<PAGE> 1
PROSPECTUS SUPPLEMENT Filed Pursuant to Rule 424(b)(5)
(To Prospectus dated August 25, 1997) Registration Number 333-33789
$300,000,000
La Quinta Inns, Inc.
MEDIUM-TERM NOTES
------------------------
Due More Than Nine Months From Date of Issue
------------------------
La Quinta Inns, Inc. (the "Company") may offer from time to time its
Medium-Term Notes, which are issuable in one or more series and may be offered
and sold in the United States. The Medium-Term Notes offered by this Prospectus
Supplement are offered in the United States at an aggregate initial public
offering price of up to $300,000,000. Such aggregate offering price is subject
to reduction as a result of the sale by the Company of certain other Debt
Securities. See "Plan of Distribution." The interest rate on each Note will be
either a fixed rate established by the Company at the date of issue of such
Note, which may be zero in the case of certain Original Issue Discount Notes, or
a floating rate as set forth therein and specified in the applicable Pricing
Supplement. A Fixed Rate Note may pay a level amount in respect of both interest
and principal amortized over the life of the Note (an "Amortizing Note").
Unless otherwise specified in the applicable Pricing Supplement, interest on
each Fixed Rate Note is payable each January 15 and July 15 and at maturity or
upon earlier redemption or repayment. Interest on each Floating Rate Note is
payable on the date set forth herein and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, Amortizing
Notes will pay principal and interest semiannually each January 15 and July 15,
or quarterly each January 15, April 15, July 15 and October 15, and at maturity
or upon earlier redemption or repayment. Each Note will mature on any day more
than nine months from the date of issue, as set forth in the applicable Pricing
Supplement. See "Description of Notes." Unless otherwise specified in the
applicable Pricing Supplement, the Notes may not be redeemed by the Company or
the holder prior to maturity and will be issued in fully registered form in
denominations of $1,000 or any amount in excess thereof which is an integral
multiple of $1,000. Each Note will be represented either by a Global Security
registered in the name of a nominee of The Depository Trust Company, as
Depositary (a "Global Note"), or by a certificate issued in definitive form (a
"Definitive Note"), as set forth in the applicable Pricing Supplement. Interests
in Global Securities representing Global Notes will be shown on, and transfer
thereof will be affected only through records maintained by the Depositary (with
respect to participants' interests) and its participants. Global Notes will not
be issuable as Definitive Notes except under the circumstances described in the
Prospectus.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, ANY SUPPLEMENT HERETO OR THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
PRICE TO AGENTS' PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(2)(3)
--------- -------------- -------------
<S> <C> <C> <C>
Per Note................. 100.000% .125%-.750% 99.875%-99.250%
Total.................... $300,000,000 $375,000-$2,250,000 $299,625,000-$297,750,000
</TABLE>
- ------------
(1) Unless otherwise specified in the applicable Pricing Supplement, Notes
will be offered at 100% of their principal amount. If the Company issues
any Note at a discount from or at a premium over its principal amount,
the Price to Public of any Note issued at a discount or premium will be
set forth in the applicable Pricing Supplement.
(2) The commission payable to an Agent for each Note sold through such Agent
shall range from .125% to .750% of the principal amount of such Note,
provided, however, that commissions with respect to Notes maturing in
thirty years or greater will be negotiated. The Company may also sell
Notes to an Agent, as principal at negotiated discounts, for resale to
investors and other purchasers.
(3) Before deducting expenses payable by the Company estimated at $90,000.
------------------------
Offers to purchase the Notes are being solicited from time to time by Morgan
Stanley & Co. Incorporated, Goldman, Sachs & Co. and NationsBanc Montgomery
Securities, Inc. (individually, an "Agent" and collectively, the "Agents"), on
behalf of the Company. The Agents have agreed to use reasonable efforts to
solicit purchases of such Notes. The Company may also sell Notes to an Agent
acting as principal for its own account or otherwise, to be determined by such
Agent. No termination date for the offering of the Notes has been established.
The Company or an Agent may reject any order in whole or in part. The Notes will
not be listed on any securities exchange, and there can be no assurance that the
Notes offered hereby will be sold or that there will be a secondary market for
the Notes. See "Plan of Distribution."
------------------------
MORGAN STANLEY DEAN WITTER
GOLDMAN, SACHS & CO.
NATIONSBANC MONTGOMERY SECURITIES, INC.
October 7, 1997
<PAGE> 2
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY (THE
"OFFERING") TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED
IN THIS PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT, AND THE ACCOMPANYING
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE AGENTS. THIS
PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT, AND THE ACCOMPANYING PROSPECTUS
DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT, ANY PRICING SUPPLEMENT, OR THE
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY CIRCUMSTANCES
IMPLY THAT THE INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF OR THEREOF.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of Notes........................................ S-3
Certain U.S. Federal Income Tax Considerations.............. S-15
Plan of Distribution........................................ S-22
Legal Matters............................................... S-23
PROSPECTUS
Available Information....................................... 2
Incorporation of Certain Information by Reference........... 2
The Company................................................. 3
Ratio of Earnings to Fixed Charges (Unaudited).............. 3
Use of Proceeds............................................. 3
Description of Debt Securities.............................. 3
Plan of Distribution........................................ 15
Legal Matters............................................... 16
Experts..................................................... 16
</TABLE>
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES.
SPECIFICALLY, THE AGENTS MAY OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY
BID FOR, AND PURCHASE, THE NOTES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "PLAN OF DISTRIBUTION."
S-2
<PAGE> 3
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered
hereby supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Debt Securities set forth
in the Prospectus, to which reference is hereby made. The particular terms of
the Notes sold pursuant to any pricing supplement (a "Pricing Supplement") will
be described therein. The terms and conditions set forth in "Description of
Notes" will apply to each Note unless otherwise specified in the applicable
Pricing Supplement and in such Note.
GENERAL
The Notes will be issued under the Indenture dated as of September 15, 1995
(the "Indenture") between the Company and U.S. Trust Company of Texas, N.A., as
trustee (the "Trustee"). The Notes issued under the Indenture will constitute
one or more series under such Indenture. The Notes will rank pari passu with all
other unsecured and unsubordinated indebtedness of the Company. The Notes may be
issued from time to time in an aggregate principal amount of up to $300,000,000,
subject to reduction as a result of the sale by the Company of other Debt
Securities referred to in the accompanying Prospectus. For the purpose of this
Prospectus Supplement, the principal amount of any Original Issue Discount Note
(as defined below) means the Issue Price (as defined below) of such Note.
The Notes will mature on any day more than nine months from the date of
issue, as set forth in the applicable Pricing Supplement. Except as may be
provided in the applicable Pricing Supplement, the Notes will be issued only in
fully registered form. Unless otherwise provided in the applicable Pricing
Supplement, Notes will be denominated in Authorized Denominations (as defined
below).
The Notes will be offered on a continuing basis, and each Note will be
issued initially as either a Global Note or a Definitive Note. Except as set
forth in the Prospectus under "Description of Debt Securities-Global
Securities," Global Notes will not be issuable as Definitive Notes. The laws of
some states may require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such limits and such laws may
impair the ability to own, transfer or pledge beneficial interests in Global
Securities. See "Book-Entry System" below.
The Notes may be presented for payment of principal and interest, transfer
of the Notes will be registrable and the Notes will be exchangeable at the
agency in The City of New York, maintained by the Company for such purpose;
provided that Global Notes will be exchangeable only in the manner and to the
extent set forth in the Prospectus under "Description of Debt Securities-Global
Securities." On the date hereof, the agent for the payment, transfer and
exchange of the Notes (the "Paying Agent") is U.S. Trust Company of Texas, N.A.,
acting through its corporate trust office at 770 Broadway, 13th Floor, New York,
New York 10003-9598.
The applicable Pricing Supplement will specify the price (the "Issue
Price") of each Note to be sold pursuant thereto (unless such Note is to be sold
at 100% of its principal amount), the interest rate or interest rate formula,
maturity, and principal amount and any other terms on which each Note will be
issued.
As used herein, the following terms shall have the meanings set forth
below:
"Authorized Denominations" means, unless otherwise provided in the
applicable Pricing Supplement, $1,000 or any amount in excess thereof which
is an integral multiple of $1,000.
"Business Day" means any day, other than a Saturday or Sunday, that is
neither a legal holiday nor a day on which banking institutions are
authorized or required by law, regulation, or executive order to close in
The City of New York and with respect to LIBOR Notes (as defined below), is
also a London Banking Day.
An "Interest Payment Date" with respect to any Note shall be a date on
which, under the terms of such Note, regularly scheduled interest shall be
payable.
S-3
<PAGE> 4
"London Banking Day" means any day on which dealings in deposits in
the Index Currency are transacted in the London interbank market.
"Original Issue Discount Note" means any Note having an Issue Price
less than its stated redemption price at maturity.
The "Record Date" with respect to any Interest Payment Date shall be
the date 15 calendar days prior to such Interest Payment Date, whether or
not such date shall be a Business Day.
INTEREST AND PRINCIPAL PAYMENTS
Interest will be payable to the person in whose name the Note is registered
at the close of business on the applicable Record Date; provided that the
interest payable upon maturity, redemption or repayment (whether or not the date
of maturity, redemption or repayment is an Interest Payment Date) will be
payable to the person to whom principal is payable. The initial interest payment
on a Note will be made on the first Interest Payment Date falling after the date
the Note is issued; provided, however, that payments of interest (or, in the
case of an Amortizing Note, principal and interest) on a Note issued less than
15 calendar days before an Interest Payment Date will be paid on the next
succeeding Interest Payment Date to the holder of record on the Record Date with
respect to such succeeding Interest Payment Date, unless otherwise specified in
the applicable Pricing Supplement. See "Certain U.S. Federal Income Tax
Considerations-U.S. Holders-Original Issue Discount" below.
Payments of interest, other than interest payable at maturity (or on the
date of redemption or repayment, if a Note is redeemed or repaid by the Company
prior to maturity), will be made by check mailed to the address of the person
entitled thereto as shown on the Note register. Payment of principal, premium,
if any, and interest upon maturity, redemption or repayment will be made in
immediately available funds against presentation and surrender of the Note.
Notwithstanding the foregoing, (a) the Depositary, as holder of Global Notes,
shall be entitled to receive payments of interest by wire transfer of
immediately available funds and (b) a holder of $10,000,000 or more in aggregate
principal amount of Definitive Notes having the same Interest Payment Date will
be entitled to receive payments of interest by wire transfer of immediately
available funds upon written request to the Paying Agent, provided such request
is received not later than 15 calendar days prior to the applicable Interest
Payment Date.
Certain Notes, including Original Issue Discount Notes, may be considered
to be issued with original issue discount, which must be included in income for
United States federal income tax purposes at a constant rate. See "Certain U.S.
Federal Income Tax Considerations-U.S. Holders-Original Issue Discount" below.
Unless otherwise specified in the applicable Pricing Supplement, if the
principal of any Original Issue Discount Note is declared to be due and payable
immediately as described under "Description of Debt Securities-Events of
Default" in the Prospectus, the amount of principal due and payable with respect
to such Note shall be limited to the Issue Price of such Note plus the original
issue discount amortized from the date of issue to the date of declaration,
which amortization shall be calculated using the "interest method" (computed in
accordance with generally accepted accounting principles in effect on the date
of declaration). Special considerations applicable to any such Notes will be set
forth in the applicable Pricing Supplement.
FIXED RATE NOTES
Each Fixed Rate Note will bear interest from the Interest Accrual Date at
the annual rate, each as stated on the face thereof, except as described below
under "Extension of Maturity," until the principal thereof is paid or made
available for payment. Unless otherwise specified in the applicable Pricing
Supplement, such interest will be computed on the basis of a 360-day year of
twelve 30-day months. Unless otherwise specified in the applicable Pricing
Supplement, payments of interest on Fixed Rate Notes other than Amortizing Notes
will be made semiannually on each January 15 and July 15 and at maturity or upon
any earlier redemption or repayment. Unless otherwise specified in the
applicable Pricing Supplement, payments of principal and interest on Amortizing
Notes, which are securities on which payments of principal and interest are made
in equal installments over the life of the security, will be made either
quarterly on each January 15, April 15, July 15 and October 15 or semiannually
on each January 15 and July 15, as set forth in the applicable Pricing
S-4
<PAGE> 5
Supplement, and at maturity or upon any earlier redemption or repayment.
Payments with respect to Amortizing Notes will be applied first to interest due
and payable thereon and then to the reduction of the unpaid principal amount
thereof. A table setting forth repayment information in respect of each
Amortizing Note will be provided to the original purchaser and will be
available, upon request, to subsequent holders.
If any Interest Payment Date for any Fixed Rate Note falls on a day that is
not a Business Day, the interest payment shall be made on the next day that is a
Business Day, and no interest on such payment shall accrue for the period from
and after the Interest Payment Date. If the maturity (or date of redemption or
repayment) of any Fixed Rate Note falls on a day that is not a Business Day, the
payment of interest and principal (and premium, if any) will be made on the next
succeeding Business Day, and no interest on such payment shall accrue for the
period from and after the maturity date (or date of redemption or repayment).
Interest payments for Fixed Rate Notes will include accrued interest from
and including the date of issue or from and including the last date in respect
of which interest has been paid, as the case may be, to, but excluding, the
Interest Payment Date or the date of maturity or earlier redemption or
repayment, as the case may be. The interest rates the Company will agree to pay
on newly issued Fixed Rate Notes are subject to change without notice by the
Company from time to time, but no such change will affect any Fixed Rate Notes
theretofore issued or that the Company has agreed to issue.
FLOATING RATE NOTES
Each Floating Rate Note will bear interest from the date of issuance until
the principal thereof is paid or made available for payment at a rate determined
by reference to an interest rate basis or formula (the "Base Rate"), which may
be adjusted by a Spread and/or Spread Multiplier (each as defined below). The
applicable Pricing Supplement will designate one or more of the following Base
Rates as applicable to each Floating Rate Note: (a) the CD Rate (a "CD Rate
Note"), (b) the Commercial Paper Rate (a "Commercial Paper Rate Note"), (c) the
Federal Funds Rate (a "Federal Funds Rate Note"), (d) LIBOR (a "LIBOR Note"),
(e) the Prime Rate (a "Prime Rate Note"), (f) the Treasury Rate (a "Treasury
Rate Note"), (g) the CMT Rate (a "CMT Rate Note") or (h) such other Base Rate or
interest rate formula as is set forth in such Pricing Supplement and in such
Floating Rate Note. The "Index Maturity" for any Floating Rate Note is the
period of maturity of the instrument or obligation from which the Base Rate is
calculated and will be specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate on each Floating Rate Note will be calculated by reference to the
specified Base Rate (i) plus or minus the Spread, if any, and/or (ii) multiplied
by the Spread Multiplier, if any. The "Spread" is the number of basis points
(one one-hundredth of a percentage point) specified in the applicable Pricing
Supplement to be added to or subtracted from the Base Rate for such Floating
Rate Note, and the "Spread Multiplier" is the percentage specified in the
applicable Pricing Supplement to be applied to the Base Rate for such Floating
Rate Note.
As specified in the applicable Pricing Supplement, a Floating Rate Note may
also have either or both of the following: (i) a maximum limitation, or ceiling,
on the rate of interest which may accrue during any interest period ("Maximum
Interest Rate"); and (ii) a minimum limitation, or floor, on the rate of
interest which may accrue during any interest period ("Minimum Interest Rate").
In addition to any Maximum Interest Rate that may be applicable to any Floating
Rate Note pursuant to the above provisions, the interest rate on a Floating Rate
Note will in no event be higher than the maximum rate permitted by New York law,
as the same may be modified by United States law of general application. Under
current New York law, the maximum rate of interest, subject to certain
exceptions, for any loan in an amount less than $250,000 is 16% and for any loan
in the amount of $250,000 or more but less than $2,500,000 is 25% per annum. New
York law does not currently limit or restrict the rate of interest on any loan
of $2,500,000 or more.
Unless otherwise specified in the applicable Pricing Supplement, the rate
of interest on each Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually or annually (such period being the "Interest Reset
Period" for such Note, and the first day of each Interest Reset Period being an
"Interest Reset Date"), as specified in the applicable Pricing Supplement.
Unless otherwise specified in the Pricing Supplement, the Interest Reset Date
will be, in the case of Floating Rate Notes which reset daily, each
S-5
<PAGE> 6
Business Day; in the case of Floating Rate Notes (other than Treasury Rate
Notes) which reset weekly, the Wednesday of each week; in the case of Treasury
Rate Notes which reset weekly, the Tuesday of each week, except as provided
below; in the case of Floating Rate Notes which reset monthly, the third
Wednesday of each month; in the case of Floating Rate Notes which reset
quarterly, the third Wednesday of January, April, July and October; in the case
of Floating Rate Notes which reset semiannually, the third Wednesday of two
months of each year, as specified in the applicable Pricing Supplement; and in
the case of Floating Rate Notes which reset annually, the third Wednesday of one
month of each year, as specified in the applicable Pricing Supplement; provided,
however, that (a) the interest rate in effect from the date of issue to the
first Interest Reset Date with respect to a Floating Rate Note will be the
initial interest rate set forth in the applicable Pricing Supplement (the
"Initial Interest Rate") and (b) unless otherwise specified in the applicable
Pricing Supplement, the interest rate in effect for the ten calendar days
immediately prior to maturity, redemption or repayment will be that in effect on
the tenth calendar day preceding such maturity, redemption or repayment date. If
any Interest Reset Date for any Floating Rate Note would otherwise be a day that
is not a Business Day, such Interest Reset Date shall be postponed to the next
succeeding Business Day, except that in the case of a LIBOR Note, if such
Business Day is in the next succeeding calendar month, such Interest Reset Date
shall be the immediately preceding Business Day.
