As filed pursuant to
Rule 424(b)5 under the
Securities Act of 1933
Registration No. 333-41549
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 30, 2001)
$200,000,000
[KB LOGO]
8 5/8% SENIOR SUBORDINATED NOTES DUE 2008
--------------------------------
KB HOME:
- We are one of the largest builders of single-family homes in the United States
based on the number of homes delivered. We have domestic operations in six
western states, Florida and, through a majority-owned subsidiary,
international operations in France.
USE OF PROCEEDS:
- We expect to use $175.0 million of the net proceeds from this offering to
redeem, on or about December 31, 2001, all of our outstanding 9 3/8% Senior
Subordinated Notes due 2003, and to use the remaining net proceeds for general
corporate purposes.
THE SENIOR SUBORDINATED NOTES:
- Maturity: The notes will mature on December 15, 2008.
- Interest Payments: The notes will pay interest semi-annually in cash in
arrears on June 15 and December 15 of each year, starting on June 15, 2002.
- Ranking: The notes will be general unsecured senior subordinated obligations
of KB Home and will be junior in right of payment to all of our existing and
future Senior Indebtedness. In addition, the notes will be effectively
subordinated to all existing and future indebtedness, trade payables,
guarantees and other liabilities of KB Home's subsidiaries.
- Optional Redemption: Before December 15, 2004, we may redeem up to 35% of the
aggregate principal amount of the notes with the net proceeds of one or more
public or private equity offerings at the redemption price described in this
prospectus supplement. The notes are not otherwise redeemable at the option of
KB Home.
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-7 OF THIS
PROSPECTUS SUPPLEMENT.
The underwriters have agreed to purchase the notes from KB Home at 99.206%
of their principal amount for total proceeds to KB Home of approximately $198.4
million, before deducting expenses. The underwriters propose to offer the notes
from time to time for sale in one or more negotiated transactions, or otherwise,
at varying prices to be determined at the time of each sale.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS TO WHICH IT RELATES IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Banc of America Securities LLC expects that the notes will be ready for
delivery in book-entry-only form to The Depository Trust Company on or about
December 14, 2001.
Sole Book-Running Manager
BANC OF AMERICA SECURITIES LLC
--------------------------------
COMERICA SECURITIES, INC.
BANC ONE CAPITAL MARKETS, INC.
SUNTRUST ROBINSON HUMPHREY
The date of this prospectus supplement is November 30, 2001.
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WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH ANY INFORMATION OTHER
THAN THE INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE ARE NOT MAKING ANY
OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THE INFORMATION PROVIDED BY THIS PROSPECTUS SUPPLEMENT, THE
ACCOMPANYING PROSPECTUS OR THE DOCUMENTS INCORPORATED BY REFERENCE IN THE
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THIS
PROSPECTUS SUPPLEMENT, THE DATE ON THE FRONT OF THE ACCOMPANYING PROSPECTUS OR
THE DATE OF THE APPLICABLE INCORPORATED DOCUMENT, AS THE CASE MAY BE.
TABLE OF CONTENTS
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PROSPECTUS SUPPLEMENT
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PAGE
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Prospectus Supplement Summary............................... S-4
Risk Factors................................................ S-7
Use of Proceeds............................................. S-13
Capitalization.............................................. S-13
Selected Consolidated Financial Data........................ S-14
Description of the Notes.................................... S-17
Underwriting................................................ S-37
Legal Matters............................................... S-38
Experts..................................................... S-38
Forward-Looking Statements.................................. S-38
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PROSPECTUS
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PAGE
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Available Information....................................... 1
Incorporation of Certain Information by Reference........... 1
Use of Proceeds............................................. 2
Description of the Debt Securities.......................... 2
Description of Capital Stock................................ 11
Description of Warrants..................................... 15
Plan of Distribution........................................ 16
Experts..................................................... 17
Legal Matters............................................... 17
When this prospectus supplement uses the words "KB Home," "we," "us," and
"our," they refer to KB Home and its subsidiaries unless otherwise expressly
stated or the context otherwise requires. Our fiscal year ends on November 30.
When this prospectus supplement refers to particular years or quarters in
connection with the discussion of our results of operations or financial
condition, those references mean the relevant fiscal years and fiscal quarters.
The information in this prospectus supplement, the accompanying prospectus
and the documents incorporated by reference in the accompanying prospectus
concerning the homebuilding industry, our market share, our size relative to
other homebuilders and similar matters is derived principally from publicly
available information and from industry sources. Although we believe that this
publicly available information and the information provided by these industry
sources is reliable, we have not independently verified any of this information
and we cannot assure you of its accuracy.
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S-3
PROSPECTUS SUPPLEMENT SUMMARY
The following is a summary of the more detailed information appearing
elsewhere in this prospectus supplement, the accompanying prospectus or the
documents that are incorporated by reference in the prospectus. It does not
contain all of the information that may be important to you. You should read
carefully the entire prospectus supplement, the accompanying prospectus and the
documents incorporated by reference in the prospectus before you decide to
invest in the notes.
KB HOME
KB Home is one of the largest builders of single-family homes in the United
States based on the number of homes delivered. We have domestic operations in
six western states, Florida and, through a majority-owned subsidiary,
international operations in France. Founded in 1957, KB Home builds innovatively
designed homes which cater primarily to first-time and first move-up homebuyers,
generally in medium-sized developments close to major metropolitan areas.
Kaufman & Broad S.A., KB Home's majority-owned subsidiary, is one of the largest
homebuilders in France based on the number of homes delivered. KB Home provides
mortgage banking services to domestic homebuyers through its wholly owned
subsidiary, Kaufman and Broad Mortgage Company.
THE OFFERING
Issuer.......................... KB Home, a Delaware corporation.
The Notes....................... $200 million aggregate principal amount of
8 5/8% Senior Subordinated Notes due 2008.
Maturity........................ The notes will mature on December 15, 2008.
Payment of Interest............. Interest on the notes, at the rate of 8 5/8%
per annum, will accrue from December 14, 2001
and will be payable in cash semi-annually in
arrears on June 15 and December 15 of each
year, commencing June 15, 2002.
Optional Redemption............. At any time prior to December 15, 2004, KB
Home may, at its option and on one or more
occasions, redeem up to 35% of the aggregate
original principal amount of all notes,
including any Additional Notes (as defined
under "Description of the Notes -- Certain
Definitions"), with the net proceeds of one
or more public or private equity offerings at
a redemption price of 108.625% of their
principal amount, together with accrued and
unpaid interest. KB Home may make this
redemption only if at least $130 million
aggregate principal amount of the notes
remains outstanding after the redemption and
only if notice of redemption is given within
60 days after the closing date of the related
equity offering.
The notes are not otherwise redeemable at the
option of KB Home.
Subordination................... The notes will be unsecured obligations of KB
Home and will be subordinate in right of
payment to all existing and future Senior
Indebtedness (as defined in the accompanying
prospectus under "Description of the Debt
Securities -- Senior Subordinated Debt") of
KB Home and will rank equally with all
existing senior subordinated indebtedness of
KB Home. At August 31, 2001, on a pro forma
basis after giving effect to the
S-4
issuance of the notes and the application of
$175.0 million of the estimated net proceeds
to redeem all of KB Home's outstanding 9 3/8%
Senior Subordinated Notes due 2003, KB Home
would have had approximately $586 million of
Senior Indebtedness outstanding and
approximately $575 million of senior
subordinated indebtedness outstanding
(including the notes offered by this
prospectus supplement). In addition, the
notes will be effectively subordinated to all
existing and future indebtedness, trade
payables, guarantees and other liabilities of
KB Home's subsidiaries. At August 31, 2001,
KB Home's subsidiaries had approximately
$1.09 billion of liabilities, excluding
collateralized mortgage obligations of $24
million and intercompany liabilities.
Although the indenture that will govern the
notes contains limitations on the incurrence
of additional indebtedness, KB Home and its
subsidiaries could currently incur
significant additional indebtedness,
including Senior Indebtedness.
Change of Control............... Upon the occurrence of a Change of Control
(as defined under "Description of the
Notes -- Certain Covenants -- Change of
Control") with respect to KB Home, each
holder of notes will have the right to
require KB Home to repurchase that holder's
notes at a price equal to 101% of their
principal amount plus accrued and unpaid
interest. In addition, the lenders under KB
Home's Existing Credit Facilities (as defined
under "Description of the Notes -- Certain
Definitions") and the holders of
approximately $725 million aggregate
principal amount of KB Home's other senior
and senior subordinated notes outstanding at
August 31, 2001, without giving effect to the
proposed redemption on or about December 31,
2001 of $175.0 million aggregate principal
amount of our 9 3/8% Senior Subordinated
Notes due 2003, also have the right to
require KB Home to repay borrowings under
those facilities and to repurchase those
notes upon the occurrence of a Change of
Control or events similar to a Change of
Control. KB Home may not have sufficient
funds available to make any required
repayment or repurchase of debt, including
repurchases of the notes offered by this
prospectus supplement, in the event of a
Change of Control or events similar to a
Change of Control.
Certain Covenants............... The indenture under which the notes will be
issued will contain covenants that, among
other things, limit the ability of KB Home
and some of its subsidiaries to incur
additional indebtedness and pay dividends or
make other distributions and certain
investments. These limitations are subject to
a number of important qualifications and
exceptions.
Use of Proceeds................. We estimate that the net proceeds from this
offering will be approximately $198.1
million, after deducting underwriting fees
and estimated expenses. We expect to use
$175.0 million of the net proceeds from this
offering to redeem, on or about December 31,
2001, all of our outstanding 9 3/8% Senior
S-5
Subordinated Notes due 2003, and to use the
remaining net proceeds for general corporate
purposes.
Book-Entry Notes................ The notes will be issued in book-entry form
and represented by one or more global notes
deposited with a custodian for, and
registered in the name of a nominee of, The
Depository Trust Company.
PRINCIPAL EXECUTIVE OFFICES
Our principal executive offices are located at 10990 Wilshire Boulevard,
Los Angeles, California 90024. Our telephone number is (310) 231-4000.
S-6
RISK FACTORS
We want you to be aware that the following important factors could
adversely impact our homebuilding and mortgage lending operations. These factors
could cause our actual results to differ materially from the forward-looking and
other statements that we make in this prospectus supplement, the accompanying
prospectus and the documents incorporated or deemed to be incorporated by
reference in the accompanying prospectus. You are also cautioned that some of
the statements contained or incorporated by reference in this prospectus
supplement and the accompanying prospectus are "forward-looking statements" and
are subject to risks, uncertainties and assumptions. See "Forward-Looking
Statements."
RISK FACTORS RELATING TO KB HOME
OUR BUSINESS IS CYCLICAL AND IS SIGNIFICANTLY IMPACTED BY CHANGES IN GENERAL AND
LOCAL ECONOMIC CONDITIONS.
Our business is substantially affected by changes in national and general
economic factors outside of our control, such as:
- short and long term interest rates;
- the availability of financing for homebuyers;
- consumer confidence;
- federal mortgage financing programs; and
- federal income tax laws and regulations.
The cyclicality of our business is also highly sensitive to changes in
economic conditions that can occur on a local or regional basis, such as changes
in:
- housing demand;
- population growth;
- employment levels and job growth; and
- property taxes.
Weather conditions and natural disasters such as earthquakes, hurricanes,
tornadoes, floods, droughts, fires and other casualties can harm our
homebuilding business on a local or regional basis.
Fluctuating lumber prices and shortages, as well as shortages or price
fluctuations in other important building materials, can have an adverse effect
on our homebuilding business. Similarly, labor shortages or unrest among key
trades, such as carpenters, roofers, electricians and plumbers, can delay the
delivery of our homes and increase our costs.
The difficulties described above can cause demand and prices for our homes
to diminish or cause us to take longer and incur more costs to build our homes.
We may not be able to recover these increased costs by raising prices because
the price of each home is usually set several months before the home is
delivered, as our customers typically sign their home purchase contracts before
construction has even begun on their homes. In addition, some of the
difficulties described above could cause some homebuyers to cancel their home
purchase contracts altogether.
OUR SUCCESS DEPENDS ON THE AVAILABILITY OF IMPROVED LOTS AND UNDEVELOPED LAND
THAT MEET OUR LAND INVESTMENT CRITERIA.
The availability of finished and partially developed lots and undeveloped
land for purchase that meet our internal criteria depends on a number of factors
outside our control, including land availability in general, competition with
other homebuilders and land buyers for desirable property, inflation in land
prices, and zoning, allowable housing density and other regulatory requirements.
Should suitable lots or land become less available, the number of homes we may
be able to build and sell could be reduced, and the cost of land could be
increased, perhaps substantially, which could adversely impact our results of
operations.
S-7
HOME PRICES AND SALES ACTIVITY IN PARTICULAR REGIONS OF THE WESTERN,
SOUTHWESTERN AND CENTRAL UNITED STATES IMPACT OUR RESULTS OF OPERATIONS BECAUSE
OUR BUSINESS IS CONCENTRATED IN THESE MARKETS.
Home prices and sales activity in some of our key markets have declined
from time to time for market-specific reasons, including adverse weather or
economic contraction due to, among other things, the failure or decline of key
industries and employers. If home prices or sales activity decline in one or
more of the key markets in which we operate, our costs may not decline at all or
at the same rate and, as a result, our overall results of operations may be
adversely impacted.
INTEREST RATE INCREASES OR CHANGES IN FEDERAL LENDING PROGRAMS COULD LOWER
DEMAND FOR OUR HOMES AND ADVERSELY IMPACT OUR MORTGAGE LENDING OPERATIONS.
Nearly all of our customers finance the purchase of their homes, and a
significant majority of these customers arrange their financing through our
mortgage lending subsidiary. Increases in interest rates or decreases in
availability of mortgage financing would increase monthly mortgage costs for our
potential homebuyers and could therefore reduce demand for our homes and
mortgages. Increased interest rates can also hinder our ability to realize our
backlog because our sales contracts provide our customers with a financing
contingency. Financing contingencies allow customers to cancel their home
purchase contracts in the event they cannot arrange for financing at interest
rates that were prevailing when they signed their contracts.
Because the availability of FNMA, FHLMC, FHA and VA mortgage financing is
an important factor in marketing many of our homes, any limitations or
restrictions on the availability of those types of financing could reduce our
home sales and the lending volume at our mortgage subsidiary.
WE ARE SUBJECT TO SUBSTANTIAL LEGAL AND REGULATORY REQUIREMENTS REGARDING THE
DEVELOPMENT OF LAND, THE HOMEBUILDING PROCESS AND PROTECTION OF THE ENVIRONMENT,
WHICH CAN CAUSE US TO SUFFER DELAYS AND INCUR COSTS ASSOCIATED WITH COMPLIANCE,
AND WHICH CAN PROHIBIT OR RESTRICT HOMEBUILDING ACTIVITY IN SOME REGIONS OR
AREAS.
Our homebuilding business is heavily regulated and subject to increasing
local, state and federal statutes, ordinances, rules and regulations concerning
zoning, resource protection, building design, construction and similar matters.
These regulations often provide broad discretion to governmental authorities
that regulate these matters, which can result in unanticipated delays or
increases in the cost of a specified project or a number of projects in a
particular market. We may also experience periodic delays in homebuilding
projects due to building moratoria in any of the areas in which we operate.
We are also subject to a variety of local, state and federal statutes,
ordinances, rules and regulations concerning the environment. These laws and
regulations may cause delays in construction and delivering new homes, may cause
us to incur substantial compliance and other costs, and can prohibit or severely
restrict homebuilding activity in certain environmentally sensitive regions or
areas. In addition, environmental laws may impose liability for the costs of
removal or remediation of hazardous or toxic substances whether or not the
developer or owner of the property knew of, or was responsible for, the presence
of those substances. The presence of these substances on our properties may
prevent us from selling our homes and we may also be liable, under applicable
laws and regulations or lawsuits brought by private parties, for hazardous or
toxic substances on properties and lots that we have sold in the past.
Further, a significant portion of our business is conducted in California,
which is one of the most highly regulated and litigious states in the country.
Therefore, potential exposure to losses and expenses due to new laws,
regulations or litigation may be greater for us than for other homebuilders with
a less significant California presence.
Because of our French business, we are also subject to regulations and
restrictions imposed by the government of France concerning investments by
non-French companies, such as us, in businesses in France, as well as to French
laws and regulations similar to those discussed above.
Our mortgage operations are heavily regulated and subject to the rules and
regulations promulgated by a number of governmental and quasi-governmental
agencies. We are also subject to federal and state statutes and regulations
which, among other things, prohibit discrimination, establish underwriting
S-8
guidelines which include obtaining inspections and appraisals, require credit
reports on prospective borrowers and fix maximum loan amounts. A finding that we
had materially violated any of the foregoing laws could have an adverse effect
on our results of mortgage operations.
We are subject to a Consent Order that we entered into with the Federal
Trade Commission in 1979. Pursuant to the Consent Order, we provide explicit
warranties on the quality of our homes, follow certain guidelines in advertising
and provide certain disclosures to prospective purchasers of our homes. A
finding that we have significantly violated the Consent Order could result in
substantial liability and could limit our ability to sell homes in certain
markets.
WE BUILD HOMES IN HIGHLY COMPETITIVE MARKETS, WHICH COULD HURT OUR FUTURE
OPERATING RESULTS.
We compete in each of our markets with a number of homebuilding companies
for homebuyers, land, financing, raw materials and skilled management and labor
resources. Our competitors include other large national homebuilders, as well as
smaller regional and local builders that can have an advantage in local markets
because of long-standing relationships they may have with local labor or land
sellers. We also compete with other housing alternatives, such as existing homes
and rental housing.
These competitive conditions can:
- make it difficult for us to acquire desirable land which meets our land
buying criteria;
- cause us to offer or to increase our sales incentives or price discounts;
and
- result in reduced sales.
Any of these competitive conditions can adversely impact our revenues,
increase our costs and/or impede the growth of our local or regional
homebuilding businesses.
Our mortgage lending operation competes with other mortgage lenders,
including national, regional and local mortgage bankers, savings and loan
associations and other financial institutions. Mortgage lenders with greater
access to capital markets or those with less rigorous lending criteria can
sometimes offer lower interest rates than we can, which can diminish our ability
to compete and adversely impact the results of operations from our mortgage
lending business.
BECAUSE OF THE SEASONAL NATURE OF OUR BUSINESS, OUR QUARTERLY OPERATING RESULTS
FLUCTUATE.
We have experienced seasonal fluctuations in quarterly operating results.
We typically do not commence significant construction on a home before a sales
contract has been signed with a homebuyer. A significant percentage of our sales
contracts are made during the spring and summer months. Construction of our
homes typically requires approximately three months and weather delays that
often occur during late winter and early spring may extend this period. As a
result of these combined factors, we historically have experienced uneven
quarterly results, with lower revenues and operating income generally during the
first and second quarters of our fiscal year.
OUR LEVERAGE MAY PLACE BURDENS ON OUR ABILITY TO COMPLY WITH THE TERMS OF OUR
INDEBTEDNESS, MAY RESTRICT OUR ABILITY TO OPERATE AND MAY PREVENT US FROM
FULFILLING OUR OBLIGATIONS.
The amount of our debt could have important consequences to you. For
example, it could:
- limit our ability to obtain future financing for working capital, capital
expenditures, acquisitions, debt service requirements or other
requirements;
- require us to dedicate a substantial portion of our cash flow from
operations to the payment of our debt and reduce our ability to use our
cash flow for other purposes;
- impact our flexibility in planning for, or reacting to, changes in our
business;
- place us at a competitive disadvantage because we have more debt than
some of our competitors; and
S-9
- make us more vulnerable in the event of a downturn in our business or in
general economic conditions.
Our ability to meet our debt service and other obligations will depend upon
our future performance. We are engaged in businesses that are substantially
affected by changes in economic cycles. Our revenues and earnings vary with the
level of general economic activity in the markets we serve. Our businesses could
also be affected by financial, political, business and other factors, many of
which are beyond our control. The factors that affect our ability to generate
cash can also affect our ability to raise additional funds through the sale of
debt and/or equity securities, the refinancing of debt or the sale of assets.
Changes in prevailing interest rates may also affect our ability to meet our
debt service obligations, because borrowings under our bank credit facilities
bear interest at floating rates. A higher interest rate on our debt could
adversely affect our operating results.
Our business may not generate sufficient cash flow from operations and
borrowings may not be available to us under our bank credit facilities in an
amount sufficient to enable us to pay our debt service obligations or to fund
our other liquidity needs. We may need to refinance all or a portion of our debt
on or before maturity, which we may not be able to do on favorable terms or at
all.
The indenture governing the notes offered by this prospectus supplement and
our other outstanding debt instruments and bank credit facilities include
various financial covenants and restrictions, including restrictions on debt
incurrence, sales of assets and cash distributions by us. Should we not comply
with any of those restrictions or covenants, the trustees or the banks, as
appropriate, could cause our debt to become due and payable prior to maturity.
WE MAY HAVE DIFFICULTY IN CONTINUING TO OBTAIN THE ADDITIONAL FINANCING REQUIRED
TO OPERATE AND DEVELOP OUR BUSINESS.
Our homebuilding operations require significant amounts of cash and/or
available credit. It is not possible to predict the future terms or availability
of additional capital. Moreover, our outstanding domestic public debt, as well
as our domestic bank credit facilities and the credit facilities of our French
subsidiary, contain provisions that may restrict the amount and nature of debt
we may incur in the future. If conditions in the capital markets change
significantly, it could reduce our sales and may hinder our future growth and
results of operations.
