with respect to which the election is made is acquired or
thereafter acquired. The deemed election with respect to amortizable bond
premium may not be revoked without the consent of the Service.
VARIABLE RATE DEBT SECURITIES. A "Variable Rate Debt Security" is a Debt
Security that: (i) has an issue price that does not exceed the total
noncontingent principal payments by more than the lesser of (1) .015 multiplied
by the product of (x) the total noncontingent principal payments and (y) the
number of complete years to maturity from the issue date, or (2) 15 percent of
the total noncontingent principal payments; (ii) does not provide for any stated
interest other than stated interest compounded or paid at least annually at (1)
one or more "qualified floating rates", (2) a single fixed rate and one or more
qualified floating rates, (3) a single "objective rate" or (4) a single fixed
rate and a single objective rate that is a "qualified inverse floating rate";
(iii) provides that a qualified floating rate or
22
objective rate in effect at any time during the term of the instrument must be
set at a "current value" of that rate (i.e., the value of the rate on any day
that is no earlier than 3 months prior to the first day on which that value is
in effect and no later than 1 year following that first day); and (iv) does not
provide for any contingent principal payments other than as provided in clause
(i) of this sentence.
In the case of Debt Securities issued on or after August 13, 1996, a
variable rate is a "qualified floating rate" if (i) variations in the value of
the rate can reasonably be expected to measure contemporaneous variations in the
cost of newly borrowed funds in the currency in which the Debt Security is
denominated or (ii) it is equal to the product of a qualified floating rate
described in clause (i) and either (a) a fixed multiple that is greater than .65
but not more than 1.35, or (b) a fixed multiple greater than .65 but not more
than 1.35, increased or decreased by a fixed rate. A rate is not a qualified
floating rate, however, if the rate is subject to certain restrictions
(including caps, floors, governors or other similar restrictions) unless such
restrictions are fixed throughout the term of the Debt Security or are not
reasonably expected to significantly affect the yield on the Debt Security.
In the case of Debt Securities issued on or after August 13, 1996, an
"objective rate" is a rate, other than a qualified floating rate, that is
determined using a single, fixed formula and that is based on objective
financial or economic information, including one or more qualified floating
rates or the yield or changes in the price of one or more actively traded items
of personal property other than stock or debt of the issuer or a related party.
A variable rate is not an objective rate, however, if it is based on information
within the control of the issuer or a related party or is unique to the
circumstances of the issuer or a related party, or if it is reasonably expected
that the average value of the rate during the first half of the Debt Security's
term will be either significantly less than or significantly greater than the
average value of the rate during the final half of the Debt Security's term. An
objective rate is a "qualified inverse floating rate" if (i) the rate is equal
to a fixed rate minus a qualified floating rate, and (ii) the variations in the
rate can reasonably be expected to inversely reflect contemporaneous variations
in the cost of the qualified floating rate.
In general, if a Variable Rate Debt Security provides for stated interest
at a single qualified floating rate or objective rate, all stated interest on
the Debt Security is qualified stated interest and the amount of OID, if any, is
determined by using, in the case of a qualified floating rate or qualified
inverse floating rate, a fixed rate equal to the value as of the issue date of
the qualified floating rate or qualified inverse floating rate, or, in the case
of any other objective rate, a fixed rate that reflects the yield reasonably
expected for the Debt Security.
If a Variable Rate Debt Security does not provide for stated interest at a
single qualified floating rate or objective rate or at a fixed rate (other than
at a single fixed rate for an initial period), the amount of interest and OID
accruals on the Debt Security are generally determined by (i) determining a
fixed rate substitute for each variable rate provided under the Variable Rate
Debt Security (generally, the value of each variable rate as of the issue date
or, in the case of an objective rate that is not a qualified inverse floating
rate, a rate that reflects the reasonably expected yield on the note), (ii)
constructing the equivalent fixed rate debt instrument (using the fixed rate
substitute described above), (iii) determining the amount of qualified stated
interest and OID with respect to the equivalent fixed rate debt instrument, and
(iv) making the appropriate adjustments for actual variable rates during the
applicable accrual period.