Except as provided below, unless otherwise specified in the applicable
Pricing Supplement, interest on Floating Rate Notes will be payable: (i) in the
case of Floating Rate Notes with a daily, weekly or monthly Interest Reset Date,
on the third Wednesday of each month or on the third Wednesday of January,
April, July and October, as specified in the applicable Pricing Supplement; (ii)
in the case of Floating Rate Notes with a quarterly Interest Reset Date, on the
third Wednesday of January, April, July and October; (iii) in the case of
Floating Rate Notes with a semiannual Interest Reset Date, on the third
Wednesday of the two months specified in the applicable Pricing Supplement; and
(iv) in the case of Floating Rate Notes with an annual Interest Reset Date, on
the third Wednesday of the month specified in the applicable Pricing Supplement.
If any Interest Payment Date for any Floating Rate Note would fall on a day that
is not a Business Day with respect to such Floating Rate Note, such Interest
Payment Date will be postponed to the following day that is a Business Day with
respect to such Floating Rate Note, except that, in the case of a LIBOR Note, if
such Business Day is in the next succeeding calendar month, such Interest
Payment Date shall be the immediately preceding day that is a Business Day with
respect to such LIBOR Note. If the maturity date or any earlier redemption or
repayment date of a Floating Rate Note would fall on a day that is not a
Business Day, the payment of principal, premium, if any, and interest will be
made on the next succeeding Business Day, and no interest on such payment shall
accrue for the period from and after such maturity, redemption or repayment
date, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, interest
payments for Floating Rate Notes shall be the amount of interest accrued from
and including the date of issue or from and including the last date to which
interest has been paid to, but excluding, the Interest Payment Date or maturity
date or date of redemption or repayment.
With respect to a Floating Rate Note, accrued interest shall be calculated
by multiplying the principal amount of such Floating Rate Note by an accrued
interest factor. Such accrued interest factor will be computed by adding the
interest factors calculated for each day in the period for which interest is
being paid. Unless otherwise specified in the applicable Pricing Supplement, the
interest factor for each such day is computed by dividing the interest rate
applicable to such day by 360, in the case of CD Rate Notes, Commercial Paper
Rate Notes, Federal Funds Rate Notes, LIBOR Notes and Prime Rate Notes or by the
actual number of days in the year, in the case of Treasury Rate Notes and CMT
Rate Notes. All percentages used in or resulting from any calculation of the
rate of interest on a Floating Rate Note will be rounded, if necessary, to the
nearest one hundred-thousandth of a percentage point, with five one-millionths
of a percentage point rounded upward, and all dollar amounts used in or
resulting from such calculation on Floating Rate Notes will be rounded to the
nearest cent, with one-half cent rounded upward. The interest rate in effect on
any Interest Reset Date will be the applicable rate as reset on such date. The
interest rate applicable to any other day is the interest rate from the
immediately preceding Interest Reset Date (or, if none, the Initial Interest
Rate).
S-6
<PAGE> 7
Unless otherwise stated in the applicable Pricing Supplement, the
calculation agent (the "Calculation Agent") with respect to any issue of
Floating Rate Notes shall be U.S. Trust Company of Texas, N.A. Upon the request
of the holder of any Floating Rate Note, the Calculation Agent will provide the
interest rate then in effect and, if determined, the interest rate that will
become effective on the next Interest Reset Date with respect to such Floating
Rate Note.
The "Interest Determination Date" pertaining to an Interest Reset Date for
CD Rate Notes, Commercial Paper Rate Notes, Federal Funds Rate Notes, CMT Rate
Notes and Prime Rate Notes will be the second Business Day next preceding such
Interest Reset Date. The Interest Determination Date pertaining to an Interest
Reset Date for a LIBOR Note will be the second London Banking Day preceding such
Interest Reset Date. The Interest Determination Date pertaining to an Interest
Reset Date for a Treasury Rate Note will be the day of the week in which such
Interest Reset Date falls on which Treasury bills would normally be auctioned.
Treasury bills are normally sold at auction on Monday of each week, unless that
day is a legal holiday, in which case the auction is normally held on the
following Tuesday, but such auction may be held on the preceding Friday. If, as
the result of a legal holiday, an auction is so held on the preceding Friday,
such Friday will be the Interest Determination Date pertaining to the Interest
Reset Date occurring in the next succeeding week. If an auction falls on a day
that is an Interest Reset Date, such Interest Reset Date will be the next
following Business Day.
Unless otherwise specified in the applicable Pricing Supplement, the
"Calculation Date," where applicable, pertaining to an Interest Determination
Date will be the earlier of (i) the tenth calendar day after such Interest
Determination Date, or, if such day is not a Business Day, the next succeeding
Business Day, or (ii) the Business Day preceding the applicable Interest Payment
Date or Maturity Date, as the case may be.
Interest rates will be determined by the Calculation Agent as follows:
CD RATE NOTES
CD Rate Notes will bear interest at the interest rate (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CD Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CD Rate"
means, with respect to any Interest Determination Date, the rate on such date
for negotiable certificates of deposit having the Index Maturity designated in
the applicable Pricing Supplement as published by the Board of Governors of the
Federal Reserve System in "Statistical Release H.15(519), Selected Interest
Rates," or any successor publication of the Board of Governors of the Federal
Reserve System ("H.15(519)") under the heading "CDs (Secondary Market)," or, if
not so published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the CD Rate will be the rate on
such Interest Determination Date for negotiable certificates of deposit of the
Index Maturity designated in the applicable Pricing Supplement as published by
the Federal Reserve Bank of New York in its daily statistical release "Composite
3:30 P.M. Quotations for U.S. Government Securities" (the "Composite
Quotations") under the heading "Certificates of Deposit." If such rate is not
yet published in either H.15(519) or the Composite Quotations by 3:00 P.M., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the CD Rate on such Interest Determination Date will be
calculated by the Calculation Agent and will be the arithmetic mean of the
secondary market offered rates as of 10:00 A.M., New York City time, on such
Interest Determination Date for certificates of deposit in an amount that is
representative for a single transaction at that time with a remaining maturity
closest to the Index Maturity designated in the Pricing Supplement of three
leading nonbank dealers in negotiable U.S. dollar certificates of deposit in The
City of New York selected by the Calculation Agent for negotiable certificates
of deposit of major United States money center banks; provided, however, that if
the dealers selected as aforesaid by the Calculation Agent are not quoting as
set forth above, the CD Rate in effect for the applicable period will be the
same as the CD Rate for the immediately preceding Interest Reset Period (or, if
there was no such Interest Reset Period, the rate of interest payable on the CD
Rate Notes for which such CD Rate is being determined shall be the Initial
Interest Rate).
S-7
<PAGE> 8
COMMERCIAL PAPER RATE NOTES
Commercial Paper Rate Notes will bear interest at the interest rate
(calculated with reference to the Commercial Paper Rate and the Spread and/or
Spread Multiplier, if any, and subject to the Minimum Interest Rate and the
Maximum Interest Rate, if any) specified in the Commercial Paper Rate Notes and
in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"Commercial Paper Rate" means, with respect to any Interest Determination Date,
the Money Market Yield (as defined below) of the rate on such date for
commercial paper having the Index Maturity specified in the applicable Pricing
Supplement, as such rate shall be published in H.15(519), under the heading
"Commercial Paper -- Nonfinancial." In the event that such rate is not published
by 9:00 A.M., New York City time, on the Calculation Date pertaining to such
Interest Determination Date, then the Commercial Paper Rate shall be the Money
Market Yield of the rate on such Interest Determination Date for commercial
paper of the specified Index Maturity as published in Composite Quotations under
the heading "Commercial Paper." If by 3:00 P.M., New York City time, on such
Calculation Date such rate is not yet available in either H.15(519) or Composite
Quotations, then the Commercial Paper Rate shall be the Money Market Yield of
the arithmetic mean of the offered rates as of 11:00 A.M., New York City time,
on such Interest Determination Date of three leading dealers of commercial paper
in The City of New York selected by the Calculation Agent for commercial paper
of the specified Index Maturity, placed for an industrial issuer whose bond
rating is "AA," or the equivalent, from a nationally recognized statistical
rating agency; provided, however, that if the dealers selected as aforesaid by
the Calculation Agent are not quoting offered rates as mentioned in this
sentence, the Commercial Paper Rate in effect for the applicable period will be
the same as the Commercial Paper Rate for the immediately preceding Interest
Reset Period (or, if there was no such Interest Reset Period, the rate of
interest payable on the Commercial Paper Rate Notes for which such Commercial
Paper Rate is being determined shall be the Initial Interest Rate).
"Money Market Yield" shall be a yield calculated in accordance with the
following formula:
<TABLE>
<S> <C>
D X 360
Money Market Yield = ----------------------
360 - (D X M) X 100
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and "M" refers to the actual
number of days for which interest is being calculated.
FEDERAL FUNDS RATE NOTES
Federal Funds Rate Notes will bear interest at the interest rate
(calculated with reference to the Federal Funds Rate and the Spread and/or
Spread Multiplier, if any, and subject to the Minimum Interest Rate and the
Maximum Interest Rate, if any) specified in the Federal Funds Rate Notes and in
the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Federal Funds Rate" means, with respect to any Interest Determination Date, the
rate on such date for Federal funds as published in H.15(519) under the heading
"Federal Funds (Effective)," or, if not so published by 9:00 A.M., New York City
time, on the Calculation Date pertaining to such Interest Determination Date,
the Federal Funds Rate will be the rate on such Interest Determination Date as
published in the Composite Quotations under the heading "Federal Funds/Effective
Rate." If such rate is not yet published in either H.15(519) or the Composite
Quotations by 3:00 P.M., New York City time, on the Calculation Date pertaining
to such Interest Determination Date, the Federal Funds Rate for such Interest
Determination Date will be calculated by the Calculation Agent and will be the
arithmetic mean of the rates for the last transaction in overnight Federal
funds, as of 9:00 A.M., New York City time, on such Interest Determination Date,
arranged by three leading brokers of Federal funds transactions in The City of
New York selected by the Calculation Agent; provided, however, that if the
brokers selected as aforesaid by the Calculation Agent are not quoting as set
forth above, the Federal Funds Rate in effect for the applicable period will be
the same as the Federal Funds Rate for the immediately
S-8
<PAGE> 9
preceding Interest Reset Period (or, if there was no such Interest Reset Period,
the rate of interest payable on the Federal Funds Rate Notes for which such
Federal Funds Rate is being determined shall be the Initial Interest Rate).
LIBOR NOTES
LIBOR Notes will bear interest at the interest rate (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any, and subject
to the Minimum Interest Rate and the Maximum Interest Rate, if any) specified in
the LIBOR Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "LIBOR"
for each Interest Determination Date will be determined by the Calculation Agent
as follows:
(i) As of the Interest Determination Date, LIBOR will be either: (a)
if "LIBOR Reuters" is specified in the applicable Pricing Supplement, the
arithmetic mean of the offered rates (unless the specified Designated LIBOR
Page (as defined below) by its terms provides only for a single rate, in
which case such single rate shall be used) for deposits in the Index
Currency having the Index Maturity designated in the applicable Pricing
Supplement, commencing on the second London Banking Day immediately
following such Interest Determination Date, that appear on the Designated
LIBOR Page as of 11:00 A.M., London time, on that Interest Determination
Date, if at least two such offered rates appear (unless, as aforesaid, only
a single rate is required) on such Designated LIBOR Page, or (b) if "LIBOR
Telerate" is specified in the applicable Pricing Supplement, the rate for
deposits in the Index Currency having the Index Maturity designated in the
applicable Pricing Supplement, commencing on the second London Banking Day
immediately following such Interest Determination Date, that appears on the
Designated LIBOR Page as of 11:00 A.M., London time, on that Interest
Determination Date. If fewer than two offered rates appear (if "LIBOR
Reuters" is specified in the applicable Pricing Supplement and calculation
of LIBOR is based on the arithmetic means of the offered rates) or no rate
appears (if "LIBOR Telerate" is specified in the applicable Pricing
Supplement or if "LIBOR Reuters" is specified in the applicable Pricing
Supplement and the Designated LIBOR Page by its terms provides only for a
single rate), LIBOR in respect of the related Interest Determination Date
will be determined as if the parties had specified the rate described in
clause (ii) below.
(ii) With respect to an Interest Determination Date on which fewer
than two offered rates appear (if "LIBOR Reuters" is specified in the
applicable Pricing Supplement and calculation of LIBOR is based on the
arithmetic mean of the offered rates) or no rate appears (if "LIBOR
Telerate" is specified in the applicable Pricing Supplement or if "LIBOR
Reuters" is specified in the applicable Pricing Supplement and the
Designated LIBOR Page by its terms provides only for a single rate) the
Calculation Agent will request the principal London offices of each of four
major reference banks in the London interbank market, as selected by the
Calculation Agent, to provide the Calculation Agent with its offered
quotation for deposits in the Index Currency for the period of the Index
Maturity designated in the applicable Pricing Supplement, commencing on the
second London Banking Day immediately following such Interest Determination
Date, to prime banks in the London interbank market at approximately 11:00
A.M., London time, on such Interest Determination Date and in a principal
amount of not less than $1,000,000 that is representative of a single
transaction in such Index Currency in such market at such time. If at least
two such quotations are provided, LIBOR determined on such Interest
Determination Date will be the arithmetic mean of such quotations. If fewer
than two quotations are provided, LIBOR determined on such Interest
Determination Date will be the arithmetic mean of the rates quoted at
approximately 11:00 A.M. (or such other time specified in the applicable
Pricing Supplement), in the City of New York on such Interest Determination
Date, by three major banks in the City of New York selected by the
Calculation Agent for loans in the Index Currency to leading European
banks, having the Index Maturity designated in the applicable Pricing
Supplement and in a principal amount of not less than $1,000,000 commencing
on the second London Banking Day immediately following such Interest
Determination Date that is representative for a single transaction in such
Index Currency in such market at such time; provided, however, that if the
banks so selected by the Calculation Agent are not quoting as mentioned in
this sentence, LIBOR in effect for the applicable period will be the same
as LIBOR for the
S-9
<PAGE> 10
immediately preceding Interest Reset Period (or, if there was no such
Interest Reset Period, the rate of interest payable on the LIBOR Notes for
which such LIBOR is being determined shall be the Initial Interest Rate).
"Index Currency" means U.S. dollars unless otherwise specified in the
applicable Pricing Supplement.
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is designated
in the applicable Pricing Supplement, the display on the Reuters Monitor Money
Rates Service for the purpose of displaying the London interbank rates of major
banks for the Index Currency, or (b) if "LIBOR Telerate" is designated in the
applicable Pricing Supplement, the display on the Dow Jones Telerate Service for
the purpose of displaying the London interbank rates of major banks for the
Index Currency. If neither LIBOR Reuters nor LIBOR Telerate is specified in the
applicable Pricing Supplement, LIBOR for the Index Currency will be determined
as if LIBOR Telerate (Page 3750) had been specified.
PRIME RATE NOTES
Prime Rate Notes will bear interest at the interest rate (calculated with
reference to the Prime Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the Prime Rate Notes and in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "Prime
Rate" means, with respect to any Interest Determination Date, the rate set forth
in H.15(519) for such date opposite the caption "Bank Prime Loan." If such rate
is not yet published by 9:00 A.M., New York City time, on the Calculation Date
pertaining to such Interest Determination Date, the Prime Rate for such Interest
Determination Date will be the arithmetic mean of the rates of interest publicly
announced by each bank named on the Reuters Screen USPRIME1 (as defined below)
as such bank's prime rate or base lending rate as in effect for such Interest
Determination Date as quoted on the Reuters Screen USPRIME1 on such Interest
Determination Date, or, if fewer than four such rates appear on the Reuters
Screen USPRIME1 for such Interest Determination Rate, the rate shall be the
arithmetic mean of the prime rates quoted on the basis of the actual number of
days in the year divided by 360 as of the close of business on such Interest
Determination Date by at least two of the three major money center banks in The
City of New York selected by the Calculation Agent from which quotations are
requested. If fewer than two quotations are provided, the Prime Rate shall be
calculated by the Calculation Agent and shall be determined as the arithmetic
mean on the basis of the prime rates in The City of New York by the appropriate
number of substitute banks or trust companies organized and doing business under
the laws of the United States, or any State thereof, in each case having total
equity capital of at least $500 million and being subject to supervision or
examination by federal or state authority, selected by the Calculation Agent to
quote such rate or rates; provided, however, that if the banks or trust
companies selected as aforesaid by the Calculation Agent are not quoting as set
forth above, the "Prime Rate" in effect for the applicable period will be the
same as the Prime Rate for the immediately preceding Interest Reset Period (or,
if there was no such Interest Reset Period, the rate of interest payable on the
Prime Rate Notes for which such Prime Rate is being determined shall be the
Initial Interest Rate). "Reuters Screen USPRIME1" means the display designated
as page "USPRIME1" on the Reuters Monitor Money Rates Services (or such other
page as may replace USPRIME1 on that service for the purpose of displaying prime
rates or base lending rates of major United States banks).