OUR FUTURE GROWTH MAY BE LIMITED BY CONTRACTING ECONOMIES IN THE MARKETS IN
WHICH WE CURRENTLY OPERATE, OUR INABILITY TO FIND APPROPRIATE ACQUISITION
CANDIDATES, OR OUR CONSUMMATION OF ACQUISITIONS THAT MAY NOT BE SUCCESSFULLY
INTEGRATED OR MAY NOT ACHIEVE EXPECTED BENEFITS.
Our future growth and results of operations could be adversely affected if
the markets in which we currently operate do not continue to support the
expansion of our existing business or if we are unable to identify suitable
acquisition opportunities in new markets. Over the last several years, there has
been significant consolidation in the homebuilding industry, which has made it
somewhat more difficult for us to identify appropriate acquisition candidates in
new markets and has increased competition for acquisition candidates. If we do
consummate acquisitions in the future, we may not be successful in integrating
the operations of the acquired businesses, including their product lines,
dispersed operations and distinct corporate cultures. Our inability to grow in
existing markets or find appropriate acquisition opportunities in new markets,
or our failure to successfully manage future acquisitions, would limit our
ability to grow and would adversely impact our future operating results.
BECAUSE WE BUILD HOMES IN FRANCE, SOME OF OUR REVENUES AND EARNINGS ARE SUBJECT
TO FOREIGN CURRENCY AND ECONOMIC RISKS.
A portion of our construction operations are located in France. As a
result, our financial results are affected by fluctuations in the value of the
U.S. dollar as compared to the euro and changes in the French economy to the
extent those changes affect the homebuilding market there.
S-10
INTERNATIONAL INSTABILITY, AND FUTURE TERRORIST ACTS AGAINST OR SIMILAR ADVERSE
DEVELOPMENTS INVOLVING THE UNITED STATES OR FRANCE, COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR OPERATIONS.
The September 11, 2001 terrorist acts against the United States and the
subsequent U.S. military response have resulted in generalized economic
uncertainty. In the weeks immediately following the September 11th attacks, net
orders for our homes fell sharply and cancellations increased, although they
have subsequently returned to levels that compare favorably on a year-over-year
basis. We do not expect the adverse developments immediately following September
11th to have a material effect on our overall future results of operations.
Despite this apparent rebound, considerable instability continues and consumer
confidence continues to diminish. These generalized conditions or future adverse
developments in the war against terrorism, future terrorist acts against the
U.S. or France, or increased international instability in general, could result
in a material long-term decrease in our net orders and an increase in
cancellations, which could materially adversely affect our operating results or
result in a decline in the market value of the notes offered by this prospectus
supplement.
RISK FACTORS RELATING TO THE NOTES OFFERED BY THIS PROSPECTUS SUPPLEMENT
AN ACTIVE TRADING MARKET MAY NOT DEVELOP FOR THE NOTES.
We cannot assure you that a trading market for the notes will ever develop
or, if a trading market develops, that it will be maintained or provide adequate
liquidity. We do not intend to apply for listing of the notes on any securities
exchange or for quotation on any automated or other quotation system. The notes
will be a new issue of securities with no trading history or established trading
market. Any trading market for the notes may be adversely affected by changes in
interest rates, the overall market for these types of securities and by changes
in our financial performance or prospects or in the prospects for companies in
our industry generally. As a consequence, you might not be able to sell your
notes, or, even if you can sell your notes, you might not be able to sell them
at an acceptable price.
THE NOTES WILL BE SUBORDINATED IN RIGHT OF PAYMENT TO OUR EXISTING AND FUTURE
SENIOR INDEBTEDNESS AND WILL BE EFFECTIVELY SUBORDINATED TO THE LIABILITIES OF
OUR SUBSIDIARIES.
The notes will be unsecured senior subordinated debt of KB Home, will rank
equally in right of payment with all of our existing senior subordinated debt,
and will be junior in right of payment to all of our existing and future Senior
Indebtedness. The term "Senior Indebtedness" is defined in the accompanying
prospectus under "Description of the Debt Securities -- Senior Subordinated
Debt" and you should review that definition carefully. As of August 31, 2001, on
a pro forma basis after giving effect to the issuance of the notes and the
application of $175.0 million of the estimated net proceeds to redeem all of KB
Home's outstanding 9 3/8% Senior Subordinated Notes due 2003, KB Home would have
had approximately $575 million of senior subordinated indebtedness outstanding
and approximately $586 million of Senior Indebtedness outstanding. As a result
of this subordination, in the event of any distribution of our assets upon a
dissolution, insolvency, bankruptcy or other similar proceeding,
- holders of our Senior Indebtedness will be entitled to be paid in full
before any payment may be made on our senior subordinated indebtedness,
including the notes, and holders of our senior subordinated indebtedness,
including holders of the notes, will be required to pay over their share
of any distribution to the holders of our Senior Indebtedness until the
Senior Indebtedness is paid in full; and
- our creditors who hold neither Senior Indebtedness nor our senior
subordinated indebtedness may recover more, ratably, than holders of our
senior subordinated indebtedness, including holders of the notes, and
less, ratably, than holders of our Senior Indebtedness.
KB Home is a holding company, which currently conducts its operations
through consolidated and unconsolidated subsidiaries. All of the operating
assets of KB Home are owned by its subsidiaries, effectively subordinating the
notes to all existing and future indebtedness, trade payables, guarantees and
other liabilities, whether or not for borrowed money, of KB Home's subsidiaries,
which liabilities totaled
S-11
approximately $1.09 billion, excluding collateralized mortgage obligations of
$24 million and intercompany liabilities, at August 31, 2001. Therefore, KB
Home's rights and the rights of its creditors, including holders of the notes,
to participate in the distribution of assets of any subsidiary upon the
subsidiary's liquidation or recapitalization will be subject to the prior claims
of the subsidiary's creditors, except to the extent KB Home may itself be a
creditor with recognized claims against the subsidiary, in which case the claims
of KB Home would still effectively be subordinate to any security interests in
the assets of that subsidiary and would be subordinate to any indebtedness of
that subsidiary senior to that held by KB Home. In addition, dividends, loans
and advances from some subsidiaries to KB Home may be subject to certain
contractual, statutory or regulatory restrictions, are contingent upon the
results of operations of those subsidiaries and are subject to various business
considerations.
Although the indenture governing the notes will contain limitations on the
amount of indebtedness KB Home and certain of its subsidiaries may incur, KB
Home and its subsidiaries will retain the ability to incur substantial
additional indebtedness, including Senior Indebtedness.
OUR ABILITY TO REPURCHASE THE NOTES FOLLOWING A CHANGE OF CONTROL EVENT MAY BE
LIMITED.
Upon the occurrence of specified kinds of change of control events, holders
of the notes being offered by this prospectus supplement may, at their option,
require us to repurchase all or a portion of their notes at a price of 101% of
the principal amount plus accrued interest. Our bank credit facilities and our
outstanding 7 3/4% Senior Notes, 9 5/8% Senior Subordinated Notes, 9 3/8% Senior
Subordinated Notes and 9 1/2% Senior Subordinated Notes contain similar change
of control repayment and repurchase provisions. We cannot assure you that we
would have the financial resources or otherwise be able to arrange financing to
repay borrowings under these credit facilities or repurchase these debt
securities or the notes upon the occurrence of a change of control event.
S-12
USE OF PROCEEDS
We estimate that the net proceeds from this offering will be approximately
$198.1 million (after deducting underwriting fees and estimated expenses). We
expect to use $175.0 million of the net proceeds from this offering to redeem,
on or about December 31, 2001, all of our outstanding 9 3/8% Senior Subordinated
Notes due 2003, and to use the remaining net proceeds for general corporate
purposes. The 9 3/8% Senior Subordinated Notes are currently redeemable at 100%
of their principal amount, have an interest rate of 9 3/8% and, if not redeemed,
would mature on May 1, 2003.
CAPITALIZATION
The following table sets forth the unaudited cash and cash equivalents and
capitalization of KB Home and its consolidated subsidiaries at August 31, 2001,
and as adjusted to give effect to the sale of the notes offered hereby and the
application of $175.0 million of the estimated net proceeds from the sale of the
notes to repay all of our outstanding 9 3/8% Senior Subordinated Notes due 2003
as described in "Use of Proceeds."
AT AUGUST 31, 2001
-----------------------
AS
ACTUAL ADJUSTED
-------- -----------
(DOLLARS IN MILLIONS)
Cash and cash equivalents................................... $ 45.2 $ 68.3
======== ========
Construction debt:
Revolving and term credit facilities(1)................... 168.0 168.0
Mortgage and notes payable................................ 243.1 243.1
7 3/4% Senior Notes due 2004.............................. 175.0 175.0
9 3/8% Senior Subordinated Notes due 2003(2).............. 174.7 --
9 5/8% Senior Subordinated Notes due 2006................. 124.6 124.6
9 1/2% Senior Subordinated Notes due 2011................. 250.0 250.0
8 5/8% Senior Subordinated Notes due 2008 offered
hereby.................................................. -- 200.0
Mortgage banking debt:
Notes payable............................................. 485.6 485.6
Collateralized mortgage obligations secured by
mortgage-backed securities.............................. 23.9 23.9
-------- --------
Total debt.............................................. 1,644.9 1,670.2
-------- --------
Minority interests:
Consolidated subsidiaries and joint ventures.............. 59.4 59.4
Stockholders' equity:
Preferred Stock -- $1.00 par value; authorized, 10,000,000
shares; none outstanding................................ -- --
Common Stock -- $1.00 par value; authorized, 100,000,000
shares; 51,769,272 shares outstanding(3)................ 51.8 51.8
Paid-in capital........................................... 445.3 445.3
Retained earnings......................................... 716.1 716.1
Accumulated other comprehensive income.................... (7.2) (7.2)
Deferred compensation..................................... (10.8) (10.8)
Grantor stock ownership trust............................. (177.3) (177.3)
Treasury stock, at cost................................... (28.3) (28.3)
-------- --------
Total stockholders' equity.............................. 989.6 989.6
-------- --------
Total debt, minority interests, and stockholders' equity.... $2,693.9 $2,719.2
======== ========
-------------------------
(1) As of November 30, 2001, KB Home had no borrowings outstanding under its
principal domestic revolving credit facility and borrowings under the
related term loan remained at $168.0 million.
(2) We expect to redeem, on or about December 31, 2001, all of our outstanding
9 3/8% Senior Subordinated Notes due 2003.
(3) Does not include 4,486,858 shares of common stock issuable as of August 31,
2001 upon exercise of outstanding stock options issued pursuant to employee
stock option plans.
S-13
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data of KB
Home. The data, other than housing, commercial and land revenues, unit
deliveries and the ratios of earnings to fixed charges and of earnings to
combined fixed charges and preferred stock dividends, for the fiscal years ended
November 30, 2000, 1999, 1998, 1997 and 1996 are derived from the financial
statements for those years which have been audited by Ernst & Young LLP,
independent auditors. Data related to housing, commercial and land revenues,
unit deliveries and the ratios of earnings to fixed charges and of earnings to
combined fixed charges and preferred stock dividends are derived from unaudited
statements. The following selected consolidated financial data at August 31,
2001 and 2000 and for each of the nine month periods ended August 31, 2001 and
2000 is unaudited but reflects, in the opinion of KB Home, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations and financial condition as of and for
these periods. The results of operations for the nine months ended August 31,
2001 are not necessarily indicative of results to be expected for the full year.
The following data should be read in conjunction with the financial statements
and the related notes incorporated by reference in the accompanying prospectus.
NINE MONTHS ENDED
AUGUST 31, YEARS ENDED NOVEMBER 30,
--------------------- ---------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED) (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenues:
Housing..................................... $ 2,969.9 $ 2,567.1 $ 3,769.2 $ 3,733.7 $ 2,379.0 $ 1,827.3 $ 1,673.7
Commercial.................................. 53.6 -- .8 .6 1.5 2.7 12.2
Land........................................ 51.8 78.2 100.5 37.8 22.5 13.6 68.2
Mortgage banking............................ 48.0 41.5 60.4 64.2 46.4 35.1 33.4
--------- --------- --------- --------- --------- --------- ---------
Total revenues............................ $ 3,123.3 $ 2,686.8 $ 3,930.9 $ 3,836.3 $ 2,449.4 $ 1,878.7 $ 1,787.5
========= ========= ========= ========= ========= ========= =========
Construction:
Revenues.................................... $ 3,075.3 $ 2,645.3 $ 3,870.5 $ 3,772.1 $ 2,403.0 $ 1,843.6 $ 1,754.1
Costs and expenses.......................... (2,858.1) (2,478.2) (3,581.9) (3,513.0) (2,254.3) (1,741.8) (1,655.4)
Non-cash charge for impairment of long-lived
assets.................................... -- -- -- -- -- -- (170.8)
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)..................... 217.2 167.1 288.6 259.1 148.7 101.8 (72.1)
Interest income............................. 2.7 5.0 5.8 7.8 5.7 5.1 2.7
Interest expense, net of amounts
capitalized............................... (30.7) (22.3) (31.5) (28.3) (23.3) (29.9) (36.7)
Minority interests.......................... (20.3) (20.9) (31.6) (29.4) (7.0) (.4) (.2)
Equity in pretax income (loss) of
unconsolidated joint ventures............. 2.4 2.3 2.9 .2 1.1 (.1) (2.1)
Gain on issuance of French subsidiary
stock..................................... -- 39.6 39.6 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Construction pretax income (loss)........... 171.3 170.8 273.8 209.4 125.2 76.5 (108.4)
--------- --------- --------- --------- --------- --------- ---------
Mortgage banking:
Revenues.................................... 48.0 41.5 60.4 64.2 46.4 35.1 33.4
Expenses.................................... (28.8) (25.7) (36.5) (46.7) (25.0) (20.6) (20.7)
--------- --------- --------- --------- --------- --------- ---------
Mortgage banking pretax income.............. 19.2 15.8 23.9 17.5 21.4 14.5 12.7
--------- --------- --------- --------- --------- --------- ---------
Total pretax income (loss).................... 190.5 186.6 297.7 226.9 146.6 91.0 (95.7)
Income taxes.................................. (64.8) (50.0) (87.7) (79.4) (51.3) (32.8) 34.5
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)............................. $ 125.7 $ 136.6 $ 210.0 $ 147.5 $ 95.3 $ 58.2 $ (61.2)
========= ========= ========= ========= ========= ========= =========
Basic earnings per share...................... $ 3.50 $ 3.39 $ 5.39 $ 3.16 $ 2.41 $ 1.50 $ (1.80)
========= ========= ========= ========= ========= ========= =========
Diluted earnings per share.................... $ 3.36 $ 3.32 $ 5.24 $ 3.08 $ 2.32 $ 1.45 $ (1.80)
========= ========= ========= ========= ========= ========= =========
Ratio of earnings to fixed charges(1)......... 2.66x 2.69x 3.00x 2.92x 2.94x 2.44x --
Ratio of earnings to combined fixed charges
and preferred stock dividends(1)............ 2.66x 2.69x 3.00x 2.92x 2.94x 2.44x --
OTHER OPERATING DATA:
West Coast unit deliveries.................. 3,922 3,779 5,476 6,323 4,858 4,731 5,171
Southwest unit deliveries................... 4,441 4,209 5,832 5,801 2,730 1,674 1,341
Central unit deliveries..................... 6,299 5,481 8,112 7,809 5,968 3,968 2,953
Foreign unit deliveries..................... 2,062 1,848 2,972 2,489 1,657 1,070 784
--------- --------- --------- --------- --------- --------- ---------
Total unit deliveries..................... 16,724 15,317 22,392 22,422 15,213 11,443 10,249
========= ========= ========= ========= ========= ========= =========
Unconsolidated joint ventures unit
deliveries.................................. 261 362 455 38 -- -- --
========= ========= ========= ========= ========= ========= =========
CASH FLOW FROM OPERATING ACTIVITIES DATA:
Equity in pretax (income) loss of
unconsolidated joint ventures............. $ (2.3) $ (2.3) $ (2.9) $ (.2) $ (1.1) $ .1 $ 2.1
Minority interests.......................... 20.3 20.9 31.6 29.4 7.0 .4 .2
Depreciation and amortization............... 32.6 30.5 41.3 38.3 16.2 11.9 10.8
Previously capitalized interest amortized to
cost of sales............................. 43.5 28.4 40.7 44.3 30.8 25.5 24.9
Provision for deferred income taxes......... 7.2 10.3 25.7 (25.9) .5 (5.0) (41.2)
Capitalized interest........................ (47.8) (45.9) (62.7) (49.7) (31.0) (22.6) (26.9)
S-14
AT AUGUST 31, AT NOVEMBER 30,
------------------- ----------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED) (DOLLARS IN MILLIONS)
BALANCE SHEET DATA:
Assets:
Construction assets.............................. $2,738.8 $2,459.1 $2,361.7 $2,214.1 $1,542.5 $1,133.9 $1,000.2
Mortgage banking assets.......................... 560.4 377.0 467.2 450.1 317.7 285.1 243.3
-------- -------- -------- -------- -------- -------- --------
Total assets................................... $3,299.2 $2,836.1 $2,828.9 $2,664.2 $1,860.2 $1,419.0 $1,243.5
======== ======== ======== ======== ======== ======== ========
Liabilities and Stockholders' Equity:
Construction liabilities:
Accounts payable, accrued expenses and other
liabilities.................................. $ 590.4 $ 572.1 $ 513.2 $ 551.4 $ 359.9 $ 269.0 $ 248.8
Mortgages and notes payable.................... 1,135.3 993.2 988.0 813.4 529.8 496.9 442.6
-------- -------- -------- -------- -------- -------- --------
1,725.7 1,565.3 1,501.2 1,364.8 889.7 765.9 691.4
Mortgage banking liabilities..................... 524.6 344.9 426.3 423.5 297.6 268.2 210.8
Minority interests............................... 59.4 239.7 246.6 199.3 198.4 1.9 .9
Stockholders' equity............................. 989.5 686.2 654.8 676.6 474.5 383.0 340.4
-------- -------- -------- -------- -------- -------- --------
Total liabilities and stockholders' equity..... $3,299.2 $2,836.1 $2,828.9 $2,664.2 $1,860.2 $1,419.0 $1,243.5
======== ======== ======== ======== ======== ======== ========
-------------------------
(1) We compute earnings by adding fixed charges (except capitalized interest and
the effect of preferred stock dividends) and amortization of previously
capitalized interest to pretax earnings (excluding undistributed earnings of
unconsolidated joint ventures). We compute fixed charges by adding interest
expense and capitalized interest and the portion of rental expense we
consider to be interest. Beginning July 7, 1998, our fixed charges have also
included distributions on mandatorily redeemable preferred securities. On
August 16, 2001, all of the mandatorily redeemable preferred securities were
retired. Before April 1, 1996, our fixed charges included the effect of
preferred stock dividends on our Series B Mandatory Conversion Premium
Dividend Preferred Stock. On April 1, 1996, all shares of our Series B
Mandatory Conversion Premium Dividend Preferred Stock were mandatorily
converted to shares of common stock.
In computing the ratios appearing above, we exclude from our interest
expense interest incurred by our wholly owned limited purpose financing
subsidiaries on their outstanding collateralized mortgage obligations. If we
included interest on those collateralized mortgage obligations,
- earnings for the year ended November 30, 1996 would have been
inadequate to cover fixed charges by $97.8 million, while the ratio of
earnings to fixed charges for the nine months ended August 31, 2001
and 2000 and the years ended November 30, 2000, 1999, 1998 and 1997
would have been 2.64x, 2.65x, 2.96x, 2.84x, 2.78x and 2.29x,
respectively, and
- earnings for the year ended November 30, 1996 would have been
inadequate to cover combined fixed charges and preferred stock
dividends by $105.5 million, while the ratio of earnings to combined
fixed charges and preferred stock dividends for the nine months ended
August 31, 2001 and 2000 and the years ended November 30, 2000, 1999,
1998 and 1997 would have been 2.64x, 2.65x, 2.96x, 2.84x, 2.78x and
2.29x, respectively.
Our earnings for the year ended November 30, 1996 were inadequate to cover
fixed charges by $97.8 million due to a $170.8 million pretax noncash
charge for impairment of long-lived assets we recorded in the second
quarter of fiscal 1996. For the same reason, our earnings for the year
ended November 30, 1996 were inadequate to cover combined fixed charges and
preferred stock dividends by $105.5 million.
As noted in the preceding paragraph, the amount of earnings used in the
calculation of the ratio of earnings to fixed charges and the ratio of
earnings to combined fixed charges and preferred stock dividends for the
year ended November 30, 1996 reflects a $170.8 million pretax noncash
charge for impairment of long-lived assets we recorded in the second
quarter of fiscal 1996. If we excluded the noncash charge for impairment of
long-lived assets, the ratio of earnings to fixed charges and the ratio of
earnings to combined fixed charges and preferred stock dividends for the
year ended November 30, 1996 would have been 1.96x and 1.78x, respectively.
If we excluded the noncash charge for impairment of long-lived assets but
included interest on the collateralized mortgage obligations of our limited
purpose financing subsidiaries, the ratio of earnings to fixed charges and
the ratio of earnings to combined fixed charges and preferred stock
dividends would have been 1.87x and 1.71x, respectively, for the year ended
November 30, 1996.
