<PAGE> 1
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-12179 and
No. 33-57659
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED SEPTEMBER 30, 1996
U.S. $150,000,000
WEINGARTEN REALTY INVESTORS
MEDIUM-TERM NOTES, SERIES A
DUE 9 MONTHS OR MORE FROM DATE OF ISSUE
The Company may offer from time to time its Medium-Term Notes, Series
A, due 9 months or more from the date of issue, as selected by the purchaser
and agreed to by the Company. The aggregate initial public offering price of
the Notes will not exceed U.S. $150,000,000 or its equivalent in another
currency or composite currency.
The Notes may be denominated in U.S. dollars or in such foreign
currencies or composite currencies as the Company may designate at the time of
offering. The Company will set forth the specific currency or composite
currency, interest rate or formula (if any), issue price and maturity date of
any Note in the applicable Pricing Supplement to this Prospectus Supplement.
This Prospectus Supplement provides information with respect to the Notes, in
addition to those terms set forth in the Prospectus included herewith. Unless
otherwise specified in the applicable Pricing Supplement, Notes denominated in
other than U.S. dollars or ECUs will not be sold in, or to residents of, the
country issuing the Specified Currency. See "Description of Notes".
Unless otherwise specified in the applicable Pricing Supplement,
interest on the Fixed Rate Notes will be payable on each March 15 and September
15 and at maturity. Interest on the Floating Rate Notes will be payable on the
dates specified therein and in the applicable Pricing Supplement. Floating Rate
Notes will bear interest at a rate determined by reference to the Commercial
Paper Rate, Prime Rate, LIBOR, Treasury Rate, CD Rate, Federal Funds Rate, CMT
Rate or Eleventh District Cost of Funds Rate, as adjusted by a Spread and/or
Spread Multiplier, if any. Indexed Notes may be issued with the principal
amount payable at maturity, or the amount of interest payable on any Interest
Payment Date, to be determined by reference to a currency exchange rate,
composite currency, commodity price or other financial or non-financial index
to be set forth in the applicable Pricing Supplement. Zero Coupon Notes will
not bear interest.
Unless a Redemption Commencement Date is specified in the applicable
Pricing Supplement, the Notes will not be redeemable prior to their Stated
Maturity. If a Redemption Commencement Date is so specified, the Notes will be
redeemable at the option of the Company, as described herein.
The Company will issue the Notes offered hereby in permanent global or
definitive certificated form, as specified in the applicable Pricing
Supplement. A Global Security representing Book-Entry Notes will be registered
in the name of, or a nominee of, The Depository Trust Company, which will act
as Depositary. Beneficial interests in Book- Entry Notes 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 herein under "Description of Notes - - Book-Entry Notes,"
owners of beneficial interests in a Global Security will not be considered the
Holders thereof and will not be entitled to receive physical delivery of Notes
in definitive form, and no Global Security will be exchangeable except for
another Global Security of like denomination and terms to be registered in the
name of the Depositary or its nominee. The Notes offered hereby will be issued
in registered form in a minimum denomination of $1,000 and integral multiples
thereof or the approximate equivalent in the Specified Currency. See
"Description of Notes".
The Notes may be issued as Senior Securities or Subordinated
Securities. Subordinated Securities will be subordinated to all Senior Debt of
the Company. See "Description of Debt Securities -- Subordination" in the
accompanying 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 OR THE PROSPECTUS TO
WHICH IT RELATES. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------------
<TABLE>
<CAPTION>
PRICE TO AGENTS' PROCEEDS TO
PUBLIC (1) COMMISSIONS (2) COMPANY (2)(3)
------------- ----------------- ----------------
<S> <C> <C> <C>
Per Note.............. 100% 0.125% - 0.750% 99.875%-99.250%
Total (4)............. $150,000,000 $187,500 - $1,125,000 $149,812,500-$148,875,000
- ----------------
</TABLE>
(1) Notes will be issued at 100% of their principal amount, unless otherwise
specified in the applicable Pricing Supplement.
(2) With respect to Notes with maturities of 30 years or less, the Company will
pay the Agents a commission ranging from 0.125% to 0.750%, depending on
rank and maturity, of the principal amount of any Notes sold through them
as agents (or sold to such Agents as principal in circumstances in which no
other discount is agreed). With respect to Notes with maturities in excess
of 30 years that are sold through the Agents, the rate of commission will
be negotiated at the time of sale and will be specified in the applicable
Pricing Supplement. Unless otherwise specified in the applicable Pricing
Supplement, any Note sold to an Agent as principal will be purchased by
such Agent at a price equal to 100% of the principal amount thereof less a
percentage equal to the commission applicable to an agency sale of a Note
of identical rank and maturity, and may be resold by such Agent to
investors and other purchasers at varying prices related to prevailing
market prices at the time of resale to be determined by such Agent or at
fixed prices. The Company has agreed to indemnify the Agents against
certain liabilities, including liabilities under the Securities Act of
1933.
(3) Before deducting estimated expenses of $300,000 payable by the Company,
including expenses of the Agents to be reimbursed by the Company.
(4) Or its equivalent in any other currency or composite currency.
------------------------------
Offers to purchase Notes are being solicited, on a reasonable efforts
basis, from time to time by the Agents on behalf of the Company. Notes may
be sold to the Agents as principal at negotiated discounts. The Company
reserves the right to sell Notes directly on its own behalf. The Company
also reserves the right to withdraw, cancel, or modify the offering
contemplated hereby without notice. Unless otherwise specified in the
applicable Pricing Supplement, 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.
The Company or the Agents may reject any order as a whole or in part. See
"Supplemental Plan of Distribution".
GOLDMAN, SACHS & CO.
ALEX. BROWN & SONS
INCORPORATED
CHASE SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
NATIONSBANC CAPITAL MARKETS, INC.
--------------------------------------
The date of this Prospectus Supplement is November 15, 1996.
<PAGE> 2
IN CONNECTION WITH THE DISTRIBUTION OF NOTES UNDERWRITTEN BY AN AGENT
ACTING AS PRINCIPAL ON A FIXED-PRICE BASIS, THE AGENTS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DESCRIPTION OF NOTES
GENERAL
The following description of the particular terms of the Notes offered
hereby (referred to in the accompanying Prospectus as "Debt Securities")
supplements and, to the extent inconsistent therewith replaces, the description
of the general terms and provisions of Debt Securities set forth in the
accompanying Prospectus, to which description reference is hereby made. The
Notes will be issued as a series of Senior Debt Securities under the Senior
Indenture, dated as of May 1, 1995 (the "Senior Indenture") between the Company
and Texas Commerce Bank National Association as Trustee, or Subordinated Debt
Securities under the Subordinated Indenture, dated as of May 1, 1995 (the
"Subordinated Indenture") between the Company and Texas Commerce Bank National
Association as Trustee. The Senior Indenture and the Subordinated Indenture
(being sometimes referred to herein collectively as "Indentures" and
individually as an "Indenture") are filed as exhibits to the Registration
Statement of which the accompanying Prospectus constitutes a part. Capitalized
terms not defined herein have the meanings assigned to such terms in the
accompanying Prospectus. Terms of the Notes may be varied in the related
supplement to this Prospectus Supplement (a "Pricing Supplement"). References
to interest payments and interest-related information do not apply to Zero
Coupon Notes (as defined below).
The Notes may be issued as Senior Notes or Subordinated Notes.
The Notes constitute separate series for purposes of each of the
Senior Indenture or the Subordinated Indenture, as the case may be, and the
aggregate of Senior Notes and Subordinated Notes is limited in amount as set
forth on the cover page of this Prospectus Supplement. As of September 30,
1996, the Company had issued an aggregate of $176,500,000 of its Series A
Senior Notes. For a description of the rights attaching to different series of
Debt Securities under the applicable Indenture, see "Description of Debt
Securities" in the accompanying Prospectus.
The Notes will be unsecured obligations of the Company. The Senior
Notes will rank equally with all other unsecured and unsubordinated
indebtedness of the Company. The Subordinated Notes will be subordinated in
right of payment to the prior payment in full of the Senior Debt of the Company
as described under "Description of Debt Securities -- Subordination" in the
accompanying Prospectus. At September 30, 1996, the Company's Senior Debt
aggregated approximately $326,410,000. The Company had no subordinated debt
outstanding as of such date.
The Company will at all times have appointed and maintain a Paying
Agent (which may be the applicable Trustee) authorized to pay the principal of
(and premium, if any) or interest on any Notes on the Company's behalf and
having an office or agency (the "Paying Agent Office") in the Borough of
Manhattan, the City of New York, where the Notes may be presented or
surrendered for payment and notices, designations, or requests in respect of
payments with respect to Notes may be served. The Company has initially
appointed Texas Commerce Bank National Association as the Paying Agent.
Unless previously redeemed or repaid, a Note will mature on the date
("Stated Maturity") 9 months or more from its date of issue that is specified
on its face and in the applicable Pricing Supplement. The "maturity" of any
Note refers herein to the date on which its principal becomes due and payable,
whether at Stated Maturity, upon redemption, repayment or otherwise.
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Each Note will be denominated in a currency, composite currency or
basket of currencies (each a "Specified Currency") as specified on its face and
in the applicable Pricing Supplement, which may include U.S. dollars or any
other currency, composite currency or basket of currencies set forth in the
applicable Pricing Supplement. Purchasers of the Notes are required to pay for
them by delivery of the requisite amount of the Specified Currency to the
applicable Agent, unless other arrangements have been made. Unless otherwise
specified in the applicable Pricing Supplement, payments on the Notes will be
made in the applicable Specified Currency, provided that, at the election of
the Note Holder and in certain circumstances at the Company's option, payments
on Notes denominated in a Specified Currency other than U.S. dollars ("Foreign
Currency Notes") may be made in U.S. dollars. See "Payment of Principal and
Interest" below and "Certain Investment Considerations Relating to Foreign
Currency Notes." The term "Holder" means, with respect to any Note as of any
time, the person in whose name such Note is registered at such time in the
security register for the Notes maintained by the Company and does not include
the owner of a beneficial interest in a Book-Entry Note as described under
"Book-Entry Notes" below.
Each Note will be represented by either a permanent global Note (a
"Global Security") registered in the name of, or a nominee of, the Depositary
(each such Note represented by a permanent Global Security being referred to
herein as a "Book-Entry Note") or a certificate issued in definitive registered
form, without coupons (a "Certificated Note"), as set forth in the applicable
Pricing Supplement. Except as set forth under "Book-Entry Notes" below,
Book-Entry Notes will not be issuable in certificated form. So long as the
Depositary or its nominee is the registered holder of any permanent Global
Security, the Depositary or its nominee, as the case may be, will be considered
the sole Holder of the Book-Entry Note or Notes represented by such permanent
Global Security for all purposes under the applicable Indenture and the Notes.
For a further description of the respective forms, denominations, and transfer
and exchange procedures for any such permanent Global Security and the
Book-Entry Notes, refer to "Book-Entry Notes" below and to the applicable
Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, Notes
will be sold in individual issues of Notes having such date of issue, interest
rate or interest rate formula, if any, Stated Maturity, and other variable
terms as shall be selected by the initial purchasers and agreed to by the
Company. Notes denominated in U.S. dollars will be initially issued in
denominations of $1,000 and integral multiples thereof, and Notes denominated
in other than U.S. dollars will be initially issued in denominations of the
amount of the Specified Currency for such Note equivalent, at the noon buying
rate for cable transfers in the City of New York for such Specified Currency
(the "Exchange Rate") on the first Market Day (as defined below) next preceding
the date on which the Company accepts the offer to purchase such Note, to
$1,000 and integral multiples thereof (or the equivalent thereof in the
Specified Currency for each Note). Interest rates offered by the Company with
respect to the Notes may differ depending upon, among other things, the
aggregate principal amount of the Notes purchased in any single transaction.
Unless otherwise indicated in the applicable Pricing Supplement, each
Note, except any Notes which pay face value only and are issued at a discount
(a "Zero Coupon Note"), will bear interest at a fixed rate or a rate determined
by reference to one or more of the Commercial Paper Rate, the Prime Rate,
LIBOR, the Treasury Rate, the CD Rate, the CMT Rate, the Eleventh District Cost
of Funds Rate or the Federal Funds Rate, as adjusted by the Spread and/or
Spread Multiplier, if any, applicable to such Note. See "Interest Rate." Zero
Coupon Notes will be issued at a discount from the principal amount payable at
maturity thereof, but holders of Zero Coupon Notes will not receive periodic
payments of interest thereon.
The Notes may be issued as Original Issue Discount Notes ("OID
Notes"). An OID Note is a Note, including any Zero Coupon Note, that is issued
at a price lower than the principal amount thereof and that may provide that
upon redemption or acceleration of the maturity thereof an amount less than the
principal amount thereof shall become due and payable. In the event of
redemption or acceleration of the maturity of an OID Note, the amount payable
to the Holder of such OID Note upon such redemption or acceleration will be
determined in accordance with the terms of the OID Note, but generally will be
an amount less than the amount payable at the Stated Maturity of such OID Note.
In addition, a Note issued at a discount may, for U.S. federal income tax
S-3
<PAGE> 4
purposes, be considered an Original Issue Discount Security (as defined in the
accompanying Prospectus), regardless of the amount payable upon redemption or
acceleration of maturity of such Note. See "United States Taxation."
The Notes will not be subject to any sinking fund and, unless the
Company specifies an initial date on which a Note may be redeemed by the
Company (a "Redemption Commencement Date") in the applicable Pricing
Supplement, the Notes will not be redeemable before their maturity. If the
Company does specify a Redemption Commencement Date for any Note, the
applicable Pricing Supplement will also specify one or more redemption prices
(expressed as a percentage of the principal amount of such Note) ("Redemption
Prices") and the redemption period or periods ("Redemption Periods") during
which such Redemption Prices shall apply. Unless otherwise specified in the
Pricing Supplement, any such Note shall be redeemable at the Company's option
at any time on or after such specified Redemption Commencement Date at the
specified Redemption Price applicable to the Redemption Period during which
such Note is to be redeemed, together with interest accrued to the redemption
date. If specified in the applicable Pricing Supplement, Holders may elect to
have their Notes redeemed at one or more optional repayment dates. See
"Repayment at the Option of the Holder" below.
Certificated Notes may be presented for registration of transfer or
exchange at the applicable Paying Agent Office in the City of New York. With
respect to transfers of Book-Entry Notes and exchanges of permanent Global
Securities representing Book-Entry Notes, see "Book-Entry Notes" below.
The applicable Indenture provisions relating to defeasance and
covenant defeasance which are described in the accompanying Prospectus under
"Description of Debt Securities -- Discharge, Defeasance and Covenant
Defeasance" will apply to the Notes.
INTEREST RATE
Each Note, other than a Zero Coupon Note, will bear interest from and
including its date of issue or from and including the most recent Interest
Payment Date (as defined below) to which interest on such Note has been paid or
duly provided for at the fixed rate per annum, or at the rate per annum
determined pursuant to the interest rate formula, stated therein and in the
applicable Pricing Supplement until the principal thereof is paid or made
available for payment. Interest will be payable on each Interest Payment Date
and at maturity as specified below under "Payment of Principal and Interest."
Each Note, other than a Zero Coupon Note, will bear interest at
either:
(a) a fixed rate (a "Fixed Rate Note"); or
(b) a variable rate determined by reference to an interest
rate formula (a "Floating Rate Note"), which may be adjusted by adding
or subtracting the Spread and/or multiplying by the Spread Multiplier
(each term as defined below).
A Floating Rate Note may also have either or both:
(a) a maximum, or ceiling, on the rate of interest that may
accrue during any interest period (a "Maximum Rate"); and
(b) a minimum, or floor, on the rate of interest that may
accrue during any interest period (a "Minimum Rate").
The "Spread" is the number of basis points specified in the applicable
Pricing Supplement as applying to the Interest Rate Basis (as defined below)
for such Note, and the "Spread Multiplier" is the percentage specified in the
applicable Pricing Supplement as applying to the Interest Rate Basis for such
Note.
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"Index Maturity" means, for a Floating Rate Note, the period to
maturity of the interest or obligation on which the interest rate formula is
based, as specified in the applicable Pricing Supplement. Unless otherwise
provided in the applicable Pricing Supplement, The Chase Manhattan Bank will be
the calculation agent (the "Calculation Agent") for Floating Rate Notes.
"Business Day," as used herein for any particular location, means each
Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which
banking institutions in such location are authorized or obligated by law,
regulation or executive order to close.
"Market Day" means:
(a) for any Note, other than a LIBOR Note or a Note the
repayment in respect of which is to be made in a Specified Currency
other than U.S. dollars, any Business Day in The City of New York;
(b) for a LIBOR Note, any day on which dealings in deposits in
the Index Currency (as defined below) are transacted in the London
interbank market (a "London Banking Day") which is also a Business Day
in The City of New York;
(c) for a Note the payment in respect of which is to be made
in a Specified Currency other than U.S. dollars, any Business Day in
the Principal Financial Center (as defined below) of the country
issuing such Specified Currency which is also a Business Day in The
City of New York; and
(d) for a Note the payment in respect of which is to be made
in European Currency Units ("ECUs"), any Business Day in The City of
New York which is also not a day that appears as an ECU non-settlement
day on the display designated as "ISDE" on the Reuters Monitor Money
Rates Service (or a day so designated by the ECU Banking Association)
or, if ECU non-settlement days do not appear on that page (and are not
so designated), is not a day on which payments in ECUs cannot be
settled in the international interbank market.
The applicable Pricing Supplement relating to a Fixed Rate Note will
designate a fixed rate of interest per annum payable on such Fixed Rate Note.
The applicable Pricing Supplement relating to a Floating Rate Note will
designate an interest rate basis (the "Interest Rate Basis") for such Floating
Rate Note. The Interest Rate Basis for each Floating Rate Note will be one or
more of the following:
(a) the Commercial Paper Rate for "Commercial Paper Rate
Notes";
(b) the Prime Rate for "Prime Rate Notes";
(c) LIBOR for "LIBOR Notes";
(d) the Treasury Rate for "Treasury Rate Notes";
(e) the CD Rate for "CD Rate Notes";
(f) the Federal Funds Rate for "Federal Funds Rate
Notes";
(g) the CMT Rate for "CMT Rate Notes";
(h) the Eleventh District Cost of Funds Rate for
"Eleventh District Cost of Funds Rate Notes"; or
(i) such other interest rate basis or formula as such
Pricing Supplement sets forth.
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The applicable Pricing Supplement for a Floating Rate Note will
specify the Interest Rate Basis and, if applicable, the Calculation Agent, the
Index Maturity, the Spread and/or Spread Multiplier, the Maximum Rate, the
Minimum Rate, the Initial Interest Rate, the Interest Payment Dates, the
Interest Determination Date, and the Interest Reset Dates for such Note.
The interest rate on each Floating Rate Note will be reset daily,
weekly, monthly, quarterly, semi-annually, annually, or otherwise (each an
"Interest Reset Date"), as specified in the applicable Pricing Supplement. The
Interest Reset Dates will be:
(a) for Floating Rate Notes which reset daily, each
Market Day;
(b) for Floating Rate Notes (other than Treasury Rate
Notes) that reset weekly, the Wednesday of each week;
(c) for Treasury Rate Notes that reset weekly, the
Tuesday of each week, except as provided below;
(d) for Floating Rate Notes (other than Eleventh District
Cost of Funds Rate Notes) that reset monthly, the
third Wednesday of each month;
(e) for Eleventh District Cost of Funds Rate Notes that
reset monthly, the first calendar day of the month;
(f) for Floating Rate Notes that reset quarterly, the
third Wednesday of March, June, September and
December;
(g) for Floating Rate Notes that reset semi-annually, the
third Wednesday of two months of each year as
specified in the applicable Pricing Supplement;
(h) for Floating Rate Notes that reset annually, the
third Wednesday of the month of each year as
specified in the applicable Pricing Supplement; and
(i) for Floating Rate Notes that reset at intervals other
than those described above, the days specified in the
applicable Pricing Supplement;
provided, however, that the interest rate in effect from the date of issue to
the first Interest Reset Date for a Floating Rate Note will be the Initial
Interest Rate (as set forth in the applicable Pricing Supplement). If any
Interest Reset Date for any Floating Rate Note would otherwise be a day that is
not a Market Day for such Floating Rate Note, the Interest Reset Date for such
Floating Rate Note shall be postponed to the next day that is a Market Day for
such Floating Rate Note (except that for a LIBOR Note, if such Market Day is in
the next succeeding calendar month, such Interest Reset Date shall be the
immediately preceding Market Day).
The Interest Determination Date pertaining to an Interest Reset Date
for a Commercial Paper Rate Note (the "Commercial Paper Rate Interest
Determination Date"), for a Prime Rate Note (the "Prime Rate Interest
Determination Date"), for a CD Rate Note (the "CD Rate Interest Determination
Date" ), for a Federal Funds Rate Note (the "Federal Funds Rate Interest
Determination Date") and for a CMT Rate Note (the "CMT Rate Interest
Determination Date") will be the second Market Day preceding such Interest
Reset Date. The Interest Determination Date pertaining to an Interest Reset
Date for an Eleventh District Cost of Funds Rate Note (the "Eleventh District
Cost of Funds Rate Interest Determination Date") will be the last working day
of the month immediately preceding the applicable Interest Reset Date on which
the Federal Home Loan Bank of San Francisco (the "FHLB of San Francisco")
publishes the FHLB Index (as hereinafter defined). The Interest Determination
Date pertaining to an
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<PAGE> 7
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 (the "Treasury Rate Interest
Determination Date") 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 usually sold at auction on the Monday of each week, unless that day is a
legal holiday, in which case the auction is usually held on the following
Tuesday, except that 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 Treasury Rate Interest Determination Date pertaining to
the Interest Reset Date occurring in the next succeeding week. If an auction
date shall fall on any Interest Reset Date for a Treasury Rate Note, then such
Interest Reset Date shall instead be the first Market Day immediately following
such auction date.
All percentages resulting from any calculations referred to in this
Prospectus Supplement will be rounded upwards, if necessary, to the next higher
one hundred-thousandth of a percentage point (e.g., 9.876541% (or .09876541)
being rounded to 9.87655% (or .0987655)), and all U.S. dollar amounts used in
or resulting from such calculations will be rounded to the nearest cent (with
one-half cent being rounded upwards) and, in the case of a Specified Currency
other than U.S. dollars, to the nearest unit (with one-half unit being rounded
upward).
In addition to any Maximum Rate that may apply to a Floating Rate Note
under the above provisions, the interest rate on the Floating Rate Notes 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 present
New York law the maximum rate of interest is 25% per annum on a simple interest
basis, with certain exceptions. The limit may not apply to Floating Rate Notes
in which U.S. $2,500,000 or more has been invested.
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 for such Floating Rate Note. The Calculation Agent's determination
of any interest rate will be final and binding in the absence of manifest
error. Unless otherwise indicated in the applicable Pricing Supplement, the
"Calculation Date," if applicable, pertaining to an Interest Determination Date
will be the earlier of (i) the tenth calendar day after such Interest
Determination Date or, if any such day is not a Market Day, the next succeeding
Market Day and (ii) the Market Day immediately preceding the applicable
Interest Payment Date or the date of maturity, as the case may be.
COMMERCIAL PAPER RATE NOTES
Commercial Paper Rate Notes will bear interest at the interest rates
(calculated with reference to the Commercial Paper Rate and the Spread and/or
Spread Multiplier, if any), and will be payable on the dates, specified on the
face of the Commercial Paper Rate Note and in the applicable Pricing
Supplement.
Unless otherwise indicated in the applicable Pricing Supplement,
"Commercial Paper Rate" means, for any Interest Reset Date, the Money Market
Yield (calculated as described below) of the per annum rate (quoted on a bank
discount basis) for the relevant Commercial Paper Rate Interest Determination
Date for commercial paper having the specified Index Maturity 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
"Commercial Paper." If such rate is not published before 3:00 p.m., New York
City time, on the relevant Calculation Date, then the Commercial Paper Rate for
such Interest Reset Date shall be the Money Market Yield of such rate on such
Commercial Paper Rate Interest Determination Date for commercial paper having
the specified Index Maturity as published by the Federal Reserve Bank of New
York on the Internet, under the heading "Selected Daily Rates." If by 3:00
p.m., New York City time, on such Calculation Date such rate is not yet
published either in H.15(519) or by the Federal Reserve Bank of New York, the
Commercial Paper Rate for such Interest Reset Date shall be calculated by the
Calculation Agent and shall be the Money Market Yield of the arithmetic mean of
the offered per annum rates (quoted on a bank discount basis), as of 11:00
a.m., New York City time, on such Commercial Paper Rate Interest Determination
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<PAGE> 8
Date, of three leading dealers of U.S. dollar commercial paper in The City of
New York (which may include the Agents) selected by the Calculation Agent for
U.S. dollar 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
fewer than three dealers selected by the Calculation Agent are quoting as
mentioned in this sentence, the Commercial Paper Rate for such Interest Reset
Date will be the Commercial Paper Rate in effect on such Commercial Paper Rate
Interest Determination Date.
