<PAGE>
Filed pursuant to Rule 424(b)(5)
Registration No.: 333-8077
PROSPECTUS SUPPLEMENT
(To Prospectus dated October 28, 1996)
$100,000,000
WELLSFORD RESIDENTIAL PROPERTY TRUST
Medium-Term Notes
Due Nine Months or More from Date of Issue
Wellsford Residential Property Trust (the 'Company') may offer from time to time
up to $100,000,000 aggregate initial offering price, or the equivalent thereof
in one or more foreign or composite currencies, of its Medium-Term Notes Due
Nine Months or More from Date of Issue (the 'Notes'). Such aggregate initial
offering price is subject to reduction as a result of the sale by the Company of
other Offered Securities described in the accompanying Prospectus. Each Note
will mature on any day nine months or more from the date of issue, as specified
in the applicable pricing supplement hereto (each, a 'Pricing Supplement'), and
may be subject to redemption at the option of the Company or repayment at the
option of the Holder thereof, in each case, in whole or in part, prior to its
Stated Maturity Date, as specified in the applicable Pricing Supplement. In
addition, each Note may be denominated and/or payable in United States dollars
or a foreign or composite currency ('Foreign Currency Notes'), as specified in
the applicable Pricing Supplement. The Notes, other than Foreign Currency Notes,
will be issued in minimum denominations of $1,000 and integral multiples
thereof, unless otherwise specified in the applicable Pricing Supplement, while
Foreign Currency Notes will be issued in the minimum denominations specified in
the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, Notes will bear
interest at fixed rates ('Fixed Rate Notes') or at floating rates ('Floating
Rate Notes'). The applicable Pricing Supplement will specify whether a Floating
Rate Note is a Regular Floating Rate Note, a Floating Rate/Fixed Rate Note or an
Inverse Floating Rate Note and whether the rate of interest thereon is
determined by reference to one or more of the CD Rate, the CMT Rate, the
Commercial Paper Rate, the Eleventh District Cost of Funds Rate, the Federal
Funds Rate, LIBOR, the Prime Rate or the Treasury Rate (each, an 'Interest Rate
Basis'), or any other interest rate basis or formula, as adjusted by any Spread
and/or Spread Multiplier. Interest on each Floating Rate Note will accrue from
its date of issue and, unless otherwise specified in the applicable Pricing
Supplement, will be payable monthly, quarterly, semiannually or annually in
arrears, as specified in the applicable Pricing Supplement, and on the Maturity
Date. Unless otherwise specified in the applicable Pricing Supplement, the rate
of interest on each Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually or annually, as specified in the applicable Pricing
Supplement. Interest on each Fixed Rate Note will accrue from its date of issue
and will be payable in arrears as specified in the applicable Pricing Supplement
and on the Maturity Date. Notes may also be issued that do not bear any interest
currently or that bear interest at a below market rate. See 'Description of
Notes.'
The interest rate, or formula for the determination of the interest rate,
applicable to each Note and the other variable terms thereof will be established
by the Company on the date of issue of such Note and will be specified in the
applicable Pricing Supplement. Interest rates or formulas and other terms of
Notes are subject to change by the Company, but no change will affect any Note
already issued or as to which an offer to purchase has been accepted by the
Company.
Each Note will be issued in fully registered book-entry form (a 'Book-Entry
Note') or in certificated form (a 'Certificated Note'), as specified in the
applicable Pricing Supplement. Each Book-Entry Note will be represented by one
or more fully registered global securities (the 'Global Securities') deposited
with or on behalf of The Depository Trust Company (the 'Depositary') and
registered in the name of the Depositary or the Depositary's nominee. Interests
in the Global Securities will be shown on, and transfers thereof will be
effected only through, records maintained by the Depositary (with respect to its
participants) and the Depositary's participants (with respect to beneficial
owners).
SEE 'RISK FACTORS' ON PAGE S-3 FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES OFFERED HEREBY.
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, THE PROSPECTUS OR ANY
PRICING SUPPLEMENT HERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<S> <C> <C> <C>
PRICE TO AGENTS' DISCOUNTS PROCEEDS TO
PUBLIC(1) AND COMPANY(1)(3)
COMMISSIONS(1)(2)
Per Note 100% .125% - .750% 99.875% - 99.250%
Total(4) $100,000,000 $125,000 - $750,000 $99,875,000 - $99,250,000
</TABLE>
(1) J.P. Morgan Securities Inc., Goldman, Sachs & Co., Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Smith Barney Inc. and
First Chicago Capital Markets, Inc. (the 'Agents') may purchase the Notes,
as principal, from the Company, for resale to investors and other purchasers
at varying prices relating to prevailing market prices at the time of resale
as determined by the applicable Agent, or, if so specified in the applicable
Pricing Supplement, for resale at a fixed offering price. 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 of the principal amount equal to
the commission applicable to an agency sale (as described below) of a Note
of identical maturity. If agreed to by the Company and an Agent, such Agent
may utilize its reasonable efforts on an agency basis to solicit offers to
purchase the Notes at 100% of the principal amount thereof, unless otherwise
specified in the applicable Pricing Supplement. If the Company issues any
Note at a discount from or at a premium over its principal amount, the Price
to Public of any Note issued at a discount or premium will be set forth in
the applicable Pricing Supplement. The Company will pay a commission to the
applicable Agent, ranging from .125% to .750% of the principal amount of any
Note, depending upon its stated maturity, sold through such Agent.
Commissions with respect to Notes with stated maturities in excess of 30
years that are sold through such Agent will be negotiated between the
Company and such Agent at the time of such sale. See 'Supplemental Plan of
Distribution.'
(2) The Company has agreed to indemnify the Agents against, and to provide
contribution with respect to, certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See 'Supplemental Plan of
Distribution.'
(3) Before deducting expenses payable by the Company estimated at $250,000.
(4) Or the equivalent thereof in one or more foreign or composite currencies.
The Notes are being offered on a continuous basis by the Company to or through
the Agents. 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 or that there will be liquidity in such market if
one develops. The Company reserves the right to cancel or modify the offer made
hereby without notice. The Company or an Agent, if it solicits the offer on an
agency basis, may reject any offer to purchase Notes in whole or in part. See
'Supplemental Plan of Distribution.'
J.P. MORGAN & CO.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
SMITH BARNEY INC.
FIRST CHICAGO CAPITAL MARKETS, INC.
October 28, 1996
<PAGE>
IN CONNECTION WITH THE OFFERING OF NOTES PURCHASED BY AN AGENT AS PRINCIPAL ON A
FIXED OFFERING PRICE, SUCH AGENT MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH
STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH NOTES AT A LEVEL ABOVE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
NO DEALER, SALESPERSON, OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING
SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE AGENTS. THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING 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 OFFERED HEREBY AND THEREBY OR AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH NOTES IN ANY
JURISDICTION BY ANY PERSONS NOT AUTHORIZED OR QUALIFIED TO MAKE SUCH OFFER OR
SOLICITATION OR TO ANY PERSONS TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE
PRICING 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 THEREOF OR THAT
THE INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE OF SUCH INFORMATION.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
<S> <C>
Risk Factors............................................................................................ S-3
Description of Notes.................................................................................... S-4
Special Provisions Relating to Foreign Currency Notes................................................... S-19
Certain United States Federal Income Tax Considerations................................................. S-21
Supplemental Plan of Distribution....................................................................... S-29
Legal Opinions.......................................................................................... S-30
PROSPECTUS
Available Information................................................................................... 2
Incorporation of Certain Documents by Reference......................................................... 2
The Company............................................................................................. 3
Use of Proceeds......................................................................................... 3
Description of Debt Securities.......................................................................... 4
Description of Preferred Shares......................................................................... 18
Description of Common Shares............................................................................ 24
Description of Warrants................................................................................. 26
Description of Rights................................................................................... 27
Federal Income Tax Considerations....................................................................... 27
Ratios of Earnings to Fixed Charges..................................................................... 33
Ratios of Earnings to Debt Service...................................................................... 34
Plan of Distribution.................................................................................... 34
ERISA Matters........................................................................................... 35
Legal Opinions.......................................................................................... 35
Experts................................................................................................. 35
</TABLE>
S-2
<PAGE>
RISK FACTORS
THIS PROSPECTUS SUPPLEMENT DOES NOT DESCRIBE ALL OF THE RISKS OF AN INVESTMENT
IN NOTES THAT RESULT FROM SUCH NOTES BEING DENOMINATED OR PAYABLE IN OR
DETERMINED BY REFERENCE TO A CURRENCY OR COMPOSITE CURRENCY OTHER THAN UNITED
STATES DOLLARS OR TO ONE OR MORE INTEREST RATE, CURRENCY OR OTHER INDICES OR
FORMULAS. THE COMPANY AND THE AGENTS DISCLAIM ANY RESPONSIBILITY TO ADVISE
PROSPECTIVE INVESTORS OF SUCH RISKS AS THEY EXIST AT THE DATE OF THIS PROSPECTUS
SUPPLEMENT OR AS THEY CHANGE FROM TIME TO TIME. EACH PROSPECTIVE INVESTOR SHOULD
CONSULT HIS OWN FINANCIAL AND LEGAL ADVISORS AS TO THE RISKS ENTAILED BY AN
INVESTMENT IN NOTES DENOMINATED OR PAYABLE IN OR DETERMINED BY REFERENCE TO A
CURRENCY OR COMPOSITE CURRENCY OTHER THAN UNITED STATES DOLLARS OR TO ONE OR
MORE INTEREST RATE, CURRENCY OR OTHER INDICES OR FORMULAS. SUCH NOTES ARE NOT AN
APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE UNSOPHISTICATED WITH RESPECT TO
FOREIGN CURRENCY TRANSACTIONS OR TRANSACTIONS INVOLVING THE APPLICABLE INTEREST
RATE INDEX OR CURRENCY INDEX OR OTHER INDICES OR FORMULAS.
STRUCTURE RISKS
An investment in Notes indexed, as to principal, premium, if any, and/or
interest, to one or more currencies or composite currencies (including exchange
rates and swap indices between currencies or composite currencies), commodities,
interest rates or other indices or formulas, either directly or inversely,
entails significant risks that are not associated with similar investments in a
conventional fixed rate or floating rate debt security. Such risks include,
without limitation, the possibility that any such index or formula may be
subject to significant changes, that the resulting interest rate will be less
than that payable on a conventional fixed rate or floating rate debt security
issued by the Company at the same time, that the repayment of principal and/or
premium, if any, can occur at times other than that expected by the investor,
and that the investor could lose all or a substantial portion of principal
and/or premium, if any, payable on the Maturity Date (as defined below). Such
risks depend on a number of interrelated factors, including economic, financial
and political events, over which the Company has no control. Additionally, if
the formula used to determine the amount of principal, premium, if any, and/or
interest payable with respect to such Notes contains a multiplier or leverage
factor, the effect of any change in the applicable index or indices or formula
or formulas will be magnified. In recent years, values of certain indices and
formulas have been highly volatile and such volatility may continue or increase
in the future. Fluctuations in the value of any particular index or formula that
have occurred in the past are not necessarily indicative, however, of
fluctuations that may occur in the future.
The secondary market for Notes will be affected by a number of factors
independent of the creditworthiness of the Company and the value of the
applicable index or indices or formula or formulas, including the complexity and
volatility of each such index or formula, the method of calculating the
principal, premium, if any, and/or interest in respect of such Notes, the time
remaining to the maturity of such Notes, the outstanding amount of such Notes,
any redemption features of such Notes, the amount of other debt securities
linked to such index or formula and the level, direction and volatility of
market interest rates generally. Such factors also will affect the market value
of such Notes. In addition, certain Notes may be designed for specific
investment objectives or strategies and, therefore, may have a more limited
secondary market and experience more price volatility than conventional debt
securities. Investors may not be able to sell such Notes readily or at prices
that will enable investors to realize their anticipated yield.
Any optional redemption feature of Notes might affect the market value of such
Notes. Since the Company may be expected to redeem such Notes when prevailing
interest rates are relatively low, an investor might not be able to reinvest the
redemption proceeds at an effective interest rate as high as the interest rate
on such Notes.
The Notes will not have an established trading market when issued, and there can
be no assurance of a secondary market for the Notes or the liquidity of such
market if one develops. See 'Supplemental Plan of Distribution.'
S-3
<PAGE>
No investor should purchase Notes unless such investor understands and is able
to bear the risk that such Notes may not be readily saleable, that the value of
Notes will fluctuate over time and that such fluctuations may be significant.
CREDIT RATINGS
The credit ratings assigned to the Company's medium-term note program may not
reflect the potential impact of all risks related to structure and other factors
on the value of the Notes. Accordingly, prospective investors should consult
their own financial and legal advisors as to the risks entailed by an investment
in the Notes and the suitability of such Notes in light of their particular
circumstances.
EXCHANGE RATES AND EXCHANGE CONTROLS
An investment in Foreign Currency Notes (as defined below) entails significant
risks that are not associated with a similar investment in a debt security
denominated and payable in United States dollars. Such risks include, without
limitation, the possibility of significant changes in the rate of exchange
between the United States dollar and the applicable foreign currency or
composite currency and the possibility of the imposition or modification of
exchange controls by the applicable governments or monetary authorities. Such
risks generally depend on factors over which the Company has no control, such as
economic, financial and political events and the supply and demand for the
applicable currencies or composite currencies. In addition, if the formula used
to determine the amount of principal, premium, if any, and/or interest payable
with respect to Foreign Currency Notes contains a multiplier or leverage factor,
the effect of any change in the applicable currencies or composite currencies
will be magnified. In recent years, rates of exchange between the United States
dollar and foreign currencies or composite currencies have been highly volatile
and such volatility may continue or increase in the future. Fluctuations in any
particular exchange rate that have occurred in the past are not necessarily
indicative, however, of fluctuations that may occur in the future. Depreciation
of the foreign currency or composite currency in which a Foreign Currency Note
is payable against the United States dollar would result in a decrease in the
United States dollar-equivalent yield of such Foreign Currency Note, in the
United States dollar-equivalent value of the principal and premium, if any,
payable on the Maturity Date of such Foreign Currency Note, and, generally, in
the United States dollar-equivalent market value of such Foreign Currency Note.
Governments or monetary authorities have imposed from time to time, and may in
the future impose or revise, exchange controls at or prior to the date on which
any payment of principal of, or premium, if any, or interest on, a Foreign
Currency Note is due, which could affect exchange rates as well as the
availability of the foreign currency or composite currency in which such payment
is to be made on such date. Even if there are no exchange controls, it is
possible that the foreign currency or composite currency in which a payment in
respect of any particular Foreign Currency Note is to be made would not be
available on the applicable payment date due to other circumstances beyond the
reasonable control of the Company. In such cases, the Company will be entitled
to satisfy its obligations in respect of such Foreign Currency Note in United
States dollars. See 'Special Provisions Relating to Foreign Currency
Notes--Payment Currency.'
DESCRIPTION OF NOTES
The Notes will be issued as a series of Debt Securities (as defined below) under
an Indenture, dated as of October 25, 1996, as amended, supplemented or modified
from time to time (the 'Indenture'), between the Company and United States Trust
Company of New York, as trustee (the 'Trustee'). The Indenture is subject to,
and governed by, the Trust Indenture Act of 1939, as amended. The following
summary of certain provisions of the Notes and the Indenture does not purport to
be complete and is qualified in its entirety by reference to the actual
provisions of the Notes and the Indenture. Capitalized terms used but not
defined herein shall have the meanings given to them in the accompanying
Prospectus, the Notes or the Indenture, as the case may be. The term 'Debt
Securities,' as used in this Prospectus Supplement, refers to all debt
securities, including the Notes, issued and issuable from time to time under the
Indenture. The following description of the particular terms of the Notes
offered hereby (referred to in the accompanying Prospectus as the 'Senior
Securities') supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Senior Securities set
forth in the Prospectus, to which description reference is hereby made.
S-4
<PAGE>
The following description of Notes will apply to each Note offered hereby unless
otherwise specified in the applicable Pricing Supplement.
GENERAL
The Notes will be unsecured obligations of the Company and will rank pari passu
with all other unsecured and unsubordinated indebtedness of the Company from
time to time outstanding. The Notes are effectively subordinated to mortgages
and other secured indebtedness of the Company (approximately $83.3 million at
September 30, 1996), which encumber certain assets of the Company.
The Indenture does not limit the aggregate initial offering price of Debt
Securities that may be issued thereunder and Debt Securities may be issued
thereunder from time to time in one or more series up to the aggregate initial
offering price from time to time authorized by the Company for each series. The
Company may, from time to time, without the consent of the Holders of the Notes,
provide for the issuance of Notes or other Debt Securities under the Indenture
in addition to the $100,000,000 aggregate initial offering price of Notes
offered hereby.
The Notes are currently limited to up to $100,000,000 aggregate initial offering
price, or the equivalent thereof in one or more foreign or composite currencies.