S-15
The amount of earnings we used in the calculation of the ratio of earnings
to fixed charges and the ratio of earnings to combined fixed charges and
preferred stock dividends for the year ended November 30, 1999 reflects an
$18.2 million pretax secondary marketing trading loss we recorded in the
third quarter of fiscal 1999. If we excluded the secondary marketing
trading loss, the ratio of earnings to fixed charges and the ratio of
earnings to combined fixed charges and preferred stock dividends each would
have been 3.08x for the year ended November 30, 1999. If we excluded the
secondary market trading loss but included interest on the collateralized
mortgage obligations of our limited purpose financing subsidiaries, the
ratio of earnings to fixed charges and the ratio of earnings to combined
fixed charges and preferred stock dividends each would have been 2.99x for
the year ended November 30, 1999.
The amount of earnings used in the calculation of the ratio of earnings to
fixed charges and the ratio of earnings to combined fixed charges and
preferred stock dividends for the nine months ended August 31, 2000 and the
year ended November 30, 2000 includes a $39.6 million gain on the issuance
in France of common stock by Kaufman & Broad S.A., a majority owned
subsidiary, recorded in the first quarter of fiscal 2000. We sometimes
refer to this stock issuance as the "French IPO". If the French IPO gain
were excluded, the ratio of earnings to fixed charges and the ratio of
earnings to combined fixed charges and preferred stock dividends would have
been 2.29x for the nine months ended August 31, 2000 and 2.71x for the year
ended November 30, 2000. If we excluded the French IPO gain but included
interest on the collateralized mortgage obligations of our limited purpose
financing subsidiaries, the ratio of earnings to fixed charges and the
ratio of earnings to combined fixed charges and preferred stock dividends
would have been 2.27x for the nine months ended August 31, 2000 and 2.68x
for the year ended November 30, 2000.
S-16
DESCRIPTION OF THE NOTES
The 8 5/8% Senior Subordinated Notes due 2008 of KB Home, which we
sometimes refer to as the "Notes" or the "notes", are issuable under a Senior
Subordinated Debt Indenture dated as of November 19, 1996, which we refer to as
the "Indenture" and which term, as used in this prospectus supplement, includes
the Officers' Certificate referred to below, between KB Home and SunTrust Bank
(as successor to SunTrust Bank, Atlanta), as trustee. This description of
selected terms of the Notes and the Indenture supplements and, to the extent
inconsistent, replaces the description of the general terms and provisions of
the Debt Securities and the Indenture which appears in the accompanying
prospectus under the heading "Description of the Debt Securities", to which
description reference is made. The following description of selected terms of
the Notes is not complete and is qualified in its entirety by reference to the
Indenture, including the Officers' Certificate establishing the form and terms
of the Notes, and the form of certificate evidencing the Notes, copies of the
forms of which have been or will be filed as exhibits to the registration
statement of which the accompanying prospectus is a part or to the documents
incorporated or deemed to be incorporated by reference in the prospectus.
Terms, whether or not capitalized, used but not defined under this
"Description of the Notes" or in the accompanying prospectus have the meanings
given to them in the Indenture. The Indenture is referred to in the prospectus
as the "Senior Subordinated Debt Indenture" and sometimes collectively with the
Senior Debt Indenture and the Subordinated Debt Indenture, as those terms are
defined in the accompanying prospectus, as the "Indentures". The Notes are
"senior subordinated Debt Securities" as that term is used in the prospectus. As
used in this "Description of the Notes", "KB Home" refers to KB Home and does
not include its subsidiaries, except as otherwise expressly provided or as the
context otherwise requires.
GENERAL
The Notes will constitute senior subordinated debt of KB Home, will
constitute a single series of Debt Securities for purposes of the Indenture and
will initially be limited to $200 million aggregate principal amount. Subject to
the covenants described below under "Certain Covenants" and applicable law, KB
Home may subsequently issue Additional Notes from time to time in an unlimited
amount. The Notes offered by this prospectus supplement and all Additional Notes
(if any) will be treated as a single class of senior subordinated Debt
Securities under the Indenture and are referred to collectively as "Notes."
"Additional Notes", if any, are Notes originally issued under the Indenture
after the Closing Date.
The Notes will bear interest from December 14, 2001 at the rate per annum
shown on the front cover of this prospectus supplement and will mature on
December 15, 2008. Interest on the Notes will be payable in cash semi-annually
in arrears on June 15 and December 15, commencing June 15, 2002, to the Persons
in whose names the Notes are registered at the close of business on June 1 and
December 1, as the case may be, next preceding such June 15 and December 15,
respectively. Interest on the Notes will be calculated on the basis of a 360-day
year of twelve 30-day months.
KB Home has appointed the Trustee under the Indenture as the initial paying
agent and transfer agent of the Notes. The Notes initially may be presented for
payment, registration or transfer and exchange at the office of the Trustee in
Atlanta and at the agent of the Trustee in The City of New York at Harris Trust
Company of New York, Wall Street Plaza, 88 Pine Street, 19th Floor, New York, NY
10005.
The Notes will be unsecured obligations of KB Home and will be subordinated
in right of payment to all existing and future Senior Indebtedness of KB Home.
The Notes will be issued in fully registered form without coupons in
denominations of $1,000 and any amount in excess thereof that is an integral
multiple of $1,000. The Notes will be denominated in, and the principal of,
premium, if any, and interest on the Notes will be payable in, United States
dollars. The Notes are not subject to the benefit of any sinking fund.
The Notes will be issued in book-entry form and represented by one or more
global Notes, which we refer to as "Global Notes", registered in the name of The
Depository Trust Company, as Depositary, or its nominee. This means that you
will not be entitled to receive a certificate for the Notes that you purchase
except under the limited circumstances described below under "-- Book-Entry,
Delivery and Form."
S-17
KB Home is a holding company, which currently conducts its operations
through consolidated and unconsolidated subsidiaries. All of the operating
assets of KB Home are owned by its subsidiaries, effectively subordinating the
Notes to all existing and future indebtedness, trade payables, guarantees and
other liabilities, whether or not for borrowed money, of KB Home's subsidiaries.
Therefore, KB Home's rights and the rights of its creditors, including Holders
of Notes, to participate in the assets of any subsidiary upon the latter's
liquidation or recapitalization will be subject to the prior claims of the
subsidiary's creditors, except to the extent that KB Home may itself be a
creditor with recognized claims against the subsidiary, in which case the claims
of KB Home would still be effectively subordinate to any security interests in
the assets of such subsidiary and would be subordinate to any indebtedness of
such subsidiary senior to that held by KB Home. In addition, dividends, loans
and advances from some subsidiaries to KB Home may be subject to certain
contractual, statutory or regulatory restrictions, are contingent upon the
results of operations of those subsidiaries and are subject to various business
considerations. See "-- Senior Subordinated Debt" below.
SENIOR SUBORDINATED DEBT
The Notes will be subordinated in right of payment, to the extent and in
the manner set forth in the Indenture, to all "Senior Indebtedness" (as defined
in the accompanying prospectus under "Description of the Debt
Securities -- Senior Subordinated Debt") of KB Home. See "Description of the
Debt Securities -- Senior Subordinated Debt" in the prospectus. The Notes will
rank pari passu with KB Home's 9 3/8% Senior Subordinated Notes due 2003 (until
redeemed on or about December 31, 2001), 9 5/8% Senior Subordinated Notes due
2006 and 9 1/2% Senior Subordinated Notes due 2011. As of August 31, 2001, on a
pro forma basis after giving effect to the issuance of the Notes and the
application of $175.0 million of the estimated net proceeds to redeem all of KB
Home's outstanding 9 3/8% Senior Subordinated Notes due 2003, KB Home would have
had approximately $575 million of senior subordinated indebtedness outstanding
and approximately $586 million of Senior Indebtedness outstanding.
In addition, the Notes offered hereby will be effectively subordinated to
all existing and future indebtedness, trade payables, guarantees and other
liabilities, whether or not for borrowed money, of KB Home's consolidated
subsidiaries, which liabilities totaled approximately $1.09 billion, excluding
collateralized mortgage obligations of $24 million and intercompany liabilities,
at August 31, 2001.
Although the Indenture contains limitations on the amount of Indebtedness
that KB Home and its Restricted Subsidiaries may incur, KB Home and its
subsidiaries will retain the ability to incur substantial additional
indebtedness. The Indenture provides that KB Home will not issue any Debt which
is expressly subordinated in right of payment to any other Debt of KB Home and
which is not expressly made pari passu with, or subordinated in right of payment
to, the Notes. See "Risk Factors -- The notes will be subordinated in right of
payment to our existing and future Senior Indebtedness and will be effectively
subordinated to the liabilities of our subsidiaries."
OPTIONAL REDEMPTION
At any time prior to December 15, 2004, KB Home at its option may redeem
Notes in an aggregate principal amount equal to up to 35% of the original
aggregate principal amount of the Notes (including any Additional Notes) with
the Net Cash Proceeds of one or more Equity Offerings, at any time or from time
to time, at a redemption price equal to 108.625% of the principal amount plus
accrued interest to the date fixed for redemption (provided that payments of
interest becoming due on or prior to a redemption date will be payable to the
Holders of the Notes at the close of business on the relevant record date);
provided that Notes (including any Additional Notes) with an aggregate principal
amount equal to at least $130.0 million remain outstanding after each such
redemption; and provided, further, that notice of any such redemption is mailed
within 60 days after the closing date of the applicable Equity Offering and in
any event not less than 30 nor more than 60 days prior to the applicable
redemption date, all in accordance with the requirements of the Indenture.
S-18
If less than all of the Notes are called for redemption, the Trustee shall
select, in such manner as it deems appropriate and fair, the Notes (or portions
thereof) to be redeemed.
The Notes are not otherwise redeemable at the option of KB Home.
CERTAIN COVENANTS
Change of Control
If at any time there occurs a Change of Control with respect to KB Home,
each Holder of Notes will have the right, at such Holder's option, to require KB
Home to repurchase all of such Holder's Notes, or a portion thereof which is
$1,000 or any integral multiple thereof, on the date (the "Change of Control
Repurchase Date") that is 30 Change of Control Business Days after the date of
the Change of Control at a price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest to the Change of Control Repurchase Date (the
"Change of Control Repurchase Price").
Within 15 Change of Control Business Days after the occurrence of a Change
of Control, KB Home or, at the request of KB Home, the Trustee will mail to all
Holders of the Notes a notice (the "Change of Control Notice") of the occurrence
of such Change of Control and of KB Home's offer to repurchase Notes pursuant to
the repurchase right arising as a result thereof. Such notice will contain
instructions and materials necessary to enable Holders to tender their Notes to
KB Home.
Any offer to repurchase Notes following a Change of Control will be
conducted in compliance with applicable securities laws and regulations,
including but not limited to Section 14(e) of the Exchange Act (and the rules
thereunder) and other applicable tender offer rules.
KB Home's Existing Credit Facilities permit the banks party thereto to
require that KB Home repay all indebtedness thereunder, and KB Home's 7 3/4%
Senior Notes, 9 5/8% Senior Subordinated Notes, 9 3/8% Senior Subordinated Notes
and 9 1/2% Senior Subordinated Notes permit the holders thereof to require KB
Home to repurchase the 7 3/4% Senior Notes, the 9 5/8% Senior Subordinated
Notes, the 9 3/8% Senior Subordinated Notes and 9 1/2% Senior Subordinated Notes
upon the occurrence of a "Change of Control" (or, in the case of the Existing
Credit Facilities, specified events which are generally similar to those that
would constitute a Change of Control). Although KB Home would be obligated to
repurchase all Notes tendered by the Holders thereof if a Change of Control were
to occur, and the failure of KB Home to repurchase those Notes would constitute
a default with respect to the Notes, there can be no assurance that KB Home
would have sufficient funds to do so in view of, among other things, the change
of control provisions and the restrictive covenants and acceleration provisions
under the Existing Credit Facilities, the 7 3/4% Senior Notes, the 9 5/8% Senior
Subordinated Notes, the 9 3/8% Senior Subordinated Notes and 9 1/2% Senior
Subordinated Notes. See "Risk Factors -- Our ability to repurchase the notes
following a change of control event may be limited."
A "Change of Control" shall be deemed to have occurred at such time as
either of the following events shall occur:
(1) there shall be consummated any consolidation or merger of KB Home
in which KB Home is not the continuing or surviving corporation or pursuant
to which KB Home's Voting Stock would be converted into cash, securities or
other property, other than a merger of KB Home in which the holders of KB
Home's Voting Stock immediately prior to the merger have the same or
greater proportionate ownership, directly or indirectly, of the Voting
Stock of the surviving corporation immediately after such merger as they
had of KB Home's Voting Stock immediately prior to such merger; or
(2) there is a report filed by any Person, including its Affiliates
and Associates, on Schedule 13D or TO (or any successor schedule, form or
report) pursuant to the Exchange Act, disclosing that such Person (for the
purposes of this definition only, the term "Person" shall include a
"person" within the meaning of Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act or any successor provision to either of the foregoing) has
become the beneficial owner (as the term "beneficial owner" is defined
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under Rule 13d-3 or any successor rule or regulation promulgated under the
Exchange Act) of 50% or more of the voting power of KB Home's Voting Stock
then outstanding;
provided, however, that a Person shall not be deemed beneficial owner of, or to
own beneficially,
(A) any securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange thereunder, or
(B) any securities if such beneficial ownership (x) arises solely as a
result of a revocable proxy delivered in response to a proxy or consent
solicitation made pursuant to, and in accordance with, the applicable rules
and regulations under the Exchange Act, and (y) is not also then reportable
on Schedule 13D (or any successor schedule, form or report) under the
Exchange Act.
Notwithstanding the foregoing provisions, a Change of Control shall not be
deemed to have occurred if at any time KB Home, any Subsidiary of KB Home, any
employee stock ownership plan or any other employee benefit plan of KB Home or
any Subsidiary of KB Home, or any Person holding KB Home Voting Stock for or
pursuant to the terms of any such employee benefit plan, files or becomes
obligated to file a report under or in response to Schedule 13D or Schedule TO
(or any successor schedule, form or report) under the Exchange Act disclosing
beneficial ownership by it of shares of Voting Stock, whether in excess of 50%
or otherwise.
"7 3/4% Senior Notes" means KB Home's 7 3/4% Senior Notes due 2004 issued
under an indenture dated as of October 14, 1997 between KB Home and SunTrust
Bank.
"9 5/8% Senior Subordinated Notes" means KB Home's 9 5/8% Senior
Subordinated Notes due 2006 issued under the Indenture.
"9 1/2% Senior Subordinated Notes" means KB Home's 9 1/2% Senior
Subordinated Notes due 2011 issued under the Indenture.
"9 3/8% Senior Subordinated Notes" means KB Home's 9 3/8% Senior
Subordinated Notes due 2003 issued under an indenture dated as of May 1, 1993
between KB Home and The First National Bank of Boston.
"Associate" shall have the meaning ascribed to such term in Rule 12b-2 of
the General Rules and Regulations under the Exchange Act, as in effect on
February 8, 2001.
"Change of Control Business Day" means a day on which banking institutions
are not authorized or required by law or regulation to close in The City of New
York.
"Voting Stock" means, with respect to any Person, the capital stock of such
Person having general voting power under ordinary circumstances to elect at
least a majority of the board of directors, managers or trustees of such Person
(irrespective of whether or not at the time capital stock of any other class or
classes shall have or might have voting power by reason of the happening of any
contingency).
Limitation on Incurrence of Additional Indebtedness
KB Home will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee, extend the
maturity of or in any other manner become liable with respect to, or otherwise
become responsible for the payment of (collectively, "incur"), any Indebtedness
unless after giving effect to the incurrence thereof and the receipt and
application of the net proceeds therefrom either:
(1) the Consolidated Fixed Charge Coverage Ratio of KB Home
(determined on a pro forma basis for the last four fiscal quarters of KB
Home for which financial statements are available at the date of
determination) is at least 2.0 to 1 or
(2) the ratio of Indebtedness of KB Home and its Restricted
Subsidiaries to Consolidated Net Worth of KB Home is less than 3.5 to 1.
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Notwithstanding the foregoing, KB Home and its Restricted Subsidiaries may
incur:
(1) Refinancing Indebtedness;
(2) Non-Recourse Indebtedness incurred for the acquisition or
improvement of real property and secured by mortgage Liens on such real
property or improvements;
(3) Indebtedness to KB Home or to Restricted Subsidiaries;
(4) Indebtedness under the 2000 Revolving Credit Facility included in
the Existing Credit Facilities in an aggregate principal amount at any one
time of not more than $739.1 million; and
(5) Excluded Debt.
Limitation on Restrictions on Distributions from Restricted Domestic
Subsidiaries
KB Home will not, and will not permit any of its Restricted Domestic
Subsidiaries to, directly or indirectly, create, assume or otherwise cause or
permit to exist or to become effective any consensual encumbrance or restriction
on the ability of any Restricted Domestic Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
or on any other interest or participation in, or measured by, its profits,
owned by KB Home or any of its other Restricted Subsidiaries, or pay
interest on or principal of any Indebtedness owed to KB Home or any of its
other Restricted Subsidiaries;
(2) make loans or advances to KB Home or any of its other Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to KB Home or any of its
other Restricted Subsidiaries,
except for (i) encumbrances or restrictions on the payment of cash by any
Restricted Domestic Subsidiary which do not exceed $10,000 in the aggregate and
(ii) encumbrances or restrictions existing or created under or by reason of:
(a) applicable law;
(b) covenants or restrictions contained in Existing Indebtedness;
(c) customary provisions restricting subletting or assignment of
any contract or of any lease governing a leasehold interest of KB Home
or any Restricted Domestic Subsidiary;
(d) restrictions under any instrument creating or evidencing any
Acquired Indebtedness that was permitted to be incurred pursuant to the
Indenture and the Notes and which (I) only apply to assets that were
subject to such restrictions and encumbrances prior to the acquisition
of such assets by KB Home or its Restricted Domestic Subsidiaries and
(II) were not created in connection with, or in contemplation of, such
acquisition;
(e) restrictions replacing those permitted by clause (b) or (d)
which are not more restrictive than, and do not extend to any Persons or
assets other than the Persons or assets subject to, the restrictions and
encumbrances so replaced;
(f) restrictions under any instrument creating or evidencing any
Refinancing Indebtedness which are not more restrictive than those
under, and do not extend to any Persons or assets other than the Persons
or assets subject thereto under, the instrument creating or evidencing
the Indebtedness being refunded, extended or refinanced by such
Refinancing Indebtedness;
(g) any Permitted Lien or any agreement restricting the sale or
other disposition of property securing Indebtedness permitted by the
Indenture and the Notes if such Permitted Lien or agreement, as the case
may be, does not by its terms expressly restrict the ability of a
Restricted Domestic Subsidiary of KB Home to make any of the dividends,
payments, distributions, loans, advances or transfers referred to in
clauses (1), (2) or (3) above;
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(h) reasonable and customary borrowing base covenants set forth in
credit agreements evidencing Indebtedness otherwise permitted by the
Indenture and the Notes, which covenants restrict or limit the
distribution of revenues or sale proceeds from real estate or a real
estate project based upon the amount of Indebtedness outstanding on such
real estate or real estate project and the value of some or all of the
remaining real estate or the project's remaining assets;
(i) customary agreements entered into in the ordinary course of
business restricting the ability of a joint venture to make
distributions or payments of cash or property to participants in such
joint venture; or
(j) the Existing Credit Facilities or a Substitute Credit Facility
but only so long as no such encumbrance or restriction under the
Existing Credit Facilities or a Substitute Credit Facility by its terms
expressly restricts the ability of a Restricted Domestic Subsidiary of
KB Home to make any of the dividends, payments, distributions, loans,
advances or transfers referred to in clauses (1), (2) or (3) above (it
being understood that covenants requiring or having the effect of
requiring the maintenance of a specified level of net worth which do not
by their terms expressly restrict the ability of a Restricted Domestic
Subsidiary of KB Home to make any such dividends, payments,
distributions, loans, advances or transfers referred to in clauses (1),
(2) or (3) above shall be permitted under this clause (j)).
Limitation on Restricted Payments
KB Home will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, make any Restricted Payment if, after giving effect
thereto,
(1) a Default or an Event of Default shall have occurred and be
continuing; or
(2) the aggregate amount of Restricted Payments (the amount of any
Restricted Payment, if other than in cash, to be determined by the Board of
Directors of KB Home, whose reasonable determination shall be conclusive
and evidenced by a Board Resolution certified by an Officers' Certificate
and filed with the Trustee) made by KB Home and its Restricted Subsidiaries
from and after the date of the Indenture would exceed the sum of (a) 50% of
the Consolidated Net Income of KB Home accrued on a cumulative basis for
the period commencing on September 1, 1996 (the "Commencement Date") and
ending on the last day (the "Reference Day") of KB Home's last fiscal
quarter ending prior to the date of such proposed Restricted Payment (or,
in the event such Consolidated Net Income as so determined on a cumulative
basis shall be a deficit, minus 100% of such deficit), (b) the aggregate
net proceeds, including the fair market value of property other than cash
(such fair market value to be determined by a majority of the disinterested
members of the full Board of Directors of KB Home, whose reasonable
determination shall be conclusive and evidenced by a Board Resolution
certified by an Officers' Certificate and filed with the Trustee), received
by KB Home from any Person (other than a Restricted Subsidiary) after the
Commencement Date and on or prior to the Reference Date from the issue or
sale of Qualified Capital Stock of KB Home, or any options, warrants or
other rights (other than convertible or exchangeable debt securities except
as provided below) to purchase Qualified Capital Stock of KB Home, or from
the issuance or sale of debt securities of KB Home which are converted into
or exchanged for Qualified Capital Stock of KB Home, and (c) $100 million;
or
(3) KB Home would be unable to incur an additional $1.00 of
Indebtedness pursuant to the first paragraph of the covenant described
above under "Description of the Notes -- Certain Covenants -- Limitation on
Incurrence of Additional Indebtedness";
provided, however, that the foregoing provisions shall not prevent (a) the
payment of any dividend or distribution within 60 days after the date of
declaration thereof, if the payment would have complied with the foregoing
provisions on the date of such declaration or (b) the repurchase or redemption
of shares of Capital Stock from any officer, director or employee of KB Home or
its Restricted Subsidiaries whose employment has been terminated or who has died
or become disabled in an aggregate amount not to
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exceed $5,000,000 for any fiscal year of KB Home; provided that amounts paid
pursuant to this clause (b) shall reduce amounts available for future Restricted
Payments.