"Money Market Yield" shall be a yield (expressed as a percentage)
calculated in accordance with the following formula:
360 X D
-------------
Money Market Yield = 100 X 360 - (D X M)
where "D" refers to the per annum rate for commercial paper quoted on a bank
discount basis and expressed as a decimal and "M" refers to the number of days
in the period for which accrued interest is being calculated.
PRIME RATE NOTES
Prime Rate Notes will bear interest at the interest rates (calculated
with reference to the Prime Rate and the Spread and/or Spread Multiplier, if
any), and will be payable on the dates, specified on their faces and in the
applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement,
"Prime Rate" means, for any Interest Reset Date, the rate set forth for the
relevant Prime Rate Interest Determination Date in H.15(519) under the heading
"Bank Prime Loan." If such rate is not published before 3:00 p.m., New York
City time, on the relevant Calculation Date, then the Prime Rate for such
Interest Reset Date will be the arithmetic mean of the rates of interest
publicly announced by each bank that appears on the display designated as page
"USPRIME1" on the Reuters Monitor Money Rates Service (or such other page as
may replace the USPRIME1 page on that service for the purpose of displaying
prime rates or base lending rates of major United States banks) ("Reuters
Screen USPRIME1 Page") as such bank's prime rate or base lending rate as in
effect for such Prime Rate Interest Determination Date as quoted on the Reuters
Screen USPRIME1 Page on such Prime Rate Interest Determination Date. If fewer
than four such rates appear on the Reuters Screen USPRIME1 Page on such Prime
Rate Interest Determination Date, the Prime Rate for such Interest Reset Date
will be the arithmetic mean of the prime rates or base lending rates (quoted on
the basis of the actual number of days in the year divided by a 360-day year)
as of the close of business on such Prime Rate Interest Determination Date by
four major money center banks in The City of New York selected by the
Calculation Agent. If fewer than four such quotations are so provided, then the
Prime Rate shall be the arithmetic mean of four prime rates quoted on the basis
of the actual number of days in the year divided by a 360-day year as of the
close of business on such Prime Rate Interest Determination Date as furnished
in The City of New York by the major money center banks, if any, that have
provided such quotations and by as many substitute banks or trust companies as
necessary in order to obtain four such prime rate quotations, provided such
substitute banks or trust companies are organized and doing business under the
laws of the United States, or any State thereof, each 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
provide such rate or rates; provided, however, that if the banks or trust
companies so selected by the Calculation Agent are not quoting as mentioned in
this sentence, the Prime Rate determined as of such Prime Rate Interest
Determination Date will be the Prime Rate in effect on such Prime Rate Interest
Determination Date.
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LIBOR NOTES
LIBOR Notes will bear interest at the rates (calculated with reference
to LIBOR and the Spread and/or Spread Multiplier, if any), specified in such
LIBOR Notes and in any applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
"LIBOR" means the rate determined by the Calculation Agent in accordance with
the following provisions:
(i) With respect to an Interest Determination Date
relating to a LIBOR Note or any Floating Rate Note for which the
interest rate is determined with reference to LIBOR (a "LIBOR 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 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 LIBOR
Interest Determination Date, that appear on the Designated LIBOR Page
specified in the applicable Pricing Supplement as of 11:00 a.m. London
time, on such LIBOR 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 or if neither "LIBOR
Reuters" nor "LIBOR Telerate" is specified as the method for
calculating LIBOR, 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
LIBOR Interest Determination Date that appears on the Designated LIBOR
Page specified in the applicable Pricing Supplement as of 11:00 a.m.,
London time, on such LIBOR Interest Determination Date. If fewer than
two such offered rates appear, or if no such rate appears, as
applicable, LIBOR in respect of the related LIBOR Interest
Determination Date will be determined in accordance with the
provisions described in clause (ii) below.
(ii) With respect to a LIBOR Interest Determination Date
on which fewer than two offered rates appear, or no rate appears, as
the case may be, on the applicable Designated LIBOR Page as described
in clause (i) above, the Calculation Agent will request the principal
London office 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 LIBOR Interest Determination Date, to
prime banks in the London interbank market at approximately 11:00
a.m., London time, on such LIBOR Interest Determination Date and in a
principal amount that is representative for a single transaction in
such Index Currency in such market at such time. If at least two such
quotations are so provided, then LIBOR on such LIBOR Interest
Determination Date will be the arithmetic mean of such quotations. If
fewer than two such quotations are provided, LIBOR determined on such
LIBOR Interest Determination Date will be the arithmetic mean of the
rates quoted at approximately 11:00 a.m., in the applicable Principal
Financial Center, on such LIBOR Interest Determination Date by three
major banks in such Principal Financial Center (which may include
affiliates of the Agents) 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 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 determined as of such LIBOR
Interest Determination Date will be LIBOR in effect on such LIBOR
Interest Determination Date.
"Index Currency" means the currency (including composite currencies)
specified in the applicable Pricing Supplement as the currency for which LIBOR
shall be calculated. If no such currency is specified in the applicable Pricing
Supplement, the Index Currency shall be U.S. dollars.
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"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is
specified 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 applicable Index Currency, or (b) if "LIBOR
Telerate" is specified in the applicable Pricing Supplement or neither "LIBOR
Reuters" nor "LIBOR Telerate" is specified as the method for calculating LIBOR,
the display on the Dow Jones Telerate Service for the purpose of displaying the
London interbank rates of major banks for the applicable Index Currency.
"Principal Financial Center" will be the capital city of the country
issuing the Specified Currency in respect of which payment on the Notes is to
be made or, solely with respect to the calculation of LIBOR, of the specified
Index Currency, except that with respect to U.S. dollars, Australian dollars,
German Marks, Dutch Guilders, Italian Lire, Swiss Francs and ECUs, the
Principal Financial Center shall be The City of New York, Sydney, Frankfurt,
Amsterdam, Milan, Zurich and Luxembourg, respectively.
TREASURY RATE NOTES
Treasury Rate Notes will bear interest at the interest rates
(calculated with reference to the Treasury Rate and the Spread and/or Spread
Multiplier, if any), and will be payable on the dates, specified on the face of
the Treasury Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement,
"Treasury Rate" means, for any Interest Reset Date, the rate for the auction on
the relevant Treasury Rate Interest Determination Date of direct obligations of
the United States ("Treasury Bills") having the specified Index Maturity as
published in H.15(519) under the heading "U.S. Government Securities/Treasury
Bills/Auction Average" or, if not so published by 3:00 p.m., New York City
time, on the relevant Calculation Date, the auction average rate (expressed as
a bond equivalent, on the basis of a year of 365 or 366 days, as applicable,
and applied on a daily basis) for such auction as otherwise announced by the
United States Department of the Treasury. If the results of such auction of
Treasury Bills having the specified Index Maturity 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 during such week, then the
Treasury Rate shall be the rate set forth in H.15(519) for the relevant
Treasury Rate Interest Determination Date for the specified Index Maturity
under the heading "U.S. Government Securities/Treasury Bills/Secondary Market."
If such rate is not so published by 3:00 p.m., New York City time, on the
relevant Calculation Date, the Treasury Rate for such Interest Reset Date 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) of the arithmetic mean of the
secondary market bid rates as of approximately 3:30 p.m., New York City time,
on such Treasury Rate Interest Determination Date, of three primary United
States government securities dealers in The City of New York selected by the
Calculation Agent for the issue of Treasury Bills with a remaining maturity
closest to the specified Index Maturity; provided, however, that if fewer than
three dealers selected as provided above by the Calculation Agent are quoting
as mentioned in this sentence, the Treasury Rate for such Interest Reset Date
will be the Treasury Rate in effect on such Treasury Rate Interest
Determination Date.
CMT RATE NOTES
CMT Rate Notes will bear interest at the interest rates (calculated
with reference to the CMT Rate and the Spread and/or Spread Multiplier, if
any), and will be payable on the dates, specified on the face of the CMT Rate
Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "CMT
Rate" means, with respect to any Interest Reset Date, the treasury constant
maturity rate for direct obligations of the United States ("Treasury Notes") on
the relevant CMT Rate Interest Determination Date for the relevant Index
Maturity as published in H.15(519) under the heading "U.S. Government
Securities/Treasury Constant Maturities." In the event that such rate is not
published by 3:00 p.m., New York City time, on the relevant Calculation Date,
the CMT Rate will be the Bond Equivalent Yield of the arithmetic mean of the
secondary market bid rates as of approximately 3:30 p.m., New
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York City time, on such CMT Rate Interest Determination Date of three primary
United States government securities dealers in The City of New York selected by
the Calculation Agent for the issue of Treasury Notes with a remaining maturity
closest to the specified Index Maturity; provided, however, that if fewer than
three dealers selected as aforesaid by the Calculation Agent are quoting as
mentioned in this sentence, the CMT Rate with respect to such Interest Reset
Date will be the CMT Rate in effect on such CMT Rate Interest Determination
Date.
"Bond Equivalent Yield" shall be a yield (expressed as a percentage)
calculated in accordance with the following formula:
D X N
-------------
Bond Equivalent Yield = 100 X 360 - (D X M)
where "D" refers to the per annum rate for Treasury Notes, quoted on a bank
discount basis and expressed as a decimal; "N" refers to 365 or 366, as the
case may be; and "M" refers to, if the Index Maturity approximately corresponds
to the length of the period for which such rate is being determined, the actual
number of days in such period and, otherwise, the actual number of days in the
period from, and including, the Interest Reset Date to, but excluding, the day
that numerically corresponds to that Interest Reset Date (or, if there is not
any such numerically corresponding day, the last day) in the calendar month
that is the number of months corresponding to the specified Index Maturity
after the month in which that Interest Reset Date occurs.
CD RATE NOTES
CD Rate Notes will bear interest at the interest rates (calculated
with reference to the CD Rate and the Spread and/or Spread Multiplier, if any),
and will be payable on the dates, specified on the face of the CD Rate Note and
in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "CD
Rate" means, for any Interest Reset Date, the rate for the relevant CD Rate
Interest Determination Date for negotiable U.S. dollar certificates of deposit
having the specified Index Maturity as published in H.15(519) under the heading
"CDs (Secondary Market)." If such rate is not published before 3:00 p.m., New
York City time, on the relevant Calculation Date, then the CD Rate for such
Interest Reset Date shall be the rate on such CD Rate Interest Determination
Date for negotiable U.S. dollar certificates of deposit having the specified
Index Maturity as published by the Federal Reserve Bank of New York on the
Internet, under the heading "Selected Daily Rates." If by 3:00 p.m., New York
City time, on such Calculation Date such rate is not published either in
H.15(519) or by the Federal Reserve Bank of New York, the CD Rate for such
Interest Reset Date shall be calculated by the Calculation Agent and shall be
the arithmetic mean of the secondary market offered rates, as of 10:00 a.m.,
New York City time, on such CD Rate Interest Determination Date, of three
leading nonbank dealers of 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 market banks with a
remaining maturity closest to the specified Index Maturity in a denomination of
U.S. $5,000,000; provided, however, that if fewer than three dealers selected
as provided above by the Calculation Agent are quoting as mentioned in this
sentence, the CD Rate for such Interest Reset Date will be the CD Rate in
effect on such CD Rate Interest Determination Date.
FEDERAL FUNDS RATE NOTES
Federal Funds Rate Notes will bear interest at the interest rates
(calculated with reference to the Federal Funds Rate and the Spread and/or
Spread Multiplier, if any), and will be payable on the dates, specified on the
face of the Federal Funds Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement,
"Federal Funds Rate" means, for any Interest Reset Date, the rate on the
relevant Federal Funds Rate Interest Determination Date for federal funds as
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published in H.15(519) under the heading "Federal Funds (Effective)." If such
rate is not published before 3:00 p.m., New York City time, on the relevant
Calculation Date, then the Federal Funds Rate for such Interest Reset Date will
be the rate on such Federal Funds Rate Interest Determination Date as published
by the Federal Reserve Bank of New York on the Internet, under the heading
"Selected Daily Rates." If by 3:00 p.m., New York City time, on such
Calculation Date such rate is not published either in H.15(519) or by the
Federal Reserve Bank of New York, the Federal Funds Rate for such Interest
Reset Date shall be calculated by the Calculation Agent and shall be the
arithmetic mean of the rates, as of 9:00 a.m., New York City time, on such
Federal Funds Rate Interest Determination Date, for the last transaction in
overnight federal funds arranged by three leading brokers of federal funds
transactions in The City of New York selected by the Calculation Agent;
provided, however, that if fewer than three brokers selected by the Calculation
Agent are quoting as mentioned in this sentence, the Federal Funds Rate for
such Interest Reset Date will be the Federal Funds Rate in effect on such
Federal Funds Rate Interest Determination Date.
ELEVENTH DISTRICT COST OF FUNDS RATE NOTES
Eleventh District Cost of Funds Rate Notes will bear interest at the
interest rates (calculated with reference to the Eleventh District Cost of
Funds Rate and the Spread and/or Spread Multiplier, if any), and will be
payable on the dates, specified on the face of the Eleventh District Cost of
Funds Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement,
"Eleventh District Cost of Funds Rate" means, for any Interest Reset Date, the
rate on the relevant Eleventh District Cost of Funds Rate Interest
Determination Date, which is equal to the monthly weighted average cost of
funds for the calendar month immediately preceding the month in which such
Eleventh District Cost of Funds Rate Interest Determination Date falls, as set
forth under the caption "11th District" on Telerate Page 7058 as of 11:00 a.m.,
San Francisco time, on such Eleventh District Cost of Funds Rate Interest
Determination Date. If such rate does not appear on Telerate Page 7058 on such
Eleventh District Cost of Funds Rate Interest Determination Date, then the
Eleventh District Cost of Funds Rate on such Eleventh District Cost of Funds
Rate Interest Determination Date shall be the monthly weighted average cost of
funds paid by member institutions of the Eleventh Federal Home Loan Bank
District that was most recently announced (the "FHLB Index") by the FHLB of San
Francisco as such cost of funds for the calendar month immediately preceding
such Eleventh District Cost of Funds Rate Interest Determination Date. If the
FHLB of San Francisco fails to announce the FHLB Index on or prior to such
Eleventh District Cost of Funds Rate Interest Determination Date for the
calendar month immediately preceding such Eleventh District Cost of Funds Rate
Interest Determination Date, the Eleventh District Cost of Funds Rate
determined as of such Eleventh District Cost of Funds Rate Interest
Determination Date will be the Eleventh District Cost of Funds Rate in effect
on such Eleventh District Cost of Funds Rate Interest Determination Date.
INVERSE FLOATING RATE NOTES
Any Floating Rate Note may be designated in the applicable Pricing
Supplement as an "Inverse Floating Rate Note," in which event the interest rate
on such Floating Rate Note will be equal to (i) in the case of each period
commencing on the date of issue to but excluding the first Interest Reset Date,
the Initial Interest Rate specified in the applicable Pricing Supplement and
(ii) in the case of each period commencing on an Interest Reset Date, a fixed
rate of interest specified in the applicable Pricing Supplement, minus the
interest rate determined by the reference to the Interest Rate Basis specified
in the applicable Pricing Supplement; provided, however, that unless otherwise
specified in the applicable Pricing Supplement, the interest rate thereon will
not be less than zero.
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FLOATING RATE/FIXED RATE NOTES
The applicable Pricing Supplement may provide that a Note will be a
Floating Rate Note for a specified portion of its term and a Fixed Rate Note
for the remainder of its term, in which event the interest rate on such Note
will be determined as herein provided as if it were a Floating Rate Note and a
Fixed Rate Note thereunder for each such respective period, all as specified in
such applicable Pricing Supplement.
INDEXED NOTES
Certain Notes ("Indexed Notes") may be issued with the principal
amount payable at maturity, and/or the amount of interest payable on an
Interest Payment Date, to be determined by reference to one or more currencies
(including baskets of currencies), one or more commodities (including baskets
of commodities), one or more securities (including baskets of securities)
and/or any other index (each, an "Index") as set forth 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 (but not less than
zero) of such Notes depending upon the value at maturity of the applicable
Index. With respect to any Indexed Note, information as to the methods for
determining the principal amount payable at maturity and/or the amount of
interest payable on an Interest Payment Date, as the case may be, as to any one
or more currencies (including baskets of currencies), commodities (including
baskets of commodities), securities (including baskets of securities) or other
indices to which principal or interest is indexed, as to any additional foreign
exchange or other risks or as to any additional tax considerations may be set
forth in the applicable Pricing Supplement. See "Certain Investment
Considerations Relating to Indexed Notes."
PAYMENT OF PRINCIPAL AND INTEREST
Payments of principal of (and premium, if any) and interest on all
Book-Entry Notes will be made in accordance with the procedures of the
Depositary and its Participants in effect from time to time as described under
"Book-Entry Notes" below. Unless otherwise specified in the applicable Pricing
Supplement, payments of principal of (and premium, if any) and interest on all
Certificated Notes will be made in the applicable Specified Currency; provided,
however, that payments of principal (and premium, if any) and interest on Notes
denominated in a Specified Currency other than U.S. dollars will nevertheless
be made in U.S. dollars:
(a) with respect to any Certificated Notes, at the option
of the Holders of such Notes under the procedures described in the two
following paragraphs; and
(b) with respect to any Notes, at the Company's option in
the case of imposition of exchange controls or other circumstances
beyond the Company's control as described in the last paragraph under
this heading.
Unless otherwise specified in the applicable Pricing Supplement, and
except as provided in the next paragraph, payments of principal of (and
premium, if any) and interest on any Certificated Note denominated in a
Specified Currency other than U.S. dollars will be made in U.S. dollars if the
registered Holder of such Note on the relevant Regular Record Date, or at
maturity, as the case may be, has transmitted a written request for such
payment in U.S. dollars to the Paying Agent at the Paying Agent Office in The
City of New York on or before such Regular Record Date, or the date 15 days
before maturity, as the case may be. Such request may be in writing (mailed or
hand delivered) or sent by cable, telex, or other form of facsimile
transmission. Any such request made for any Certificated Note by a registered
Holder will remain in effect for any further payments of principal of (and
premium, if any) and interest on such Note payable to such Holder, unless such
request is revoked on or before the relevant Regular Record Date or the date 15
days before maturity, as the case may be. Holders of Certificated Notes
denominated in a Specified Currency other than U.S. dollars that are registered
in the name of a broker or nominee should contact such broker or nominee to
determine whether and how to elect to receive payments in U.S. dollars.
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Unless otherwise specified in the applicable Pricing Supplement, the
U.S. dollar amount to be received by a Holder of a Note (including a Book-Entry
Note) denominated in a Specified Currency other than U.S. dollars who elects to
receive payment in U.S. dollars will be based on the highest bid quotation in
The City of New York received by the Exchange Rate Agent (as defined below) as
of 11:00 a.m., New York City time, on the second Market Day next preceding the
applicable payment date from three recognized foreign exchange dealers (one of
which may be the Exchange Rate Agent) for the purchase by the quoting dealer of
the Specified Currency for U.S. dollars for settlement on such payment date in
the aggregate amount of the Specified Currency payable to all Holders of Notes
electing to receive U.S. dollar payments and at which the applicable dealer
commits to execute a contract. If three such bid quotations are not available
on the second Market Day preceding the date of payment of principal (and
premium, if any) or interest for any Note, such payment will be made in the
Specified Currency. All currency exchange costs associated with any payment in
U.S. dollars on any such Note will be borne by the Holder thereof by deductions
from such payment. The Exchange Rate Agent (the "Exchange Rate Agent") with
respect to any Notes denominated in a Specified Currency other than U.S.
dollars will be specified in the applicable Pricing Supplement.
Interest will be payable to the person in whose name a Note is
registered (which for a permanent Global Security representing Book-Entry Notes
will be the Depositary or a nominee of the Depositary) at the close of business
on the Regular Record Date next preceding each Interest Payment Date; provided,
however, that interest payable at maturity will be payable to the person to
whom principal shall be payable (which for permanent Global Securities
representing Book-Entry Notes, will be the Depositary or a nominee of the
Depositary). The first payment of interest on any Note originally issued
between a Regular Record Date and an Interest Payment Date will be made on the
second such Interest Payment Date next succeeding its date of issue to the
Holder of such Note on the Regular Record Date relating to such second Interest
Payment Date. Unless otherwise indicated in the applicable Pricing Supplement,
the "Regular Record Date" for any Floating Rate Note shall be the date 15
calendar days before each Interest Payment Date, whether or not such date shall
be a Market Day, and the "Regular Record Date" for any Fixed Rate Note shall be
the March 1 and September 1 next preceding the March 15 and September 15
Interest Payment Dates.
Unless otherwise indicated in the applicable Pricing Supplement and
except as provided below, interest will be payable:
(a) for Floating Rate Notes that reset daily, weekly or
monthly, on the third Wednesday of each month or on the third
Wednesday of March, June, September and December of each year (as
indicated in the applicable Pricing Supplement);
(b) for Floating Rate Notes that reset quarterly, on the
third Wednesday of March, June, September and December of each year;
(c) for Floating Rate Notes that reset semi-annually, on
the third Wednesday of the two months of each year specified in the
applicable Pricing Supplement;
(d) for Floating Rate Notes that reset annually, on the
third Wednesday of the month specified in the applicable Pricing
Supplement; and
(e) for Floating Rate Notes that reset at intervals other
than those described above, on the days specified in the applicable
Pricing Supplement,
(each an "Interest Payment Date") and in each case, at maturity. Payments of
interest on any Fixed Rate Note or Floating Rate Note for any Interest Payment
Date will include interest accrued to but excluding the applicable Interest
Payment Date or date of maturity as the case may be.
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For a Floating Rate Note, accrued interest from (and including) the
date of issue or from (and including) the last date to which interest has been
paid is calculated by multiplying the principal amount of such Floating Rate
Note by an accrued interest factor. Such accrued interest factor is computed by
adding the interest factor calculated for each day from (and including) the
date of issue, or from (and including) the last date to which interest has been
paid to (but excluding) the date for which accrued interest is being
calculated. The interest factor (expressed as a decimal) for each such day is
computed by dividing the interest rate (expressed as a decimal) applicable to
such date by 360 for Commercial Paper Rate Notes, Prime Rate Notes, LIBOR
Notes, CD Rate Notes, Eleventh District Cost of Funds Rate Notes or Federal
Funds Rate Notes, or by the actual number of days in the year for Treasury Rate
Notes or CMT Rate Notes. Interest on Fixed Rate Notes will be computed on the
basis of a 360-day year of twelve 30-day months.
Except as provided in the next sentence, a payment on any Note due on
any day that is not a Market Day need not be made on such day, but may be made
on the next succeeding Market Day with the same force and effect as if made on
the due date, and no interest on such payment shall accrue for the period from
and after such date. If an Interest Payment Date (other than at maturity) for
any Floating Rate Note would otherwise fall on a day that is not a Market Day
for such Note, such Interest Payment Date will be postponed to the next
succeeding Market Day (or, for a LIBOR Note, if such day falls in the next
calendar month, the next preceding Market Day).
Payment of the principal of (and premium, if any) and any interest due
on any Certificated Note at maturity to be made in U.S. dollars will be made in
immediately available funds upon surrender of such Note at the Paying Agent
Office in The City of New York, provided that such Certificated Note is
presented to the Paying Agent in time for the Paying Agent to make such
payments in such funds in accordance with its normal procedures. Payments of
interest on any Certificated Note to be made in U.S. dollars other than at
maturity will be made by check mailed to the address of the Person entitled
thereto as it appears in the Security Register or, if such Holder owns Notes
aggregating at least $10 million in principal amount, by wire transfer to such
account as may have been appropriately designated by such Person.
Unless otherwise specified in the applicable Pricing Supplement,
payments of interest and principal (and premium, if any) with respect to any
Certificated Note to be made in a Specified Currency other than U.S. dollars
will be made by wire transfer of immediately available funds to such account
with a bank located in the country issuing the Specified Currency (or, with
respect to Certificated Notes denominated in ECUs, to an ECU account) or other
jurisdiction acceptable to the Company and the Paying Agent as shall have been
designated at least five Business Days prior to the Interest Payment Date or
Stated Maturity, as the case may be, by the registered Holder of such Note on
the relevant Regular Record Date or maturity, provided that, in the case of
payment of principal (and premium, if any) and any interest due at maturity,
the Note is presented to the Paying Agent in time for the Paying Agent to make
such payments in such funds in accordance with its normal procedures. Such
designation shall be made by filing the appropriate information with the Paying
Agent at the Paying Agent Office in The City of New York, and, unless revoked,
any such designation made with respect to any Certificated Note by a registered
Holder will remain in effect with respect to any further payments with respect
to such Note payable to such Holder. If a payment with respect to any such Note
cannot be made by wire transfer because the required designation has not been
received by the Paying Agent on or before the requisite date or for any other
reason, a notice will be mailed to the Holder at its registered address
requesting a designation pursuant to which such wire transfer can be made and,
upon the Paying Agent's receipt of such a designation, such payment will be
made within five Business Days of such receipt. The Company will pay any
administrative costs imposed by banks in connection with making payments by
wire transfer, but any tax, assessment or governmental charge imposed upon
payments will be borne by the Holders of the Certificated Notes in respect of
which payments are made.