The Notes will be offered on a continuous basis and will mature on any day nine
months or more from their dates of issue (each, a 'Stated Maturity Date'), as
specified in the applicable Pricing Supplement. Unless otherwise specified in
the applicable Pricing Supplement, interest-bearing Notes will either be Fixed
Rate Notes or Floating Rate Notes, as specified in the applicable Pricing
Supplement. Notes may also be issued that do not bear any interest currently or
that bear interest at a below market rate.
Unless otherwise specified in the applicable Pricing Supplement, the Notes will
be denominated in, and payments of principal, premium, if any, and/or interest
will be made in, United States dollars. The Notes also may be denominated in,
and payments of principal, premium, if any, and/or interest may be made in, one
or more foreign currencies or composite currencies ('Foreign Currency Notes').
See 'Special Provisions Relating to Foreign Currency Notes-- Payment of
Principal, Premium, if any, and Interest.' The currency or composite currency in
which a Note is denominated, whether United States dollars or otherwise, is
herein referred to as the 'Specified Currency.' References herein to 'United
States dollars,' 'U.S. dollars' and 'U.S. $' are to the lawful currency of the
United States of America (the 'United States').
Unless otherwise specified in the applicable Pricing Supplement, purchasers are
required to pay for the Notes in the applicable Specified Currencies. At the
present time, there are limited facilities in the United States for the
conversion of United States dollars into foreign currencies or composite
currencies and vice versa, and commercial banks do not generally offer
non-United States dollar checking or savings account facilities in the United
States. Each applicable Agent is prepared to arrange for the conversion of
United States dollars into the applicable Specified Currency to enable the
purchaser to pay for the related Foreign Currency Note, provided that a request
is made to such Agent on or prior to the fifth Business Day (as defined below)
preceding the date of delivery of such Foreign Currency Note, or by such other
day as determined by such Agent. Each such conversion will be made by an Agent
on such terms and subject to such conditions, limitations and charges as such
Agent may from time to time establish in accordance with its regular foreign
exchange practices. All costs of exchange will be borne by the purchaser of each
such Foreign Currency Note. See 'Special Provisions Relating to Foreign Currency
Notes.'
Interest rates offered by the Company with respect to the Notes may differ
depending upon, among other things, the aggregate principal amount of Notes
purchased in any single transaction. Interest rates or formulas and other terms
of Notes are subject to change by the Company from time to time, but no such
change will affect any Note already issued or as to which an offer to purchase
has been accepted by the Company.
Each Note will be issued in fully registered form as a Book-Entry Note or a
Certificated Note. The authorized denominations of each Note other than a
Foreign Currency Note will be $1,000 and integral multiples thereof, unless
otherwise specified in the applicable Pricing Supplement, while the authorized
denominations of each Foreign Currency Note will be specified in the applicable
Pricing Supplement.
Payments of principal of, premium, if any, and interest on, Book-Entry Notes
will be made by the Company through the Trustee to the Depositary. See
'--Book-Entry Notes.' In the case of Certificated Notes, payment of principal
and premium, if any, due on the Stated Maturity Date or any prior date on which
the principal, or an installment of
S-5
<PAGE>
principal, of each Certificated Note becomes due and payable, whether by the
declaration of acceleration, notice of redemption at the option of the Company,
notice of the Holder's option to elect repayment or otherwise (the Stated
Maturity Date or such prior date, as the case may be, is herein referred to as
the 'Maturity Date' with respect to the principal of the applicable Note
repayable on such date) will be made in immediately available funds upon
presentation and surrender thereof (or, in the case of any repayment on an
Optional Repayment Date, upon presentation and surrender thereof and a duly
completed election form in accordance with the provisions described below) at
the office or agency maintained by the Company for such purpose in the Borough
of Manhattan, The City of New York. Such office or agency is maintained
currently by the Trustee at 114 West 47th Street, New York, New York 10036.
Payment of interest due on the Maturity Date of each Certificated Note will be
made to the person to whom payment of the principal and premium, if any, shall
be made. Payment of interest due on each Certificated Note on any Interest
Payment Date (as defined below) other than the Maturity Date will be made at the
office or agency referred to above maintained by the Company for such purpose
or, at the option of the Company, may be made by check mailed to the address of
the Holder entitled thereto as such address shall appear in the Security
Register of the Company. Notwithstanding the foregoing, a Holder of $10,000,000
(or, if the applicable Specified Currency is other than United States dollars,
the equivalent thereof in such Specified Currency) or more in aggregate
principal amount of Notes (whether having identical or different terms and
provisions) will be entitled to receive interest payments on any Interest
Payment Date other than the Maturity Date by wire transfer of immediately
available funds if appropriate wire transfer instructions have been received in
writing by the Trustee not less than 15 days prior to such Interest Payment
Date. Any such wire transfer instructions received by the Trustee shall remain
in effect until revoked by such Holder. For special payment terms applicable to
Foreign Currency Notes, see 'Special Provisions Relating to Foreign Currency
Notes--Payment of Principal, Premium, if any, and Interest.'
As used herein, 'Business Day' means any day, other than a Saturday or Sunday,
that is neither a legal holiday nor a day on which banking institutions are
authorized or required by law, regulation or executive order to close in The
City of New York; provided, however, that with respect to Foreign Currency
Notes, such day is also not a day on which banking institutions are authorized
or required by law, regulation or executive order to close in the Principal
Financial Center (as defined below) of the country issuing the Specified
Currency (or if the Specified Currency is European Currency Units ('ECU'), such
day is not a day that appears as an ECU non-settlement day on the display
designated as 'ISDE' on the Reuter 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 ECU cannot be settled in the international interbank market);
provided, further, that, with respect to Notes as to which LIBOR is an
applicable Interest Rate Basis, such day is also a London Business Day (as
defined below). 'London Business Day' means any day (i) if the Index Currency
(as defined below) is other than ECU, on which dealings in such Index Currency
are transacted in the London interbank market or (ii) if the Index Currency is
ECU, that does not appear as an ECU non-settlement day on the display designated
as 'ISDE' on the Reuter 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 ECU
cannot be settled in the international interbank market).
'Principal Financial Center' means the capital city of the country issuing the
Specified Currency or, solely with respect to the calculation of LIBOR, the
Index Currency, except that with respect to United States dollars, Australian
dollars, Deutsche marks, Dutch guilders, Italian lire, Swiss francs and ECU, the
Principal Financial Center shall be The City of New York, Sydney, Frankfurt,
Amsterdam, Milan, Zurich and Luxembourg, respectively.
Book-Entry Notes may be transferred or exchanged only through the Depositary.
See '--Book-Entry Notes.' Registration of transfer or exchange of Certificated
Notes will be made at the office or agency maintained by the Company for such
purpose in the Borough of Manhattan, The City of New York. No service charge
will be made by the Company or the Trustee for any such registration of transfer
or exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith (other than exchanges pursuant to the Indenture not involving any
transfer).
Notwithstanding any provisions described in this Prospectus Supplement to the
contrary, if a Note specifies that an Addendum is attached thereto or that
'Other/Additional Provisions' apply, such Note will be subject to the terms
specified in such Addendum or 'Other/Additional Provisions,' as the case may be,
and will be described in the applicable Pricing Supplement.
S-6
<PAGE>
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 applicable Pricing Supplement will
indicate if the Notes will be redeemable prior to the Stated Maturity Date and
the terms on which such Notes will be redeemable at the option of the Company.
If so specified, the Notes will be subject to redemption at the option of the
Company on any date on and after the applicable Initial Redemption Date in whole
or from time to time in part in increments of $1,000 or such other minimum
denomination specified in such Pricing Supplement (provided that any remaining
principal amount thereof shall be at least $1,000 or such minimum denomination),
at the applicable Redemption Price (as defined below), together with unpaid
interest accrued to the date of redemption, on notice given not more than 60 nor
less than 30 calendar days prior to the date of redemption and in accordance
with the provisions of the Indenture. Unless otherwise specified in the
applicable Pricing Supplement, 'Redemption Price,' with respect to a Note, means
an amount equal to the Initial Redemption Percentage specified in the applicable
Pricing Supplement (as adjusted by the Annual Redemption Percentage Reduction,
if applicable) multiplied by the unpaid principal amount to be redeemed. The
Initial Redemption Percentage, if any, applicable to a Note shall decline at
each anniversary of the Initial Redemption Date by an amount equal to the
applicable Annual Redemption Percentage Reduction, if any, until the Redemption
Price is equal to 100% of the unpaid principal amount to be redeemed. See also
'--Original Issue Discount Notes.'
REPAYMENT AT THE NOTEHOLDERS' OPTION; REPURCHASES BY THE COMPANY
The applicable Pricing Supplement will indicate if the Notes will be repayable
at the option of the Holders thereof on a date specified prior to the applicable
Maturity Date and, unless otherwise specified in the Pricing Supplement, such
Notes shall be repayable at a price equal to 100% of the principal amount
thereof, together with unpaid interest accrued to the date of repayment.
In order for such a Note to be repaid, the Trustee must receive at least 30 days
but not more than 60 days prior to the repayment date (i) such Note with the
form entitled 'Option to Elect Repayment' on the reverse of such Note duly
completed or (ii) a telegram, telex, facsimile transmission, or a letter from a
member of a national securities exchange or the National Association of
Securities Dealers, Inc. or a commercial bank or trust company in the United
States setting forth the name of the Holder of such Note, the principal amount
of such Note, the principal amount of such Note to be repaid, the certificate
number or a description of the tenor and terms of such Note, a statement that
the option to elect repayment is being exercised thereby, and a guarantee that
such Note to be repaid, together with the duly completed form entitled 'Option
to Elect Repayment' on the reverse of such Note, will be received by the Trustee
not later than the fifth Business Day after the date of such telegram, telex,
facsimile transmission or letter; however, such telegram, telex, facsimile
transmission, or letter shall only be effective if such Note and duly completed
form are received by the Trustee by such fifth Business Day. Unless otherwise
specified in the applicable Pricing Supplement, exercise of the repayment option
by the Holder of a Note will be irrevocable. The repayment option may be
exercised by the Holder of a Note for less than the entire principal amount of
the Note, but in that event, the principal amount of the Note remaining
outstanding after repayment must be in an authorized denomination.
If a Note is represented by a Global Security, the Depositary's nominee will be
the Holder of such Note and therefore will be the only entity that can exercise
a right to repayment. In order to ensure that the Depositary's nominee will
timely exercise a right to repayment with respect to a particular Note, the
Beneficial Owner of such Note must instruct the broker or other Direct
Participant (as defined below) or Indirect Participant (as defined below)
through which it holds an interest in such Note to notify the Depositary of its
desire to exercise a right to repayment. Different firms have different
deadlines for accepting instructions from their customers. Accordingly, each
Beneficial Owner should consult the broker or other Direct Participant or
Indirect Participant through which it holds an interest in a Note in order to
ascertain the deadline by which such an instruction must be given in order for
timely notice to be delivered to the Depositary.
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, at the discretion of
the Company, be held, resold or surrendered to the Trustee for cancellation.
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INTEREST
General
Unless otherwise specified in the applicable Pricing Supplement, each
interest-bearing Note will bear interest from its date of issue at the rate per
annum, in the case of a Fixed Rate Note, or pursuant to the interest rate
formula, in the case of a Floating Rate Note, in each case, as specified in the
applicable Pricing Supplement, until the principal thereof is paid or duly made
available for payment. Unless otherwise specified in the applicable Pricing
Supplement, interest payments in respect of Fixed Rate Notes and Floating Rate
Notes will equal the amount of interest accrued from and including the
immediately preceding Interest Payment Date in respect of which interest has
been paid or duly made available for payment (or from and including the date of
issue, if no interest has been paid or duly made available for payment with
respect to the applicable Note) to but excluding the applicable Interest Payment
Date or the Maturity Date, as the case may be (each, an 'Interest Period').
Interest on Fixed Rate Notes and Floating Rate Notes will be payable in arrears
on each Interest Payment Date and on the Maturity Date. Unless otherwise
specified in the applicable Pricing Supplement, the first payment of interest on
any such Note originally issued between a Record Date (as defined below) and the
related Interest Payment Date will be made on the Interest Payment Date
immediately following the next succeeding Record Date to the Holder on such next
succeeding Record Date. Unless otherwise specified in the applicable Pricing
Supplement, a 'Record Date' shall be the fifteenth calendar day (whether or not
a Business Day) immediately preceding the related Interest Payment Date.
Fixed Rate Notes
Interest on Fixed Rate Notes will be payable in arrears as specified in the
applicable Pricing Supplement (each, an 'Interest Payment Date') and on the
Maturity Date. Unless otherwise specified in the applicable Pricing Supplement,
interest on Fixed Rate Notes will be computed on the basis of a 360-day year of
twelve 30-day months.
If any Interest Payment Date or the Maturity Date of a Fixed Rate Note falls on
a day that is not a Business Day, the required payment of principal, premium, if
any, and/or interest will be made on the next succeeding Business Day with the
same force and effect as if made on the date such payment was due, and no
interest will accrue on such payment for the period from and after such Interest
Payment Date or the Maturity Date, as the case may be, to the date of such
payment on the next succeeding Business Day.
Floating Rate Notes
Unless otherwise specified in the applicable Pricing Supplement, Floating Rate
Notes will be issued as described below. The applicable Pricing Supplement will
specify certain terms with respect to which each Floating Rate Note is being
delivered, including: whether such Floating Rate Note is a 'Regular Floating
Rate Note,' a 'Floating Rate/Fixed Rate Note' or an 'Inverse Floating Rate
Note,' the Fixed Rate Commencement Date, if applicable, Fixed Interest Rate, if
applicable, Interest Rate Basis or Bases, Initial Interest Rate, if any, Initial
Interest Reset Date, Interest Reset Period and Dates, Interest Payment Period
and Dates, Index Maturity, Maximum Interest Rate and/or Minimum Interest Rate,
if any, and Spread and/or Spread Multiplier, if any, as such terms are defined
below. If one or more of the applicable Interest Rate Bases is LIBOR or the CMT
Rate, the applicable Pricing Supplement will specify the Index Currency, if any,
and Designated LIBOR Page or the Designated CMT Maturity Index and Designated
CMT Telerate Page, respectively, as such terms are defined below.
The interest rate borne by the Floating Rate Notes will be determined as
follows:
(i) Unless such Floating Rate Note is designated as a 'Floating Rate/Fixed Rate
Note,' or an 'Inverse Floating Rate Note' or as having an Addendum attached or
having 'Other/Additional Provisions' apply relating to a different interest rate
formula, such Floating Rate Note will be designated as a 'Regular Floating Rate
Note' and, except as described below or in the applicable Pricing Supplement,
will bear interest at the rate determined by reference to the applicable
Interest Rate Basis or Bases (a) plus or minus the applicable Spread, if any,
and/or (b) multiplied by the applicable Spread Multiplier, if any. Commencing on
the Initial Interest Reset Date, the rate at which interest on such Regular
Floating Rate Note shall be payable shall be reset as of each
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<PAGE>
Interest Reset Date; provided, however, that the interest rate in effect for the
period, if any, from the date of issue to the Initial Interest Reset Date will
be the Initial Interest Rate.
(ii) If such Floating Rate Note is designated as a 'Floating Rate/Fixed Rate
Note,' then, except as described below or in the applicable Pricing Supplement,
such Floating Rate Note will bear interest at the rate determined by reference
to the applicable Interest Rate Basis or Bases (a) plus or minus the applicable
Spread, if any, and/or (b) multiplied by the applicable Spread Multiplier, if
any. Commencing on the Initial Interest Reset Date, the rate at which interest
on such Floating Rate/Fixed Rate Note shall be payable shall be reset as of each
Interest Reset Date; provided, however, that (y) the interest rate in effect for
the period, if any, from the date of issue to the Initial Interest Reset Date
will be the Initial Interest Rate and (z) the interest rate in effect for the
period commencing on the Fixed Rate Commencement Date to the Maturity Date shall
be the Fixed Interest Rate, if such rate is specified in the applicable Pricing
Supplement or, if no such Fixed Interest Rate is specified, the interest rate in
effect thereon on the day immediately preceding the Fixed Rate Commencement
Date.
(iii) If such Floating Rate Note is designated as an 'Inverse Floating Rate
Note,' then, except as described below or in the applicable Pricing Supplement,
such Floating Rate Note will bear interest at the Fixed Interest Rate minus the
rate determined by reference to the applicable Interest Rate Basis or Bases (a)
plus or minus the applicable Spread, if any, and/or (b) multiplied by the
applicable Spread Multiplier, if any; provided, however, that, unless otherwise
specified in the applicable Pricing Supplement, the interest rate thereon will
not be less than zero. Commencing on the Initial Interest Reset Date, the rate
at which interest on such Inverse Floating Rate Note shall be payable shall be
reset as of each Interest Reset Date; provided, however, that the interest rate
in effect for the period, if any, from the date of issue to the Initial Interest
Reset Date will be the Initial Interest Rate.