TREASURY RATE NOTES
Treasury Rate Notes will bear interest at the interest rate (calculated
with reference to the Treasury Rate and the Spread and/or Spread Multiplier, if
any, and subject to the Minimum Interest Rate and the Maximum Interest Rate, if
any) specified in the Treasury Rate Notes and in the applicable Pricing
Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the
"Treasury Rate" means, with respect to any Interest Determination Date, the rate
for the auction held on such date of direct obligations of the United States
("Treasury Bills") having the Index Maturity designated in the applicable
Pricing
S-10
<PAGE> 11
Supplement, as published in H.15(519) under the heading "Treasury
Bills -- auction average (investment)" or, if not so published by 9:00 A.M., New
York City time, on the Calculation Date pertaining to such Interest
Determination Date, the auction average rate on such Interest Determination Date
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) as otherwise announced by the United
States Department of the Treasury. In the event that the results of the auction
of Treasury Bills having the Index Maturity designated in the applicable Pricing
Supplement are not published or reported as provided above by 3:00 P.M., New
York City time, on such Calculation Date or if no such auction is held on such
Interest Determination Date, then the Treasury Rate shall be calculated by the
Calculation Agent and shall be a yield to maturity (expressed as a bond
equivalent, on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) calculated using the arithmetic mean of the secondary
market bid rates, as of approximately 3:30 P.M., New York City time, on such
Interest Determination Date, of three leading primary United States government
securities dealers selected by the Calculation Agent for the issue of Treasury
Bills with a remaining maturity closest to the Index Maturity designated in the
applicable Pricing Supplement; provided, however, that if the dealers selected
as aforesaid by the Calculation Agent are not quoting bid rates as mentioned in
this sentence, the Treasury Rate for such Interest Reset Date will be the same
as the Treasury Rate for the immediately preceding Interest Reset Period (or, if
there was no such Interest Reset Period, the rate of interest payable on the
Treasury Rate Notes for which the Treasury Rate is being determined shall be the
Initial Interest Rate).
CMT RATE NOTES
CMT Rate Notes will bear interest at the interest rate (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any, and
subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the CMT Rate Notes and in the applicable Pricing Supplement.
Unless otherwise indicated in an applicable Pricing Supplement, "CMT Rate"
means, with respect to any Interest Determination Date, the rate displayed on
the Designated CMT Telerate Page (as defined below) under the caption
". . . Treasury Constant Maturities . . . Federal Reserve Board Release H.15
. . . Mondays Approximately 3:45 p.m.," under the column for the Designated CMT
Maturity Index (as defined below) for (i) if the Designated CMT Telerate Page is
7055, such Interest Determination Date and (ii) if the Designated CMT Telerate
Page is 7052, the week or the month, as applicable, ended immediately preceding
the week or month, as applicable in which the related Interest Determination
Date occurs. If such rate is no longer displayed on the relevant page, or if not
displayed by 3:00 p.m., New York City time, on the related Calculation Date,
then the CMT Rate for such Interest Determination Date will be such Treasury
Constant Maturity rate for the Designated CMT Maturity Index as published in the
relevant H.15(519). If such rate is no longer published, or, if not published by
3:00 p.m., New York City time, on the related Calculation Date, then the CMT
Rate for such Interest Determination Date will be such Treasury Constant
Maturity rate for the Designated CMT Maturity Index (or other United States
Treasury rate for the Designated CMT Maturity Index) for the Interest
Determination Date with respect to such Interest Reset Date as may then be
published by either the Board of Governors of the Federal Reserve System or the
United States Department of the Treasury that the Calculation Agent determines
to be comparable to the rate formerly displayed on the Designated CMT Telerate
Page and published in the relevant H.15(519). If such information is not
provided by 3:00 p.m., New York City time, on the related Calculation Date, then
the CMT Rate for the Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity, based on the arithmetic mean
of the secondary market closing offer side prices as of approximately 3:30 p.m.,
New York City time on the Interest Determination Date reported, according to
their written records, by three leading primary United States government
securities dealers (each, a "Reference Dealer") in The City of New York (which
may include the Agents or their affiliates) selected by the Calculation Agent
(from five such Reference Dealers selected by the Calculation Agent, after
consultation with the Company, and eliminating the highest quotation (or, in the
event of equality, one of the highest) and the lowest quotation (or, in the
event of equality, one of the lowest)), for the most recently issued direct
noncallable fixed rate obligations of the Unites States ("Treasury notes") with
an original maturity of approximately the Designated CMT Maturity Index and
remaining term to maturity of not less than such Designated CMT Maturity Index
minus one year. If the Calculation Agent cannot obtain three such Treasury notes
quotations, the CMT Rate for
S-11
<PAGE> 12
such Interest Determination Date will be calculated by the Calculation Agent and
will be a yield to maturity based on the arithmetic mean of the secondary market
offer side prices as of approximately 3:30 p.m., New York City time, on the
Interest Determination Date of three Reference Dealers in The City of New York
(from five such Reference Dealers selected by the Calculation Agent and
eliminating the highest quotation (or, in the event of equality, one of the
highest) and the lowest quotation (or, in the event of equality, one of the
lowest)), for Treasury notes with an original maturity of the number of years
that is the next highest to the Designated CMT Maturity Index and a remaining
term to maturity closest to the Designated CMT Maturity Index and in an amount
of at least $100,000,000. If three or four (and not five) of such Reference
Dealers are quoting as described above, then the CMT Rate will be based on the
arithmetic mean of the offer prices obtained and neither the highest nor the
lowest of such quotes will be eliminated; provided however, that if fewer than
three Reference Dealers selected by the Calculation Agent are quoting as
described herein, the CMT Rate for such Interest Reset Date will be the same as
the CMT Rate for the immediately preceding Interest Reset Period (or, if there
was no such Interest Reset Period, the rate of interest payable on the CMT Rate
Notes for which the CMT Rate is being determined shall be the Initial Interest
Rate). If two Treasury notes with an original maturity as described in the
second preceding sentence have remaining terms to maturity equally close to the
Designated CMT Maturity Index, the quotes for the Treasury note with the shorter
remaining term to maturity will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page designated in an applicable Pricing Supplement (or any other
page as may replace such page on that service for the purpose of displaying
Treasury Constant Maturities as reported in H.15(519)), for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519). If no such
page is specified in the applicable Pricing Supplement, the Designated CMT
Telerate Page shall be 7052, for the most recent week.
"Designated CMT Maturity Index" shall be the original period to maturity of
the U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years)
specified in an applicable Pricing Supplement with respect to which the CMT Rate
will be calculated. If no such maturity is specified in the applicable Pricing
Supplement, the Designated CMT Maturity Index shall be two years.
RENEWABLE NOTES
The Company may also issue from time to time variable rate renewable notes
(the "Renewable Notes") that will bear interest at the interest rate (calculated
with reference to a Base Rate and the Spread and/or Spread Multiplier, if any,
and subject to the Minimum Interest Rate and the Maximum Interest Rate, if any)
specified in the Renewable Notes and in the applicable Pricing Supplement.
The Renewable Notes will mature on an Interest Payment Date as specified in
the applicable Pricing Supplement (the "Initial Maturity Date"), unless the
maturity of all or any portion of the principal amount thereof is extended in
accordance with the procedures described below. On the Interest Payment Dates in
January 15 and July 15 in each year (unless different Interest Payment Dates are
specified in the applicable Pricing Supplement) (each such Interest Payment
Date, an "Election Date"), the maturity of the Renewable Notes will be extended
to the Interest Payment Date occurring twelve months after such Election Date,
unless the holder thereof elects to terminate the automatic extension of the
maturity of the Renewable Notes or of any portion thereof having a principal
amount of $1,000 or any integral multiple of $1,000 in excess thereof by
delivering a notice of such effect to the Paying Agent not less than nor more
than a number of days to be specified in the applicable Pricing Supplement prior
to such Election Date. Such option may be exercised with respect to less than
the entire principal amount of the Renewable Notes; provided that the principal
amount for which such option is not exercised is at least $1,000 or any larger
amount that is an integral multiple of $1,000. Notwithstanding the foregoing,
the maturity of the Renewable Notes may not be extended beyond the Final
Maturity Date, as specified in the applicable Pricing Supplement (the "Final
Maturity Date"). If the holder elects to terminate the automatic extension of
the maturity of any portion of the principal amount of the Renewable Notes and
such election is not revoked as described below, such portion will become due
and payable on the Interest Payment Date falling six months (unless another
period is specified in the applicable Pricing Supplement) after the Election
Date prior to which the holder made such election.
S-12
<PAGE> 13
An election to terminate the automatic extension of maturity may be revoked
as to any portion of the Renewable Notes having a principal amount of $1,000 or
any integral multiple of $1,000 in excess thereof by delivering a notice to such
effect to the Paying Agent on any day following the effective date of the
election to terminate the automatic extension of maturity and prior to the date
15 days before the date on which such portion would otherwise mature. Such a
revocation may be made for less than the entire principal amount of the
Renewable Notes for which the automatic extension of maturity has been
terminated; provided that the principal amount of the Renewable Notes for which
the automatic extension of maturity has been terminated and for which such a
revocation has not been made is at least $1,000 or any larger amount that is an
integral multiple of $1,000. Notwithstanding the foregoing, a revocation may not
be made during the period from and including a Record Date to but excluding the
immediately succeeding Interest Payment Date.
An election to terminate the automatic extension of the maturity of the
Renewable Notes, if not revoked as described above by the holder making the
election or any subsequent holder, will be binding upon such subsequent holder.
The Renewable Notes may be redeemed in whole or in part at the option of
the Company on the Interest Payment Dates in each year specified in the
applicable Pricing Supplement, commencing with the Interest Payment Date
specified in the applicable Pricing Supplement, at a redemption price as stated
in the applicable Pricing Supplement, together with accrued and unpaid interest
to the date of redemption. Notwithstanding anything to the contrary in this
Prospectus Supplement, notice of redemption will be provided by mailing a notice
of such redemption to each holder by first class mail, postage prepaid, at least
180 days prior to the date fixed for redemption.
INDEXED NOTES
The Notes may be issued, from time to time, as Notes of which the principal
amount payable on a date more than nine months from the date of original issue
(the "Stated Maturity") and/or on which the amount of interest payable on an
Interest Payment Date will be determined by reference to currencies, currency
units, commodity prices, financial or non-financial indices or other factors
(the "Indexed Notes"), as indicated in the applicable Pricing Supplement.
Holders of Indexed Notes may receive a principal amount at maturity that is
greater than or less than the face amount of such Notes depending upon the
fluctuation of the relative value, rate or price of the specified index.
Specific information pertaining to the method for determining the principal
amount payable at maturity, a historical comparison of the relative value, rate
or price of the specified index and the face amount of the Indexed Note and
certain additional United States federal tax considerations will be described in
the applicable Pricing Supplement.
EXTENSION OF MATURITY
The Pricing Supplement relating to each Note (other than an Amortizing
Note) will indicate whether the Company has the option to extend the maturity of
such Note for one or more periods of one or more whole years (each an "Extension
Period") up to but not beyond the date (the "Final Maturity Date") set forth in
such Pricing Supplement. If the Company has such option with respect to any such
Note (an "Extendible Note"), the following procedures will apply, unless
modified as set forth in the applicable Pricing Supplement.
The Company may exercise such option with respect to an Extendible Note by
notifying the Paying Agent of such exercise at least 45 but not more than 60
days prior to the maturity date originally in effect with respect to such Note
(the "Original Maturity Date") or, if the maturity date of such Note has already
been extended, prior to the maturity date then in effect (an "Extended Maturity
Date"). No later than 38 days prior to the Original Maturity Date or an Extended
Maturity Date, as the case may be (each, a "Maturity Date"), the Paying Agent
will mail to the holder of such Note a notice (the "Extension Notice") relating
to such Extension Period, by first class mail, postage prepaid, setting forth
(a) the election of the Company to extend the maturity of such Note; (b) the new
Extended Maturity Date; (c) the interest rate applicable to the Extension Period
(which, in the case of a Floating Rate Note, will be calculated with reference
to a Base Rate and the Spread and/or Spread Multiplier, if any); and (d) the
provisions, if any, for redemption during the Extension Period, including the
date or dates on which, the period or periods during which and the price or
S-13
<PAGE> 14
prices at which such redemption may occur during the Extension Period. Upon the
mailing by the Paying Agent of an Extension Notice to the holder of an
Extendible Note, the maturity of such Note shall be extended automatically, and,
except as modified by the Extension Notice and as described in the next
paragraph, such Note will have the same terms it had prior to the mailing of
such Extension Notice.
Notwithstanding the foregoing, not later than 10:00 A.M., New York City
time, on the twentieth calendar day prior to the Maturity Date then in effect
for an Extendible Note (or, if such day is not a Business Day, not later than
10:00 A.M., New York City time, on the immediately succeeding Business Day), the
Company may, at its option, revoke the interest rate provided for in the
Extension Notice and establish a higher interest rate (or, in the case of a
Floating Rate Note, a higher Spread and/or Spread Multiplier, if any) for the
Extension Period by causing the Paying Agent to send notice of such higher
interest rate (or, in the case of a Floating Rate Note, a higher Spread and/or
Spread Multiplier, if any) to the holder of such Note by first class mail,
postage prepaid, or by such other means as shall be agreed between the Company
and the Paying Agent. Such notice shall be irrevocable. All Extendible Notes
with respect to which the Maturity Date is extended in accordance with an
Extension Notice will bear such higher interest rate (or, in the case of a
Floating Rate Note, a higher Spread and/or Spread Multiplier, if any) for the
Extension Period, whether or not tendered for repayment.
If the Company elects to extend the maturity of an Extendible Note, the
holder of such Note will have the option to require the Company to repay such
Note on the Maturity Date then in effect at a price equal to the principal
amount thereof plus any accrued and unpaid interest to such date. In order for
an Extendible Note to be repaid on such Maturity Date, the holder thereof must
follow the procedures set forth below under "Repayment at the Noteholders'
Option; Repurchase" for optional repayment, except that the period for delivery
of such Note or notification to the Paying Agent shall be at least 25 but not
more than 35 days prior to the Maturity Date then in effect and except that a
holder who has tendered an Extendible Note for repayment pursuant to an
Extension Notice may, by written notice to the Paying Agent, revoke any such
tender for repayment until 3:00 P.M., New York City time, on the twentieth
calendar day prior to the Maturity Date then in effect (or, if such day is not a
Business Day, until 3:00 P.M., New York City time, on the immediately succeeding
Business Day).
BOOK-ENTRY SYSTEM
Upon issuance, all Fixed Rate Global Notes having the same Issue Date,
interest rate, if any, amortization schedule, if any, maturity date and other
terms, if any, will be represented by one or more Global Securities, and all
Floating Rate Global Notes having the same Issue Date, Initial Interest Rate,
Base Rate, Interest Reset Period, Interest Payment Dates, Index Maturity, Spread
and/or Spread Multiplier, if any, Minimum Interest Rate, if any, Maximum
Interest Rate, if any, maturity date and other terms, if any, will be
represented by one or more Global Securities. Each Global Security representing
Global Notes will be deposited with, or on behalf of, The Depository Trust
Company, New York, New York (the "Depositary"), and registered in the name of a
nominee of the Depositary. Global Notes will not be exchangeable for Definitive
Notes, except under the circumstances described in the Prospectus under
"Description of Debt Securities-Global Securities." Definitive Notes will not be
exchangeable for Global Notes and will not otherwise be issuable as Global
Notes.
A further description of the Depositary's procedures with respect to Global
Securities representing Global Notes is set forth in the Prospectus under
"Description of Debt Securities-Global Securities." The Depositary has confirmed
to the Company, each Agent and the Trustee that it intends to follow such
procedures.
OPTIONAL REDEMPTIONS
The Pricing Supplement will indicate that the Notes cannot be redeemed
prior to maturity or will indicate the terms on which the Notes will be
redeemable at the option of the Company. Notice of redemption will be provided
by mailing a notice of such redemption to each holder by first class mail,
postage prepaid, at least 30 days and not more than 60 days prior to the date
fixed for redemption to the respective address of each holder as that address
appears upon the books maintained by the Paying Agent. Unless otherwise provided
in
S-14
<PAGE> 15
the applicable Pricing Supplement, the Notes, except for Amortizing Notes, will
not be subject to any sinking fund.
