Rule 424(b)(3)
File Nos. 333-59614 and 333-59614-01
DATED OCTOBER 3, 2001
PROSPECTUS SUPPLEMENT
(To Prospectus Dated September 5, 2001)
$675,000,000
AGGREGATE PRINCIPAL AMOUNT
AT MATURITY
[COUNTRYWIDE CREDIT INDUSTRIES, INC. LOGO]
LIQUID YIELD OPTION(TM)NOTES DUE 2031
(ZERO COUPON -- SENIOR)
AND
COMMON SHARES ISSUABLE UPON
CONVERSION AND/OR PURCHASE OF THE LYONS
FULLY AND UNCONDITIONALLY GUARANTEED
TO THE EXTENT DESCRIBED IN THIS PROSPECTUS BY
COUNTRYWIDE HOME LOANS, INC.
THE OFFERING:
We issued the LYONs in a private placement in February 2001 at an issue price of $741.37 per LYON (74.137% of the principal amount at maturity). Selling securityholders will use this prospectus to resell their LYONs and the shares of common stock issuable upon conversion and/or purchase by us of their LYONs. We will not pay interest on the LYONs prior to maturity unless contingent interest becomes payable. Instead, on February 8, 2031, the maturity date of the LYONs, a holder will receive $1,000 per LYON. The issue price of each LYON represents a yield to maturity of 1.00% per year calculated on a semi-annual bond-equivalent basis from February 8, 2001, excluding any contingent interest. The LYONs will rank equally in right of payment to all of our existing and future unsecured and unsubordinated indebtedness.
GUARANTEE:
Our wholly owned subsidiary, Countrywide Home Loans, Inc., or “CHL,” fully and unconditionally guarantees our obligations to make cash payments on the LYONs to the extent described in this prospectus.
CONVERTIBILITY OF THE LYONS:
Holders may convert each of their LYONs into 11.57 shares of our common stock (subject to adjustment): (1) if, as of the last day of the preceding calendar quarter, the closing sale price of our common stock for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of that preceding calendar quarter is more than a specified percentage, initially 135% and declining 0.21% each quarter thereafter, of the accreted conversion price per share of common stock on the last trading day of that preceding calendar quarter, (2) during any period in which the credit rating assigned to the LYONs by either Moody’s or Standard & Poor’s falls below an investment grade rating level, (3) if such LYONs have been called for redemption or (4) upon the occurrence of certain corporate transactions described in this prospectus. The accreted conversion price per share as of any day will equal the sum of the issue price of a LYON plus the accrued original issue discount to that day, divided by the applicable conversion rate. Our common stock is listed on the New York Stock Exchange under the symbol “CCR.” On August 13, 2001, the last reported sale price of our common stock was $43.27.
CONTINGENT INTEREST:
We will pay contingent interest to the holders of LYONs during any six-month period commencing February 8, 2006 if the average market price of a LYON for a certain measurement period immediately preceding such six-month period equals 120% or more of the sum of the issue price and accrued original issue discount for such LYON. The contingent interest payable per LYON in respect of any six-month period will be equal to the greater of (1) 0.125% of the average market price of a LYON for the measurement period referred to above or (2) the sum of all regular cash dividends paid by us per share on our common stock during that six-month period multiplied by the number of shares of common stock then issuable upon conversion of a LYON. You should read the discussion of selected United States federal income tax consequences relevant to the LYONs beginning on page 34.
PURCHASE OF THE LYONS BY CCI AT THE OPTION OF THE HOLDER:
Holders may require us to purchase all or a portion of their LYONs on any February 8 occurring in the years 2004, 2006, 2011, 2016, 2021 and 2026 at the prices set forth in “Description of LYONs -- Purchase of LYONs at the Option of the Holders.” We may choose to pay the purchase price in cash or in common stock or a combination of cash and common stock. In addition, upon a change in control of CCI or CHL on or before February 8, 2006, each holder may require us to repurchase for cash all or a portion of such holder’s LYONs.
REDEMPTION OF THE LYONS AT THE OPTION OF CCI:
We may redeem all or a portion of the LYONs at any time on or after February 8, 2006 at the prices set forth in “Description of LYONs -- Redemption at the Option of CCI.”
INVESTING IN THE LYONS INVOLVES RISKS THAT ARE DESCRIBED IN THE “RISK FACTORS” SECTION BEGINNING ON PAGE 13 OF THIS PROSPECTUS.
We will not receive any of the proceeds from the sale of the LYONs or shares of common stock by any of the selling securityholders. The LYONs and shares of common stock may be offered in negotiated transactions or otherwise, at market prices prevailing at the time of sale or at negotiated prices. In addition, shares of common stock may be offered from time to time through ordinary brokerage transactions on the New York Stock Exchange. See “Plan of Distribution.” The selling securityholders may be deemed to be “underwriters” as defined in the Securities Act of 1933, as amended. Any profits realized by the selling securityholders may be deemed to be underwriting commissions. If the selling securityholders use any broker-dealers, any commissions paid to broker-dealers and, if broker-dealers purchase any LYONs or shares of common stock as principals, any profits received by such broker-dealers on the resale of the LYONs or shares of common stock, may be deemed to be underwriting discounts or commissions under the Securities Act.
Neither the Securities and Exchange Commission, any state securities commission nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is September 5, 2001.
(TM) TRADEMARK OF MERRILL LYNCH & CO., INC.
TABLE OF CONTENTS
Page
-----
Where You Can Find More Information.......................................................... 3
Forward-Looking Information.................................................................. 4
Summary...................................................................................... 5
Risk Factors................................................................................. 9
Use of Proceeds.............................................................................. 9
Ratio of Earnings to Fixed Charges........................................................... 10
Price Range and Dividend History of Our Common Stock......................................... 10
Countrywide Credit Industries, Inc. and Countrywide Home Loans, Inc.......................... 11
Description of LYONs......................................................................... 12
Description of Capital Stock................................................................. 28
Certain United States Federal Income Tax Consequences........................................ 30
Selling Securityholders...................................................................... 35
Plan of Distribution......................................................................... 37
Legal Matters................................................................................ 38
Experts...................................................................................... 38
You should rely only on the information contained or incorporated by reference in this prospectus. Countrywide Credit Industries, Inc. and Countrywide Home Loans, Inc. have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. Countrywide Credit Industries, Inc. and Countrywide Home Loans, Inc. are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. The business, financial condition, results of operations and prospects of Countrywide Credit Industries, Inc. and Countrywide Home Loans, Inc. may have changed since that date.
References in this prospectus to “CCI,” “the Company,” “we,” “us” and “our” refer to Countrywide Credit Industries, Inc. and its consolidated subsidiaries, unless otherwise specified.
References in this prospectus to “Countrywide Home Loans,” “CHL” or “the Guarantor” refer to Countrywide Home Loans, Inc. and its consolidated subsidiaries, unless otherwise specified.
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any public offering document we file without charge at any of the SEC’s Public Reference Section’s following locations:
Public Reference Room Northeast Regional Office Midwest Regional Office
450 Fifth Street, N.W 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661
You can also request copies of all, or any portion, of these documents by writing the Public Reference Section and paying certain prescribed fees. Please call the SEC at 1-800-SEC-0330 for further information on the Public Reference Section. Additionally, these documents are available to the public from the SEC’s web site at http://www.sec.gov. You can also inspect reports, proxy statements and other information about us at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
We are “incorporating by reference” into this prospectus certain information that we file with the SEC. This means that we are disclosing important information to you by referring to those documents. The information incorporated by reference is considered to be part of this prospectus, except for any information superceded by information contained directly in this prospectus. Information that we file later with the SEC will automatically update information in this prospectus. In all cases, you should rely on the later information over different information included in this prospectus. We incorporate by reference the documents listed below and any future filings made with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended:
You may request a copy of these filings, or any other documents or other information referred to in, or incorporated by reference into, this prospectus, at no cost, by writing or calling us at the following address or telephone number:
Countrywide Credit Industries, Inc.
4500 Park Granada
Calabasas, California 91302
(818) 225-3000
Exhibits to the documents incorporated by reference will not be sent, however, unless those exhibits have been specifically referenced in this prospectus.
FORWARD-LOOKING INFORMATION
Some of the statements in this prospectus and any documents incorporated by reference constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to future events or our financial performance, and involve certain known and unknown risks, uncertainties and other factors, including those identified below, which may cause our or our industry’s actual or future results, levels of activity, performance or achievements to differ materially from those expressed or implied by any forward-looking statements or from historical results. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “could,” “would,” “should,” “believe,” “expect,” “plan,” “anticipate,” “intend,” “estimate,” “predict,” “potential” and other expressions which indicate future events and trends. We do not, nor does any other person, assume responsibility for the accuracy and completeness of any forward-looking statements. We have no duty to update or revise any forward-looking statements after the date of this prospectus or to conform them to actual results, new information, future events or otherwise. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed in the section titled “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” of our 2001 Form 10-Qs and our most recent Form 10-K, which describe risks and factors that could cause results to differ materially from those projected in such forward looking statements.
The following factors, among others, could cause our or our industry’s future results to differ materially from historical results or those anticipated:
We caution you that these risks may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. Our management cannot predict such new risk factors, nor can it assess the impact, if any, of such new risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those projected in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results.
SUMMARY
The following summary is qualified in its entirety by the more detailed information included elsewhere or incorporated by reference in this prospectus. Because this is a summary, it may not contain all the information that may be important to you. You should read the entire prospectus, as well as the information incorporated by reference, before making an investment decision. Market information is generally based on company generated estimates and not third party sources.
COUNTRYWIDE CREDIT INDUSTRIES, INC.
We are a holding company that offers various financial services through our subsidiaries. We have six major operational segments that are grouped into consumer and institutional businesses. Consumer businesses include Mortgage Originations, Mortgage-Related Investments and Business to Consumer Insurance. Our Institutional businesses include Processing and Technology, Capital Markets and Business to Business Insurance.
We are a Delaware corporation, and our principal executive offices are located at 4500 Park Granada, Calabasas, California 91302. Our telephone number is (818) 225-3000.
COUNTRYWIDE HOME LOANS, INC.
Countrywide Home Loans, Inc. is our principal subsidiary. Countrywide Home Loans and its subsidiaries originate, purchase, securitize, sell and service residential mortgage loans, which are principally prime credit mortgages. It also offers home equity loans and lines of credit, either as stand-alone products or in connection with the origination of prime credit first mortgages, as well as second mortgages and sub-prime credit first mortgages.
Countrywide Home Loans is a New York corporation, and its principal executive offices are located at 4500 Park Granada, Calabasas, California 91302. Its telephone number is (818) 225-3000.
THE OFFERING
LYONs......................................... $675,000,000 aggregate principal amount at maturity of LYONs due February 8, 2031.
We will not pay interest on the LYONs prior to maturity unless contingent interest
becomes payable. On February 8, 2001, each LYON was issued at a price of $741.37
per LYON and a principal amount at maturity of $1,000.
Maturity of LYONs............................. February 8, 2031.
Yield to Maturity of LYONs.................... 1.00% per year (computed on a semi-annual bond equivalent basis) calculated from
February 8, 2001, excluding any contingent interest.
Conversion Rights............................. For each LYON surrendered for conversion, if the conditions are satisfied, a
holder will receive 11.57 shares of our common stock. The conversion rate may be
adjusted for certain reasons specified in the indenture, but will not be adjusted
for accrued original issue discount. Upon conversion, a holder will not receive
any cash payment representing accrued original issue discount. Instead, accrued
original issue discount will be deemed paid by the shares of common stock received
by the holder on conversion. See "Description of LYONs -- Conversion Rights."
Holders may surrender LYONs for conversion into shares of common stock in any
calendar quarter (and only during such calendar quarter), if, as of the last day
of the preceding calendar quarter, the closing sale price of our common stock for
at least 20 trading days in a period of 30 consecutive trading days ending on the
last trading day of such preceding quarter is more than a specified percentage,
beginning at 135% and declining 0.21% per quarter thereafter, of the accreted
conversion price per share of common stock on the last trading day of such
preceding calendar quarter. The accreted conversion price per share as of any day
will equal the sum of the issue price of a LYON plus the accrued original issue
discount to that day, with that sum divided by the number of shares of common
stock issuable upon a conversion of a LYON.
Holders may also surrender a LYON for conversion during any period in which the
credit rating assigned to the LYONs by either Moody's or Standard & Poor's falls
below an investment grade rating level.