The 'Spread' is the number of basis points to be added to or subtracted from the
related Interest Rate Basis or Bases applicable to such Floating Rate Note. The
'Spread Multiplier' is the percentage of the related Interest Rate Basis or
Bases applicable to such Floating Rate Note by which such Interest Rate Basis or
Bases will be multiplied to determine the applicable interest rate on such
Floating Rate Note. The 'Index Maturity' is the period to maturity of the
instrument or obligation with respect to which the related Interest Rate Basis
or Bases will be calculated.
Unless otherwise specified in the applicable Pricing Supplement, the interest
rate with respect to each Interest Rate Basis will be determined in accordance
with the applicable provisions below. Except as set forth above or in the
applicable Pricing Supplement, the interest rate in effect on each day shall be
(i) if such day is an Interest Reset Date, the interest rate determined as of
the Interest Determination Date (as defined below) immediately preceding such
Interest Reset Date or (ii) if such day is not an Interest Reset Date, the
interest rate determined as of the Interest Determination Date immediately
preceding the most recent Interest Reset Date.
Interest on Floating Rate Notes will be determined by reference to the
applicable Interest Rate Basis or Interest Rate Bases, which may, as described
below, include (i) the CD Rate, (ii) the CMT Rate, (iii) the Commercial Paper
Rate, (iv) the Eleventh District Cost of Funds Rate, (v) the Federal Funds Rate,
(vi) LIBOR, (vii) the Prime Rate, (viii) the Treasury Rate, or (ix) such other
Interest Rate Basis or interest rate formula as may be specified in the
applicable Pricing Supplement; provided, however, that the interest rate in
effect on a Floating Rate Note for the period, if any, from the date of issue to
the Initial Interest Reset Date will be the Initial Interest Rate; provided,
further, that with respect to a Floating Rate/Fixed Rate Note the interest rate
in effect for the period commencing on the Fixed Rate Commencement Date to the
Maturity Date shall be the Fixed Interest Rate, if such rate is specified in the
applicable Pricing Supplement or, if no such Fixed Interest Rate is specified,
the interest rate in effect thereon on the day immediately preceding the Fixed
Rate Commencement Date.
The applicable Pricing Supplement will specify whether the rate of interest on
the related Floating Rate Note will be reset daily, weekly, monthly, quarterly,
semiannually or annually or on such other specified basis (each, an 'Interest
Reset Period') and the dates on which such rate of interest will be reset (each,
an 'Interest Reset Date'). Unless otherwise specified in the applicable Pricing
Supplement, the Interest Reset Dates will be, in the case of Floating Rate Notes
which reset: (i) daily, each Business Day; (ii) weekly, the Wednesday of each
week (with the exception of weekly reset Floating Rate Notes as to which the
Treasury Rate is an applicable Interest
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Rate Basis, which will reset the Tuesday of each week, except as described
below); (iii) monthly, the third Wednesday of each month (with the exception of
monthly reset Floating Rate Notes as to which the Eleventh District Cost of
Funds Rate is an applicable Interest Rate Basis, which will reset on the first
calendar day of the month); (iv) quarterly, the third Wednesday of March, June,
September and December of each year; (v) semiannually, the third Wednesday of
the two months specified in the applicable Pricing Supplement; and (vi)
annually, the third Wednesday of the month specified in the applicable Pricing
Supplement; provided, however, that, with respect to Floating Rate/Fixed Rate
Notes, the rate of interest thereon will not reset after the applicable Fixed
Rate Commencement Date. If any Interest Reset Date for any Floating Rate Note
would otherwise be a day that is not a Business Day, such Interest Reset Date
will be postponed to the next succeeding Business Day, except that in the case
of a Floating Rate Note as to which LIBOR is an applicable Interest Rate Basis
and such Business Day falls in the next succeeding calendar month, such Interest
Reset Date will be the immediately preceding Business Day. In addition, in the
case of a Floating Rate Note as to which the Treasury Rate is an applicable
Interest Rate Basis and the Interest Determination Date would otherwise fall on
an Interest Reset Date, then such Interest Reset Date will be postponed to the
next succeeding Business Day.
The interest rate applicable to each Interest Reset Period commencing on the
related Interest Reset Date will be the rate determined as of the applicable
Interest Determination Date and calculated on or prior to the Calculation Date
(as defined below), except with respect to LIBOR and the Eleventh District Cost
of Funds Rate, which will be calculated as of such Interest Determination Date.
The 'Interest Determination Date' with respect to the CD Rate, the CMT Rate, the
Commercial Paper Rate, the Federal Funds Rate and the Prime Rate will be the
second Business Day immediately preceding the applicable Interest Reset Date;
the 'Interest Determination Date' with respect to the Eleventh District Cost of
Funds Rate will be the last business 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 Index (as defined below);
and the 'Interest Determination Date' with respect to LIBOR will be the second
London Business Day immediately preceding the applicable Interest Reset Date,
unless the Index Currency is British pounds sterling, in which case the
'Interest Determination Date' will be the applicable Interest Reset Date. With
respect to the Treasury Rate, the 'Interest Determination Date' will be the day
in the week in which the applicable Interest Reset Date falls on which day
Treasury Bills (as defined below) are normally auctioned (Treasury Bills are
normally sold at an auction held on Monday of each week, unless that day is a
legal holiday, in which case the auction is normally held on the following
Tuesday, except that such auction may be held on the preceding Friday);
provided, however, that if an auction is held on the Friday of the week
preceding the applicable Interest Reset Date, the Interest Determination Date
will be such preceding Friday. The 'Interest Determination Date' pertaining to a
Floating Rate Note the interest rate of which is determined by reference to two
or more Interest Rate Bases will be the most recent Business Day which is at
least two Business Days prior to the applicable Interest Reset Date for such
Floating Rate Note on which each Interest Rate Basis is determinable. Each
Interest Rate Basis will be determined as of such date, and the applicable
interest rate will take effect on the applicable Interest Reset Date.
A Floating Rate Note may also have either or both of the following: (i) a
Maximum Interest Rate, or ceiling, that may accrue during any Interest Period
and (ii) a Minimum Interest Rate, or floor, that may accrue during any Interest
Period. In addition to any Maximum Interest Rate that may apply to any Floating
Rate Note, the interest rate on 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.
Except as provided below or in the applicable Pricing Supplement, interest will
be payable, in the case of Floating Rate Notes which reset: (i) daily, weekly or
monthly, on the third Wednesday of each month or the third Wednesday of March,
June, September and December of each year, as specified in the applicable
Pricing Supplement; (ii) quarterly, on the third Wednesday of March, June,
September and December of each year; (iii) semiannually, on the third Wednesday
of the two months of each year specified in the applicable Pricing Supplement;
and (iv) annually, on the third Wednesday of the month of each year specified in
the applicable Pricing Supplement (each, an 'Interest Payment Date') and, in
each case, on the Maturity Date. If any Interest Payment Date other than the
Maturity Date for any Floating Rate Note would otherwise be a day that is not a
Business Day, such Interest Payment Date will be postponed to the next
succeeding Business Day, except that in the case of a Floating Rate Note as to
which LIBOR is an applicable Interest Rate Basis and such Business Day falls in
the next succeeding calendar month, such Interest Payment Date will be the
immediately preceding Business Day. If the Maturity Date of a Floating Rate Note
falls on a day that is not a Business Day, the
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required payment of principal, premium, if any, and interest will be made on the
next succeeding Business Day with the same force and effect as if made on the
date such payment was due, and no interest will accrue on such payment for the
period from and after the Maturity Date to the date of such payment on the next
succeeding Business Day.
All percentages resulting from any calculation on Floating Rate Notes will be
rounded to the nearest one hundred-thousandth of a percentage point, with
five-one millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all amounts used in
or resulting from such calculation on Floating Rate Notes will be rounded, in
the case of United States dollars, to the nearest cent or, in the case of a
foreign currency or composite currency, to the nearest unit (with one-half cent
or unit being rounded upwards).
With respect to each Floating Rate Note, accrued interest is calculated by
multiplying its principal amount by an accrued interest factor. Such accrued
interest factor is computed by adding the interest factor calculated for each
day in the applicable Interest Period. Unless otherwise specified in the
applicable Pricing Supplement, the interest factor for each such day will be
computed by dividing the interest rate applicable to such day by 360, in the
case of Floating Rate Notes for which an applicable Interest Rate Basis is the
CD Rate, the Commercial Paper Rate, the Eleventh District Cost of Funds Rate,
the Federal Funds Rate, LIBOR or the Prime Rate, or by the actual number of days
in the year in the case of Floating Rate Notes for which an applicable Interest
Rate Basis is the CMT Rate or the Treasury Rate. Unless otherwise specified in
the applicable Pricing Supplement, the interest factor for Floating Rate Notes
for which the interest rate is calculated with reference to two or more Interest
Rate Bases will be calculated in each period in the same manner as if only one
of the applicable Interest Rate Bases applied as specified in the applicable
Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, United States
Trust Company of New York will be the 'Calculation Agent' with respect to any
Floating Rate Note. Upon request of the Holder of any Floating Rate Note, the
Calculation Agent will disclose the interest rate then in effect and, if
determined, the interest rate that will become effective as a result of a
determination made for the next succeeding Interest Reset Date with respect to
such Floating Rate Note. Unless otherwise specified in the applicable Pricing
Supplement, the 'Calculation Date,' if applicable, pertaining to any Interest
Determination Date will be the earlier of (i) the tenth calendar day after such
Interest Determination Date, or, if such day is not a Business Day, the next
succeeding Business Day or (ii) the Business Day immediately preceding the
applicable Interest Payment Date or the Maturity Date, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, the Calculation
Agent shall determine each Interest Rate Basis in accordance with the following
provisions.
CD Rate. Unless otherwise specified in the applicable Pricing Supplement, 'CD
Rate' means, with respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference to
the CD Rate (a 'CD Rate Interest Determination Date'), the rate on such date for
negotiable United States dollar certificates of deposit having the Index
Maturity specified in the applicable Pricing Supplement as published by the
Board of Governors of the Federal Reserve System in 'Statistical Release
H.15(519), Selected Interest Rates' or any successor publication ('H.15(519)')
under the heading 'CDs (Secondary Market),' or, if not published by 3:00 P.M.,
New York City time, on the related Calculation Date, the rate on such CD Rate
Interest Determination Date for negotiable United States dollar certificates of
deposit of the Index Maturity specified in the applicable Pricing Supplement as
published by the Federal Reserve Bank of New York in its daily statistical
release 'Composite 3:30 P.M. Quotations for U.S. Government Securities' or any
successor publication ('Composite Quotations') under the heading 'Certificates
of Deposit.' If such rate is not yet published in either H.15(519) or Composite
Quotations by 3:00 P.M., New York City time, on the related Calculation Date,
then the CD Rate on such CD Rate Interest Determination Date will be calculated
by the Calculation Agent and will be the arithmetic mean of the secondary market
offered rates as of 10:00 A.M., New York City time, on such CD Rate Interest
Determination Date, of three leading nonbank dealers in negotiable United States
dollar certificates of deposit in The City of New York (which may include any of
the Agents or their affiliates) selected by the Calculation Agent for negotiable
United States dollar certificates of deposit of major United States money center
banks in the market for negotiable United States dollar certificates of deposit
with a remaining maturity closest to the Index Maturity specified in the
applicable Pricing Supplement in an amount that is representative for a single
transaction in that market at that time; provided,
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however, that if the dealers so selected by the Calculation Agent are not
quoting as mentioned in this sentence, the CD Rate determined as of such CD Rate
Interest Determination Date will be the CD Rate in effect on such CD Rate
Interest Determination Date.
CMT Rate. Unless otherwise specified in the applicable Pricing Supplement, 'CMT
Rate' means, with respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference to
the CMT Rate (a 'CMT Rate Interest Determination Date'), the rate displayed on
the Designated CMT Telerate Page under the caption '. . . Treasury Constant
Maturities. . . Federal Reserve Board Release H.15 . . . Mondays Approximately
3:45 P.M.,' under the column for the Designated CMT Maturity Index for (i) if
the Designated CMT Telerate Page is 7055, the rate on such CMT Rate Interest
Determination Date and (ii) if the Designated CMT Telerate Page is 7052, the
weekly or monthly average, as specified in the applicable Pricing Supplement,
for the week or the month, as applicable, ended immediately preceding the week
or month, as applicable, in which the related CMT Rate Interest Determination
Date occurs. If such rate is no longer displayed on the relevant page or is not
displayed by 3:00 P.M., New York City time, on the related Calculation Date,
then the CMT Rate for such CMT Rate Interest Determination Date will be such
treasury constant maturity rate for the Designated CMT Maturity Index as
published in the relevant H.15(519). If such rate is no longer published or is
not published by 3:00 P.M., New York City time, on the related Calculation Date,
then the CMT Rate on such CMT Rate Interest Determination Date will be such
treasury constant maturity rate for the Designated CMT Maturity Index (or other
United States Treasury rate for the Designated CMT Maturity Index) for the CMT
Rate Interest Determination Date with respect to such Interest Reset Date as may
then be published by either the Board of Governors of the Federal Reserve System
or the United States Department of the Treasury that the Calculation Agent
determines to be comparable to the rate formerly displayed on the Designated CMT
Telerate Page and published in the relevant H.15(519). If such information is
not provided by 3:00 P.M., New York City time, on the related Calculation Date,
then the CMT Rate on the CMT Rate Interest Determination Date will be calculated
by the Calculation Agent and will be a yield to maturity, based on the
arithmetic mean of the secondary market closing offer side prices as of
approximately 3:30 P.M., New York City time, on such CMT Rate Interest
Determination Date reported, according to their written records, by three
leading primary United States government securities dealers (each, a 'Reference
Dealer') in The City of New York (which may include any of the Agents or their
affiliates) selected by the Calculation Agent (from five such Reference Dealers
selected by the Calculation Agent and eliminating the highest quotation (or, in
the event of equality, one of the highest) and the lowest quotation (or, in the
event of equality, one of the lowest)), for the most recently issued direct
noncallable fixed rate obligations of the United States ('Treasury Notes') with
an original maturity of approximately the Designated CMT Maturity Index and a
remaining term to maturity of not less than such Designated CMT Maturity Index
minus one year. If the Calculation Agent is unable to obtain three such Treasury
Note quotations, the CMT Rate on such CMT Rate Interest Determination Date will
be calculated by the Calculation Agent and will be a yield to maturity based on
the arithmetic mean of the secondary market offer side prices as of
approximately 3:30 P.M., New York City time, on such CMT Rate Interest
Determination Date of three Reference Dealers in The City of New York (from five
such Reference Dealers selected by the Calculation Agent and eliminating the
highest quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest)), for
Treasury Notes with an original maturity of the number of years that is the next
highest to the Designated CMT Maturity Index and a remaining term to maturity
closest to the Designated CMT Maturity Index and in an amount of at least
$100,000,000. If three or four (and not five) of such Reference Dealers are
quoting as described above, then the CMT Rate will be based on the arithmetic
mean of the offer prices obtained and neither the highest nor the lowest of such
quotes will be eliminated; provided, however, that if fewer than three Reference
Dealers so selected by the Calculation Agent are quoting as mentioned herein,
the CMT Rate determined as of such CMT Rate Interest Determination Date will be
the CMT Rate in effect on such CMT Rate Interest Determination Date. If two
Treasury Notes with an original maturity as described in the second preceding
sentence have remaining terms to maturity equally close to the Designated CMT
Maturity Index, the Calculation Agent will obtain quotations for the Treasury
Note with the shorter remaining term to maturity and will use such quotations to
calculate the CMT Rate as set forth above.
'Designated CMT Telerate Page' means the display on the Dow Jones Telerate
Service (or any successor service) on the page specified in the applicable
Pricing Supplement (or any other page as may replace such page on that service
(or any successor service) for the purpose of displaying Treasury Constant
Maturities as reported in H.15(519)) for the purpose of displaying Treasury
Constant Maturities as reported in H.15(519). If no such
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page is specified in the applicable Pricing Supplement, the Designated CMT
Telerate Page shall be 7052, for the most recent week.
'Designated CMT Maturity Index' means the original period to maturity of the
U.S. Treasury securities (either one, two, three, five, seven, 10, 20 or 30
years) specified in the applicable Pricing Supplement with respect to which the
CMT Rate will be calculated. If no such maturity is specified in the applicable
Pricing Supplement, the Designated CMT Maturity Index shall be two years.