If the principal of (and premium, if any) or interest on any Note is
payable in other than U.S. dollars and such Specified Currency (other than
ECUs) is not available due to the imposition of exchange controls or other
circumstances beyond the control of the Company, the Company will be entitled
to satisfy its obligations to the Holder of such Note by making such payment
(including any such payment at maturity) in U.S. dollars on the basis
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of the most recently available Exchange Rate. If the principal of (and premium,
if any) and interest on any Note is payable in ECUs, and the ECU is not
available due to the imposition of exchange controls or other circumstances
beyond the control of the Company or the ECU is used neither as the unit of
account of the European Communities nor as the currency of the European Union,
the Company will be entitled to satisfy its obligations to the Holder of such
Note by making such payment (including any such payment at maturity) as
described under "Certain Investment Considerations Relating to Foreign Currency
Notes - Notes Denominated in ECUs." Any payment made under such circumstances
in such a manner will not constitute an Event of Default under any Note or the
applicable Indenture.
REDEMPTION AT THE OPTION OF THE COMPANY
Unless otherwise specified in the applicable Pricing Supplement, the
Notes will not be subject to any sinking fund. The Notes will be redeemable at
the option of the Company prior to Stated Maturity only if a Redemption
Commencement Date is specified in the applicable Pricing Supplement. If so
specified, the Notes will be subject to redemption at the option of the Company
on any date on and after the applicable Redemption Commencement Date in whole
or from time to time in part in increments of $1,000 (or the minimum
denomination specified in such Pricing Supplement), provided that any remaining
principal amount of such Note will be an authorized denomination of such Note,
at the applicable Redemption Price (as defined below) on notice given not more
than 60 nor less than 30 days prior to the date of redemption and in accordance
with the provisions of the applicable Indenture. "Redemption Price," with
respect to a Note, means an amount equal to the sum of (i) 100% of the unpaid
principal amount thereof or the portion thereof to be redeemed (or, if such
Note is an OID Note, the Amortized Face Amount (as defined below) determined as
of the date of redemption as provided below), (ii) the Initial Redemption
Percentage specified in such Pricing Supplement (as adjusted by the Annual
Redemption Percentage Reduction, if applicable, also as specified in the
Pricing Supplement) multiplied by the unpaid principal amount or the portion to
be redeemed (or, if such Note is an OID Note, the Issue Price (as determined
under Treasury Regulation Section 1.1273-2(a)(1)) specified in such Pricing
Supplement (the "Issue Price"), net of any portion of such Issue Price which
has been paid prior to the date of redemption, or the portion of such Issue
Price (or such net amount) proportionate to the portion of the unpaid principal
amount to be redeemed) plus (iii) accrued interest to the date of redemption
(or, if such Note is an OID Note, any accrued interest to the date of
redemption the payment of which would constitute qualified stated interest
payments within the meaning of Treasury Regulation Section 1.1273-1(c) under
the Code (as defined below)). The Initial Redemption Percentage, if any,
applicable to a Note shall decline at each anniversary of the Redemption
Commencement Date by an amount equal to the applicable Annual Redemption
Percentage Reduction, if any, until it equals zero. "Amortized Face Amount,"
with respect to an OID Note, means an amount equal to the sum of (i) the Issue
Price plus (ii) the aggregate of the portions of the original issue discount
(the excess of the amounts considered as part of the "stated redemption price
at maturity" of such Note within the meaning of Section 1273(a)(2) of the Code,
whether denominated as principal or interest, over the Issue Price) which shall
theretofore have accrued pursuant to Section 1272 of the Code (without regard
to Section 1272(a)(7) of the Code) from the date of issue of such Note to the
date of determination, minus (iii) any amount considered as part of the "stated
redemption price at maturity" of such Note which has been paid from the date of
issue to the date of determination.
REPAYMENT AT THE OPTION OF THE HOLDER
If so specified in the applicable Pricing Supplement, the Notes will
be repayable by the Company in whole or from time to time in part at the option
of the Holders thereof on their respective Optional Repayment Dates specified
in such Pricing Supplement. If no Optional Repayment Date is specified with
respect to a Note, such Note will not be repayable at the option of the Holder
thereof prior to Stated Maturity. Any repayment in part will be in increments
of $1,000 (or the minimum denomination specified in the applicable Pricing
Supplement) provided that any remaining principal amount of such Note will be
an authorized denomination of such Note. Unless otherwise specified in the
applicable Pricing Supplement, the repayment price for any Note to be repaid
means an amount equal to the sum of (i) 100% of the unpaid principal amount
thereof or the portion thereof (or, if such Note is an OID Note, the Amortized
Face Amount determined as of the date of repayment) plus (ii) accrued interest
to the date of repayment (or, if such Note is an OID Note, any accrued interest
to the date of repayment the payment
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of which would constitute qualified stated interest payments within the meaning
of Treasury Regulation Section 1.1273- 1(c) under the Code). Information with
respect to the repayment price for Indexed Notes shall be set forth in the
applicable Pricing Supplement. For any Note to be repaid, such Note must be
received, together with the form thereon entitled "Option to Elect Repayment"
duly completed, by the applicable Trustee at its Corporate Trust Office (or
such other address of which the Company shall from time to time notify the
Holders) not more than 60 nor less than 30 days prior to the date of repayment.
Exercise of such repayment option by the Holder will be irrevocable.
While the Book-Entry Notes are represented by the Global Securities
held by or on behalf of the Depositary, and registered in the name of the
Depositary or the Depositary's nominee, the option for repayment may be
exercised by the Depositary, acting on behalf of each applicable Participant,
who is in turn acting on behalf of the beneficial owners of the Global Security
or Securities representing such Book-Entry Notes, by delivering a written
notice substantially similar to the above-mentioned form to the applicable
Trustee at its Corporate Trust Office (or such other address of which the
Company shall from time to time notify the Holders) not more than 60 nor less
than 30 days prior to the date of repayment. Such written notice must be
received by the Trustee by 5:00 p.m., New York City time, on the last day for
giving such notice. In order to ensure that such notice is received by the
applicable Trustee on a particular day, the beneficial owner of the Global
Security or Securities representing such Book-Entry Notes must so direct the
applicable Participant before such Participant's deadline for accepting
instructions for that day. Different firms may have different deadlines for
accepting instructions from their customers. Accordingly, beneficial owners of
the Global Security or Securities representing Book-Entry Notes should consult
the Participants through which they own their interest therein for the
respective deadlines for such Participants. All instructions given to
Participants from beneficial owners relating to the option to elect repayment
shall be irrevocable. In addition, at the time such instructions are given,
such beneficial owners shall cause the applicable Participant to transfer such
beneficial owner's interest in the Global Security or Securities representing
such Book-Entry Notes, on the Depositary's records, to the applicable Trustee.
See "Book-Entry Notes."
If applicable, the Company will comply with the requirements of Rule
14e-1 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and any other securities laws or regulations in connection with any such
repayment.
The Company may at any time purchase Notes at any price or prices in
the open market or otherwise. Notes so purchased by the Company may be held or
resold or, at the discretion of the Company, may be surrendered to the Trustee
for cancellation.
BOOK-ENTRY NOTES
The following provisions assume that the Company has established a
depository arrangement with The Depository Trust Company with respect to the
Book-Entry Notes. Any additional or differing terms of the depository
arrangements with respect to the Book-Entry Notes will be described in the
applicable Pricing Supplement.
Upon issuance, all Book-Entry Notes up to $150,000,000 aggregate
principal amount bearing interest (if any) at the same rate or pursuant to the
same formula and having the same date of issue, currency of denomination and
payment, redemption provisions (if any), repayment provisions (if any), Stated
Maturity and other variable terms will be represented by a single Global
Security. Each Global Security representing Book-Entry Notes will be deposited
with, or on behalf of, the Depositary and will be registered in the name of the
Depositary or a nominee of the Depositary. No Global Security may be
transferred except as a whole by a nominee of the Depositary to the Depositary
or to another nominee of the Depositary, or by the Depositary or such nominee
to a successor of the Depositary or a nominee of such successor.
So long as the Depositary or its nominee is the registered owner of a
Global Security, the Depositary or its nominee, as the case may be, will be the
sole Holder of the Book-Entry Notes represented thereby for all
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purposes under the applicable Indenture. Except as otherwise provided in this
section, the beneficial owners of the Global Security or Securities
representing Book-Entry Notes will not be entitled to receive physical delivery
of Certificated Notes and will not be considered the Holders thereof for any
purpose under the applicable Indenture, and no Global Security representing
Book-Entry Notes shall be exchangeable or transferable. Accordingly, each
person owning a beneficial interest in a Global Security must rely on the
procedures of the Depositary and, if such person is not a Participant, on the
procedures of the Participant through which such person owns its interest in
order to exercise any rights of a Holder under the applicable Indenture. The
laws of some jurisdictions require that certain purchasers of securities take
physical delivery of such securities in certificated form. Such limits and such
laws may impair the ability to transfer beneficial interests in a Global
Security representing Book-Entry Notes.
Unless otherwise specified in the applicable Pricing Supplement, each
Global Security representing Book-Entry Notes will be exchangeable for
Certificated Notes of like tenor and terms and of differing authorized
denominations aggregating a like amount, only if (i) the Depositary notifies
the Company that it is unwilling or unable to continue as Depositary for the
Global Securities, (ii) the Depositary ceases to be a clearing agency
registered under the Exchange Act, (iii) the Company in its sole discretion
determines that the Global Securities shall be exchangeable for Certificated
Notes, or (iv) there shall have occurred and be continuing an Event of Default
under the applicable Indenture with respect to the Notes. Upon any such
exchange, Certificated Notes shall be registered in the names of the beneficial
owners of the Global Security or Securities representing Book-Entry Notes as
provided by the Depositary's relevant Participants (as identified by the
Depositary).
With respect to any Book-Entry Note denominated in a Specified
Currency other than U.S. dollars, the Depositary currently has elected to have
payments of principal (and premium, if any) and Interest on such Note made in
U.S. dollars unless notified by any of its Participants through which an
interest in such Note is held that it elects to receive such payment of
principal (or premium, if any) or interest in such Specified Currency. Unless
otherwise specified in the applicable Pricing Supplement, a Beneficial Owner of
Book-Entry Notes denominated in a Specified Currency other than U.S. dollars
electing to receive payments of principal or any premium or interest in a
currency other than U.S. dollars must notify the Participant through which its
interest is held on or prior to the applicable Record Date, in the case of a
payment of Interest, and on or prior to the sixteenth day prior to maturity, in
the case of principal or premium, of such Beneficial Owner's election to
receive all or a portion of such payment in such Specified Currency. Such
Participant must notify the Depositary of such election on or prior to the
third Business Day after such Record Date or after such sixteenth day. The
Depositary will notify the Paying Agent of such election on or prior to the
fifth Business Day after such Record Date or after such sixteenth day. If
complete instructions are received by the Participant and forwarded by the
Participant to the Depositary and by the Depositary to the Paying Agent, on or
prior to such dates, the Beneficial Owner will receive payments in the
Specified Currency.
The following is based on information furnished by the Depositary:
The Depositary will act as securities depository for the Book-Entry
Notes. The Book-Entry Notes will be issued as fully registered securities
registered in the name of Cede & Co. (the Depositary's partnership nominee).
One fully registered Global Security will be issued for each issue of
Book-Entry Notes, each in the aggregate principal amount of such issue, and
will be deposited with the Depositary. If, however, the aggregate principal
amount of any issue exceeds $200,000,000, one Global Security will be issued
with respect to each $200,000,000 of principal amount and an additional Global
Security will be issued with respect to any remaining principal amount of such
issue.
The Depositary is a limited-purpose trust company organized under the
New York Banking Law, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. The Depositary holds securities that its participants
("Participants") deposit with the Depositary. The Depositary also facilitates
the settlement among Participants of securities transactions, such as transfers
and pledges, in deposited securities through electronic
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computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. The Depositary is owned by a
number of its direct participants ("Direct Participants") and by the New York
Stock Exchange, Inc., the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the Depositary's system is
also available to others such as securities brokers and dealers, banks and
trust companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect Participants").
The rules applicable to the Depositary and its Participants are on file with
the Securities and Exchange Commission.
Purchases of Book-Entry Notes under the Depositary's system must be
made by or through Direct Participants, which will receive a credit for such
Book-Entry Notes on the Depositary's records. The ownership interest of each
actual purchaser of each Book-Entry Note represented by a Global Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from the Depositary of their purchase, but Beneficial Owners are expected to
receive written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the Direct or Indirect Participants
through which such Beneficial Owner entered into the transaction. Transfers of
ownership interests in a Global Security representing Book-Entry Notes are to
be accomplished by entries made on the books of Participants acting on behalf
of Beneficial Owners. Beneficial Owners of a Global Security representing
Book-Entry Notes will not receive Notes in certificated form representing their
ownership interests therein, except in the event that use of the book-entry
system for such Book- Entry Notes is discontinued.
To facilitate subsequent transfers, all Global Securities,
representing Book-Entry Notes which are deposited with, or on behalf of, the
Depositary are registered in the name of the Depositary's nominee, Cede & Co.
The deposit of Global Securities with, or on behalf of, the Depositary and
their registration in the name of Cede & Co. effect no change in beneficial
ownership. The Depositary has no knowledge of the actual Beneficial Owners of
the Global Securities representing the Book-Entry Notes; the Depositary's
records reflect only the identity of the Direct Participants to whose accounts
such Book-Entry Notes are credited, which may or may not be the Beneficial
Owners. The Participants will remain responsible for keeping account of their
holdings on behalf of their customers.
Conveyance of notices and other communications by the Depositary to
Direct Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners will be
governed by arrangements among them, subject to any regulatory requirements as
may be in effect from time to time.
If applicable, redemption notices shall be sent to Cede & Co. If less
than all of the Book-Entry Notes within an issue are being redeemed, the
Depositary's practice is to determine by lot the amount of the interest of each
Direct Participant in such issue to be redeemed.
Neither the Depositary nor Cede & Co. will consent or vote with
respect to the Global Securities representing the Book-Entry Notes. Under its
usual procedures, the Depositary mails an omnibus proxy (the "Omnibus Proxy")
to the Company as soon as possible after the applicable record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Book-Entry Notes are credited on the
applicable record date (identified in a listing attached to the Omnibus Proxy).
Principal, premium, if any, and interest payments on the Global
Securities representing the Book-Entry Notes will be made to the Depositary.
The Depositary's practice is to credit Direct Participant's accounts on the
applicable payment date in accordance with their respective holdings shown on
the Depositary's records unless the Depositary has reason to believe that it
will not receive payment on such date. Payments by Participants to Beneficial
Owners will be governed by standing instructions and customary practices, as is
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 Participant
and not of the Depositary, the applicable Trustee or the Company, subject to
any statutory or regulatory requirements as may be in effect from time to time.
Payment of principal, premium, if any, and interest
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to the Depositary is the responsibility of the Company or the applicable
Trustee, disbursement of such payments to Direct Participants shall be the
responsibility of the Depositary, and disbursement of such payments to the
Beneficial Owners shall be the responsibility of Direct and Indirect
Participants.
A Beneficial Owner shall give notice of any option to elect to have
its Book-Entry Notes repaid by the Company, through its Participant, to the
applicable Trustee, and shall effect delivery of such Book-Entry Notes by
causing the Direct Participant to transfer the Participant's interest in the
Global Security or Securities representing such Book- Entry Notes, on the
Depositary's records, to the applicable Trustee. The requirements for physical
delivery of Book- Entry Notes in connection with a demand for repayment will be
deemed satisfied when the ownership rights in the Global Security or Securities
representing such Book-Entry Notes are transferred by Direct Participants on
the Depositary's records.
The Depositary may discontinue providing its services as securities
depositary with respect to the Book-Entry Notes at any time by giving
reasonable notice to the Company or the applicable Trustee. Under such
circumstances, in the event that a successor securities depositary is not
obtained, Notes in certificated form are required to be printed and delivered.
The Company may decide to discontinue use of a system of book-entry
transfers through the Depositary (or a successor securities depository). In
that event, Notes in certificated form will be printed and delivered.
The information in this section concerning the Depositary and the
Depositary's system has been obtained from sources that the Company believes to
be reliable, but the Company takes no responsibility for the accuracy thereof.
CERTAIN INVESTMENT CONSIDERATIONS RELATING TO INDEXED NOTES
In addition to potential foreign currency risks as described below
under "Certain Investment Considerations Relating to Foreign Currency Notes,"
an investment in Indexed Notes presents certain significant risks not
associated with other types of securities. Certain risks associated with a
particular Indexed Note may be set forth more fully in the applicable Pricing
Supplement. Indexed Notes may present a high level of risk, and investors in
certain Indexed Notes may lose their entire investment.
The treatment of Indexed Notes for U.S. federal income tax purposes is
often unclear due to the absence of any authority specifically addressing the
issues presented by any particular Indexed Note. Accordingly, investors in
Indexed Notes should, in general, be capable of independently evaluating the
federal income tax consequences applicable in their particular circumstances of
purchasing an Indexed Note.
LOSS OF PRINCIPAL OR INTEREST
The principal amount of an Indexed Note payable at maturity and/or the
amount of interest payable on an Interest Payment Date will be determined by
reference to one or more currencies (including baskets of currencies), one or
more commodities (including baskets of commodities), one or more securities
(including baskets of securities) and/or any other index (each an "Index"). The
direction and magnitude of the change in the value of the relevant Index will
determine either or both the principal amount of an Indexed Note payable at
maturity or the amount of interest payable on an Interest Payment Date. The
terms of a particular Indexed Note may or may not include a guaranteed return
of a percentage of the face amount at maturity or a minimum interest rate.
Accordingly, the holder of an Indexed Note may lose all or a portion of the
principal invested in an Indexed Note and may receive no interest thereon.
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VOLATILITY
Certain Indices are highly volatile. The expected principal amount
payable at maturity of, or the interest rate on, an Indexed Note based on a
volatile Index may vary substantially from time to time. Because the principal
amount payable at the maturity of, or interest payable on, an Indexed Note is
generally calculated based on the value of the relevant Index on a specified
date or over a limited period of time, volatility in the Index increases the
risk that the return on the Indexed Notes may be adversely affected by a
fluctuation in the level of the relevant Index.
The volatility of an Index may be affected by political or economic
events, including governmental actions, or by the activities of participants in
the relevant markets, any of which could adversely affect the value of an
Indexed Note.
AVAILABILITY AND COMPOSITION OF INDICES
Certain Indices reference several different currencies, commodities,
securities or other financial instruments. The compiler of such an Index
typically reserves the right to alter the composition of the Index and the
manner in which the value of the Index is calculated. Such an alteration may
result in a decrease in the value of or return on an Indexed Note which is
linked to such Index.
An Index may become unavailable due to such factors as war, natural
disasters, cessation of publication of the Index, or suspension of or
disruption in trading in the currency or currencies, commodity or commodities,
security or securities or other financial instrument or instruments comprising
or underlying such Index. If an Index becomes unavailable, the determination of
principal of or interest on an Indexed Note may be delayed or an alternative
method may be used to determine the value of the unavailable Index. Alternative
methods of valuation are generally intended to produce a value similar to the
value resulting from reference to the relevant Index. However, it is unlikely
that such alternative methods of valuation will produce values identical to
those which would be produced were the relevant Index to be used. An
alternative method of valuation may result in a decrease in the value of or
return on an Indexed Note.
Certain Indexed Notes are linked to Indices that are not commonly
utilized or have been recently developed. The lack of a trading history may
make it difficult to anticipate the volatility or other risks to which such a
Note is subject. In addition, there may be less trading in such Indices or
instruments underlying such Indices, which could increase the volatility of
such Indices and decrease the value of or return on Indexed Notes relating
thereto.
CERTAIN INVESTMENT CONSIDERATIONS RELATING TO
FOREIGN CURRENCY NOTES
GENERAL
Unless otherwise specified in the applicable Pricing Supplement, Notes
denominated in a Specified Currency other than U.S. dollars or ECUs will not be
sold in, or to residents of, the country issuing the Specified Currency in
which the particular Notes are denominated. The information set forth in this
Prospectus Supplement is directed to prospective purchasers who are U.S.
residents and, with respect to Foreign Currency Notes, is by necessity
incomplete. The Company disclaims any responsibility to advise prospective
purchasers who are residents of countries other than the United States with
respect to any matters that may affect the purchase, holding or receipt of
payments of principal of and premium, if any, and interest on the Notes. Such
persons should consult their own financial and legal advisors with regard to
such matters.
THIS PROSPECTUS SUPPLEMENT DOES NOT DESCRIBE ALL RISKS OF AN
INVESTMENT IN FOREIGN CURRENCY NOTES THAT RESULT FROM SUCH NOTES BEING
DENOMINATED OR PAYABLE IN A SPECIFIED CURRENCY OTHER THAN U.S. DOLLARS, EITHER
AS SUCH RISKS EXIST AT THE DATE OF THIS PROSPECTUS SUPPLEMENT OR AS SUCH RISKS
MAY CHANGE
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FROM TIME TO TIME. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL
AND LEGAL ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN FOREIGN
CURRENCY NOTES. FOREIGN CURRENCY NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR
INVESTORS WHO ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY
TRANSACTIONS.
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in Foreign Currency Notes entails significant risks that
are not associated with a similar investment in a debt security denominated and
payable in U.S. dollars. Such risks include, without limitation, the
possibility of significant changes in the rate of exchange between the U.S.
dollar and the applicable Specified Currency and the possibility of the
imposition or modification of exchange controls by either the United States or
foreign governments. Such risks generally depend on events over which the
Company has no control, such as economic, financial and political events and
the supply and demand for the relevant currencies. In recent years, rates of
exchange between the U.S. dollar and certain foreign currencies have been
highly volatile and such volatility may be expected in the future. Fluctuations
in any particular exchange rate that have occurred in the past are not
necessarily indicative, however, of fluctuations in the rate that may occur
during the term of any Foreign Currency Note. Depreciation of the Specified
Currency applicable to a Foreign Currency Note against the U.S. dollar would
result in a decrease in the U.S. dollar-equivalent yield of such Note, in the
U.S. dollar-equivalent value of the principal and premium, if any, payable at
maturity of such Note, and, generally, in the U.S. dollar-equivalent market
value of such Note.
Governments or monetary authorities have imposed from time to time
exchange controls and may in the future impose or revise exchange controls at
or prior to the date on which any payment of principal of and premium, if any,
or interest on a Foreign Currency Note is due, which could affect exchange
rates as well as the availability of the Specified Currency on such date. Even
if there are no exchange controls, it is possible that the Specified Currency
for any particular Foreign Currency Note would not be available on the
applicable payment date due to other circumstances beyond the control of the
Company. In that event, the Company will make the required payment in respect
of such Foreign Currency Note in U.S. dollars on the basis of the most recently
available Exchange Rate. See "Description of Notes -- Payment of Principal and
Interest."
Unless otherwise indicated in the applicable Pricing Supplement,
payments on Notes made in a Specified Currency other than U.S. dollars may be
made, at the Company's option, from an account with a bank located in the
country issuing the Specified Currency (or, with respect to Notes denominated
in ECUs, from an ECU account). See "Description of Notes -- Payment of
Principal and Interest."
GOVERNING LAW; JUDGMENTS
The Notes will be governed by and construed in accordance with the
laws of the State of New York. If an action based on Foreign Currency Notes
were commenced in a court of the United States, it is likely that such court
would grant judgment relating to such Notes only in U.S. dollars. It is not
clear, however, whether, in granting such judgment, the rate of conversion into
U.S. dollars would be determined with reference to the date of default, the
date judgment is rendered or some other date. Under current New York law, a
state court in the State of New York rendering a judgment on a Foreign Currency
Note would be required to render such judgment in the Specified Currency in
which such Foreign Currency Note is denominated, and such judgment would be
converted into U.S. dollars at the exchange rate prevailing on the date of
entry of the judgment. Accordingly, Holders of Foreign Currency Notes would
bear the risk of exchange rate fluctuations between the time the amount of the
judgment is calculated and the time such amount is converted from U.S. dollars
into the applicable Specified Currency.
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NOTES DENOMINATED IN ECUS
Value of the ECU
Except as otherwise provided below, the value of the ECU for the
purpose of any Notes denominated in ECUs, as referred to in Articles 109G and
109L.4 of the Treaty establishing the European Community, as amended (the "EC
Treaty"), is equal to the value of the ECU that is at present used as the unit
of account of the European Communities and which is from time to time valued on
the basis of specified amounts of the currencies of the member states of the
European Community as shown below.