LYONs or portions of LYONs in integral multiples of $1,000 principal amount at
maturity called for redemption may be surrendered for conversion until the close
of business on the second business day prior to the redemption date. In addition,
if we make a significant distribution to our shareholders or if we or CHL are a
party to certain consolidations, mergers or binding share exchanges, LYONs may be
surrendered for conversion as provided in "Description of LYONs -- Conversion
Rights." The ability to surrender LYONs for conversion will expire at the close of
business on the business day immediately preceding February 8, 2031, unless they
have previously been called for redemption or repurchase. See "Certain United
States Federal Income Tax Consequences" and "Description of LYONs -- Conversion
Rights -- Conversion Upon Notice of Redemption."
Original Issue Discount....................... We issued the LYONs at an issue price significantly below the principal amount at
maturity of the LYONs. The difference between the issue price and the principal
amount at maturity of a LYON is referred to as original issue discount. This
original issue discount accrues daily at a rate of 1.00% per year beginning on
February 8, 2001, calculated on a semi-annual bond equivalent basis, using a
360-day year comprised of twelve 30-day months. The accrual of imputed interest
income, also referred to as tax original issue discount, as calculated for United
States federal income tax purposes, will exceed the accrued original issue
discount. See "Certain United States Federal Income Tax Consequences -- Accrual of
Interest on the LYONs."
Contingent Interest........................... We will pay contingent interest to the holders of LYONs during any six-month
period from February 8 to August 7 and from August 8 to February 7, with the
initial six-month period commencing February 8, 2006, if the average market price
of a LYON for the five trading days ending on the second trading day immediately
preceding the first day of the applicable six-month period equals 120% or more of
the sum of the issue price and accrued original issue discount for such LYON to
the day immediately preceding the first day of the applicable six-month period.
Notwithstanding the above, if we declare a dividend for which the record date
falls prior to the first day of a six-month period but the payment date falls
within such six-month period, then the five trading day period for determining the
average market price of a LYON will be the five trading days ending on the second
trading day immediately preceding such record date. The amount of contingent
interest payable per LYON in respect of any six-month period will be equal to the
greater of:
o 0.125% of the average market price of a LYON for the five trading day period
referred to above or
o the sum of all regular cash dividends paid by us per share on our common stock
during that six-month period multiplied by the number of shares of common
stock issuable upon conversion of a LYON on each such payment date. Contingent
interest, if any, will accrue and be payable to holders of LYONs as of the
15th day preceding the last day of the relevant six-month period or, if we pay
a regular cash dividend on our common stock during the relevant six-month
period, to holders of LYONs as of the record date for the related common stock
dividend. Such payments will be paid on the last day of the relevant six-month
period or, if we pay a regular cash dividend on our common stock during the
relevant six-month period, on the payment date of the related common stock
dividend. The original issue discount will continue to accrue at the yield to
maturity whether or not contingent interest is paid.
Guarantee..................................... CHL fully and unconditionally guarantees CCI's obligations to make cash payments
on the LYONs to the extent described in this prospectus.
Ranking....................................... The LYONs are unsecured and unsubordinated indebtedness of CCI and rank equally
with CCI's other future unsecured and unsubordinated indebtedness (if any). CHL's
guarantee of the LYONs ranks equally with CHL's other existing and future
unsecured and unsubordinated indebtedness.
Tax Original Issue Discount................... The LYONs are debt instruments subject to the United States federal income tax
contingent payment debt regulations. You should be aware that, even if we do not
pay any cash interest (including any contingent interest) on the LYONs, you will
be required to include interest in your gross income for United States federal
income tax purposes. This imputed interest, also referred to as tax original issue
discount, will accrue at a rate equal to 6.53% per year, computed on a semi-annual
bond equivalent basis, which represents the yield on noncontingent,
nonconvertible, fixed-rate debt with terms otherwise similar to the LYONs. The
rate at which the tax original issue discount will accrue for United States
federal income tax purposes will exceed the stated yield of 1.00% for the accrued
original issue discount. You will also recognize gain or loss on the sale,
exchange, conversion or redemption of a LYON in an amount equal to the difference
between the amount realized on the sale, exchange, conversion or redemption,
including the fair market value of any common stock received upon conversion or
otherwise, and your adjusted tax basis in the LYON. Any gain recognized by you on
the sale, exchange, conversion or redemption of a LYON generally will be ordinary
interest income; any loss will be ordinary loss to the extent of the interest
previously included in income, and thereafter, capital loss. See "Certain United
States Federal Income Tax Consequences."
Sinking Fund.................................. None.
Redemption of LYONs at the Option of
CCI....................................... We may redeem all or a portion of the LYONs for cash at any time on or after
February 8, 2006 at the redemption prices set forth in "Description of LYONs --
Redemption of LYONs at the Option of CCI."
Purchase of LYONs by CCI at the Option
of the Holder............................. Holders may require us to purchase all or a portion of their LYONs on February 8,
2004 for a price equal to $763.89 per LYON, on February 8, 2006 for a price equal
to $779.28 per LYON, on February 8, 2011 for a price equal to $819.14 per LYON, on
February 8, 2016 for a price equal to $861.03 per LYON, on February 8, 2021 for a
price equal to $905.06 per LYON, and on February 8, 2026 for a price equal to
$951.35 per LYON. We may choose to pay the purchase price in cash or in common
stock (based on the prevailing market price thereof) or a combination of cash and
common stock. See "Description of LYONs -- Purchase of LYONs at the Option of the
Holder."
Change in Control............................. Upon a change in control of CCI or CHL occurring on or before February 8, 2006,
each holder may require us to repurchase all or a portion of such holder's LYONs
for cash at a price equal to 100% of the issue price for such LYONs plus accrued
original issue discount to the date of repurchase. See "Description of LYONs --
Change in Control Permits Purchase of LYONs by CCI at the Option of the Holder."
Optional Conversion to Semi-Annual
Coupon Notes Upon Tax Event............... After the occurrence of a Tax Event, as defined below, we will have the option to
convert the LYONs to notes on which we will pay interest in cash on a semi-annual
bond equivalent basis. In such cases, interest will accrue at a rate of 1.00% per
year on a restated principal amount equal to the issue price of the LYONs plus
accrued original issue discount to the option exercise date. Interest will be
computed on the basis of a 360-day year of twelve 30-day months and will accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from the option exercise date. In such event, each of the redemption
price, purchase price and change in control purchase price will be adjusted, and
contingent interest will cease to accrue on the LYONs. Exercise of this option by
us will not affect a holder's conversion rights. See "Description of LYONs --
Optional Conversion to Semiannual Coupon Notes Upon Tax Event."
Use of Proceeds............................... We will not receive any of the proceeds from the sale by the selling
securityholders of the LYONs or our common stock. See"Use of Proceeds."
DTC Eligibility............................... The LYONs have been issued in book-entry form and are represented by permanent
global certificates without coupons deposited with a custodian for and registered
in the name of a nominee of DTC in New York, New York. Beneficial interests in any
such securities are shown on, and transfers are effected only through, records
maintained by DTC and its direct and indirect participants, and any such interest
may not be exchanged for certificated securities, except in limited circumstances.
See "Description of LYONs -- Book-Entry System."
Trading....................................... The LYONs issued in the initial private placement are eligible for trading in the
PORTAL system. LYONs resold using this prospectus, however, will no longer be
eligible for trading in the PORTAL system.
Symbol for our Common Stock................... Our common stock is traded on the New York Stock Exchange under the symbol "CCR."
RISK FACTORS
Prospective investors should carefully consider the following information with the other information contained or incorporated by reference in this prospectus before purchasing the LYONs.
AN ACTIVE TRADING MARKET FOR LYONS MAY NOT DEVELOP.Despite the fact that resales of the LYONs will be registered transactions under the Securities Act, we cannot assure you that an active trading market for the LYONs will develop and, if developed, the liquidity or sustainability of any such market. Moreover, we cannot assure you that you will be able to sell LYONs or, if sold, the price you would receive. Future trading prices of the LYONs will depend on many factors, including, among other things, prevailing interest rates, our operating results, the market price of our common stock and the market for similar securities.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE PURCHASE OF LYONS AT THE OPTION OF THE HOLDERS OR IN A CHANGE IN CONTROL REPURCHASE.
We may be required to repurchase LYONs for cash prior to their stated maturity upon the occurrence of certain events, including:
However, it is possible that we will not have sufficient funds at that time to make the required repurchase of LYONs for cash or that restrictions in our indebtedness will not allow those repurchases for cash. In addition, certain important corporate events, such as leveraged recapitalizations that would increase the level of our indebtedness, would not constitute a “change in control” under the indenture. See “Description of LYONs -- Purchase by CCI of LYONs at the Option of CCI” and “-- Change in Control Permits Purchase of LYONs at the Option of the Holder.”
YOU SHOULD CONSIDER THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF OWNING LYONS.The LYONs are characterized as indebtedness of ours for United States federal income tax purposes. Accordingly, you will be required to include in your income interest with respect to the LYONs.
The LYONs are contingent payment debt instruments. As a result, you will be required to include amounts in income, as ordinary income, in advance of the receipt and in excess of the cash attributable thereto. The amount of interest income required to be included by you for each year will be in excess of the yield to maturity of the LYONs. You will recognize gain or loss on the sale, purchase by us at your option, conversion or redemption of a LYON in an amount equal to the difference between the amount realized on the sale, purchase by us at your option, conversion or redemption, including the fair market value of any common stock received upon conversion or otherwise, and your adjusted tax basis in the LYON. Any gain recognized by you on the sale, purchase by us at your option, conversion or redemption of a LYON generally will be ordinary interest income; any loss will be ordinary loss to the extent of the interest previously included in income, and thereafter, capital loss. A summary of the United States federal income tax consequences of ownership of the LYONs is described in this prospectus under the heading “Certain United States Federal Income Tax Consequences.”
USE OF PROCEEDS
We will not receive any of the proceeds from the resale of the LYONs by the selling securityholders or any common stock issuable upon conversion of the LYONs.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for the three months ended May 31, 2001 and 2000 and the fiscal years ended on February 28 (or 29) 2001, 2000, 1999, 1998, and 1997.
Three Months
Ended May 31, Fiscal Year Ended Feb. 28 (29),
------------------------ ------------------------------------------------
2001 2000 2001 2000 1999 1998 1997
----------- ----------- ----------- ----------- ----------- ----------- --------
Ratio of earnings
to fixed charges(1) 1.43 1.49 1.43 1.67 1.64 1.98 1.99
(1) For purposes of calculating the ratio of earnings to fixed charges, earnings consist of income before Federal income taxes, plus fixed charges. Fixed charges include interest expense on debt and the portion of rental expenses which is considered to be representative of the interest factor (one-third of operating leases).
PRICE RANGE AND DIVIDEND HISTORY OF OUR COMMON STOCK
Our common stock is traded on the New York Stock Exchange and the Pacific Stock Exchange under the symbol “CCR.” Set forth below are the high and low sales prices for CCR common stock, as reported on the New York Stock Exchange composite transaction reporting system, for each quarterly period for the fiscal years ending on February 28 (29), 1999, 2000, 2001, and 2002. Also set forth below are the cash dividends declared per share of CCR common stock during such periods:
DIVIDENDS
HIGH LOW DECLARED
-------- -------- ----------
FISCAL YEAR ENDING ON FEBRUARY 28, 2002
2nd Quarter (through August 13, 2001).................. $ 46.90 $ 38.55 $ 0.10
1st Quarter............................................ 49.35 38.05 0.10
FISCAL YEAR ENDING ON FEBRUARY 28, 2001
4th Quarter............................................ 52.00 36.31 0.10
3rd Quarter............................................ 41.69 31.50 0.10
2nd Quarter............................................ 39.75 30.00 0.10
1st Quarter............................................ 35.13 22.31 0.10
FISCAL YEAR ENDING ON FEBRUARY 29, 2000
4th Quarter............................................ 29.25 23.00 0.10
3rd Quarter............................................ 35.25 27.75 0.10
2nd Quarter............................................ 45.25 31.63 0.10
1st Quarter............................................ 48.00 36.56 0.10
FISCAL YEAR ENDING ON FEBRUARY 28, 1999
4th Quarter............................................ 51.44 36.75 0.08
3rd Quarter............................................ 50.75 28.63 0.08
2nd Quarter............................................ 56.25 37.00 0.08
1st Quarter............................................ 54.50 44.25 0.08
COUNTRYWIDE CREDIT INDUSTRIES AND COUNTRYWIDE HOME LOANS
COUNTRYWIDE CREDIT INDUSTRIES, INC.We are a holding company that, through our wholly-owned subsidiaries, offers various financial services. Our principal subsidiary, Countrywide Home Loans, originates, purchases, securitizes, sells and services residential mortgage loans, which are principally prime credit quality first-lien mortgage loans secured by single (one- to four-) family residences. Our other subsidiaries offer ancillary financial products and services that complement our mortgage banking business.