If a Variable Rate Debt Security provides for stated interest either at one
or more qualified floating rates or at a qualified inverse floating rate, and in
addition provides for stated interest at a single fixed rate (other than at a
single fixed rate for an initial period), the amount of interest and OID
accruals are determined as in the immediately preceding paragraph with the
modification that the Variable Rate Debt Security is treated, for purposes of
the first three steps of the determination, as if it provided for a qualified
floating rate (or a qualified inverse floating rate, as the case may be) rather
than the fixed rate. The qualified floating rate (or qualified inverse floating
rate) replacing the fixed rate must be such that the fair market value of the
Variable Rate Debt Security as of the issue date would be approximately the same
as the fair market value of an otherwise identical debt instrument that provides
for the qualified floating rate (or qualified inverse floating rate) rather than
the fixed rate.
The federal income tax treatment of any Debt Security that provides for
payments of stated interest at a variable rate, but does not meet the foregoing
requirements of a Variable Rate Debt Security, will be described in the
applicable Prospectus Supplement.
SHORT-TERM DEBT SECURITIES. In general, an individual or other cash basis
United States Holder of a Debt Security with a term of one year or less (a
"short-term Debt Security") is not required to accrue OID (as specially
23
defined below for the purposes of this paragraph) for United States federal
income tax purposes unless it elects to do so (but may be required to include
any stated interest in income as the interest is received). Accrual basis United
States Holders and certain other United States Holders, including banks,
regulated investment companies, dealers in securities, common trust funds,
United States Holders who hold Debt Securities as part of certain identified
hedging transactions, certain pass-through entities and cash basis United States
Holders who so elect, are required to accrue OID on short-term Debt Securities
on either a straight-line basis or under the constant-yield method (based on
daily compounding), at the election of the United States Holder.
In the case of a United States Holder not required and not electing to
include OID in income currently, any gain realized on the sale or retirement of
the short-term Debt Security will be ordinary income to the extent of the OID
accrued on a straight-line basis (unless an election is made to accrue the OID
under the constant-yield method) through the date of sale or retirement. United
States Holders who are not required and do not elect to accrue OID on short-term
Debt Securities will be required to defer deductions for interest on borrowings
allocable to short-term Debt Securities in an amount not exceeding the deferred
income until the deferred income is realized.
For purposes of determining the amount of OID subject to these rules, all
interest payments on a short-term Debt Security, including stated interest, are
included in the short-term Debt Security's stated redemption price at maturity.
FOREIGN CURRENCY DISCOUNT DEBT SECURITIES. OID for any accrual period on a
Discount Debt Security that is denominated in, or determined by reference to, a
foreign currency will be determined in the foreign currency and then translated
into U.S. dollars in the same manner as stated interest accrued by an accrual
basis United States Holder, as described under "Payments of Interest". Upon
receipt of an amount attributable to OID (whether in connection with a payment
of interest or the sale or retirement of a Debt Security), a United States
Holder may recognize ordinary income or loss.
DEBT SECURITIES PURCHASED AT A PREMIUM
A United States Holder that purchases a Debt Security for an amount in
excess of its principal amount may elect to treat such excess as "amortizable
bond premium", in which case the amount required to be included in the United
States Holder's income each year with respect to interest on the Debt Security
will be reduced by the amount of amortizable bond premium allocable (based on
the Debt Security's yield to maturity) to such year. In the case of a Debt
Security that is denominated in, or determined by reference to, a foreign
currency, bond premium will be computed in units of foreign currency, and
amortizable bond premium will reduce interest income in units of the foreign
currency. At the time amortized bond premium offsets interest income, exchange
gain or loss (taxable as ordinary income or loss) is realized measured by the
difference between exchange rates at that time and at the time of the
acquisition of the Debt Securities. Any election to amortize bond premium shall
apply to all bonds (other than bonds the interest on which is excludible from
gross income) held by the United States Holder at the beginning of the first
taxable year to which the election applies or thereafter acquired by the United
States Holder, and is irrevocable without the consent of the Service. See also
"Original Issue Discount -- Election to Treat All Interest as Original Issue
Discount."