Commercial Paper Rate. Unless otherwise specified in the applicable Pricing
Supplement, 'Commercial Paper Rate' means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest rate
is determined with reference to the Commercial Paper Rate (a 'Commercial Paper
Rate Interest Determination Date'), the Money Market Yield (as defined below) on
such date of the rate for commercial paper having the Index Maturity specified
in the applicable Pricing Supplement as published in H.15(519) under the heading
'Commercial Paper.' In the event that such rate is not published by 3:00 P.M.,
New York City time, on the related Calculation Date, then the Commercial Paper
Rate on such Commercial Paper Rate Interest Determination Date will be the Money
Market Yield of the rate for commercial paper having the Index Maturity
specified in the applicable Pricing Supplement as published in Composite
Quotations under the heading 'Commercial Paper' (with an Index Maturity of one
month or three months being deemed to be equivalent to an Index Maturity of 30
days or 90 days, respectively). If such rate is not yet published in either
H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on the
related Calculation Date, then the Commercial Paper Rate on such Commercial
Paper Rate Interest Determination Date will be calculated by the Calculation
Agent and will be the Money Market Yield of the arithmetic mean of the offered
rates at approximately 11:00 A.M., New York City time, on such Commercial Paper
Rate Interest Determination Date of three leading dealers of commercial paper in
The City of New York (which may include any of the Agents or their affiliates)
selected by the Calculation Agent for commercial paper having the Index Maturity
specified in the applicable Pricing Supplement placed for an industrial issuer
whose bond rating is 'AA,' or the equivalent, from a nationally recognized
statistical rating organization; provided, however, that if the dealers so
selected by the Calculation Agent are not quoting as mentioned in this sentence,
the Commercial Paper Rate determined as of such Commercial Paper Rate Interest
Determination Date will be the Commercial Paper Rate in effect on such
Commercial Paper Rate Interest Determination Date.
'Money Market Yield' means a yield (expressed as a percentage) calculated in
accordance with the following formula:
<TABLE>
<C> <S> <C>
D x 360
Money Market Yield = 360 - (D x M) x 100
</TABLE>
where 'D' refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal, and 'M' refers to the actual
number of days in the Interest Period for which interest is being calculated.
Eleventh District Cost of Funds Rate. Unless otherwise specified in the
applicable Pricing Supplement, 'Eleventh District Cost of Funds Rate' means,
with respect to any Interest Determination Date relating to a Floating Rate Note
for which the interest rate is determined with reference to the Eleventh
District Cost of Funds Rate (an 'Eleventh District Cost of Funds Rate Interest
Determination Date'), the rate 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 '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 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
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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.
Federal Funds Rate. Unless otherwise specified in the applicable Pricing
Supplement, 'Federal Funds Rate' means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest rate
is determined with reference to the Federal Funds Rate (a 'Federal Funds Rate
Interest Determination Date'), the rate on such date for United States dollar
federal funds as published in H.15(519) under the heading 'Federal Funds
(Effective)' or, if not published by 3:00 P.M., New York City time, on the
related Calculation Date, the rate on such Federal Funds Rate Interest
Determination Date as published in Composite Quotations under the heading
'Federal Funds/Effective Rate.' If such rate is not published in either
H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on the
related Calculation Date, then the Federal Funds Rate on such Federal Funds Rate
Interest Determination Date will be calculated by the Calculation Agent and will
be the arithmetic mean of the rates for the last transaction in overnight United
States dollar federal funds arranged by three leading brokers of federal funds
transactions in The City of New York (which may include any of the Agents or
their affiliates) selected by the Calculation Agent prior to 9:00 A.M., New York
City time, on such Federal Funds Rate Interest Determination Date; provided,
however, that if the brokers so selected by the Calculation Agent are not
quoting as mentioned in this sentence, the Federal Funds Rate determined as of
such Federal Funds Rate Interest Determination Date will be the Federal Funds
Rate in effect on such Federal Funds Rate Interest Determination Date.
LIBOR. Unless otherwise specified in the applicable Pricing Supplement, 'LIBOR'
means the rate determined in accordance with the following provisions:
(i) With respect to any Interest Determination Date relating to a 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 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 specified in such Pricing Supplement,
commencing on the applicable Interest Reset Date, that appear (or, if only a
single rate is required as aforesaid, appears) on the Designated LIBOR Page as
of 11:00 A.M., London time, on such LIBOR Interest Determination Date, or (b) if
'LIBOR Telerate' is specified in the applicable Pricing Supplement or if neither
'LIBOR Reuters' nor 'LIBOR Telerate' is specified in the applicable Pricing
Supplement as the method for calculating LIBOR, the rate for deposits in the
Index Currency having the Index Maturity specified in such Pricing Supplement,
commencing on such Interest Reset Date, that appears on the Designated LIBOR
Page 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 on such 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 Designated
LIBOR Page as specified in clause (i) above, the Calculation Agent will request
the principal London offices of each of four major reference banks in the London
interbank market, as selected by the Calculation Agent, to provide the
Calculation Agent with its offered quotation for deposits in the Index Currency
for the period of the Index Maturity specified in the applicable Pricing
Supplement, commencing on the applicable Interest Reset 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 so provided, then LIBOR 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 selected by the Calculation Agent for loans in the
Index Currency to leading European banks, having the Index Maturity specified 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.
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'Index Currency' means the currency or composite currency specified in the
applicable Pricing Supplement as to which LIBOR shall be calculated. If no such
currency or composite currency is specified in the applicable Pricing
Supplement, the Index Currency shall be United States dollars.
'Designated LIBOR Page' means (a) if 'LIBOR Reuters' is specified in the
applicable Pricing Supplement, the display on the Reuter Monitor Money Rates
Service (or any successor service) on the page specified in such Pricing
Supplement (or any other page as may replace such page or such service (or any
successor 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 in the applicable Pricing Supplement as the method
for calculating LIBOR, the display on the Dow Jones Telerate Service (or any
successor service) on the page specified in such Pricing Supplement (or any
other page as may replace such page or such service (or any successor service))
for the purpose of displaying the London interbank rates of major banks for the
applicable Index Currency.
Prime Rate. Unless otherwise specified in the applicable Pricing Supplement,
'Prime Rate' means, with respect to any Interest Determination Date relating to
a Floating Rate Note for which the interest rate is determined with reference to
the Prime Rate (a 'Prime Rate Interest Determination Date'), the rate on such
date as is published in H.15(519) under the heading 'Bank Prime Loan.' If such
rate is not published prior to 3:00 P.M., New York City time, on the related
Calculation Date, then the Prime Rate shall be the arithmetic mean of the rates
of interest publicly announced by each bank that appears on the Reuters Screen
USPRIME1 Page (as defined below) as such bank's prime rate or base lending rate
as in effect for such Prime Rate Interest Determination Date. If fewer than four
such rates appear on the Reuters Screen USPRIME1 Page for such Prime Rate
Interest Determination Date, then the Prime Rate shall be the arithmetic mean of
the prime rates quoted on the basis of the actual number of days in the year
divided by 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 a reasonable
number of substitute banks or trust companies 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 $500,000,000 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.
'Reuters Screen USPRIME1 Page' means the display designated as page 'USPRIME1'
on the Reuter Monitor Money Rates Service (or any successor service) or such
other page as may replace the USPRIME1 Page on the Reuter Monitor Money Rates
Service (or any successor service) for the purpose of displaying prime rates or
base lending rates of major United States banks.
Treasury Rate. Unless otherwise specified in the applicable Pricing Supplement,
'Treasury Rate' means, with respect to any Interest Determination Date relating
to a Floating Rate Note for which the interest rate is determined by reference
to the Treasury Rate (a 'Treasury Rate Interest Determination Date'), the rate
from the auction held on such Treasury Rate Interest Determination Date (the
'Auction') of direct obligations of the United States ('Treasury Bills') having
the Index Maturity specified in the applicable Pricing Supplement, as such rate
is published in H.15(519) under the heading 'Treasury bills-auction average
(investment)' or, if not published by 3:00 P.M., New York City time, on the
related Calculation Date, the auction average rate of such Treasury Bills
(expressed as a bond equivalent on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) as otherwise announced by the United
States Department of the Treasury. In the event that the results of the Auction
of Treasury Bills having the Index Maturity specified in the applicable Pricing
Supplement are not reported as provided by 3:00 P.M., New York City time, on the
related Calculation Date, or if no such Auction is held, then the Treasury Rate
will be calculated by the Calculation Agent and will 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 leading primary
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United States government securities dealers (which may include any of the Agents
or their affiliates) selected by the Calculation Agent, for the issue of
Treasury Bills with a remaining maturity closest to the Index Maturity specified
in the applicable Pricing Supplement; provided, however, that if the dealers so
selected by the Calculation Agent are not quoting as mentioned in this sentence,
the Treasury Rate determined as of such Treasury Rate Interest Determination
Date will be the Treasury Rate in effect on such Treasury Rate Interest
Determination Date.
AMORTIZING NOTES
The Company may from time to time offer amortizing notes ('Amortizing Notes').
Unless otherwise specified in the applicable Pricing Supplement, interest on
each Amortizing Note will be computed on the basis of a 360-day year of twelve
30-day months. Payments with respect to Amortizing Notes will be applied first
to interest due and payable thereon and then to the reduction of the unpaid
principal amount thereof. Further information concerning additional terms and
provisions of Amortizing Notes will be specified in the applicable Pricing
Supplement, including a table setting forth repayment information for such
Amortizing Notes.
ORIGINAL ISSUE DISCOUNT NOTES
The Company may offer Notes ('Discount Notes') from time to time that have an
Issue Price (as specified in the applicable Pricing Supplement) that is less
than 100% of the principal amount thereof (i.e., par). Discount Notes may not
bear any interest currently or may bear interest at a rate that is below market
rates at the time of issuance. The difference between the Issue Price of a
Discount Note and par is referred to herein as the 'Discount.' In the event of
redemption, repayment or acceleration of maturity of a Discount Note, the amount
payable to the Holder of such Discount Note will be equal to the sum of: (i) the
Issue Price (increased by any accruals of Discount) and, in the event of any
redemption of such Discount Note (if applicable), multiplied by the Initial
Redemption Percentage specified in the applicable Pricing Supplement (as
adjusted by the Annual Redemption Percentage Reduction, if applicable); and (ii)
any unpaid interest on such Discount Note accrued from the date of issue to the
date of such redemption, repayment or acceleration of maturity.
Unless otherwise specified in the applicable Pricing Supplement, for purposes of
determining the amount of Discount that has accrued as of any date on which a
redemption, repayment or acceleration of maturity occurs for a Discount Note,
such Discount will be accrued using a constant yield method. The constant yield
will be calculated using a 30-day month, 360-day year convention, a compounding
period that, except for the Initial Period (as defined below), corresponds to
the shortest period between Interest Payment Dates for the applicable Discount
Note (with ratable accruals within a compounding period), a coupon rate equal to
the initial coupon rate applicable to such Discount Note and an assumption that
the maturity of such Discount Note will not be accelerated. If the period from
the date of issue to the initial Interest Payment Date for a Discount Note (the
'Initial Period') is shorter than the compounding period for such Discount Note,
a proportionate amount of the yield for an entire compounding period will be
accrued. If the Initial Period is longer than the compounding period, then such
period will be divided into a regular compounding period and a short period with
the short period being treated as provided in the preceding sentence. The
accrual of the applicable Discount may differ from the accrual of original issue
discount for purposes of the Internal Revenue Code of 1986, as amended (the
'Code'), certain Discount Notes may not be treated as having original issue
discount within the meaning of the Code, and Notes other than Discount Notes may
be treated as issued with original issue discount for federal income tax
purposes. See 'Certain United States Federal Income Tax Considerations' herein.
INDEXED NOTES
Notes may be issued with the amount of principal, premium and/or interest
payable in respect thereof to be determined with reference to the price or
prices of specified commodities or stocks, to the exchange rate of one or more
designated currencies (including a composite currency such as the ECU) relative
to an indexed currency or to such other price(s) or exchange rate(s) ('Indexed
Notes'), as specified in the applicable Pricing Supplement. In certain cases,
Holders of Indexed Notes may receive a principal payment on the Maturity Date
that is greater than or less than the principal amount of such Indexed Notes
depending upon the relative value on the Maturity Date of the specified indexed
item. Information as to the method for determining the amount of principal,
premium, if any, and/or interest payable in respect of Indexed Notes, certain
historical information
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with respect to the specified indexed item and certain tax considerations
associated with an investment in Indexed Notes will be specified in the
applicable Pricing Supplement. See also 'Risk Factors.'
BOOK-ENTRY NOTES
The Company has established a depositary arrangement with The Depository Trust
Company with respect to the Book-Entry Notes, the terms of which are summarized
below. Any additional or differing terms of the depositary arrangement with
respect to the Book-Entry Notes will be described in the applicable Pricing
Supplement.
Upon issuance, all Book-Entry Notes up to $200,000,000 aggregate principal
amount bearing interest at the same rate or pursuant to the same formula and
having the same date of issue, Specified Currency, Interest Payment Dates,
Stated Maturity Date, redemption provisions (if any), repayment provisions (if
any) and other 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 purposes under the
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 Indenture, and no
Global Security representing Book-Entry Notes shall be exchangeable or
transferable. Accordingly, each Beneficial Owner must rely on the procedures of
the Depositary and, if such Beneficial Owner is not a Participant (as defined
below), on the procedures of the Participant through which such Beneficial Owner
owns its interest in order to exercise any rights of a Holder under such Global
Security or the 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 principal amount, only if (i) the Depositary notifies the
Company that it is unwilling or unable to continue as Depositary for the Global
Securities or the Depositary ceases to be a clearing agency registered under the
Exchange Act (if so required by applicable law or regulation) and, in each case,
a successor Depositary is not appointed by the Company within 90 days after the
Company receives such notice or becomes aware of such unwillingness, inability
or ineligibility, (ii) the Company in its sole discretion determines that the
Global Securities shall be exchangeable for Certificated Notes or (iii) there
shall have occurred and be continuing an Event of Default under the Indenture
with respect to the Notes and Beneficial Owners representing a majority in
aggregate principal amount of the Book-Entry Notes represented by Global
Securities advise the Depositary to cease acting as depositary. Upon any such
exchange, the Certificated Notes shall be registered in the names of the
Beneficial Owners of the Global Security or Securities representing Book-Entry
Notes, which names shall be provided by the Depositary's relevant Participants
(as identified by the Depositary) to the Trustee.
The information below concerning the Depositary and the Depositary's system has
been furnished by the Depositary, and the Company takes no responsibility for
the accuracy thereof.
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.
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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 computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants of the Depositary ('Direct
Participants') include securities brokers and dealers (including the Agents),
banks, trust companies, clearing corporations and certain other organizations.
The Depositary is owned by a number of its Direct Participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the 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 Participants' 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 Participants 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 Certificated Notes 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 partnership 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 statutory or regulatory requirements as
may be in effect from time to time.
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 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/or interest payments on Global Securities
representing the Book-Entry Notes will be made to the Depositary. The
Depositary's practice is to credit Direct Participants' 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 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
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any, and/or interest to the Depositary is the responsibility of the Company or
the 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 Participants and
Indirect Participants.
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.
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 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 Trustee. The requirement 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 depository
with respect to the Book-Entry Notes at any time by giving reasonable notice to
the Company or the Trustee. Under such circumstances, in the event that a
successor securities depository is not obtained, Certificated Notes are required
to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry transfers
through the Depositary (or a successor securities depository). In that event,
Certificated Notes will be printed and delivered.
SPECIAL PROVISIONS RELATING TO FOREIGN CURRENCY NOTES
GENERAL
Unless otherwise specified in the applicable Pricing Supplement, Foreign
Currency Notes will not be sold in, or to residents of, the country issuing the
applicable currency. The information set forth in this Prospectus Supplement is
directed to prospective purchasers who are United States 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 Foreign Currency Notes. Such persons
should consult their own financial and legal advisors with regard to such
matters. See 'Risk Factors--Exchange Rates and Exchange Controls.'
PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST
Unless otherwise specified in the applicable Pricing Supplement, the Company is
obligated to make payments of principal of, and premium, if any, and interest
on, Foreign Currency Notes in the applicable Specified Currency (or, if such
Specified Currency is not at the time of such payment legal tender for the
payment of public and private debts, in such other coin or currency of the
country which issued such Specified Currency as at the time of such payment is
legal tender for the payment of such debts). Any such amounts payable by the
Company in a foreign currency or composite currency will, unless otherwise
specified in the applicable Pricing Supplement, be converted by the exchange
rate agent named in the applicable Pricing Supplement (the 'Exchange Rate
Agent') into United States dollars for payment to Holders. However, the Holder
of a Foreign Currency Note may elect to receive such amounts in the applicable
foreign currency or composite currency as hereinafter described.
Any United States dollar amount to be received by a Holder of a Foreign Currency
Note will be based on the highest bid quotation in The City of New York received
by the Exchange Rate Agent at approximately 11:00 A.M., New York City time, on
the second Business Day preceding the applicable payment date from three
recognized foreign exchange dealers (one of whom may be the Exchange Rate Agent)
selected by the Exchange Rate Agent and approved by the Company for the purchase
by the quoting dealer of the Specified Currency for United States dollars for
settlement on such payment date in the aggregate amount of such Specified
Currency
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payable to all Holders of Foreign Currency Notes scheduled to receive United
States dollar payments and at which the applicable dealer commits to execute a
contract. All currency exchange costs will be borne by the Holders of such
Foreign Currency Notes by deductions from such payments. If three such bid
quotations are not available, payments will be made in the Specified Currency.