REPAYMENT AT THE NOTEHOLDERS' OPTION; REPURCHASE
If applicable, the Pricing Supplement relating to each Note will indicate
that the Note will be repayable at the option of the holder on a date or dates
specified prior to its maturity date and, unless otherwise specified in such
Pricing Supplement, at a price equal to 100% of the principal amount thereof,
together with accrued interest to the date of repayment, unless such Note was
issued with original issue discount, in which case the Pricing Supplement will
specify the amount payable upon such repayment.
In order for such a Note to be repaid, the Paying Agent must receive at
least 30 days but not more than 60 days prior to the repayment date (i) the Note
with the form entitled "Option to Elect Repayment" or (ii) a telegram, telex,
facsimile transmission or a letter from a member of a national securities
exchange, or the National Association of Securities Dealers, Inc. (the "NASD")
or a commercial bank or trust company in the United States setting forth the
name of the holder of the Note, the principal amount of the Note, the principal
amount of the Note to be repaid, the certificate number or a description of the
tenor and terms of the Note, a statement that the option to elect repayment is
being exercised thereby and a guarantee that the Note to be repaid, together
with the duly completed form entitled "Option to Elect Repayment" on the reverse
of the Note, will be received by the Paying Agent not later than the fifth
Business Day after the date of such telegram, telex, facsimile transmission or
letter, provided, however, that such telegram, telex, facsimile transmission or
letter shall only be effective if such Note and form duly completed are received
by the Paying Agent by such fifth Business Day. Except in the case of Renewable
Notes or Extendible Notes, and unless otherwise specified in the applicable
Pricing Supplement, exercise of the repayment option by the holder of a Note
will be irrevocable. The repayment option may be exercised by the holder of a
Note for less than the entire principal amount of the Note but, in that event,
the principal amount of the Note remaining outstanding after repayment must be
an Authorized Denomination.
If a Note is represented by a Global Security, the Depositary's nominee
will be the holder of such Note and therefore will be the only entity that can
exercise a right to repayment. In order to ensure that the Depositary's nominee
will timely exercise a right to repayment with respect to a particular Note, the
beneficial owner of such Note must instruct the broker or other direct or
indirect participant through which it holds an interest in such Note to notify
the Depositary of its desire to exercise a right to repayment. Different firms
have different deadlines for accepting instructions from their customers and,
accordingly, each beneficial owner should consult the broker or other direct or
indirect participant through which it holds an interest in a Note in order to
ascertain the deadline by which such an instruction must be given in order for
timely notice to be delivered to the Depositary.
The Company may purchase Notes at any price in the open market or
otherwise. Notes so purchased by the Company may, at the discretion of the
Company, be held or resold or surrendered to the relevant Trustee for
cancellation.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates). It deals only with
Notes held as capital assets within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended (the "Code"), does not discuss all of the tax
consequences that may be relevant to a holder in light of such holder's
particular circumstances and does not purport to deal with persons in special
tax situations, such as financial institutions, insurance companies, tax-exempt
organizations, regulated investment companies, dealers in securities or
currencies, persons holding Notes as a hedge against, or which are hedged
against, currency risks, persons holding Notes as a position in a "straddle" for
tax purposes, or persons whose functional currency as defined in Section 985 of
the Code is not the United States dollar. It also does not deal with holders
other than original purchasers (except where otherwise specifically noted).
BECAUSE THE EXACT PRICING AND
S-15
<PAGE> 16
OTHER TERMS OF THE NOTES WILL VARY, NO ASSURANCE CAN BE GIVEN THAT THE
CONSIDERATIONS DESCRIBED BELOW WILL APPLY TO A PARTICULAR ISSUANCE OF NOTES.
CERTAIN MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE
OWNERSHIP OF PARTICULAR NOTES (WHERE APPLICABLE) WILL BE SUMMARIZED IN THE
PRICING SUPPLEMENT RELATING TO SUCH NOTES. PERSONS CONSIDERING THE PURCHASE OF
NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF UNITED
STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES ARISING
UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States Federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate or trust the income of which is subject to
United States Federal income taxation regardless of its source or (iv) any other
person whose income or gain in respect of a Note is effectively connected with
the conduct of a United States trade or business. The term also includes certain
former citizens of the United States. As used herein, the term "non-U.S. Holder"
means a beneficial owner of a Note that is not a U.S. Holder.
U.S. HOLDERS
Payments of Interest. Payments of interest on a Note generally will be
taxable to a U.S. Holder as ordinary interest income at the time such payments
are accrued or are received (in accordance with the U.S. Holder's regular method
of accounting for federal income tax purposes).
Original Issue Discount. The following summary is a general discussion of
the United States Federal income tax consequences to U.S. Holders of the
purchase, ownership and disposition of Notes issued with original issue discount
("Discount Notes").
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a Note over its issue
price, if such excess equals or exceeds a de minimis amount (generally 1/4 of 1%
of the Note's stated redemption price at maturity multiplied by the number of
complete years to its maturity from its issue date or, in the case of a Note
providing for the payment of any amount other than qualified stated interest (as
hereinafter defined) prior to maturity, multiplied by the weighted average
maturity of such Note). The issue price of each Note in an issue of Notes equals
the first price at which a substantial amount of such Notes has been sold for
money (ignoring sales to bond houses, brokers, or similar persons or
organizations acting in the capacity of underwriters, placement agents, or
wholesalers). The stated redemption price at maturity of a Note is the sum of
all payments provided by the Note other than "qualified stated interest"
payments. The term "qualified stated interest" generally means stated interest
that is unconditionally payable as a series of payments in cash or property
(other than debt instruments of the issuer) at least annually during the entire
term of the Note and equal to the outstanding principal balance multiplied by a
single fixed rate of interest. In addition, under final Treasury Regulations
(the "OID Regulations") promulgated by the Internal Revenue Service (the "IRS")
under the original issue discount provisions of the Code, if a Note bears
interest for one or more accrual periods at a rate below the rate applicable for
the remaining term of such Note (e.g., Notes with teaser rates or interest
holidays), and if the greater of either the resulting foregone interest on such
Note or any "true" discount on such Note (i.e., the excess of the Note's stated
principal amount over its issue price) equals or exceeds a specified de minimis
amount, then the stated interest on the Note would be treated as original issue
discount rather than qualified stated interest.
Payments of qualified stated interest on a Note are taxable to a U.S.
Holder as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax accounting
for federal income tax purposes). Holders of Notes with a de minimis amount of
original issue discount, as described above, will generally include such
original issue discount in income, as capital
S-16
<PAGE> 17
gain, on a pro rata basis as principal payments are made on the Notes. A U.S.
Holder of a Discount Note that matures more than one year from the date of
issuance must include original issue discount in income as ordinary interest for
United States Federal income tax purposes as it accrues under a constant yield
method based on a compounding of interest in advance of receipt of the cash
payments attributable to such income, regardless of such U.S. Holder's regular
method of tax accounting. In general, the amount of original issue discount
included in income by the initial U.S. Holder of a Discount Note is the sum of
the daily portions of original issue discount with respect to such Discount Note
for each day during the taxable year (or portion of the taxable year) on which
such U.S. Holder held such Discount Note. The "daily portion" of original issue
discount on any Discount Note is determined by allocating to each day in any
accrual period a ratable portion of the original issue discount allocable to
that accrual period. An "accrual period" may be of any length and the accrual
periods may vary in length over the term of the Discount Note, provided that
each accrual period is no longer than one year and each scheduled payment of
principal or interest occurs either on the final day of an accrual period or on
the first day of an accrual period. The amount of original issue discount
allocable to each accrual period is generally equal to the difference between
(i) the product of the Discount Note's adjusted issue price at the beginning of
such accrual period and its yield to maturity (determined on the basis of
compounding at the close of each accrual period and appropriately adjusted to
take into account the length of the particular accrual period) and (ii) the
amount of any qualified stated interest payments allocable to such accrual
period. The "adjusted issue price" of a Discount Note at the beginning of any
accrual period is the sum of the issue price of the Discount Note plus the
amount of original issue discount allocable to all prior accrual periods minus
the amount of any prior payments on the Discount Note that were not qualified
stated interest payments. Under these rules, U.S. Holders generally will have to
include in income increasingly greater amounts of original issue discount in
successive accrual periods.
A U.S. Holder who purchases a Discount Note for an amount that is greater
than its adjusted issue price as of the purchase date and less than or equal to
the sum of all amounts payable on the Discount Note after the purchase date
other than payments of qualified stated interest, will be considered to have
purchased the Discount Note at an "acquisition premium." Under the acquisition
premium rules, the amount of original issue discount which such U.S. Holder must
include in its gross income with respect to such Discount Note for any taxable
year (or portion thereof in which the U.S. Holder holds the Discount Note) will
be reduced (but not below zero) by the portion of the acquisition premium
properly allocable to the period.
Under the OID Regulations, Floating Rate Notes, Renewable Notes and Indexed
Notes (collectively, "Variable Notes") are subject to special rules whereby a
Variable Note will qualify as a "variable rate debt instrument" if (a) its issue
price does not exceed the total noncontingent principal payments due under the
Variable Note by more than a specified de minimis amount and (b) it provides for
stated interest, paid or compounded at least annually, at current values of (i)
one or more qualified floating rates, (ii) a single fixed rate and one or more
qualified floating rates, (iii) a single objective rate, or (iv) a single fixed
rate and a single objective rate that is a qualified inverse floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Note is denominated. Although a multiple of a qualified floating rate
will generally not itself constitute a qualified floating rate, a variable rate
is a qualified floating rate if it is equal to either (1) the product of a
qualified floating rate and a fixed multiple that is greater than 0.65 but not
more than 1.35 or (2) the product of a qualified floating rate and a fixed
multiple that is greater than 0.65 but not more than 1.35, increased or
decreased by a fixed rate. In addition, under the OID Regulations, two or more
qualified floating rates that can reasonably be expected to have approximately
the same values throughout the term of the Variable Note (e.g., two or more
qualified floating rates with values within 25 basis points of each other as
determined on the Variable Note's issue date) will be treated as a single
qualified floating rate. Notwithstanding the foregoing, a variable rate that
would otherwise constitute a qualified floating rate but which is subject to one
or more restrictions such as a maximum numerical limitation (i.e., a cap) or a
minimum numerical limitation (i.e., a floor) may, under certain circumstances,
fail to be treated as a qualified floating rate under the OID Regulations unless
such cap or floor is fixed throughout the term of the Note. An "objective rate"
is a rate (other than a qualified floating rate) that is obtained using a single
fixed formula and that is based on
S-17
<PAGE> 18
objective financial or economic information outside of the issuer's control. The
OID Regulations also provide that other variable interest rates may be treated
as objective rates if so designated by the IRS in the Internal Revenue Bulletin.
Despite the foregoing, a variable rate of interest on a Variable Note will not
constitute an objective rate if it is reasonably expected that the average value
of such rate during the first half of the Variable Note's term will be either
significantly less than or significantly greater than the average value of the
rate during the final half of the Variable Note's term. A "qualified inverse
floating rate" is any objective rate where such rate is equal to a fixed rate
minus a qualified floating rate, as long as variations in the rate can
reasonably be expected to inversely reflect contemporaneous variations in the
qualified floating rate. The OID Regulations also provide that if a Variable
Note provides for stated interest at a fixed rate for an initial period of less
than one year followed by a variable rate that is either a qualified floating
rate or an objective rate for a subsequent period, and if the variable rate on
the Variable Note's issue date is intended to approximate the fixed rate (e.g.,
the value of the variable rate on the issue date does not differ from the value
of the fixed rate by more than 25 basis points), then the fixed rate and the
variable rate together will constitute either a single qualified floating rate
or objective rate, as the case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations, then
any stated interest on such Note which is unconditionally payable in cash or
property (other than debt instruments of the issuer) at least annually during
the term of the Note will constitute qualified stated interest and will be taxed
accordingly. Thus, a Variable Note that provides for stated interest at either a
single qualified floating rate or a single objective rate throughout the term
thereof and that qualifies as a "variable rate debt instrument" under the OID
Regulations will generally not be treated as having been issued with original
issue discount unless the Variable Note is issued at a "true" discount (i.e., at
a price below the Note's stated principal amount) in excess of a specified de
minimis amount. Original issue discount on such a Variable Note arising from
"true" discount is allocated to an accrual period using the constant yield
method described above by assuming that the variable rate is a fixed rate equal
to (i) in the case of a qualified floating rate or qualified inverse floating
rate, the value as of the issue date, of the qualified floating rate or
qualified inverse floating rate, or (ii) in the case of an objective rate (other
than a qualified inverse floating rate), a fixed rate that reflects the yield
that is reasonably expected for the Variable Note.
In general, any other Variable Note that qualifies as a "variable rate debt
instrument" will be converted into an "equivalent" fixed rate debt instrument
for purposes of determining the amount and accrual of original issue discount
and qualified stated interest on the Variable Note. The OID Regulations
generally require that such a Variable Note be converted into an "equivalent"
fixed rate debt instrument by substituting any qualified floating rate or
qualified inverse floating rate provided for under the terms of the Variable
Note with a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the Variable Note's
issue date. Any objective rate (other than a qualified inverse floating rate)
provided for under the terms of the Variable Note is converted into a fixed rate
that reflects the yield that is reasonably expected for the Variable Note. In
the case of a Variable Note that qualifies as a "variable rate debt instrument"
and provides for stated interest at a fixed rate in addition to either one or
more qualified floating rates or a qualified inverse floating rate, the fixed
rate is initially converted into a qualified floating rate (or a qualified
inverse floating rate, if the Variable Note provides for a qualified inverse
floating rate). Under such circumstances, the qualified floating rate or
qualified inverse floating rate that replaces the fixed rate must be such that
the fair market value of the Variable Note as of the Variable Note's issue date
is approximately the same as the fair market value of an otherwise identical
debt instrument that provides for either the qualified floating rate or
qualified inverse floating rate rather than the fixed rate. Subsequent to
converting the fixed rate into either a qualified floating rate or a qualified
inverse floating rate, the Variable Note is then converted into an "equivalent"
fixed rate debt instrument in the manner described above.
Once the Variable Note is converted into an "equivalent" fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S. Holder
of the Variable Note will account for such original issue discount and qualified
stated interest as if the U.S. Holder held the "equivalent" fixed rate debt
S-18
<PAGE> 19
instrument. In each accrual period, appropriate adjustments will be made to the
amount of qualified stated interest or original issue discount assumed to have
been accrued or paid with respect to the "equivalent" fixed rate debt instrument
in the event that such amounts differ from the actual amount of interest accrued
or paid on the Variable Note during the accrual period.
If a Variable Note does not qualify as a "variable rate debt instrument"
under the OID Regulations, then the Variable Note would be treated as a
contingent payment debt obligation. Generally, if a Variable Note is treated as
a contingent payment obligation, interest payments thereon will be treated as
"contingent interest" payments. Under recently issued Treasury Regulations, any
contingent interest payments on a Variable Note would be includible in income in
a taxable year whether or not the amount of any payment is fixed or determinable
in that year. The amount of interest included in income in any particular
accrual period would be determined by constructing a projected payment schedule
(as determined under the Regulations) for the Variable Note and applying daily
accrual rules similar to those for accruing original issue discount on Notes
issued with original issue discount (as discussed above). If the actual amount
of contingent interest payments is not equal to the projected amount, an
adjustment to income at the time of the payment must be made to reflect the
difference.
Certain of the Notes (i) may be redeemable at the option of the Company
prior to their stated maturity (a "call option") and/or (ii) may be repayable at
the option of the holder prior to their stated maturity (a "put option"). Notes
containing such features may be subject to rules that differ from the general
rules discussed above. Investors intending to purchase Notes with such features
should consult their own tax advisors, since the original issue discount
consequences will depend, in part, on the particular terms and features of the
purchased Notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
Short-Term Notes. Notes that have a fixed maturity of one year or less
("Short-Term Notes") will be treated as having been issued with original issue
discount. In general, an individual or other cash method U.S. Holder is not
required to accrue such original issue discount unless the U.S. Holder elects to
do so. If such an election is not made, any gain recognized by the U.S. Holder
on the sale, exchange or maturity of the Short-Term Note will be ordinary income
to the extent of the original issue discount accrued on a straight-line basis,
or upon election under the constant yield method (based on daily compounding),
through the date of sale, exchange or maturity, and a portion of the deductions
otherwise allowable to the U.S. Holder for interest on borrowings allocable to
the Short-Term Note will be deferred until a corresponding amount of income is
realized. U.S. Holders who report income for United States Federal income tax
purposes under the accrual method, and certain other holders including banks and
dealers in securities, are required to accrue original issue discount on a
Short-Term Note on a straight-line basis unless an election is made to accrue
the original issue discount under a constant yield method (based on daily
compounding).