Mergers and Sales of Assets
KB Home will not merge or consolidate with or into any other Person and
will not sell, lease or convey all or substantially all of its assets to any
other Person, unless:
(1) either KB Home shall be the continuing corporation, or the
successor corporation or the Person that acquires by sale, lease or
conveyance all or substantially all the assets of KB Home shall be a
corporation organized and existing under the laws of the United States of
America or any State thereof or the District of Columbia and shall
expressly assume the due and punctual payment of the principal of and
interest on all the Notes, according to their tenor, and the due and
punctual performance and observance of all of the covenants and conditions
in the Indenture and the Notes to be performed or observed by KB Home, by
supplemental indenture satisfactory to the Trustee, executed and delivered
to the Trustee by such corporation,
(2) immediately after giving effect to such transaction, no Default or
Event of Default shall have occurred and be continuing,
(3) immediately after giving effect to such transaction, KB Home or
such corporation, as the case may be, would be able to incur at least $0.50
of additional Indebtedness pursuant to the first paragraph of the covenant
described under "Description of the Notes -- Certain Covenants --
Limitation on Incurrence of Additional Indebtedness", and
(4) KB Home shall have delivered to the Trustee an Officers'
Certificate and Opinion of Counsel, each stating that such transaction and
such supplemental indenture comply with the Indenture and the Notes, and
that all conditions precedent relating to such transaction have been
complied with.
Upon the assumption of KB Home's obligation by such a corporation in such
circumstances, KB Home shall (except in the case of a lease) be discharged from
all obligations under the Notes and the Indenture.
Limitations on Transactions with Officers, Directors and Employees
KB Home will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly,
(1) make any loan, advance, guarantee or capital contribution to, or
for the benefit of, or
(2) sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or for the benefit of, or
(3) purchase or lease any property or assets from, or
(4) enter into or amend any contract, agreement or understanding with,
or for the benefit of,
(a) any officer, director or employee of KB Home,
(b) any officer, director or employee of a Subsidiary of KB Home
(provided that clause (4) above shall not apply with respect to this
clause (b)) or
(c) any former officer or director of KB Home or any of its
Subsidiaries who owns, directly or indirectly, 7.5% or more of the
voting power of the Common Stock of KB Home
(each an "Affiliate Transaction"), except on terms that are no less favorable to
KB Home or the relevant Restricted Subsidiary, as the case may be, than those
that could have been obtained in a comparable transaction on an arm's length
basis from a Person that is not such an officer, director or employee.
Notwithstanding the foregoing, the term "Affiliate Transaction" shall not
include any transaction with an officer, director or employee of KB Home or of
any Subsidiary of KB Home in their capacity as officer, director or employee
entered into in the ordinary course of business or which is consistent with past
practice (including compensation and employee benefit arrangements with any
officer, director or employee of KB Home or of any Subsidiary of KB Home) and
shall not include the acquisition by any officer,
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director or employee of KB Home of any securities of KB Home in the open market
in arm's length transactions.
Limitation on Investments in Restricted Foreign Subsidiaries, Unrestricted
Subsidiaries and Equity Method Persons
KB Home will not, and will not permit any of its Restricted Domestic
Subsidiaries to, directly or indirectly, make any Investment in any Restricted
Foreign Subsidiary, Unrestricted Subsidiary or Equity Method Person (each, a
"Subject Entity") if, after giving effect thereto, the aggregate amount of all
such Investments made after the date of the Indenture would exceed the sum of:
(1) $110 million,
(2) the aggregate amount of cash dividends and distributions received
by KB Home after the date of the Indenture from Subject Entities,
(3) in the case of any such Investment made after the date of the
Indenture as a loan or advance to, or purchase (or other acquisition for
consideration) of Indebtedness or other debt securities of, a Subject
Entity, the amount of all cash repayments of principal of such loans,
advances, Indebtedness or debt securities paid to KB Home or any of its
Restricted Domestic Subsidiaries (or to a Person designated by KB Home or
any of its Restricted Domestic Subsidiaries, which Person is not a
Subsidiary or Affiliate of KB Home) by such Subject Entity,
(4) in the case of any such Investment made after the date of the
Indenture as a capital contribution to, or purchase (or other acquisition
for consideration) of Capital Stock or other equity securities of, a
Subject Entity, the aggregate cash amount paid to KB Home or any of its
Restricted Domestic Subsidiaries (or to a Person designated by KB Home or
any of its Restricted Domestic Subsidiaries, which Person is not a
Subsidiary or Affiliate of KB Home) by such Subject Entity as a return of
such capital or to repurchase such Capital Stock or other equity securities
(not to exceed the respective amount paid to purchase such Capital Stock or
equity securities), and
(5) in the case of any other such Investment made in a Subject Entity
after the date of the Indenture, the cash amount paid to KB Home or any of
its Restricted Domestic Subsidiaries (or to a Person designated by KB Home
or any of its Restricted Domestic Subsidiaries, which Person is not a
Subsidiary or Affiliate of KB Home) by such Subject Entity as a repayment
or reimbursement of such Investment.
EVENTS OF DEFAULT
An Event of Default with respect to the Notes will be defined as any of the
following:
(1) default for 30 days in the payment of any interest on the Notes
when due;
(2) default in the payment of any principal of the Notes when due,
either at maturity, upon redemption at the option of KB Home or repurchase
at the option of the Holders, by declaration of acceleration or otherwise;
(3) default in the observance or performance by KB Home of any of its
other covenants or agreements contained in the Indenture (other than a
covenant or agreement contained in the Indenture solely for the benefit of
a series of Debt Securities other than the Notes) or the Notes for 60 days
(or for 10 days in the case of any of the other covenants described above
under "Description of the Notes -- Certain Covenants -- Change of Control")
after notice from the Trustee or the Holders of at least 25% in aggregate
principal amount of the Notes then outstanding;
(4) a default under any mortgage, indenture or other instrument or
agreement under which there may be issued or by which there may be secured
or evidenced any Indebtedness (other than Non-Recourse Indebtedness) of KB
Home or any Restricted Subsidiary, whether such Indebtedness existed on the
Closing Date or shall be created thereafter, if (a) such default results
from the failure
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to pay any such Indebtedness when due (provided that no such failure to pay
Indebtedness when due shall be deemed to have occurred so long as KB Home
or such Restricted Subsidiary, as the case may be, shall be contesting
whether such Indebtedness is due in good faith by appropriate proceedings)
or as a result of such default the maturity of such Indebtedness has been
accelerated prior to its expressed maturity and (b) the sum of (x) the
principal amount of such Indebtedness plus (y) the aggregate principal
amount of all other such Indebtedness in default for failure to pay any
such Indebtedness when due or the maturity of which has been so
accelerated, equals $20,000,000 or more, individually, or $40,000,000 or
more, in the aggregate, without such Indebtedness having been discharged or
such acceleration having been rescinded or annulled within a period of 30
days after notice to KB Home from the Trustee or the Holders of at least
25% in aggregate principal amount of the Notes then outstanding; and
(5) certain events of bankruptcy, insolvency or reorganization
relating to KB Home or any of its Restricted Significant Subsidiaries.
The Indenture provides that, if an Event of Default shall have occurred and
be continuing, either the Trustee or the Holders of not less than 25% in
principal amount of the Notes then outstanding may declare the principal of all
Notes and interest accrued thereon, if any, to be due and payable immediately.
Upon specified conditions that declaration may be annulled and past defaults may
be waived by the Holders of a majority in principal amount of the Notes then
outstanding.
The Indenture contains a provision entitling the Trustee, subject to the
duty of the Trustee during a default to act with the required standard of care,
to be indemnified by the Holders of the Notes against costs, expenses and
liabilities that might be incurred by the Trustee before proceeding to exercise
any right or power under the Indenture at the request of those Holders. Subject
to those provisions in the Indenture for the indemnification of the Trustee and
other limitations, the Holders of a majority in principal amount of the Notes
then outstanding may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee.
The Indenture provides that no Holder of Notes may institute any action
against KB Home under the Indenture, except actions for payment of overdue
principal or interest, unless that Holder previously shall have given to the
Trustee written notice of default and continuance of that default and unless the
Holders of not less than 25% in principal amount of the Notes then outstanding
shall have requested the Trustee to institute that action and shall have offered
the Trustee reasonable indemnity, the Trustee shall not have instituted that
action within 60 days of that request and the Trustee shall not have received
any direction inconsistent with that written request by the Holders of a
majority in principal amount of the Notes then outstanding.
DEFEASANCE AND DISCHARGE
KB Home may be discharged from its obligation to comply with the covenants
described above, including its obligation to offer to repurchase Notes following
a Change of Control, and also may be discharged from all of its obligations
under the Indenture, including such covenants and its obligations to pay the
principal of and interest on the Notes, as set forth below.
KB Home may discharge its obligations under the Indenture (excluding its
obligation to pay principal and interest on the Notes when due and certain other
obligations under the Indenture, but including its obligations under the
covenants described under "Certain Covenants") relating to the Notes that have
not already been delivered to the Trustee for cancellation and that have either
become due and payable or are by their terms due and payable within one year (or
are scheduled for redemption within one year) by irrevocably depositing with the
Trustee cash or U.S. Government Obligations, or a combination, as trust funds in
an amount certified to be sufficient to pay at maturity (or upon redemption or
repayment at the option of the Holder) the principal and interest on the Notes.
KB Home may also discharge its obligations to Holders of the Notes
(including its obligations to pay the principal and interest thereon and its
obligations under the Indenture, including the covenants
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described above under "Certain Covenants") ("defeasance"), but will remain
obligated, among other things, to register the transfer or exchange of the
Notes, to replace any mutilated, destroyed, lost, or stolen Notes and to
maintain an office or agency in respect of the Notes and certain other
obligations. KB Home may instead be discharged with respect to the Notes from
the obligations imposed by the covenants described above under "Certain
Covenants" (other than its obligation to pay the principal of and interest on
the Notes when due), and omit to comply with each such covenant (other than as
aforesaid) without creating an Event of Default ("covenant defeasance").
Defeasance or covenant defeasance of the Notes may be effected only if, among
other things:
(1) KB Home irrevocably deposits with the Trustee cash or U.S.
Government Obligations, or a combination, as trust funds in an amount
certified to be sufficient to pay at maturity (or upon redemption or
repayment at the option of the Holders) the principal of and interest on
all outstanding Notes;
(2) KB Home delivers to the Trustee an opinion of counsel to the
effect that the Holders of the Notes will not recognize income, gain or
loss for United States federal income tax purposes as a result of such
defeasance or covenant defeasance and that defeasance or covenant
defeasance will not otherwise alter such Holders' United States federal
income tax treatment of principal and interest payments on the Notes; and
(3) (a) no event or condition shall exist that, pursuant to
certain provisions described in the accompanying prospectus under
"Description of the Debt Securities -- Senior Subordinated Debt", would
prevent KB Home from making payments of principal and interest on the Notes
at the date of the irrevocable deposit referred to above or at any time
during the period ending on the 91st day after such deposit date and
(b) KB Home delivers to the Trustee an opinion of counsel to
the effect that (1) the trust funds will not be subject to any rights of
holders of Senior Indebtedness and (2) after the 91st day following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally, except that if a court were to rule under any
such law in any case or proceeding that the trust funds remained property
of KB Home, then the Trustee and the Holders of the Notes would be entitled
to certain rights as secured creditors in such trust funds.
MODIFICATION OF THE INDENTURE
The Indenture provides that KB Home and the Trustee may enter into
supplemental indentures without the consent of the Holders of the Notes as
described in the accompanying prospectus in the first paragraph under
"Description of the Debt Securities -- Modification of the Indentures". In
addition, the Indenture contains provisions permitting KB Home and the Trustee,
with the consent of the Holders of not less than a majority in principal amount
of the Notes then outstanding, to add any provisions to, or change in any manner
or eliminate any of the provisions of, the Indenture insofar as it relates to
the Notes or modify in any manner the rights of the Holders of the Notes.
However, the Notes will provide that KB Home and the Trustee may not, without
the consent of the Holder of each outstanding Note affected thereby,
(1) extend the stated maturity of any Note or any date on which the
Change of Control Repurchase Price is payable or reduce the principal
amount thereof or reduce the rate or extend the time of payment of interest
thereon, or reduce any amount payable on redemption or repurchase thereof,
or make the principal thereof, or premium, if any, or interest thereon
payable in any coin or currency other than that provided in the Notes or in
accordance with the terms thereof, or modify the percentage of Holders
required to waive any default or rescind and annul any declaration of
acceleration, or impair the right to institute suit for the enforcement of
any payment on any Note when due or any right of repayment, repurchase or
redemption at the option of the Holder thereof, or
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(2) reduce the aforesaid percentage of Notes, the consent of the
Holders of which is required for any such modification.
CERTAIN DEFINITIONS
"2000 Revolving Credit Facility" means the 2000 Revolving Loan Agreement,
dated as of October 3, 2000, among KB Home, the banks party thereto, Bank of
America, N.A., as administrative agent, Credit Lyonnais Los Angeles Branch, as
syndication agent, Bank One, NA, as documentation agent, and Banc of America
Securities LLC, as lead arranger and sole book manager, and any credit facility
which is an extension, renewal or replacement thereof.
"Acquired Indebtedness" means:
(1) with respect to any Person (except a Person formed or organized by
or on behalf of KB Home for purposes other than to act as an acquisition
vehicle) that becomes a Subsidiary of KB Home after the date of the
Indenture, Indebtedness of such Person and its Subsidiaries existing at the
time such Person becomes a Subsidiary of KB Home that was not incurred in
connection with, or in contemplation of, such Person becoming a Subsidiary
of KB Home,
(2) with respect to KB Home or any of its Subsidiaries, any
Indebtedness incurred by KB Home or any of its Subsidiaries in connection
with the acquisition of an asset from another Person after the date of the
Indenture that was not incurred in connection with, or in contemplation of,
such acquisition.
"Additional Notes" means Notes, if any, originally issued under the
Indenture after the Closing Date and which are of the same series as the Notes
issued on the Closing Date.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
when used with respect to any specified Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Capital Lease" means with respect to any Person at any date, any lease of
property the liability under which, in accordance with generally accepted
accounting principles, is required to be capitalized on such person's balance
sheet or for which the amount of the liability thereunder is required to be
disclosed in a note to such balance sheet.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) in or of the equity
(which includes, but is not limited to, common stock, preferred stock and
partnership and joint venture interests) of such Person.
"Capitalized Lease Obligation" means an obligation under a Capital Lease
and the amount of Indebtedness represented by such obligation shall be the
capitalized amount of such obligation determined in accordance with GAAP.
"Closing Date" means December 14, 2001.
"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to:
(1) vote in the election of directors of such Person or
(2) if such Person is not a corporation, vote or otherwise participate
in the selection of the governing body, partners, managers or others that
will control the management and policies of such Person.
"Consolidated Adjusted Net Income" of KB Home means, for any period, the
Consolidated Net Income of KB Home and its Restricted Subsidiaries for such
period, provided that
(1) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded and
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(2) the Net Income of any Person which is not a Restricted Subsidiary
or is an Equity Method Person shall be included only to the extent of the
amount of cash dividends or distributions paid by it to KB Home or a
Restricted Subsidiary during such period.
"Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio
of:
(1) the sum, without duplication, of Consolidated Adjusted Net Income,
Consolidated Interest Expense (but only to the extent that such
Consolidated Interest Expense reduces such Consolidated Adjusted Net Income
for such period), Consolidated Tax Expense, depreciation and amortization
(including, without limitation, previously capitalized interest amortized
to cost of sales), in each case for such period, of KB Home and its
Restricted Subsidiaries (determined on a consolidated basis in accordance
with GAAP) to
(2) Consolidated Interest Expense of KB Home and its Restricted
Subsidiaries for such period;
provided, however, that in making such computation, the Consolidated Interest
Expense attributable to interest on any Indebtedness computed on a pro forma
basis and bearing a floating interest rate shall be computed as if the rate in
effect on the date of computation had been the applicable rate for the entire
period unless such interest rate has been fixed by hedging or other similar
contracts or agreements, in which case such interest rate shall be deemed to be
equal to such fixed rate of interest.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest which, in conformity with GAAP, would be set forth opposite the
caption "interest expense" or any like caption on a consolidated income
statement of KB Home and its Restricted Subsidiaries (including, but not limited
to, imputed interest on Capitalized Lease Obligations, all commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, the net costs associated with hedging
obligations, amortization of other financing fees and expenses, the interest
portion of any deferred payment obligation, amortization of discount or premium,
if any, and all other non-cash interest expense (other than previously
capitalized interest amortized to cost of sales)) plus, without duplication, all
capitalized interest of KB Home and its Restricted Subsidiaries for such period
and all interest incurred or paid by KB Home or any of its Restricted
Subsidiaries under any guarantee of Indebtedness (including a guarantee of
principal, interest or any combination thereof) of KB Home for such period, in
each case determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" of KB Home means, for any period, the
consolidated Net Income of KB Home and its Restricted Subsidiaries for such
period, determined in accordance with GAAP.
"Consolidated Net Worth" means the consolidated shareholders' equity of KB
Home; provided that, for purposes of computing Consolidated Net Worth, all
Subsidiaries of KB Home whose accounts are consolidated with those of KB Home
under GAAP shall be treated as if they were Wholly Owned Subsidiaries of KB
Home, whether or not they are in fact Wholly Owned Subsidiaries of KB Home.
"Consolidated Tax Expense" of KB Home means, for any period, the
consolidated federal, state, local and foreign tax expense of KB Home and its
Restricted Subsidiaries for such period, determined in accordance with GAAP.
"Default" means any event or condition which is or, with notice or lapse of
time or both, would be an Event of Default.
"Disqualified Capital Stock" means any Capital Stock that, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable other than solely for Qualified Capital Stock, pursuant to a sinking
fund obligation or otherwise, or is redeemable or required to be repurchased or
repaid at the option of the holder thereof for consideration other than solely
for Qualified Capital Stock, in whole or in part, on or prior to the final
maturity date of the Notes; provided that, in the case of any Restricted
Domestic Subsidiary through which KB Home conducts any real estate joint
venture, the fact that any participant in such joint venture who holds Capital
Stock of such Restricted Domestic Subsidiary may have the right, pursuant to a
"buy-sell" agreement or similar arrangement, to require that KB Home or any
other
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Subsidiary of KB Home purchase such Capital Stock from such joint venturer,
shall not cause such Capital Stock to be deemed Disqualified Capital Stock.
"Equity Method Person" means, as of any date of determination, any Person
(other than a Subsidiary of KB Home) which is or is required to be accounted for
by KB Home by the equity method of accounting in KB Home's consolidated
financial statements in accordance with GAAP.
"Equity Offering" means any public or private sale of Common Stock of KB
Home (excluding Disqualified Capital Stock), other than public offerings with
respect to KB Home Common Stock registered on Form S-8 (or any successor form).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Excluded Debt" means any Indebtedness of KB Home or its Restricted
Subsidiaries which is:
(1) subordinated (subject to the rights of holders of Senior
Indebtedness) in right of payment to the Notes (upon liquidation or
otherwise) at least to the extent that the Notes are subordinated to the
Senior Indebtedness and
(2) matures after, and is not redeemable mandatorily or at the option
of the holder thereof prior to, the final maturity date of the Notes.
"Existing Credit Facilities" means the 2000 Revolving Credit Facility and
the 2000 Term Loan Agreement, dated as of October 3, 2000, among KB Home, the
banks party thereto, Bank of America N.A., as administrative agent, Credit
Lyonnais Los Angeles Branch, as syndication agent, Bank One, NA, as
documentation agent, and Banc of America Securities LLC, as lead arranger and
sole book manager, and any credit facility which is an extension or renewal
thereof (including, in each case, any increase in the amount of credit available
thereunder).
"Existing Indebtedness" means all Indebtedness of KB Home and its
Restricted Subsidiaries that is outstanding on the Closing Date.
"GAAP" means generally accepted accounting principles as in effect and
implemented by KB Home from time to time.
A "guarantee" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing any Indebtedness of any other
Person including, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person to
purchase or pay principal of or interest on (or advance or supply funds or
pledge assets for the purchase or payment of or payment of interest on)
Indebtedness of such other Person (whether by agreement to provide additional
capital or to maintain financial condition or other similar agreement).
"incur" has the meaning set forth under "Description of the
Notes -- Certain Covenants -- Limitation on Incurrence of Additional
Indebtedness".