A Holder of a Foreign Currency Note may elect to receive all or a specified
portion of any payment of the principal of, and premium, if any, and/or interest
on, such Foreign Currency Note in the Specified Currency by submitting a written
request for such payment to the Trustee at its corporate trust office in The
City of New York on or prior to the applicable Record Date or at least fifteen
calendar days prior to the Maturity Date, as the case may be. Such written
request may be mailed or hand delivered or sent by cable, telex or other form of
facsimile transmission. A Holder of a Foreign Currency Note may elect to receive
all or a specified portion of all future payments in the Specified Currency in
respect of such principal, premium, if any, and/or interest and need not file a
separate election for each payment. Such election will remain in effect until
revoked by written notice to the Trustee, but written notice of any such
revocation must be received by the Trustee on or prior to the applicable Record
Date or at least fifteen calendar days prior to the Maturity Date, as the case
may be. Holders of Foreign Currency Notes whose Notes are to be held in the name
of a broker or nominee should contact such broker or nominee to determine
whether and how an election to receive payments in the Specified Currency may be
made.
Payments of the principal of, and premium, if any, and/or interest on, Foreign
Currency Notes which are to be made in United States dollars will be made in the
manner specified herein with respect to Notes denominated in United States
dollars. See 'Description of Notes--General.' Payments of interest on Foreign
Currency Notes which are to be made in the Specified Currency on an Interest
Payment Date other than the Maturity Date will be made by check mailed to the
address of the Holders of such Foreign Currency Notes as they appear in the
Security Register, subject to the right to receive such interest payments by
wire transfer of immediately available funds under certain circumstances
described under 'Description of Notes--General.' Payments of principal of, and
premium, if any, and/or interest on, Foreign Currency Notes which are to be made
in the Specified Currency on the Maturity Date will be made by wire transfer of
immediately available funds to an account with a bank designated at least
fifteen calendar days prior to the Maturity Date by each Holder thereof,
provided that such bank has appropriate facilities therefor and that the
applicable Foreign Currency Note is presented and surrendered at the principal
corporate trust office of the Trustee in time for the Trustee to make such
payments in such funds in accordance with its normal procedures.
Unless otherwise specified in the applicable Pricing Supplement, a Beneficial
Owner of a Global Security or Securities representing Book-Entry Notes payable
in a Specified Currency other than United States dollars which elects to receive
payments of principal, premium, if any, and/or interest in such Specified
Currency must notify the Participant through which it owns its interest on or
prior to the applicable Record Date or at least fifteen calendar days prior to
the Maturity Date, as the case may be, of such Beneficial Owner's election. Such
Participant must notify the Depositary of such election on or prior to the third
Business Day after such Record Date or at least twelve calendar days prior to
the Maturity Date, as the case may be, and the Depositary will notify the
Trustee of such election on or prior to the fifth Business Day after such Record
Date or at least ten calendar days prior to the Maturity Date, as the case may
be. If complete instructions are received by the Participant from the Beneficial
Owner and forwarded by the Participant to the Depositary, and by the Depositary
to the Trustee, on or prior to such dates, then such Beneficial Owner will
receive payments in the applicable Specified Currency.
PAYMENT CURRENCY
If the Specified Currency for a Foreign Currency Note is not available for the
required payment of principal, premium, if any, and/or interest due to the
imposition of exchange controls or other circumstances beyond the reasonable
control of the Company, the Company will be entitled to satisfy its obligations
to the Holder of such Foreign Currency Note by making such payment in United
States dollars on the basis of the Market Exchange Rate (as defined below) on
the second Business Day prior to such payment or, if such Market Exchange Rate
is not then available, on the basis of the most recently available Market
Exchange Rate or as otherwise specified in the applicable Pricing Supplement.
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If payment in respect of a Foreign Currency Note is required to be made in any
composite currency (e.g., ECU), and such composite currency is unavailable due
to the imposition of exchange controls or other circumstances beyond the
reasonable control of the Company, the Company will be entitled to satisfy its
obligations to the Holder of such Foreign Currency Note by making such payment
in United States dollars. The amount of each payment in United States dollars
shall be computed by the Exchange Rate Agent on the basis of the equivalent of
the composite currency in United States dollars. The component currencies of the
composite currency for this purpose (collectively, the 'Component Currencies'
and each, a 'Component Currency') shall be the currency amounts that were
components of the composite currency as of the last day on which the composite
currency was used. The equivalent of the composite currency in United States
dollars shall be calculated by aggregating the United States dollar equivalents
of the Component Currencies. The United States dollar equivalent of each of the
Component Currencies shall be determined by the Exchange Rate Agent on the basis
of the most recently available Market Exchange Rate for each such Component
Currency, or as otherwise specified in the applicable Pricing Supplement.
If the official unit of any Component Currency is altered by way of combination
or subdivision, the number of units of the currency as a Component Currency
shall be divided or multiplied in the same proportion. If two or more Component
Currencies are consolidated into a single currency, the amounts of those
currencies as Component Currencies shall be replaced by an amount in such single
currency equal to the sum of the amounts of the consolidated Component
Currencies expressed in such single currency. If any Component Currency is
divided into two or more currencies, the amount of the original Component
Currency shall be replaced by the amounts of such two or more currencies, the
sum of which shall be equal to the amount of the original Component Currency.
The 'Market Exchange Rate' for a Specified Currency other than United States
dollars means the noon dollar buying rate in The City of New York for cable
transfers for such Specified Currency as certified for customs purposes by (or
if not so certified, as otherwise determined by) the Federal Reserve Bank of New
York. Any payment made in United States dollars under such circumstances where
the required payment is in a Specified Currency other than United States dollars
will not constitute an Event of Default under the Indenture with respect to the
Notes.
All determinations referred to above made by the Exchange Rate Agent shall be at
its sole discretion and shall, in the absence of manifest error, be conclusive
for all purposes and binding on the Holders of the Foreign Currency Notes.
GOVERNING LAW; JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of the
State of New York. Under current New York law, where a cause of action is based
upon an obligation denominated in a non-United States currency, a state court in
the State of New York rendering a judgment on such an obligation would be
required to render such judgment in the non-United States currency, and such
judgment would be converted into United States dollars at the exchange rate
prevailing on the date of entry of the judgment. The holders of such notes could
be subject to exchange rate fluctuations occurring after such judgment is
rendered. It is not certain, however, that a non-New York court would follow the
same rules with respect to conversion.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax consequences
of the purchase, ownership and disposition of the Notes is based upon laws,
regulations, rulings and decisions now in effect, all of which are subject to
change (including changes in effective dates) or possible differing
interpretations. It deals only with Notes held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, tax-exempt organizations, regulated
investment companies, dealers in securities or currencies, persons holding Notes
as a hedge against currency risks or as a position in a 'straddle' for tax
purposes, or persons whose functional currency is not the United States dollar.
It also does not deal with Holders other than original purchasers (except where
otherwise specifically noted). BECAUSE THE EXACT PRICING AND OTHER TERMS OF THE
NOTES WILL VARY, NO ASSURANCE CAN BE GIVEN THAT THE CONSIDERATIONS DESCRIBED
BELOW WILL APPLY TO A PARTICULAR ISSUANCE
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OF NOTES. CERTAIN MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
RELATING TO THE OWNERSHIP OF PARTICULAR NOTES (WHERE APPLICABLE) WILL BE
SUMMARIZED IN THE PRICING SUPPLEMENT RELATING TO SUCH NOTES. PERSONS CONSIDERING
THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE
APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR
SITUATION AS WELL AS ANY CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION
OF THE NOTES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING
JURISDICTION.
As used herein, the term 'U.S. Holder' means a Beneficial Owner of a Note that
is for United States Federal income tax purposes (i) a citizen or resident of
the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate or trust the income of which is subject to
United States Federal income taxation regardless of its source or (iv) any other
person whose income or gain in respect of a Note is effectively connected with
the conduct of a United States trade or business. As used herein, the term
'non-U.S. Holder' means a Beneficial Owner of a Note that is not a U.S. Holder.
U.S. HOLDERS
Payments of Interest. Payments of interest on a Note generally will be taxable
to a U.S. Holder as ordinary interest income at the time such payments are
accrued or are received (in accordance with the U.S. Holder's regular method of
tax accounting).
Original Issue Discount. The following summary is a general discussion of the
United States Federal income tax consequences to U.S. Holders of the purchase,
ownership and disposition of Notes issued with original issue discount. The
following summary is based upon final Treasury regulations (the 'OID
Regulations') released by the Internal Revenue Service ('IRS') on January 27,
1994, as amended, under the original issue discount provisions of the Code.
For United States Federal income tax purposes, original issue discount is the
excess of the stated redemption price at maturity of a Note over its issue
price, if such excess equals or exceeds a de minimis amount (generally 1/4 of 1%
of the Note's stated redemption price at maturity multiplied by the number of
complete years to its maturity from its issue date or, in the case of a Note
providing for the payment of any amount other than qualified stated interest (as
defined below) prior to maturity, multiplied by the weighted average maturity of
such Note). The issue price of each Note in an issue of Notes equals the first
price at which a substantial amount of such Notes has been sold (ignoring sales
to bond houses, brokers, or similar persons or organizations acting in the
capacity of underwriters, placement agents, or wholesalers). The stated
redemption price at maturity of a Note is the sum of all payments provided by
the Note other than 'qualified stated interest' payments. The term 'qualified
stated interest' generally means stated interest that is unconditionally payable
in cash or property (other than debt instruments of the issuer) at least
annually at a single fixed rate. In addition, under the OID Regulations, if a
Note bears interest for one or more accrual periods at a rate below the rate
applicable for the remaining term of such Note (e.g., Notes with teaser rates or
interest holidays), and if the greater of either the resulting foregone interest
on such Note or any 'true' discount on such Note (i.e., the excess of the Note's
stated principal amount over its issue price) equals or exceeds a specified de
minimis amount, then a portion, or in some circumstances all, of the stated
interest on the Note would be treated as original issue discount rather than
qualified stated interest.
Payments of qualified stated interest on a Note are taxable to a U.S. Holder as
ordinary interest income at the time such payments are accrued or are received
(in accordance with the U.S. Holder's regular method of tax accounting). A U.S.
Holder of a Discount Note must include original issue discount in income as
ordinary interest for United States Federal income tax purposes as it accrues
under a constant yield method in advance of receipt of the cash payments
attributable to such income, regardless of such U.S. Holder's regular method of
tax accounting. In general, the amount of original issue discount included in
income by the initial U.S. Holder of a Discount Note is the sum of the daily
portions of original issue discount with respect to such Discount Note for each
day during the taxable year (or portion of the taxable year) on which such U.S.
Holder held such Discount Note. The 'daily portion' of original issue discount
on any Discount Note is determined by allocating to each day in any accrual
period a ratable portion of the original issue discount allocable to that
accrual
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period. An 'accrual period' may be of any length and the accrual periods may
vary in length over the term of the Discount Note, provided that each accrual
period is no longer than one year and each scheduled payment of principal or
interest occurs either on the final day of an accrual period or on the first day
of an accrual period. The amount of original issue discount allocable to each
accrual period is generally equal to the difference between (i) the product of
the Discount Note's adjusted issue price at the beginning of such accrual period
and its yield to maturity (determined on the basis of compounding at the close
of each accrual period and appropriately adjusted to take into account the
length of the particular accrual period) and (ii) the amount of any qualified
stated interest payments allocable to such accrual period. The 'adjusted issue
price' of a Discount Note at the beginning of any accrual period is the sum of
the issue price of the Discount Note plus the amount of original issue discount
allocable to all prior accrual periods minus the amount of any prior payments on
the Discount Note that were not qualified stated interest payments. Under these
rules, U.S. Holders generally will have to include in income increasingly
greater amounts of original issue discount in successive accrual periods. These
same rules apply to any Note that is not otherwise a Discount Note, but
nonetheless has been issued with original issue discount.
A U.S. Holder who purchases a Discount Note for an amount that is greater than
its adjusted issue price as of the purchase date and less than or equal to the
sum of all amounts payable on the Discount Note after the purchase date other
than payments of qualified stated interest, will be considered to have purchased
the Discount Note at an 'acquisition premium.' Under the acquisition premium
rules, the amount of original issue discount which such U.S. Holder must include
in its gross income with respect to such Discount Note for any taxable year (or
portion thereof in which the U.S. Holder holds the Discount Note) will be
reduced (but not below zero) by the portion of the acquisition premium properly
allocable to the period. These same rules apply to any Note that is not
otherwise a Discount Note, but nonetheless has been issued with original issue
discount.
Under the OID Regulations, Floating Rate Notes and Indexed Notes ('Variable
Notes') are subject to special rules whereby a Variable Note will qualify as a
'variable rate debt instrument' if (a) its issue price does not exceed the total
noncontingent principal payments due under the Variable Note by more than a
specified de minimis amount and (b) it provides for stated interest, paid or
compounded at least annually, at current values of (i) one or more qualified
floating rates, (ii) a single fixed rate and one or more qualified floating
rates, (iii) a single objective rate, or (iv) a single fixed rate and a single
objective rate that is a qualified inverse floating rate.
A 'qualified floating rate' is any variable rate where variations in the value
of such rate can reasonably be expected to measure contemporaneous variations in
the cost of newly borrowed funds in the currency in which the Variable Note is
denominated. Although a multiple of a qualified floating rate will generally not
itself constitute a qualified floating rate, a variable rate equal to the
product of a qualified floating rate and a fixed multiple that is greater than
.65 but not more than 1.35 will constitute a qualified floating rate. A variable
rate equal to the product of a qualified floating rate and a fixed multiple that
is greater than .65 but not more than 1.35, increased or decreased by a fixed
rate, will also constitute a qualified floating rate. In addition, under the OID
Regulations, two or more qualified floating rates that can reasonably be
expected to have approximately the same values throughout the term of the
Variable Note (e.g., two or more qualified floating rates with values within 25
basis points of each other as determined on the Variable Note's issue date) will
be treated as a single qualified floating rate. Notwithstanding the foregoing, a
variable rate that would otherwise constitute a qualified floating rate but
which is subject to one or more restrictions such as a maximum numerical
limitation (i.e., a cap) or a minimum numerical limitation (i.e., a floor) may,
under certain circumstances, fail to be treated as a qualified floating rate
under the OID Regulations unless such cap or floor is fixed throughout the term
of the Note. An 'objective rate' is a rate that is not itself a qualified
floating rate but which is determined using a single fixed formula and which is
based upon objective financial or economic information (e.g., a rate that is
based on one or more qualified floating rates or on the yield of actively traded
personal property, other than stock or debt of the issuer or a related party).
The OID Regulations also provide that other variable interest rates may be
treated as objective rates if so designated by the IRS in the future. Despite
the foregoing, a variable rate of interest on a Variable Note will not
constitute an objective rate if it is reasonably expected that the average value
of such rate during the first half of the Variable Note's term will be either
significantly less than or significantly greater than the average value of the
rate during the final half of the Variable Note's term. A 'qualified inverse
floating rate' is any objective rate where such rate is equal to a fixed rate
minus a qualified floating rate, as long as variations in the rate can
reasonably be expected to inversely reflect contemporaneous variations in the
qualified floating rate. The OID Regulations also provide that if a Variable
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Note provides for stated interest at a fixed rate for an initial period of less
than one year followed by a variable rate that is either a qualified floating
rate or an objective rate and if the variable rate on the Variable Note's issue
date is intended to approximate the fixed rate (e.g., the value of the variable
rate on the issue date does not differ from the value of the fixed rate by more
than 25 basis points), then the fixed rate and the variable rate together will
constitute either a single qualified floating rate or objective rate, as the
case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a 'variable rate debt instrument' under the OID Regulations, then
any stated interest on such Note which is unconditionally payable in cash or
property (other than debt instruments of the issuer) at least annually will
constitute qualified stated interest and will be taxed accordingly. Thus, a
Variable Note that provides for stated interest at either a single qualified
floating rate or a single objective rate throughout the term thereof and that
qualifies as a 'variable rate debt instrument' under the OID Regulations will
generally not be treated as having been issued with original issue discount
unless the Variable Note is issued at a 'true' discount (i.e., at a price below
the Note's stated principal amount) in excess of a specified de minimis amount.
Original issue discount on such a Variable Note arising from 'true' discount and
qualified stated interest are allocated to an accrual period using the constant
yield method described above by assuming that the variable rate is a fixed rate
equal to (i) in the case of a qualified floating rate or qualified inverse
floating rate, the value as of the issue date, of the qualified floating rate or
qualified inverse floating rate, or (ii) in the case of an objective rate (other
than a qualified inverse floating rate), a fixed rate that reflects the yield
that is reasonably expected for the Variable Note. The amount of qualified
stated interest allocable to an accrual period is increased (or decreased) if
the interest actually paid during an accrual period exceeds (or is less than)
the interest assumed to be paid during the accrual period.