We have six major segments that are grouped into consumer and institutional businesses. Consumer businesses include Mortgage Originations, Mortgage-Related Investments and Business to Consumer Insurance. Our institutional businesses include Processing and Technology, Capital Markets and Business to Business Insurance.
Our Mortgage Originations segment originates mortgage loans through our retail branch network. This network includes the consumer markets division of Countrywide Home Loans as well as Full Spectrum Lending, Inc. The consumer markets division originates prime credit quality first- and second-lien mortgages and home equity lines of credit that are secured by single (one- to four-) family residences. Full Spectrum Lending, Inc. originates these same products for sub-prime credit borrowers. This segment also includes the wholesale division of Countrywide Home Loans. Through this division, we originate prime credit quality first-lien mortgages, home equity lines of credit and sub-prime loans via mortgage loan brokers and other financial intermediaries. Further, through Landsafe, Inc. and its subsidiaries, this segment provides other services that complement the origination process, including title insurance, escrow services, appraisals, credit reporting, flood zone determinations and real property profiles.
Our Mortgage-Related Investments segment invests in assets retained in the mortgage securitization process, including mortgage servicing rights and residual interests in asset-backed securities. In addition, through this segment, we provide certain loan servicing functions that are commonly out-sourced by other loan servicers, such as tax bill monitoring, trustee services, real estate owned management and real property field inspection services.
Our Business to Consumer Insurance segment operates Countrywide Insurance Services, Inc., a full service insurance agency offering homeowners, fire, flood, earthquake, life, disability and other insurance products from the carriers it represents.
Our Processing and Technology segment sub-services our own loan servicing portfolio and provides sub-servicing and/or processing services to other domestic and foreign financial institutions. Included in this segment are the operations of Global Home Loans Limited, a joint venture between us and Woolwich plc that provides loan processing services for loans originated in the United Kingdom.
Our Capital Markets segment operates Countrywide Capital Markets, Inc. and its two subsidiaries -Countrywide Securities Corporation and Countrywide Servicing Exchange. Countrywide Securities Corporation is a registered broker-dealer specializing in mortgage-backed securities and other mortgage-related securities. Countrywide Servicing Exchange is a national servicing brokerage and consulting firm that facilitates transactions between buyers and sellers of bulk servicing contracts and other mortgage-related assets. Also included in this segment is the correspondent lending division of Countrywide Home Loans, through which we purchase closed loans from mortgage bankers, commercial banks and other financial institutions.
Our Business to Business Insurance segment operates Balboa Life Insurance Company and Balboa Insurance Company, insurance carriers that sell life insurance and property and casualty insurance policies. This segment also includes Second Charter Reinsurance Company, a mortgage reinsurance company that partially reinsures some of the mortgage loans originated by Countrywide Home Loans and insured by mortgage insurance companies.
We are a Delaware corporation, originally incorporated in New York under the name of OLM Credit Industries, Inc. Our principal executive offices are located at 4500 Park Granada, Calabasas, California 91302, and our telephone number is (818) 225-3000.
COUNTRYWIDE HOME LOANS, INC.As described above in “-- Countrywide Credit Industries, Inc.,” Countrywide Home Loans and its subsidiaries originate, purchase, securitize, sell and service mortgage loans that are principally prime credit quality mortgage loans. Countrywide Home Loans also offers home equity loans and sub-prime credit quality loans.
Countrywide Home Loans produces mortgage loans through three separate divisions. The consumer markets division originates prime credit quality mortgage loans and home equity loans by means of referrals from real estate agents and direct contact with consumers through its nationwide network of retail branch offices, its telemarketing systems and its site on the World Wide Web. The wholesale division produces prime credit quality mortgage loans and home equity loans through mortgage brokers and other financial intermediaries. Through the correspondent lending division, Countrywide Home Loans purchases loans from other mortgage bankers, commercial banks, savings and loan associations, credit unions and other financial intermediaries. Countrywide Home Loans customarily sells substantially all loans that it originates or purchases. To guarantee timely and full payment of principal and interest on Fannie Mae securities, Freddie Mac securities and Ginnie Mae securities and to transfer credit risk of the loans, Countrywide Home Loans pays guarantee fees to these agencies.
Countrywide Home Loans and its subsidiary, Countrywide Home Loans Servicing LP, service on a non-recourse basis substantially all of the mortgage loans that Countrywide Home Loans originates or purchases under servicing agreements with Fannie Mae, Freddie Mac, Ginnie Mae and various investors. In addition, Countrywide Home Loans purchases bulk servicing contracts, also on a non-recourse basis, to service single-family residential mortgage loans originated by other lenders. Servicing mortgage loans includes collecting and remitting loan payments, answering questions from customers, making advances when required, accounting for principal and interest, holding custodial (impound) funds for payment of property taxes and hazard insurance, making any physical inspections of the property, counseling delinquent mortgagors, supervising foreclosures and property dispositions in the event of unremedied defaults and generally administering the loans. Countrywide Home Loans receives a fee for servicing mortgage loans ranging generally from 1/4% to 1/2% annually on the declining principal balances of the loans. Countrywide Home Loans has sold, and may sell in the future, a portion of its portfolio of loan servicing rights to other mortgage servicers.
The principal sources of Countrywide Home Loans’ revenue are: (1) loan origination fees; (2) any gains from the sale of loans; (3) interest earned on mortgage loans during the period that they are held by Countrywide Home Loans pending sale, net of interest paid on funds borrowed to finance those mortgage loans; (4) loan servicing fees; and (5) interest benefit derived from the custodial balances associated with Countrywide Home Loans’ servicing portfolio. Countrywide Home Loans’ principal financing needs are the financing of its mortgage loan inventory and the investment in mortgage servicing rights. To meet these needs, Countrywide Home Loans currently utilizes commercial paper supported by its revolving credit facility, medium-term notes, mortgage repurchase agreements, pre-sale funding facilities, an optional cash purchase feature in the dividend reinvestment plan, redeemable capital trust pass-through securities and cash flows from operations. In the past, Countrywide Home Loans has utilized whole loan repurchase agreements, servicing-secured bank facilities, private placements of unsecured notes and other financings, direct borrowings from its revolving credit facility and public offerings of preferred and common stock.
Countrywide Home Loans is a New York corporation, originally incorporated in 1969. Its principal executive offices are located at 4500 Park Granada, Calabasas, California 91302, and its telephone number is (818) 225-3000.
DESCRIPTION OF LYONS
We issued the LYONs under a senior indenture dated as of February 8, 2001, between us and The Bank of New York, as trustee. The following summarizes the material provisions of the LYONs and the indenture. The following summary is not complete and is subject to, and qualified by reference to, all of the provisions of the LYONs and the indenture. The indenture, which contains a form of the LYONs and the guarantee, is included as an exhibit to the registration statement of which this prospectus is a part and is incorporated by reference herein.
As used in this description, the words “we,” “us,” “our” or “CCI” do not include any current or future subsidiary of CCI. As used in this description, the words “CHL” or “the Guarantor” do not include any current or future subsidiary of CHL.
GENERALOn February 8, 2001, we issued $675,000,000 aggregate principal amount at maturity of the LYONs in a private placement. The LYONs will mature on February 8, 2031. The principal amount at maturity of each LYON is $1,000. The LYONs will be payable at the office of the paying agent, which initially will be an office or agency of the trustee, or an office or agency maintained by us for such purpose, in the Borough of Manhattan, The City of New York.
We issued each LYON at an issue price of $741.37 per LYON, which represents a substantial discount from its principal amount at maturity. Except as described below, we will not make periodic payments of interest on the LYONs. However, the LYONs will accrue original issue discount while they remain outstanding. Original issue discount is the difference between the issue price and the principal amount at maturity of a LYON. We will calculate the accrual of original issue discount on a semi-annual bond equivalent basis, using a 360-day year composed of twelve 30-day months. The Original issue discount began to accrue on the LYONs on February 8, 2001.
The LYONs are debt instruments subject to the contingent payment debt regulations under the Internal Revenue Code. The LYONs were issued with original issue discount for United States federal income tax purposes. Even if we do not pay any cash interest (including any contingent interest) on the LYONs, holders will be required to include accrued tax original issue discount in their gross income for United States federal income tax purposes. The rate at which the tax original issue discount will accrue will exceed the stated yield of 1.00% for the accrued original issue discount described above. See “Certain United States Federal Income Tax Consequences.”
CHL fully and unconditionally guarantees our obligations to make cash payments on the LYONs to the extent described below under “-- Guarantee.”
Maturity, conversion, purchase by us at the option of a holder or redemption of a LYON will cause original issue discount and interest, if any, to cease to accrue on such LYON. We may not reissue a LYON that has matured or been converted, purchased by us at the option of a holder, redeemed or otherwise cancelled, except for registration of transfer, exchange or replacement of such LYON.
LYONs may be presented for conversion at the office of the conversion agent, and for exchange or registration of transfer at the office of the registrar, each such agent initially being the trustee.
GUARANTEECHL fully and unconditionally guarantees CCI’s obligations to make cash payments on the LYONs (including Liquidated Damages, if any, under the registration rights agreement) when due and payable, without duplication, whether at maturity or upon redemption, purchase or otherwise, regardless of any defense, right of set-off or counterclaim which CCI may have or assert, other than the defense of payment. CHL’s obligations under the guarantee are several and independent of the obligations of CCI with respect to the LYONs.
The obligations of CHL under the guarantee are unconditional regardless of the enforceability of the LYONs or the indenture and may not be discharged until all obligations under those LYONs and the indenture are satisfied. Holders of the LYONs may proceed directly against CHL if an event of default affecting the LYONs occurs without first proceeding against CCI.
RANKINGThe LYONs are our unsecured and unsubordinated obligations. The LYONs rank equally in right of payment to all of our future unsecured and unsubordinated indebtedness. However, we are a holding company, and the LYONs are effectively subordinated to all existing and future obligations of our subsidiaries, other than CHL. As of May 31, 2001, we had approximately $17.538 billion of total indebtedness outstanding through our subsidiaries. As of May 31, 2001, our subsidiaries, other than CHL, had approximately $4.853 billion of outstanding indebtedness.
CHL’s guarantee of the LYONs is an unsecured and unsubordinated obligation of CHL. The guarantee ranks equally in right of payment to all of CHL’s existing and future unsecured and unsubordinated indebtedness. However, CHL is also a holding company, and the guarantee is effectively subordinated to all existing and future obligations of its subsidiaries. As of May 31, 2001, CHL had approximately $12.685 billion of total indebtedness outstanding.
The structural subordination of the LYONs and the guarantee could affect holders’ ability to receive cash payments made on the LYONs.
CONVERSION RIGHTSThe initial conversion rate is 11.57 shares of common stock per LYON, subject to adjustment upon the occurrence of certain events described below. A holder of a LYON otherwise entitled to a fractional share will receive cash in an amount equal to the value of such fractional share based on the sale price, as defined below, on the trading day immediately preceding the conversion date.
Conversion Rights Based on Common Stock Price. Holders may surrender LYONs for conversion into shares of common stock in any calendar quarter (and only during such calendar quarter), if, as of the last day of the preceding calendar quarter, the closing sale price of our common stock for at least 20 trading days in a period of 30 consecutive trading days ending on the last trading day of such preceding calendar quarter is more than a specified percentage, beginning at 135% and declining 0.21% per quarter thereafter, of the accreted conversion price per share of common stock on the last trading day of such preceding calendar quarter. The accreted conversion price per share as of any day will equal the issue price of a LYON plus the accrued original issue discount to that day, divided by the number of shares of common stock issuable upon conversion of a LYON on that day (the “conversion trigger price”).
“Trading day” means a day during which trading in securities generally occurs on the New York Stock Exchange or, if the common stock is not listed on the New York Stock Exchange, on the principal other national or regional securities exchange on which the common stock is then listed or, if the common stock is not listed on a national or regional securities exchange, on the Nasdaq Stock Market or, if the common stock is not quoted on the Nasdaq Stock Market, on the principal other market on which the common stock is then traded.
The table below shows the conversion trigger price per share of our common stock in respect of each of the first 20 calendar quarters. These prices reflect the accreted conversion price per share of common stock multiplied by the applicable percentage for the respective calendar quarter. Thereafter, the accreted conversion price per share of common stock increases each calendar quarter by the accreted original issue discount for the quarter and the applicable percentage declines by 0.21% per quarter. The conversion trigger price for the calendar quarter beginning January 1, 2031 is $94.98.