Pursuant to Council Regulation (EEC) No. 1971/89 of 19th June, 1989,
the ECU is at present defined as the sum of the following components:
0 .6242 German mark 0.130 Luxembourg franc
0 .08784 Pound sterling 0.1976 Danish krone
1 .332 French francs 0.008552 Irish pound
1 .8 Italian lire 1.440 Greek drachmas
0 .2198 Dutch guilder 6.885 Spanish pesetas
3 .301 Belgian francs 1.393 Portuguese escudos
Article 109G of the EC Treaty, as amended by the Treaty on European
Union, is applicable from November 1, 1993. This Article provides: "The
currency composition of the ECU basket shall not be changed. From the start of
the third stage, the value of the ECU shall be irrevocably fixed in accordance
with Article 109L.4." Changes as to the nature or composition of the ECU may be
made by the European Community in conformity with the provisions of the EC
Treaty. References herein to the ECU shall be deemed to be references to the
ECU as so changed.
Choice of Component Currencies for Future Payments
With respect to any payment date in respect of Notes denominated in
ECUs on which the ECU is not available due to the imposition of exchange
controls or other circumstances beyond the control of the Company or the ECU is
used neither as the unit of account of the European Communities nor as the
currency of the European Union, the Exchange Rate Agent shall, without
liability on its part, choose a component currency of the ECU (the "chosen
currency") in which all payments due on that payment date with respect to such
Notes shall be made. The amount of each payment in the chosen currency shall be
computed on the basis of the equivalent of the ECU in that currency, determined
as set forth herein as of the fourth Business Day prior to the date on which
such payment is due.
Choice of Component Currency for Payments Already Due
On the first Market Day on which the ECU is not available due to the
imposition of exchange controls or other circumstances beyond the control of
the Company or the ECU is used neither as the unit of account of the European
Communities nor as the currency of the European Union, the Exchange Rate Agent
shall, without liability on its part, choose a component currency of the ECU
(the "chosen currency") in which all payments of principal, interest or other
amounts in respect of Notes denominated in ECUs having a payment date prior
thereto but not yet presented for payment are to be made. The amount of each
payment in the chosen currency shall be computed on the basis of the equivalent
of the ECU in that currency, determined as set forth herein as of such first
Market Day.
Determination of Equivalent in Component Currency
The equivalent of the ECU in the relevant chosen currency as of any
date (the "Day of Valuation") shall be determined on the following basis by the
Exchange Rate Agent. The component currencies of the ECU for this
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purpose (the "Components") shall be the currency amounts which were components
of the ECU when the ECU was most recently used as the unit of account of the
European Communities. The equivalent of the ECU in the chosen currency shall be
calculated by first aggregating the U.S. dollar equivalents of the Components
and then, using the rate used for determining the U.S. dollar equivalent of the
Component in the chosen currency as set forth below, calculating the equivalent
in the chosen currency of such aggregate amount in U.S. dollars.
U.S. Dollar Equivalent of Component Currencies
The U.S. dollar equivalent of each of the Components shall be
determined by the Exchange Rate Agent, on the basis of the middle spot delivery
quotations prevailing at 2:30 p.m. (Luxembourg time) on the Day of Valuation of
one or more leading banks, as selected by the Exchange Rate Agent (following
consultation, if practicable, with the Company), in the country of issue of the
Component in question.
No Direct Quotation for Component Currency
If no direct quotations are available for a Component as of a Day of
Valuation from any of the banks selected by the Exchange Rate Agent for this
purpose because foreign exchange markets are closed in the country of issue of
that currency or for any other reason, the most recent direct quotations for
that currency obtained by the Exchange Rate Agent shall be used in computing
the equivalents of the ECU on such Day of Valuation; provided, however, that
such most recent quotations may be used only if they were prevailing in the
country of issue not more than two Market Days before such Day of Valuation.
Beyond such period of two Market Days, the Exchange Rate Agent shall determine
the U.S. dollar equivalent of such Component on the basis of cross rates
derived from the middle spot delivery quotations for such component currency
and for the U.S. dollar prevailing at 2:30 p.m. (Luxembourg time) on such Day
of Valuation of one or more leading banks, as selected by the Exchange Rate
Agent (following consultation, if practicable, with the Company), in a country
other than the country of issue of such Component. Within such period of two
Market Days, the Exchange Rate Agent shall determine the U.S. dollar equivalent
of such Component on the basis of such cross rates if the Exchange Rate Agent
judges that the equivalent so calculated is more representative than the U.S.
dollar equivalent calculated on the basis of such most recent direct
quotations. Unless otherwise specified by the Exchange Rate Agent, if there is
more than one market for dealing in any Component by reason of foreign exchange
regulations or for any other reason, the market to be referred to in respect of
such currency shall be that upon which a non-resident issuer of securities
denominated in such currency would purchase such currency in order to make
payments in respect of such securities.
EXCHANGE RATE AGENT
All determinations made by the Exchange Rate Agent shall be at its
sole discretion (except to the extent expressly provided herein or in the
applicable Pricing Supplement that any determination is subject to approval by
the Company) and, in the absence of manifest error, shall be conclusive for all
purposes and binding on Holders of the Notes and the Company, and the Exchange
Rate Agent shall have no liability therefor.
UNITED STATES TAXATION
The following general discussion summarizes certain U.S. federal
income tax aspects of the acquisition, ownership and disposition of the Notes.
This discussion is a summary for general information only and does not consider
all aspects of U.S. federal income tax that may be relevant to the purchase,
ownership and disposition of the Notes by a prospective investor in light of
the investor's own circumstances. This discussion also does not address the
U.S. federal income tax consequences of ownership of Notes not held as capital
assets within the meaning of Section 1221 of the U.S. Internal Revenue Code of
1986, as amended (the "Code"), or the U.S. federal income tax consequences to
investors subject to special treatment under the U.S. federal income tax laws,
such as dealers in securities or foreign currency, tax-exempt entities, banks,
thrifts, insurance companies, persons that hold the Notes as part of a
"straddle" or as a "hedge" against currency risk or that have a "functional
currency" other
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than the U.S. dollar, and investors in pass-through entities. In addition, the
discussion is generally limited to the United States federal income tax
consequences to initial Holders. It does not describe any tax consequences
arising out of the tax laws of any state, local or foreign jurisdiction. This
discussion also does not address the special rules that apply if the Holder
receives principal in installment payments or if the Note is called before the
Stated Maturity.
This summary is based upon the Code, existing and proposed regulations
thereunder, and current administrative rulings and court decisions. All of the
foregoing are subject to change, and any such change could affect the
continuing validity of this discussion.
PERSONS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE APPLICATION OF U.S. FEDERAL INCOME TAX LAWS, AS WELL AS
THE LAWS OF ANY STATE, LOCAL, OR FOREIGN TAXING JURISDICTION TO THEIR
PARTICULAR SITUATIONS. ADDITIONAL U.S. FEDERAL INCOME TAX CONSEQUENCES
APPLICABLE TO PARTICULAR NOTES MAY BE SET FORTH IN THE APPLICABLE PRICING
SUPPLEMENT.
Special considerations which relate to the U.S. federal income
taxation of payments on Foreign Currency Notes are discussed separately below
under the heading "U.S. Holders -- Foreign Currency Notes." Special
considerations relevant to the U.S. federal income taxation of payments on
Notes, the interest and/or principal of which is indexed to property other than
foreign currency and which is not a "variable rate debt instrument" (discussed
below under the heading "U.S. Holders -- Stated Interest; Original Issue
Discount") will be discussed in the applicable Pricing Supplement. Special
considerations relevant to the U.S. federal income taxation of Notes issued in
bearer form will be discussed in the applicable Pricing Supplement. The
discussion below assumes that the Notes will be treated as debt for U.S.
federal income tax purposes. However, it is possible that some contingent
payment arrangements would not be treated as debt for U.S. federal income tax
purposes. Holders should consult their own tax advisors with respect to whether
any contingent payment obligations are debt.
U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a note that is (i) a citizen or resident
of the United States, (ii) a corporation organized under the laws of the United
States or any political subdivision thereof or therein, or (iii) an estate or
trust, the income of which is subject to U.S. federal income tax regardless of
the source (a "U.S. Holder"). Certain aspects of U.S. federal income tax
relevant to a holder other than a U.S. Holder are discussed separately below.
Stated Interest; Original Issue Discount
Except as set forth below, interest on a Note will be taxable to a
U.S. Holder as ordinary interest income at the time it accrues or is received
in accordance with such holder's method of accounting for tax purposes. U.S.
Holders of Notes that bear original issue discount ("OID") generally will be
subject to the special tax accounting rules for original issue discount
obligations. U.S. Holders of Notes that bear OID and that mature more than one
year from the date of issuance will generally be required to include OID in
income as it accrues in advance of the receipt of cash attributable to such
income, whether such Holder uses the cash or accrual method of accounting.
The Internal Revenue Service (the "IRS") issued final regulations (the
"OID Regulations") concerning the U.S. federal income tax treatment of debt
instruments issued with OID on February 2, 1994, and amended them on June 11,
1996. In general, the OID regulations apply to debt instruments issued on or
after April 4, 1994. Special rules for computing OID on a "variable rate debt
instrument" are considered below under the heading "Variable Rate Notes."
In connection with the issuance of the OID Regulations, the IRS issued
as a temporary and proposed regulation an anti-abuse rule which provides that
if a principal purpose in structuring a debt instrument or applying the OID
Regulations is to achieve a result that is unreasonable in light of the
purposes of the applicable statutes, then the commissioner of the IRS can apply
or depart from the OID Regulations as necessary or appropriate to
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achieve a reasonable result. Whether a result is unreasonable is determined
based on all of the facts and circumstances. Although the Company does not
believe that the Notes were structured with such a principal purpose, there can
be no assurance that the IRS will agree with such position.
The amount of OID, if any, on a Note is the excess of its "stated
redemption price at maturity" over its "issue price," subject to a statutory de
minimis exception. For this purpose, de minimis OID is OID that is less than
one- quarter of one percent of the stated redemption price at maturity
multiplied by the number of complete years to its maturity from the issue date.
Generally, the issue price of an issue of Notes will be the first
price at which a substantial amount of such Notes has been sold. (For this
purpose, sales to bond houses, brokers or similar persons or organizations
acting in the capacity of underwriters, placement agents or wholesales are
ignored.) A U.S. Holder may elect in certain circumstances to decrease the
issue price by an amount equal to the portion of the initial purchase price of
the Note equal to pre- issuance accrued interest.
A Note's stated redemption price at maturity includes all payments
required to be made over the term of the Note other than the payment of
"qualified stated interest," which is defined as interest that is
unconditionally payable in cash or property (other than debt instruments of the
issuer) at least annually at a single fixed rate. If a debt instrument provides
for alternate payment schedules upon the occurrence of one or more
contingencies, the determination of whether a debt instrument provides for
qualified stated interest is made by analyzing each alternative payment
schedule (including the stated payment schedule) as if it were the debt
instrument's sole payment schedule. The debt instrument will be considered to
provide for qualified stated interest to the extent of the lowest fixed rate at
which qualified interest would be payable under any payment schedule.
Interest is generally considered unconditionally payable only if late
payment (other than late payment within a reasonable grace period) or
nonpayment is expected to be penalized or reasonable remedies exist to compel
payment.
For purposes of determining whether the OID on a Note is de minimis,
in the case of a Note that otherwise has less than the de minimis amount of OID
and on which all stated interest would be qualified stated interest except that
for one or more accrual periods the interest rate is below the rate applicable
for the remaining term of such Note (e.g., Notes with teaser rates or interest
holidays), the Note's stated redemption price at maturity is treated as equal
to the Note's issue price plus the greater of the amount of foregone interest
or the "true" discount (i.e., the excess of the Note's stated principal amount
over its issue price).
A U.S. Holder (whether on the cash or accrual method of accounting)
must include in income for the taxable year the sum of the daily portions of
OID for each day of the taxable year on which the U.S. Holder held the Note
with a Stated Maturity of more than one year. The daily portions of OID are
determined by determining the OID attributable to each accrual period and
allocating a ratable portion of such amount to each day in the accrual period.
The accrual period may be of any length and may vary in length over the term of
the Note, provided that each accrual period is no longer than one year and each
scheduled payment of principal and interest occurs on the final day of an
accrual period or on the first day of an accrual period. In general, OID
allocable to an accrual period equals the product of (i) the adjusted issue
price at the beginning of the accrual period (i.e., the original issue price
plus previously accrued OID minus previous payments other than payments of
qualified stated interest) multiplied by the original yield to maturity of the
Note (determined on the basis of compounding at the end of each accrual period)
minus (ii) the amount of qualified stated interest allocable to the accrual
period.
The OID Regulations provide special rules for determining the amount
of OID allocable to a period when there is unpaid qualified stated interest,
for short initial accrual periods and final accrual periods, and for
determining the yield to maturity for debt instruments subject to certain
contingencies as to the timing of payments, debt instruments that provide for
options to accelerate or defer any payments, and debt instruments with
indefinite
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maturities. Under the OID Regulations, options to convert debt into stock of
the issuer or into stock or debt of certain related parties or into cash or
other property in an amount equal to the approximate value of such stock or
debt are disregarded in determining OID. Under the Code and the OID
Regulations, U.S. Holders generally will have to include in income increasingly
greater amounts of OID in successive accrual periods.
Variable Rate Notes
The OID Regulations contain special rules for determining the accrual
of OID and the amount of qualified stated interest on a "variable rate debt
instrument." For purposes of these regulations, a variable rate debt instrument
is a debt instrument that: (1) has an issue price that does not exceed total
noncontingent principal payments by more than a specified amount; (2) provides
for stated interest (compounded or paid at least annually) at (a) one or more
"qualified floating rates," (b) a single fixed rate and one or more qualified
floating rates, (c) a single "objective rate," or (d) a single fixed rate and a
single objective rate that is a "qualified inverse floating rate;" (3) provides
that a qualified floating rate or objective rate in effect at any time during
the term of the instrument is set at a current value of that rate; and (4)
generally, does not provide for any principal payments that are contingent.
For purposes of determining if a Note is a variable rate debt
instrument, a variable rate is a "qualified floating rate" if variations in the
rate can reasonably be expected to measure contemporaneous variations in the
cost of newly borrowed funds in the currency in which the debt instrument is
denominated. A multiple of a qualified floating rate is generally not a
qualified floating rate, unless it is either (a) a product of a qualified rate
times a fixed multiple greater than 0.65 but not more than 1.35 or (b) a
multiple of the type described in (a) increased or decreased by a fixed rate.
If a debt instrument provides for two or more qualified floating rates that can
reasonably be expected to have approximately the same value throughout the term
of the instrument, the qualified floating rates will be considered a single
qualified floating rate. Two or more such rates will be considered to have
approximately the same value throughout the term of the instrument, if the
values of the rates on the date of issuance are within 25 basis points of each
other.
An "objective rate" is a rate, other than a qualified floating rate,
that is determined using a single fixed formula and that is based on objective
financial or economic information. In addition, the IRS may designate other
variable rates that will be treated as objective rates. Restrictions on a
minimum interest rate ("floor") or maximum interest rate ("cap"), or the amount
of increase or decrease in the stated interest rate ("governor"), generally
will not result in a variable rate failing to be treated as a qualified
floating rate if the restriction is fixed throughout the term of the
instrument. A cap or similar restriction that is not reasonably expected as of
the issue date of the debt instrument to cause the yield on the debt instrument
to be significantly less than the expected yield determined without the cap
will not generally cause a variable rate to fail to be a qualified floating
rate. A floor or similar restriction that is not reasonably expected as of the
issue date of the debt instrument to cause the yield on the debt instrument to
be significantly more than the expected yield without the floor will not
generally cause a variable rate to fail to be a qualified floating rate. A
governor or similar restriction that is not reasonably expected as of the issue
date of the debt instrument to cause the yield on the debt instrument to be
significantly more or significantly less than the expected yield without the
governor will not generally cause a variable rate to fail to be a qualified
floating rate. However, a rate is not an objective rate if it is reasonably
expected that the average value of such rate over the first half of the
instrument's term will be either significantly less or more than the average
value of the rate during the final half of the instrument's term e.g., if there
is a significant front-loading or back-loading of interest.
An objective rate is a "qualified inverse floating rate" if it is
equal to a fixed rate minus a qualified floating rate and if variations in the
rate can reasonably be expected inversely to reflect contemporaneous variations
in the qualified floating rate.
In general, any other debt instrument 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 debt instrument. The OID
Regulations generally require that such a debt
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instrument 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 debt instrument 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 debt instrument's issue date. Any objective rate
(other than a qualified inverse floating rate) provided for under the terms of
the debt instrument is converted into a fixed rate that reflects the yield that
is reasonably expected for the debt instrument. In the case of a debt
instrument 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 debt instrument is
treated as if it provided for a qualified floating rate (or a qualified inverse
floating rate, if the debt instrument provides for a qualified inverse floating
rate) rather than the fixed 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 debt instrument as of the debt
instrument'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 debt instrument is then converted
into an "equivalent" fixed rate debt instrument in the manner described above.
Once the debt instrument 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 OID rules to
the "equivalent" fixed rate debt instrument and a U.S. Holder of the debt
instrument will account for such OID and qualified stated interest as if the
U.S. Holder held the "equivalent" fixed rate debt instrument. Each accrual
period, appropriate adjustments will be made to the amount of qualified stated
interest or OID 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 debt instrument
during the accrual period.
Election to Treat all Interest as OID
Under the OID Regulations, a U.S. Holder may elect for a Note acquired
after April 4, 1994, to account for all income on a Note (other than foreign
currency gain or loss), including stated interest, acquisition discount, OID,
de minimis OID, market discount, de minimis market discount and unstated
interest, as adjusted by any amortizable bond premium, or acquisition premium
in the same manner as OID. If this election is made, the U.S. Holder may be
subject to the conformity requirements of Section 171(c) or 1278(b),
respectively, which may require the amortization of bond premium and the
accrual of market discount on other debt instruments held by the same U.S.
Holder.
Short-Term Notes
In general, an individual or other cash method U.S. Holder of a Note
that has a Stated Maturity of not more than one year from the date of issuance
(a "short-term Note") is not required to accrue OID unless he or she elects to
do so. Such an election applies to all short-term Notes acquired by the U.S.
Holder during the first taxable year for which the election is made, and all
subsequent taxable years of the U.S. Holder unless the IRS consents to a
revocation. U.S. Holders who report income for U.S. federal income tax
purposes on the accrual method and certain other U.S. Holders and electing cash
method U.S. Holders are required to include OID on such short-term Notes on a
straight-line basis, unless an irrevocable election with respect to any
short-term Note is made to accrue the OID according to a constant interest rate
based on daily compounding. In the case of a U.S. Holder who is not required,
and does not elect, to include OID in income currently, any gain realized on
the sale, exchange or retirement of the short-term Note will be ordinary income
to the extent of the OID accrued on a straight-line basis (or, if elected,
according to the constant yield method based on daily compounding) through the
date of sale, exchange or retirement. In addition, such non- electing U.S.
Holders who are not subject to the current inclusion requirement described
above will be required to defer deductions for any interest paid on
indebtedness incurred or continued to purchase or carry such short-term Notes.
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Market Discount
If a Note is acquired at a "market discount," some or all of any gain
realized upon a sale or other disposition, or payment at maturity, or some or
all of a partial principal payment of such Note may be treated as ordinary
income, as described below. For this purpose, "market discount" is the excess
(if any) of the Note's issue price (or, in the case of a subsequent purchaser,
the Note's stated redemption price at maturity) over the purchase price,
subject to a statutory de minimis exception. In the case of a Note issued with
OID, in lieu of using the Note's stated redemption price at maturity, the
Note's revised issue price as of the purchase date is used. Unless a U.S.
Holder has elected to include the market discount in income as it accrues, any
gain realized on any subsequent disposition of such Note (other than in
connection with certain nonrecognition transactions) or payment at maturity, or
some or all of any partial principal payment with respect to such Note, will be
treated as ordinary income to the extent of the market discount that is treated
as having accrued during the period such Note was held.
The amount of market discount treated as having accrued will be
determined either (i) on a ratable basis by multiplying the market discount
times a fraction, the numerator of which is the number of days the Note was
held by the U.S. Holder and the denominator of which is the total number of
days after the date such U.S. Holder acquired the Note up to and including the
date of its maturity, or (ii) if the U.S. Holder so elects, on a constant
interest rate method. A U.S. Holder may make that election with respect to any
Note, and such election is irrevocable.
In lieu of recharacterizing gain upon disposition as ordinary income
to the extent of accrued market discount at the time of disposition, a U.S.
Holder of such Note acquired at a market discount may elect to include market
discount in income currently, through the use of either the ratable inclusion
method or the elective constant interest method. Once made, the election to
include market discount in income currently applies to all Notes and other
obligations of the U.S. Holder that are purchased at a market discount during
the taxable year for which the election is made, and all subsequent taxable
years of the U.S. Holder, unless the IRS consents to a revocation of the
election. If an election is made to include market discount in income
currently, the basis of the Note in the hands of the U.S. Holder will be
increased by the market discount thereon as it is includable in income.
If the U.S. Holder makes the election to treat as OID all interest on
a debt instrument that has market discount, the U.S. Holder is deemed to have
made the election to accrue currently market discount on all other debt
instruments with market discount. In addition, if the U.S. Holder has
previously made the election to accrue market discount currently, the
conformity requirements of that election are met for debt instruments with
respect to which the U.S. Holder elects to treat all interest as OID.
Unless a U.S. Holder who acquires a Note at a market discount elects
to include market discount in income currently, such U.S. Holder may be
required to defer a portion of any interest expense that may otherwise be
deductible on any indebtedness incurred or maintained to purchase or carry such
Note.
Premium
If a U.S. Holder purchases a Note issued with OID at an "acquisition
premium," the U.S. Holder reduces the amount of OID includable in income in
each taxable year by that portion of acquisition premium allocable to that
year. A Note is purchased at an acquisition premium if, immediately after the
purchase, the purchaser's adjusted basis in the Note is greater than the
adjusted issue price but not greater than all amounts payable on the instrument
after the purchase date (other than qualified stated interest) (i.e., the Note
is not purchased at a "bond premium"). In general, the reduction in OID
allocable to acquisition premium is determined by multiplying the daily portion
of OID by a fraction the numerator of which is the excess of the U.S. Holder's
adjusted basis in the Note immediately after the acquisition over the adjusted
issue price of the Note and the denominator of which is the excess of the sum
of all amounts payable on the Note after the purchase date, other than payments
of qualified stated
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interest, over the Note's adjusted issue price. Rather than apply the above
fraction, the U.S. Holder may, as discussed above, elect to treat all interest,
including for this purpose acquisition premium, as OID.
If a U.S. Holder purchases a Note and, immediately after the purchase,
the adjusted basis of the Note exceeds the sum of all amounts payable on the
instrument after the purchase date, other than qualified stated interest, the
Note has "bond premium." A U.S. Holder that purchases a Note at a bond premium
is not required to include OID in income. In addition, a U.S. Holder may elect
to amortize such bond premium over the remaining term of such Note (or, in
certain circumstances, until an earlier call date).
If bond premium is amortized, the amount of interest that must be
included in the U.S. Holder's income for each period ending on an Interest
Payment Date or maturity, as the case may be, will be reduced by the portion of
premium allocable to such period based on the Note's yield to maturity. If such
an election to amortize bond premium is not made, a U.S. Holder must include
the full amount of each interest payment in income in accordance with its
regular method of accounting and will receive a tax benefit from the premium
only in computing its gain or loss upon the sale or other disposition or
payment of the principal amount of the Note.
An election to amortize premium will apply to amortizable bond premium
on all Notes and other bonds, the interest on which is includable in the U.S.
Holder's gross income, held at the beginning of the U.S. Holder's first taxable
year to which the election applies or thereafter acquired, and may be revoked
only with the consent of the IRS. The election to treat all interest,
including for this purpose amortizable premium, as OID is deemed to be an
election to amortize premium under Section 171(c) of the Code for purposes of
the conformity requirements of that section. In addition, if the U.S. Holder
has already made an election to amortize premium, the conformity requirements
will be deemed satisfied with respect to any Notes for which the U.S. Holder
makes an election to treat all interest as OID.
Sale, Exchange, Redemption or Repayment of the Notes
Upon the disposition of a Note by sale, exchange, redemption, or
repayment, the U.S. Holder will generally recognize gain or loss equal to the
difference between (i) the amount realized on the disposition (other than
amounts attributable to accrued and unpaid interest) and (ii) the U.S. Holder's
tax basis in the Note. A U.S. Holder's tax basis in a Note generally will equal
the cost of the Note (net of accrued interest) to the U.S. Holder increased by
amounts includable in income as OID or market discount (if the holder elects to
include market discount on a current basis) and reduced by any amortized
premium and any payments other than payments of qualified stated interest (or
fixed periodic interest) made on such Note.
To the extent that the Note is held as a capital asset, such gain or
loss (except to the extent that the market discount rules or rules relating to
certain short term OID notes otherwise provide) will generally constitute
capital gain or loss and will be long-term capital gain or loss if the U.S.