In general, any other Variable Note that qualifies as a 'variable rate debt
instrument' will be converted into an 'equivalent' fixed rate debt instrument
for purposes of determining the amount and accrual of original issue discount
and qualified stated interest on the Variable Note. The OID Regulations
generally require that such a Variable Note be converted into an 'equivalent'
fixed rate debt instrument by substituting any qualified floating rate or
qualified inverse floating rate provided for under the terms of the Variable
Note with a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the Variable Note's
issue date. Any objective rate (other than a qualified inverse floating rate)
provided for under the terms of the Variable Note is converted into a fixed rate
that reflects the yield that is reasonably expected for the Variable Note. In
the case of a Variable Note that qualifies as a 'variable rate debt instrument'
and provides for stated interest at a fixed rate in addition to either one or
more qualified floating rates or a qualified inverse floating rate, the fixed
rate is initially converted into a qualified floating rate (or a qualified
inverse floating rate, if the Variable Note provides for a qualified inverse
floating rate). Under such circumstances, the qualified floating rate or
qualified inverse floating rate that replaces the fixed rate must be such that
the fair market value of the Variable Note as of the Variable Note's issue date
is approximately the same as the fair market value of an otherwise identical
debt instrument that provides for either the qualified floating rate or
qualified inverse floating rate rather than the fixed rate. Subsequent to
converting the fixed rate into either a qualified floating rate or a qualified
inverse floating rate, the Variable Note is then converted into an 'equivalent'
fixed rate debt instrument in the manner described above.
Once the Variable Note is converted into an 'equivalent' fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest are determined for the 'equivalent' fixed
rate debt instrument by applying the general original issue discount rules to
the 'equivalent' fixed rate debt instrument and a U.S. Holder of the Variable
Note will account for such original issue discount and qualified stated interest
as if the U.S. Holder held the 'equivalent' fixed rate debt instrument. Each
accrual period appropriate adjustments will be made to the amount of qualified
stated interest or original issue discount assumed to have been accrued or paid
with respect to the 'equivalent' fixed rate debt instrument in the event that
such amounts differ from the actual amount of interest accrued or paid on the
Variable Note during the accrual period.
If a Variable Note does not qualify as a 'variable rate debt instrument' under
the OID Regulations, then the Variable Note would be treated as a contingent
payment debt obligation. On June 11, 1996 the IRS released final Treasury
regulations dealing with the treatment of contingent payment obligations (the
'Contingent Debt Regulations').
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Generally, if a Variable Note is treated as a contingent payment obligation,
interest payments thereon will be treated as 'contingent interest' payments. Any
contingent interest payments on a Variable Note would be includible in income in
a taxable year whether or not the amount of any payment is fixed or determinable
in that year. The amount of interest included in income in any particular
accrual period would be determined by estimating a projected payment schedule
(as determined under the Contingent Debt Regulations) for the Variable Note
based on a comparable yield based on a hypothetical fixed rate instrument having
similar terms and conditions as the Variable Note and applying daily accrual
rules similar to those for accruing original issue discount on Notes issued with
original issue discount (as discussed above). If the actual amount of contingent
interest payments is not equal to the projected amount, an adjustment to income
at the time of the payment must be made to reflect the difference.
Certain of the Notes (i) may be redeemable at the option of the Company prior to
their stated maturity (a 'call option') and/or (ii) may be repayable at the
option of the Holder prior to their stated maturity (a 'put option'). Notes
containing such features may be subject to rules that differ from the general
rules discussed above. Investors intending to purchase Notes with such features
should consult their own tax advisors, since the original issue discount
consequences will depend, in part, on the particular terms and features of the
purchased Notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
Short-Term Notes. Notes that have a fixed maturity of one year or less
('Short-Term Notes') will be treated as having been issued with original issue
discount. In general, a cash method U.S. Holder is not required to accrue such
original issue discount unless the U.S. Holder elects to do so. If such an
election is not made, any gain recognized by the U.S. Holder on the sale,
exchange or maturity of the Short-Term Note will be ordinary income to the
extent of the original issue discount accrued on a straight-line basis, or upon
election under the constant yield method (based on daily compounding), through
the date of sale or maturity, and a portion of the deductions otherwise
allowable to the U.S. Holder for interest on borrowings allocable to the
Short-Term Note will be deferred until a corresponding amount of income is
realized. U.S. Holders who report income for United States Federal income tax
purposes under the accrual method, and certain other Holders including banks and
dealers in securities, are required to accrue original issue discount on a
Short-Term Note on a straight-line basis unless an election is made to accrue
the original issue discount under a constant yield method (based on daily
compounding).
Market Discount. If a U.S. Holder purchases a Note, other than a Note issued
with original issue discount, for an amount that is less than its issue price
(or, in the case of a subsequent purchaser, its stated redemption price at
maturity) or, in the case of a Note issued with original issue discount, for an
amount that is less than its adjusted issue price as of the purchase date, such
U.S. Holder will be treated as having purchased such Note at a 'market
discount,' unless such market discount is less than a specified de minimis
amount.
Under the market discount rules, a U.S. Holder will be required to treat any
partial principal payment (or, in the case of a Note issued with original issue
discount, any payment that is part of its 'revised issue price') on, or any gain
realized on the sale, exchange, retirement or other disposition of, a Note as
ordinary income to the extent of the lesser of (i) the amount of such payment or
realized gain or (ii) the market discount which has not previously been included
in income and is treated as having accrued on such Note at the time of such
payment or disposition. Market discount will be considered to accrue ratably
during the period from the date of acquisition to the Maturity Date of the Note,
unless the U.S. Holder elects to accrue market discount on the basis of a
constant interest rate.
A U.S. Holder may be required to defer the deduction of all or a portion of the
interest paid or accrued on any indebtedness incurred or maintained to purchase
or carry a Note with market discount until the maturity of the Note or certain
earlier dispositions, because a current deduction is only allowed to the extent
the interest expense exceeds an allocable portion of market discount. A U.S.
Holder may elect to include market discount in income currently as it accrues
(on either a ratable or a constant interest rate basis), in which case the rules
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described above regarding the treatment as ordinary income of gain upon the
disposition of the Note and upon the receipt of certain cash payments and
regarding the deferral of interest deductions will not apply. Generally, such
currently included market discount is treated as ordinary interest for United
States Federal income tax purposes. Such an election will apply to all debt
instruments acquired by the U.S. Holder on or after the first day of the taxable
year to which such election applies and may be revoked only with the consent of
the IRS.
Premium. If a U.S. Holder purchases a Note for an amount that is greater than
the sum of all amounts payable on the Note after the purchase date other than
payments of qualified stated interest, such U.S. Holder will be considered to
have purchased the Note with 'amortizable bond premium' equal in amount to such
excess. A U.S. Holder may elect to amortize such premium using a constant yield
method over the remaining term of the Note and may offset interest otherwise
required to be included in respect of the Note during any taxable year by the
amortized amount of such excess for the taxable year. However, if the Note may
be optionally redeemed after the U.S. Holder acquires it at a price in excess of
its stated redemption price at maturity, special rules would apply which could
result in a deferral of the amortization of some bond premium until later in the
term of the Note. Any election to amortize bond premium applies to all taxable
debt obligations then owned and thereafter acquired by the U.S. Holder and may
be revoked only with the consent of the IRS.
Disposition of a Note. Except as discussed above, upon the sale, exchange or
retirement of a Note, a U.S. Holder generally will recognize taxable gain or
loss equal to the difference between the amount realized on the sale, exchange
or retirement (other than amounts representing accrued and unpaid interest) and
such U.S. Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax
basis in a Note generally will equal such U.S. Holder's initial investment in
the Note increased by any original issue discount included in income (and
accrued market discount, if any, if the U.S. Holder has included such market
discount in income) and decreased by the amount of any payments, other than
qualified stated interest payments, received and amortizable bond premium taken
with respect to such Note. Such gain or loss generally will be long-term capital
gain or loss if the Note were held for more than one year.
NOTES DENOMINATED, OR IN RESPECT OF WHICH INTEREST IS PAYABLE, IN A FOREIGN
CURRENCY
As used herein, 'Foreign Currency' means a currency or currency unit other than
U.S. dollars.
Cash Method. A U.S. Holder who uses the cash method of accounting for United
States Federal income tax purposes and who receives a payment of interest on a
Note (other than original issue discount or market discount) will be required to
include in income the U.S. dollar value of the Foreign Currency payment
(determined on the date such payment is received) regardless of whether the
payment is in fact converted to U.S. dollars at that time, and such U.S. dollar
value will be the U.S. Holder's tax basis in such Foreign Currency.
Accrual Method. A U.S. Holder who uses the accrual method of accounting for
United States Federal income tax purposes, or who otherwise is required to
accrue interest prior to receipt, will be required to include in income the U.S.
dollar value of the amount of interest income (including original issue discount
or market discount and reduced by amortizable bond premium to the extent
applicable) that has accrued and is otherwise required to be taken into account
with respect to a Note during an accrual period. The U.S. dollar value of such
accrued income will be determined by translating such income at the average rate
of exchange for the accrual period or, with respect to an accrual period that
spans two taxable years, at the average rate for the partial period within the
taxable year. A U.S. Holder may elect, however, to translate such accrued
interest income using the rate of exchange on the last day of the accrual period
or, with respect to an accrual period that spans two taxable years, using the
rate of exchange on the last day of the taxable year. If the last day of an
accrual period is within five business days of the date of receipt of the
accrued interest, a U.S. Holder may translate such interest using the rate of
exchange on the date of receipt. The above election will apply to other debt
obligations held by the U.S. Holder and may not be changed without the consent
of the IRS. A U.S. Holder should consult a tax advisor before making the above
election. A U.S. Holder will recognize exchange gain or loss (which will be
treated as ordinary income or loss) with respect to accrued interest income on
the date such income is received. The amount of ordinary income or loss
recognized will equal the difference, if any, between the U.S. dollar value of
the Foreign Currency payment received (determined on the date such payment is
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received) in respect of such accrual period and the U.S. dollar value of
interest income that has accrued during such accrual period (as determined
above).
Purchase, Sale and Retirement of Notes. A U.S. Holder who purchases a Note with
previously owned Foreign Currency will recognize ordinary income or loss in an
amount equal to the difference, if any, between such U.S. Holder's tax basis in
the Foreign Currency and the U.S. dollar fair market value of the Foreign
Currency used to purchase the Note, determined on the date of purchase.
Except as discussed above with respect to Short-Term Notes, upon the sale,
exchange or retirement of a Note, a U.S. Holder will recognize taxable gain or
loss equal to the difference between the amount realized on the sale, exchange
or retirement and such U.S. Holder's adjusted tax basis in the Note. Such gain
or loss generally will be capital gain or loss (except to the extent of any
accrued market discount not previously included in the U.S. Holder's income) and
will be long-term capital gain or loss if at the time of sale, exchange or
retirement the Note has been held by such U.S. Holder for more than one year. To
the extent the amount realized represents accrued but unpaid interest, however,
such amounts must be taken into account as interest income, with exchange gain
or loss computed as described in 'Payments of Interest in a Foreign Currency'
above. If a U.S. Holder receives Foreign Currency on such a sale, exchange or
retirement, the amount realized will be based on the U.S. dollar value of the
Foreign Currency on the date the payment is received or the Note is disposed of
(or deemed disposed of in the case of a taxable exchange of the Note for a new
Note). In the case of a Note that is denominated in Foreign Currency and is
traded on an established securities market, a cash basis U.S. Holder (or, upon
election, an accrual basis U.S. Holder) will determine the U.S. dollar value of
the amount realized by translating the Foreign Currency payment at the spot rate
of exchange on the settlement date of the sale. A U.S. Holder's adjusted tax
basis in a Note will equal the cost of the Note to such Holder, increased by the
amounts of any market discount or original issue discount previously included in
income by the Holder with respect to such Note and reduced by any amortized
acquisition or other premium and any principal payments received by the Holder.
A U.S. Holder's tax basis in a Note, and the amount of any subsequent
adjustments to such Holder's tax basis, will be the U.S. dollar value of the
Foreign Currency amount paid for such Note, or of the Foreign Currency amount of
the adjustment, determined on the date of such purchase or adjustment.
Gain or loss realized upon the sale, exchange or retirement of a Note that is
attributable to fluctuations in currency exchange rates will be ordinary income
or loss which will not be treated as interest income or expense. Gain or loss
attributable to fluctuations in exchange rates will equal the difference between
the U.S. dollar value of the Foreign Currency principal amount of the Note,
determined on the date such payment is received or the Note is disposed of, and
the U.S. dollar value of the Foreign Currency principal amount of the Note,
determined on the date the U.S. Holder acquired the Note. Such Foreign Currency
gain or loss will be recognized only to the extent of the total gain or loss
realized by the U.S. Holder on the sale, exchange or retirement of the Note.
Original Issue Discount. In the case of a Note issued with original issue
discount, (i) original issue discount is determined in units of the Foreign
Currency, (ii) accrued original issue discount is translated into U.S. dollars
as described in 'Payments of Interest in a Foreign Currency--Accrual Method'
above and (iii) the amount of Foreign Currency gain or loss on the accrued
original issue discount is determined by comparing the amount of income received
attributable to the discount (either upon payment, maturity or an earlier
disposition), as translated into U.S. dollars at the rate of exchange on the
date of such receipt, with the amount of original issue discount accrued, as
translated above.
Premium and Market Discount. In the case of a Note with market discount, (i)
market discount is determined in units of the Foreign Currency, (ii) accrued
market discount taken into account upon the receipt of any partial principal
payment or upon the sale, exchange, retirement or other disposition of the Note
(other than accrued market discount required to be taken into account currently)
is translated into U.S. dollars at the exchange rate on such disposition date
(and no part of such accrued market discount is treated as exchange gain or
loss) and (iii) accrued market discount currently includible in income by a U.S.
Holder for any accrual period is translated into U.S. dollars on the basis of
the average exchange rate in effect during such accrual period, and the exchange
gain or loss is determined upon the receipt of any partial principal payment or
upon the sale, exchange, retirement or other disposition of the Note in the
manner described in 'Payments of Interest in a Foreign Currency--Accrual Method'
above with respect to computation of exchange gain or loss on accrued interest.
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With respect to a Note issued with amortizable bond premium, such premium is
determined in the relevant Foreign Currency and reduces interest income in units
of the Foreign Currency. Although not entirely clear, a U.S. Holder should
recognize exchange gain or loss equal to the difference between the U.S. dollar
value of the bond premium amortized with respect to a period, determined on the
date the interest attributable to such period is received, and the U.S. dollar
value of the bond premium determined on the date of the acquisition of the Note.
Exchange of Foreign Currencies. A U.S. Holder will have a tax basis in any
Foreign Currency received as interest or on the sale, exchange or retirement of
a Note equal to the U.S. dollar value of such Foreign Currency, determined at
the time the interest is received or at the time of the sale, exchange or
retirement. Any gain or loss realized by a U.S. Holder on a sale or other
disposition of Foreign Currency (including its exchange for U.S. dollars or its
use to purchase Notes) will be ordinary income or loss.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes on
payments of principal, premium (if any) or interest (including original issue
discount, if any) on a Note, unless such non-U.S. Holder is a direct or indirect
10% or greater shareholder of the Company, a controlled foreign corporation
related to the Company or a bank receiving interest described in section
881(c)(3)(A) of the Code. To qualify for the exemption from taxation, the last
United States payor in the chain of payment prior to payment to a non-U.S.
Holder (the 'Withholding Agent') must have received in the year in which a
payment of interest or principal occurs, or in either of the two preceding
calendar years, a statement that (i) is signed by the Beneficial Owner of the
Note under penalties of perjury, (ii) certifies that such owner is not a U.S.
Holder and (iii) provides the name and address of the Beneficial Owner. The
statement may be made on an IRS Form W-8 or a substantially similar form, and
the Beneficial Owner must inform the Withholding Agent of any change in the
information on the statement within 30 days of such change. If a Note is held
through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form provided by the
Beneficial Owner to the organization or institution. The Treasury Department is
considering implementation of further certification requirements aimed at
determining whether the issuer of a debt obligation is related to Holders
thereof.
Generally, a non-U.S. Holder will not be subject to Federal income taxes on any
amount which constitutes capital gain upon retirement or disposition of a Note,
provided the gain is not effectively connected with the conduct of a trade or
business in the United States by the non-U.S. Holder. Certain other exceptions
may be applicable, and a non-U.S. Holder should consult its tax advisor in this
regard.