"Indebtedness" means:
(1) any liability of any Person (a) for borrowed money or for the
deferred purchase price of property or services (other than current
liabilities, including Trade Payables, arising in the ordinary course of
business) or which is evidenced by a note, bond, debenture or similar
instrument, and which would appear as a liability upon a balance sheet of
such Person prepared on a consolidated basis in accordance with GAAP, or
(b) for the payment of money relating to a Capitalized Lease Obligation;
(2) any liability of such Person in respect of letters of credit or
other similar instruments (or reimbursement obligations with respect
thereto), but this clause (2) does not include letters of credit provided
in the ordinary course of business and securing performance (and not
financial) obligations and performance, completion, surety or similar bonds
or obligations provided in the ordinary course of business;
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(3) any liability or obligation of others described in clause (1) or
(2) with respect to which such Person has made a guarantee or similar
arrangement, directly or indirectly (to the extent of such guarantee or
arrangement), but this clause (3) does not include obligations in respect
of banker's acceptances and performance, completion, surety or similar
bonds or obligations provided in the ordinary course of business; and
(4) all Indebtedness of others secured by a Lien (other than
assessment district and similar Liens arising in connection with municipal
financings) on any asset of such Person, whether or not such Indebtedness
is assumed by such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations described above and the
maximum liability of such Person for any such contingent obligations at such
date. To the extent such Person guarantees the obligation of another Person to
pay interest on Indebtedness owed by such other Person, then a designated
percentage of the interest guaranteed or the principal amount of the underlying
Indebtedness, as the case may be, shall be deemed Indebtedness of the referent
Person. For purposes of this definition, the amount of such deemed Indebtedness
of the referent Person shall be equal to the lesser of (a) the aggregate
principal amount of the underlying Indebtedness relating to such interest
guarantee and (b) the aggregate amount of interest due and payable over the term
of such Indebtedness (or the term of the Notes, if shorter) determined based
upon the rate of interest in effect as of the date of such determination,
together with the maximum prepayment premium or penalty which could become due
or payable with respect to such Indebtedness if such Indebtedness were prepaid
prior to the maturity of the Notes.
"Investment" of any Person means:
(1) all investments by such Person in any other Person in the form of
loans, advances or capital contributions,
(2) all payments of Indebtedness or other obligations of any other
Person by such Person,
(3) all purchases (or other acquisitions for consideration) by such
Person of Indebtedness, Capital Stock or other securities of any other
Person, and
(4) all other items that would be classified as investments
(including, without limitation, purchases of assets outside the ordinary
course of business) on a balance sheet of such Person prepared in
accordance with GAAP.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or other similar encumbrance of any kind in respect of
such asset, whether or not filed, recorded or otherwise perfected under
applicable law (including, without limitation, any conditional sale or other
title retention agreement and any lease in the nature thereof, any option or
other agreement to sell, and any filing of, or agreement to give, any financing
statement under the Uniform Commercial Code (or equivalent statute) of any
jurisdiction).
"Mortgage Finance Subsidiary" means Kaufman and Broad Mortgage Company, an
Illinois corporation.
"Net Cash Proceeds" means the cash proceeds received by KB Home from any
Equity Offering, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP, excluding, however,
(1) any gain (but not loss) realized upon the sale or other
disposition (including, without limitation, dispositions pursuant to sale
and leaseback transactions) of any real property or equipment of such
Person which is not sold or otherwise disposed of in the ordinary course of
business, and
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(2) any gain (but not loss) realized upon the sale or other
disposition of any Capital Stock of such Person or any of its Restricted
Subsidiaries owned by such Person.
"Non-Recourse Indebtedness" means Indebtedness secured by a Lien on
property to the extent that the liability for such Indebtedness (and any
interest thereon) is limited to the security of such property without liability
on the part of KB Home or any of its Subsidiaries for any deficiency, including
liability by reason of any agreement by KB Home or any of its Subsidiaries to
provide additional capital or maintain the financial condition of or otherwise
support the credit of the Person incurring such Indebtedness.
"Notes" means the 8 5/8% Senior Subordinated Notes due 2008 of KB Home
issued under the Indenture, including, without limitation, any Additional Notes
which may be issued.
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"principal", whenever used with reference to the Notes or any Note or any
portion thereof, shall be deemed to include "and premium, if any".
"Qualified Capital Stock" means Capital Stock other than Disqualified
Capital Stock.
"Refinancing Indebtedness" means Indebtedness that solely refunds,
refinances or extends, and is incurred within six months of the scheduled
maturity date or a mandatory repurchase date or optional redemption date of, any
Notes, Existing Indebtedness (excluding any Existing Indebtedness repaid with
the proceeds from the sale of the Notes) or other Indebtedness incurred by KB
Home or its Restricted Subsidiaries pursuant to the terms of the Indenture and
the Notes, but only to the extent that:
(1) if the Indebtedness being refunded, refinanced or extended is
subordinated to the Notes, the Refinancing Indebtedness is also
subordinated to the Notes at least to the extent and in the manner as such
Indebtedness,
(2) if the Indebtedness being refunded, refinanced or extended is
subordinated to the Notes, the Refinancing Indebtedness (a) is scheduled to
mature either no earlier than the Indebtedness being refunded, refinanced
or extended or after the scheduled maturity date of the Notes and (b) has a
Weighted Average Life to Maturity at the time such Refinancing Indebtedness
is incurred that is equal to or greater than the Weighted Average Life to
Maturity of the Indebtedness being refunded, refinanced or extended,
(3) such Refinancing Indebtedness is in an aggregate principal amount
that is equal to or less than the aggregate principal amount then
outstanding under the Indebtedness being refunded, refinanced or extended
and
(4) such Refinancing Indebtedness is incurred by the same Person that
initially incurred the Indebtedness being refunded, refinanced or extended
except that (a) KB Home may incur Refinancing Indebtedness to refund,
refinance or extend Indebtedness of any Restricted Subsidiary and (b) any
Restricted Subsidiary may incur Refinancing Indebtedness to refund,
refinance or extend Indebtedness of any other Restricted Subsidiary.
"Restricted Domestic Subsidiary" means, as of any date of determination, a
Restricted Subsidiary
(1) that is organized under the laws of the United States of America
or any state thereof or the District of Columbia and
(2) the majority of the assets of which (as reflected on a balance
sheet of such Subsidiary prepared in accordance with GAAP) is located in
the United States of America.
"Restricted Foreign Subsidiary" means, as of any date of determination, a
Restricted Subsidiary that is not a Restricted Domestic Subsidiary.
"Restricted Payment" means, with respect to any Person,
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(1) the declaration or payment of any dividend or the making of any
other payment or distribution of cash, securities or other property in
respect of such Person's Capital Stock or in respect of any warrants,
options or other rights (other than convertible or exchangeable debt
securities of such Person) to purchase or acquire such Person's Capital
Stock (except that a dividend payable solely in Qualified Capital Stock of
KB Home shall not constitute a Restricted Payment),
(2) any payment on account of the purchase, redemption, retirement or
other acquisition for value of such Person's Capital Stock or any warrants,
options or other rights (other than convertible or exchangeable debt
securities of such Person) to purchase or acquire such Person's Capital
Stock, or any other payment or distribution made in respect thereof, either
directly or indirectly, or
(3) any principal payment, redemption, repurchase, defeasance or other
acquisition or retirement, prior to scheduled principal payment or
scheduled maturity, of Indebtedness (other than collateralized mortgage
obligations issued by Subsidiaries of the Mortgage Finance Subsidiary) of
KB Home or any of its Subsidiaries which is subordinated in right of
payment to the Notes;
provided, however, that with respect to KB Home and its Restricted Subsidiaries,
Restricted Payments shall not include:
(a) any payment described in clause (1) or (2) above made to KB
Home or any of its Restricted Subsidiaries by any of KB Home's other
Restricted Subsidiaries,
(b) any exchange offer, but only to the extent KB Home exchanges
solely Capital Stock of KB Home (other than Disqualified Capital Stock)
for Indebtedness of KB Home or a Restricted Subsidiary in such exchange
offer or
(c) any redemption, repurchase or retirement of Indebtedness (the
Indebtedness being so redeemed, repurchased or retired being hereinafter
called "Subject Indebtedness") described in clause (3) above if made
from the proceeds of Indebtedness which (x) is subordinated to the Notes
to the same extent as the Subject Indebtedness, (y) is scheduled to
mature either no earlier than the Subject Indebtedness or after the
scheduled maturity date of the Notes and (z) has a Weighted Average Life
to Maturity at the time such Indebtedness is incurred that is equal to
or greater than the Weighted Average Life to Maturity of the Subject
Indebtedness.
"Restricted Significant Subsidiary" means any Restricted Subsidiary which
is a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X under
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended (as such Regulation S-X was in effect on June 1, 1996).
"Restricted Subsidiary" means a Subsidiary of KB Home which is not, as of
the determination date, an Unrestricted Subsidiary.
"Subsidiary" of any Person means:
(1) any corporation of which at least a majority of the aggregate
voting power of the Common Stock of which is owned by such Person, directly
or through one or more other Subsidiaries of such Person, and
(2) any entity other than a corporation at least a majority of the
Common Stock of which is owned by such Person, directly or through one or
more other Subsidiaries of such Person.
"Substitute Credit Facility" means any credit facility of KB Home which is
created subsequent to the Closing Date and which replaces all or part of the
Existing Credit Facilities or a Substitute Credit Facility (and which may
provide for an increase in the amount of credit available thereunder), so long
as KB Home is the borrower under such Substitute Credit Facility.
"Unrestricted Subsidiary" means:
(a) the Mortgage Finance Subsidiary,
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(b) any Subsidiary of the Mortgage Finance Subsidiary on the
Closing Date,
(c) any other Subsidiary of KB Home which is designated as an
Unrestricted Subsidiary by KB Home's Board of Directors, as provided
below, and
(d) any Subsidiary of an Unrestricted Subsidiary;
provided that, in each case referred to in clause (a), (b), (c) or (d), the
creditors of such Subsidiary have no direct or indirect recourse (including, but
not limited to, recourse with respect to the payment of principal of or interest
on Indebtedness of such Subsidiary) to KB Home or any of its Restricted
Subsidiaries.
The Board of Directors of KB Home may designate an Unrestricted Subsidiary to be
a Restricted Subsidiary; provided that no such designation shall result in any
Restricted Subsidiary becoming a Subsidiary of any Unrestricted Subsidiary; and
provided, further that:
(1) any such designation shall be deemed to be an incurrence by KB
Home and its Restricted Subsidiaries, as of the date of such designation,
of the consolidated Indebtedness (if any) of such designated Subsidiary and
its Subsidiaries (if any) which are or are being designated as Restricted
Subsidiaries, determined in accordance with GAAP, for purposes of the
covenant described above under "Description of the Notes -- Certain
Covenants -- Limitation on Incurrence of Additional Indebtedness," and
(2) immediately after giving effect to such designation and the deemed
incurrence of any such additional Indebtedness (A) no Default or Event of
Default shall have occurred and shall be continuing, (B) KB Home could
incur $1.00 of additional Indebtedness pursuant to the first paragraph of
the covenant described above under "Description of the Notes -- Certain
Covenants -- Limitation on Incurrence of Additional Indebtedness" and (C)
without limitation to clause (A) above, such designated Subsidiary and its
Subsidiaries (if any) which are or are being designated as Restricted
Subsidiaries are in compliance with the covenant described above under
"Description of the Notes -- Certain Covenants -- Limitation on
Restrictions on Distributions from Restricted Domestic Subsidiaries".
Subject to the foregoing, the Board of Directors of KB Home also may designate
any Restricted Subsidiary (together with its Subsidiaries (if any)) to be an
Unrestricted Subsidiary; provided that:
(1) the consolidated shareholders' equity (determined in accordance
with GAAP) of such designated Subsidiary and its Subsidiaries (if any) at
the time of such designation shall be deemed to be an Investment by KB Home
in an Unrestricted Subsidiary at the time of such designation and shall
reduce the amount of Investments which KB Home and its Restricted Domestic
Subsidiaries shall be permitted to make under the covenant described above
under "Description of the Notes -- Certain Covenants -- Limitation on
Investments in Restricted Foreign Subsidiaries, Unrestricted Subsidiaries
and Equity Method Persons" and
(2) immediately after giving effect to such designation and reduction
of amounts available for Investments under such covenant, (A) no Default or
Event of Default shall have occurred and shall be continuing, (B) KB Home
could incur $1.00 of additional Indebtedness pursuant to the first
paragraph of the covenant described above under "Description of the
Notes -- Certain Covenants -- Limitation on Incurrence of Additional
Indebtedness" and (C) KB Home could make $1.00 of additional Investments in
Unrestricted Subsidiaries pursuant to the covenant described above under
"Description of the Notes -- Certain Covenants -- Limitation on Investments
in Restricted Foreign Subsidiaries, Unrestricted Subsidiaries and Equity
Method Persons".
Any designation by the Board of Directors described above shall be evidenced to
the Trustee by the filing with the Trustee of a certified copy of the resolution
of KB Home's Board of Directors giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions and setting forth the underlying calculations supporting
such certification. As of the date of this
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prospectus supplement, the only Unrestricted Subsidiaries are the Mortgage
Finance Subsidiary and its Subsidiaries.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or portion thereof at any date, the number of years obtained by dividing:
(1) the then outstanding principal amount of such Indebtedness or
portion thereof, as the case may be, into
(2) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payment of principal of such Indebtedness or portion thereof, as
the case may be, including payment at final maturity, in respect thereof,
by (b) the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any directors' qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more other Wholly Owned Subsidiaries of
such Person.
BOOK-ENTRY, DELIVERY AND FORM
The Notes will be issued in book-entry form and represented by one or more
permanent Global Notes. The Depositary for the Global Notes will be The
Depository Trust Company, New York, New York. We sometimes refer to The
Depository Trust Company as "DTC". The Global Notes will be deposited with, or
on behalf of, DTC and registered in the name of Cede & Co., the nominee of DTC.
Unless and until it is exchanged for individual certificates evidencing Notes
under the limited circumstances described below, a Global Note may not be
transferred except as a whole by the Depositary to its nominee or by a nominee
to the Depositary or another nominee of the Depositary, or by the Depositary or
its nominee to a successor Depositary or to a nominee of the successor
Depositary.
DTC has advised us that it is:
- a limited-purpose trust company organized under the New York Banking Law;
- a "banking organization" within the meaning of the New York Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the New York Uniform
Commercial Code; and
- a "clearing agency" registered pursuant to the provisions of Section 17A
of the Securities Exchange Act of 1934.
DTC holds securities that its participants deposit with DTC. DTC also
facilitates the settlement among its participants of securities transactions,
including transfers and pledges, in deposited securities through electronic
computerized book-entry changes in participants' accounts, which eliminates the
need for physical movement of securities certificates. "Direct participants" in
DTC include securities brokers and dealers, including the underwriters, banks,
trust companies, clearing corporations and other organizations. DTC is owned by
a number of its direct participants and by the New York Stock Exchange, Inc.,
the American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the DTC system is also available to others, which we
sometimes refer to as "indirect participants," that clear transactions through
or maintain a custodial relationship with a direct participant either directly
or indirectly. The rules applicable to DTC and its participants are on file with
the SEC.
Purchases of Notes within the DTC system must be made by or through direct
participants, which will receive a credit for those Notes on DTC's records. The
ownership interest of the actual purchaser of a Note, which we sometimes refer
to as a "beneficial owner," is in turn recorded on the direct and indirect
participants' records. Beneficial owners of Notes will not receive written
confirmation from DTC of their purchases. However, beneficial owners are
expected to receive written confirmations providing details of their
transactions, as well as periodic statements of their holdings, from the direct
or indirect participants
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through which they purchased Notes. Transfers of ownership interests in Global
Notes are to be accomplished by entries made on the books of participants acting
on behalf of beneficial owners. Beneficial owners will not receive certificates
representing their ownership interest in the Global Notes except under the
limited circumstances described below.
To facilitate subsequent transfers, all Global Notes deposited with DTC
will be registered in the name of DTC's nominee, Cede & Co. The deposit of Notes
with DTC and their registration in the name of Cede & Co. will not change the
beneficial ownership of the Notes. DTC has no knowledge of the actual beneficial
owners of the Notes. DTC's records reflect only the identify of the direct
participants to whose accounts the Notes are credited, which may or may not be
the beneficial owners. The participants are responsible for keeping account of
their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to direct
participants, by direct participants to indirect participants and by direct
participants and indirect participants to beneficial owners will be governed by
arrangements among them, subject to any legal requirements in effect from time
to time.
Redemption notices will be sent to DTC or its nominee. If less than all of
the Notes are being redeemed, DTC will determine the amount of the interest of
each direct participant in the Notes to be redeemed in accordance with DTC's
procedures.
In any case where a vote may be required with respect to the Notes, neither
DTC nor Cede & Co. will give consents for or vote the Global Notes. Under its
usual procedures, DTC will mail an omnibus proxy to those direct participants to
whose accounts the Notes are credited on the record date identified in a listing
attached to the omnibus proxy as soon as possible after the record date. The
omnibus proxy assigns the consenting or voting rights of Cede & Co. to such
direct participants.
Principal and interest payments on the Notes will be made to Cede & Co., as
nominee of DTC. DTC's practice is to credit direct participants' accounts on the
relevant payment date unless DTC has reason to believe that it will not receive
payments on the payment date. Payments by direct and indirect participants to
beneficial owners will be governed by standing instructions and customary
practices, as is the case with securities held for the account of customers in
bearer form or registered in "street name". Those payments will be the
responsibility of participants and not of DTC or us, subject to any legal
requirements in effect from time to time. Payment of principal and interest to
Cede & Co. is our responsibility, disbursement of payments to direct
participants is the responsibility of DTC, and disbursement of payments to the
beneficial owners is the responsibility of direct and indirect participants.
Except under the limited circumstances described below, purchasers of Notes
in this offering will not be entitled to have Notes registered in their names
and will not receive physical delivery of Notes. Accordingly, each beneficial
owner must rely on the procedures of DTC and its participants to exercise any
rights under the Notes and the Indenture.
The laws of some jurisdictions may require that some purchasers of
securities take physical delivery of securities in definitive form. These laws
may impair the ability to transfer or pledge beneficial interests in Notes.
DTC is under no obligation to provide its services as Depositary for the
Notes and may discontinue providing its services at any time. Neither we nor the
trustee will have any responsibility for the performance by DTC or its direct
participants or indirect participants under the rules and procedures governing
DTC.
As noted above, beneficial owners of Notes generally will not receive
certificates representing their ownership interests in the Notes. However, if
- DTC notifies KB Home that it is unwilling or unable to continue as a
depositary for the Global Notes or if DTC ceases to be a clearing agency
registered under the Exchange Act, and a successor Depositary registered
as a clearing agency under the Exchange Act is not appointed by KB Home
within 90 days after it receives such notice or becomes aware of such
ineligibility,
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- KB Home determines, in its sole discretion, not to have the Notes
represented by one or more Global Notes, or
- an Event of Default under the Indenture has occurred and is continuing
with respect to the Notes,
KB Home will issue Notes in definitive form in exchange for beneficial interests
in the Global Notes. Any Note in definitive form issued in exchange for a
beneficial interest in a Global Note will be registered in such name or names as
DTC shall instruct the Trustee. It is expected that these directions will be
based upon directions received by DTC from its participants with respect to
ownership of beneficial interests in the Global Notes.
CONCERNING THE TRUSTEE
SunTrust Bank is one of a number of banks with which KB Home and its
subsidiaries maintain ordinary banking relationships and with which KB Home and
its subsidiaries maintain credit facilities, including the Existing Credit
Facilities. In addition, SunTrust Bank is trustee under the indenture governing
KB Home's 7 3/4% Senior Notes, and an affiliate of SunTrust Bank is one of the
underwriters of the Notes.
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UNDERWRITING
KB Home intends to offer the Notes through a number of underwriters.
Subject to the terms and conditions set forth in the underwriting agreement
dated November 30, 2001, the underwriters named below have severally agreed to
purchase, and KB Home has agreed to sell to them, severally, the respective
principal amount of the Notes set forth opposite their respective names below.
Banc of America Securities LLC is acting as sole book-running manager for the
Notes offering.
PRINCIPAL AMOUNT
NAME OF THE NOTES
---- ----------------
Banc of America Securities LLC.............................. $160,000,000
Comerica Securities, Inc. .................................. 20,000,000
Banc One Capital Markets, Inc. ............................. 10,000,000
SunTrust Capital Markets, Inc. ............................. 10,000,000
------------
Total..................................................... $200,000,000
============
The underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the Notes is subject to, among
other things, the approval of certain legal matters by their counsel and certain
other conditions. Under the terms of the underwriting agreement, the
underwriters are committed to take and pay for all of the Notes, if any are
taken.
The underwriters have advised us that they propose to offer the Notes from
time to time for sale in one or more negotiated transactions, or otherwise, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The underwriters may effect
such transactions by selling the Notes to or through dealers, and such dealers
may receive compensation in the form of underwriting discounts, concessions or
commissions from the underwriters and/or the purchasers of the Notes for whom
they may act as agent. The underwriters and any dealers that participate with
the underwriters in the distribution of the Notes may be deemed to be
underwriters, and any discounts or commissions received by them and any profit
on the resale of the Notes by them may be deemed to be underwriting discounts or
commissions, under the Securities Act of 1933, as amended.