Holder has held such Note for longer than one year. In certain circumstances,
if an Issuer were found to have an intention, at the time its debt obligations
were issued, to call such obligations before maturity, gain would be ordinary
income to the extent of any unamortized OID. The OID Regulations clarify that
this rule will not apply to publicly offered debt instruments.
Foreign Currency Notes
The following discussion applies to Foreign Currency Notes, if such
Notes are not denominated in or indexed to a currency that is considered a
"hyperinflationary" currency. Special U.S. tax considerations apply to
obligations denominated in or indexed to a hyperinflationary currency.
In general, a U.S. Holder that uses the cash method of accounting and
holds Foreign Currency Notes will be required to include in income the U.S.
dollar value of the amount of interest income received whether or not the
payment is received in U.S. dollars or converted into U.S. dollars. The U.S.
dollar value of the amount of interest received is the amount of foreign
currency interest paid translated at the spot rate on the date of receipt. The
U.S.
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Holder will not have exchange gain or loss on the interest payment but may have
exchange gain or loss when it disposes of any foreign currency received.
A U.S. Holder on the accrual method of accounting is generally
required to include in income the U.S. dollar value of interest accrued during
the accrual period. Accrual basis U.S. Holders may determine the amount of
income recognized with respect to such interest in accordance with either of
two methods. Under the first method, the U.S. dollar value of accrued interest
is translated at the average rate for the interest accrual period (or, with
respect to an accrual period that spans two taxable years, the partial period
within the taxable year). For this purpose, the average rate is the simple
average of spot rates of exchange for each Business Day of such period or other
average exchange rate for the period reasonably derived and consistently
applied by the U.S. Holder. Under the second method, a U.S. Holder can elect to
accrue interest at the spot rate on the last day of an accrual period (in the
case of a partial accrual period, the last date of the taxable year) or if the
last day of an accrual period is within five Business Days of the receipt, the
spot rate on the date of receipt. Any such election will apply to all debt
instruments held by the U.S. Holder at the beginning of the first taxable year
to which the election applies or thereafter acquired and will be irrevocable
without the consent of the IRS. An accrual basis U.S. Holder will recognize
exchange gain or loss, as the case may be, on the receipt of a foreign currency
interest payment if the exchange rate on the date payment is received differs
from the rate applicable to the previous accrual of interest income. The
foreign currency gain or loss will generally be treated as U.S. source ordinary
income or loss. OID on a Note denominated in a foreign currency is determined
in foreign currency and is translated into U.S. dollars in the same manner that
an accrual basis U.S. Holder translates accrued interest. Exchange gain or loss
will be determined when OID is considered paid to the extent the exchange rate
on the date of payment differs from the exchange rate at which the OID was
accrued.
The amount of market discount on a Foreign Currency Note includable in
income will generally be determined by computing the market discount in the
foreign currency and translating that amount into U.S. dollars on the spot rate
on the date the Foreign Currency Note is retired or otherwise disposed of. If
the U.S. Holder accrues market discount currently, the amount of market
discount which accrues during any accrual period is determined in the foreign
currency and translated into U.S. dollars on the basis of the average exchange
rate in effect during the accrual period. Exchange gain or loss may be
recognized to the extent that the rate of exchange on the date of the
retirement or disposition of the Note differs from the rate of exchange at
which the market discount was accrued.
Amortizable premium on Foreign Currency Notes is also computed in
units of foreign currency and, if the U.S. Holder elects, will reduce interest
income in units of foreign currency. At the time amortized bond premium offsets
interest income, exchange gain or loss is realized measured by the difference
between exchange rates at that time and at the time of the acquisition of the
Note.
In the case of a Note denominated in foreign currency, the cost of the
Note to the U.S. Holder will be the U.S. dollar value of the foreign currency
purchase price translated at the spot rate for the date of purchase (or, in
some cases, the settlement date). The conversion of U.S. dollars to a foreign
currency and the immediate use of that currency to purchase Foreign Currency
Notes generally will not result in a taxable gain or loss for a U.S. Holder. A
U.S. Holder who purchases a Note with previously owned foreign currency
generally will recognize exchange gain or loss on such currency equal to the
difference between the U.S. Holder's tax basis in the currency and the fair
market value of the currency determined on the date of purchase.
With respect to the sale, exchange, retirement, or repayment of a Note
denominated in a foreign currency, the foreign currency amount realized will be
considered to be the payment of accrued but unpaid interest (on which exchange
gain or loss is recognized as described above), accrued but unpaid OID (on
which exchange gain or loss is recognized as described above), and, finally, as
a payment of principal on which (i) gain or loss is computed in foreign
currency and translated on the date of retirement or disposition; and (ii)
exchange gain or loss is separately computed on the foreign currency amount of
principal (reduced by amortizable premium) that is repaid to the extent that
the rate of exchange on the date of retirement or disposition differs from the
rate of exchange on the date the
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Note was acquired or deemed acquired. Exchange gain or loss computed on accrued
interest, OID, accrued market discount and principal shall be recognized,
however, only to the extent of total gain or loss on the transaction. For
purposes of determining the total gain or loss on the transaction, a U.S.
Holder's tax basis in the Note generally will equal the U.S. dollar cost of the
Note (as determined above) increased by the U.S. dollar amounts includable in
income as accrued interest, OID, or market discount (if the U.S. Holder elects
to include such market discount on a current basis) and reduced by the U.S.
dollar amount of amortized premium and of any payments other than payments of
qualified stated interest. A U.S. Holder will have a tax basis in any foreign
currency received on the sale, exchange or retirement of a Note equal to the
U.S. dollar value of such currency on the date of receipt.
Backup Withholding
A U.S. Holder of a Note may be subject to U.S. backup withholding at
the rate of 31% with respect to interest paid on the Note, unless such U.S.
Holder (i) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or (ii) provides a correct taxpayer
identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with the applicable requirements of the
backup withholding rules. U.S. Holders of Notes should consult their tax
advisors as to their qualification for exemption from U.S. backup withholding
and the procedure for obtaining such an exemption. Any amount paid as backup
withholding will be creditable against the U.S. Holder's U.S. federal income
tax liability.
Pre-Issuance Accrued Interest
If (i) a portion of the initial purchase price of a Note is
attributable to pre-issuance accrued interest, (ii) the first stated interest
payment on the Note is to be made within one year of the Note's issue date and
(iii) the payment will equal or exceed the amount of pre-issuance accrued
interest, then the U.S. Holder may elect to decrease the issue price of the
Note by the amount of pre-issuance accrued interest. In that event, a portion
of the first stated interest payment will be treated as a return of the
excluded pre-issuance accrued interest and not as an amount payable on the
Note.
NON-U.S. HOLDERS
The following is a summary of the U.S. federal income tax consequences
of the ownership and disposition of the Notes by a holder who does not meet the
criteria set forth in the definition of a U.S. Holder (a "Non-U.S. Holder").
This discussion does not consider all aspects of U.S. federal income and estate
taxation that may be relevant to the purchase, ownership or disposition of the
Notes by such Non-U.S. Holder in light of such holder's personal circumstances,
including holding the Notes through a partnership. For example, persons who are
partners in foreign partnerships and beneficiaries of foreign trusts or estates
who are subject to U.S. federal income tax because of their own status, such as
United States residents or foreign persons engaged in a trade or business in
the United States, may be subject to U.S. federal income tax even though the
entity is not subject to income tax on the disposition of its Note.
For purposes of the following discussion, interest (including OID) and
gain on the sale, exchange or other disposition of the Note will be considered
"U.S. trade or business income" if such income or gain is (i) effectively
connected with the conduct of a U.S. trade or business or (ii) in the case of a
treaty resident, attributable to a U.S. permanent establishment (or in the
case of an individual treaty resident, a fixed base) in the United States.
Interest and Original Issue Discount
Generally, any interest or OID paid to a Non-U.S. Holder of a Note
that is not "U.S. trade or business income" will not be subject to U.S. federal
income tax if the interest (or OID) qualifies as "portfolio interest."
Generally, interest on registered Notes will qualify as portfolio interest if
(i) the Non-U.S. Holder does not actually or constructively own 10% or more of
the total voting power of all voting stock of the Company, is not a controlled
foreign corporation with respect to which the Company is a "related person"
within the meaning of the Code and
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is not a Bank receiving interest described in Section 881(c)(3)(A) of the Code,
and (ii) the beneficial owner, under penalty of perjury, certifies that the
beneficial owner is not a United States person and such certificate provides
the beneficial owner's name and address.
The gross amount of payments to a Non-U.S. Holder of interest or OID
that do not qualify for the portfolio interest exception and that are not U.S.
trade or business income will be subject to U.S. federal income tax at the rate
of 30% unless a U.S. income tax treaty applies to reduce or eliminate
withholding. U.S. trade or business income will be taxed on a net basis at
regular U.S. rates rather than the 30% gross rate. To claim the benefit of a
tax treaty or to claim exemption from withholding because the income is U.S.
trade or business income, the Non-U.S. Holder must provide a properly executed
Form 1001 or Form 4224, as applicable, prior to the payment of interest or OID.
The Forms 1001 and 4224 must be periodically updated.
Indexed Notes
The IRS has stated that it is considering various issues relating to
the treatment of Non-U.S. Holders of contingent payment debt obligations,
including "the possibility of tax avoidance that may arise when a contingent
payment debt obligation is structured with payments that approximate the yield
on an equity security or an index and the proper characterization of gain
recognized by a foreign holder on the disposition of a debt instrument in
certain cases" (including coordination with the rules for taxation of foreign
investment in U.S. real property). Subject to certain exceptions, recently
enacted legislation provides that the portfolio interest exception from
withholding tax does not apply to certain payments of contingent interest if:
(1) the amount of interest is determined by reference to (i) receipts, sales or
other cash flows of the Company or a related person, (ii) any income or profits
of the Company or a related person, (iii) any change in the value of any
property of the Company or a related person, or (iv) any dividends, partnership
distributions, or similar payments made by the Company or a related person; or
(2) the interest is identified in regulations not yet issued as contingent
interest for which the portfolio interest exception should be denied. Gain from
the sale of certain contingent payment debt obligations is also treated as
interest under draft proposed regulations that were released by the IRS but
were withdrawn pending review.
Sale of Notes
Except as described below and subject to the discussion concerning
backup withholding and Indexed Notes, any gain realized by a Non-U.S. Holder on
the sale or exchange of a Note generally will not be subject to U.S. federal
income tax, unless (i) such gain is U.S. trade or business income, (ii) subject
to certain exceptions, the Non-U.S. Holder is an individual who holds the Note
as a capital asset and is present in the United States for 183 days or more in
the taxable year of the disposition, or (iii) the Non-U.S. Holder is subject to
tax pursuant to the provisions of U.S. tax law applicable to certain U.S.
expatriates.
Federal Estate Tax
Except with respect to Notes that bear contingent interest that is not
eligible for the portfolio interest exception, Notes held (or treated as held)
by an individual who is a Non-U.S. Holder at the time of his death will not be
subject to U.S. federal estate tax provided that the individual does not
actually or constructively own 10% or more of the total voting power of all
voting stock of the Company.
Information Reporting and Backup Withholding
The Company must report annually to the IRS and to each Non-U.S.
Holder any interest and OID that is subject to withholding or that is exempt
from U.S. withholding tax pursuant to a tax treaty or the portfolio interest
exception. Copies of these information returns may also be made available
under the provisions of a specific treaty or agreement with the tax authorities
of the country in which the Non-U.S. Holder resides.
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<PAGE> 34
In the case of payments of principal on the Notes by the Company to a
Non-U.S. Holder, the regulations provide that backup withholding and
information reporting will not apply to payments if the Holder certifies to its
Non-U.S. Holder status under penalties of perjury or otherwise establishes an
exemption (provided that neither the Company nor its paying agent has actual
knowledge that the holder is a United States person or that the conditions of
any other exemption are not, in fact, satisfied).
The payment of the proceeds from the disposition of Notes to or
through the U.S. office of any broker, U.S. or foreign, will be subject to
information reporting and possible backup withholding unless the owner
certifies its Non- U.S. Holder status under penalty of perjury or otherwise
establishes an exemption, provided that the broker does not have actual
knowledge that the Holder is a U.S. Holder or that the conditions of any other
exemption are not, in fact, satisfied. The payment of the proceeds from the
disposition of a Note to or through a non-U.S. office of a non-U.S. broker
will not be subject to information reporting or backup withholding if the
broker is not a U.S. related person. For this purpose, a "U.S. related person"
is (i) a "controlled foreign corporation" for U.S. federal income tax purposes,
or (ii) a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from activities that are effectively connected with the conduct of a
United States trade or business.
In the case of the payment of proceeds from the disposition of Notes
through a non-U.S. office of a broker that is either a U.S. person or a "U.S.
related person," existing regulations require information reporting on the
payment, unless the broker has documentary evidence in its files that the owner
is a Non-U.S. Holder and the broker has no knowledge to the contrary. Backup
withholding will not apply to payments made through foreign offices of a broker
that is a U.S. person or a U.S. related person (absent actual knowledge that
the payee is a U.S. person).
Any amounts withheld under the backup withholding rules from a payment
to a Non-U.S. Holder will be allowed as a refund or a credit against such
Non-U.S. Holder's U.S. federal income tax liability, provided that certain
required information is furnished to the IRS.
SUPPLEMENTAL PLAN OF DISTRIBUTION
Subject to the terms and conditions set forth in the Distribution
Agreement, dated November 15, 1996 (the "Distribution Agreement"), the Notes
are being offered on a continuing basis by the Company through Goldman, Sachs &
Co., Alex. Brown & Sons Incorporated, Chase Securities Inc., Donaldson, Lufkin
& Jenrette Securities Corporation, Lehman Brothers Inc., Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc.
and NationsBanc Capital Markets, Inc. (the "Agents"), who have agreed to use
reasonable efforts to solicit purchases of the Notes. The Company will have the
sole right to accept offers to purchase Notes and may reject any proposed
purchase of Notes in whole or in part. The Agents shall have the right, in
their discretion reasonably exercised, to reject any offer to purchase Notes,
in whole or in part. The Company will pay the Agents a commission ranging from
0.125% to 0.750% of the principal amount of Notes, depending upon rank and
maturity, for sales made through them as Agents. Commissions with respect to
Notes with stated maturities in excess of 30 years will be negotiated between
the Company and the Agents at the time of such sale.
The Company may also sell Notes to the Agents as principals for their
own accounts at a discount to be agreed upon at the time of sale, or the
purchasing Agents may receive from the Company a commission or discount
equivalent to that set forth on the cover page of this Prospectus Supplement in
the case of any such principal transaction in which no other discount is
agreed. Such Notes may be resold at prevailing market prices, or at prices
related thereto, at the time of such resale, as determined by the Agents, or at
fixed prices. Unless otherwise specified in the applicable Pricing Supplement,
with respect to the Notes with Stated Maturities of 30 years or less, the
Company reserves the right to sell Notes directly on its own behalf. No
commission will be payable on any Notes sold directly by the Company.
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<PAGE> 35
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 may include all or part of the discount to
be received from the Company. Unless otherwise indicated in the applicable
Pricing Supplement, any Note sold to an Agent as principal will be purchased by
such Agent at a price equal to 100% of the principal amount thereof less a
percentage equal to the commission applicable to any agency sale of a Note of
identical rank and maturity. After the initial public offering of Notes, the
public offering price (in the case of Notes to be resold on a fixed price
basis), concession and discount may be changed.
The Agents, as agents or principals, as well as any dealers who resell
Notes to investors, may be deemed to be "underwriters" within the meaning of
the Securities Act of 1933 (the "Act"). The Company has agreed to indemnify the
Agents against certain liabilities, including liabilities under the Act. The
Company has agreed to reimburse the Agents for certain expenses.
Unless otherwise indicated in the applicable Pricing Supplement,
payment of the purchase price of Notes will be required to be made in
immediately available funds in The City of New York.
The Agents may be customers of, engage in transactions with, and
perform services for the Company in the ordinary course of business in the
future.
Chase Securities Inc. is an affiliate of Texas Commerce Bank National
Association ("TCB") which is agent bank and a lender to the Company under the
Company's revolving credit facility. TCB will receive its proportionate share
of any repayment by the Company of amounts outstanding under such facility from
the proceeds of the offering of the Notes. TCB is also Trustee under the
Senior Indenture and Paying Agent for the Senior Notes and Trustee under the
Subordinated Indenture and Paying Agent for the Subordinated Notes. In
addition, TCB, or its affiliates, participates on a regular basis in various
general financing and banking transactions for the Company and its affiliates.
Mr. Marc J. Shapiro, the Chairman and Chief Executive Officer of TCB, is a
Trust Manager of the Company.
NationsBanc Capital Markets, Inc. is an affiliate of NationsBank N.A.
("NationsBank"), which is a lender to the Company under the Company's revolving
credit facility and other credit facilities. NationsBank will receive its
proportionate share of any repayment by the Company of amounts outstanding
under such facilities from the proceeds of the offering of the Notes.
The Notes are a new issue of securities with no established trading
market and will not be listed on any securities exchange. No assurance can be
given as to the existence or liquidity of the secondary market for the Notes.
VALIDITY OF NOTES
The validity of the Notes will be passed upon for the Company by
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P., Dallas, Texas, and for the Agents
by Brown & Wood LLP, New York, New York. The opinions of Liddell, Sapp, Zivley,
Hill & LaBoon, L.L.P. and Brown & Wood LLP will be conditioned upon, and
subject to, certain assumptions as to future actions required to be taken in
connection with the issuance and sale of the Notes and as to other events that
may affect the validity of the Notes but which cannot be ascertained on the
date of such opinions.
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<PAGE> 37
PROSPECTUS
WEINGARTEN REALTY INVESTORS
$250,000,000
DEBT SECURITIES, PREFERRED SHARES,
COMMON SHARES AND SECURITIES WARRANTS
------------------------------
Weingarten Realty Investors, a real estate investment trust formed
under Texas law (the "Company"), may from time to time offer in one or more
series (i) its unsecured debt securities (the "Debt Securities"), (ii) its
preferred shares of beneficial interest, par value $.03 per share (the
"Preferred Shares"), (iii) its common shares of beneficial interest, par value
$.03 per share (the "Common Shares"), or (iv) warrants to purchase Common
Shares (the "Common Shares Warrants"), warrants to purchase Debt Securities
(the "Debt Securities Warrants") and warrants to purchase Preferred Shares (the
"Preferred Shares Warrants"), with an aggregate public offering price of up to
$250,000,000 (or its equivalent in any other currency or composite currency
based on the exchange rate at the time of sale) in amounts, at prices and on
terms to be determined by market conditions at the time of offering. The Common
Shares Warrants, the Debt Securities Warrants and the Preferred Shares Warrants
shall be referred to herein collectively as the "Securities Warrants." The
Debt Securities, Preferred Shares, Common Shares and Securities Warrants
(collectively, the "Securities") may be offered, separately or together, in
separate series in amounts, at prices and on terms to be set forth in a
supplement to this Prospectus (a "Prospectus Supplement").
The Debt Securities will be direct unsecured obligations of the
Company and may be either senior Debt Securities ("Senior Securities") or
subordinated Debt Securities ("Subordinated Securities"). The Senior Securities
will rank equally with all other unsecured and unsubordinated indebtedness of
the Company. The Subordinated Securities will be subordinated to all existing
and future Senior Debt of the Company, as defined. See "Description of Debt
Securities."
The specific terms of the Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Debt
Securities, the specific title, aggregate principal amount, currency, form
(which may be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of the Company or
repayment at the option of the Holder, terms for sinking fund payments, terms
for conversion into Preferred Shares or Common Shares and any initial public
offering price; (ii) in the case of Preferred Shares, the specific title and
stated value, any dividend, liquidation, redemption, conversion, voting and
other rights, and any initial public offering price; (iii) in the case of
Common Shares, any initial public offering price; and (iv) in the case of
Securities Warrants, the duration, offering price, exercise price and
detachability, if applicable. In addition, such specific terms may include
limitations on direct or beneficial ownership and restrictions on transfer of
the Securities, in each case as may be appropriate to preserve the status of
the Company as a real estate investment trust ("REIT") for federal income tax
purposes.
The applicable Prospectus Supplement will also contain information,
where applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities
covered by such Prospectus Supplement.
The Securities may be offered directly by the Company, through agents
designated from time to time by the Company, or to or through underwriters or
dealers. If any agents or underwriters are involved in the sale of any of the
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them, will be set forth, or will be
calculable from the information set forth, in the applicable Prospectus
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of the applicable Prospectus Supplement describing the method and
terms of the offering of such series of Securities.
----------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
------------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT
PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
------------------------------
The date of this Prospectus is September 30, 1996.
<PAGE> 38
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). Such reports, proxy statements and
other information can be inspected and copied at the Public Reference Section
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549; Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and New York Regional Office, 7 World Trade Center,
New York, New York 10048. The Commission also maintains a Web site at
(http://www.sec.gov) that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. In addition, the Company's Common Shares are listed on the New
York Stock Exchange, Inc. and similar information about the Company can be
inspected and copied at prescribed rates at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a registration statement on
Form S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Securities being offered
hereby. For further information with respect to the Company and the Securities
offered hereby, reference is made to the Registration Statement and exhibits
thereto. Statements contained in this Prospectus as to the contents of any
contract or other documents are not necessarily complete, and in each instance,
reference is made to the copy of such contract or documents filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission (File
No. 1-9876) are incorporated in this Prospectus by reference and are made a
part hereof:
1. The Company's Annual Report on Form 10-K for the year
ended December 31, 1995; and
2. The Company's Quarterly Report on Form 10-Q for the
quarters ended March 31, 1996 and June 30, 1996.
Each document filed subsequent to the date of this Prospectus pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act and prior to the
termination of the offering of all Securities to which this Prospectus relates
shall be deemed to be incorporated by reference in this Prospectus and shall be
a part hereof from the date of filing of such document.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement herein, in any
accompanying Prospectus Supplement relating to a specific offering of
Securities or in any other subsequently filed document that is also
incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus or any accompanying Prospectus Supplement. Subject to the
foregoing, all information appearing in this Prospectus and each accompanying
Prospectus Supplement is qualified in its entirety by the information appearing
in the documents incorporated by reference.
UPON WRITTEN OR ORAL REQUEST OF ANY PERSON TO WHOM A PROSPECTUS IS
DELIVERED, THE COMPANY WILL PROVIDE, WITHOUT CHARGE, A COPY OF THE DOCUMENTS
WHICH HAVE BEEN INCORPORATED BY REFERENCE IN THIS PROSPECTUS. REQUESTS FOR SUCH
DOCUMENTS SHOULD BE DIRECTED TO M. CANDACE DUFOUR, VICE PRESIDENT AND
SECRETARY, WEINGARTEN REALTY INVESTORS, 2600 CITADEL PLAZA DRIVE, HOUSTON,
TEXAS 77008, TELEPHONE (713) 866-6000.
2
<PAGE> 39
THE COMPANY
Weingarten Realty Investors has owned and developed shopping centers
and other commercial real estate since its organization in 1948. The Company's
investment focus has been and continues to be on shopping centers. As of August
31, 1996, Trust Managers and executive officers of the Company controlled
4,162,092 Common Shares or approximately 15.7% of the outstanding Common
Shares.
Initially, the Company grew primarily through development of
properties, with 93 of the 176 operating properties owned at August 31, 1996,
having been developed by the Company. With respect to these projects, the
Company acquired the raw land, constructed buildings and leased the store
spaces. The Company generally develops new projects only when it has leases in
place with financially strong and viable anchor retailers. More recently, the
Company has expanded its property base primarily through acquisitions of
properties previously developed by other parties which satisfy investment
criteria similar to those applicable to new developments. Management believes
that the majority of the Company's growth in the immediate future will continue
to result from acquisitions, due to the continuing over- supply of developed
real estate projects, the current lack of capital for most of the Company's
competitors to finance new investments and the prevailing market discount from
reproduction costs for new projects. As part of its acquisition strategy, the
Company seeks under-managed properties in good locations, the value of which
can be enhanced through remerchandising and renovating. Geographically, the
Company considers expansion in areas where it currently has a presence or where
it can acquire within a reasonable time frame a sufficient number of properties
that meet its investment criteria.
An equally important part of the Company's strategy has been to
improve the cash flow and value of its existing portfolio through: (i)
maximizing rental revenues, occupancy and retail sales, (ii) operating the
properties in the most cost effective manner and (iii) renovating and
remerchandising the tenant mix with respect to selected properties.
Management believes that its overall debt structure is conservative.
Based upon the approximately $1 billion market value of the Company's equity at
June 30, 1996, the Company's debt represented approximately 24% of its total
market capitalization. The Company's ratio of funds from operations before
interest expense to fixed charges for the quarter ended June 30, 1996 was
approximately 4.28 to 1.0.