The Notes will not be includible in the estate of a non-U.S. Holder unless the
individual is a direct or indirect 10% or greater shareholder of the Company or,
at the time of such individual's death, payments in respect of the Notes would
have been effectively connected with the conduct by such individual of a trade
or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31% may
apply to payments made in respect of the Notes to registered owners who are not
'exempt recipients' and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would establish
an exemption from backup withholding for those non-U.S. Holders who are not
exempt recipients.
In addition, upon the sale of a Note to (or through) a broker, the broker must
withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S.
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Holder, certifies that such seller is a non-U.S. Holder (and certain other
conditions are met). Such a sale must also be reported by the broker to the IRS,
unless either (i) the broker determines that the seller is an exempt recipient
or (ii) the seller certifies its non-U.S. status (and certain other conditions
are met). Certification of the registered owner's non-U.S. status would be made
normally on an IRS Form W-8 under penalties of perjury, although in certain
cases it may be possible to submit other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to a
Beneficial Owner would be allowed as a refund or a credit against such
Beneficial Owner's United States Federal income tax provided the required
information is furnished to the IRS.
SUPPLEMENTAL PLAN OF DISTRIBUTION
The Notes are being offered on a continuous basis for sale by the Company to or
through J.P. Morgan Securities Inc., Goldman, Sachs & Co., Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Smith Barney Inc. and First
Chicago Capital Markets, Inc. (the 'Agents'). The Agents may purchase Notes, as
principal, from the Company from time to time for resale to investors and other
purchasers at varying prices relating to prevailing market prices at the time of
resale as determined by the applicable Agent(s), or, if so specified in the
applicable Pricing Supplement, for resale at a fixed offering price. If agreed
to by the Company and an Agent, such Agent may also utilize its reasonable
efforts on an agency basis to solicit offers to purchase the Notes at 100% of
the principal amount thereof, unless otherwise specified in the applicable
Pricing Supplement. The Company will pay a commission to an Agent, ranging from
.125% to .750% of the principal amount of each Note, depending upon its stated
maturity, sold through such Agent. Commissions with respect to Notes with stated
maturities in excess of 30 years that are sold through an Agent will be
negotiated between the Company and such Agent at the time of such sale.
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 of the principal amount
equal to the commission applicable to an agency sale of a Note of identical
maturity. An Agent may sell Notes it has purchased from the Company as principal
to other dealers for resale to investors and other purchasers, and may allow all
or any portion of the discount received in connection with such purchase from
the Company to such dealers. After the initial offering of Notes, the offering
price (in the case of Notes to be resold on a fixed price basis), the concession
and the discount may be changed.
The Company has reserved the right to sell the Notes directly to investors, and
may solicit and accept offers to purchase Notes directly from investors from
time to time on its own behalf. No commission will be paid on Notes sold
directly by the Company. In certain instances, the Company may offer Notes to or
through additional agents named in the applicable Pricing Supplement.
The Company reserves the right to withdraw, cancel or modify the offer made
hereby without notice and may reject offers in whole or in part (whether placed
directly with the Company or through the Agents). Each Agent will have the
right, in its discretion reasonably exercised, to reject in whole or in part any
offer to purchase Notes received by it on an agency basis.
Unless otherwise specified in the applicable Pricing Supplement, payment of the
purchase price of the Notes will be required to be made in immediately available
funds in the Specified Currency in The City of New York on the date of
settlement. See 'Description of Notes--General.'
Upon issuance, the Notes will not have an established trading market. The Notes
will not be listed on any securities exchange. The Agents may from time to time
purchase and sell Notes in the secondary market, but the Agents are not
obligated to do so, and there can be no assurance that there will be a secondary
market for the Notes or that there will be liquidity in the secondary market if
one develops. From time to time, the Agents may make a market in the Notes, but
the Agents are not obligated to do so and may discontinue any market-making
activity at any time.
The Agents may be deemed to be 'underwriters' within the meaning of the
Securities Act of 1933, as amended (the 'Securities Act'). The Company has
agreed to indemnify the Agents against certain liabilities (including
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liabilities under the Securities Act), or to contribute to payments the Agents
may be required to make in respect thereof. The Company has agreed to reimburse
the Agents for certain other expenses.
In the ordinary course of their respective businesses, the Agents and their
affiliates have engaged in, and may in the future engage in, investment and
commercial banking transactions with the Company and certain of its affiliates.
Concurrently with the offering of Notes described herein, the Company may issue
other Offered Securities described in the accompanying Prospectus.
LEGAL OPINIONS
Certain legal matters will be passed upon for the Company by Robinson Silverman
Pearce Aronsohn & Berman LLP, New York, New York and for the Agents by Skadden,
Arps, Slate, Meagher & Flom LLP, New York, New York. The legal authorization and
issuance of the Notes, as well as certain other legal matters concerning
Maryland law, will be passed upon for the Company by Ballard Spahr Andrews &
Ingersoll, Baltimore, Maryland. The opinions of Robinson Silverman Pearce
Aronsohn & Berman LLP, Skadden, Arps, Slate, Meagher & Flom LLP and Ballard
Spahr Andrews & Ingersoll will be based 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 that cannot be ascertained on the date of such
opinions.
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PROSPECTUS
$250,000,000
WELLSFORD RESIDENTIAL PROPERTY TRUST
Debt Securities, Preferred Shares,
Common Shares, Warrants and Rights
Wellsford Residential Property Trust (the 'Company') may from time to time offer
in one or more series its (i) unsecured debt securities, which may be either
senior debt securities ('Senior Securities') or subordinated debt securities
('Subordinated Securities,' and together with Senior Securities, the 'Debt
Securities'), (ii) preferred shares of beneficial interest, par value $.01 per
share ('Preferred Shares'), (iii) common shares of beneficial interest, par
value $.01 per share ('Common Shares'), (iv) warrants to purchase Debt
Securities, Preferred Shares or Common Shares (collectively, 'Warrants'), or (v)
rights to purchase Common Shares ('Rights'), with an aggregate initial public
offering price of up to $250,000,000 on terms to be determined at the time of
offering. Debt Securities, Preferred Shares, Common Shares, Warrants and Rights
(collectively, the 'Offered 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 specific terms of the Offered 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, ranking, 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, certain covenants, other terms and
conditions, and the initial public offering price; (ii) in the case of Preferred
Shares, the number, specific title and stated value, any distribution,
liquidation, redemption, conversion, voting and other terms and conditions, and
the initial public offering price; (iii) in the case of Common Shares, any
initial public offering price; (iv) in the case of Warrants, the number and
terms thereof, the designation and the number of securities issuable upon their
exercise, the exercise price, the terms of the offering and sale thereof and,
where applicable, the duration and detachability thereof; and (v) in the case of
Rights, the duration, exercise price and transferability thereof. In addition,
such specific terms may include limitations on direct or beneficial ownership
and restrictions on transfer of certain types of Offered 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 Offered Securities
covered by such Prospectus Supplement.
The Offered Securities may be offered directly, 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 Offered
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 Offered Securities may be sold
without delivery of the applicable Prospectus Supplement describing the method
and terms of the offering of such series of Offered 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.
October 28, 1996
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the 'Exchange Act'), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the 'Commission'). The reports, proxy
statements and other information filed by the Company with the Commission in
accordance with the Exchange Act can be inspected and copied at the Commission's
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the Company's (i) Common Shares, (ii)
Series A Cumulative Convertible Preferred Shares of Beneficial Interest, par
value $.01 per share (the 'Convertible Preferred Shares') and (iii) 9.65% Series
B Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $.01
per share (the 'Series B Preferred Shares') are listed on the New York Stock
Exchange and similar information concerning the Company can be inspected and
copied 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 (the
'Registration Statement') (of which this Prospectus is a part) under the
Securities Act of 1933, as amended (the 'Securities Act'), with respect to the
Offered Securities. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain portions of which have been omitted
as permitted by the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement or to previous filings made by the Company with the
Commission, each such statement being qualified in all respects by such
reference. For further information regarding the Company and the Offered
Securities, reference is hereby made to the Registration Statement, the previous
filings made by the Company with the Commission and the exhibits and schedules
thereto, which may be obtained from the Commission (i) at its principal office
in Washington, D.C., upon payment of the fees prescribed by the Commission or
(ii) by consulting the Commission's Web site at the address of
http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the Exchange Act
with the Commission and are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995.
2. The Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended
March 31, 1996 and June 30, 1996.
3. The Company's Current Report on Form 8-K, dated October 24, 1996.
4. The description of the Company's Common Shares contained in the Company's
Registration Statement on Form 8-A dated November 10, 1992 and the information
thereby incorporated by reference contained in the Company's Registration
Statement on Form S-11 (No. 33-52406), as amended by Amendment No. 1 thereto
dated November 3, 1992, under the heading 'Description of Shares of Beneficial
Interest.'
All reports and other documents filed by the Company pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the Offered
Securities shall be deemed to be incorporated by reference in this Prospectus
and to be a part hereof from the date of filing such documents.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in the applicable Prospectus Supplement) or in any other subsequently filed
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<PAGE>
document which also is or is 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.
Copies of all documents which are incorporated herein by reference (not
including the exhibits to such information, unless such exhibits are
specifically incorporated by reference in such information) will be provided
without charge to each person to whom this Prospectus is delivered, upon written
or oral request. Requests should be directed to Wellsford Residential Property
Trust, Attention: Joanne Picarelli, 610 Fifth Avenue, New York, New York 10020
(Telephone Number: (212) 333-2300).
THE COMPANY
The Company is a fully-integrated and self-administered equity REIT which owns
and operates high quality multifamily communities located in the Southwest and
Pacific Northwest regions of the United States. The Company owns and operates 75
multifamily communities (the 'Communities') which contain 18,974 apartment units
and had an aggregate cost of approximately $758 million.
The Company's mission is to maximize long-term profitability for its
shareholders by providing quality housing and exceptional service for its
residents. The Company attempts to achieve its mission by acquiring, developing
and operating multifamily communities in target markets, applying sophisticated
management and operating techniques, and maintaining a conservative capital
structure.
The Communities consist of 75 multifamily communities located in eight
states--Washington (30 communities), Texas (11), Colorado (10), Oklahoma (10),
Arizona (7), Nevada (3), Utah (3) and New Mexico (1). Substantially all of the
Communities are located in and around the following major metropolitan areas:
Albuquerque (1 community), Dallas (2), Denver (9), Las Vegas (3), Oklahoma City
(5), Phoenix (5), Salt Lake City (3), San Antonio (9), Seattle (14), Tacoma
(16), Tucson (2) and Tulsa (5). The Communities include 47 multifamily
communities having 200 or more apartment units with the largest community having
616 apartment units. Forty-seven of the Communities were built since 1986, 26
were built between 1980 and 1985 and two were built in 1979. All of the
Communities are garden-style communities except for four mid-rise buildings (345
apartment units) in downtown Seattle. As of September 30, 1996, the Communities
had an average physical occupancy rate of approximately 95.8%. All of the
Communities provide residents with attractive amenities.
The Company's principal operations office is located at 370 Seventeenth Street,
Suite 3100, Denver, Colorado 80202 and its telephone number is (303) 595-7750.
The Company's executive office is located at 610 Fifth Avenue, New York, New
York 10020 and its telephone number is (212) 333-2300.
This Prospectus, including documents incorporated by reference herein, contains
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Forward-looking statements are based
on assumptions and expectations which may not be realized and are inherently
subject to risks and uncertainties, many of which cannot be predicted with
accuracy and some of which might not even be anticipated. Future events and
actual results, financial and otherwise, may differ materially from the results
discussed in the forward-looking statements. Risks and other factors that might
cause such a difference include, but are not limited to, the risk of an
over-supply of apartment units or a reduction in the demand for such units;
decreased rental income or increased operating costs; development risks,
including lack of satisfactory financing, construction and lease-up delays and
budget overruns; the inability to obtain debt or equity financing on favorable
terms; and other risks and factors set forth in documents incorporated by
reference into the Prospectus.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the Company
intends to use the net proceeds from the sale of the Offered Securities for the
acquisition, rehabilitation and development of multifamily apartment communities
as suitable opportunities arise, the repayment of certain indebtedness
outstanding at such time and working capital and general trust purposes.
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<PAGE>
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions of the
Debt Securities to which any Prospectus Supplement may relate. The particular
terms of the Debt Securities being offered and the extent to which such general
provisions may apply will be described in a Prospectus Supplement relating to
such Debt Securities.
The Senior Securities are to be issued under an Indenture, dated as of October
25, 1996, as amended or supplemented from time to time (the 'Senior Securities
Indenture'), between the Company and United States Trust Company of New York
(the 'Senior Securities Trustee') and the Subordinated Securities are to be
issued under an Indenture, as amended or supplemented from time to time (the
'Subordinated Securities Indenture'), between the Company and a trustee to be
selected by the Company (the 'Subordinated Securities Trustee'). The Senior
Securities Indenture and the Subordinated Securities Indenture are referred to
herein individually as the 'Indenture' and collectively as the 'Indentures,' and
the Senior Securities Trustee and the Subordinated Securities Trustee are
referred to herein individually as the 'Trustee' and collectively as the
'Trustees.' A form of the Senior Securities Indenture and a form of the
Subordinated Securities Indenture have been filed as exhibits to the
Registration Statement of which this Prospectus is a part and will be available
for inspection at the corporate trust offices of the respective Trustees or as
described above under 'Available Information.' The Senior Securities Indenture
is, and the Subordinated Securities Indenture will be, subject to and governed
by the Trust Indenture Act of 1939, as amended (the 'TIA'). The description of
the Subordinated Securities Indenture set forth below assumes that the Company
has entered into the Subordinated Securities Indenture. The Company will execute
the Subordinated Securities Indenture when and if the Company issues
Subordinated Securities. The statements made hereunder relating to the
Indentures and the Debt Securities to be issued thereunder are summaries of
certain provisions thereof and do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all provisions of the
Indentures and such Debt Securities. Unless otherwise specified, all section
references appearing herein are to sections of the Indentures, and capitalized
terms used but not defined herein shall have the meanings set forth in the
Indentures.
As of the date of this Prospectus, the Company has issued the following
long-term indebtedness: (i) $55,000,000 of 7 1/4% Senior Notes due August 15,
2000 (the '2000 Notes'), (ii) $100,000,000 of 9 3/8% Senior Notes due February
1, 2002 (the '2002 Notes') and (iii) $70,000,000 of 7 3/4% Senior Notes due
August 15, 2005 ('2005 Notes') (collectively, the 'Notes'). The Notes are senior
unsecured obligations of the Company and rank equally with each other and with
the Company's other unsecured and unsubordinated indebtedness, including any
Senior Securities.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Company. Senior
Securities will rank pari passu with certain other senior debt of the Company
that may be outstanding from time to time, including the Notes, and will rank
senior to all Subordinated Securities that may be outstanding from time to time.
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 Trustees of the Company or as established in one or
more indentures supplemental to the 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 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 shall be appointed by the Company, by or
pursuant to a resolution adopted by the Board of Trustees, 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
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administered by any other Trustee thereunder, and, except as otherwise indicated
herein or therein, any action described herein or therein to be taken by the
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 (Section 609 of each 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;
(2) the classification of such Debt Securities as Senior Securities or
Subordinated Securities;
(3) the aggregate principal amount of such Debt Securities and any limit on such
aggregate principal amount;
(4) 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;
(5) 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;
(6) the date or dates, or the method for determining such date or dates, on
which the principal of such Debt Securities will be payable;
(7) 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;
(8) 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 Person
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;
(9) the place or places where the principal of (and premium or Make-Whole
Amount, if any) and interest and Additional Amounts, if any, on such Debt
Securities will be payable, such Debt Securities may be surrendered for
conversion or registration of transfer or exchange and notices or demands to or
upon the Company in respect of such Debt Securities and the applicable Indenture
may be served;
(10) the period or periods within which, the price or prices (including premium
or Make-Whole Amount, if any) at which and the terms and conditions upon which
such Debt Securities may be redeemed, in whole or in part, at the option of the
Company, if the Company is to have such an option;
(11) 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 terms and conditions upon which such Debt Securities
will be redeemed, repaid or purchased, in whole or in part, pursuant to such
obligation;
(12) 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;
(13) whether the amount of payments of principal of (and premium or Make-Whole
Amount, if any) or interest, if any, on such Debt Securities may be determined
with reference to an index, formula or other method (which
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index, formula or other 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;
(14) whether such Debt Securities will be issued in the form of one or more
global securities and whether such global securities are to be issuable in a
temporary global form or permanent global form;
(15) 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;
(16) whether the principal of (and premium or Make-Whole Amount, if any) or
interest or Additional Amounts, if any, on such Debt Securities are to be
payable, at the election of the Company or a Holder, in one or more currencies
other than that in which such Debt Securities are denominated or stated to be
payable, the period or periods within which, and the terms and conditions upon
which, such election may be made, and the time and manner of, and identity of
the exchange rate agent with responsibility for, determining the exchange rate
between the currency or currencies in which such Debt Securities are denominated
or stated to be payable and the currency or currencies in which such Debt
Securities are to be so payable;
(17) whether such Debt Securities will be issued in certificated or book-entry
form;
(18) 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
the terms and conditions relating thereto;
(19) the applicability, if any, of the defeasance and covenant defeasance
provisions of Article Fourteen of the applicable Indenture;
(20) if such Debt Securities are to be issued upon the exercise of Warrants, the
time, manner and place for such Debt Securities to be authenticated and
delivered;
(21) the terms, if any, upon which such Debt Securities may be convertible into
Common Shares or Preferred Shares 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;
(22) 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;
(23) the name of the applicable Trustee and the address of its corporate trust
office; and
(24) 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 provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
('Original Issue Discount Securities'). Special U.S. federal income tax,
accounting and other considerations applicable to Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
Except as set forth below under 'Certain Covenants--Senior Securities Indenture
Limitations on Incurrence of Debt,' neither Indenture contains any other
provisions that would limit the ability of the Company to incur indebtedness or
that would afford Holders of Debt Securities protection in the event of a highly
leveraged or similar transaction involving the Company or in the event of a
change of control. However, 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.'