(1) (2) (3)
CONVERSION
ACCRETED TRIGGER
CONVERSION APPLICABLE PRICE
QUARTER* PRICE PERCENTAGE (1)X(2)
-------- -------------- --------------- -----------
2001
Second Quarter............ $ 64.17 135.00% $ 86.63
Third Quarter............. 64.33 134.79 86.71
Fourth Quarter............ 64.49 134.58 86.79
2002
First Quarter............. 64.65 134.37 86.87
Second Quarter............ 64.81 134.16 86.96
Third Quarter............. 64.98 133.95 87.04
Fourth Quarter............ 65.14 133.74 87.12
2003
First Quarter............. 65.30 133.53 87.20
Second Quarter............ 65.46 133.32 87.28
Third Quarter............. 65.63 133.11 87.36
Fourth Quarter............ 65.79 132.90 87.44
2004
First Quarter............. 65.96 132.69 87.52
Second Quarter............ 66.12 132.48 87.60
Third Quarter............. 66.29 132.27 87.68
Fourth Quarter............ 66.45 132.06 87.76
2005
First Quarter............. 66.62 131.85 87.83
Second Quarter............ 66.78 131.64 87.91
Third Quarter............. 66.95 131.43 87.99
Fourth Quarter............ 67.12 131.22 88.07
2006
First Quarter............. 67.28 131.01 88.15
----------
* This table assumes no events have occurred that would require an adjustment to the conversion rate.
Conversion Rights Based on Credit Ratings Downgrade. Holders may also surrender a LYON for conversion during any period in which the credit rating assigned to the LYONs by either Moody's or Standard & Poor's falls below an investment grade credit rating level.
Conversion Rights Upon Notice of Redemption. A holder may surrender for conversion a LYON called for redemption at any time prior to the close of business on the second business day immediately preceding the redemption date, even if it is not otherwise convertible at such time. A LYON for which a holder has delivered a purchase notice or a change in control purchase notice as described below requiring us to purchase the LYON may be surrendered for conversion only if such notice is withdrawn in accordance with the indenture.
Conversion Rights Upon Occurrence of Certain Corporate Transactions Involving CCI. If we are party to a consolidation, merger or binding share exchange pursuant to which our shares of common stock would be converted into cash, securities or other property, the LYONs may be surrendered for conversion at any time from and after the date which is 15 days prior to the anticipated effective date of the transaction until 15 days after the actual date of such transaction and, at the effective time, the right to convert a LYON into shares of common stock will be changed into a right to convert it into the kind and amount of cash, securities or other property of CCI or another person which the holder would have received if the holder had converted the holder's LYON immediately prior to the transaction. If such transaction also constitutes a change in control, the holder will be able to require us to purchase all or a portion of such holder's LYONs as described under "-- Change in Control Permits Purchase of LYONs by CCI at the Option of the Holder."
Conversion Upon Occurrence of Certain Corporate Transactions Involving CHL. Holders may also surrender their LYONs for conversion if CHL is a party to any transaction in which at least a majority of the total voting power in the aggregate of all classes of capital stock of CHL is owned by a party other than CCI, its majority-owned subsidiaries or their respective employee benefit plans; provided that a merger or consolidation of CCI with CHL shall not be deemed to be an event triggering conversion. Upon the occurrence of any such event, holders may surrender their LYONs for conversion at any time from and after the date which is 15 days prior to the anticipated effective date of the transaction until 15 days after the actual date of such transaction. Such transaction would also constitute a change in control and as such, the holder will be able to require CCI to purchase all or a portion of such holder's LYONs as described under "-- Change in Control Permits Purchase of LYONs by CCI at the Option of the Holder."
On conversion of a LYON, a holder will not receive any cash payment of interest representing accrued original issue discount or, except as described below, contingent interest or semi-annual interest. Our delivery to the holder of the full number of shares of common stock into which the LYON is convertible, together with any cash payment for such holder's fractional shares, will be deemed:
As a result, accrued original issue discount is deemed to be paid in full rather than cancelled, extinguished or forfeited.
If contingent or semi-annual interest is payable to holders of LYONs during any particular six-month period, and such LYONs are converted after the applicable accrual or record date therefor and prior to the next succeeding interest payment date, holders of such LYONs at the close of business on the accrual or record date will receive the contingent or semi-annual interest payable on such LYONs on the corresponding interest payment date notwithstanding the conversion. Such LYONs, upon surrender for conversion, must be accompanied by funds equal to the amount of contingent or semi-annual interest payable on the principal amount of LYONs so converted, unless such LYONs have been called for redemption, in which case no such payment shall be required.
The conversion rate will not be adjusted for accrued original issue discount or any contingent interest. A certificate for the number of full shares of common stock into which any LYON is converted, together with any cash payment for fractional shares, will be delivered through the conversion agent as soon as practicable following the conversion date. For a discussion of the tax treatment of a holder receiving shares of common stock upon conversion, see "Certain United States Federal Income Tax Consequences -- Sale, Exchange, Conversion or Redemption."
To convert a LYON into shares of common stock, a holder must:
Pursuant to the indenture, the date on which all of the foregoing requirements have been satisfied is the conversion date.
The conversion rate will be adjusted for:
In the event that we pay a dividend or make a distribution on shares of our common stock consisting of capital stock of, or similar equity interests in, a subsidiary or other business unit of ours, the conversion rate will be adjusted based on the market value of the securities so distributed relative to the market value of our common stock, in each case based on the average sale prices of those securities for the 10 trading days commencing on and including the fifth trading day after the date on which "ex-dividend trading" commences for such dividend or distribution on the NYSE or such other national or regional exchange or market on which the securities are then listed or quoted.
In the event we elect to make a distribution described in the third or fourth bullet of the second preceding paragraph which, in the case of the fourth bullet, has a per share value equal to more than 15% of the sale price of our shares of common stock on the day preceding the declaration date for such distribution, we will be required to give notice to the holders of LYONs at least 20 days prior to the ex-dividend date for such distribution and, upon the giving of such notice, the LYONs may be surrendered for conversion at any time until the close of business on the business day prior to the ex-dividend date or until we announce that such distribution will not take place. No adjustment to the conversion rate or the ability of a holder of a LYON to convert will be made if we provide that holders of LYONs will participate in the transaction without conversion or in certain other cases.
The indenture permits us to increase the conversion rate from time to time.
In the event of:
the holders of the LYONs may, in certain circumstances, be deemed to have received a distribution subject to federal income tax as a dividend. See "Certain United States Federal Income Tax Consequences -- Constructive Dividends."
Upon determination that LYON holders are or will be entitled to convert their LYONs into shares of common stock in accordance with the foregoing provisions, we will issue a press release and publish such information on our website on the World Wide Web.
CONTINGENT INTEREST
Subject to the accrual and record date provisions described below, we will pay contingent interest to the holders of LYONs during any six-month period from February 8 to August 7 and from August 8 to February 7, with the initial six-month period commencing February 8, 2006, if the average market price of a LYON for the five trading days ending on the second trading day immediately preceding the first day of the applicable six-month period equals 120% or more of the sum of the issue price and accrued original issue discount for such LYON to the day immediately preceding the first day of the applicable six-month period. See "-- Redemption of LYONs at the Option of CCI" for some of these values. Notwithstanding the above, if we declare a dividend for which the record date falls prior to the first day of a six-month period but the payment date falls within such six-month period, then the five trading day period for determining the average market price of a LYON will be the five trading days ending on the second trading day immediately preceding such record date.
The amount of contingent interest payable per LYON in respect of any six-month period will equal the greater of (1) 0.125% of such average market price of a LYON for the five trading day period referred to above or (2) the sum of the regular cash dividends paid by us per share on our common stock during that six-month period multiplied by the number of shares of common stock issuable upon conversion of a LYON.
Contingent interest, if any, will accrue and be payable to holders of LYONs as of the 15th day preceding the last day of the relevant six-month period or, if we pay a regular cash dividend on our common stock during the relevant six-month period, to holders of LYONs as of the record date for the related common stock dividend. Such payments will be paid on the last day of the relevant six-month period or, if we pay a regular cash dividend on our common stock during the relevant six-month period, on the payment date of the related common stock dividend. The original issue discount will continue to accrue at the yield to maturity whether or not contingent interest is paid.
Regular cash dividends mean quarterly or other periodic cash dividends on our common stock as declared by our Board as part of its cash dividend payment practices and that are not designated by it as extraordinary or special or other nonrecurring dividends.
The market price of a LYON on any date of determination means the average of the secondary market bid quotations per LYON obtained by the bid solicitation agent for $10 million principal amount at maturity of LYONs at approximately 4:00 p.m., New York City time, on such determination date from three independent nationally recognized securities dealers we select, provided that if:
then the market price of the LYON will equal (a) the then applicable conversion rate of the LYONs multiplied by (b) the average sale price of our common stock on the five trading days ending on such determination date, appropriately adjusted.
The bid solicitation agent will initially be The Bank of New York. We may change the bid solicitation agent, but the bid solicitation agent will not be our affiliate. The bid solicitation agent will solicit bids from securities dealers that are believed by us to be willing to bid for the LYONs.
Upon determination that LYON holders will be entitled to receive contingent interest which may become payable during a relevant six-month period, on or prior to the start of such six-month period, we will issue a press release and publish such information on our web site on the World Wide Web.
REDEMPTION OF LYONS AT THE OPTION OF CCI
No sinking fund is provided for the LYONs. Prior to February 8, 2006, we cannot redeem the LYONs at our option. Beginning on February 8, 2006, we may redeem the LYONs for cash as a whole at any time, or in part from time to time. We will give not less than 30 days nor more than 60 days notice of redemption by mail to holders of LYONs.
The table below shows redemption prices of a LYON on February 8, 2006, at each February 8 thereafter prior to maturity and at stated maturity on February 8, 2031. These prices reflect the issue price plus accrued original issue discount to the redemption date. The redemption price of a LYON redeemed between such dates would include an additional amount reflecting the additional original issue discount accrued since the preceding date in the table.
(1) (2) (3)
ACCRUED
ORIGINAL REDEMPTION
LYON ISSUE PRICE
REDEMPTION DATE ISSUE PRICE DISCOUNT (1) & (2)
--------------- -------------------------- -------------
February 8,
2006........................... $ 741.37 $ 37.91 $ 779.28
2007........................... 741.37 45.73 787.10
2008........................... 741.37 53.62 794.99
2009........................... 741.37 61.59 802.96
2010........................... 741.37 69.64 811.01
2011........................... 741.37 77.77 819.14
2012........................... 741.37 85.98 827.35
2013........................... 741.37 94.27 835.64
2014........................... 741.37 102.65 844.02
2015........................... 741.37 111.11 852.48
2016........................... 741.37 119.66 861.03
2017........................... 741.37 128.29 869.66
2018........................... 741.37 137.01 878.38
2019........................... 741.37 145.81 887.18
2020........................... 741.37 154.71 896.08
2021........................... 741.37 163.69 905.06
2022........................... 741.37 172.77 914.14
2023........................... 741.37 181.93 923.30
2024........................... 741.37 191.19 932.56
2025........................... 741.37 200.53 941.90
2026........................... 741.37 209.98 951.35
2027........................... 741.37 219.51 960.88
2028........................... 741.37 229.15 970.52
2029........................... 741.37 238.88 980.25
2030........................... 741.37 248.70 990.07
At stated maturity............. 741.37 258.63 1,000.00
If we convert the LYONs to semi-annual coupon notes following the occurrence of a Tax Event, the notes will be redeemable at the restated principal amount plus accrued and unpaid interest from the date of the conversion to the redemption date. See “-- Optional Conversion to Semiannual Coupon Notes Upon Tax Event.”
If we redeem less than all of the outstanding LYONs, the trustee will select the LYONs to be redeemed on a pro rata basis in principal amounts at maturity of $1,000 or integral multiples of $1,000 by lot, pro rata, based on the ownership thereof, or by any other method the trustee considers fair and appropriate. If a portion of a holder’s LYONs is selected for partial redemption and the holder converts a portion of the LYONs, the converted portion will be deemed to be the portion selected for redemption.
PURCHASE OF LYONs AT THE OPTION OF THE HOLDER
On February 8, 2004, February 8, 2006, February 8, 2011, February 8, 2016, February 8, 2021 and February 8, 2026, holders may require us to purchase any outstanding LYON for which the holder has properly delivered and not withdrawn a written purchase notice, subject to certain additional conditions. Holders may submit their LYONs for purchase to the paying agent at any time from the opening of business on the date that is 20 business days prior to the purchase date until the close of business on the business day immediately preceding the purchase date.