In connection with the offering, the underwriters may purchase and sell
Notes in the open market. These transactions may include syndicate covering
transactions and stabilizing transactions. Syndicate covering transactions
involves purchases of the Notes in the open market after the distribution has
been completed in order to cover syndicate short positions. Stabilizing
transactions consist of certain bids or purchases of Notes made for the purpose
of preventing or retarding a decline in the market price of the Notes while the
offering is in progress.
The Notes are a new issue of securities with no established trading market.
KB Home does not currently intend to apply for listing of the Notes on a
national securities exchange or on any automated or other quotation system, but
has been advised by the underwriters that they intend to make a market in the
Notes. The underwriters are not obligated, however, to do so and may discontinue
their market making at any time without notice. No assurance can be given that a
trading market for the Notes will develop or as to the liquidity of any trading
market for the Notes which may develop. See "Risk Factors -- An active trading
market may not develop for the notes."
KB Home has agreed that for a period of 30 days from the date hereof, it
will not, without the prior written consent of Banc of America Securities LLC,
directly or indirectly, issue, sell, offer to sell, grant any option for the
sale of, or otherwise dispose of, any debt securities, except for the Notes sold
to the underwriters pursuant to the underwriting agreement; provided that this
will not prevent KB Home from making borrowings under its credit facility or
bank credit lines.
We expect that delivery of the Notes will be made against payment for the
Notes on or about the closing date specified on the cover page of this
prospectus supplement, which will be the tenth business day following the date
of pricing of the Notes (the settlement cycle being referred to as "T+10").
Under Rule 15c6-1 of the U.S. Securities and Exchange Commission under the
Securities Exchange Act of 1934, trades in the secondary market generally are
required to settle in three business days unless the parties to
S-37
any such trade expressly agree otherwise. In addition, notes that trade in the
same-day funds settlement system of DTC often settle on the trade date. Assuming
that trades in the Notes settle on the trade date, purchasers who wish to trade
Notes on the date of pricing or the next succeeding nine business days will be
required, by virtue of the fact that the Notes initially will settle in T+10, to
specify an alternate settlement cycle at the time of any such trade to prevent a
failed settlement. Purchasers of Notes who wish to trade Notes on the date of
pricing or the next succeeding nine business days should consult their own
advisors.
KB Home estimates that its share of total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$300,000.
From time to time in the ordinary course of their respective businesses,
the underwriters named above and/or their respective affiliates have engaged in,
and may in the future engage in, commercial and/or investment banking
transactions with us and our affiliates. In particular, affiliates of each of
the underwriters named above are lenders under our Existing Credit Facilities.
KB Home has agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the offering will be passed upon
by Kimberly N. King, Corporate Secretary and Director, Corporate Legal Affairs,
of KB Home. The validity of the Notes will be passed upon for KB Home by Munger,
Tolles & Olson LLP, Los Angeles, California. Sidley Austin Brown & Wood LLP, San
Francisco, California, will act as counsel for the underwriters. Sidley Austin
Brown & Wood, a partnership affiliated with Sidley Austin Brown & Wood LLP,
represents KB Home in connection with certain other legal matters.
EXPERTS
The consolidated financial statements of KB Home at November 30, 2000 and
1999 and for each of the three years in the period ended November 30, 2000
incorporated by reference in KB Home's Annual Report on Form 10-K for the year
ended November 30, 2000 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon dated December 21, 2000 included
therein and incorporated herein by reference. Such financial statements are
incorporated herein in reliance upon such report given upon the authority of
Ernst & Young LLP as experts in accounting and auditing.
FORWARD-LOOKING STATEMENTS
You are cautioned that certain statements contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995, including any statements concerning future financial
performance, business and prospects, and future actions by KB Home and their
expected results. These forward-looking statements are subject to risks,
uncertainties and assumptions including, but not limited to, the continued
impact of recent terrorist activities and the U.S. response to these activities,
accelerating recessionary trends and other adverse changes in general economic
conditions, material prices, labor costs, interest rates, uncertainties
associated with California's electricity supply problems, the secondary market
for loans, consumer confidence, competition, currency exchange rates (insofar as
they affect KB Home's operations in France), environmental factors, government
regulations affecting KB Home's operations, the availability and cost of land in
desirable areas, unanticipated violations of KB Home policy, unanticipated legal
proceedings, and conditions in the capital, credit and homebuilding markets. See
"Risk Factors" in this prospectus supplement and the information in KB Home's
Annual Report on Form 10-K for the year ended November 30, 2000 and KB Home's
Quarterly Reports on Form 10-Q for the quarters ended February 28, 2001, May 31,
2001 and August 31, 2001 for a further discussion of these and other risks and
uncertainties applicable to KB Home's business.
S-38
PROSPECTUS
KB HOME
DEBT SECURITIES, PREFERRED STOCK,
COMMON STOCK, AND WARRANTS
KB Home, a Delaware corporation (the "Company"), may offer and issue from
time to time (1) its debt securities ("Debt Securities"), consisting of
debentures, notes or other evidences of indebtedness representing unsecured
obligations of the Company, which may be either senior Debt Securities, senior
subordinated Debt Securities or subordinated Debt Securities, (2) shares of its
Preferred Stock, par value $1.00 per share ("Preferred Stock"), (3) shares of
its Common Stock, par value $1.00 per share ("Common Stock"), or (4) warrants to
purchase Debt Securities, Preferred Stock, Common Stock or other securities of
the Company or another issuer ("Warrants"). The Debt Securities, Preferred
Stock, Common Stock and Warrants are herein collectively referred to as the
"Securities". The Securities may be offered in one or more separate classes or
series, in amounts, at prices and on terms to be determined by market conditions
at the time of sale and to be set forth in a supplement or supplements to this
Prospectus (a "Prospectus Supplement"). Any Securities may be offered with other
Securities or separately. Debt Securities or Preferred Stock may be convertible
into shares of Common Stock. The aggregate offering price of the Securities will
not exceed $500,000,000.
Certain terms of any Debt Securities in respect of which this Prospectus is
being delivered will be set forth in the accompanying Prospectus Supplement
including, without limitation, the specific designation (including whether such
Debt Securities are senior, senior subordinated or subordinated and whether such
Debt Securities are convertible or exchangeable for other securities of the
Company or another issuer), aggregate principal amount, purchase price,
currency, denomination, maturity, interest rate (which may be fixed or variable)
and time of payment of interest (if any), terms (if any) for the subordination,
redemption or conversion thereof, listing (if any) on a securities exchange and
any other specific terms of the Debt Securities. Certain terms of any Preferred
Stock in respect of which this Prospectus is being delivered will be set forth
in the accompanying Prospectus Supplement including, without limitation, the
designation, number of shares, purchase price, and provisions for dividends,
liquidation preference, voting, redemption and conversion or exchange (into
other securities of the Company or another issuer), and any listing on a
securities exchange. The purchase price of any Common Stock in respect of which
this Prospectus is being delivered will be set forth in the accompanying
Prospectus Supplement. Certain terms of any Warrants in respect of which this
Prospectus is being delivered will be set forth in the accompanying Prospectus
Supplement, including the specific designation, number, duration, purchase price
and terms thereof, any listing of the Warrants or the underlying securities on a
securities exchange and any other terms in connection with the offering, sale
and exercise of the Warrants, as well as the terms on which and the securities
for which such Warrants may be exercised. The Prospectus Supplement will also
contain information, where applicable, about certain United States federal
income tax considerations relating to the Securities covered by the Prospectus
Supplement.
The Company's Common Stock is listed on the New York Stock Exchange under
the symbol "KBH."
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 ON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The Securities may be sold on a negotiated or competitive bid basis to or
through underwriters or dealers designated from time to time or to other
purchasers directly or through agents designated from time to time. Certain
terms of the offering and sale of the Securities, including, where applicable,
the names of the underwriters, dealers or agents, if any, the principal amount
or number of shares or Warrants to be purchased, the purchase price of the
Securities and the proceeds to the Company from such sale, and any applicable
commissions, discounts and other items constituting compensation of such
underwriters, dealers or agents, will also be set forth in the accompanying
Prospectus Supplement.
The date of this prospectus is November 30, 2001
CERTAIN PERSONS PARTICIPATING IN AN OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING" IN THE
PROSPECTUS SUPPLEMENT FOR SUCH OFFERING.
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained or incorporated by
reference in this Prospectus or any Prospectus Supplement. This Prospectus and
any Prospectus Supplement shall not constitute an offer to sell or a
solicitation of an offer to buy any of the Securities offered hereby in any
jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. Neither the delivery of this Prospectus and
any Prospectus Supplement nor any sale made thereunder shall, under any
circumstances, create any implication that the information therein is correct as
of any time subsequent to the date thereof.
TABLE OF CONTENTS
PAGE
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Available Information....................................... 1
Incorporation of Certain Information by Reference........... 1
Use of Proceeds............................................. 2
Description of the Debt Securities.......................... 2
Description of Capital Stock................................ 11
Description of Warrants..................................... 15
Plan of Distribution........................................ 16
Experts..................................................... 17
Legal Matters............................................... 17
i
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"). Reports, proxy statements
and other information filed by the Company with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 or at its Regional
Offices located at Suite 1400, Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661-2511 and at 233 Broadway, New York, New York 10007, and
copies of such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Such material may also be accessed electronically by means of the Commission's
home page on the Internet at http://www.sec.gov. The Company's Common Stock is
listed on the New York Stock Exchange. In addition, reports, proxy statements
and other information concerning the Company can be inspected at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
This Prospectus constitutes a part of Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed with the Commission under the Securities Act of 1933, as
amended (the "Securities Act"). This Prospectus omits certain of the information
set forth in such Registration Statement in accordance with the rules and
regulations of the Commission. Reference is hereby made to such Registration
Statement and to the exhibits relating thereto for further information with
respect to the Company and the Securities. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and in
each instance reference is made to the copy of such document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission for a more
complete description of the matter involved. Each such statement is qualified in
its entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents, which have been filed with the Commission, are
hereby incorporated by reference:
1. Annual Report on Form 10-K of the Company for the year ended
November 30, 2000; and
2. Quarterly Reports on Form 10-Q of the Company for the quarters
ended February 28, 2001, May 31, 2001 and August 31, 2001; and
3. Current Reports on Form 8-K of the Company dated February 2, 2001,
February 7, 2001 and November 30, 2001.
All documents filed by the Company after the date of this Prospectus
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to
the termination of the offering of the Securities offered hereby, shall be
deemed to be incorporated herein by reference and to be a part hereof from the
date of filing of such documents (other than those portions of such documents
(1) described in paragraphs (i), (k) and (l) of Item 402 of Regulation S-K
promulgated by the Commission or (2) furnished under Item 9 of a Current Report
on Form 8-K). As a result, the Current Report on Form 8-K filed by the Company
on January 18, 2001, is not incorporated by reference herein. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein (or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein) modifies or supersedes such statement. Any statements so
modified or superseded shall be deemed to constitute a part of this Prospectus,
except as so modified or superseded.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon written
or oral request of such person, a copy of any or all of the documents referred
to above which have been or may be incorporated by reference in this Prospectus
(other than certain exhibits to such documents). Mail requests for such
documents should be directed to KB Home, 10990 Wilshire Boulevard, Los Angeles,
California 90024, Attention: Investor Relations.
1
USE OF PROCEEDS
Unless otherwise set forth in the applicable Prospectus Supplement,
proceeds from the sale of the Securities will be used by the Company for general
corporate purposes, which may include, among other things, the development of
new residential properties and commercial projects, the repayment of existing
indebtedness, as well as possible land and corporate acquisitions.
DESCRIPTION OF THE DEBT SECURITIES
The following sets forth certain general terms and provisions of the
indentures under which the Debt Securities are to be issued. If so issued, the
particular terms of the Debt Securities will be set forth in a Prospectus
Supplement relating to such Debt Securities which will accompany this
Prospectus.
The Debt Securities will constitute either senior, senior subordinated or
subordinated debt of the Company and will be issued, in the case of Debt
Securities that will be senior debt, under a Senior Indenture (the "Senior Debt
Indenture"), in the case of Debt Securities that will be senior subordinated
debt, under a Senior Subordinated Indenture (the "Senior Subordinated Debt
Indenture"), and, in the case of Debt Securities that will be subordinated debt,
under a Subordinated Indenture (the "Subordinated Debt Indenture"), each such
indenture to be executed by the Company and one or more trustees (each a
"Trustee"). The Senior Debt Indenture, the Senior Subordinated Debt Indenture
and the Subordinated Debt Indenture are sometimes hereinafter referred to
individually as an "Indenture" and collectively as the "Indentures." The
Indentures will be in the form that has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part, subject to such
amendments or supplements as are adopted from time to time. The following
summaries of certain provisions of the Indentures and the Debt Securities do not
purport to be complete and such summaries are subject to the detailed provisions
of the applicable Indenture to which reference is hereby made for a full
description of such provisions, including the definition of certain terms used
herein, and for other information regarding the Debt Securities. Numerical
references in parentheses below are to sections in the applicable Indenture.
Wherever particular sections or defined terms of the applicable Indenture are
referred to, such sections or defined terms are incorporated herein by reference
as part of the statement made, and the statement is qualified in its entirety by
such reference. The Indentures are substantially identical, except for the
provisions relating to subordination. See "Senior Subordinated Debt" and
"Subordinated Debt." The Debt Securities offered by this Prospectus and the
accompanying Prospectus Supplement are referred to herein as the "Offered Debt
Securities."
GENERAL
None of the Indentures limits the amounts of additional indebtedness the
Company or any of its subsidiaries may incur, except as may be provided in the
Prospectus Supplement. The Debt Securities will be unsecured senior, senior
subordinated or subordinated obligations of the Company. The Company is a
holding company, which currently conducts its operations through consolidated
and unconsolidated subsidiaries. All of the operating assets of the Company are
owned by its subsidiaries, effectively subordinating the Debt Securities to all
existing and future liabilities (including trade payables) of the Company's
subsidiaries. Therefore, the Company's rights and the rights of its creditors,
including holders of Debt Securities, to participate in the assets of any
subsidiary upon the latter's liquidation or recapitalization will be subject to
the prior claims of the 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 third party security interests in the assets of such subsidiary and would
be subordinate to any liabilities of such subsidiary senior to that held by the
Company. In addition, dividends, loans and advances from certain subsidiaries to
the Company may be subject to certain contractual, statutory or regulatory
restrictions, are contingent upon the results of operations of such subsidiaries
and are subject to various business considerations.
The Indentures provide that Debt Securities may be issued from time to time
in one or more series and may be denominated and payable in U.S. dollars or
foreign currencies or units based on or relating to
2
foreign currencies. Special United States federal income tax considerations
applicable to any Debt Securities so denominated will be described in the
relevant Prospectus Supplement.
Reference is made to the Prospectus Supplement for the following terms of
and information relating to the Offered Debt Securities (to the extent such
terms are applicable to such Offered Debt Securities): (i) classification as
senior, senior subordinated or subordinated Debt Securities, the specific
designation, aggregate principal amount, purchase price and denomination; (ii)
currency or units based on or relating to currencies in which such Offered Debt
Securities are denominated and/or in which principal (and premium, if any)
and/or any interest will or may be payable; (iii) any date of maturity; (iv)
interest rate or rates (or the method by which such rate will be determined), if
any; (v) the date from which interest will accrue and dates on which any such
interest will be payable; (vi) the place or places where the principal of,
premium, if any, and interest, if any, on the Offered Debt Securities will be
payable; (vii) any redemption, repayment or sinking fund provisions; (viii) the
terms, if any, on which such Debt Securities may be converted into or exchanged
for stock or other securities of the Company or other entities, any specific
terms relating to the adjustment thereof and the period during which such Debt
Securities may be so converted or exchanged; (ix) whether the Offered Debt
Securities will be issuable in registered form or bearer form ("Bearer
Securities") or both, and if Bearer Securities are issuable, any restrictions
applicable to the exchange of one form for another and to the offer, sale and
delivery of Bearer Securities; (x) any applicable United States federal income
tax consequences, including whether and under what circumstances the Company
will pay additional amounts on Offered Debt Securities held by a person who is
not a U.S. person (as defined in the Prospectus Supplement) in respect of any
tax, assessment or governmental charge withheld or deducted and, if so, whether
the Company will have the option to redeem such Offered Debt Securities rather
than pay such additional amounts; and (xi) any other specific terms of the
Offered Debt Securities, including any additional events of default or covenants
provided for with respect to such Offered Debt Securities, and any terms that
may be required by or advisable under applicable laws or regulations.
Debt Securities may be presented for exchange and registered Debt
Securities may be presented for transfer in the manner, at the places and
subject to the restrictions set forth in the Indenture and the Prospectus
Supplement. Such services will be provided without charge, other than any tax or
other governmental charge payable in connection therewith, but subject to the
limitations provided in the applicable Indenture. Debt Securities in bearer form
and the coupons, if any, appertaining thereto will be transferable upon
delivery.
Debt Securities will bear interest at a fixed rate (a "Fixed Rate
Security") or a floating rate (a "Floating Rate Security"). Debt Securities
bearing no interest or interest at a rate that at the time of issuance is below
the prevailing market rate will be sold at a discount below their stated
principal amount. Special United States federal income tax considerations
applicable to any such discounted Debt Securities or to certain Debt Securities
issued at par that are treated as having been issued at a discount for United
States federal income tax purposes will be described in the relevant Prospectus
Supplement.
Debt Securities may be issued, from time to time, with the principal amount
payable on any principal payment date, or the amount of interest payable on any
interest payment date, to be determined by reference to one or more currency
exchange rates, commodity prices, equity indices or other factors. Holders of
such Debt Securities may receive a principal amount on any principal payment
date, or a payment of interest on any interest payment date, that is greater
than or less than the amount of principal or interest otherwise payable on such
dates, depending upon the value on such dates of the applicable currency,
commodity, equity index or other factors. Information as to the methods for
determining the amount of principal or interest payable on any date, the
currencies, commodities, equity indices or other factors to which the amount
payable on such date is linked and certain additional tax considerations will be
set forth in the applicable Prospectus Supplement.
3
GLOBAL SECURITIES
Registered Global Security. The registered Debt Securities of a series may
be issued in the form of one or more fully registered global securities (each, a
"Registered Global Security") that will be deposited with a depositary (a
"Depositary"), or with a nominee for a Depositary, identified in the Prospectus
Supplement relating to such series and registered in the name of the Depositary
or a nominee thereof. In such case, one or more Registered Global Securities
will be issued in a denomination or aggregate denominations equal to the portion
of the aggregate principal amount of outstanding registered Debt Securities of
the series to be represented by such Registered Global Security or Securities.
Unless and until it is exchanged in whole for Debt Securities in definitive
registered form, a Registered Global Security may not be transferred except as a
whole by the Depositary for such Registered Global 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 any
portion of a series of Debt Securities to be represented by a Registered Global
Security will be described in the Prospectus Supplement relating to such series.
The Company anticipates that the following provisions will apply to all
arrangements with a Depositary for the Registered Global Securities.
Beneficial ownership of interests in a Registered Global Security will be
limited to persons that have accounts with the Depositary for such Registered
Global Security ("participants") or persons that may hold interests through
participants. Upon the issuance of a Registered Global Security, the Depositary
for such Registered Global Security will credit, on its book-entry registration
and transfer system, the participants' accounts with the respective principal
amounts of the Debt Securities represented by such Registered Global Security
beneficially owned by such participants. The participants' accounts to be
credited shall be designated by any dealers, underwriters or agents
participating in the distribution of such Debt Securities. Ownership of
beneficial interests in such Registered Global Security will be shown on, and
the transfer of such ownership interests will be effected only through, records
maintained by the Depositary for such Registered Global Security (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. These laws may impair the ability to own,
transfer or pledge beneficial interests in Registered Global Securities.
So long as the Depositary for a Registered Global Security, or its nominee,
is the registered owner of such Registered Global Security, such Depositary or
nominee, as the case may be, will be considered the sole owner or holder of the
Debt Securities represented by such Registered Global Security for all purposes
under the applicable Indenture. Except as set forth below, owners of beneficial
interests in a Registered Global Security will not be entitled to have the Debt
Securities represented by such Registered Global Security registered in their
names, will not receive or be entitled to receive physical delivery of such Debt
Securities in definitive form and will not be considered the owners or holders
thereof under the applicable Indenture. Accordingly, each person owning a
beneficial interest in a Registered Global Security must rely on the procedures
of the Depositary for such Registered Global Security 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 applicable
Indenture. Under existing industry practices, if the Company requests any action
of beneficial owners or if an owner of a beneficial interest in a Registered
Global Security desires to give or take any action that a holder is entitled to
give or take under the applicable Indenture, the Depositary for such Registered
Global Security 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.
Principal, premium, if any, and interest payments on Debt Securities
represented by a Registered Global Security registered in the name of a
Depositary or its nominee will be made to such Depositary or
4
its nominee, as the case may be, as the registered owner of such Registered
Global Security. None of the Company, the Trustee or any other agent of the
Company 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
owners of interests in such Registered Global Security or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
The Company expects that the Depositary for any Debt Securities represented
by a Registered Global Security, upon receipt of any payment of principal
premium or interest in respect of such Registered Global Security, will
immediately credit participants' accounts with payments in amounts proportionate
to their respective beneficial interests in such Registered Global Security as
shown on the records of such Depositary. The Company also expects that payments
by participants to owners of beneficial interest in such Registered Global
Security held through such participants will be governed by standing customer
instructions and customary practices, as is now the case with the securities
held for the accounts of customers in bearer form or registered in "street
name," and will be the responsibility of such participants.