The Company conducts its operations in order to qualify as a REIT
under the Internal Revenue Code of 1986, as amended. The Company's principal
executive offices are located at 2600 Citadel Plaza Drive, Houston, Texas
77008, and its telephone number is (713) 866-6000. As used herein, the term
"Company" refers to Weingarten Realty Investors and its predecessors unless the
context otherwise specifically requires.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement for
any offering of Securities, the Company intends to use the majority of the net
proceeds from the sale of Securities offered by the Company to repay debt
(including repayments of amounts drawn on lines of credit for property
acquisitions), make improvements to properties, acquire or develop additional
properties and for working capital. Pending use for the foregoing purposes,
such proceeds may be invested in short-term, interest-bearing time or demand
deposits with financial institutions, cash items or qualified government
securities.
3
<PAGE> 40
CERTAIN RATIOS
The following table sets forth the Company's consolidated ratios of
earnings to fixed charges and of funds from operations before interest expense
to fixed charges for the periods shown:
<TABLE>
<CAPTION>
Years Ended December 31,
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges. . . . 1.72x 1.89x 3.94x 4.16x 3.05x
Ratio of Funds from Operations Before
Interest Expense to Fixed Charges . . . 2.49x 2.74x 5.70x 6.11x 4.48x
</TABLE>
The ratios of earnings to fixed charges were computed by dividing
earnings by fixed charges. The ratios of funds from operations before interest
expense to fixed charges were computed by dividing funds from operations before
interest expense by fixed charges. For these purposes, earnings consist of
income before extraordinary items plus fixed charges (excluding interest costs
capitalized). Funds from operations before interest expense consists of net
income plus depreciation and amortization of real estate assets, interest on
indebtedness and extraordinary charges, less gains and losses on sales of
properties and securities. Fixed charges consist of interest expense (including
interest costs capitalized), amortization of debt costs and the portion of rent
expense representing an interest factor.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The Senior Securities are to be issued under an indenture (the "Senior
Indenture"), dated as of May 1, 1995, between the Company and Texas Commerce
Bank National Association, as Trustee, and the Subordinated Securities are to
be issued under a separate indenture (the "Subordinated Indenture"), dated as
of May 1, 1995, also between the Company and Texas Commerce Bank National
Association, as Trustee. The term "Trustee" as used herein shall refer to Texas
Commerce Bank National Association or such other bank as the Company may
appoint as trustee pursuant to the terms of the applicable Indenture, in its or
their capacity as Trustee for the Senior Securities or the Subordinated
Securities, as appropriate. The forms of the Senior Indenture and the
Subordinated Indenture (being sometimes referred to herein collectively as the
"Indentures" and individually as an "Indenture") are filed as exhibits to the
Registration Statement. The Indentures are subject to and governed by the Trust
Indenture Act of 1939, as amended (the "TIA"), and may be amended or
supplemented from time to time following execution. The statements made under
this heading relating to the Debt Securities and the Indentures are summaries
of the provisions thereof and do not purport to be complete and are qualified
in their entirety by reference to the Indentures and such Debt Securities.
Parenthetical references below are to the Indentures and capitalized terms used
but not defined herein shall have the respective meanings set forth in the
Indentures.
TERMS
The Debt Securities will be direct, unsecured obligations of the
Company. The indebtedness represented by the Senior Securities will rank
equally with all other unsecured and unsubordinated indebtedness of the
Company. The indebtedness represented by the Subordinated Securities will be
subordinated in right of payment to the prior payment in full of the Senior
Debt of the Company as described under "Subordination."
Each Indenture provides that the Debt Securities may be issued without
limit as to aggregate principal amount, in one or more series, in each case as
established from time to time in, or pursuant to authority granted by, a
resolution of the Board of Trust Managers of the Company or as established in
one or more indentures supplemental to such Indenture. All Debt Securities of
one series need not be issued at the same time and, unless otherwise provided,
a series may be reopened, without the consent of the Holders of the Debt
Securities of such series, for issuances of additional Debt Securities of such
series (Section 301 of each Indenture).
Each Indenture provides that there may be more than one Trustee
thereunder, each with respect to one or
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more series of Debt Securities. Any Trustee under either Indenture may resign
or be removed with respect to one or more series of Debt Securities, and a
successor Trustee may be appointed to act with respect to such series (Section
608 of each Indenture). In the event that two or more persons are acting as
Trustee with respect to different series of Debt Securities, each such Trustee
shall be a Trustee of a trust under the applicable Indenture separate and apart
from the trust administered by any other Trustee (Section 609 of each
Indenture), and, except as otherwise indicated herein, any action described
herein to be taken by each Trustee may be taken by each such Trustee with
respect to, and only with respect to, the one or more series of Debt Securities
for which it is Trustee under the applicable Indenture.
Reference is made to the Prospectus Supplement relating to the series
of Debt Securities being offered for the specific terms thereof, including:
(1) the title of such Debt Securities and whether such
Debt Securities are Senior Securities or Subordinated
Securities;
(2) the aggregate principal amount of such Debt
Securities and any limit on such aggregate principal
amount;
(3) the percentage of the principal amount at which such
Debt Securities will be issued and, if other than the
principal amount thereof, the portion of the
principal amount thereof payable upon declaration of
acceleration of the maturity thereof, or (if
applicable) the portion of the principal amount of
such Debt Securities which is convertible into Common
Shares or Preferred Shares, or the method by which
any such portion shall be determined;
(4) if convertible, in connection with the preservation
of the Company's status as a REIT, any applicable
limitations on the ownership or transferability of
the Common Shares or Preferred Shares into which such
Debt Securities are convertible;
(5) the date or dates, or the method for determining such
date or dates, on which the principal of such Debt
Securities will be payable;
(6) the rate or rates (which may be fixed or variable),
or the method by which such rate or rates shall be
determined, at which such Debt Securities will bear
interest, if any;
(7) the date or dates, or the method for determining such
date or dates, from which any such interest will
accrue, the Interest Payment Dates on which any such
interest will be payable, the Regular Record Dates
for such Interest Payment Dates, or the method by
which such dates shall be determined, the Persons to
whom such interest shall be payable, and the basis
upon which interest shall be calculated if other than
that of a 360-day year of twelve 30-day months;
(8) the place or places where the principal of (and
premium, if any) and interest, if any, on such Debt
Securities will be payable, where such Debt
Securities may be surrendered for conversion or
registration of transfer or exchange and where
notices or demands to or upon the Company in respect
of such Debt Securities and the applicable Indenture
may be served;
(9) the period or periods within which, the price or
prices at which and the other terms and conditions
upon which such Debt Securities may be redeemed, as a
whole or in part, at the option of the Company, if
the Company is to have such an option;
(10) the obligation, if any, of the Company to redeem,
repay or purchase such Debt Securities pursuant to
any sinking fund or analogous provision or at the
option of a Holder thereof, and the period or periods
within which, the price or prices at which and the
other terms
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and conditions upon which such Debt Securities will
be redeemed, repaid or purchased, as a whole or in
part, pursuant to such obligation;
(11) if other than U.S. dollars, the currency or
currencies in which such Debt Securities are
denominated and payable, which may be a foreign
currency or units of two or more foreign currencies
or a composite currency or currencies, and the terms
and conditions relating thereto;
(12) whether the amount of payments of principal of (and
premium, if any) or interest, if any, on such Debt
Securities may be determined with reference to an
index, formula or other method (which index, formula
or method may, but need not be, based on a currency,
currencies, currency unit or units or composite
currency or currencies) and the manner in which such
amounts shall be determined;
(13) any additions to, modifications of or deletions from
the terms of such Debt Securities with respect to the
Events of Default or covenants set forth in the
applicable Indenture;
(14) whether such Debt Securities will be issued in
certificated or book-entry form;
(15) whether such Debt Securities will be in registered or
bearer form, and if in registered form, the
denominations thereof if other than $1,000 and any
integral multiple thereof and, if in bearer form, the
denominations thereof and terms and conditions
relating thereto;
(16) the applicability, if any, of the defeasance and
covenant defeasance provisions of Article Fourteen of
the applicable Indenture;
(17) if such Debt Securities are to be issued upon the
exercise of Debt Securities Warrants, the time,
manner and place for such Debt Securities to be
authenticated and delivered;
(18) the terms, if any, upon which such Debt Securities
may be convertible into Common Shares or Preferred
Shares of the Company and the terms and conditions
upon which such conversion will be effected,
including, without limitation, the initial conversion
price or rate and the conversion period;
(19) whether and under what circumstances the Company will
pay Additional Amounts as contemplated in the
applicable Indenture on such Debt Securities in
respect of any tax, assessment or governmental charge
and, if so, whether the Company will have the option
to redeem such Debt Securities in lieu of making such
payment; and
(20) any other terms of such Debt Securities not
inconsistent with the provisions of the applicable
Indenture (Section 301 of each Indenture).
The Debt Securities may be issued at a discount below their principal
amount and may provide for less than the entire principal amount thereof to be
payable upon declaration of acceleration of the maturity thereof or bear no
interest or bear interest at a rate which at the time of issuance is below
market rates ("Original Issue Discount Securities") (Section 502 of each
Indenture). Special U.S. federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities will be
described in the applicable Prospectus Supplement.
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement,
the Debt Securities of any series will be issuable in denominations of $1,000
and integral multiples thereof (Section 302 of each Indenture).
Unless otherwise specified in the applicable Prospectus Supplement,
the principal of (and applicable
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premium, if any) and interest, if any, on any series of Debt Securities will be
payable at the corporate trust office of the Trustee, provided that, at the
option of the Company, payment of interest may be made by check mailed to the
address of the Person entitled thereto as it appears in the Security Register
or by wire transfer of funds to such Person at an account maintained within the
United States (Sections 301, 305, 306, 307 and 1002 of each Indenture).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
applicable Trustee, notice whereof shall be mailed to each Holder of such Debt
Security not less than 10 days prior to such Special Record Date, or may be
paid at any time in any other lawful manner, all as more completely described
in the applicable Indenture (Section 307 of each Indenture).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the applicable Trustee
referred to above. In addition, subject to certain limitations imposed upon
Debt Securities issued in book-entry form, the Debt Securities of any series
may be surrendered for conversion or registration of transfer or exchange at
the corporate trust office of the applicable Trustee referred to above. Every
Debt Security surrendered for conversion, registration of transfer or exchange
shall be duly endorsed or accompanied by a written instrument of transfer. No
service charge will be made for any registration of transfer or exchange of any
Debt Securities, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith
(Section 305 of each Indenture). If the applicable Prospectus Supplement refers
to any transfer agent (in addition to the applicable Trustee) initially
designated by the Company with respect to any series of Debt Securities, the
Company may at any time rescind the designation of any such transfer agent or
approve a change in the location through which any such transfer agent acts,
except that the Company will be required to maintain a transfer agent in each
Place of Payment for such series. The Company may at any time designate
additional transfer agents with respect to any series of Debt Securities
(Section 1002 of each Indenture).
Neither the Company nor any Trustee shall be required to: (i) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before any selection of
Debt Securities of that series to be redeemed and ending at the close of
business on the day of mailing of the relevant notice of redemption; (ii)
register the transfer of or exchange any Debt Security, or portion thereof,
called for redemption, except the unredeemed portion of any Debt Security being
redeemed in part; or (iii) issue, register the transfer of or exchange any Debt
Security that has been surrendered for repayment at the option of the Holder,
except the portion, if any, of such Debt Security not to be so repaid (Section
305 of each Indenture).
MERGER, CONSOLIDATION OR SALE
The Company may consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into, any other
corporation or trust or entity provided that: (i) either the Company shall be
the continuing entity, or the successor entity (if other than the Company)
formed by or resulting from any such consolidation or merger or which shall
have received the transfer of such assets shall expressly assume payment of the
principal of (and premium, if any) and interest, if any, on all of the Debt
Securities and the due and punctual performance and observance of all of the
covenants and conditions contained in each Indenture; (ii) immediately after
giving effect to such transaction and treating any indebtedness that becomes an
obligation of the Company or any Subsidiary as a result thereof as having been
incurred by the Company or such Subsidiary at the time of such transaction, no
Event of Default under the Indenture, and no event which, after notice or the
lapse of time, or both, would become such an Event of Default, shall have
occurred and be continuing; and (iii) an officers' certificate and legal
opinion covering such conditions shall be delivered to each Trustee (Sections
801 and 803 of each Indenture).
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CERTAIN COVENANTS
Limitations on Incurrence of Debt. The Company will not, and will not
permit any Subsidiary to, incur any Debt (as defined below) if, immediately
after giving effect to the incurrence of such Debt and the application of the
proceeds thereof, the aggregate principal amount of all outstanding Debt of the
Company and its Subsidiaries on a consolidated basis determined in accordance
with generally accepted accounting principles is greater than 60% of the sum of
(without duplication) (i) the Company's Total Assets (as defined below) as of
the end of the calendar quarter covered in the Company's Annual Report on Form
10-K or Quarterly Report on Form 10-Q, as the case may be, most recently filed
with the Commission (or, if such filing is not permitted under the Exchange
Act, with the Trustee) prior to the incurrence of such additional Debt and (ii)
the purchase price of any real estate assets or mortgages receivable acquired,
and the amount of any securities offering proceeds received (to the extent such
proceeds were not used to acquire real estate assets or mortgages receivable or
used to reduce Debt), by the Company or any Subsidiary since the end of such
calendar quarter, including those proceeds obtained in connection with the
incurrence of such additional Debt (Section 1004 of each Indenture).
In addition to the foregoing limitation on the incurrence of Debt, the
Company will not, and will not permit any Subsidiary to, incur any Debt secured
by any mortgage, lien, charge, pledge, encumbrance or security interest of any
kind upon any of the property of the Company or any Subsidiary if, immediately
after giving effect to the incurrence of such Debt and the application of the
proceeds thereof, the aggregate principal amount of all outstanding Debt of the
Company and its Subsidiaries on a consolidated basis which is secured by any
mortgage, lien, charge, pledge, encumbrance or security interest on property of
the Company or any Subsidiary is greater than 40% of the Company's Total Assets
(Section 1004 of each Indenture).
In addition to the foregoing limitations on the incurrence of Debt,
the Company will not, and will not permit any Subsidiary to, incur any Debt if
the ratio of Consolidated Income Available for Debt Service (as defined below)
to the Annual Service Charge (as defined below) for the four consecutive fiscal
quarters most recently ended prior to the date on which such additional Debt is
to be incurred shall have been less than 1.5, on a pro forma basis after giving
effect thereto and to the application of the proceeds therefrom, and calculated
on the assumption that: (i) such Debt and any other Debt incurred by the
Company and its Subsidiaries since the first day of such four-quarter period
and the application of the proceeds therefrom, including to refinance other
Debt, had occurred at the beginning of such period; (ii) the repayment or
retirement of any other Debt by the Company and its Subsidiaries since the
first day of such four- quarter period had been incurred, repaid or retired at
the beginning of such period (except that, in making such computation, the
amount of Debt under any revolving credit facility shall be computed based upon
the average daily balance of such Debt during such period); (iii) in the case
of Acquired Debt (as defined below) or Debt incurred in connection with any
acquisition since the first day of such four-quarter period, the related
acquisition had occurred as of the first day of such period with the
appropriate adjustments with respect to such acquisition being included in such
pro forma calculation; and (iv) in the case of any acquisition or disposition
by the Company or its Subsidiaries of any asset or group of assets since the
first day of such four-quarter period, whether by merger, stock purchase or
sale, or asset purchase or sale, such acquisition or disposition or any related
repayment of Debt had occurred as of the first day of such period with the
appropriate adjustments with respect to such acquisition or disposition being
included in such pro forma calculation (Section 1004 of each Indenture).
Existence. Except as permitted under "Merger, Consolidation or Sale,"
the Company will do or cause to be done all things necessary to preserve and
keep in full force and effect its legal existence, rights (charter and
statutory) and franchises; provided, however, that the Company shall not be
required to preserve any right or franchise if it determines that the
preservation thereof is no longer desirable in the conduct of its business
(Section 1005 of each Indenture).
Maintenance of Properties. The Company will cause all of its material
properties used or useful in the conduct of its business or the business of any
Subsidiary to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times (Section 1006 of each Indenture).
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Insurance. The Company will keep, and will cause each of its
Subsidiaries to keep, all of its insurable properties insured against loss or
damage in an amount at least equal to their then full insurable value with
insurers of recognized responsibility and, if such insurer has publicly rated
debt, the rating for such debt must be at least investment grade with a
nationally recognized rating agency (Section 1007 of each Indenture).
Payment of Taxes and Other Claims. The Company will pay or discharge,
or cause to be paid or discharged, before the same shall become delinquent, (i)
all taxes, assessments and governmental charges levied or imposed upon it or
any Subsidiary or upon the income, profits or property of the Company or any
Subsidiary and (ii) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of the Company or any
Subsidiary; provided, however, that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
(Section 1008 of each Indenture).
Provision of Financial Information. Whether or not the Company is
subject to Section 13 or 15(d) of the Exchange Act, the Company will, within 15
days of each of the respective dates by which the Company would have been
required to file annual reports, quarterly reports and other documents with the
Commission if the Company were so subject, (i) transmit by mail to all Holders
of Debt Securities, as their names and addresses appear in the Security
Register, without cost to such Holders, copies of the annual reports, quarterly
reports and other documents that the Company would have been required to file
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act if the
Company were subject to such Sections, (ii) file with the applicable Trustee
copies of the annual reports, quarterly reports and other documents that the
Company would have been required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act if the Company were subject to such
Sections and (iii) promptly upon written request and payment of the reasonable
cost of duplication and delivery, supply copies of such documents to any
prospective Holder (Section 1009 of each Indenture).
Maintenance of Value of Unencumbered Assets to Unsecured Debt. The
Company will at all times maintain an Unencumbered Total Asset Value in an
amount of not less than 100% of the aggregate principal amount of all
outstanding Debt of the Company and its Subsidiaries that is unsecured (Section
1013 of each Indenture).
Limited Covenants in the Event of a Highly Leveraged Transaction.
Other than the covenants of the Company included in the Indentures as described
above, there are no covenants in the Indentures that will afford the holders of
Debt Securities protection in the event of a highly leveraged transaction or
similar transaction involving the Company. Restrictions on ownership and
transfers of the Company's Common Shares and Preferred Shares are designed to
preserve its status as a REIT and, therefore, may act to prevent or hinder a
change of control. See "Description of Preferred Shares" and "Description of
Common Shares." Reference is made to the applicable Prospectus Supplement for
information with respect to any deletions from, modifications of, or additions
to, the Events of Default or covenants of the Company that are described above,
including any addition of a covenant or other event risk provision or similar
protection.
As used herein,
"Acquired Debt" means Debt of a Person (i) existing at the time such
Person becomes a Subsidiary or (ii) assumed in connection with the acquisition
of assets from such Person, in each case, other than Debt incurred in
connection with, or in contemplation of, such Person becoming a Subsidiary or
such acquisition. Acquired Debt shall be deemed to be incurred on the date of
the related acquisition of assets from any Person or the date the acquired
Person becomes a Subsidiary.
"Annual Service Charge" as of any date means the maximum amount which
is payable in any period for interest on, and original issue discount of, Debt
of the Company and its Subsidiaries and the amount of dividends which are
payable in respect of any Disqualified Stock (as defined below).
"Capital Shares" means, with respect to any Person, any capital shares
(including preferred shares), interests, participations or other ownership
interests (however designated) of such Person and any rights (other than debt
securities convertible into or exchangeable for capital shares), warrants or
options to purchase any thereof.
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"Consolidated Income Available for Debt Service" for any period means
Funds from Operations (as defined below) of the Company and its Subsidiaries
plus amounts which have been deducted for interest on Debt of the Company and
its Subsidiaries.
"Debt" of the Company or any Subsidiary means any indebtedness of the
Company, or any Subsidiary, other than contingent liabilities (except to the
extent set forth in (iii) below), in respect of (without duplication) (i)
borrowed money evidenced by bonds, notes, debentures or similar instruments,
(ii) indebtedness secured by any mortgage, pledge, lien, charge, encumbrance or
any security interest existing on property owned by the Company or any
Subsidiary, (iii) the reimbursement obligations, contingent or otherwise, in
connection with any letters of credit actually issued or amounts representing
the balance deferred and unpaid of the purchase price of any property or
services, except any such balance that constitutes an accrued expense or trade
payable, or all conditional sale obligations or obligations under any title
retention agreement, (iv) the principal amount of all obligations of the
Company or any Subsidiary with respect to redemption, repayment or other
repurchase of any Disqualified Stock or (v) any lease of property by the
Company or any Subsidiary as lessee which is reflected on the Company's
consolidated balance sheet as a capitalized lease in accordance with generally
accepted accounting principles to the extent, in the case of items of
indebtedness under (i) through (iii) above, that any such items (other than
letters of credit) would appear as a liability on the Company's consolidated
balance sheet in accordance with generally accepted accounting principles, but
does not include any obligation of the Company or any Subsidiary to be liable
for, or to pay, as obligor, guarantor or otherwise, Debt of another Person
(other than the Company or any Subsidiary) unless and until the Company or such
Subsidiary shall become directly liable in respect thereof.
"Disqualified Stock" means, with respect to any Person, any Capital
Shares of such Person which by the terms of such Capital Shares (or by the
terms of any security into which it is convertible or for which it is
exchangeable or exercisable), upon the happening of any event or otherwise (i)
matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, (ii) is convertible into or exchangeable or exercisable for Debt or
Disqualified Stock or (iii) is redeemable at the option of the holder thereof,
in whole or in part, in each case on or prior to the Stated Maturity of the
Debt Securities.
"Funds from Operations" for any period means net income plus
depreciation and amortization of real estate assets and extraordinary charges,
excluding gains and losses on sales of properties and securities.
"Total Assets" as of any date means the sum of (i) the Company's
Undepreciated Real Estate Assets and (ii) all other assets of the Company
determined in accordance with generally accepted accounting principles (but
excluding goodwill and unamortized debt costs).
"Undepreciated Real Estate Assets" as of any date means the cost
(original cost plus capital improvements) of real estate assets of the Company
and its Subsidiaries on such date, before depreciation and amortization
determined on a consolidated basis in accordance with generally accepted
accounting principles.
"Unencumbered Total Asset Value" as of any date shall mean the sum of
the Company's Total Assets which are unencumbered by any mortgage, lien,
charge, pledge, or security interest.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each Indenture provides that the following events are "Events of
Default" with respect to any series of Debt Securities issued thereunder: (i)
default for 30 days in the payment of any installment of interest on any Debt
Security of such series; (ii) default in the payment of the principal of (or
premium, if any, on) any Debt Security of such series at its Maturity; (iii)
default in making any sinking fund payment as required for any Debt Security of
such series; (iv) default in the performance or breach of any other covenant or
warranty of the Company contained in the Indenture (other than a covenant added
to the Indenture solely for the benefit of a series of Debt Securities issued
thereunder other than such series), continued for 60 days after written notice
as provided in the applicable Indenture; (v) a default under any bond,
debenture, note or other evidence of indebtedness for money borrowed by the
Company (including obligations under leases required to be capitalized on the
balance sheet of the lessee under generally accepted accounting principles but
not including any indebtedness or obligations for which recourse is limited to
property purchased or property mortgaged) in an aggregate principal amount in
excess of
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$10,000,000 or under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any indebtedness
for money borrowed by the Company (including such leases but not including such
indebtedness or obligations for which recourse is limited to property
purchased) in an aggregate principal amount in excess of $10,000,000 by the
Company, whether such indebtedness now exists or shall hereafter be created,
which default shall have resulted in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable or such obligations being accelerated, without such
acceleration having been rescinded or annulled; (vi) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Company or any Significant Subsidiary or either of
their properties; and (vii) any other Event of Default provided with respect to
a particular series of Debt Securities (Section 501 of each Indenture). The
term "Significant Subsidiary" means each significant subsidiary (as defined in
Regulation S-X promulgated under the Securities Act) of the Company.
If an Event of Default under either Indenture with respect to Debt
Securities of any series at the time Outstanding occurs and is continuing, then
in every such case the applicable Trustee or the Holders of not less than 25%
in principal amount of the Outstanding Debt Securities of that series may
declare the principal amount (or, if the Debt Securities of that series are
Original Issue Discount Securities or Indexed Securities, such portion of the
principal amount as may be specified in the terms thereof) of all of the Debt
Securities of that series to be due and payable immediately by written notice
thereof to the Company (and to the applicable Trustee if given by the Holders).
However, at any time after such a declaration of acceleration with respect to
Debt Securities of such series (or of all Debt Securities then Outstanding
under either Indenture, as the case may be) has been made, but before a
judgment or decree for payment of the money due has been obtained by the
applicable Trustee, the Holders of not less than a majority in principal amount
of Outstanding Debt Securities of such series (or of all Debt Securities then
Outstanding under the applicable Indenture, as the case may be) may rescind and
annul such declaration and its consequences if (i) the Company shall have
deposited with the applicable Trustee all required payments of the principal of
(and premium, if any) and interest on the Debt Securities of such series (or of
all Debt Securities then Outstanding under the applicable Indenture, as the
case may be), plus certain fees, expenses, disbursements and advances of the
applicable Trustee and (ii) all Events of Default, other than the non-payment
of accelerated principal (or a specified portion thereof), with respect to Debt
Securities of such series (or of all Debt Securities then Outstanding under the
applicable Indenture, as the case may be) have been cured or waived as provided
in each Indenture (Section 502 of each Indenture). Each Indenture also provides
that the Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series (or of all Debt Securities then
Outstanding under the applicable Indenture, as the case may be) may waive any
past default with respect to such series and its consequences, except a default
(x) in the payment of the principal of (or premium, if any) or interest, if
any, on any Debt Security of such series or (y) in respect of a covenant or
provision contained in the applicable Indenture that cannot be modified or
amended without the consent of the Holders of each Outstanding Debt Security
affected thereby (Section 513 of each Indenture).