The purchase price of a LYON will be:
The purchase prices shown above are equal to the issue price plus accrued original issue discount to the purchase date. We may, at our option, elect to pay the purchase price in cash, shares of common stock or any combination thereof. For a discussion of the tax treatment of a holder receiving cash, shares of common stock or any combination thereof, see “Certain United States Federal Income Tax Consequences -- Sale, Exchange, Conversion or Redemption.”
If, prior to a purchase date, we have converted the LYONs to semi-annual coupon notes following the occurrence of a Tax Event, the purchase price will be equal to the restated principal amount of the notes, plus accrued and unpaid interest from the date of the conversion to the purchase date. See “-- Optional Conversion to Semi-Annual Coupon Notes Upon Tax Event.”
We will be required to give notice on a date not less than 20 business days prior to the purchase date to all holders at their addresses shown in the register of the registrar, and to beneficial owners as required by applicable law, stating among other things:
The purchase notice given by each holder electing to require us to purchase LYONs shall be given to the paying agent no later than the close of business on the business day immediately preceding the purchase date and must state:
If the holder fails to indicate the holder’s choice with respect to the election described in the fourth bullet point of the immediately preceding paragraph, the holder shall be deemed to have elected to receive cash in respect of the entire purchase price for all LYONs subject to the purchase notice in these circumstances.
A holder may withdraw any purchase notice by delivering a written notice of withdrawal to the paying agent prior to the close of business on the purchase date. The notice of withdrawal shall state:
• the principal amount at maturity, if any, of the LYONs that remain subject to the purchase notice.
If we elect to pay the purchase price, in whole or in part, in shares of common stock, the number of shares of common stock to be delivered by us shall be equal to the portion of the purchase price to be paid in common stock divided by the market price of a share of common stock.
We will pay cash based on the market price for all fractional shares of common stock in the event we elect to deliver common stock in payment, in whole or in part, of the purchase price. See “Certain United States Federal Income Tax Consequences -- Sale, Exchange, Conversion or Redemption.”
The “market price” of our common stock means the average of the sale prices of the common stock for the five trading day period ending on (if the third business day prior to the applicable purchase date is a trading day or, if not, then on the last trading day prior to) the third business day prior to the applicable purchase date, appropriately adjusted to take into account the occurrence, during the period commencing on the first of such trading days during such five trading day period and ending on such purchase date, of certain events that would result in an adjustment of the conversion rate with respect to the common stock.
The “sale price” of our common stock on any date means the closing per share sale price (or if no closing sale price is reported, the average of the bid and ask prices or, if more than one in either case, the average of the average bid and the average ask prices) on such date as reported in composite transactions for the principal United States securities exchange on which the common stock is traded or, if the common stock is not listed on a United States national or regional securities exchange, as reported by the Nasdaq Stock Market or by the National Quotation Bureau Incorporated. In the absence of such quotation, we will determine the sale price on the basis of such quotations as we consider appropriate.
Because the market price of the common stock is determined prior to the applicable purchase date, holders of LYONs bear the market risk with respect to the value of the common stock to be received from the date such market price is determined to such purchase date. We may pay the purchase price or any portion of the purchase price in common stock only if the information necessary to calculate the market price is published in a daily newspaper of national circulation or by other appropriate means.
Upon determination of the actual number of shares of common stock to be issued for each $1,000 principal amount at maturity of LYONs in accordance with the foregoing provisions, we will issue a press release and publish such information on our web site on the World Wide Web.
In addition to the above conditions, our right to purchase LYONs, in whole or in part, with common stock is subject to our satisfying various conditions, including:
If these conditions are not satisfied with respect to a holder prior to the close of business on the purchase date, we will be required to pay the purchase price of the LYONs of the holder entirely in cash. See “Certain United States Federal Income Tax Consequences -- Sale, Exchange, Conversion or Redemption.” We may not change the form or components or percentages of components of consideration to be paid for the LYONs once we have given the notice that we are required to give to holders of LYONs, except as described in the first sentence of this paragraph.
In connection with any purchase offer, we will to the extent applicable:
Our obligation to pay the purchase price for a LYON for which a purchase notice has been delivered and not validly withdrawn is conditioned upon the holder delivering the LYON, together with necessary endorsements, to the paying agent at any time after delivery of the purchase notice. We will cause the purchase price for the LYON to be paid promptly following the later of the purchase date or the time of delivery of the LYON.
If the paying agent holds money or securities sufficient to pay the purchase price of the LYON on the business day following the purchase date in accordance with the terms of the indenture, then, immediately after the purchase date, the LYON will cease to be outstanding and original issue discount on such LYON will cease to accrue, whether or not the LYON is delivered to the paying agent. Thereafter, all other rights of the holder shall terminate, other than the right to receive the purchase price upon delivery of the LYON.
We may not purchase any LYONs for cash at the option of holders if an event of default with respect to the LYONs has occurred and is continuing, other than a default in the payment of the purchase price with respect to such LYONs.
CHANGE IN CONTROL PERMITS PURCHASE OF LYONs BY CCI AT THE OPTION OF THE HOLDER
In the event of a change in control (as defined below) occurring on or prior to February 8, 2006 with respect to CCI or CHL, each holder will have the right, at its option, subject to the terms and conditions of the indenture, to require us to purchase for cash all or any portion of the holder’s LYONs in integral multiples of $1,000 principal amount at maturity, at a price for each $1,000 principal amount at maturity of such LYONs equal to the issue price plus accrued original issue discount to the purchase date. We will be required to purchase the LYONs no later than 35 business days after the occurrence of such change in control. We refer to this date in this prospectus as the “change in control purchase date.”
If, prior to a change in control purchase date we have converted the LYONs to semi-annual coupon notes following the occurrence of a Tax Event, we will be required to purchase the notes at a price equal to the restated principal amount plus accrued and unpaid interest to the change in control purchase date.
Within 15 business days after the occurrence of a change in control, we must mail to the trustee and to all holders of LYONs at their addresses shown in the register of the registrar and to beneficial owners as required by applicable law a notice regarding the change in control, which notice must state, among other things:
To exercise this right, the holder must deliver a written notice so as to be received by the paying agent no later than the close of business on the change in control purchase date. The required purchase notice upon a change in control must state:
A holder may withdraw any change in control purchase notice by delivering to the paying agent a written notice of withdrawal prior to the close of business on the change in control purchase date. The notice of withdrawal must state:
• the principal amount at maturity, if any, of the LYONs that remain subject to a change in control purchase notice.
Our obligation to pay the change in control purchase price for a LYON for which a change in control purchase notice has been delivered and not validly withdrawn is conditioned upon delivery of the LYON, together with necessary endorsements, to the paying agent at any time after the delivery of such change in control purchase notice. We will cause the change in control purchase price for such LYON to be paid promptly following the later of the change in control purchase date or the time of delivery of such LYON.
If the paying agent holds money sufficient to pay the change in control purchase price of the LYON on the change in control purchase date in accordance with the terms of the indenture, then, immediately after the change in control purchase date, original issue discount on such LYON will cease to accrue, whether or not the LYON is delivered to the paying agent. Thereafter, all other rights of the holder shall terminate, other than the right to receive the change in control purchase price upon delivery of the LYON.
Under the indenture, a "change in control" is deemed to have occurred at such time as:
The indenture does not permit our board of directors to waive our obligation to purchase LYONs at the option of holders in the event of a change in control.
In connection with any purchase offer in the event of a change in control, we will to the extent applicable:
The change in control purchase feature of the LYONs may in certain circumstances make more difficult or discourage a takeover of CCI or sale of CHL. The change in control purchase feature, however, is not the result of our knowledge of any specific effort:
Instead, the change in control purchase feature is a standard term contained in other LYONs offerings that have been marketed by Merrill Lynch. The terms of the change in control purchase feature resulted from negotiations between Merrill Lynch and us.
We could, in the future, enter into certain transactions, including certain recapitalizations, that would not constitute a change in control with respect to the change in control purchase feature of the LYONs but that would increase the amount of our (or our subsidiaries’) outstanding indebtedness.
We may not purchase LYONs at the option of holders upon a change in control if there has occurred and is continuing an event of default with respect to the LYONs, other than a default in the payment of the change in control purchase price with respect to the LYONs.
OPTIONAL CONVERSION TO SEMI-ANNUAL COUPON NOTES UPON TAX EVENT
From and after the date of the occurrence of a Tax Event, we will have the option to elect to pay interest in cash in lieu of future original issue discount. Cash interest will be paid at a rate equal to 1.00% per year on a principal amount per LYON (the “restated principal amount”) equal to the issue price plus accrued original issue discount to the date of the Tax Event or the date on which we exercise the option described herein, whichever is later (the “option exercise date”). Except as otherwise described in this section, the other terms of the LYONs will remain unchanged in all material respects.
Such interest shall accrue from the option exercise date and shall be payable semi-annually on a bond equivalent basis on the interest payment dates of February 8 and August 8 of each year to holders of record at the close of business on the 15th calendar day immediately preceding the interest payment date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Interest will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the option exercise date. In the event that we exercise our option to pay interest in lieu of accrued original issue discount, the redemption price, purchase price and change in control purchase price on the LYONs will be adjusted, and contingent interest will cease to accrue. However, there will be no change in the holder’s conversion rights.
A “Tax Event” means that we shall have received an opinion from independent tax counsel experienced in such matters to the effect that, on or after the date of this prospectus, as a result of:
in each case which amendment, addition or change is enacted, promulgated, issued or announced or which interpretation is issued or announced or which action is taken, on or after the date of this prospectus, there is more than an insubstantial risk that interest (including accrued tax original issue discount, accrued original issue discount and contingent interest, if any) payable on the LYONs either:
in either case in whole or in part, by us (by reason of deferral, disallowance, or otherwise) for United States federal income tax purposes.
If a proposal were ever enacted and made applicable to the LYONs in a manner that would limit our ability to either:
such enactment would result in a Tax Event and the terms of the LYONs would be subject to modification at our option as described above.
The modification of the terms of LYONs by us upon a Tax Event as described above could possibly alter the timing of income recognition by holders of the LYONs with respect to the semi-annual payments of interest due on the LYONs after the option exercise date. See “Certain United States Federal Income Tax Consequences -- Tax Event.”
EVENTS OF DEFAULT
The following are events of default for the LYONs:
If an event of default shall have happened and be continuing, either the trustee or the holders of not less than 25% in aggregate principal amount at maturity of the LYONs then outstanding may declare the issue price of the LYONs plus the original issue discount on the LYONs accrued through the date of such declaration, and any accrued and unpaid interest (including contingent interest) through the date of such declaration, to be immediately due and payable. In the case of certain events of bankruptcy or insolvency of CCI or CHL, the issue price of the LYONs plus the original issue discount and any contingent interest accrued thereon through the occurrence of such event shall automatically become and be immediately due and payable. If the LYONs have been converted to semi-annual coupon notes following the occurrence of a Tax Event, the amount due on an acceleration will be the restated principal amount plus accrued and unpaid interest.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Information reporting will apply to payments of interest (including original issue discount and a payment in shares of common stock pursuant to a conversion of the LYONs) or dividends, if any, made by us on the proceeds of the sale or other disposition or retirement of the LYONs or shares of common stock with respect to certain noncorporate holders, and United States federal backup withholding tax at the rate of 31% may apply if the recipient of such payment fails to supply an accurate taxpayer identification number or otherwise fails to comply with applicable United States information reporting or certification requirements. Any amounts so withheld will be allowed as a credit against such U.S. Holder’s United States federal income tax liability, provided that the required information is provided to the IRS.
MERGER AND SALES OF ASSETS BY CCI
The indenture provides that CCI or CHL may not consolidate with or merge with or into any other person or convey, transfer or lease its properties and assets substantially as an entirety to another person, unless among other items:
Upon the assumption of CCI’s or CHL’s obligations by such a person in such circumstances, subject to certain exceptions, CCI or CHL, as the case may be shall be discharged from all obligations under the LYONs and the indenture. Although such transactions are permitted under the indenture, certain of the foregoing transactions occurring on or prior to February 8, 2006 could constitute a change in control permitting each holder to require CCI to purchase the LYONs of such holder as described above.