If the Depositary for any Debt Securities represented by a Registered
Global Security is at any time unwilling or unable to continue as Depositary or
ceases to be a clearing agency registered under the Exchange Act, and a
successor Depositary registered as a clearing agency under the Exchange Act is
not appointed by the Company within 90 days, the Company will issue such Debt
Securities in definitive form in exchange for such Registered Global Security.
In addition, the Company may at any time and in its sole discretion determine
not to have any of the Debt Securities of a series represented by one or more
Registered Global Securities and, in such event, will issue Debt Securities of
such series in definitive form in exchange for all of the Registered Global
Security or Securities representing such Debt Securities. Any Debt Securities
issued in definitive form in exchange for a Registered Global Security will be
registered in such name or names as the Depositary shall instruct the relevant
Trustee. It is expected that such instructions will be based upon directions
received by the Depositary from participants with respect to ownership of
beneficial interests in such Registered Global Security.
Bearer Global Security. The Debt Securities of a series may also be issued
in the form of one or more bearer global Securities (a "Bearer Global Security")
that will be deposited with a common depositary for Morgan Guaranty Trust
Company of New York, as operator of the Euroclear system, and Cedel Bank,
societe anonyme, or with a nominee for such depositary identified in the
Prospectus Supplement relating to such series. The specific terms and
procedures, including the specific terms of the depositary arrangement, with
respect to any portion of a series of Debt Securities to be represented by a
Bearer Global Security will be described in the Prospectus Supplement relating
to such series.
SENIOR DEBT
The Debt Securities and, in the case of Bearer Securities, any coupons
appertaining thereto (the "Coupons") that will constitute part of the senior
debt of the Company, if issued, will be issued under the Senior Debt Indenture
and will rank pari passu with all other unsecured and unsubordinated debt of the
Company.
SENIOR SUBORDINATED DEBT
The Debt Securities and Coupons that will constitute part of the senior
subordinated debt of the Company, if issued, will be issued under the Senior
Subordinated Debt Indenture and will be subordinate and junior in right of
payment, to the extent and in the manner set forth in the Senior Subordinated
Debt Indenture, to all "Senior Indebtedness" of the Company. The Senior
Subordinated Debt Indenture defines "Senior Indebtedness" as the principal of
(and, premium, if any) and unpaid interest (including post-petition interest) or
accrued original issue discount on and other amounts due on or in connection
with any Debt (as defined below) incurred, assumed or guaranteed by the Company,
whether outstanding on the date of the Indenture or thereafter incurred, assumed
or guaranteed, and all renewals, extensions and refundings of any such Debt;
provided, however, that the following will not constitute Senior Indebtedness:
(i) any Debt of the Company as to which, in the instrument creating or
evidencing the same or pursuant
5
to which the same is outstanding, it is expressly provided that such Debt is
subordinate in right of payment to all other Debt of the Company not expressly
subordinated to such Debt; (ii) any Debt of the Company which by its terms
refers explicitly to the senior subordinated Debt Securities and states that
such Debt shall not be senior in right of payment thereto; (iii) any Debt of the
Company in respect of the senior subordinated Debt Securities; (iv) any Debt of
the Company to any subsidiary of the Company; (v) any Debt of the Company to any
joint venture or partnership, which joint venture or partnership is required,
under generally accepted accounting principles, to be consolidated in the
Company's consolidated financial statements; and (vi) any other Debt of the
Company which by its terms ranks pari passu with or subordinate to the senior
subordinated Debt Securities. (Senior Subordinated Debt Indenture; Section 13.1)
The Company will not issue any Debt which is subordinated by the terms of the
instrument creating such Debt in right of payment to any other Debt of the
Company and which is not expressly by the terms of the instrument creating such
Debt made pari passu with, or subordinate and junior in right of payment to, the
senior subordinated Debt Securities. (Senior Subordinated Debt Indenture
Section; 3.7) Debt is defined in the Senior Subordinated Debt Indenture to mean,
with respect to any person at any date, without duplication, (A) all obligations
of such person for borrowed money, (B) all obligations of such person evidenced
by bonds, debentures, notes or other similar instruments, (C) all Debt of others
secured by a lien on any asset of such person, whether or not such Debt is
assumed by such person, (D) all Debt of others for the payment of which such
person is responsible or liable as obligor or guarantor, (E) all obligations of
such person in respect of letters of credit or other similar instruments (or
reimbursement obligations with respect thereto), (F) all obligations of such
person to pay the deferred purchase price of property or services, except Trade
Payables, and (G) all obligations of such person as lessee under Capital Leases.
(Senior Subordinated Debt Indenture; Section 1.1)
By reason of such subordination, in the event of dissolution, insolvency,
bankruptcy or other similar proceedings, upon any distribution of assets of the
Company, (i) holders of Senior Indebtedness will be entitled to be paid in full
before payments may be made on the senior subordinated Debt Securities and the
holders of senior subordinated Debt Securities will be required to pay over
their share of such distribution to the holders of Senior Indebtedness until
such Senior Indebtedness is paid in full (Senior Subordinated Debt Indenture;
Section 13.2) and (ii) creditors of the Company who are neither holders of
senior subordinated Debt Securities nor holders of Senior Indebtedness may
recover less, ratably, than holders of Senior Indebtedness and may recover more,
ratably, than the holders of the senior subordinated Debt Securities.
In the event the senior subordinated Debt Securities are declared or become
due and payable prior to their maturity by reason of the occurrence of an Event
of Default, then the Company is obligated to promptly notify holders of Senior
Indebtedness of such acceleration. The Company may not pay or acquire the senior
subordinated Debt Securities until 135 days have passed after such acceleration
occurs and may thereafter pay or acquire the senior subordinated Debt Securities
only if the terms of the Senior Subordinated Debt Indenture otherwise permit
payment or acquisition at that time. (Senior Subordinated Debt Indenture;
Section 13.3)
No payment of principal, interest, or any other amount owing with respect
to any of the senior subordinated Debt Securities may be made, nor may the
Company acquire any senior subordinated Debt Securities except as set forth in
the Indenture, if any default with respect to Senior Indebtedness occurs and is
continuing that permits the acceleration of the maturity thereof and, unless
such default relates to a failure by the Company to make any payment in respect
of such Senior Indebtedness when due or within any applicable grace period (a
"Payment Default"), such default is either the subject of judicial proceedings
or the Company receives notice of the default. Notwithstanding the foregoing,
the Company may resume payments in respect of the senior subordinated Debt
Securities and may acquire senior subordinated Debt Securities if: (i)(a) 135
days pass after, in the case of such a Payment Default, the later of the date
such payment was due and the expiration of any applicable grace period for such
payment or, in the case of any other such default, the date that the related
judicial proceedings commence or that notice of the default is given to the
Company, as the case may be, and (b) the Senior Indebtedness in respect of which
such default exists has not been declared due and payable in its entirety within
such 135 day period or, if declared due and payable, such declaration has been
rescinded, waived or annulled; or
6
(ii) the default with respect to the Senior Indebtedness is cured or waived and,
in each case described in the foregoing clauses (i) and (ii), the terms of the
Indenture otherwise permit the payment or acquisition of the senior subordinated
Debt Securities at that time. (Senior Subordinated Debt Indenture; Section 13.4)
If this Prospectus is being delivered in connection with a series of senior
subordinated Debt Securities, the accompanying Prospectus Supplement or the
information incorporated herein by reference will set forth the approximate
amount of Senior Indebtedness outstanding as of the end of the most recent
fiscal quarter.
SUBORDINATED DEBT
The Debt Securities and Coupons that will constitute part of the
subordinated debt of the Company will be issued under the Subordinated Debt
Indenture and will be subordinate and junior in right of payment, to the extent
and in the manner set forth in the Subordinated Debt Indenture, to all "Senior
Indebtedness" of the Company. The Subordinated Debt Indenture defines "Senior
Indebtedness" as the principal of (and premium, if any) and unpaid interest
(including post-petition interest) or accrued original issue discount on and
other amounts due on or in connection with any Debt (as defined below) incurred,
assumed or guaranteed by the Company, whether outstanding on the date of the
Indenture or thereafter incurred, assumed or guaranteed, and all renewals,
extensions and refundings of any such Debt; provided, however, that the
following will not constitute Senior Indebtedness: (i) any Debt of the Company
as to which, in the instrument creating or evidencing the same or pursuant to
which the same is outstanding, it is expressly provided that such Debt is
subordinate in right of payment to all other Debt not expressly subordinated to
such Debt; (ii) any Debt of the Company which by its terms refers explicitly to
the subordinated Debt Securities and states that such Debt shall not be senior
in right of payment thereto; (iii) any Debt in respect of the subordinated Debt
Securities; (iv) any Debt of the Company to any Subsidiary of the Company; and
(v) any Debt to any joint venture or partnership, which joint venture or
partnership is required, under generally accepted accounting principles, to be
consolidated in the Company's consolidated financial statements. (Subordinated
Debt Indenture; Section; 13.1) The definition of Debt in the Subordinated Debt
Indenture is the same as in the Senior Subordinated Debt Indenture and is
described above under "Senior Subordinated Debt." (Subordinated Debt Indenture;
Section 1.1) There is no provision in the Subordinated Debt Indenture preventing
the Company from issuing any Debt which is subordinated in right of payment to
any other debt of the Company and which is not expressly made pari passu with,
or subordinate and junior in right of payment to, the subordinated Debt
Securities.
By reason of such subordination, upon any distribution of assets of the
Company, in the event of dissolution, insolvency, bankruptcy or other similar
proceedings, (i) holders of Senior Indebtedness will be entitled to be paid in
full before payments may be made on the subordinated Debt Securities and the
holders of subordinated Debt Securities will be required to pay over their share
of such distribution to the holders of Senior Indebtedness until such Senior
Indebtedness is paid in full and (ii) creditors of the Company who are neither
holders of subordinated Debt Securities nor holders of Senior Indebtedness may
recover less, ratably, than holders of Senior Indebtedness and may recover more,
ratably, than the holders of the subordinated Debt Securities. (Subordinated
Debt Indenture; Section 13.2)
In the event the subordinated Debt Securities are declared or become due
and payable prior to their maturity by reason of the occurrence of an Event of
Default, then the Company is obligated to promptly notify holders of Senior
Indebtedness of such acceleration. The Company may not pay the subordinated Debt
Securities until 135 days have passed after such acceleration occurs and may
thereafter pay the subordinated Debt Securities only if the terms of the
Indenture otherwise permit payment at that time. (Subordinated Debt Indenture;
Section 13.3)
The conditions and limitations on payments by the Company with respect to
any of the subordinated Debt Securities in the event of any default with respect
to any Senior Indebtedness are the same as are provided for under the Senior
Subordinated Debt Indenture and are described above under "Senior Subordinated
Debt." (Subordinated Debt Indenture; Section 13.4) If this Prospectus is being
delivered in connection with a series of subordinated Debt Securities, the
accompanying Prospectus Supplement or the information incorporated herein by
reference will set forth the approximate amount of Senior Indebtedness
outstanding as of the end of the most recent fiscal quarter.
7
CERTAIN COVENANTS OF THE COMPANY
Merger, Consolidation, Sale, Lease or Conveyance. Each Indenture provides
that the Company will not merge or consolidate with or into any other person and
will not sell, lease or convey all or substantially all its assets to any
person, unless the Company shall be the continuing corporation, or the successor
corporation or person that acquires all or substantially all the assets of the
Company shall be a corporation organized and existing under the laws of the
United States or a State thereof or the District of Columbia and shall expressly
assume all obligations of the Company under such Indenture and the Debt
Securities issued thereunder, and immediately after such merger, consolidation,
sale, lease or conveyance, the Company, such person or such successor
corporation shall not be in default in the performance of the covenants and
conditions of such Indenture to be performed or observed by the Company.
(Indentures; Section 9.1)
EVENTS OF DEFAULT
An Event of Default is defined under each Indenture with respect to Debt
Securities of any series issued under such Indenture as being: (i) default for
30 days in payment of any interest on any Debt Securities of such series; (ii)
default in payment of any principal of the Debt Securities of such series,
either at maturity (or upon any redemption), by declaration of acceleration or
otherwise; (iii) default in payment of any sinking fund installment due under
the terms of the Debt Securities of such series; (iv) default in the
performance, or breach, of any other covenant or warranty of the Company in
respect of the Debt Securities of such series for 60 days after written notice
to the Company by the Trustee or to the Company and the Trustee by the holders
of at least 25% in aggregate principal amount of the outstanding Securities of
all series affected thereby; (v) certain events of bankruptcy, insolvency or
reorganization; or (vi) any other Event of Default provided in any relevant
Supplemental Indenture or resolution of the Board of Directors or officers'
certificate under which such series of Debt Securities is issued or in the form
of Debt Security for such series. (Indentures; Section 5.1)
Each Indenture provides that (i) if an Event of Default due to the default
in payment of principal of, premium, if any, or interest on, or sinking fund
installment in respect of any series of Debt Securities issued under such
Indenture or due to the default in the performance or breach of any other
covenant or warranty of the Company applicable to the Debt Securities of such
series but not applicable to all outstanding Debt Securities issued under such
Indenture shall have occurred and be continuing, either the Trustee, or the
holders of not less than 25% in principal amount of the Debt Securities of such
series (voting as a separate class) issued under such Indenture and then
outstanding may then declare the principal of all Debt Securities of such series
and interest accrued thereon to be due and payable immediately; and (ii) if an
Event of Default due to a default in the performance or breach of any other of
the covenants or agreements in such Indenture applicable to all outstanding Debt
Securities issued thereunder and then outstanding or due to certain events of
bankruptcy, insolvency and reorganization of the Company shall have occurred and
be continuing, either the Trustee or the holders of not less than 25% in
principal amount of all Debt Securities issued under such Indenture and then
outstanding (treated as one class) may declare the principal of all such Debt
Securities and interest accrued thereon to be due and payable immediately. Upon
certain conditions such declarations may be annulled and past defaults may be
waived (except a continuing default in payment of principal of (or premium, if
any) or interest on such Debt Securities) by the holders of a majority in
principal amount of the Debt Securities of all such affected series then
outstanding, voting as a separate class or as a single class, as applicable.
(Indentures; Sections 5.1 and 5.10)
Each Indenture contains a provision entitling the Trustee, subject to the
duty of the Trustee during a default to act with the required standard of care,
to be indemnified by the holders of Debt Securities issued under such Indenture
against the costs, expenses and liabilities that the Trustee may incur in
connection therewith before proceeding to exercise any right or power under such
Indenture at the request of such holders. (Indentures; Section 6.2) Subject to
such provisions in each Indenture for the indemnification of the Trustee and
certain other limitations, the holders of a majority in principal amount of the
Debt Securities of each series affected (with each series voting as a separate
class) issued under such Indenture and then outstanding may direct the time,
method and place of conducting any proceeding
8
for any remedy available to the Trustee, or exercising any trust or power
conferred on the Trustee. (Indentures; Section 5.9)
Each Indenture provides that no holder of Debt Securities of any series
issued under such Indenture may institute any action against the Company under
such Indenture (except actions for payment of overdue principal or interest)
unless such holder previously shall have given to the Trustee written notice of
default and continuance thereof and unless the holders of not less than 25% in
principal amount of the Debt Securities of such series issued under such
Indenture and then outstanding shall have requested the Trustee to institute
such action and shall have offered the Trustee reasonable indemnity, the Trustee
shall not have instituted such action within 60 days of such request and the
Trustee shall not have received direction inconsistent with such written request
by the holders of a majority in principal amount of the Debt Securities of each
affected series (with each series voting as a separate class) issued under such
Indenture and then outstanding. (Indentures; Sections 5.6 and 5.9)
Each Indenture contains a covenant that the Company will file annually with
the Trustee a certificate as to the Company's compliance with the covenants and
conditions under such Indenture. (Indentures; Section 3.5)
DEFEASANCE AND DISCHARGE
The Company can discharge or defease its obligations under each Indenture
as set forth below. (Indentures; Section 10)
The Company may discharge certain obligations to holders of any series of
Debt Securities issued under an Indenture (excluding, among other things, its
obligation to pay the principal of, premium, if any, and interest on the Debt
Securities of such series) that have not already been delivered to the Trustee
for cancellation and that have either become due and payable or are by their
terms due and payable within one year (or scheduled for redemption within one
year) by irrevocably depositing with the Trustee cash or, in the case of Debt
Securities payable only in U.S. dollars, U.S. Government Obligations (as defined
in such Indenture), or a combination thereof, as trust funds in an amount
certified to be sufficient to pay at maturity (or upon redemption or repayment
at the option of the holder) the principal of, premium, if any, and interest on
such Debt Securities.
The Company may also discharge any and all of its obligations to holders of
any series of Debt Securities issued under an Indenture at any time (including
its obligation to pay the principal of, premium, if any, and interest on the
Debt Securities of such series) ("defeasance"), but may not thereby avoid, among
other things, its duty to register the transfer or exchange of such series of
Debt Securities, to replace any temporary, mutilated, destroyed, lost or stolen
series of Debt Securities or to maintain an office or agency in respect of such
series of Debt Securities and certain other obligations. The Company may instead
be released with respect to any outstanding series of Debt Securities issued
under the relevant Indenture from the obligations imposed by the covenants
specified in the accompanying Prospectus Supplement (other than its obligation
to pay the principal of, premium, if any, and interest on the Debt Securities of
such series), and omit to comply with such covenants without creating an Event
of Default ("covenant defeasance"). Defeasance or covenant defeasance may be
effected only if, among other things: (i) the Company irrevocably deposits with
the Trustee cash or, in the case of Debt Securities payable only in U.S.
dollars, U.S. Government Obligations, or a combination thereof, as trust funds
in an amount certified to be sufficient to pay at maturity (or upon redemption
or repayment at the option of the holders) the principal of and interest on all
outstanding Debt Securities of such series issued under such Indenture; (ii) the
Company delivers to the Trustee an opinion of counsel to the effect that the
holders of such series of Debt Securities will not recognize income, gain or
loss for United States federal income tax purposes as a result of such
defeasance or covenant defeasance and that defeasance or covenant defeasance
will not otherwise alter such holders' United States federal income tax
treatment of principal, premium, if any, and interest payments on such series of
Debt Securities; and (iii) (a) in the case of the Senior Subordinated and
Subordinated Debt Indentures, no event or condition shall exist that, pursuant
to certain provisions described under "Senior Subordinated Debt" and
"Subordinated Debt" above, would prevent the Company
9
from making payments of principal of (and premium, if any) and interest on the
relevant Debt Securities at the date of the irrevocable deposit referred to
above or at any time during the period ending on the 91st day after such deposit
date and (b) the Company delivers to the Trustee an opinion of counsel to the
effect that (1) in the case of the Senior Subordinated and Subordinated Debt
Indentures, the trust funds will not be subject to any rights of holders of
Senior Indebtedness (as defined in the applicable Indenture) and (2) in the case
of all Debt Securities, after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally, except that if a court were to rule under any such law in any case or
proceeding that the trust funds remained property of the Company, then the
Trustee and the holders of the relevant Debt Securities would be entitled to
certain rights as secured creditors in such trust funds.
MODIFICATION OF THE INDENTURES
Each Indenture provides that the Company and the Trustee may enter into
supplemental indentures without the consent of the holders of Debt Securities
to: (i) secure any Debt Securities; (ii) evidence the assumption by a successor
corporation of the obligations of the Company; (iii) add covenants for the
protection of the holders of Debt Securities; (iv) cure any ambiguity or correct
any inconsistency in such Indenture; (v) establish the forms or terms of Debt
Securities of any series; (vi) evidence the acceptance of appointment by a
successor trustee; or (vii) add to, change or eliminate any provisions of the
relevant Indenture, provided that any such addition, change or elimination shall
not apply to any Debt Security of any series created prior to the execution of
such supplemental indenture and entitled to the benefit of such provision or
modify the rights of the holder of any such Debt Security with respect to such
provision. (Indentures; Section 8.1)
Each Indenture also contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
principal amount of Debt Securities of all series issued under such Indenture
then outstanding and affected (voting as one class), to add any provisions to,
or change in any manner or eliminate any of the provisions of, such Indenture or
modify in any manner the rights of the holders of the Debt Securities of each
series so affected; provided that the Company and the Trustee may not, without
the consent of the holder of each outstanding Debt Security affected thereby,
(i) extend the stated maturity of the principal of any Debt Security, or reduce
the principal amount thereof or reduce the rate or extend the time of payment of
interest thereon, or reduce any amount payable on redemption or repayments
thereof or make the principal thereof (including any amount in respect of
original issue discount), or interest thereon payable in any coin or currency
other than that provided in the Debt Securities or reduce the amount of any
original issue discount security payable upon acceleration or provable in
bankruptcy or modify the percentage of holders required to waive any default or
rescind and annul any declaration of acceleration or impair the right to
institute suit for the enforcement of any payment on any Debt Security when due
or if the Debt Securities provide therefor, any right of repayment of the holder
thereof, or (ii) reduce the aforesaid percentage of Debt Securities of any
series issued under such Indenture, the consent of the holders of which is
required for any such modification. (Indentures; Section 8.2)
The Senior Subordinated and Subordinated Debt Indentures may not be amended
to alter the subordination of any outstanding Debt Securities issued under such
Indenture without the consent of each holder of Senior Indebtedness (as defined
therein) then outstanding that would be adversely affected thereby. (Indentures;
Section 8.6)
APPLICABLE LAW
The Indentures will provide that the Debt Securities and the Indentures
will be governed by and construed in accordance with the laws of the State of
New York. (Indentures; Section 11.8)
10
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue (i) 100,000,000 shares of Common Stock,
of which 51,789,767 shares were outstanding as of November 1, 2001, (ii)
25,000,000 shares of Special Common Stock, none of which is outstanding and
(iii) 10,000,000 shares of preferred stock, par value $1.00 per share
("Preferred Stock"), none of which is outstanding. At November 1, 2001, there
were 1,278 holders of record of the Common Stock. The following summaries of
certain provisions of the Company's Certificate of Incorporation and Shareholder
Rights Plan do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, the Company's Certificate of Incorporation
and Shareholder Rights Plan, copies of which have been incorporated by reference
as exhibits to the Registration Statement of which this Prospectus is a part.