PURCHASE, SALE AND RETIREMENT OF THE DEBT SECURITIES
A United States Holder's tax basis in a Debt Security will generally be its
U.S. dollar cost (as defined below), increased by the amount of any OID or
market discount included in the United States Holder's income with respect to
the Debt Security and the amount, if any, of income attributable to de minimis
original issue discount and de minimis market discount included in the United
States Holder's income with respect to the Debt Security, and reduced by (i) the
amount of any payments that are not qualified stated interest payments, and (ii)
the amount of any amortizable bond premium applied to reduce interest on the
Debt Security. The U.S. dollar cost of a Debt Security purchased with a foreign
currency will generally be the U.S. dollar value of the purchase price on the
date of purchase or, in the case of Debt Securities traded on an established
securities market, as defined in the applicable Treasury Regulations, that are
purchased by a cash basis United States Holder (or an accrual basis United
States Holder that so elects), on the settlement date for the purchase.
A United States Holder will generally recognize gain or loss on the sale or
retirement of a Debt Security equal to the difference between the amount
realized on the sale or retirement and its tax basis in the Debt Security. The
amount realized on a sale or retirement for an amount in foreign currency will
be the U.S. dollar value of such
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amount on (i) the date payment is received in the case of a cash basis United
States Holder, (ii) the date of disposition in the case of an accrual basis
United States Holder or (iii) in the case of Debt Securities traded on an
established securities market, as defined in the applicable Treasury
Regulations, sold by a cash basis United States Holder (or an accrual basis
United States Holder that so elects), on the settlement date for the sale.
Except to the extent described above under "Original Issue
Discount -- Short-Term Debt Securities" or described in the next succeeding
paragraph or attributable to accrued but unpaid interest, gain or loss
recognized on the sale or retirement of a Debt Security will be capital gain or
loss and will be long-term capital gain or loss if the Debt Security was held
for more than one year.
Gain or loss recognized by a United States Holder on the sale or retirement
of a Debt Security that is attributable to changes in exchange rates will be
treated as ordinary income or loss. However, exchange gain or loss is taken into
account only to the extent of total gain or loss realized on the transaction.
EXCHANGE OF AMOUNTS IN OTHER THAN U.S. DOLLARS
Foreign currency received as interest on a Debt Security or on the sale or
retirement of a Debt Security will have a tax basis equal to its U.S. dollar
value at the time such interest is received or at the time of such sale or
retirement. Foreign currency that is purchased will generally have a tax basis
equal to the U.S. dollar value of the foreign currency on the date of purchase.
Any gain or loss recognized on a sale or other disposition of a foreign currency
(including its use to purchase Debt Securities or upon exchange for U.S.
dollars) will be ordinary income or loss.
INDEXED DEBT SECURITIES
The applicable Prospectus Supplement will contain a discussion of any
special United States federal income tax rules with respect to Indexed
Securities (other than Debt Securities subject to the rules governing Variable
Rate Debt Securities).
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
holder of a Debt Security who is (i) a nonresident alien individual or (ii) a
foreign corporation, partnership or estate or trust, in each case not subject to
United States federal income tax on a net income basis in respect of income or
gain from a Debt Security. This discussion assumes that the Debt Security or
coupon is not subject to the rules of Section 871(h) (4) (A) of the Code
(relating to interest payments that are determined by reference to the income,
profits, changes in the value of property or other attributes of the debtor or a
related party). In addition, solely with respect to United States federal estate
tax, the discussion assumes that the Debt Security had a maturity date, when
issued, that was not less than 184 days from the date of issuance.