MODIFICATION
We, CHL and the trustee may enter into supplemental indentures that add, change or eliminate provisions of the indenture or modify the rights of the holders of the LYONs with the consent of the holders of at least a majority in principal amount at maturity of the LYONs then outstanding. However, without the consent of each holder, no supplemental indenture may:
Without the consent of any holder of LYONs, we, CHL and the trustee may enter into supplemental indentures for any of the following purposes:
The holders of a majority in principal amount at maturity of the outstanding LYONs may, on behalf of the holders of all LYONs:
DISCHARGE OF THE INDENTURE
We may satisfy and discharge our obligations under the indenture and CHL’s obligations under the guarantee by delivering to the trustee for cancellation of all outstanding LYONs or by depositing with the trustee, the paying agent or the conversion agent, if applicable, after the LYONs have become due and payable, whether at stated maturity, or any redemption date, or any purchase date, or a change in control purchase date, or upon conversion or otherwise, cash or shares of common stock (as applicable under the terms of the indenture) sufficient to pay all of the outstanding LYONs and paying all other sums payable under the indenture.
CALCULATIONS IN RESPECT OF LYONs
We are responsible for making all calculations called for under the LYONs. These calculations include, but are not limited to, determination of the average market prices of the LYONs and of our common stock and amounts of contingent interest payments, if any, payable on the LYONs. We will make all these calculations in good faith and, absent manifest error, our calculations will be final and binding on holders of LYONs. We will provide a schedule of our calculations to the trustee, and the trustee is entitled to rely upon the accuracy of our calculations without independent verification.
LIMITATIONS OF CLAIMS IN BANKRUPTCY
If a bankruptcy proceeding is commenced in respect of CCI or CHL, the claim of the holder of a LYON is, under Title 11 of the United States Code, limited to the issue price of the LYON plus that portion of the original issue discount that has accrued from the date of issue to the commencement of the proceeding.
GOVERNING LAW
The indenture, the LYONs and the guarantee are governed by, and will be construed in accordance with, the law of the State of New York.
TRUSTEE
The Bank of New York is the trustee, registrar, paying agent and conversion agent under the indenture for the LYONs.
BOOK-ENTRY SYSTEM
The LYONs have been issued only in the form of global securities held in book-entry form. DTC or its nominee will be the sole registered holder of the LYONs for all purposes under the indenture. Owners of beneficial interests in the LYONs represented by the global securities will hold their interests pursuant to the procedures and practices of DTC. As a result, beneficial interests in any such securities will be shown on, and transfers will be effected only through, records maintained by DTC and its direct and indirect participants and any such interest may not be exchanged for certificated securities, except in the limited circumstances described under “-- Exchange of Global Securities.”
Unless and until LYONs are exchanged for certificated securities as described in the next section (and then except to the extent they have been so exchanged), the procedures described in this prospectus, the LYONs, the indenture and other similar documents relating to the conversion of LYONs, the surrender of LYONs for repurchase or payment, identification of LYONs by certificate number and similar matters will be relevant only to DTC as the registered holder.
Owners of beneficial interests will be required to follow such procedures as DTC (or its direct and indirect participants) may establish for exercising rights under or in respect of their interests, including conversion or repurchase rights. Beneficial owners will not be holders and will not be entitled to any direct rights provided to the holders of LYONs under the global securities or the indenture. CCI and the trustee, and any of their respective agents, will treat DTC as the sole holder and registered owner of the global securities.
EXCHANGE OF GLOBAL SECURITIES
We will exchange LYONs represented by global securities for certificated securities with the same terms (and the holders thereof will then be required to follow the procedures established in the LYONs and the indenture for converting, requiring repurchase or otherwise dealing with the LYONs) only if:
DTC has advised us as follows: DTC is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act.
DTC facilitates the settlement of transactions among its participants through electronic computerized book-entry changes in participants’ accounts, eliminating the need for physical movement of securities certificates. DTC’s participants include securities brokers and dealers, including Merrill Lynch, banks, trust companies, clearing corporations and other organizations, some of whom and/or their representatives own DTC. Access to DTC’s book-entry system is also available to others, such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly.
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock is not complete and is qualified in its entirety by reference to our restated certificate of incorporation and to any certificate of designations in the event we offer preferred stock.
COMMON STOCK
We have authorized under our restated certificate of incorporation 240,000,000 shares of common stock, par value $.05 per share. As of August 1, 2001, 120,001,944 shares of our common stock were issued and outstanding and were held by 1886 record holders. Each record holder of our common stock is entitled to cast one vote per share on all matters submitted to a vote of our stockholders. We may pay dividends to the record holders of our common stock only when, as and if declared by our board of directors, out of funds legally available for those dividends. Each share of our common stock shares equally in those dividends and in other distributions to holders of our common stock, including distributions made if we liquidate, dissolve or wind up our affairs. Our common stock carries no preemptive, conversion, subscription, redemption, sinking fund or cumulative voting rights.
PREFERRED STOCK PURCHASE RIGHTS
In February 1988, our board of directors declared a dividend of one preferred stock purchase right for each outstanding share of our common stock. As the result of stock splits and stock dividends, 0.399 of a stock purchase right is presently associated with each outstanding share of our common stock, and 0.399 of a stock purchase right will be associated with each share of our common stock that is issued prior to the Distribution Date (as defined below). Each stock purchase right, when exercisable, allows its holder to purchase from us one one-hundredth of a share of our Series A Participating Preferred Stock, par value $0.05 per share, at a price of $145, subject to adjustments in some instances to prevent dilution.
These stock purchase rights are evidenced by our common stock certificates and may not be exercised or transferred apart from our common stock until of the earlier of the date (the “Distribution Date”) of a public announcement that a person or group without our prior consent has acquired 20% or more of our common stock (an “Acquiring Person”) or the date that is ten days (subject to extension by our board of directors) after a tender offer for our common stock is commenced without our prior consent.
If any person becomes an Acquiring Person, each stock purchase right (except those owned by the Acquiring Person) will allow its holder to purchase, at the then current exercise price of the stock purchase right, the number of shares of our common stock, or their equivalent, that, at the time of the transaction, would have a market value of two times the exercise price of the stock purchase right. Our board of directors may delay the exercisability of the stock purchase rights during the period in which they are exercisable only for our Series A Participating Preferred Stock (and not our common stock).
If after a person has become an Acquiring Person we are acquired in a merger or other business combination, each stock purchase right (except those held by the Acquiring Person) will entitle its holder to purchase, at the then current exercise price of the stock purchase right, the number of shares of our common stock, or their equivalent, of the other party (or its publicly traded parent company) to the merger or business combination that at the time of the transaction would have a market value of two times the exercise price of the stock purchase right. The stock purchase rights expire on the earliest of February 28, 2002, the date certain merger transactions close or the date we elect to redeem the stock purchase rights before any person becomes an Acquiring Person.
PREFERRED STOCK
We have authorized under our restated certificate of incorporation 1,500,000 shares of preferred stock, par value $.05 per share. Our board of directors is authorized to provide for the issuance of preferred stock in one or more series with the distinctive designations as may be stated in the resolution or resolutions providing for the issuance of that preferred stock. At the time that it authorizes any series of preferred stock, our board of directors will determine the number of shares constituting that series and its designation and fix the dividend rights, any conversion rights, any voting rights, redemption provisions, liquidation preferences and any other rights, preferences, privileges and restrictions of that series.
At this time, our board of directors has authorized only two series of preferred stock for issuance: One of these series has been designated as Series A Participating Preferred Stock which is issuable upon the exercise of our stock purchase rights. See “-- Preferred Stock Purchase Rights” above. The other series has been designated as Series B Cumulative Preferred Stock. Our board of directors could, without stockholder approval, cause us to issue preferred stock that has voting, conversion and other rights that could adversely affect the holders of our common stock or make it more difficult to cause a change in control of our company. The preferred stock could be used to dilute the stock ownership of persons seeking to obtain control of our company and thereby hinder a possible takeover attempt which, if stockholders were offered a premium over the market value of their shares, might be viewed as being beneficial to our stockholders. In addition, the preferred stock could be issued with voting, conversion and other rights and preferences that would adversely affect the voting power and other rights of holders of our common stock.
OTHER PROVISIONS OF OUR RESTATED CERTIFICATE OF INCORPORATION AND OUR BYLAWS
In addition to the stock purchase rights described above under “-- Preferred Stock Purchase Rights” and the terms of any preferred stock that we may determine to issue as described above under “-- Preferred Stock,” other provisions of our restated certificate of incorporation and our bylaws may make it more difficult for a third party to acquire, or may discourage a third party from attempting to acquire, control of our company. Our restated certificate of incorporation includes the following provisions:
| (1) | It provides for a three-year staggered board of directors, vacancies on which may be filled by the board of directors and whose members may be removed only for cause and only by the vote of the holders of two-thirds of the outstanding shares of our common stock. |
| (2) | It limits our power to purchase shares of our voting stock from a five percent holder at a price exceeding its fair market value, unless the purchase is approved by holders of a majority of those voting shares (unless applicable law requires a greater vote), without the vote of that five percent holder. Voting stock is defined as capital stock that has the right to vote generally on matters relating to our company and any security which is convertible into that stock. |
| (4) | It provides that our bylaws may be amended by our board of directors or, with some exceptions, by a vote of two-thirds of our voting shares and further provides that a two-thirds vote of all of our voting shares is required to amend the provisions of our restated certificate of incorporation that are described in this section, unless the amendment has been approved by two-thirds of our board of directors and a majority of our continuing directors. Continuing directors are directors who became members of our board of directors before any stockholder who beneficially owns ten percent of the outstanding shares first became a ten percent stockholder. |
Our bylaws provide that special meetings of the stockholders may be called only by our directors and limits the business that may be transacted at those meetings to those matters set forth in the request of the proposed meeting.
TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for our common stock is The Bank of New York.This is a summary of certain United States federal income tax consequences relevant to holders of LYONs. This summary is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change (possibly with retroactive effect) or possible differing interpretations. The discussion below deals only with LYONs held as capital assets and does not purport to deal with persons in special tax situations, such as financial institutions, insurance companies, regulated investment companies, dealers in securities or currencies, tax-exempt entities, persons holding LYONs in a tax-deferred or tax-advantaged account, or persons holding LYONs as a hedge against currency risks, as a position in a “straddle” or as part of a “hedging” or “conversion” transaction for tax purposes. Persons considering the purchase of the LYONs should consult their own tax advisors concerning the application of the United States federal income tax laws to their particular situations as well as any consequences of the purchase, ownership and disposition of the LYONs arising under the laws of any other taxing jurisdiction.
We do not address all of the tax consequences that may be relevant to a holder. In particular, we do not address:
o the United States federal income tax consequences to shareholders in, or partners or beneficiaries of, an entity that is a holder of LYONs; o the United States federal estate, gift or alternative minimum tax consequences of the purchase, ownership or disposition of LYONs; o persons who hold the LYONs whose functional currency is not the United States dollar; o any state, local or foreign tax consequences of the purchase, ownership or disposition of LYONs; or• any federal, state, local or foreign tax consequences of owning or disposing of the common stock.
Accordingly, you should consult your own tax advisor regarding the tax consequences of purchasing, owning and disposing of the LYONs and the common stock in light of your own circumstances.
A U.S. Holder is a beneficial owner of the LYONs who or which is:| • | a citizen or individual resident of the United States, as defined in Section 7701(b) of the Internal Revenue Code of 1986, as amended (which we refer to as the Code); |
| • | a corporation, including any entity treated as a corporation for United States federal income tax purposes, created or organized in or under the laws of the United States, any state thereof or the District of Columbia; |
| • | a trust if (1) a United States court can exercise primary supervision over its administration and (2) one or more United States persons have the authority to control all of its substantial decisions. |
No statutory, administrative or judicial authority directly addresses the treatment of the LYONs or instruments similar to the LYONs for United States federal income tax purposes. No rulings have been sought or are expected to be sought from the Internal Revenue Service (which we refer to as the IRS) with respect to any of the United States federal income tax consequences discussed below, and no assurance can be given that the IRS will not take contrary positions. As a result, no assurance can be given that the IRS will agree with the tax characterizations and the tax consequences described below.
WE URGE PROSPECTIVE INVESTORS TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE LYONS AND THE COMMON STOCK IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS.
CLASSIFICATION OF THE LYONsWe have been advised by our counsel, Munger, Tolles & Olson LLP, that, in their opinion, the LYONs will be treated as indebtedness for United States federal income tax purposes and that the LYONs will be subject to the special regulations governing contingent payment debt instruments (which we refer to as the CPDI regulations).
ACCRUAL OF INTEREST ON THE LYONsPursuant to the terms of the indenture, we and each holder of the LYONs agree, for United States federal income tax purposes, to treat the LYONs as debt instruments that are subject to the CPDI regulations. Pursuant to these regulations, U.S. Holders of the LYONs will be required to accrue interest income on the LYONs, in the amounts described below, regardless of whether the U.S. Holder uses the cash or accrual method of tax accounting. Accordingly, U.S. Holders will be required to include interest in taxable income in each year in excess of the accruals on the LYONs for non-tax purposes and in excess of any contingent interest payments actually received in that year.