Each Trustee is required to give notice to the Holders of Debt
Securities within 90 days of a default under the applicable Indenture unless
such default shall have been cured or waived; provided, however, that such
Trustee may withhold notice to the Holders of any Series of Debt Securities of
any default with respect to such series (except a default in the payment of the
principal of (or premium, if any) or interest, if any, on any Debt Security of
such series or in the payment of any sinking fund installment in respect of any
Debt Security of such series) if the Responsible Officers of such Trustee
consider such withholding to be in the interest of such Holders (Section 601 of
each Indenture).
Each Indenture provides that no Holders of Debt Securities of any
series may institute any proceedings, judicial or otherwise, with respect to
such Indenture or for any remedy thereunder, except in the case of failure of
the applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an Event of Default from the
Holders of not less than 25% in principal amount of the Outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it (Section 507 of each Indenture). This provision will not
prevent, however, any Holder of Debt Securities from instituting suit for the
enforcement of payment of the principal of (and premium, if any) and interest,
if any, on such Debt Securities at the respective due dates thereof (Section
508 of each Indenture).
Subject to provisions in each Indenture relating to its duties in case
of default, neither Trustee is under an
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obligation to exercise any of its rights or powers under such Indenture at the
request or direction of any Holders of any series of Debt Securities then
Outstanding under such Indenture, unless such Holders shall have offered to the
Trustee thereunder reasonable security or indemnity (Section 602 of each
Indenture). The Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series (or of all Debt Securities then
Outstanding under each Indenture, as the case may be) shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the applicable Trustee, or of exercising any trust or power
conferred upon such Trustee. However, each Trustee may refuse to follow any
direction which is in conflict with any law or the applicable Indenture, which
may involve such Trustee in personal liability or which may be unduly
prejudicial to the Holders of Debt Securities of such series not joining
therein (Section 512 of each Indenture).
Within 120 days after the close of each fiscal year, the Company must
deliver to each Trustee a certificate, signed by one of several specified
officers, stating whether or not such officer has knowledge of any default
under the applicable Indenture and, if so, specifying each such default and the
nature and status thereof (Section 1010 of each Indenture).
MODIFICATION OF THE INDENTURES
Modification and amendment of either Indenture may be made only with
the consent of the Holders of not less than a majority in principal amount of
all Outstanding Debt Securities issued under such Indenture which are affected
by such modification or amendment; provided, however, that no such modification
or amendment may, without the consent of the Holder of each such Debt Security
affected thereby, (i) change the Stated Maturity of the principal of, or any
installment of interest (or premium, if any) on, any such Debt Security, (ii)
reduce the principal amount of, or the rate or amount of interest on, or any
premium payable on redemption of, any such Debt Security, or reduce the amount
of principal of an Original Issue Discount Security that would be due and
payable upon declaration of acceleration of the maturity thereof or would be
provable in bankruptcy, or adversely affect any right of repayment of the
Holder of any such Debt Security, (iii) change the Place of Payment, or the
coin or currency, for payment of principal of, premium, if any, or interest, if
any, on any such Debt Security, (iv) impair the right to institute suit for the
enforcement of any payment on or with respect to any such Debt Security, (v)
reduce the above-stated percentage of Outstanding Debt Securities of any series
necessary to modify or amend the applicable Indenture, to waive compliance with
certain provisions thereof or certain defaults and consequences thereunder or
to reduce the quorum or voting requirements set forth in the applicable
Indenture, or (vi) modify any of the foregoing provisions or any of the
provisions relating to the waiver of certain past defaults or certain
covenants, except to increase the required percentage to effect such action or
to provide that certain other provisions may not be modified or waived without
the consent of the Holder of such Debt Security (Section 902 of each
Indenture).
The Holders of not less than a majority in principal amount of
Outstanding Debt Securities issued under either Indenture have the right to
waive compliance by the Company with certain covenants in such Indenture
(Section 1012 of each Indenture).
Modifications and amendments of either Indenture may be made by the
Company and the respective Trustee thereunder without the consent of any Holder
of Debt Securities for any of the following purposes: (i) to evidence the
succession of another Person to the Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the Holders of
all or any series of Debt Securities or to surrender any right or power
conferred upon the Company in such Indenture; (iii) to add Events of Default
for the benefit of the Holders of all or any series of Debt Securities; (iv) to
add or change any provisions of either Indenture to facilitate the issuance of,
or to liberalize certain terms of, Debt Securities in bearer form, or to permit
or facilitate the issuance of Debt Securities in uncertificated form, provided
that such action shall not adversely affect the interests of the Holders of the
Debt Securities of any series in any material respect; (v) to change or
eliminate any provisions of either Indenture, provided that any such change or
elimination shall become effective only when there are no Debt Securities
Outstanding of any series created prior thereto which are entitled to the
benefit of such provision; (vi) to secure the Debt Securities; (vii) to
establish the form or terms of Debt Securities of any series, including the
provisions and procedures, if applicable, for the conversion of such Debt
Securities into Common Shares or Preferred Shares of the Company; (viii) to
provide for the acceptance or appointment of a successor Trustee or facilitate
the administration of the trusts under either Indenture by more than one
Trustee; (ix) to cure any ambiguity, defect or inconsistency in either
Indenture, provided that such action shall not adversely affect the
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interests of Holders of Debt Securities of any series issued under such
Indenture; or (x) to supplement any of the provisions of either Indenture to
the extent necessary to permit or facilitate defeasance and discharge of any
series of such Debt Securities, provided that such action shall not adversely
affect the interests of the Holders of the Debt Securities of any series
(Section 901 of each Indenture).
SUBORDINATION
Upon any distribution to creditors of the Company in a liquidation,
dissolution or reorganization, the payment of the principal of and interest on
the Subordinated Securities will be subordinated to the extent provided in the
Subordinated Indenture in right of payment to the prior payment in full of all
Senior Debt (Sections 1601 and 1602 of the Subordinated Indenture), but the
obligation of the Company to make payment of the principal of and interest on
the Subordinated Securities will not otherwise be affected (Section 1608 of the
Subordinated Indenture). No payment of principal or interest may be made on the
Subordinated Securities at any time if a default on Senior Debt exists that
permits the holders of such Senior Debt to accelerate its maturity and the
default is the subject of judicial proceedings or the Company receives notice
of the default (Section 1603 of the Subordinated Indenture). After all Senior
Debt is paid in full and until the Subordinated Securities are paid in full,
Holders will be subrogated to the rights of holders of Senior Debt to the
extent that distributions otherwise payable to Holders have been applied to the
payment of Senior Debt (Section 1607 of the Subordinated Indenture). By reason
of such subordination, in the event of a distribution of assets upon
insolvency, certain general creditors of the Company may recover more, ratably,
than holders of the Subordinated Securities.
Senior Debt is defined in the Subordinated Indenture as the principal
of and interest on, or substantially similar payments to be made by the Company
in respect of, the following, whether outstanding at the date of execution of
the Subordinated Indenture or thereafter incurred, created or assumed: (i)
indebtedness of the Company for money borrowed or represented by purchase-money
obligations, (ii) indebtedness of the Company evidenced by notes, debentures or
bonds, or other securities issued under the provisions of an indenture, fiscal
agency agreement or other instrument, (iii) obligations of the Company as
lessee under leases of property either made as part of any sale and leaseback
transaction to which the Company is a party or otherwise, (iv) indebtedness of
partnerships and joint ventures which is included in the consolidated financial
statements of the Company, (v) indebtedness, obligations and liabilities of
others in respect of which the Company is liable contingently or otherwise to
pay or advance money or property or as guarantor, endorser or otherwise or
which the Company has agreed to purchase or otherwise acquire, and (vi) any
binding commitment of the Company to fund any real estate investment or to fund
any investment in any entity making such real estate investment, in each case
other than (A) any such indebtedness, obligation or liability referred to in
clauses (i) through (vi) above as to which, in the instrument creating or
evidencing the same pursuant to which the same is outstanding, it is provided
that such indebtedness, obligation or liability is not superior in right of
payment to the Subordinated Securities or ranks pari passu with the
Subordinated Securities, (B) any such indebtedness, obligation or liability
which is subordinated to indebtedness of the Company to substantially the same
extent as or to a greater extent than the Subordinated Securities are
subordinated, and (C) the Subordinated Securities (Section 101 of the
Subordinated Indenture). At June 30, 1996, Senior Debt aggregated
approximately $323 million.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Under each Indenture, the Company may discharge certain obligations to
Holders of any series of Debt Securities issued thereunder that have not
already been delivered to the applicable Trustee for cancellation and that
either have become due and payable or will become due and payable within one
year (or scheduled for redemption within one year) by irrevocably depositing
with the applicable Trustee, in trust, funds in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable in an amount sufficient to pay the entire indebtedness
on such Debt Securities in respect of principal (and premium, if any) and
interest to the date of such deposit (if such Debt Securities have become due
and payable) or to the Stated Maturity or Redemption Date, as the case may be
(Section 401 of each Indenture).
Each Indenture provides that, if the provisions of Article Fourteen
thereof are made applicable to the Debt Securities of or within any series
pursuant to Section 301 of such Indenture, the Company may elect either (i) to
defease and be discharged from any and all obligations with respect to such
Debt Securities (except for the
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obligation to pay Additional Amounts, if any, upon the occurrence of certain
events of tax, assessment or governmental charge with respect to payments on
such Debt Securities and the obligations to register the transfer or exchange
of such Debt Securities, to replace temporary or mutilated, destroyed, lost or
stolen Debt Securities, to maintain an office or agency in respect of such Debt
Securities and to hold moneys for payment in trust) ("defeasance") (Section
1402 of each Indenture) or (ii) to be released from its obligations with
respect to such Debt Securities under Sections 1004 to 1009, inclusive, and
Section 1013 of each Indenture (being the restrictions described under "Certain
Covenants") or, if provided pursuant to Section 301 of each Indenture, its
obligations with respect to any other covenant, and any omission to comply with
such obligations shall not constitute a default or an Event of Default with
respect to such Debt Securities ("covenant defeasance") (Section 1403 of each
Indenture), in either case upon the irrevocable deposit by the Company with the
applicable Trustee, in trust, of an amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at Stated Maturity, or Government Obligations (as
defined below), or both, applicable to such Debt Securities which through the
scheduled payment of principal and interest in accordance with their terms will
provide money in an amount sufficient to pay the principal of (and premium, if
any) and interest on such Debt Securities, and any mandatory sinking fund or
analogous payments thereon, on the scheduled due dates therefor (Section 1404
of each Indenture).
Such a trust may only be established if, among other things, the
Company has delivered to the applicable Trustee an Opinion of Counsel (as
specified in each Indenture) to the effect that the Holders of such Debt
Securities will not recognize income, gain or loss for U.S. federal income tax
purposes as a result of such defeasance or covenant defeasance and will be
subject to U.S. federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance or covenant
defeasance had not occurred, and such Opinion of Counsel, in the case of
defeasance, must refer to and be based upon a ruling of the Internal Revenue
Service or a change in applicable U.S. federal income tax law occurring after
the date of the Indenture (Section 1404 of each Indenture).
"Government Obligations" means securities which are (i) direct
obligations of the United States of America or the government which issued the
Foreign Currency in which the Debt Securities of a particular series are
payable, for the payment of which its full faith and credit is pledged or (ii)
obligations of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which issued
the Foreign Currency in which the Debt Securities of such series are payable,
the payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or such other government, which, in
either case, are not callable or redeemable at the option of the issuer
thereof, and shall also include a depository receipt issued by a bank or trust
company as custodian with respect to any such Government Obligation or a
specified payment of interest on or principal of any such Government Obligation
held by such custodian for the account of the holder of a depository receipt,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the Government
Obligation or the specific payment of interest on or principal of the
Government Obligation evidenced by such depository receipt (Section 101 of each
Indenture).
Unless otherwise provided in the applicable Prospectus Supplement, if
after the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any
series, (i) the Holder of a Debt Security of such series is entitled to, and
does, elect pursuant to Section 301 of either Indenture or the terms of such
Debt Security to receive payment in a currency, currency unit or composite
currency other than that in which such deposit has been made in respect of such
Debt Security, or (ii) a Conversion Event (as defined below) occurs in respect
of the currency, currency unit or composite currency in which such deposit has
been made, the indebtedness represented by such Debt Security shall be deemed
to have been, and will be, fully discharged and satisfied through the payment
of the principal of (and premium, if any) and interest on such Debt Security as
they become due out of the proceeds yielded by converting the amount so
deposited in respect of such Debt Security into the currency, currency unit or
composite currency in which such Debt Security becomes payable as a result of
such election or such cessation of usage based on the applicable market
exchange rate (Section 1405 of each Indenture). "Conversion Event" means the
cessation of use of (i) a currency, currency unit or composite currency both by
the government of the country which issued such currency and for the settlement
of transactions by a central bank or other public institutions of or within the
international banking community, (ii) the European Currency Unit ("ECU") both
within the European Monetary System and for the settlement of transactions
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by public institutions of or within the European Communities or (iii) any
currency unit or composite currency other than the ECU for the purposes of
which it was established. Unless otherwise provided in the applicable
Prospectus Supplement, all payments of principal of (and premium, if any) and
interest, if any, on any Debt Security that is payable in a Foreign Currency
that ceases to be used by its government of issuance shall be made in U.S.
dollars (Section 101 of each Indenture).
In the event that the Company effects covenant defeasance with respect
to any Debt Securities and such Debt Securities are declared due and payable
because of the occurrence of any Event of Default other than the Event of
Default described in clause (iv) under "Events of Default, Notice and Waiver"
with respect to Sections 1004 through 1009, inclusive, and Section 1013 of each
Indenture (which Sections would no longer be applicable to such Debt
Securities) or described in clause (vii) under "Events of Default, Notice and
Waiver" with respect to any other covenant as to which there has been covenant
defeasance, the amount in such currency, currency unit or composite currency in
which such Debt Securities are payable, and Government Obligations on deposit
with the applicable Trustee, will be sufficient to pay amounts due on such Debt
Securities at the time of their Stated Maturity but may not be sufficient to
pay amounts due on such Debt Securities at the time of the acceleration
resulting from such Event of Default. However, the Company would remain liable
to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the
provisions, if any, permitting such defeasance or covenant defeasance,
including any modifications to the provisions described above, with respect to
the Debt Securities of or within a particular series.
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Shares or Preferred Shares will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Shares or Preferred
Shares, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at the option of the
Holders or the Company, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of
such Debt Securities and any restrictions on conversion, including restrictions
directed at maintaining the Company's REIT status.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in
the form of one or more global securities (the "Global Securities") that will
be deposited with, or on behalf of, a depositary (the "Depositary") identified
in the applicable Prospectus Supplement relating to such series. Global
Securities may be issued in either registered or bearer form and in either
temporary or permanent form. The specific terms of the depositary arrangement
with respect to a series of Debt Securities will be described in the applicable
Prospectus Supplement relating to such series. The laws of some jurisdictions
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such laws may impair the ability to transfer
beneficial interests in Debt Securities represented by Global Securities.
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DESCRIPTION OF PREFERRED SHARES
GENERAL
The Company is authorized to issue 10,000,000 preferred shares of
beneficial interest, $.03 par value per share (the "Preferred Shares"), of
which no Preferred Shares were outstanding at August 31, 1996.
The following description of the Preferred Shares sets forth certain
general terms and provisions of the Preferred Shares to which any Prospectus
Supplement may relate. The statements below describing the Preferred Shares are
in all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Restated Declaration of Trust, as
amended (the "Declaration of Trust") and Bylaws and applicable statement of
designations (the "Statement of Designations").
TERMS
Subject to the limitations prescribed by the Declaration of Trust, the
Board of Trust Managers is authorized to fix the number of shares constituting
each series of Preferred Shares and the designations, preferences, conversion,
exchange or other rights, participations, voting powers, options, restrictions,
limitations, special rights or relations, limitations as to dividends,
qualifications, terms and conditions of redemption and such other subjects or
matters as may be fixed by resolution of the Board of Trust Managers. The
Preferred Shares will, when issued, be fully paid and nonassessable by the
Company (except as described under "Shareholder Liability" below) and will have
no preemptive rights.
Reference is made to the Prospectus Supplement relating to the
Preferred Shares offered thereby for specific terms, including:
1. The title and stated value of such Preferred Shares;
2. The number of such Preferred Shares offered, the liquidation
preference per share and the offering price of such Preferred
Shares;
3. The dividend rate(s), period(s) and/or payment date(s) or
method(s) of calculation thereof applicable to such Preferred
Shares;
4. The date from which dividends on such Preferred Shares shall
accumulate, if applicable;
5. The procedures for any auction and remarketing, if any, for
such Preferred Shares;
6. The provision for a sinking fund, if any, for such Preferred
Shares;
7. The provision for redemption, if applicable, of such Preferred
Shares;
8. Any listing of such Preferred Shares on any securities
exchange;
9. The terms and conditions, if applicable, upon which such
Preferred Shares will be convertible into Common Shares of the
Company, including the conversion price (or manner of
calculation thereof);
10. Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Shares;
11. A discussion of federal income tax considerations applicable
to such Preferred Shares;
12. The relative ranking and preferences of such Preferred Shares
as to dividend rights and rights upon liquidation, dissolution
or winding up of the affairs of the Company;
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13. Any limitations on issuance of any series of Preferred Shares
ranking senior to or on a parity with such series of Preferred
Shares as to dividend rights and rights upon liquidation,
dissolution or winding up of the affairs of the Company; and
14. Any limitations on direct or beneficial ownership and
restriction on transfer, in each case as may be appropriate to
preserve the status of the Company as a REIT.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Shares will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Shares or other Capital Shares of the Company, and to all
equity securities ranking junior to such Preferred Shares, (ii) on a parity
with all equity securities issued by the Company, the terms of which
specifically provide that such equity securities rank on a parity with the
Preferred Shares, and (iii) junior to all equity securities issued by the
Company, the terms of which specifically provide that such equity securities
rank senior to the Preferred Shares. The term "equity securities" does not
include convertible debt securities.
DIVIDENDS
Holders of the Preferred Shares of each series will be entitled to
receive, when, as and if declared by the Board of Trust Managers of the
Company, out of assets of the Company legally available for payment, cash
dividends at such rates and on such dates as will be set forth in the
applicable Prospectus Supplement. Each such dividend shall be payable to
Holders of record as they appear on the share transfer books of the Company on
such record dates as shall be fixed by the Board of Trust Managers of the
Company.
Dividends on any series of the Preferred Shares may be cumulative or
noncumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Trust Managers of the Company
fails to declare a dividend payable on a dividend payment date on any series of
the Preferred Shares for which dividends are noncumulative, then the holders of
such series of the Preferred Shares will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If Preferred Shares of any series are outstanding, no dividends will
be declared or paid or set apart for payment on the Preferred Shares of the
Company of any other series ranking, as to dividends, on a parity with or
junior to the Preferred Shares of such series for any period unless (i) if such
series of Preferred Shares has a cumulative dividend, full cumulative dividends
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Preferred
Shares of such series for all past dividend periods and the then current
dividend period or (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends for the then current dividend period have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Preferred
Shares of such series. When dividends are not paid in full (or a sum sufficient
for such full payment is not so set apart) upon Preferred Shares of any series
and the shares of any other series of Preferred Shares ranking on a parity as
to dividends with the Preferred Shares of such series, all dividends declared
upon Preferred Shares of such series and any other series of Preferred Shares
ranking on a parity as to dividends with such Preferred Shares shall be
declared pro rata so that the amount of dividends declared per Preferred Share
of such series and such other series of Preferred Shares shall in all cases
bear to each other the same ratio that accrued dividends per share on the
Preferred Shares of such series (which shall not include any accumulation in
respect of unpaid dividends for prior dividend periods if such Preferred Shares
do not have a cumulative dividend) and such other series of Preferred Shares
bear to each other. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on Preferred Shares of
such series which may be in arrears.
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Except as provided in the immediately preceding paragraph, unless (i)
if such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period and (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends on the Preferred Shares of such series have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for the then current
dividend period, no dividends (other than in Common Shares or other Capital
Shares ranking junior to the Preferred Shares of such series as to dividends
and upon liquidation) shall be declared or paid or set aside for payment or
other distribution shall be declared or made upon the Common Shares, or any
other Capital Shares of the Company ranking junior to or on a parity with the
Preferred Shares of such series as to dividends or upon liquidation, nor shall
any Common Shares, or any other Capital Shares of the Company ranking junior to
or on a parity with the Preferred Shares of such series as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any consideration
(or any moneys be paid to or made available for a sinking fund for the
redemption of any such shares) by the Company (except by conversion into or
exchange for such Capital Shares of the Company ranking junior to the Preferred
Shares of such series as to dividends and upon liquidation).
Any dividend payment made on shares of a series of Preferred Shares
shall first be credited against the earliest accrued but unpaid dividend due
with respect to shares of such series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred
Shares will be subject to mandatory redemption or redemption at the option of
the Company, as a whole or in part, in each case upon the terms, at the times
and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares
that is subject to mandatory redemption will specify the number of such
Preferred Shares that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon
(which shall not, if such Preferred Shares do not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in cash
or other property, as specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred
Shares has a cumulative dividend, full cumulative dividends on all shares of
any series of Preferred Shares shall have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for all past dividend periods and the then current dividend
period and (ii) if such series of Preferred Shares does not have a cumulative
dividend, full dividends on the Preferred Shares of any series have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for the then current dividend period,
no shares of any series of Preferred Shares shall be redeemed unless all
outstanding Preferred Shares of such series are simultaneously redeemed;
provided, however, that the foregoing shall not prevent the purchase or
acquisition of Preferred Shares of such series to preserve the REIT status of
the Company or pursuant to a purchase or exchange offer made on the same terms
to holders of all outstanding Preferred Shares of such series, and, unless (i)
if such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on all outstanding shares of any series of Preferred Shares have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof set apart for payment for all past dividend periods and the
then current dividend period and (ii) if such series of Preferred Shares does
not have a cumulative dividend, full dividends on the Preferred Shares of any
series have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for payment for the then
current dividend period, the Company shall not purchase or otherwise acquire
directly or indirectly any Preferred Shares of such series (except by
conversion into or exchange for Capital Shares of the Company ranking junior to
the Preferred Shares of such series as to dividends and upon liquidation);
provided, however, that the foregoing shall not prevent the purchase or
acquisition of Preferred Shares of such series to preserve the REIT status of
the Company or pursuant to a purchase or exchange offer made on the same terms
to holders of all outstanding Preferred Shares of such series.
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If fewer than all of the outstanding Preferred Shares of any series
are to be redeemed, the number of Preferred Shares to be redeemed will be
determined by the Company and such shares may be redeemed pro rata from the
holders of record of such shares in proportion to the number of such shares
held by such holders (with adjustments to avoid redemption of fractional
shares) or by lot in a manner determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the redemption date to each holder of record of Preferred Shares
of any series to be redeemed at the address shown on the share transfer books
of the Company. Each notice shall state: (i) the redemption date; (ii) the
number of shares and series of the Preferred Shares to be redeemed; (iii) the
redemption price; (iv) the place or places where certificates for such
Preferred Shares are to be surrendered for payment of the redemption price; (v)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date; and (vi) the date upon which the holder's conversion rights,
if any, as to such shares will terminate. If fewer than all of the Preferred
Shares of any series are to be redeemed, the notice mailed to each such holder
thereof shall also specify the number of Preferred Shares to be redeemed from
each such holder. If notice of redemption of any Preferred Shares has been
given and if the funds necessary for such redemption have been set aside by the
Company in trust for the benefit of the holders of any Preferred Shares so
called for redemption, then from and after the redemption date dividends will
cease to accrue on such Preferred Shares, and all rights of the holders of such
shares will terminate, except the right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company, then, before any distribution or payment
shall be made to the holders of any Common Shares, excess shares or any other
class or series of Capital Shares of the Company ranking junior to the
Preferred Shares in the distribution of assets upon any liquidation,
dissolution or winding up of the Company, the holders of each series of
Preferred Shares shall be entitled to receive out of assets of the Company
legally available for distribution to shareholders liquidating distributions in
the amount of the liquidation preference per share (set forth in the applicable
Prospectus Supplement), plus an amount equal to all dividends accrued and
unpaid thereon (which shall not include any accumulation in respect of unpaid
dividends for prior dividend periods if such Preferred Shares do not have a
cumulative dividend). After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Preferred Shares will
have no right or claim to any of the remaining assets of the Company. In the
event that, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the available assets of the Company are insufficient to pay the
amount of the liquidating distributions on all outstanding Preferred Shares and
the corresponding amounts payable on all shares of other classes or series of
Capital Shares of the Company ranking on a parity with the Preferred Shares in
the distribution of assets, then the holders of the Preferred Shares and all
other such classes or series of Capital Shares shall share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all
holders of Preferred Shares, the remaining assets of the Company shall be
distributed among the holders of any other classes or series of Capital Shares
ranking junior to the Preferred Shares upon liquidation, dissolution or winding
up, according to their respective rights and preferences and in each case
according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other corporation,
trust or entity, or the sale, lease or conveyance of all or substantially all
of the property or business of the Company, shall not be deemed to constitute a
liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Shares will not have any voting rights,
except as set forth below or as otherwise from time to time required by law or
as indicated in the applicable Prospectus Supplement.