Under present United States federal income and estate tax law, and subject
to the discussion of backup withholding below:
(1) payments of principal, premium (if any) and interest, including
OID, by MacSaver or any of its paying agents to any holder of a Debt
Security or coupon that is a United States Alien Holder will not be subject
to United States federal withholding tax if, in the case of interest or
OID, (i) the beneficial owner of the Debt Security or coupon does not
actually or constructively own 10% or more of the total combined voting
power of all classes of stock of MacSaver entitled to vote, (ii) the
beneficial owner of the Debt Security is not a controlled foreign
corporation that is related to MacSaver through stock ownership, (iii) if
the Debt Security is a Registered Security, either (a) the beneficial owner
of the Debt Security certifies to MacSaver or its agent, under penalties of
perjury, that it is not a United States Holder and provides its name and
address or (b) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business (a "financial institution") and holds the Debt Security
on behalf of a beneficial owner certifies to MacSaver or its agent, under
penalties of perjury, that such statement has been received from the
beneficial owner by it or by a financial institution between it and the
beneficial owner and furnishes the payor with a copy thereof and (iv) in
the case of a Debt Security which is not a Registered Security, the Debt
Security is offered, sold and delivered in compliance with applicable
restrictions relating to issuance of debt obligations which are not in
registered form and payments on the Debt Securities are made in
25
accordance with the applicable procedures relating to the issuance of debt
obligations which are not in registered form (both of which restrictions
and procedures will be described in the applicable Prospectus Supplement);
(2) a United States Alien Holder of a Debt Security or coupon will not
be subject to United States federal withholding tax on any gain realized on
the sale or exchange of a Debt Security or coupon; and
(3) a Debt Security or coupon held by an individual who at death is
not a citizen or resident of the United States will not be includible in
the individual's gross estate for purposes of the United States federal
estate tax as a result of the individual's death if (a) the individual did
not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of MacSaver entitled to vote and (b) the
income on the Debt Security would not have been effectively connected with
a United States trade or business of the individual at the individual's
death.
Recently proposed Internal Revenue Service Treasury regulations (the
"Proposed Regulations") would provide alternative methods for satisfying the
certification requirement described in clause (1)(iii) above. The Proposed
Regulations also would require in the case of Debt Securities held by a foreign
partnership, that (x) the certification described in clause (1)(iii) above be
provided by the partners rather than by the foreign partnership and (y) the
partnership provide certain information, including a United States taxpayer
identification number. A look-through rule would apply in the case of tiered
partnerships. The Proposed Regulations are proposed to be effective for payments
made after December 31, 1997. There can be no assurance that the Proposed
Regulations will be adopted or as to the provisions that they will include if
and when adopted in temporary or final form.
BACKUP WITHHOLDING AND INFORMATION REPORTING
UNITED STATES HOLDERS. In general, information reporting requirements will
apply to payments of principal, any premium and interest on a Debt Security and
the proceeds of the sale of a Debt Security before maturity within the United
States to, and to the accrual of OID on a Discount Debt Security with respect
to, non-corporate United States Holders, and "backup withholding" at a rate of
31% will apply to such payments and to payments of OID if the United States
Holder fails to provide an accurate taxpayer identification number or to report
all interest and dividends required to be shown on its federal income tax
returns.
UNITED STATES ALIEN HOLDERS. Under current law, information reporting and
backup withholding will not apply to payments of principal, premium (if any) and
interest (including OID) made by the Company or a paying agent to a United
States Alien Holder on a Debt Security if, in the case of Debt Securities which
are Registered Securities, either of the certifications described in clause
(1)(iii) under 'United States Alien Holders' above is received, provided that
the payor does not have actual knowledge that the holder is a United States
person. The Company or a paying agent, however, may report (on Internal Revenue
Service Form 1042S) payments of interest (including OID) on Debt Securities that
are Registered Securities. See the discussion above with respect to the Proposed
Regulations.
Payments of the proceeds from the sale by a United States Alien Holder of a
Debt Security made to or through a foreign office of a broker will not be
subject to information reporting or backup withholding, except that if the
broker is a United States person, a controlled foreign corporation for United
States tax purposes or a foreign person 50% or more of whose gross income is
effectively connected with a United States trade or business for a specified
three-year period, information reporting may apply to such payments. Payments of
the proceeds from the sale of a Debt Security to or through the United States
office of a broker is subject to information reporting and backup withholding
unless the holder or beneficial owner certifies as to its non-United States
status or otherwise establishes an exemption from information reporting and
backup withholding.