Market Discount. If a U.S. Holder purchases a Note, other than a Discount
Note, for an amount that is less than its stated redemption price at maturity
or, in the case of a Discount Note, for an amount that is less than its adjusted
issue price as of the purchase date, such U.S. Holder will be treated as having
purchased such Note at a "market discount," unless such market discount is less
than a specified de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat
any partial principal payment (or, in the case of a Discount Note, any payment
that does not constitute qualified stated interest) on, or any gain realized on
the sale, exchange, retirement or other disposition of, a Note as ordinary
income to the extent of the lesser of (i) the amount of such payment or realized
gain or (ii) the market discount which has not previously been included in
income and is treated as having accrued on such Note at the time of such payment
or disposition. Market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the Note, unless the
U.S. Holder elects to accrue market discount on an economic accrual basis. If
such Note is disposed of in a nontaxable transaction (other than as provided in
S-19
<PAGE> 20
Code Sections 1276(c) and (d)), accrued market discount will be includible as
ordinary income to such Holder as if such Holder had sold the Note at its then
fair market value.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry a Note with market discount until the maturity of the Note or
certain earlier dispositions including a nontaxable transaction (other than as
provided in Code Sections 1276(c) and (d)), because a current deduction is only
allowed to the extent the interest expense exceeds an allocable portion of
market discount. A U.S. Holder may elect to include market discount in income
currently as it accrues (on either a ratable or semiannual compounding basis),
in which case the rules described above regarding the treatment as ordinary
income of gain upon the disposition of the Note and upon the receipt of certain
cash payments and regarding the deferral of interest deductions will not apply.
Generally, such currently included market discount is treated as ordinary
interest for United States Federal income tax purposes. Such an election will
apply to all debt instruments acquired by the U.S. Holder on or after the first
day of the taxable year to which such election applies and may be revoked only
with the consent of the IRS.
Premium. If a U.S. Holder purchases a Note for an amount that is greater
than the sum of all amounts payable on the Note after the purchase date other
than payments of qualified stated interest, such U.S. Holder will be considered
to have purchased the Note with "amortizable bond premium" equal in amount to
such excess. A U.S. Holder may elect to amortize such premium using a constant
yield method over the remaining term of the Note and may offset interest
otherwise required to be included in respect of the Note during any taxable year
by the amortized amount of such excess for the taxable year. However, if the
Note may be optionally redeemed after the U.S. Holder acquires it at a price in
excess of its stated redemption price at maturity, special rules would apply
which could result in a deferral of the amortization of some bond premium until
later in the term of the Note. A U.S. Holder who elects to amortize bond premium
must reduce such holder's tax basis in the Note by the amount of the premium
amortized in any year. Any election to amortize bond premium applies to all
taxable debt obligations then owned and thereafter acquired by the U.S. Holder
and may be revoked only with the consent of the IRS.
Disposition of a Note. Except as discussed above, upon the sale, exchange
or retirement of a Note, a U.S. Holder generally will recognize taxable gain or
loss equal to the difference between the amount realized on the sale, exchange
or retirement (other than amounts representing accrued and unpaid interest) and
such U.S. Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax
basis in a Note generally will equal such U.S. Holder's initial investment in
the Note increased by any original issue discount included in income (and
accrued market discount, if any, if the U.S. Holder has included such market
discount in income) and decreased by the amount of any payments, other than
qualified stated interest payments, received and amortizable bond premium taken
with respect to such Note. Such gain or loss generally will be capital gain or
loss. The recently enacted Taxpayer Relief Act of 1997 made certain changes to
the Code with respect to taxation of capital gains of non-corporate taxpayers.
In general, the maximum tax rate for non-corporate taxpayers on long term
capital gains on most capital assets (including assets such as the Notes) has
been lowered to 20% (10% for taxpayers in the 15% regular tax bracket) if the
capital assets have been held for more than 18 months. Capital gains on assets
sold by non-corporate taxpayers on or after July 29, 1997 will be taxed at a
maximum 28% ("midterm gain") rate (15% for taxpayers in the 15% regular tax
bracket) if such assets have been held for more than one year but not more than
18 months.
Extension of Maturity. As described under "Description of
Notes -- Extension of Maturity" above, the issuer may have the option to extend
the maturity of a Note and, if the issuer exercises such option, the Holder will
have the option to require the issuer to repay the Note on the Maturity Date.
The election by the Company to extend the maturity of a Note will, under certain
circumstances, be treated for federal income tax purposes as a taxable exchange
of such Note for a modified note. See "Disposition of a Note". Purchasers of
such Notes should carefully examine the applicable Pricing Supplement and should
consult with their tax advisors with respect to such a feature since the tax
consequences will depend, in part, on the particular terms and particular
features of the Note.
S-20
<PAGE> 21
NON-U.S. HOLDERS
A non-U.S. Holder generally will not be subject to United States Federal
income taxes on payments of principal, premium (if any) or interest (including
original issue discount, if any) on a Note, unless such non-U.S. Holder owns
actually or constructively 10% or more of the total combined voting power of all
classes of stock of the Company entitled to vote, is a controlled foreign
corporation related directly or indirectly to the Company through stock
ownership or is a bank receiving interest described in section 881(c)(3)(A) of
the Code. This exemption from taxation does not apply, however, to certain
"contingent interest" as defined in Section 871(h)(4) of the Code or as
otherwise identified in published regulations. To qualify for the exemption, the
last United States payor in the chain of payment prior to payment to a non-U.S.
Holder (the "Withholding Agent") must have received in the year in which a
payment of interest or principal occurs, or in either of the two preceding
calendar years, a statement that (i) is signed by the beneficial owner of the
Note under penalties of perjury, (ii) certifies that such owner is not a U.S.
Holder and (iii) provides the name and address of the beneficial owner. The
statement may be made on an IRS Form W-8 or a substantially similar form, and
the beneficial owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. If a Note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by the
beneficial owner to the organization or institution. In addition, the Treasury
Department has issued proposed regulations regarding the withholding and
information reporting rules discussed above. In general, the proposed
regulations do not alter the substantive withholding and information reporting
requirements but unify current certification procedures and forms and clarify
reliance standards. If finalized in their current form, the proposed regulations
would generally be effective for payments made after December 31, 1997, subject
to certain transition rules.
Generally, a non-U.S. Holder will not be subject to Federal income taxes on
any amount which constitutes capital gain upon retirement or disposition of a
Note, unless (i) such Holder is an individual who is present in the United
States for 183 days or more in the taxable year of disposition, and either (a)
such individual has a "tax home" (as defined in Code Section 911(d)(3)) in the
United States (unless such gain is attributable to a fixed place of business in
a foreign country maintained by such individual and has been subject to foreign
tax of at least 10%) or (b) the gain is attributable to an office or other fixed
place of business maintained by such individual in the United States or (ii) the
gain is effectively connected with the conduct of a trade or business in the
United States by the non-U.S. Holder.
If a non-U.S. Holder of a Note is engaged in a trade or business in the
United States, and if interest (including original issue discount) on the Note
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 paragraph, will generally be subject to regular United States income
tax on interest (including any original issue discount) and on any gain realized
on the sale, exchange or other disposition of a Note in the same manner as if it
were a United States Holder. See the discussion above regarding U.S. Holders. In
lieu of the certificate described above, such a Holder will be required to
provide to the Company a properly executed Internal Revenue Service Form 4224 in
order to claim an exemption from withholding tax. In addition, if such non-U.S.
Holder is a foreign corporation, it may be subject to a branch profits tax equal
to 30% (or such lower rate provided by an appliable treaty) of its effectively
connected earnings and profits for the taxable year, subject to certain
adjustments. For purposes of the branch profits tax, interest (including
original issue discount) on and any gain recognized on the sale, exchange or
other disposition of a Note will be included in the effectively connected
earnings and profits of such non-U.S. Holder if such interest or gain, as the
case may be, is effectively connected with the conduct by the non-U.S. Holder of
a trade or business in the United States.
The Notes will not be includible in the estate of a non-U.S. Holder unless
the individual owns, actually or constructively, 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote
or, at the time of such individual's death, payments in respect of the Notes
would have been effectively connected with the conduct by such individual of a
trade or business in the United States.
S-21
<PAGE> 22
BACKUP WITHHOLDING AND INFORMATION REPORTING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Notes to registered owners who are not
"exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would establish
an exemption from backup withholding for those non-U.S. Holders who are not
exempt recipients.
Under current Treasury Regulations, payments on the sale, exchange or other
disposition of a Note made to or through a foreign office of a broker generally
will not be subject to backup withholding. However, if such broker is a United
States person, a controlled foreign corporation for United States tax purposes
or a foreign person 50% or more of whose gross income is effectively connected
with a United States trade or business for a specified three-year period,
information reporting will be required unless the broker has in its records
documentary evidence that the beneficial owner is not a United States person and
certain other conditions are met or the beneficial owner otherwise establishes
an exemption. Under proposed Treasury Regulations, backup withholding may apply
to any payment which such broker is required to report if such broker has actual
knowledge that the payee is a United States person. Payments to or through the
United States office of a broker will be subject to backup withholding and
information reporting unless the Holder certifies, under penalties of perjury,
that it is not a United States person or otherwise establishes an exemption.
Holders should consult their tax advisors regarding their qualification for
an exemption from backup withholding and information reporting and the procedure
for obtaining such an exemption, if applicable. Any amounts withheld under the
backup withholding rules from a payment to a beneficial owner would be allowed
as a refund or a credit against such beneficial owner's United States Federal
income tax provided the required information is furnished to the IRS.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuing basis by the Company through
the Agents, who have agreed to use reasonable efforts to solicit offers to
purchase Notes. The Company will have the sole right to accept offers to
purchase Notes and may reject any offer to purchase Notes in whole or in part.
An Agent will have the right to reject any offer to purchase Notes solicited by
it in whole or in part. Payment of the purchase price of the Notes will be
required to be made in immediately available funds. The Company will pay an
Agent, in connection with sales of Notes resulting from a solicitation made or
an offer to purchase received by such Agent, a commission ranging from .125% to
.750% of the principal amount of Notes to be sold, provided, however, that
commissions with respect to Notes maturing in thirty years or greater will be
negotiated.
The Company may also sell Notes to an Agent as principal for its own
account at discounts to be agreed upon at the time of sale. Such Notes may be
resold to investors and other purchasers at prevailing market prices, or prices
related thereto at the time of such resale, as determined by the Agent or, if so
agreed, at a fixed public offering price. In addition, the Agents may offer the
Notes they have purchased as principal to other dealers. The Agents may sell
Notes to any dealer at a discount and, unless otherwise specified in the
applicable Pricing Supplement, such discount allowed to any dealer will not be
in excess of the discount to be received by such Agent from the Company. After
the initial public offering of Notes to be resold to investors and other
purchasers, the public offering price (in the case of Notes to be resold at a
fixed public offering price), concession and discount may be changed.
In order to facilitate the offering of the Notes, the Agents may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Agents may overallot in connection with the offering,
creating a short position in the Notes for their own account. In addition, to
cover overallotments or to stabilize the price of the Notes, the Agents may bid
for, and purchase, the Notes in the open market. Finally, the Agents may reclaim
selling concessions allowed to a dealer for distributing the Notes in the
S-22
<PAGE> 23
offering, if the Agent repurchases previously distributed Notes in transactions
to cover short positions established in connection with the offering of the
Notes, in stabilization transactions or otherwise. Any of these activities may
stabilize or maintain the market price of the Notes above independent market
levels. The Agents are not required to engage in these activities and may end
any of these activities at any time.
The Company has reserved the right to sell the Notes directly to investors,
and may solicit and accept offers to purchase Notes directly from investors from
time to time on its own behalf. The Company may accept (but not solicit) offers
to purchase Notes through additional agents and may appoint additional agents
for the purpose of soliciting offers to purchase Notes, in either case on terms
substantially identical to the terms contained in the Distribution Agreement.
Such other agents, if any, will be named in the applicable Pricing Supplement.
An Agent may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). The Company and the
Agents have agreed to indemnify each other against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
made in respect thereof. The Company has also agreed to reimburse the Agents for
certain expenses.
The Company does not intend to apply for the listing of the Notes on a
national securities exchange. The Company has been advised by the Agents that
the Agents intend to make a market in the Notes, as permitted by applicable laws
and regulations. The Agents are not obligated to do so, however, and the Agents
may discontinue making a market at any time without notice. No assurance can be
given as to the liquidity of any trading market for the Notes.
Concurrently with the offering of Notes through the Agents as described
herein, the Company may issue other Debt Securities pursuant to the Indenture
referred to herein.
NationsBanc Montgomery Securities, Inc., one of the Agents, is an affiliate
of NationsBank, N.A., the administrative agent and one of the lenders under the
Company's $325,000,000 credit facility. Because more than 10% of the net
proceeds of the offering of the Notes may be paid to NationsBank, N.A., in
connection with repayments of amounts outstanding under such credit facility,
the offering of the Notes is being made pursuant to the provisions of
subparagraph (c)(8) of Rule 2710 of the National Association of Securities
Dealers, Inc. Conduct Rules. See "Use of Proceeds" in the accompanying
Prospectus.
The Agents and/or certain of their affiliates may engage in transactions
with and perform services for the Company and certain of its affiliates in the
ordinary course of business.
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by John F.
Schmutz, Vice President -- General Counsel of the Company and Latham & Watkins,
Los Angeles, California, or such other attorney of the Company as the Company
may designate, and for the Agents by Davis Polk & Wardwell, New York, New York.
S-23
<PAGE> 24
PROSPECTUS
$300,000,000
LA QUINTA INNS, INC.
DEBT SECURITIES
---------------------
La Quinta Inns, Inc. (the "Company" or "La Quinta") intends to issue from
time to time up to $300,000,000 aggregate principal amount of its Debt
Securities (the "Debt Securities"), or if any Debt Securities are issued at an
original issue discount, such greater amount as shall result in net proceeds to
the Company of $300,000,000, which will be offered to the public on terms
determined by market conditions at the time of sale. The Debt Securities may be
issued in one or more series with the same or various maturities at par, at a
premium, or with an original issue discount. When particular Debt Securities are
offered, a prospectus supplement ("Prospectus Supplement"), together with this
Prospectus, will be delivered setting forth the terms of such Debt Securities,
including, where applicable, the specific designation, aggregate principal
amount, denominations, maturity, rate and taxability of any interest (or manner
of calculation thereof) and time of payment thereof, any redemption provisions,
the initial public offering price and any other specific terms in connection
with the offering and sale of such Debt Securities. The Debt Securities will be
represented by global notes registered in the name of a nominee of The
Depository Trust Company, as Depositary. Beneficial interests in the Debt
Securities will be shown on, and transfers thereof will be effected only
through, records maintained by the Depositary (with respect to participants'
interests) and its participants. Except as described in this Prospectus, Debt
Securities in certificated form will not be issued in exchange for the global
notes.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The Company may sell Debt Securities through underwriters, dealers or
agents, or directly to one or more purchasers. The Prospectus Supplement will
set forth the names of underwriters, dealers or agents, if any, any applicable
commissions or discounts and the net proceeds to the Company from any such sale.
See "Plan of Distribution" for possible indemnification arrangements for
underwriters, dealers, agents and purchasers.
August 25, 1997
<PAGE> 25
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY (THE
"OFFERING") TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED
IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITY OTHER THAN THE DEBT SECURITIES OFFERED HEREBY TO ANY PERSON IN
ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION
TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY
SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (together with all amendments, the
"Registration Statement") on Form S-3 under the Securities Act of 1933, as
amended (the "Securities Act") with respect to the Debt Securities offered
hereby. This Prospectus, filed as a part of that Registration Statement, does
not contain all the information set forth in the Registration Statement, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. In addition, certain documents filed by the Company with the
Commission have been incorporated herein by reference. See "Incorporation of
Certain Information by Reference." For further information regarding La Quinta
and the Debt Securities offered hereby, reference is made to the Registration
Statement, including the exhibits and schedules thereto and the documents
incorporated herein by reference. The Company is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549; and
at the regional offices of the Commission at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and at 7 World
Trade Center, 13th Floor, New York, New York 10048. Copies of such materials can
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a world wide web site at http://www.sec.gov that contains reports,
proxy and other information regarding registrants that file electronically with
the Commission. The Common Stock of the Company is listed on the New York Stock
Exchange. Reports, proxy statements and other information concerning the Company
can also be inspected and copied at the offices of the New York Stock Exchange,
20 Broad Street, New York, New York 10005.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Annual Report on Form 10-K (Commission file No. 1-7790) for
the fiscal year ended December 31, 1996 (filed with the Commission on February
28, 1997), the Company's Quarterly Report on Form 10-Q for the three month
period ended March 31, 1997 (filed with the Commission on May 14, 1997), and the
Company's Quarterly Report on Form 10-Q for the three and six month periods
ended June 30, 1997 (filed with the Commission on August 11, 1997), are hereby
incorporated by reference.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, after the date of this Prospectus and prior to the
termination of the offering of the securities offered by this Prospectus, shall
be deemed to be incorporated by reference in this Prospectus and be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus, or in
any other subsequently filed document that also is or is deemed to be
incorporated by reference, modifies or replaces such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified,
to constitute a part of this Prospectus.
The Company undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon written or oral request of any
such person, a copy of any or all of the documents incorporated by reference
herein, other than exhibits to such documents, unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates. Written or oral requests for such copies should be directed to: La
Quinta Inns, Inc., P. O. Box 2636, San Antonio, Texas 78299-2636, Attention:
Investor Relations, telephone (210) 302-6000.