Whenever dividends on any Preferred Shares shall be in arrears for six
consecutive quarterly periods, the holders of such Preferred Shares (voting
separately as a class with all other series of Preferred Shares upon which like
voting rights have been conferred and are exercisable) will be entitled to vote
for the election of two additional Trust Managers of the Company at the next
annual meeting of shareholders and at each subsequent meeting until (i) if such
series of Preferred Shares has a cumulative dividend, all dividends accumulated
on such series of
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Preferred Shares for the past dividend periods and the then current dividend
period shall have been fully paid or declared and a sum sufficient for the
payment thereof set aside for payment or (ii) if such series of Preferred
Shares does not have a cumulative dividend, four consecutive quarterly
dividends shall have been fully paid or declared and a sum sufficient for the
payment thereof set aside for payment. In such case, the entire Board of Trust
Managers of the Company will be increased by two Trust Managers.
Unless provided otherwise for any series of Preferred Shares, so long
as any Preferred Shares remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of two-thirds of the shares of each
series of Preferred Shares outstanding at the time, given in person or by
proxy, either in writing or at a meeting (such series voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount
of, any class or series of Capital Shares ranking prior to such series of
Preferred Shares with respect to the payment of dividends or the distribution
of assets upon liquidation, dissolution or winding up or reclassify any
authorized Capital Shares of the Company into any such shares, or create,
authorize or issue any obligation or security convertible into or evidencing
the right to purchase any such shares, or (ii) amend, alter or repeal the
provisions of the Company's Declaration of Trust or the Statement of
Designations for such series of Preferred Shares, whether by merger,
consolidation or otherwise (an "Event"), so as to materially and adversely
affect any right, preference, privilege or voting power of such series of
Preferred Shares or the holders thereof; provided, however, with respect to the
occurrence of any of the Events set forth in (ii) above, so long as the
Preferred Shares remain outstanding with the terms thereof materially
unchanged, taking into account that upon the occurrence of an Event, the
Company may not be the surviving entity, the occurrence of any such Event shall
not be deemed to materially and adversely affect such rights, preferences,
privileges or voting power of holders of Preferred Shares and provided further
that (A) any increase in the amount of the authorized Preferred Shares or the
creation or issuance of any other series of Preferred Shares, or (B) any
increase in the number of authorized shares of such series or any other series
of Preferred Shares, in each case ranking on a parity with or junior to the
Preferred Shares of such series with respect to the payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up, shall not
be deemed to materially and adversely affect such rights, preferences,
privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the
time when the act with respect to which such vote would otherwise be required
shall be effected, all outstanding shares of such series of Preferred Shares
shall have been redeemed or called for redemption and sufficient funds shall
have been deposited in trust to effect such redemption.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred
Shares are convertible into Common Shares will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include the number of
Common Shares into which the Preferred Shares are convertible, the conversion
price (or manner of calculation thereof), the conversion period, provisions as
to whether conversion will be at the option of the holders of the Preferred
Shares or the Company, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of
such Preferred Shares.
SHAREHOLDER LIABILITY
As discussed below under "Description of Common Shares -- Shareholder
Liability," the Declaration of Trust provides that no shareholder, including
holders of Preferred Shares, shall be personally liable for the acts and
obligations of the Company and that the funds and property of the Company shall
be solely liable for such acts or obligations. The Declaration of Trust
provides that, to the extent practicable, each written instrument creating an
obligation of the Company shall contain a provision to that effect. By statute,
the State of Texas provides limited liability for shareholders of a REIT
organized under the Texas Real Estate Investment Trust Act (the "REIT Act").
However, certain jurisdictions may not recognize the limited liability provided
shareholders under the REIT Act and, therefore, a shareholder may be held
personally liable to the extent that such claims are not satisfied by the
Company. Because of the uncertainty that may exist in the laws of certain
states in which the Company owns property or conducts business, wholly owned
subsidiary corporations are utilized to own properties in such states. The
Bylaws of the Company provide for indemnification of shareholders by the
Company for any liabilities incurred in such capacity. The Company carries
public liability insurance that the Trust Managers consider adequate. Thus,
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any risk of personal liability to shareholders is limited to situations in
which the Company's assets plus its insurance coverage would be insufficient to
satisfy the claims against the Company and its shareholders. The Company
believes that its operations have been conducted and will continue to be
conducted in such a way so as to avoid, as far as possible, ultimate liability
of the shareholders for liabilities of the Company.
RESTRICTIONS ON OWNERSHIP
As discussed below under "Description of Common Shares -- REIT
Qualification," for the Company to qualify as a REIT under the Internal Revenue
Code of 1986, as amended (the "Code"), not more than 50% in value of its
outstanding Capital Shares may be owned, directly or constructively, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year. To assist the Company in meeting this
requirement, the Company may take certain other actions to limit the beneficial
ownership, directly or indirectly, by a single person to not more than 9.8% of
the Company's outstanding equity securities, including any Preferred Shares of
the Company. Therefore, the Statement of Designations for each series of
Preferred Shares will contain certain provisions restricting the ownership and
transfer of the Preferred Shares. The applicable Prospectus Supplement will
specify any additional ownership limitation relating to a series of Preferred
Shares.
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DESCRIPTION OF COMMON SHARES
GENERAL
The Common Shares are issued pursuant to the Declaration of Trust. The
Common Shares, par value $.03 per share, are equal with respect to distribution
and liquidation rights, are not convertible, have no preemptive rights to
subscribe for additional Common Shares, are nonassessable (except as described
under "Shareholder Liability" below) and are transferable in the same manner as
shares of a corporation. Each shareholder is entitled to one vote in person or
by proxy for each Common Share registered in his name and has the right to vote
on the election or removal of Trust Managers, amendments to the Declaration of
Trust, proposals to terminate, reorganize, merge or consolidate the Company or
to sell or dispose of substantially all of the Company's property and with
respect to certain business combinations. The Company will have perpetual
existence unless and until dissolved and terminated. Except with respect to the
foregoing matters, no action taken by the shareholders at any meeting shall in
any way bind the Trust Managers. The Common Shares offered by the Company will
be, when issued, fully paid and nonassessable (except as described under
"Shareholder Liability" below).
Several provisions in the Declaration of Trust may have the effect of
deterring a take-over of the Company. These provisions restrict ownership of
the Company's outstanding equity securities by a single person to not more than
9.8% of such securities to assist in protecting and preserving the
qualification of the Company as a REIT under the Code and include a "fair
price" provision that would deter a "two-stage" take-over transaction by
requiring an 80% vote of outstanding securities entitled to vote thereon for
certain defined "business combinations" with shareholders owning more than 50%
of the equity securities considered for such purposes if the transaction is
neither approved by the Board of Trust Managers nor meets certain price and
procedural conditions.
REIT QUALIFICATION
The Company operates in a manner intended to qualify it for treatment
as a REIT under Sections 856 through 860 of the Code. In general, a REIT that
distributes to its shareholders at least 95% of its taxable income (other than
net capital gain) for a taxable year and that meets certain other conditions
will not be taxed on income (including net capital gain) distributed for that
year. If the Company fails to qualify as a REIT in any taxable year, it will be
taxed as a corporation for that year, and distributions to its shareholders
will not be deductible by the Company in computing its taxable income. In such
case, the Company will likely be disqualified from being treated as a REIT for
the ensuing four taxable years. Failure to qualify as a REIT could result in
the Company incurring indebtedness and perhaps liquidating investments in order
to pay its taxes, and could have a material adverse effect upon the market
price of the Company's outstanding securities.
Among the requirements which must be met in order for the Company to
qualify as a REIT is that no more than 50% in value of the outstanding capital
shares, including in some circumstances capital shares into which outstanding
securities (including the Securities) might be converted, may be owned actually
or constructively by five or fewer individuals or certain other entities at any
time during the last half of the Company's taxable year. To assist the Company
in meeting this requirement, the Declaration of Trust limits persons to
ownership of not more than 9.8% of the outstanding equity securities of the
Company, including Common Shares. For purposes of such ownership limit,
convertible securities (whether in registered or bearer form) are treated as if
such securities had been converted in calculating the ownership limit. The
Declaration of Trust provides that any attempted transfer of Common Shares or
Preferred Shares that would cause a person to exceed the limit shall be null
and void. However, because the Code imposes broad attribution rules in
determining constructive ownership, no assurance can be given that the
restrictions of the Declaration of Trust will be effective in maintaining the
Company's REIT status. Further, owners of more than 6.5% of the Common Shares
as of January 19, 1988 (currently only Stanford Alexander, who at August 31,
1996 beneficially owned approximately 7.8% of the outstanding Common Shares)
are exempted from the limit. Without shareholder approval, the Company may
issue an unlimited number of securities, warrants, rights or other options to
purchase Common Shares and other securities convertible into Common Shares.
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SHAREHOLDER LIABILITY
The Declaration of Trust provides that no shareholder shall be
personally liable for the acts and obligations of the Company and that the
funds and property of the Company shall be solely liable for such acts or
obligations. The Declaration of Trust provides that, to the extent practicable,
each written instrument creating an obligation of the Company shall contain a
provision to that effect. By statute, the State of Texas provides limited
liability for shareholders of a REIT organized under the REIT Act. However,
certain jurisdictions may not recognize the limited liability provided
shareholders under the REIT Act and, therefore, a shareholder may be held
personally liable to the extent that such claims are not satisfied by the
Company. Because of the uncertainty that may exist in the laws of certain
states in which the Company owns property or conducts business, wholly-owned
subsidiary corporations are utilized to own properties in such states. The
Bylaws of the Company provide for indemnification of shareholders by the
Company for any liabilities incurred in such capacity. The Company carries
public liability insurance that the Trust Managers consider adequate. Thus, any
risk of personal liability to shareholders is limited to situations in which
the Company's assets plus its insurance coverage would be insufficient to
satisfy the claims against the Company and its shareholders. The Company
believes that its operations have been conducted and will continue to be
conducted in such a way so as to avoid, as far as possible, ultimate liability
of the shareholders for liabilities of the Company.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Common Shares is Society
National Bank, Cleveland, Ohio. The Common Shares are listed on the New York
Stock Exchange (Symbol: WRI).
DESCRIPTION OF SECURITIES WARRANTS
The Company may issue Securities Warrants (which may include
subscription rights distributed to the Company's shareholders) for the purchase
of Debt Securities, Preferred Shares or Common Shares. Securities Warrants may
be issued independently or together with any other Securities offered by any
Prospectus Supplement and may be attached to or separate from such Securities.
Each series of Securities Warrants will be issued under a separate warrant
agreement (each, a "Warrant Agreement") to be entered into between the Company
and a warrant agent specified in the applicable Prospectus Supplement (the
"Warrant Agent"). The Warrant Agent will act solely as an agent of the Company
in connection with the Securities Warrants of such series and will not assure
any obligation or relationship of agency or trust for or with any holders or
beneficial owners of Securities Warrants. The following summaries of certain
provisions of the Warrant Agreement and the Securities Warrants do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all the provisions of the Warrant Agreement and the Securities
Warrant certificates relating to each series of Securities Warrants which will
be filed with the Commission and incorporated by reference as an exhibit to the
Registration Statement of which this Prospectus is a part at or prior to the
time of the issuance of such series of Securities Warrants.
If Securities Warrants are offered, the applicable Prospectus
Supplement will describe the terms of such Securities Warrants, including, in
the case of Securities Warrants for the purchase of Debt Securities, the
following where applicable: (i) the offering price; (ii) the denominations and
terms of the series of Debt Securities purchasable upon exercise of such
Securities Warrants; (iii) the designation and terms of any series of Debt
Securities with which such Securities Warrants are being offered and the number
of such Securities Warrants being offered with such Debt Securities; (iv) the
date, if any, on and after which such Securities Warrants and the related
series of Debt Securities will be transferable separately; (v) the principal
amount of the series of Debt Securities purchasable upon exercise of each such
Securities Warrant and the price at which such principal amount of Debt
Securities of such series may be purchased upon such exercise; (vi) the date on
which the right to exercise such Securities Warrants shall commence and the
date on which such right shall expire (the "Expiration Date"); (vii) whether
the Securities Warrants will be issued in registered or bearer form; (viii) any
special United States federal income tax consequences; (ix) the terms, if any,
on which the Company may accelerate the date by which the Securities Warrants
must be exercised; and (x) any other material terms of such Securities
Warrants.
In the case of Securities Warrants for the purchase of Preferred
Shares or Common Shares, the applicable Prospectus Supplement will describe the
terms of such Securities Warrants, including the following where
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applicable: (i) the offering price; (ii) the aggregate number of shares
purchasable upon exercise of such Securities Warrants, the exercise price, and
in the case of Securities Warrants for Preferred Shares, the designation,
aggregate number and terms of the series of Preferred Shares purchasable upon
exercise of such Securities Warrants; (iii) the designation and terms of any
series of Preferred Shares with which such Securities Warrants are being
offered and the number of such Securities Warrants being offered with such
Preferred Shares; (iv) the date, if any, on and after which such Securities
Warrants and the related series of Preferred Shares or Common Shares will be
transferable separately; (vi) any special United States federal income tax
consequences; and (vii) any other material terms of such Securities Warrants.
Securities Warrant certificates may be exchanged for new Securities
Warrant certificates of different denominations, may (if in registered form) be
presented for registration of transfer, and may be exercised at the corporate
trust office of the Warrant Agent or any other office indicated in the
applicable Prospectus Supplement. Prior to the exercise of any Securities
Warrant to purchase Debt Securities, holders of such Securities Warrants will
not have any of the rights of holders of the Debt Securities purchasable upon
such exercise, including the right to receive payments of principal, premium,
if any, or interest, if any, on such Debt Securities or to enforce covenants in
the applicable indenture. Prior to the exercise of any Securities Warrants to
purchase Preferred Shares or Common Shares, holders of such Securities Warrants
will not have any rights of holders of such Preferred Shares or Common Shares,
including the right to receive payments of dividends, if any, on such Preferred
Shares or Common Shares, or to exercise any applicable right to vote.
EXERCISE OF SECURITIES WARRANTS
Each Securities Warrant will entitle the holder thereof to purchase
such principal amount of Debt Securities or number of Preferred Shares or
Common Shares, as the case may be, at such exercise price as shall in each case
be set forth in, or calculable from, the Prospectus Supplement relating to the
offered Securities Warrants. After the close of business on the Expiration
Date (or such later date to which such Expiration Date may be extended by the
Company), unexercised Securities Warrants will become void.
Securities Warrants may be exercised by delivering to the Warrant
Agent payment as provided in the applicable Prospectus Supplement of the amount
required to purchase the Debt Securities, Preferred Shares or Common Shares, as
the case may be, purchasable upon such exercise together with certain
information set forth on the reverse side of the Securities Warrant
certificate. Securities Warrants will be deemed to have been exercised upon
receipt of payment of the exercise price, subject to the receipt within five
(5) business days, of the Securities Warrant certificate evidencing such
Securities Warrants. Upon receipt of such payment and the Securities Warrant
certificate properly completed and duly executed at the corporate trust office
of the Warrant Agent or any other office indicated in the applicable Prospectus
Supplement, the Company will, as soon as practicable, issue and deliver the
Debt Securities, Preferred Shares or Common Shares, as the case may be,
purchasable upon such exercise. If fewer than all of the Securities Warrants
represented by such Securities Warrant certificate are exercised, a new
Securities Warrant certificate will be issued for the remaining amount of
Securities Warrants.
AMENDMENTS AND SUPPLEMENTS TO WARRANT AGREEMENT
The Warrant Agreements may be amended or supplemented without the
consent of the holders of the Securities Warrants issued thereunder to effect
changes that are not inconsistent with the provisions of the Securities
Warrants and that do not adversely affect the interests of the holders of the
Securities Warrants.
COMMON SHARES WARRANT ADJUSTMENTS
Unless otherwise indicated in the applicable Prospectus Supplement,
the exercise price of, and the number of Common Shares covered by, a Common
Shares Warrant are subject to adjustment in certain events, including (i)
payment of a dividend on the Common Shares payable in shares of beneficial
interest, share splits, combinations or reclassification of the Common Shares;
(ii) issuance to all holders of Common Shares of rights or warrants to
subscribe for or purchase Common Shares at less than their current market
price; and (iii) certain distributions of evidences of indebtedness or assets
(including securities but excluding cash dividends or distributions paid out of
consolidated earnings or retained earnings or dividends payable in Common
Shares) or of subscription rights and
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warrants (excluding those referred to above).
No adjustment in the exercise price of, and the number of Common
Shares covered by, a Common Shares Warrant will be made for regular quarterly
or other periodic or recurring cash dividends or distributions or for cash
dividends or distributions to the extent paid from consolidated earnings or
retained earnings. No adjustment will be required unless such adjustment would
cause a change of at least 1% in the exercise price then in effect. Except as
stated above, the exercise price of, and the number of Common Shares covered
by, a Common Shares Warrant will not be adjusted for the issuance of (i) Common
Shares, (ii) any securities convertible into or exchangeable for Common Shares,
or (iii) any securities carrying the right or option to purchase or otherwise
acquire Common Shares, in exchange for cash, other property or services.
In the event of any (i) consolidation or merger of the Company with or
into any entity (other than a consolidation or a merger that does not result in
any reclassification, conversion, exchange or cancellation of outstanding
Common Shares); (ii) sale, transfer, lease or conveyance of all or
substantially all of the assets of the Company; or (iii) reclassification,
capital reorganization or change of the Common Shares (other than solely a
change in par value or from par value to no par value), then any holder of a
Common Shares Warrant will be entitled, on or after the occurrence of any such
event, to receive on exercise of such Common Shares Warrant the kind and amount
of shares of stock or other securities, cash or other property (or any
combination thereof) that the holder would have received had such holder
exercised such holder's Common Shares Warrant immediately prior to the
occurrence of such event. If the consideration to be received upon exercise of
the Common Shares Warrant following any such event consists of common stock of
the surviving entity, then from and after the occurrence of such event, the
exercise price of such Common Shares Warrant will be subject to the same
anti-dilution and other adjustments described in the second preceding
paragraph, applied as if such common stock were Common Shares.
PLAN OF DISTRIBUTION
The Company may sell Securities to or through one or more underwriters
for public offering and sale, or may also sell Securities directly to other
purchasers or through agents in exchange for cash or other consideration
(including real properties) as may be specified in the applicable Prospectus
Supplement. Direct sales to purchasers may also be accomplished through
subscription rights distributed to the Company's shareholders. In connection
with distribution of subscription rights to shareholders, if all of the
underlying Securities are not subscribed for, the Company may sell such
unsubscribed Securities directly to third parties or may engage the services of
underwriters to sell such unsubscribed Securities to third parties as may be
specified in the applicable Prospectus Supplement. Any underwriter or agent
involved in the offer and sale of the Securities will be named in the
applicable Prospectus Supplement.
The distribution of the Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed,
or at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices (any of which may represent a
discount from the prevailing market prices). The Company also may offer and
sell the Securities in exchange for one or more of its then outstanding issues
of debt or convertible debt securities. The Company also may, from time to
time, authorize underwriters acting as the Company's agents to offer and sell
the Securities upon the terms and conditions set forth in the applicable
Prospectus Supplement.
In connection with the sale of Securities, underwriters may receive or
be deemed to have received compensation from the Company or from purchasers of
Securities, for whom they may act as agents, in the form of discounts,
concessions, or commissions. Underwriters may sell Securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters and/or commissions from the
purchasers for whom they may act as agents. Underwriters, dealers and agents
that participate in the distribution of Securities may be deemed to be
underwriters, and any discounts or commissions they receive from the Company,
and any profit on the resale of Securities they realize may be deemed to be
underwriting discounts and commissions under the Securities Act. Any such
underwriter or agent will be identified, and any such compensation received
from the Company will be described, in the applicable Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, each
series of Securities will be a new
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issue with no established trading market, other than the Common Shares which
are listed on the New York Stock Exchange. Any Common Shares sold pursuant to
a Prospectus Supplement will be listed on such exchange, subject to official
notice of issuance. The Company may elect to list any series of Debt Securities
or Preferred Shares on an exchange, but is not obligated to do so. It is
possible that one or more underwriters may make a market in a series of
Securities, but will not be obligated to do so and may discontinue any market
making at any time without notice. Therefore, no assurance can be given as to
the liquidity of the trading market for the Securities.
Under agreements the Company may enter into, underwriters, dealers and
agents who participate in the distribution of Securities may be entitled to
indemnification by the Company against certain liabilities, including
liabilities under the Securities Act.
Underwriters, dealers and agents may engage in transactions with, or
perform services for, or be customers of, the Company in the ordinary course of
business.
If so indicated in the Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Securities from the Company
pursuant to contracts providing for payment and delivery on a future date.
Each contract will be for an amount not less than, and the aggregate principal
amount of Securities sold pursuant to contracts shall be not less or more than,
the respective amounts stated in the applicable Prospectus Supplement.
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, but in all cases such
institutions must be approved by the Company. The obligations of any purchaser
under any such contract will be subject to the condition that (i) the purchase
of the Securities shall not at the time of delivery be prohibited under the
laws of the jurisdiction to which such purchaser is subject and (ii) if the
Securities are being sold to underwriters, the Company shall have sold to such
underwriters the total principal amount of the Securities less the principal
amount thereof covered by contracts. The underwriters and such other agents
will not have any responsibility in respect of the validity or performance of
such contracts.
LEGAL OPINIONS
The legality of the Securities offered hereby as well as certain
federal income tax matters will be passed upon for the Company by Liddell,
Sapp, Zivley, Hill & LaBoon, L.L.P., 2200 Ross Avenue, Suite 900, Dallas,
Texas 75201.
EXPERTS
The consolidated financial statements and related financial statement
schedules incorporated in this Prospectus by reference from the Company's
Annual Report on Form 10-K for the year ended December 31, 1995, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report which is incorporated herein by reference, and have been so incorporated
in reliance upon the reports of such firm given upon their authority as experts
in accounting and auditing.
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================================================================================
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN ANY
PRICING SUPPLEMENT, THIS PROSPECTUS SUPPLEMENT, OR THE PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. ANY PRICING SUPPLEMENT, THIS PROSPECTUS SUPPLEMENT, AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE NOTES DESCRIBED IN THIS PROSPECTUS
SUPPLEMENT. ANY PRICING SUPPLEMENT, THIS PROSPECTUS SUPPLEMENT, AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY SUCH NOTES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF ANY PRICING SUPPLEMENT, THIS PROSPECTUS
SUPPLEMENT, OR THE PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED OR INCORPORATED BY REFERENCE HEREIN OR THEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
--------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT PAGE
<TABLE>
<S> <C>
DESCRIPTION OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
CERTAIN INVESTMENT CONSIDERATIONS
RELATING TO INDEXED NOTES . . . . . . . . . . . . . . . . . . . .S-20
CERTAIN INVESTMENT CONSIDERATIONS
RELATING TO FOREIGN CURRENCY NOTES . . . . . . . . . . . . . . . .S-21
UNITED STATES TAXATION . . . . . . . . . . . . . . . . . . . . . . . . . .S-24
SUPPLEMENTAL PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . .S-34
VALIDITY OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-35
PROSPECTUS
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . 2
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
CERTAIN RATIOS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
DESCRIPTION OF DEBT SECURITIES . . . . . . . . . . . . . . . . . . . . . . 4
DESCRIPTION OF PREFERRED SHARES . . . . . . . . . . . . . . . . . . . . . . 16
DESCRIPTION OF COMMON SHARES . . . . . . . . . . . . . . . . . . . . . . . 22
DESCRIPTION OF SECURITIES WARRANTS . . . . . . . . . . . . . . . . . . . . 23
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
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$150,000,000
WEINGARTEN REALTY
INVESTORS
MEDIUM-TERM NOTES,SERIES A
DUE 9 MONTHS OR MORE
FROM DATE OF ISSUE
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GOLDMAN, SACHS & CO.
ALEX. BROWN & SONS
INCORPORATED
CHASE SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS
MERRILL LYNCH & CO.
J.P. MORGAN & CO.
NATIONSBANC CAPITAL MARKETS, INC.
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