PLAN OF DISTRIBUTION
The Company or MacSaver may sell Securities to or through underwriters, and
also may sell Securities directly to other purchasers or through agents.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
26
Sales of Common Stock offered hereby may be effected from time to time in
one or more transactions on the NYSE or in negotiated transactions or a
combination of such methods of sale, at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at other negotiated
prices. In connection with distributions of Common Stock or otherwise, the
Company may enter into hedging transactions with broker-dealers in connection
with which such broker-dealers may sell Common Stock registered hereunder in the
course of hedging through short sales the positions they assume with the
Company.
In connection with the sale of Securities, underwriters or agents may
receive compensation from the Company or MacSaver or from purchasers of
Securities for whom they may act as agents in the form of discounts, concessions
or commissions. Underwriters may sell Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. Underwriters, dealers and agents that participate
in the distribution of Securities may be deemed to be underwriters, and any
discounts or commissions received by them from the Company or MacSaver and any
profit on the resale of Securities by them may be deemed to be underwriting
discounts and commissions, under the Securities Act of 1933 (the "Act"). Any
such underwriter or agent will be identified, and any such compensation received
from the Company or MacSaver will be described, in the Prospectus Supplement.
Under agreements which may be entered into by the Company and, in the case
of Debt Securities, MacSaver, underwriters and agents who participate in the
distribution of Securities may be entitled to indemnification by the Company
and, in the case of Debt Securities, MacSaver against certain liabilities,
including liabilities under the Act.
Certain of the underwriters or agents and their associates may be customers
of, engage in transactions with and perform services for the Company or MacSaver
in the ordinary course of business.
VALIDITY OF SECURITIES
The validity of the Securities to which this Prospectus relates will be
passed upon for the Company and, in the case of Debt Securities, MacSaver by
McGuire, Woods, Battle & Boothe, L.L.P., Richmond, Virginia, which serves as
general counsel to the Company. As of June 27, 1996, partners and associates of
McGuire, Woods, Battle & Boothe, L.L.P., who performed services in connection
with the offering made by this Prospectus, owned of record and beneficially
2,574 shares of Common Stock. Robert L. Burrus, Jr., a director of the Company,
is a partner of that firm. The validity of the Securities offered hereby will be
passed upon for any relevant Underwriters by Sullivan & Cromwell, New York, New
York, who will rely upon the opinion of McGuire, Woods, Battle & Boothe, L.L.P.
with respect to matters of Virginia law.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this Prospectus by reference from Heilig-Meyers
Company's Annual Report on Form 10-K for the year ended February 29, 1996, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report which is incorporated herein by reference, and has been so incorporated
in reliance upon the report of such firm given their authority as experts in
accounting and auditing.
27
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY
SALE MADE HEREUNDER OR THEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF MACSAVER OR
HEILIG-MEYERS SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
The Issuer.......................................... S-2
Heilig-Meyers Company............................... S-2
Use of Proceeds..................................... S-2
Recent Developments................................. S-2
Capitalization...................................... S-3
Selected Consolidated Financial Information of
Heilig-Meyers..................................... S-4
Pro Forma Combined Financial Data................... S-5
Description of Notes................................ S-9
Underwriting........................................ S-12
Validity of Securities.............................. S-12
PROSPECTUS
Available Information............................... 2
Incorporation of Certain Documents by Reference..... 2
Heilig-Meyers Company............................... 3
Use of Proceeds..................................... 5
Ratio of Earnings to Fixed Charges.................. 5
Description of Debt Securities...................... 5
Description of Common Stock......................... 16
Description of Warrants............................. 17
United States Taxation.............................. 19
Plan of Distribution................................ 26
Validity of Securities.............................. 27
Experts............................................. 27
$100,000,000
MACSAVER FINANCIAL
SERVICES, INC.
7.40% NOTES DUE FEBRUARY 15, 2002
GUARANTEED AS TO PAYMENT
OF PRINCIPAL AND INTEREST BY
HEILIG-MEYERS
COMPANY
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[Heilig-Meyers logo here]
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GOLDMAN, SACHS & CO.
NATIONSBANC CAPITAL MARKETS, INC.
SALOMON BROTHERS INC
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