2
<PAGE> 26
THE COMPANY
La Quinta is the second largest owner/operator of hotels in the United
States and operates primarily in the mid-priced segment of the lodging industry.
La Quinta achieved an occupancy percentage of 68.9% and an average daily room
rate of $53.83 for the year ended December 31, 1996. The Company has inns
located in 28 states, concentrated in the Western and Southern United States. At
June 30, 1997, La Quinta owned and operated 235 inns and 23 Inn & Suites hotels
with a combined total of over 33,000 rooms.
The Company was founded in San Antonio, Texas in 1968. La Quinta was
originally incorporated and became a publicly traded entity in 1972 and is
incorporated under the laws of the State of Texas. The principal executive
offices are located at Weston Centre, 112 E. Pecan Street, San Antonio, Texas
78205, telephone (210) 302-6000.
RATIO OF EARNINGS TO FIXED CHARGES (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30 YEAR ENDED DECEMBER 31
-------------- --------------------------------
1997 1996 1996 1995 1994 1993 1992
----- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges............. 3.2x 3.0x 2.9x 3.1x 2.8x 2.4x 1.2x
</TABLE>
For purposes of calculating this ratio, earnings include net earnings
(loss) before income taxes, extraordinary items, and the cumulative effect of
accounting change, partners' equity in earnings of combined unincorporated
partnerships and joint ventures that have fixed charges, fixed charges net of
interest capitalized and amortization of capitalized interest. Fixed charges
include interest expense on long-term debt (before capitalized interest) and the
portion of rental expense allocated to interest. The Six Months Ended June 30,
1996 and Years Ended December 31, 1996 and 1995, include a non-cash provision
for premature retirement of assets totaling approximately $9,062,000,
$18,076,000 and $12,630,000, respectively.
USE OF PROCEEDS
Except as may be set forth in the Prospectus Supplement, the Company
intends to use the net proceeds from the sale of the Debt Securities for general
corporate purposes, which may include the construction of new properties,
acquisition of additional properties and other acquisition transactions, the
expansion and improvement of certain properties in the Company's portfolio, the
repayment of certain indebtedness and the repurchase of certain securities of
the Company.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be issued under an Indenture (the "Indenture")
dated as of September 15, 1995 between the Company and U.S. Trust Company of
Texas, N.A., as trustee (the "Trustee"). The following description of certain
provisions of the Indenture and the Debt Securities summarizes the material
terms thereof but does not purport to be complete, and such summaries are
subject to the detailed provisions of the Indenture to which reference is hereby
made, including the definition of certain terms used herein and those terms made
a part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended, and for other information regarding the Debt Securities. The Indenture
has been incorporated by reference as an exhibit to the Registration Statement
of which this Prospectus is a part. Numerical references in parentheses below
are to sections in the Indenture. Wherever particular sections or defined terms
of the Indenture are referred to, such sections or defined terms are
incorporated herein by reference as part of the statement made, and the
statement is qualified in its entirety by such reference.
3
<PAGE> 27
GENERAL
The Indenture provides for issuance from time to time of debentures, notes
(including the Debt Securities) or other evidences of indebtedness by the
Company ("Securities") in an unlimited amount. Additional Securities may be
issued under the Indenture from time to time.
The Debt Securities may be issued in one or more series with the same or
various maturities, at par, at a premium, or with an original issue discount.
Reference is made to the Prospectus Supplement relating to the particular series
of Debt Securities offered thereby for the following terms of the Debt
Securities: (i) the designation of the Securities of the series, which shall
distinguish the Securities of the series from the Securities of all other
series; (ii) any limit upon the aggregate principal amount of the Securities of
the series that may be authenticated and delivered under the Indenture and any
limitation on the ability of the Company to increase such aggregate principal
amount after the initial issuance of the Securities of that series; (iii) the
date or dates on which the principal of the Securities of the series is payable
(which date or dates may be fixed or extendible); (iv) the rate or rates (which
may be fixed or variable) per annum at which the Securities of the series shall
bear interest, if any, the date or dates from which such interest shall accrue,
on which such interest shall be payable and (in the case of Registered
Securities (which is defined as any Security registered on the Security
Register)) on which a record shall be taken for the determination of Holders to
whom interest is payable and/or the method by which such rate or rates or date
or dates shall be determined; (v) if other than as provided in the Indenture,
the place or places where the principal of and any interest on Securities of the
series shall be payable, any Registered Securities of the series may be
surrendered for exchange, notices, demands to or upon the Company in respect of
the Securities of the series and the Indenture may be served and notice to
Holders may be published; (vi) the right, if any, of the Company to redeem
Securities of the series, in whole or in part, at its option and the period or
periods within which, the price or prices at which and any terms and conditions
upon which Securities of the series may be so redeemed, pursuant to any sinking
fund or otherwise; (vii) the obligation, if any, of the Company to redeem,
purchase or repay Securities of the series pursuant to any mandatory redemption,
sinking fund or analogous provisions or at the option of a Holder thereof and
the price or prices at which and the period or periods within which and any of
the terms and conditions upon which Securities of the series shall be redeemed,
purchased or repaid, in whole or in part, pursuant to such obligation; (viii) if
other than denominations of $1,000 and any integral multiple thereof, the
denominations in which Securities of the series shall be issuable; (ix) if other
than the principal amount thereof, the portion of the principal amount of
Securities of the series which shall be payable upon declaration of acceleration
of the maturity thereof; (x) if other than the coin or currency in which the
Securities of the series are denominated, the coin or currency in which payment
of the principal of or interest on the Securities of the series shall be payable
or if the amount of payments of principal of and/or interest on the Securities
of the series may be determined with reference to an index based on a coin or
currency other than that in which the Securities of the series are denominated,
the manner in which such amounts shall be determined; (xi) if other than the
currency of the United States of America, the currency or currencies, including
composite currencies, in which payment of the principal of and interest on the
Securities of the series shall be payable, and the manner in which any such
currencies shall be valued against other currencies in which any other
Securities shall be payable; (xii) whether the Securities of the series or any
portion thereof will be issuable as Registered Securities (and if so, whether
such Securities will be issuable as Registered Global Securities) or
Unregistered Securities (which is defined as any Security other than a
Registered Security) (with or without coupons), or any combination of the
foregoing, any restrictions applicable to the offer, sale or delivery of
Unregistered Securities or the payment of interest thereon and, if other than as
provided herein, the terms upon which Unregistered Securities of any series may
be exchanged for Registered Securities of such series and vice versa; (xiii)
whether and under what circumstances the Company will pay additional amounts on
the Securities of the series held by a person who is not a U.S. person in
respect of any tax, assessment or governmental charge withheld or deducted and,
if so, whether the Company will have the option to redeem such Securities rather
than pay such additional amounts; (xiv) if the Securities of the series are to
be issuable in definitive form (whether upon original issue or upon exchange of
a temporary Security of such series) only upon receipt of certain certificates
or other documents or satisfaction of other conditions, the form and terms of
such certificates, documents or conditions; (xv) any trustees, depositaries,
authenticating or paying agents, transfer agents or the registrar or any other
agents with respect to the Securities of the series; (xvi) provisions,
4
<PAGE> 28
if any, for the defeasance of the Securities of the series (including provisions
permitting defeasance of less than all Securities of the series), which
provisions may be in addition to, in substitution for, or in modification of (or
any combination of the foregoing) the provisions of the Indenture; (xvii) if the
Securities of the series are issuable in whole or in part as one or more
Registered Global Securities, the identity of the Depositary for such Registered
Global Security or Securities (which Depositary shall, at the time of its
designation as Depositary and at all times while it serves as Depositary, be a
clearing agency registered under the Exchange Act and any other applicable
statute or regulation); (xviii) any other events of default or covenants with
respect to the Securities of the series; and (xix) any other terms of the
Securities of the series (which terms shall not be inconsistent with the
provisions of the Indenture).
The Indenture does not contain any restriction on the payment of dividends
or any financial covenants. The Indenture does not contain provisions which
would afford the Holders of the Debt Securities protection in the event of a
transfer of assets to a subsidiary and incurrence of unsecured debt by such
subsidiary, or in the event of a decline in the Company's credit quality
resulting from highly leveraged or other similar transactions involving the
Company.
The Debt Securities will be unsubordinated and unsecured obligations of the
Company ranking pari passu with all existing and future unsubordinated and
unsecured obligations of the Company. Claims of Holders of Debt Securities will
be effectively subordinated to the claims of holders of the debt of the
Company's subsidiaries with respect to the assets of such subsidiaries. In
addition, claims of Holders of Debt Securities will be effectively subordinated
to the claims of holders of secured debt of the Company and its subsidiaries
with respect to the collateral securing such claims and claims of the Company as
the holder of general unsecured intercompany debt will be similarly effectively
subordinated to claims of holders of secured debt of its subsidiaries.
GLOBAL SECURITIES
Securities, including the Debt Securities, issued in the form of fully
registered global Securities (a "Registered Global Security") will be deposited
with The Depository Trust Company (the "Depositary") or a nominee thereof.
Unless and until it is exchanged in whole or in part for Securities in
definitive registered form, a Registered Global Security may not be transferred
except as a whole by the Depositary for such Registered Global Security to a
nominee of such Depositary or by a nominee of such Depositary to such Depositary
or another nominee of such Depositary or by such Depositary or any such nominee
to a successor of such Depositary or a nominee of such successor. The Depositary
currently accepts only securities that are denominated in U.S. dollars.
Ownership of beneficial interests in a Registered Global Security will be
limited to persons that have accounts with the Depositary for such Registered
Global Security ("participants") or persons that may hold interests through
participants. Upon the issuance of a Registered Global Security, the Depositary
for such Registered Global Security will credit, on its book-entry registration
and transfer system, the participants' accounts with the respective principal
amounts of the Securities represented by such Registered Global Security
beneficially owned by such participants. The accounts to be credited will be
designated by any dealers, underwriters or agents participating in the
distribution of such Securities. Ownership of beneficial interests in such
Registered Global Security will be shown on, and the transfer of such ownership
interests will be effected only through, records maintained by the Depositary
for such Registered Global Security (with respect to interests of participants)
and on the records of participants (with respect to interests of persons holding
through participants). The laws of some states may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such limits and such laws may impair the ability to own, transfer or
pledge beneficial interests in Registered Global Securities.
So long as the Depositary for a Registered Global Security, or its nominee,
is the owner of record of such Registered Global Security, such Depositary or
such nominee, as the case may be, will be considered the sole owner or holder of
the Securities represented by such Registered Global Security for all purposes
under the Indenture. Except as set forth below, owners of beneficial interests
in a Registered Global Security will not be entitled to have the Securities
represented by such Registered Global Security registered in their names, and
5
<PAGE> 29
will not receive or be entitled to receive physical delivery of such Securities
in definitive form and will not be considered the owners or holders thereof
under the Indenture. Accordingly, each person owning a beneficial interest in a
Registered Global Security must rely on the procedures of the Depositary for
such Registered Global Security and, if such person is not a participant, on the
procedures of the participant through which such person owns its interest, to
exercise any rights of a holder of record under the Indenture. The Company
understands that under existing industry practices, if the Company requests any
action of holders or if any owner of a beneficial interest in a Registered
Global Security desires to give or take any action which a holder is entitled to
give or take under the Indenture, the Depositary for such Registered Global
Security would authorize the participants holding the relevant beneficial
interests to give or take such action, and such participants would authorize
beneficial owners owning through such participants to give or take such action
or would otherwise act upon the instruction of beneficial owners holding through
them.
Payments of principal of, premium, if any, and interest on Securities
represented by a Registered Global Security registered in the name of the
Depositary or its nominee will be made to such Depositary or its nominee, as the
case may be, as the registered owner of such Registered Global Security. None of
the Company, the Trustee or any other agent of the Company or agent of the
Trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
such Registered Global Security or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
The Company expects that the Depositary for any Securities represented by a
Registered Global Security, upon receipt of any payment of principal, premium,
if any, or interest in respect of such Registered Global Security, will
immediately credit participants' accounts with payments in amounts proportionate
to their respective beneficial interests in such Registered Global Security as
shown on the records of such Depositary. The Company also expects that payments
by participants to owners of beneficial interests in such Registered Global
Security held through such participants will be governed by standing customer
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such participants.
If the Depositary for Securities represented by a Registered Global
Security notifies the Company that it is at any time unwilling or unable to
continue as Depositary or ceases to be eligible under applicable law, and a
successor Depositary eligible under applicable law is not appointed by the
Company within 90 days, the Company will issue such Securities in definitive
form in exchange for such Registered Global Security. In addition, the Company
may at any time and in its sole discretion determine not to have any of the
Securities of a series represented by one or more Registered Global Securities
and, in such event, will issue Securities of such series in definitive form in
exchange for all of the Registered Global Security or Registered Global
Securities representing such Securities. Any Securities issued in definitive
form in exchange for a Registered Global Security will be registered in such
name or names as the Depositary shall instruct the Trustee. It is expected that
such instructions will be based upon directions received by the Depositary from
participants with respect to ownership of beneficial interests in such
Registered Global Security.
SAME-DAY SETTLEMENT IN RESPECT OF GLOBAL NOTES
So long as any Debt Securities are represented by Global Securities
registered in the name of the Depositary or its nominee, such Debt Securities
will trade in the Depositary's Same-Day Funds Settlement System, and secondary
market trading activity in such Debt Securities will therefore be required by
the Depositary to settle in immediately available funds. No assurance can be
given as to the effect, if any, of settlement in immediately available funds on
trading activity in the Debt Securities.
CERTAIN COVENANTS
The following covenants apply to all series of Securities, including the
Debt Securities.
Restrictions on Liens. The Indenture provides that the Company will not,
and will not permit any Restricted Subsidiary (as defined herein) to, create or
incur any Lien (as defined herein) on any shares of stock, indebtedness or other
obligations of a Restricted Subsidiary (as defined herein) or any Principal
6
<PAGE> 30
Property (as defined herein) of the Company or a Restricted Subsidiary, whether
such shares of stock, indebtedness or other obligations of a Restricted
Subsidiary or Principal Property are owned at the date of the Indenture or
thereafter acquired, unless the Company secures or causes such Restricted
Subsidiary to secure the outstanding Securities equally and ratably with all
indebtedness secured by such Lien, so long as such indebtedness shall be so
secured. This covenant shall not apply in the case of: (i) the creation of any
Lien on any shares of stock, indebtedness or other obligations of a Subsidiary
or any Principal Property acquired after the date of the Indenture (including
acquisitions by way of merger or consolidation) by the Company or a Restricted
Subsidiary contemporaneously with such acquisition, or within 180 days
thereafter, to secure or provide for the payment or financing of any part of the
purchase price thereof, or the assumption of any Lien upon any shares of stock,
indebtedness or other obligations of a Subsidiary or any Principal Property
acquired after the date of the Indenture existing at the time of such
acquisition, or the acquisition of any shares of stock, indebtedness or other
obligations of a Subsidiary or any Principal Property subject to any Lien
without the assumption thereof, provided that every such Lien referred to in
this clause (i) shall attach only to the shares of stock, indebtedness or other
obligations of a Subsidiary or any Principal Property so acquired and fixed
improvements thereon; (ii) any Lien on any shares of stock, indebtedness or
other obligations of a Subsidiary or any Principal Property existing at the date
of the Indenture; (iii) any Lien on any shares of stock, indebtedness or other
obligations of a Subsidiary or any Principal Property in favor of the Company or
any Restricted Subsidiary; (iv) any Lien on any Principal Property being
constructed or improved securing loans to finance such construction or
improvements; (v) any Lien on shares of stock, indebtedness or other obligations
of a Subsidiary or any Principal Property incurred in connection with the
issuance of tax-exempt governmental obligations (including, without limitation,
industrial revenue bonds and similar financings); (vi) any mechanics',
materialmen's, carriers' or other similar Liens arising in the ordinary course
of business with respect to obligations which are not yet due or which are being
contested in good faith; (vii) any Lien on any shares of stock, indebtedness or
other obligations of a Subsidiary or any Principal Property for taxes,
assessments or governmental charges or levies not yet delinquent, or already
delinquent but the validity of which is being contested in good faith; (viii)
any Lien on any shares of stock, indebtedness or other obligations of a
Subsidiary or any Principal Property arising in connection with legal
proceedings being contested in good faith, including any judgment Lien so long
as execution thereon is stayed; (ix) any landlord's Lien on fixtures located on
premises leased by the Company or a Restricted Subsidiary in the ordinary course
of business, and tenants' rights under leases, easements and similar Liens not
materially impairing the use or value of the property involved; (x) any Lien
arising by reason of deposits necessary to qualify the Company or any Restricted
Subsidiary to conduct business, maintain self-insurance, or obtain the benefit
of, or comply with, any law; and (xi) any renewal of or substitution for any
Lien permitted by any of the preceding clauses (i) through (x), provided, in the
case of a Lien permitted under clause (i), (ii) or (iv), the indebtedness
secured is not increased nor the Lien extended to any additional assets.