COMMON STOCK AND SPECIAL COMMON STOCK
The holders of Common Stock and Special Common Stock generally have
identical rights except that holders of Common Stock are entitled to one vote
per share while holders of Special Common Stock are entitled to one-tenth of a
vote per share on all matters to be voted on by stockholders. Holders of shares
of Common Stock and Special Common Stock are not entitled to cumulate their
votes in the election of directors. Generally all matters to be voted on by
stockholders must be approved by a majority of the combined voting power of the
outstanding shares of Common Stock and Special Common Stock, voting together as
a single class, subject to any voting rights of holders of outstanding Preferred
Stock, if any, and amendments to the Company's Certificate of Incorporation must
be approved by a majority of the combined voting power of all shares of Common
Stock and Special Common Stock, voting together as a single class. However,
amendments to the Company's Certificate of Incorporation (i) that adversely
affect the rights of the Common Stock or Special Common Stock also must be
approved by a majority of the shares of such class voting as a separate class,
(ii) that modify the classified board provisions contained in the Certificate of
Incorporation must be approved by an 80% supermajority of the combined voting
power of all shares of outstanding capital stock (including Common Stock and any
outstanding Special Common Stock and voting Preferred Stock) and (iii) that
modify the "fair price" provisions contained in the Company's Certificate of
Incorporation must likewise be approved by an 80% supermajority of the combined
voting power of all shares of outstanding voting stock excluding voting stock
held by a Related Person (see "Additional Provisions of the Company's
Certificate of Incorporation") and its Affiliates and Associates (as defined in
the Certificate of Incorporation).
Preemptive Rights; Redemption; Nonassessable. The holders of Common Stock
and Special Common Stock have no preemptive or other subscription or conversion
rights and there are no redemption provisions with respect to such shares. All
the outstanding shares of Common Stock are fully paid and nonassessable and the
shares of Special Common Stock if issued will be fully paid and nonassessable.
Dividends. Subject to the prior dividend rights of holders of outstanding
Preferred Stock, if any, the holders of Common Stock and Special Common Stock
are entitled to receive such dividends and distributions, if any, as may be
declared from time to time by the Board of Directors in its discretion from
funds legally available therefor, and shall share equally in all such dividends
and distributions on a per share basis. In the case of dividends or other
distributions payable in capital stock other than Preferred Stock (including
stock splits), only shares of Common Stock shall be distributed with respect to
Common Stock and only shares of Special Common Stock shall be paid or
distributed with respect to Special Common Stock, in each case in an amount per
share equal to the amount per share distributed with respect to the Common Stock
or the Special Common Stock, as the case may be. In the case of any combination
or reclassification of Common Stock or Special Common Stock, the shares of each
such class shall be combined or reclassified in such manner so as to retain the
proportionate interest of each such class after giving effect to such
combination or reclassification.
Distributions on Liquidation. The holders of Common Stock and Special
Common Stock are entitled to share pro rata in any distribution upon the
liquidation, dissolution or winding up of the Company, after giving effect to
any liquidation preference of any Preferred Stock.
11
Reorganization, Consolidation or Merger. In the event of a reorganization,
consolidation or merger of the Company, each holder of a share of Common Stock
shall be entitled to receive the same kind and amount of property receivable by
a holder of a share of Special Common Stock and each holder of a share of
Special Common Stock shall be entitled to receive the same kind and amount of
property receivable by a holder of Common Stock.
PREFERRED STOCK
The Company is authorized to issue Preferred Stock in one or more series
with such designations, rights, preferences and limitations as the Board of
Directors may determine, including the consideration to be received therefor,
the number of shares comprising each series, dividend rates, redemption
provisions, liquidation preferences, mandatory retirement provisions, conversion
rights and voting rights, all without any stockholder approval. The future
issuance of Preferred Stock with voting rights could make an acquisition of
control of the Company more difficult and could adversely affect the rights of
holders of Common Stock. Preferred stockholders typically would be entitled to
satisfaction in full of specified dividend and liquidation rights before any
payment of dividends or distribution of assets on liquidation is made to holders
of the Common Stock. If voting rights are granted to the holders of Preferred
Stock, the voting power of the Common Stock will be diluted and under some
circumstances control of the Company would shift from the holders of the Common
Stock to the holders of Preferred Stock. Certain fundamental matters requiring
stockholder approval (such as mergers, sale of assets, and certain amendments to
the Certificate of Incorporation) may require approval by the separate vote of
the holders of the Common Stock and the Preferred Stock.
SHAREHOLDER RIGHTS PLAN
On February 4, 1999 the Board of Directors of the Company declared a
dividend of one preferred stock purchase right (a "Right") for each share of
Common Stock (together with Special Common Stock, the "Voting Stock"). Each
Right represents the right to purchase one one-hundredth (1/100th) of a share of
Series A Participating Cumulative Preferred Stock ("Rights Preferred Stock") of
the Company at a price of $135.00 (as the same may be adjusted, the "Exercise
Price"). The terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") dated as of February 4, 1999, between the Company and Mellon
Investor Services, L.L.C. (formerly ChaseMellon Shareholder Services, L.L.C.) as
Rights Agent (the "Rights Agent"). The Rights replace the Preferred Stock
purchase rights issued in 1989 under the Company's Rights Agreement dated
February 21, 1989, which expired on March 7, 1999.
The Rights will be evidenced by certificates for the Voting Stock until the
earlier to occur of (i) 10 days following a public announcement that a person or
group of affiliated or associated persons (with certain exceptions, an
"Acquiring Person") has acquired beneficial ownership of Voting Stock entitled
to 15% or more of the aggregate votes entitled to be cast by all outstanding
shares of Voting Stock or (ii) 10 business days following the commencement of a
tender offer or exchange offer the consummation of which would result in a
person or group of affiliated or associated persons becoming an Acquiring Person
(the earlier of such dates being called the "Distribution Date").
The Rights Agreement provides that, until the Distribution Date (or earlier
redemption or expiration of the Rights): (i) the Rights will be transferred only
with the Voting Stock; (ii) Voting Stock certificates will contain a notation
referencing the Rights and Rights Agreement (the notation on already outstanding
Voting Stock certificates referring to the Company's prior Rights Agreement will
be deemed to refer to the new Rights); and (iii) the surrender for transfer of
any certificates for shares of Voting Stock will also constitute the transfer of
the Rights associated with the shares of Voting Stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Voting Stock as of the close of business on the
Distribution Date and thereafter such separate Right Certificates alone will
evidence the Rights.
12
The Rights are not exercisable until the Distribution Date. The Rights will
expire on March 5, 2009 (the "Final Expiration Date"), unless the Rights are
earlier redeemed or exchanged by the Company, in each case as described below.
The Exercise Price payable, and the number of shares of Rights Preferred
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution, for example, in the
event of a stock dividend on, or a subdivision, combination or reclassification
of, the Voting Stock.
If any person or group of affiliated or associated persons becomes an
Acquiring Person, each holder of a Right (other than Rights beneficially owned
by the Acquiring Person, which become void) will have the right to receive upon
exercise and payment of the then current Exercise Price, in lieu of Rights
Preferred Stock, that number of shares of Voting Stock having a market value of
two times the Exercise Price.
If, after a person or group has become an Acquiring Person, the Company is
acquired in a merger or other business combination transaction, or 50% or more
of its consolidated assets or earning power are sold, proper provision will be
made so that each holder of a Right (other than the Acquiring Person, whose
Rights will become void) will thereafter have the right to receive, upon
exercise at the then current Exercise Price, that number of shares of common
stock of the person with whom the Company has engaged in the foregoing
transaction (or its parent), which at the time of such transaction will have a
market value of two times the Exercise Price.
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person, in lieu of exercise, the Board of Directors of the
Company may exchange the Rights (other than Rights owned by the Acquiring
Person, which become void), in whole or in part, for shares of Voting Stock at
an exchange ratio of one share of Voting Stock per Right (as appropriately
adjusted to reflect changes in the Voting Stock after the date of the Rights
Agreement).
No fractional shares of Rights Preferred Stock will be issued, other than
fractions which are integral multiples of one hundreths of a share, which may,
at the election of the Company, be evidenced by depositary receipts. In lieu of
any other fractional interest, an adjustment in cash will be made based on the
market price of the Rights Preferred Stock.
At any time prior to the earlier of the Final Expiration Date or ten days
after an Acquiring Person becomes such (or such later date as the Board of
Directors of the Company may determine), the Board of Directors of the Company
may redeem the Rights in whole, but not in part, at a price of $.005 per Right,
subject to adjustment (the "Redemption Price"). Immediately upon any redemption
of the Rights, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price. The
Rights may be amended by the Company to the extent and on the conditions set out
in the Rights Agreement. Until a Right is exercised, the holder thereof, as
such, will have no rights as a stockholder of the Company, including, without
limitation, the right to vote or to receive dividends.
The Rights have effects that will render difficult an acquisition of the
Company without the approval of the Company's Board of Directors. The Rights
will cause substantial dilution to a person or group of affiliated or associated
persons that attempts to acquire the Company without conditioning the offer on
substantially all the Rights being acquired. The Rights will not interfere with
any merger or other business combination approved by the Board of Directors,
which may, at its option, at any time prior to a person or group becoming an
Acquiring Person, redeem the then outstanding Rights at the Redemption Price.
ADDITIONAL PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION
The Company's Certificate of Incorporation contains "fair price" provisions
which are intended to protect the Company's stockholders from certain possible
pricing abuses in connection with, among other things, unsolicited attempts to
gain control of the Company. These provisions require the affirmative vote of
the holders of 80% of the outstanding shares of voting stock of the Company held
by persons other than a Related Person in order to permit certain mergers and
other major corporate transactions involving the Company and a Related Person,
unless the merger or other transaction is approved by at least two-thirds
13
of the Continuing Directors (as defined in the Certificate of Incorporation) or
certain "fair price" criteria are met. A "Related Person" is defined as any
individual, corporation, partnership or entity that, together with its
Affiliates and Associates (as defined in the Certificate of Incorporation),
beneficially owns in the aggregate 20% or more of the Company's outstanding
voting stock, except for (i) any person or entity whose acquisition of such
voting stock was approved in advance by at least two-thirds of the Continuing
Directors, (ii) any fiduciary in respect of any employee benefit plan of the
Company or its subsidiaries or (iii) a specifically designated corporation
formerly affiliated with the Company or any of its Affiliates or Associates. The
"fair price" provisions are deemed to have been satisfied if, in general, the
cash or other consideration received per share by holders of each class or
series of the Company's outstanding voting stock in the merger or other
transaction is not less than the highest price paid at any time by the Related
Person in acquiring stock of such class or series, as determined by two-thirds
of the Continuing Directors. The term "Continuing Director" means a director of
the Company who was a member of the Board of Directors prior to the time that a
Related Person involved in a merger or other major corporate transaction became
a Related Person.
The Company has also adopted certain defensive measures that include
classifying the Board of Directors into three classes of directors, requiring a
supermajority vote of the Company's stockholders to effect certain amendments to
its Certificate of Incorporation and bylaws, restricting stockholders' ability
to call special meetings of stockholders, implementing the Shareholder Rights
Plan and amending the Certificate of Incorporation to provide that Section 203
of the Delaware General Corporation Law shall apply to the Company. In addition,
the Certificate of Incorporation prohibits stockholder action by written
consent.
The foregoing defensive measures, together with the provisions of the
Shareholder Rights Plan and the Certificate of Incorporation, in certain
circumstances could require a potential acquiror of the Company to pay a higher
price than might otherwise be the case or to obtain the approval of a larger
percentage of the stockholders than might otherwise be the case, and may have
the effect of discouraging a proxy contest or making more difficult a merger
involving the Company, or a tender offer, open-market purchase program or other
purchase of the Company's shares, in circumstances that would give stockholders
the opportunity to realize a premium over the then-prevailing market prices for
their shares.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
As a Delaware corporation, the Company is subject to the provisions of
Section 203 of the General Corporation Law of the State of Delaware. Section 203
generally provides that if a person or group acquires 15% or more of a
corporation's voting stock (thereby becoming an "interested stockholder")
without prior board approval, such interested stockholder may not, for a period
of three years, engage in a wide range of business combination transactions with
the corporation. However, this restriction does not apply to a person who
becomes an interested stockholder in a transaction resulting in the interested
stockholder owning at least 85% of the corporation's voting stock (excluding
from the outstanding shares, shares held by officers, directors or pursuant to
employee stock plans without confidential tender offer decisions), or to a
business combination approved by the board of directors and authorized by the
affirmative vote of a least 66 2/3% of the outstanding voting stock not owned by
the interested stockholder. In addition, Section 203 does not apply to certain
business combinations proposed subsequent to the public announcement of
specified business combination transactions which are not opposed by the board
of directors.
TRANSFER AGENT
The transfer agent and registrar for the Company's Common Stock is Mellon
Investor Services, L.L.C.
14
DESCRIPTION OF WARRANTS
The Company may issue warrants to purchase Debt Securities (the "Debt
Warrants"), Preferred Stock (the "Preferred Stock Warrants"), Common Stock (the
"Common Stock Warrants") or other securities issued by the Company or another
issuer (the "Other Warrants", collectively with the Common Stock Warrants, the
Debt Warrants and the Preferred Stock Warrants, the "Warrants"). Warrants may be
issued independently or together with any Securities and may be attached to or
separate from such Securities. 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 (the "Warrant Agent"), all as
shall be set forth in the Prospectus Supplement relating to the Warrants being
offered pursuant thereto.
DEBT WARRANTS
The applicable Prospectus Supplement will describe the terms of Debt
Warrants offered thereby, the Warrant Agreement relating to such Debt Warrants
and the debt warrant certificates representing such Debt Warrants, including the
following: (i) the title of such Debt Warrants; (ii) the aggregate number of
such Debt Warrants; (iii) the price or prices at which such Debt Warrants will
be issued; (iv) the designation, aggregate principal amount and terms of the
Debt Securities purchasable upon exercise of such Debt Warrants, and the
procedures and conditions relating to the exercise of such Debt Warrants; (v)
the date, if any, on and after which such Debt Warrants and the related Debt
Securities will be separately transferable; (vi) the principal amount of Debt
Securities purchasable upon exercise of each Debt Warrant, and the price at
which such principal amount of Debt Securities may be purchased upon such
exercise; (vii) the date on which the right to exercise such Debt Warrants shall
commence, and the date on which such right shall expire; (viii) the maximum or
minimum number of such Debt Warrants which may be exercised at any time; (ix) a
discussion of material federal income tax considerations, if any; and (x) any
other terms of such Debt Warrants and terms, procedures and limitations relating
to the exercise of such Debt Warrants.
Debt Warrant certificates will be exchangeable for new Debt Warrant
certificates of different denominations, and Debt Warrants may be exercised at
the corporate trust office of the Warrant Agent or any other office indicated in
the Prospectus Supplement. Prior to the exercise of their Debt Warrants, holders
of Debt Warrants will not have any of the rights of holders of the securities
purchasable upon such exercise and will not be entitled to payments of principal
of (or premium, if any) or interest, if any, on the securities purchasable upon
such exercise.
PREFERRED STOCK WARRANTS, COMMON STOCK WARRANTS, AND OTHER WARRANTS
The applicable Prospectus Supplement will describe the following terms of
Preferred Stock Warrants, Common Stock Warrants, and Other Warrants in respect
of which this Prospectus is being delivered: (i) the title of such Warrants;
(ii) the securities for which such Warrants are exercisable; (iii) the price or
prices at which such Warrants will be issued; (iv) if applicable, the number of
such Warrants issued with each share of Preferred Stock, Common Stock or other
securities of the Company or another issuer; (v) any provisions for adjustment
of the number or amount of shares of Preferred Stock, Common Stock or other
securities of the Company or another issuer receivable upon exercise of such
Warrants or the exercise price of such Warrants; (vi) if applicable, the date on
and after which such Warrants and the related Preferred Stock, Common Stock or
other securities of the Company or another issuer will be separately
transferable; (vii) if applicable, a discussion of material federal income tax
considerations; (viii) any other terms of such Warrants, including terms,
procedures and limitations relating to the exchange and exercise of such
Warrants; (ix) the date on which the right to exercise such Warrants shall
commence, and the date on which such right shall expire; and (x) the maximum or
minimum number of such Warrants which may be exercised at any time.
15
EXERCISE OF WARRANTS
Each Warrant will entitle the holder of Warrants to purchase for cash such
principal amount of Debt Securities, shares of Preferred Stock or Common Stock,
or amounts of other securities at such exercise price as shall in each case be
set forth in, or be determinable as set forth in, the Prospectus Supplement
relating to the Warrants offered thereby. Warrants may be exercised at any time
up to the close of business on the expiration date set forth in the Prospectus
Supplement relating to the Warrants offered thereby. After the close of business
on the expiration date, unexercised Warrants will become void.
Warrants may be exercised as set forth in the Prospectus Supplement
relating to the Warrants offered thereby. Upon receipt of payment and the
warrant certificate properly completed and duly executed at the corporate trust
office of the Warrant Agent or any other office indicated in the Prospectus
Supplement, the Company will, as soon as practicable, forward the Debt
Securities, shares of Preferred Stock or Common Stock or other securities
purchasable upon such exercise. If less than all of the Warrants represented by
such warrant certificate are exercised, a new warrant certificate will be issued
for the remaining Warrants.
PLAN OF DISTRIBUTION
The Securities may be sold (i) through agents, (ii) through underwriters,
(iii) through dealers or (iv) directly to purchasers (through a specific bidding
or auction process or otherwise). The distribution of 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
relating to such prevailing market prices or at negotiated prices.
Offers to purchase the Securities may be solicited by agents designated by
the Company from time to time. Any such agent involved in the offer or sale of
the Securities will be named, and any commissions payable by the Company to such
agent will be set forth, in the Prospectus Supplement. Unless otherwise
indicated in the Prospectus Supplement, any such agent will be acting on a best
efforts basis for the period of its appointment. Any such agent may be deemed to
be an underwriter, as that term is defined in the Securities Act, of the
Securities so offered and sold.
If an underwriter or underwriters are utilized in the sale of Securities,
the Company will execute an underwriting agreement with such underwriter or
underwriters at the time an agreement for such sale is reached, and the names of
the specific managing underwriter or underwriters, as well as any other
underwriters, and the terms of the transactions, including compensation of the
underwriters and dealers, if any, will be set forth in the Prospectus
Supplement, which will be used by the underwriters to make resales of the
Securities.
If a dealer is utilized in the sale of the Securities, the Company will
sell such Securities to the dealer, as principal. The dealer may then resell
such Securities to the public at varying prices to be determined by such dealer
at the time of resale. The name of the dealer and the terms of the transactions
will be set forth in the Prospectus Supplement relating thereto.
Offers to purchase the Securities may be solicited directly by the Company
and sales thereof may be made by the Company directly to institutional investors
or others. The terms of any such sales, including the terms of any bidding or
auction process, if utilized, will be described in the Prospectus Supplement
relating thereto.
Agents, underwriters and dealers may be entitled under agreements which may
be entered into with the Company to indemnification by the Company against
certain liabilities, including liabilities under the Securities Act, and any
such agents, underwriters or dealers, or their affiliates may be customers of,
engage in transactions with or perform services for the Company in the ordinary
course of business.
If so indicated in the Prospectus Supplement, the Company will authorize
agents and underwriters to solicit offers by certain institutions to purchase
Debt Securities from the Company at the public offering price set forth in the
Prospectus Supplement pursuant to Delayed Delivery Contracts ("Contracts")
providing for payment and delivery on the date stated in the Prospectus
Supplement. Such Contracts will
16
be subject to only those conditions set forth in the Prospectus Supplement. A
commission indicated in the Prospectus Supplement will be paid to underwriters
and agents soliciting purchases of Debt Securities pursuant to Contracts
accepted by the Company.
EXPERTS
The consolidated financial statements of the Company appearing in the
Company's Annual Report (Form 10-K) for the year ended November 30, 2000 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
Any financial statements and schedules hereafter incorporated by reference
in the registration statement of which this prospectus is a part that have been
audited and are the subject of a report by independent auditors will be
incorporated herein by reference in reliance upon such reports given on their
authority as experts in accounting and auditing to the extent covered by
consents filed with the Commission.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Company by Munger, Tolles & Olson LLP, Los Angeles, California.
17
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$200,000,000
KB LOGO
8 5/8% SENIOR SUBORDINATED NOTES DUE 2008
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PROSPECTUS SUPPLEMENT
NOVEMBER 30, 2001
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Sole Book-Running Manager
BANC OF AMERICA SECURITIES LLC
--------------------------------
COMERICA SECURITIES, INC.
BANC ONE CAPITAL MARKETS, INC.
SUNTRUST ROBINSON HUMPHREY
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