The CPDI regulations provide that a U.S. Holder must accrue an amount of ordinary interest income, as original issue discount for United States federal income tax purposes, for each accrual period prior to and including the maturity date of the LYONs that equals:
| (1) | the product of (i) the adjusted issue price (as defined below) of the LYONs as of the beginning of the accrual period; and (ii) the comparable yield to maturity (as defined below) of the LYONs, adjusted for the length of the accrual period; |
A LYON’s issue price is the first price at which a substantial amount of the LYONs is sold to the public, excluding sales to bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers. The adjusted issue price of a LYON is its issue price increased by any interest income previously accrued, determined without regard to any adjustments to interest accruals described below, and decreased by the projected amount of any payments previously made with respect to the LYONs.
Based on the advice of our counsel, Munger, Tolles & Olson LLP, we intend to treat the term “comparable yield” as the annual yield we would pay, as of the initial issue date, on a fixed-rate nonconvertible debt security with no contingent payments, but with terms and conditions otherwise comparable to those of the LYONs. Based in part on that advice, we intend to take the position that the comparable yield for the LYONs is 6.53% compounded semiannually. The specific yield, however, is not entirely clear. If the comparable yield were successfully challenged by the IRS, the redetermined yield could be materially greater or less than the comparable yield provided by the company. Moreover, the projected payment schedule could differ materially from the projected payment schedule provided by the company.
The CPDI regulations require that we provide to U.S. Holders, solely for United States federal income tax purposes, a schedule of the projected amounts of payments, which we refer to as projected payments, on the LYONs. This schedule must produce the comparable yield. The projected payment schedule includes estimates for certain payments of contingent interest and an estimate for a payment at maturity taking into account the conversion feature.
The comparable yield and the schedule of projected payments are set forth in the indenture that has been filed as an exhibit to the registration statement to which this prospectus is a part.
For United States federal income tax purposes, a U.S. Holder must use the comparable yield and the schedule of projected payments in determining its interest accruals, and the adjustments thereto described below, in respect of the LYONs, unless such U.S. Holder timely discloses and justifies the use of other estimates to the IRS. A U.S. Holder that determines its own comparable yield or schedule of projected payments must also establish that our comparable yield or schedule of projected payments is unreasonable.
THE COMPARABLE YIELD AND THE SCHEDULE OF PROJECTED PAYMENTS ARE NOT DETERMINED FOR ANY PURPOSE OTHER THAN FOR THE DETERMINATION OF A U.S. HOLDER’S INTEREST ACCRUALS AND ADJUSTMENTS THEREOF IN RESPECT OF THE LYONs FOR UNITED STATES FEDERAL INCOME TAX PURPOSES AND DO NOT CONSTITUTE A PROJECTION OR REPRESENTATION REGARDING THE ACTUAL AMOUNTS PAYABLE ON THE LYONs.
Amounts treated as interest under the CPDI regulations are treated as original issue discount for all purposes of the Code.
ADJUSTMENTS TO INTEREST ACCRUALS ON THE LYONsIf, during any taxable year, a U.S. Holder receives actual payments with respect to the LYONs for that taxable year that in the aggregate exceed the total amount of projected payments for that taxable year, the U.S. Holder will incur a “net positive adjustment” under the CPDI regulations equal to the amount of such excess. The U.S. Holder will treat a “net positive adjustment” as additional interest income for the taxable year. For this purpose, the payments in a taxable year include the fair market value of property received in that year.
If a U.S. Holder receives in a taxable year actual payments with respect to the LYONs for that taxable year that in the aggregate were less than the amount of projected payments for that taxable year, the U.S. Holder will incur a “net negative adjustment” under the CPDI regulations equal to the amount of such deficit. This adjustment will (a) reduce the U.S. Holder’s interest income on the LYONs for that taxable year, and (b) to the extent of any excess after the application of (a), give rise to an ordinary loss to the extent of the U.S. Holder’s interest income on the LYONs during prior taxable years, reduced to the extent such interest was offset by prior net negative adjustments.
If a U.S. Holder purchases LYONs at a discount or premium to the adjusted issue price, the discount will be treated as a positive adjustment and the premium will be treated as a negative adjustment. The U.S. Holder must reasonably allocate the adjustment over the remaining term of the LYONs by reference to the accruals of original issue discount at the comparable yield or to the projected payments. It may be reasonable to allocate the adjustment over the remaining term of the LYONs pro rata with the accruals of original issue discount at the comparable yield. You should consult your tax advisors regarding these allocations.
SALE, EXCHANGE, CONVERSION OR REDEMPTIONGenerally, the sale or exchange of a LYON, or the redemption of a LYON for cash, will result in taxable gain or loss to a U.S. Holder. As described above, our calculation of the comparable yield and the schedule of projected payments for the LYONs takes into account the receipt of stock upon conversion as a contingent payment with respect to the LYONs. Accordingly, we intend to treat the receipt of our common stock by a U.S. Holder upon the conversion of a LYON, or upon the redemption of a LYON where we elect to pay in common stock, as a contingent payment under the CPDI regulations. As described above, holders are generally bound by our determination of the comparable yield and the schedule of projected payments. Under this treatment, a conversion or such a redemption will also result in taxable gain or loss to the U.S. Holder. The amount of gain or loss on a taxable sale, exchange, conversion or redemption will be equal to the difference between (a) the amount of cash plus the fair market value of any other property received by the U.S. Holder, including the fair market value of any of our common stock received, and (b) the U.S. Holder’s adjusted tax basis in the LYON. A U.S. Holder’s adjusted tax basis in a LYON will generally be equal to the U.S. Holder’s original purchase price for the LYON, increased by any interest income previously accrued by the U.S. Holder (determined without regard to any adjustments to interest accruals described above), and decreased by the amount of any projected payments previously made on the LYONs to the U.S. Holder. Gain recognized upon a sale, exchange, conversion or redemption of a LYON will generally be treated as ordinary interest income; any loss will be ordinary loss to the extent of interest previously included in income, and thereafter, capital loss (which will be long-term if the LYON is held for more than one year). The deductibility of net capital losses by individuals and corporations is subject to limitations.
A U.S. Holder’s tax basis in our common stock received upon a conversion of a LYON or upon a holder’s exercise of a put right that we elect to pay in common stock will equal the then current fair market value of such common stock. The U.S. Holder’s holding period for the common stock received will commence on the day immediately following the date of conversion or redemption.
CONSTRUCTIVE DIVIDENDSIf at any time we make a distribution of property to our stockholders that would be taxable to the stockholders as a dividend for United States federal income tax purposes and, in accordance with the anti-dilution provisions of the LYONs, the conversion rate of the LYONs is increased, such increase may be deemed to be the payment of a taxable dividend to holders of the LYONs.
For example, an increase in the conversion rate in the event of distributions of our evidences of indebtedness or our assets or an increase in the event of an extraordinary cash dividend will generally result in deemed dividend treatment to holders of the LYONs, but generally an increase in the event of stock dividends or the distribution of rights to subscribe for common stock will not.
TREATMENT OF NON-U.S. HOLDERSPayments of contingent interest made to Non-U.S. Holders will not be exempt from United States federal income or withholding tax and, therefore, Non-U.S. Holders will be subject to withholding on such payments of contingent interest at a rate of 30%, subject to reduction by an applicable treaty or upon the receipt of a Form W-8ECI from a Non-U.S. Holder claiming that the payments are effectively connected with the conduct of a United States trade or business. A Non-U.S. Holder that is subject to the withholding tax should consult its tax advisors as to whether it can obtain a refund for a portion of the withholding tax, either on the grounds that some portion of the contingent interest represents a return of principal under the CPDI regulations, or on some other grounds.
All other payments on the LYONs made to a Non-U.S. Holder, including a payment in common stock pursuant to a conversion, and any gain realized on a sale or exchange of the LYONs (other than income or gain attributable to accrued contingent interest payments), will be exempt from United States income or withholding tax, provided that: (i) such Non-U.S. Holder does not own, actually or constructively, 10 percent or more of the total combined voting power of all classes of our stock entitled to vote, is not a controlled foreign corporation related, directly or indirectly, to us through stock ownership, and is not a bank receiving interest described in section 881(c)(3)(A) of the Code; (ii) the statement requirement set forth in section 871(h) or section 881(c) of the Code has been fulfilled with respect to the beneficial owner, as discussed below; (iii) such Non-U.S. Holder is not an individual who is present in the United States for 183 days or more in the taxable year of disposition, or such individual does not have a “tax home” (as defined in section 911(d)(3) of the Code) or an office or other fixed place of business in the United States; (iv) such payments and gain are not effectively connected with the conduct by such Non-U.S. Holder of a trade or business in the United States and (v) our common stock continues to be actively traded within the meaning of section 871(h)(4)(C)(v)(I) of the Code (which, for these purposes and subject to certain exceptions, includes trading on the NYSE).
The statement requirement referred to in the preceding paragraph will be fulfilled if the beneficial owner of a LYONs certifies on IRS Form W-8BEN, under penalties of perjury, that it is not a United States person and provides its name, address and such other information as the form may require.
If a Non-U.S. Holder of the LYONs is engaged in a trade or business in the United States, and if interest on the LYONs is effectively connected with the conduct of such trade or business, the Non-U.S. Holder, although exempt from the withholding tax discussed in the preceding paragraphs, will generally be subject to regular United States federal income tax on interest and on any gain realized on the sale or exchange of the LYONs in the same manner as if it were a U.S. Holder. In lieu of the certificate described in the preceding paragraph, such a Non-U.S. Holder will be required to provide to the withholding agent a properly executed IRS Form W-8ECI (or successor form) in order to claim an exemption from withholding tax. In addition, if such a Non-U.S. Holder is a foreign corporation, such Non-U.S. Holder may be subject to a branch profits tax equal to 30% (or such lower rate provided by an applicable treaty) of its effectively connected earnings and profits for the taxable year, subject to certain adjustments.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTINGInformation reporting will apply to payments of interest (including original issue discount and a payment in common stock pursuant to a conversion of the LYONs) or dividends, if any, made by us on the proceeds of the sale or other disposition or retirement of the LYONs or shares of common stock with respect to certain noncorporate holders, and United States federal backup withholding tax at the rate of 31% may apply if the recipient of such payment fails to supply an accurate taxpayer identification number or otherwise fails to comply with applicable United States information reporting or certification requirements. Any amounts so withheld will be allowed as a credit against such U.S. Holder’s United States federal income tax liability, provided that the required information is provided to the IRS.
TAX EVENTThe modification of the terms of the LYONs by us upon a Tax Event as described in “Description of LYONs -- Optional Conversion to Semi-Annual Coupon Notes Upon Tax Event,” could possibly alter the timing of income recognition by the holders.
The LYONs were originally issued by us to and resold by Merrill Lynch in transactions exempt from the registration requirements of the Securities Act to persons reasonably believed by to be “qualified institutional buyers” as defined by Rule 144A under the Securities Act. The selling securityholders may from time to time offer and sell pursuant to this prospectus any or all of the LYONs listed below and shares of common stock issued upon purchase by us, or conversion, of such LYONs. When we refer to the “selling securityholders” in this prospectus, we mean those persons listed in the table below, as well as the pledgees, donees, assignees, transferees, successors and others who later hold any of the selling securityholders’ interests.
We are filing this registration statement pursuant to a registration rights agreement that we entered into with Merrill Lynch whereby we agreed, at our expense, and for the benefit of the holders of the LYONs, to file a shelf registration statement covering resale of the LYONs and the shares of common stock issuable upon conversion of the LYONs within 90 days after February 8, 2001 and to cause the registration statement to become effective within 210 days of February 8, 2001. We are also generally required to keep the registration statement effective until February 8, 2003 subject to certain black-out periods upon certain corporate events.
The table below sets forth the name of each selling securityholder, the aggregate principal amount at maturity of LYONs that each selling securityholder may offer pursuant to this prospectus and the number of common shares into which such LYONs are convertible. Unless set forth below, none of the selling securityholders has, or within the past three years has had, any material relationship with us or any of our predecessors or affiliates.
We have prepared the table below based on information given to us by the selling securityholders on or prior to April 25, 2001. However, any or all of the LYONs or common shares listed below may be offered for sale pursuant to this prospectus by the selling securityholders from time to time. Accordingly, no estimate can be given as to the amounts of LYONs or common shares that will be held by the selling securityholders upon consummation of any such sales. In addition, the selling securityholders listed in the table below may have acquired, sold or transferred, in transactions exempt from the registration requirements of the Securities Act, some or all of their LYONs since the date as of which the information in the table is presented.