(Section 4.3(a)) Notwithstanding the foregoing, the Company or any Restricted
Subsidiary may create or assume Liens in addition to those permitted by the
preceding sentence of this paragraph, and renew, extend or replace such Liens,
provided that at the time of such creation, assumption, renewal, extension or
replacement, and after giving effect thereto, Exempted Debt (as defined herein)
does not exceed 15% of Combined Net Worth (as defined herein). (Section 4.3(b))
Restrictions on Sale and Lease-Back Transactions. The Indenture provides
that the Company will not, and will not permit any Restricted Subsidiary to,
sell or transfer, directly or indirectly, except to the Company or a Restricted
Subsidiary, any Principal Property as an entirety, or any substantial portion
thereof, with the intention of taking back a lease of such property, except a
lease for a period of three years or less at the end of which it is intended
that the use of such property by the lessee will be discontinued; provided that,
notwithstanding the foregoing, the Company or any Restricted Subsidiary may sell
any such Principal Property and lease it back for a longer period (i) if the
Company or such Restricted Subsidiary would be entitled, pursuant to the
provisions of Section 4.3(a) described above under "-- Restrictions on Liens",
to create a Lien on the property to be leased securing Funded Debt (as defined
herein) in an amount equal to the Attributable Debt (as defined herein) with
respect to such sale and lease-back transaction without equally and ratably
securing the outstanding Securities or (ii) if (A) the Company promptly informs
the Trustee of such transaction, and (B) the Company causes an amount equal to
the fair value (as determined by Board
7
<PAGE> 31
Resolution of the Company) of such property to be applied: (1) to the purchase
of other property that will constitute Principal Property having a fair value at
least equal to the fair value of the property sold, or (2) to the retirement
within 120 days after receipt of such proceeds, of Funded Debt incurred or
assumed by the Company or a Restricted Subsidiary (including the Securities);
provided further that, in lieu of applying all of or any part of such net
proceeds to such retirement, the Company may, within 75 days after such sale,
deliver or cause to be delivered to the applicable Trustee for cancellation
either debentures or notes evidencing Funded Debt of the Company (which may
include the Securities) or of a Restricted Subsidiary previously authenticated
and delivered by the applicable Trustee, and not theretofore tendered for
sinking fund purposes or called for a sinking fund or otherwise applied as a
credit against an obligation to redeem or retire such notes or debentures, and a
certificate of an officer of the Company (which shall be delivered to the
Trustee) stating that the Company elects to deliver or cause to be delivered
such debentures or notes in lieu of retiring Funded Debt as hereinabove
provided. If the Company shall so deliver debentures or notes to the applicable
Trustee and the Company shall duly deliver such officer's certificate, the
amount of cash which the Company shall be required to apply to the retirement of
Funded Debt under this provision of the Indenture shall be reduced by an amount
equal to the aggregate of the then applicable optional redemption prices (not
including any optional sinking fund redemption prices) of such debentures or
notes, or, if there are no such redemption prices, the principal amount of such
debentures or notes; provided, that in the case of debentures or notes which
provide for an amount less than the principal amount thereof to be due and
payable upon a declaration of the maturity thereof, such amount of cash shall be
reduced by the amount of principal of such debentures or notes that would be due
and payable as of the date of such application upon a declaration of
acceleration of the maturity thereof pursuant to the terms of the indenture
pursuant to which such debentures or notes were issued. (Section 4.4(a))
Notwithstanding the foregoing, the Company or any Restricted Subsidiary may
enter into sale and lease-back transactions in addition to those permitted by
this paragraph without any obligation to retire any outstanding Securities or
other Funded Debt, provided that at the time of entering into such sale and
lease-back transactions and after giving effect thereto, Exempted Debt does not
exceed 15% of Combined Net Worth. (Section 4.4(b))
CERTAIN DEFINITIONS
The term "Attributable Debt" as defined in the Indenture means when used in
connection with a sale and lease-back transaction referred to above under
"-- Restrictions on Sale and Lease-Back Transactions", on any date as of which
the amount thereof is to be determined, the product of (a) the net proceeds from
such sale and lease-back transaction multiplied by (b) a fraction, the numerator
of which is the number of full years of the term of the lease relating to the
property involved in such sale and lease-back transaction (without regard to any
options to renew or extend such term) remaining on the date of the making of
such computation and the denominator of which is the number of full years of the
term of such lease measured from the first day of such term.
The term "Combined Net Worth" as defined in the Indenture means, at any
date of determination, the combined shareholders' equity of the Company, as set
forth on the then most recently available combined balance sheet of the Company
and its combined subsidiaries and joint ventures.
The term "Exempted Debt" as defined in the Indenture means the sum, without
duplication, of the following items outstanding as of the date Exempted Debt is
being determined: (i) indebtedness of the Company and its Restricted
Subsidiaries incurred after the date of the Indenture and secured by liens
created or assumed or permitted to exist pursuant to Section 4.3(b) of the
Indenture described above under "-- Restrictions on Liens" and (ii) Attributable
Debt of the Company and its Restricted Subsidiaries in respect of all sale and
lease-back transactions with regard to any Principal Property entered into
pursuant to Section 4.4(b) of the Indenture described above under
"-- Restrictions on Sale and Lease-Back Transactions."
The term "Funded Debt" as defined in the Indenture means all indebtedness
for money borrowed, including purchase money indebtedness, having a maturity of
more than one year from the date of its creation or having a maturity of less
than one year but by its terms being renewable or extendible, at the option of
the obligor in respect thereof, beyond one year from the date of its creation.
8
<PAGE> 32
The terms "Holder" or "Securityholder" as defined in the Indenture mean the
registered holder of any Security with respect to registered Securities and the
bearer of any unregistered Security or any coupon appertaining thereto, as the
case may be.
The term "Lien" as defined in the Indenture means, with respect to any
asset, any mortgage, lien, pledge, charge, security interest or encumbrance of
any kind, or any other type of preferential arrangement that has the practical
effect of creating a security interest, in respect of such asset. For the
purposes of the Indenture, the Company or any Subsidiary shall be deemed to own
subject to a Lien any asset that it has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement relating to such asset.
The term "Original Issue Discount Security" as defined in the Indenture
means any Security that provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration of the maturity
thereof pursuant to Section 6.2 of the Indenture.
The term "Principal Property" as defined in the Indenture means land, land
improvements, buildings and associated equipment owned or leased pursuant to a
capital lease and used by the Company or a Restricted Subsidiary primarily in
the hotel business, but shall not include any such property financed through the
issuance of tax exempt governmental obligations (including, without limitation,
industrial revenue bonds and similar financings).
The term "Restricted Subsidiary" as defined in the Indenture means any
Subsidiary organized and existing under the laws of the United States of America
and the principal business of which is carried on within the United States of
America which owns or is a lessee pursuant to a capital lease of any Principal
Property other than:
(i) each Subsidiary the major part of whose business consists of finance,
banking, credit, leasing, insurance, financial services or other similar
operations, or any combination thereof;
(ii) each Subsidiary formed or acquired after the date hereof for the
purpose of acquiring the business or assets of another Person and which does not
acquire all or any substantial part of the business or assets of the Company or
any Restricted Subsidiary; and
(iii) the following unincorporated partnerships and joint ventures, each of
which currently owns one inn: La Quinta-Wichita, Kansas, No. 532, Ltd.; LQ-West
Bank Joint Venture; La Quinta-Houston I.H. 10, Ltd.; La Quinta Austin Motor
Hotel, Ltd.; La Quinta-Dallas Central Expressway, Ltd.; La Quinta San Antonio-
South Joint Venture; LQ Motor Inn Venture-Austin No. 530 (in the case of the
preceding five, the Company or a subsidiary of the Company has purchased all of
the partners' interests, and in the case of the previous two, a subsidiary of
the Company continues as a partner or joint venturer with the Company).
provided, however, that any Subsidiary may be declared a Restricted Subsidiary
by Board Resolution, effective as of the date such Board Resolution is adopted;
provided further, that any such declaration may be rescinded by further Board
Resolution, effective as of the date such further Board Resolution is adopted.
The term "Subsidiary" as defined in the Indenture means with respect to any
Person, any corporation, association or other business entity of which more than
50% of the outstanding Voting Stock (as defined in the Indenture) is owned
directly or indirectly, by such Person and one or more other Subsidiaries of
such Person.
RESTRICTIONS ON MERGERS AND SALES OF ASSETS
Under the Indenture, the Company shall not consolidate with, merge with or
into, or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its property and assets (as an entirety or substantially as
an entirety in one transaction or a series of related transactions) to, any
Person (other than a consolidation with or merger with or into a Subsidiary or a
sale, conveyance, transfer, lease or other disposition to a Subsidiary) or
permit any Person to merge with or into the Company unless: (a) either (i) the
Company shall be the continuing Person or (ii) the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or
that acquired or leased such property and assets of the Company shall
9
<PAGE> 33
be a corporation organized and validly existing under the laws of the United
States of America or any jurisdiction thereof and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, all of the
obligations of the Company on all of the Securities and under the Indenture and
the Company shall have delivered to the Trustee an opinion of counsel stating
that such consolidation, merger or transfer and such supplemental indenture
complies with this provision and that all conditions precedent provided for in
the Indenture relating to such transaction have been complied with and that such
supplemental indenture constitutes the legal, valid and binding obligation of
the Company or such successor enforceable against such entity in accordance with
its terms, subject to customary exceptions; and (b) an officers' certificate to
the effect that immediately after giving effect to such transaction, no Default
(as defined in the Indenture) shall have occurred and be continuing and an
opinion of counsel as to the matters set forth in clause (a) shall have been
delivered to the Trustee. (Section 5.1) The meaning of the term "all or
substantially all of the assets" has not been definitely established and is
likely to be interpreted by reference to applicable state law if and at the time
the issue arises, and will be dependent on the facts and circumstances existing
at the time. Accordingly, there may be uncertainty as to whether a Holder of
Debt Securities can determine whether a sale of "all or substantially all of the
assets" has occurred and exercise any remedies such Holder may have as a result
thereof.
EVENTS OF DEFAULT
Events of Default defined in the Indenture with respect to the Securities
of any series are: (a) the Company defaults in the payment of the principal of
any Security of such series when the same becomes due and payable at maturity,
upon acceleration, redemption or mandatory repurchase, including as a sinking
fund installment, or otherwise; (b) the Company defaults in the payment of
interest on any Security of such series when the same becomes due and payable,
and such default continues for a period of 30 days; (c)(i) default by the
Company or any Restricted Subsidiary in the payment when due at maturity of any
Funded Debt (other than Funded Debt that is non-recourse to the Company and its
Restricted Subsidiaries) in excess of $15,000,000, whether such Funded Debt is
outstanding at the date of the Indenture or is thereafter outstanding, and the
continuation of such default for the greater of any period of grace applicable
thereto or ten days from the date of such default or (ii) an event of default,
as defined in any indenture, agreement or instrument evidencing or under which
the Company and/or any Restricted Subsidiary has at the date of the Indenture or
shall thereafter have outstanding at least $15,000,000 aggregate principal
amount of Funded Debt, shall happen and be continuing and such Funded Debt shall
have been accelerated so that the same shall be or become due and payable prior
to the date on which the same would otherwise have become due and payable, and
such acceleration shall not be rescinded or annulled or such indebtedness shall
not be discharged, within ten days; (d) the Company defaults in the performance
of or breaches any other covenant or agreement of the Company in the Indenture
with respect to any Security of such series or in the Securities of such series
and such default or breach continues for a period of 30 consecutive days after
written notice to the Company by the Trustee or to the Company and the Trustee
by the Holders of 25% or more in aggregate principal amount of the Securities of
all series affected thereby; (e) an involuntary case or other proceeding shall
be commenced against the Company or any Restricted Subsidiary with respect to it
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, and such involuntary case or other proceeding shall remain undismissed
and unstayed for a period of 60 days; or an order for relief shall be entered
against the Company or any Restricted Subsidiary under the federal bankruptcy
laws as now or hereafter in effect; (f) the Company or any Restricted Subsidiary
(i) commences a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (ii) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Restricted Subsidiary or for all or substantially all of the property and assets
of the Company or any Restricted Subsidiary or (iii) effects any general
assignment for the benefit of creditors; or (g) any other Event of Default
established with respect to any series of Securities issued pursuant to the
Indenture occurs. (Section 6.1)
10
<PAGE> 34
The Indenture provides that if an Event of Default described in clauses (a)
or (b) of the immediately preceding paragraph with respect to the Securities of
any series then outstanding occurs and is continuing, then, and in each and
every such case, except for any series of Securities the principal of which
shall have already become due and payable, either the Trustee or the Holders of
not less than 25% in aggregate principal amount of the Securities of any such
affected series then outstanding under the Indenture (each such series treated
as a separate class) by notice in writing to the Company (and to the Trustee if
given by Securityholders), may declare the entire principal (or, if the
Securities of any such series are Original Issue Discount Securities, such
portion of the principal amount as may be specified in the terms of such series
established pursuant to the Indenture) of all Securities of such affected
series, and the interest accrued thereon, if any, to be due and payable
immediately, and upon any such declaration the same shall become immediately due
and payable. If an Event of Default described in clauses (c), (d) or (g) of the
immediately preceding paragraph with respect to the Securities of one or more
but not all series then outstanding or with respect to the Securities of all
series then outstanding occurs and is continuing, then, and in each and every
such case, except for any series of Securities the principal of which shall have
already become due and payable, either the Trustee or the Holders of not less
than 25% in aggregate principal amount (or, if the Securities of any such series
are Original Issue Discount Securities, the amount thereof accelerable as
described in this paragraph) of the Securities of all such affected series then
outstanding under the Indenture (treated as a single class) by notice in writing
to the Company (and to the Trustee if given by Securityholders), may declare the
entire principal (or, if the Securities of any such series are Original Issue
Discount Securities, such portion of the principal amount as may be specified in
the terms of such series established pursuant to the Indenture) of all
Securities of all such affected series, and the interest accrued thereof, if
any, to be due and payable immediately, and upon any such declaration the same
shall become immediately due and payable. If an Event of Default described in
clause (e) or (f) of the immediately preceding paragraph occurs and is
continuing, then the principal amount (or, if any Securities are Original Issue
Discount Securities, such portion of the principal as may be specified in the
terms thereof established pursuant to the Indenture) of all the Securities then
outstanding and interest accrued thereon, if any, shall be and become
immediately due and payable, without any notice or other action by any Holder or
the Trustee to the full extent permitted by applicable law. Upon certain
conditions such declarations may be rescinded and annulled and past defaults may
be waived by the Holders of a majority in principal of the then outstanding
Securities of all such series that have been accelerated (voting as a single
class). (Section 6.2)
The Indenture contains a provision under which, subject to the duty of the
Trustee during a default to act with the required standard of care, (i) the
Trustee may rely and shall be protected in acting or refraining from acting upon
any resolution, certificate, officers' certificate, opinion of counsel (or
both), statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence or indebtedness or other
paper or document believed by it to be genuine and to have been signed or
presented by the proper person or persons and the Trustee need not investigate
any fact or matter stated in the document, but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters as it
may see fit; (ii) before the Trustee acts or refrains from acting, it may
require an officers' certificate and/or an opinion of counsel, which shall
conform to the requirements of the Indenture and the Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on such
certificate or opinion; subject to the terms of the Indenture, whenever in the
administration of the trusts of the Indenture the Trustee shall deem it
necessary or desirable that a matter be proved or established prior to taking or
suffering or omitting any action under the Indenture, such matter (unless other
evidence in respect thereof be specifically prescribed in the Indenture) may, in
the absence of negligence or bad faith on the part of the Trustee, be deemed to
be conclusively proved and established by an officers' certificate delivered to
the Trustee, and such certificate, in the absence of negligence or bad faith on
the part of the Trustee, shall be full warrant to the Trustee for any action
taken, suffered or omitted by it under the provisions of the Indenture upon the
faith thereof; (iii) the Trustee may act through its attorneys and agents not
regularly in its employ and shall not be responsible for the misconduct or
negligence of any agent or attorney appointed with due care by it under the
Indenture; (iv) any request, direction, order or demand of the Company mentioned
in the Indenture shall be sufficiently evidenced by an officers' certificate
(unless other evidence in respect thereof be specifically prescribed in the
Indenture); and any Board Resolution may be evidenced to the Trustee by a copy
thereof
11
<PAGE> 35
certified by the Secretary or an Assistant Secretary of the Company; (v) the
Trustee shall be under no obligation to exercise any of the rights or powers
vested in it by the Indenture at the request, order or direction of any of the
Holders, unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities that might be
incurred by it in compliance with such request or direction; (vi) the Trustee
shall not be liable for any action it takes or omits to take in good faith that
it believes to be authorized or within its rights or powers or for any action it
takes or omits to take in accordance with the direction of the Holders in
accordance with the Indenture relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred upon the Trustee, under the Indenture; (vii) the
Trustee may consult with counsel and the written advice of such counsel or any
opinion of counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it under the Indenture in
good faith and in reliance thereon; and (viii) prior to the occurrence of an
Event of Default under the Indenture and after the curing or waiving of all
Events of Default, the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, officers'
certificate, opinion of counsel, Board Resolution, statement, instrument,
opinion, report, notice, request, consent, order, approval, appraisal, bond,
debenture, note, coupon, security, or other paper or document. (Section 7.2)
Subject to such provisions in the Indenture for the indemnification of the
Trustee and certain other limitations, the Holders of at least a majority in
aggregate principal amount (or, if any Securities are Original Issue Discount
Securities, such portion of the principal as is then accelerable under the
Indenture) of the outstanding Securities of all series affected (voting as a
single class), may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee with respect to the Securities of such series by
the Indenture; provided, that the Trustee may refuse to follow any direction
that conflicts with law of the Indenture, that may involve the Trustee in
personal liability, or that the Trustee determines in good faith may be unduly
prejudicial to the rights of Holders not joining in the giving of such
direction; and provided further, that the Trustee may take any other action it
deems proper that is not inconsistent with any directions received from Holders
of Securities pursuant to this paragraph. (Section 6.5)
Subject to various provisions in the Indenture, the Holders of at least a
majority in principal amount (or, if the Securities are Original Issue Discount
Securities, such portion of the principal as is then accelerable under the
Indenture) of the outstanding Securities of all series affected (voting as a
single class) by notice to the Trustee, may waive, on behalf of the Holders of
all the Securities of such series, an existing Default or Event of Default with
respect to the Securities of such series and its consequences, except a Default
in the payment of principal of or interest on any Security as specified in
clauses (a) or (b) of Section 6.1 of the Indenture or in respect of a covenant
or provision of the Indenture which cannot be modified or amended without the
consent of the Holder of each outstanding Security affected. Upon any such
waiver, such Default shall cease to exist, and any Event of Default with respect
to the Securities of such series arising therefrom shall be deemed to have been
cured, for every purpose of the Indenture; but no such waiver shall extend to
any subsequent or other Default or Event of Default or impair any right
consequent thereto. (Section 6.4)
The Indenture provides that no Holder of any Securities of any series may
institute any proceeding, judicial or otherwise, with respect to the Indenture
or the Securities of such series, or for the appointment of a receiver or
trustee, or for any other remedy under the Indenture, unless: (i) such Holder
has previously given to the Trustee written notice of a continuing Event of
Default with respect to the Securities of such series; (ii) the Holders of at
least 25% in aggregate principal amount of outstanding Securities of all such
series affected shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as Trustee under
the Indenture; (iii) such Holder or Holders have offered to the Trustee
indemnity reasonably satisfactory to the Trustee against any costs, liabilities
or expenses to be incurred in compliance with such request; (iv) the Trustee for
60 days after its receipt of such notice, request and offer of indemnity has
failed to institute any such proceeding; and (v) during such 60-day period, the
Holders of a majority in aggregate principal amount of the outstanding
Securities of all such affected series have not given the Trustee a direction
that is inconsistent with such written request. A Holder may not use the
12
<PAGE> 36
Indenture to prejudice the rights of another Holder or to obtain a preference or
priority over such other Holder. (Section 6.6)
The Indenture contains a covenant that the Company will file with the
Trustee, within 15 days after the Company is required to file the same with the
Commission, copies of the annual reports and of the information, documents and
other reports which the Company may be required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Exchange Act. (Section 4.6)
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides with respect to each series of Securities that,
except as otherwise provided in this paragraph, the Company may terminate its
obligations under the Securities of a series and the Indenture with respect to
Securities of such series if: (i) all Securities of such series previously
authenticated and delivered, with certain exceptions, have been delivered to the
Trustee for cancellation and the Company has paid all sums payable by it under
the Indenture; or (ii)(A) the Securities of such series mature within one year
or all of them are to be called for redemption within one year under
arrangements satisfactory to the Trustee for giving the notice of redemption,
(B) the Company irrevocably deposits in trust with the Trustee, as trust funds
solely for the benefit of the Holders of such Securities, for that purpose,
money or U.S. Government Obligations or a combination thereof sufficient (unless
such funds consist solely of money, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee), without consideration of any reinvestment, to
pay principal of and interest on the Securities of such series to maturity or
redemption, as the case may be, and to pay all other sums payable by it under
the Indenture, and (C) the Company delivers to the Trustee an officers'
certificate and an opinion of counsel, in each case stating that all conditions
precedent provided for in the Indenture relating to the satisfaction and
discharge of the Indenture with respect to the Securities of such series have
been complied with. With respect to the foregoing clause (i), only the Company's
obligations to compensate and indemnify the trustee under the Indenture shall
survive. With respect to the foregoing clause (ii), only the Company's
obligations to execute and deliver Securities of such series for authentication,
to set the terms of the Securities of such series, to maintain an office or
agency in respect of the Securities of such series, to have moneys held for
payment in trust, to register the transfer or exchange of Securities of such
series, to deliver Securities of such series for replacement or to be canceled,
to compensate and indemnify the Trustee and to appoint a successor trustee, and
its right to recover excess money held by the Trustee shall survive until such
Securities are no longer outstanding. Thereafter, only the Company's obligations
to compensate and indemnify the Trustee, and its right to recover excess money
held by the Trustee shall survive. (Section 8.1)
The Indenture provides that, except as otherwise provided in this
paragraph, the Company (i) will be deemed to have paid and will be discharged
from any and all obligations in respect of the Securities of any series, and the
provisions of the Indenture will no longer be in effect with respect to the
Securities of such series ("legal defeasance") and (ii) may omit to comply with
any term, provision or condition of the Indenture described above under
"-- Certain Covenants" (or any other specific covenant relating to such series
provided for in a Board Resolution or supplemental indenture which may by its
terms be defeased pursuant to the Indenture), and such omission shall be deemed
not to be an Event of Default under clauses (c), (d) or (g) of the first
paragraph of "-- Events of Default" with respect to the outstanding Securities
of a series ("covenant defeasance"); provided that the following conditions
shall have been satisfied: (A) the Company has irrevocably deposited in trust
with the Trustee as trust funds solely for the benefit of the Holders of the
Securities of such series, for payment of the principal of and interest on the
Securities of such series, money or U.S. Government Obligations or a combination
thereof sufficient (unless such funds consist solely of money, in the opinion of
a nationally recognized firm of independent public accountants expressed in a
written certification thereof deliver to the Trustee) without consideration of
any reinvestment and after payment of all federal, state and local taxes or
other charges and assessments in respect thereof payable by the Trustee, to pay
and discharge the principal of and accrued interest on the outstanding
Securities of such series to maturity or earlier redemption (irrevocably
provided for under arrangements satisfactory to the Trustee), as the case may
be; (B) such deposit will not result in a breach or violation of, or constitute
a default under, the Indenture or any other material agreement or instrument to
which the
13
<PAGE> 37
Company is a party or by which it is bound; (C) no Default with respect to such
Securities of such series shall have occurred and be continuing on the date of
such deposit; (D) the Company shall have delivered to the Trustee an opinion of
counsel that (1) the Holders of the Securities of such series will not recognize
income, gain or loss for federal income tax purposes as a result of the
Company's exercise of its option under this provision of the Indenture and will
be subject to federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such deposit and defeasance had
not occurred (which opinion, in the case of a legal defeasance, shall be based
upon a change in law) and (2) the Holders of the Securities of such series have
a valid security interest in the trust funds subject to no prior liens under the
Uniform Commercial Code, and (E) the Company has delivered to the Trustee an
officers' certificate and an opinion of counsel, in each case stating that all
conditions precedent provided for in the Indenture relating to the defeasance
contemplated have been complied with. In the case of legal defeasance under
clause (i) above, the opinion of counsel referred to in clause (D)(1) above may
be replaced by a ruling directed to the Trustee received from the Internal
Revenue Service to the same effect. Subsequent to legal defeasance under clause
(i) above, the Company's obligations to execute and deliver Securities of such
series for authentication, to set the terms of the Securities of such series, to
maintain an office or agency in respect of the Securities of such series, to
have moneys held for payment in trust, to register the transfer or exchange of
Securities of such series, to deliver Securities of such series for replacement
or to be canceled, to compensate and indemnify the Trustee and to appoint a
successor trustee, and its right to recover excess money held by the Trustee
shall survive until such Securities are no longer outstanding. After such
Securities are no longer outstanding, in the case of legal defeasance under
clause (i) above, only the Company's obligations to compensate and indemnify the
Trustee and its right to recover excess money held by the Trustee shall survive.
(Sections 8.2 and 8.3)
MODIFICATION OF THE INDENTURE
The Indenture provides that the Company and the Trustee may amend or
supplement the Indenture or the Securities of any series without notice to or
the consent of any Holder: (1) to cure any ambiguity, defect or inconsistency in
the Indenture; provided that such amendments or supplements shall not materially
and adversely affect the interests of the Holders; (2) to comply with Article 5
(which relates to the covenant regarding "-- Restrictions on Mergers and Sales
of Assets") of the Indenture; (3) to comply with any requirements of the
Securities and Exchange Commission in connection with the qualification of the
Indenture under the Trust Indenture Act; (4) to evidence and provide for the
acceptance of appointment under the Indenture with respect to the Securities of
any or all series by a successor Trustee; (5) to establish the form or forms or
terms of Securities of any series or of the coupons appertaining to such
Securities as permitted under the Indenture; (6) to provide for uncertificated
or unregistered Securities and to make all appropriate changes for such purpose;
(7) to change or eliminate any provisions of the Indenture with respect to all
or any series of the Securities not then outstanding (and, if such change is
applicable to fewer than all such series of the Securities, specifying the
series to which such change is applicable), and to specify the rights and
remedies of the Trustee and the Holders of such Securities in connection
therewith; and (8) to make any change that does not materially and adversely
affect the rights of any Holder. (Section 9.1)
The Indenture also contains provisions whereby the Company and the Trustee,
subject to certain conditions, without prior notice to any Holders, may amend
the Indenture and the outstanding Securities of any series with the written
consent of the Holders of a majority in principal amount of the Securities then
outstanding of all series affected by such supplemental indenture (all such
series voting as one class), and the Holders of a majority in principal amount
of the outstanding Securities of all series affected thereby (all such series
voting as one class) by written notice to the Trustee may waive future
compliance by the Company with any provision of the Indenture or the Securities
of such series. Notwithstanding the foregoing provisions, without the consent of
each Holder affected thereby, an amendment or waiver, including a waiver
pursuant to Section 6.4 of the Indenture, may not: (i) extend the stated
maturity of the principal of, or any sinking fund obligation or any installment
of interest on, such Holder's Security, or reduce the principal amount thereof
or the rate of interest thereon (including any amount in respect of original
issue discount), or any premium payable with respect thereto, or adversely
affect the rights of such Holder under any mandatory redemption or repurchase
provision or any right of redemption or repurchase at the option of such Holder,
or reduce the amount of the principal of an Original Issue Discount Security
that would be due and payable upon the
14
<PAGE> 38
acceleration of the maturity thereof or the amount thereof provable in
bankruptcy, or change any place of payment where, or the currency in which, any
Security or any premium or the interest thereof is payable, or impair the right
to institute suit for the enforcement of any such payment on or after the due
date therefor; (ii) reduce the percentage in principal amount of outstanding
Securities of the relevant series the consent of whose Holders is required for
any such supplemental indenture, for any waiver of compliance with certain
provisions of the Indenture; (iii) waive a Default in the payment of principal
of or interest on any Security of such Holder; or (iv) modify any of the
provisions of this section of the Indenture, except to increase any such
percentage or to provide that certain other provisions of the Indenture cannot
be modified or waived without the consent of the Holder of each outstanding
Security affected thereby. A supplemental indenture which changes or eliminates
any covenant or other provision of the Indenture which has expressly been
included solely for the benefit of one or more particular series of Securities,
or which modifies the rights of Holders of Securities of such series with
respect to such covenant or provision, shall be deemed not to affect the rights
under the Indenture of the Holders of Securities of any other series or of the
coupons appertaining to such Securities. It shall not be necessary for the
consent of any Holder under this section of the Indenture to approve the
particular form of any proposed amendment, supplement or waiver, but it shall be
sufficient if such consent approves the substance thereof. After an amendment,
supplement or waiver under this section of the Indenture becomes effective, the
Company or, at the request of the Company, the Trustee shall give to the Holders
affected thereby a notice briefly describing the amendment, supplement or
waiver. The Company or, at the request of the Company, the Trustee will mail
supplemental indentures to Holders upon request. Any failure of the Company to
mail such notice, or any defect therein, shall not, however, in any way impair
or affect the validity of any such supplemental indenture or waiver. (Section
9.2)
PLAN OF DISTRIBUTION
GENERAL
The Company may sell the Debt Securities being offered hereby: (i) directly
to purchasers; (ii) through agents; (iii) through dealers; (iv) through
underwriters; or (v) through a combination of any such methods of sale.
The distribution of the Debt Securities may be effected from time to time
in one or more transactions either: (i) at a fixed price or prices which may be
changed; (ii) at market prices prevailing at the time of sale; (iii) at prices
related to such prevailing market prices; or (iv) at negotiated prices.
Offers to purchase the Debt Securities may be solicited directly by the
Company. Offers to purchase Debt Securities may also be solicited by agents
designated by the Company from time to time. Any such agent, who may be deemed
to be an "underwriter" as that term is defined in the Securities Act, involved
in the offer or sale of the Debt Securities in respect of which this Prospectus
is delivered will be named, and any commissions payable by the Company to such
agent will be set forth, in the Prospectus Supplement.
If a dealer is utilized in the sale of the Debt Securities in respect of
which this Prospectus is delivered, the Company will sell such Debt Securities
to the dealer, as principal. The dealer, who may be deemed to be an
"underwriter" as that term is defined in the Securities Act may then resell such
Debt Securities to the public at varying prices to be determined by such dealer
at the time of resale.
If an underwriter or underwriters are utilized in the sales, the Company
will execute an underwriting agreement with such underwriters at the time of
sale of them and the name of the underwriters will be set forth in the
Prospectus Supplement, which will be used by the underwriters to make resales of
the Debt Securities in respect of which this Prospectus is delivered to the
public. In connection with the sale of Debt Securities, such underwriters may be
deemed to have received compensation from the Company in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of Debt Securities for whom they may act as agents. Underwriters may
also sell Debt Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agents. Any underwriting compensation paid by the Company to underwriters in
connection with the offering of Debt Securities, and any discounts,
15
<PAGE> 39
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the Prospectus Supplement.
Underwriters, dealers, agents and other persons may be entitled, under
agreements that may be entered into with the Company, to indemnification by the
Company against certain civil liabilities, including liabilities under the
Securities Act. Underwriters and agents may engage in transactions with, or
perform services for, the Company in the ordinary course of business.
DELAYED DELIVERY ARRANGEMENTS
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters, dealers or other persons to solicit offers by certain institutions
to purchase Debt Securities pursuant to contracts providing for payment and
delivery on a future date or dates. Institutions with which such contracts may
be made include commercial and savings banks, insurance companies, pension
funds, investment companies, educational and charitable institutions and others.
The obligations of any purchaser under any such contract will not be subject to
any conditions except that (a) the purchase of the Debt Securities shall not at
the time of delivery be prohibited under the laws of the jurisdiction to which
such purchaser is subject and (b) if the Debt Securities are also being sold to
underwriters, the Company shall have sold to such underwriters the Debt
Securities not sold for delayed delivery. The underwriters, dealers and such
other persons will not have any responsibility in respect to the validity or
performance of such contracts. The Prospectus Supplement relating to such
contracts will set forth the price to be paid for Debt Securities pursuant to
such contracts, the commissions payable for solicitation of such contracts and
the date or dates in the future for delivery of Debt Securities pursuant to such
contracts.
LEGAL MATTERS
Certain legal matters with respect to the Debt Securities offered hereby
will be passed upon for the Company by John F. Schmutz, Vice President - General
Counsel and Secretary of the Company and Latham & Watkins, Los Angeles,
California. Certain legal matters in connection with an offering made by this
Prospectus may be passed upon for the underwriters or agents by counsel named in
the Prospectus Supplement.
EXPERTS
The combined financial statements of La Quinta Inns, Inc., as of December
31, 1996 and 1995, and for each of the years in the three-year period ended
December 31, 1996, have been incorporated by reference herein and in the
Registration Statement (as defined under "Available Information") in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
With respect to the unaudited interim financial information for the three
month periods ended March 31, 1997 and 1996 and three and six month periods
ended June 30, 1997 and 1996, incorporated by reference herein, KPMG Peat
Marwick LLP has reported that they applied limited procedures in accordance with
professional standards for a review of such information. However, their separate
reports included in the Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1997 and June 30, 1997, and incorporated by reference
herein, state that they did not audit and they do not express an opinion on that
interim financial information. Accordingly, the degree of reliance on their
reports on such information should be restricted in light of the limited nature
of the review procedures applied. The accountants are not subject to the
liability provisions of Section 11 of the Securities Act of 1933 for their
reports on the unaudited interim financial information because neither of those
reports is a "report" or a "part" of the registration statement prepared or
certified by the accountants within the meaning of Sections 7 and 11 of the
Securities Act of 1933.
16