Information about the selling securityholders may change over time. Any changed information will be set forth in prospectus supplements. From time to time, additional information concerning ownership of the LYONs and common shares may rest with certain holders thereof not named in the table below and of whom we are unaware.
Aggregate Number of Common Percentage of
Principal Percentage of Shares that May Be Common Shares
Name Amount at LYONs Sold (1) Outstanding (2)
Maturity of LYONs Outstanding
that May Be Sold
AIG SoundShore Holdings, Ltd. $ 4,643,000 * 53,720 *
AIG SoundShore Opportunity Holding
Fund, Ltd. $ 2,813,000 * 32,546 *
AIG SoundShore Strategic Holding
Fund, Ltd. $ 2,294,000 * 26,541 *
Arpeggio Fund, LP $ 1,200,000 * 13,884 *
Associated Electric & Gas Insurance
Services Limited $ 500,000 * 5,785 *
BankAmerica Pension Plan $ 6,000,000 69,420 *
*
Bear, Stearns & Co. Inc. $ 20,000,000 2.96% 231,400 *
City of Albany Pension Plan $ 180,000 * 2,083 *
Clarica Life Insurance Co. - U.S. $ 845,000 * 9,777 *
Credit Industriel D' Alsace Et De $ 13,500,000 2.00% 156,195 *
Lorraine
Credit Lyonnais Securities (USA) Inc. $ 5,000,000 * 57,850 *
Delta Pilots Disability And
Survivorship Trust $ 1,050,000 * 12,148 *
D.E. Shaw Investments, L.P. $ 5,000,000 * 57,850 *
D.E. Shaw Valence, L.P. $ 20,000,000 2.96% 231,400 *
Deutsche Banc Alex Brown Inc. $ 27,600,000 4.09% 319,332 *
Drury University $ 60,000 * 694 *
First Union National Bank $ 35,100,000 5.20% 406,107 *
Forest Alternative Strategies Fund II
L.P. ASM $ 2,000,000 * 23,140 *
Forest Fulcrum Fund L.P. $ 2,755,000 * 31,875 *
Forest Global Convertible Fund A5 $ 20,487,000 3.04% 237,035 *
Greek Catholic Union $ 50,000 * 579 *
Greek Catholic Union II $ 45,000 * 521 *
Highbridge International LLC $ 38,500,000 5.70% 445,445 *
H.K. Porter Company, Inc. $ 50,000 * 579 *
IMF Convertible Fund $ 800,000 * 9,256 *
Investcorp - SAM Fund Ltd. $ 3,500,000 * 40,495 *
Jackson County Employees' Retirement
System $ 225,000 * 2,603 *
KBC Financial Products USA $ 3,500,000 * 40,495 *
Kettering Medical Center Funded
Depreciation Account $ 120,000 * 1,388 *
Lehman Brothers Inc. $ 4,000,000 * 46,280 *
LLT Limited $ 6,100,000 * 70,577 *
Louisiana Workers' Compensation
Corporation $ 300,000 * 3,471 *
Lutheran Brotherhood $ 6,700,000 * 77,519 *
Lyxor Master Fund $ 28,000,000 4.15% 323,960 *
McMahan Securities Co. L.P. $ 56,000 * 648 *
Merrill Lynch, Pierce, Fenner & Smith $ 6,327,000 * 73,203 *
Inc.
MLQA Convertible Securities Arbitrage
Ltd. $ 35,000,000 5.19% 404,950 *
Morgan Stanley & Co. $ 15,000,000 2.22% 173,550 *
Nomura Securities International Inc. $ 49,500,000 7.33% 572,715 *
Peoples Benefit Life Insurance Company $ 4,000,000 * 46,280 *
RAM Trading Ltd. $ 25,000,000 289,250 *
RBC Capital Services Inc. $ 579,000 * 6,699 *
Rhapsody Fund, LP $ 4,200,000 * 48,594 *
Royal Bank of Canada $ 20,000,000 2.96% 231,400 *
Salomon Smith Barney, Inc. $ 1,750,000 * 20,248 *
SAM Investments LDC $ 75,000,000 11.11% 867,750 *
SCI Endowment Care Common Trust Fund
- First Union $ 130,000 * 1,504 *
SCI Endowment Care Common Trust Fund
- National Fiduciary Services $ 350,000 * 4,050 *
SCI Endowment Care Common Trust Fund
- Suntrust $ 140,000 * 1,620 *
Southdown Pension Plan $ 420,000 * 4,859 *
St. Albans Partners Ltd. $ 10,000,000 1.48% 115,700 *
Susquehanna Capital Group $ 20,000,000 2.96% 231,400 *
Sylvan IMA Ltd. $ 1,329,000 * 15,377
Triborough Partners QP, LLC $ 2,000,000 * 23,140 *
UBS O'Connor LLC $ 6,700,000 * 77,519 *
Unifi, Inc. Profit Sharing Plan and $ 200,000 * 2,314 *
Trust
Union Carbide Retirement Account $ 2,600,000 * 30,082 *
White River Securities L.L.C. $ 20,000,000 2.96% 231,400 *
Zurich Master Hedge Fund $ 5,000,000 * 57,850 *
All Other Holders of LYONs or Future
Transferees, Pledgees,
Donees, Assignees or Successors of
any such Holders (3) (4) $ 15.82% 1,235,699 1.03%
106,802,000
Total $ 675,000,000 100% 7,809,750 6.51%
* Less than one percent (1%).
| (1) Assumes conversion of all of the holder’s LYONs at a conversion rate of 11.57 common shares per $1,000 principal amount at maturity of the LYONs. This conversion rate is subject to adjustment, however, as described under “Description of the LYONs--Conversion Rights--Conversion Rate and Delivery of Common Shares.” As a result, the number of common shares issuable upon conversion of the LYONs may increase or decrease in the future. Does not include common shares that may be issued by us upon purchase of LYONs by us at the option of the holder. |
| (2) | Calculated based on Rule 13d-3(d)(i) of the Exchange Act, using 120,001,944 common shares outstanding as of August 1, 2001. In calculating this amount for each holder, we treated as outstanding the number of common shares issuable upon conversion of all of that holder’s LYONs, but we did not assume conversion of any other holder’s LYONs. Does not include common shares that may be issued by us upon purchase of LYONs by us at the option of the holder. |
(3) Information about other selling securityholders will be set forth in prospectus supplements, if required.
| (4) | Assumes that any other holders of LYONs, or any future pledgees, donees, assignees, transferees or successors of or from any such other holders of LYONs, do not beneficially own any common shares other than common shares issuable upon conversion of the LYONs at the initial conversion rate. |
We are registering the LYONs and common shares covered by this prospectus to permit holders to conduct public secondary trading of these securities from time to time after the date of this prospectus. We have agreed, among other things, to bear all expenses, other than underwriting discounts and selling commissions, in connection with the registration and sale of the LYONs and common shares covered by this prospectus.
We will not receive any of the proceeds from the resale of the LYONs by the selling securityholders or any common stock issuable upon conversion of the LYONs. We have been advised by the selling securityholders that the selling securityholders may sell all or a portion of the LYONs and common shares beneficially owned by them and offered hereby from time to time:
o directly; or| • | through underwriters, broker-dealers or agents, who may receive compensation in the form of discounts, commissions or concessions from the selling securityholders or from the purchasers of the LYONs and common shares for whom they may act as agent. |
These prices will be determined by the holders of the securities or by agreement between these holders and underwriters or dealers who may receive fees or commissions in connection with the sale. The aggregate proceeds to the selling securityholders from the sale of the LYONs or common shares offered by them hereby will be the purchase price of the LYONs or common shares less discounts and commissions, if any.
The sales described in the preceding paragraph may be effected in transactions:| • | on any national securities exchange or quotation service on which the LYONs and common shares may be listed or quoted at the time of sale, including the New York Stock Exchange in the case of common shares; |
These transactions may include block transactions or crosses. Crosses are transactions in which the same broker acts as an agent on both sides of the trade.
In connection with sales of the LYONs and common shares or otherwise, the selling securityholders may enter into hedging transactions with broker-dealers. These broker-dealers may in turn engage in short sales of the LYONs and common shares in the course of hedging their positions. The selling securityholders may also sell the LYONs and common shares short and deliver the LYONs and common shares to close out short positions, or loan or pledge the LYONs and common shares to broker-dealers that in turn may sell the LYONs and common shares.
To our knowledge, there are currently no plans, arrangements or understandings between any selling securityholders and any underwriter, broker-dealer or agent regarding the sale of the LYONs and common shares by the selling securityholders. Selling securityholders may not sell any, or may not sell all, of the LYONs and common shares offered by them pursuant to this prospectus. In addition, we cannot assure you that a selling securityholder will not transfer, devise or gift the LYONs and common shares by other means not described in this prospectus. In addition, any securities covered by this prospectus that qualify for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under Rule 144 or Rule 144A rather than pursuant to this prospectus.
The outstanding common shares are listed for trading on the New York Stock Exchange.The selling securityholders and any broker and any broker-dealers, agents or underwriters that participate with the selling securityholders in the distribution of the LYONs or common shares may be deemed to be “underwriters” within the meaning of the Securities Act. In this case, any commissions received by these broker-dealers, agents or underwriters and any profit on the resale of the LYONs or common shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. In addition, any profits realized by the selling securityholders may be deemed to be underwriting commissions.
The LYONs were issued and sold in February 2001 in transactions exempt from the registration requirements of the Securities Act to persons reasonably believed by the Initial Purchaser to be “qualified institutional buyers,” as defined in Rule 144A under the Securities Act. We have agreed to indemnify the Initial Purchaser and each selling securityholder, and each selling securityholder has agreed to indemnify us, the Initial Purchaser and each other selling securityholder against specified liabilities arising under the Securities Act.
The selling securityholders and any other person participating in such distribution will be subject to the Exchange Act. The Exchange Act rules include, without limitation, Regulation M, which may limit the timing of purchases and sales of any of the LYONs and the underlying common shares by the selling securityholders and any such other person. In addition, Regulation M of the Exchange Act may restrict the ability of any person engaged in the distribution of the LYONs and the underlying common shares to engage in market-making activities with respect to the particular LYONs and the underlying common shares being distributed for a period of up to five business days prior to the commencement of the distribution. This may affect the marketability of the LYONs and the underlying common shares and the ability of any person or entity to engage in market-making activities with respect to the LYONs and the underlying common shares.
We will use our reasonable efforts to keep the registration statement of which this prospectus is a part effective until the earlier of:
o the sale, pursuant to the registration statement to which this prospectus relates, of all the securities registered thereunder;| • | the expiration of the holding period applicable to the securities held by persons that are not our affiliates under Rule 144(k) under the Securities Act or any successor provision; and |
Our obligation to keep the registration statement to which this prospectus relates effective is subject to specified, permitted exceptions. In these cases, we may prohibit offers and sales of the LYONs and common shares pursuant to the registration statement to which this prospectus relates.
LEGAL MATTERSCertain legal matters regarding the LYONs, the shares of common stock issuable upon conversion of the LYONs and the guarantee of CHL are being passed upon for CCI and CHL by Munger, Tolles & Olson LLP, Los Angeles, California.
EXPERTSThe consolidated financial statements of Countrywide (and subsidiaries) for the fiscal years ended February 28 (29) 2001, 2000 and 1999, have been audited by Grant Thornton LLP, independent certified public accountants. The financial statements and the reports of the independent certified public accountants, included in Countrywide’s Annual Report on Form 10-K filed on May 29, 2001, are incorporated by reference in this document in reliance on said reports given on the authority of such firm as experts in accounting and auditing.
Grant Thornton has advised us that from May 6, 1999 through July 10, 2000, benefit plans managed by a third-party brokerage firm for the benefit of Grant Thornton’s employees and partners owned a total of 610 shares of our common stock. Grant Thornton reported this ownership to the SEC in connection with its voluntary participation in the SEC’s auditor independence “look-back” testing program. Given a concern in the SEC that such ownership raises an issue as to Grant Thornton’s independence, Grant Thornton carefully evaluated whether these purchases of 610 shares of Countrywide’s common stock impaired its independence. Grant Thornton has advised us that, notwithstanding the third-party brokerage firm’s purchase of our common stock on behalf of its benefit plans, Grant Thornton has concluded that it is independent with respect to Countrywide, that it still intends to sign audit opinions and that it further consents to the incorporation by reference of audit opinions as necessary in connection with documents filed by us with the SEC and other third parties.