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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 below, including any
addition of a covenant or other provision providing event risk or similar
protection.
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. Unless otherwise described in the applicable
Prospectus Supplement, the Debt Securities of any series issued in bearer form
will be issuable in denominations of $5,000 (Section 302 of each Indenture).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium or Make-Whole Amount, if any) and interest on any
series of Debt Securities will be payable at an office or agency established by
the Company in accordance with the Indenture, 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 given to the 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 or at an office or agency
established by the Company in accordance with the Indenture. 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 exchange or
registration of transfer thereof at the corporate trust office of the applicable
Trustee or at an office or agency established by the Company in accordance with
the Indenture. Every Debt Security surrendered for 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 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 which has been
surrendered for repayment at the option of the Holder, except the portion, if
any, of such Debt Security not to be so repaid (Section 305 of each Indenture).
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CERTAIN COVENANTS
Senior Securities Indenture 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 additional 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 that 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 Senior Securities 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 additional 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 sum of (without
duplication) (i) the Company's Total Assets 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 that 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 Senior Securities 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 1.5:1, 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 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 Senior
Securities Indenture).
The Company and its Subsidiaries may not at any time own Total Unencumbered
Assets equal to less than 150% of the then outstanding principal amount of any
Unsecured Debt on a consolidated basis (Section 1004 of Senior Securities
Indenture).
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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.
'Capital Stock' means, with respect to any Person, any capital stock (including
preferred stock), shares, interests, participants or other ownership interests
(however designated) of such Person and any rights (other than debt securities
convertible into or exchangeable for corporate stock), warrants or options to
purchase any thereof.
'Consolidated Income Available for Debt Service' for any period means Earnings
from Operations (as defined below) of the Company and its Subsidiaries plus
amounts which have been deducted, and minus amounts which have been added, for
the following (without duplication): (i) interest on Debt of the Company and its
Subsidiaries, (ii) provision for taxes of the Company and its Subsidiaries based
on income, (iii) amortization of debt discount, (iv) provisions for gains and
losses on properties and property depreciation and amortization, (v) the effect
of any noncash charge resulting from a change in accounting principles in
determining Earnings from Operations for such period and (vi) amortization of
deferred charges.
'Debt' of the Company or any Subsidiary means any indebtedness of the Company or
any Subsidiary, whether or not contingent, in respect of (i) borrowed money or
evidenced by bonds, notes, debentures or similar instruments, (ii) indebtedness
for borrowed money secured by any mortgage, pledge, lien, charge, encumbrance or
any security interest existing on property owned by the Company or any
Subsidiary (each securing such debt, an 'Encumbrance'), (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, and also includes, to the extent not otherwise included, any
obligation by the Company or any Subsidiary to be liable for, or to pay, as
obligor, guarantor or otherwise (other than for purposes of collection in the
ordinary course of business), Debt of another Person (other than the Company or
any Subsidiary) (it being understood that Debt shall be deemed to be incurred by
the Company or any Subsidiary whenever the Company or such Subsidiary shall
create, assume, guarantee or otherwise become liable in respect thereof).
'Disqualified Stock' means, with respect to any Person, any Capital Stock of
such Person which by the terms of such Capital Stock (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 Notes.
'Earnings from Operations' for any period means net earnings excluding gains and
losses on sales of investments, net as reflected in the financial statements of
the Company and its Subsidiaries for such period determined on a consolidated
basis in accordance with generally accepted accounting principles.
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'Subsidiary' means, with respect to any Person, any corporation or other entity
of which a majority of (i) the voting power of the voting equity securities or
(ii) the outstanding equity interests are owned, directly or indirectly, by such
Person. For the purposes of this definition, 'voting equity securities' means
equity securities having voting power for the election of directors, whether at
all times or only so long as no senior class of security has such voting power
by reason of any contingency.
'Total Assets' as of any date means the sum of (i) the Undepreciated Real Estate
Assets and (ii) all other assets of the Company and its Subsidiaries determined
in accordance with generally accepted accounting principles (but excluding
accounts receivable and intangibles).
'Total Unencumbered Assets' means the sum of (i) those Undepreciated Real Estate
Assets not subject to an Encumbrance and (ii) all other assets of the Company
and its Subsidiaries not subject to an Encumbrance determined in accordance with
generally accepted accounting principles (but excluding accounts receivable and
intangibles).
'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.
'Unsecured Debt' means Debt which is not secured by any mortgage, lien, charge,
pledge or security interest of any kind upon any of the properties of the
Company or any Subsidiary.
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 existence, rights (charter and statutory) and
franchises; provided, however, that the Company will 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 and that the loss thereof is not
disadvantageous in any material respect to the Holders of the Debt Securities
(Section 1005 of each Indenture).
Maintenance of Properties. The Company will cause all of its 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).
Insurance. The Company will, and will cause each of its Subsidiaries to, keep
all of its insurable properties insured against loss or damage at least equal to
their then full insurable value with financially sound and reputable insurance
companies (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, unless such lien would not have a material adverse effect upon such
property; provided, however, that the Company will 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
by appropriate proceedings (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, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to such Section 13 or 15(d) (the 'Financial
Statements'), or which the Company would have been so required if the Company
were so subject, such documents to be filed with the Commission on or prior to
the respective dates (the 'Required Filing Dates') by which the Company is or
would have been so required to file such documents if the Company is or were so
subject. The Company will also in any event (x) within 15 days of each Required
Filing Date (i) transmit by mail to all Holders of Debt
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Securities, as their names and addresses appear in the Security Register,
without cost to such Holders, copies of the annual reports and quarterly reports
which the Company is required to file with the Commission pursuant to Section 13
or 15(d) of the Exchange Act, or which the Company would have been so required
if the Company were subject to such Sections and (ii) file with the Trustees
copies of annual reports, quarterly reports and other documents which the
Company is required to file with the Commission pursuant to Section 13 or 15(d)
of the Exchange Act, or which the Company would have been so required if the
Company were subject to such Sections, and (y) if filing such documents by the
Company with the Commission is not permitted under the Exchange Act, 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).
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 entity, provided that (a)
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 is a Person
organized and existing under the laws of the United States or any State thereof
and shall expressly assume payment of the principal of (and premium or
Make-Whole Amount, if any) and interest (including Additional Amounts, 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 the Indentures;
(b) immediately after giving effect to such transaction and treating any
indebtedness which 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 Indentures, 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 (c) an officer's certificate
and legal opinion covering such conditions shall be delivered to the Trustees
(Sections 801 and 803 of each Indenture).
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: (a) default for 30
days in the payment of any installment of interest or Additional Amounts on any
Debt Security of such series; (b) default in the payment of the principal of (or
premium or Make-Whole Amount, if any, on) any Debt Security of such series when
due; (c) default in making any sinking fund payment as required for any Debt
Security of such series; (d) default in the performance of any other covenant of
the Company contained in the applicable Indenture (other than a covenant added
to such 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 such Indenture; (e) default in the payment of an aggregate principal
amount exceeding $10,000,000 of any evidence of indebtedness for borrowed money
of the Company or any mortgage, indenture or other instrument under which such
indebtedness is issued or by which such indebtedness is secured, such default
having occurred after the expiration of any applicable grace period and having
resulted in the acceleration of the maturity of such indebtedness, but only if
such indebtedness is not discharged or such acceleration is not rescinded or
annulled; (f) the entry by a court of competent jurisdiction of one or more
judgments, orders or decrees against the Company or any of its Subsidiaries in
an aggregate amount (excluding amounts covered by insurance) in excess of
$10,000,000 and such judgments, orders or decrees remain undischarged, unstayed
and unsatisfied in an aggregate amount (excluding amounts covered by insurance)
in excess of $10,000,000 for a period of 30 consecutive days; (g) certain events
of bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Company, any Significant Subsidiary or the property
of the Company or any Significant Subsidiary or all or substantially all of
either of its property ; or (h) 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 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) and the Make-Whole Amount, if any, of the
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Outstanding 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 the applicable 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 Debt Securities then outstanding 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 (a) the Company
will have deposited with the applicable Trustee all required payments of the
principal of (and premium or Make-Whole Amount, if any) and interest, and any
Additional Amounts, 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 Trustee and (b)
all Events of Default, other than the non-payment of accelerated principal (or
specified portion thereof and the premium or Make-Whole Amount, if any, or
interest), 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 the applicable 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 (premium or Make-Whole Amount, if any) or interest or Additional
Amounts 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 Holder 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; provided, however, that the
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 or Make-Whole Amount, if any) or interest payable on or
any Additional Amounts with respect to 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 the 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 the applicable
Indenture or for any remedy thereunder, except in the case of failure of the
Trustee thereunder 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 reasonable indemnity (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 or Make-Whole Amount, if any) and interest on, and Additional
Amounts payable with respect to, 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, each Trustee is under no obligation to exercise any of its rights or
powers under the applicable 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 reasonable security or indemnity
(Section 602 of each Indenture). The Holders of not less than a majority in
principal amount of the applicable Outstanding Debt Securities of any series (or
of all Debt Securities then Outstanding under the applicable 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 Trustee or of
exercising any trust or power conferred upon the Trustee. However, the Trustee
may refuse to follow any direction which is in conflict with any law or the
applicable Indenture, which may involve the 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 two officers, one of whom must be the
principal executive officer, principal financial officer or principal accounting
officer, stating whether or not such officers have 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).
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MODIFICATION OF THE INDENTURES
Except as described below, modifications and amendments of each Indenture may be
made 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, (a) change the Stated Maturity of the principal
of, or any installment of interest or Additional Amounts payable on (or premium
or Make-Whole Amount, if any) any such Debt Security; (b) reduce the principal
amount of, or the rate or amount of interest on, or any premium or Make-Whole
Amount payable on redemption of, or change any obligation of the Company to pay
any Additional Amounts set forth in the Indenture relating to, or reduce any
Additional Amounts payable with respect to, any such Debt Security, or reduce
the amount of principal of an Original Issue Discount Security or premium or
Make-Whole Amount, if any, that would be due and payable upon declaration of
acceleration of the maturity thereof or would be payable in bankruptcy, or
adversely affect any right of repayment of the Holder of any such Debt Security;
(c) change the Place of Payment, or the coin or currency, for payment of
principal of (and premium or Make-Whole Amount, if any), or interest on, or any
Additional Amounts payable with respect to, any such Debt Security; (d) impair
the right to institute suit for the enforcement of any payment on or with
respect to any such Debt Security; (e) reduce the 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 such Indenture; or (f) 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 the applicable Indenture (Section 1012 of
each Indenture).
Modifications and amendments of each Indenture may be made by the Company and
the applicable Trustee without the consent of any Holder of Debt Securities
issued thereunder for any of the following purposes: (i) to evidence the
succession of another Person to the Company as obligor under the applicable
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 the applicable 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 the applicable 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 provision of the applicable Indenture,
provided that any such change or elimination shall become effective only when
there are no Debt Securities Outstanding of any series issued thereunder 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 Preferred Shares or
Common Shares; (viii) to provide for the acceptance of appointment by a
successor Trustee or facilitate the administration of the trusts under the
applicable Indenture by more than one Trustee; (ix) to cure any ambiguity,
defect or inconsistency in the applicable Indenture, provided that such action
will not adversely affect the interests of Holders of Debt Securities of any
series in any material respect; (x) to close the applicable Indenture with
respect to the authentication and delivery of additional series of Debt
Securities or to qualify or maintain qualification of, the applicable Indenture
under the TIA; or (xi) to supplement any of the provisions of the applicable
Indenture to the extent necessary to permit or facilitate defeasance and
discharge of any series of such Debt Securities, provided that such action will
not adversely affect the interests of the Holders of the Debt Securities of any
series in any material respect (Section 901 of each Indenture).
Each Indenture provides that, in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding will be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
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declaration of acceleration of the maturity thereof, (ii) the principal amount
of a Debt Security denominated in a Foreign Currency that shall be deemed
outstanding will be the U.S. dollar equivalent, determined on the issue date for
such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an Indexed Security that will be deemed outstanding will be
the principal face amount of such Indexed Security at original issuance, unless
otherwise provided with respect to such Indexed Security pursuant to Section 301
of the applicable Indenture, and (iv) Debt Securities owned by the Company or
any other obligor upon the Debt Securities or any Affiliate of the Company or of
such other obligor will be disregarded (Section 101 of each Indenture).
Each Indenture contains provisions for convening meetings of the Holders of Debt
Securities of a series (Section 1501 of each Indenture). A meeting may be called
at any time by the applicable Trustee, and also, upon request, by the Company,
pursuant to a resolution adopted by the Board of Trustees, or the Holders of at
least 10% in principal amount of the Outstanding Debt Securities of such series,
in any such case upon notice given as provided in the applicable Indenture
(Section 1502 of each Indenture). Except for any consent that must be given by
the Holder of each Debt Security affected by certain modifications and
amendments of the applicable Indenture, any resolution presented at a meeting or
adjourned meeting duly reconvened at which a quorum is present may be adopted by
the affirmative vote of the Holders of a majority in principal amount of the
Outstanding Debt Securities of that series; provided, however, that, except as
referred to above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the Holders of a specified percentage, which is less
than a majority, in principal amount of the Outstanding Debt Securities of a
series may be adopted at a meeting or adjourned meeting duly reconvened at which
a quorum is present by the affirmative vote of the Holders of such specified
percentage in principal amount of the Outstanding Debt Securities of that
series. Any resolution passed or decision taken at any meeting of Holders of
Debt Securities of any series duly held in accordance with the applicable
Indenture will be binding on all Holders of Debt Securities of that series. The
quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be Persons holding or representing a majority in principal amount
of the Outstanding Debt Securities of a series; provided, however, that, if any
action is to be taken at such meeting with respect to a consent or waiver which
may be given by the Holders of not less than a specified percentage in principal
amount of the Outstanding Debt Securities of a series, the Persons holding or
representing such specified percentage in principal amount of the Outstanding
Debt Securities of such series will constitute a quorum (Section 1504 of each
Indenture).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of Holders of Debt Securities of any series with respect to any request,
demand, authorization, direction, notice, consent, waiver or other action that
the applicable Indenture expressly provides may be made, given or taken by the
Holders of a specified percentage in principal amount of all Outstanding Debt
Securities affected thereby, or of the Holders of such series and one or more
additional series: (i) there shall be no minimum quorum requirement for such
meeting and (ii) the principal amount of the Outstanding Debt Securities of such
series that vote in favor of such request, demand, authorization, direction,
notice, consent, waiver or other action shall be taken into account in
determining whether such request, demand, authorization, direction, notice,
consent, waiver or other action has been made, given or taken under the
applicable Indenture (Section 1504 of each Indenture).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Company may discharge certain obligations to Holders of any series of Debt
Securities that have not already been delivered to the 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 or
Make-Whole Amount, if any) and interest and Additional Amounts payable 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 XIV are made
applicable to the Debt Securities of or within any series pursuant to Section
301 of such Indenture, the Company may elect to (a) defease and be
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discharged from any and all obligations with respect to such Debt Securities
(except for the 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) and/or (b) be released from its
obligations with respect to such Debt Securities under Sections 1004 to 1009,
inclusive, of the applicable Indenture (being the restrictions described under
'Certain Covenants') or, if provided pursuant to Section 301 of such Indenture,
its obligations with respect to any other covenant, and any omission to comply
with such obligations will 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 or Make-Whole
Amount, 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 the
applicable 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 (the 'IRS') or a
change in applicable United States 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 will also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific 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, (a) the
Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to Section 301 of the applicable 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 (b) 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 or Make-Whole Amount, 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 Foreign Currency (other than the ECU or other
currency unit), 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 ECU
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both within the European Monetary System and for the settlement of transactions
by public institutions of or within the European Communities or (iii) any
currency unit or composite currency other than the ECU for the purposes for
which it was established (Section 101 of each Indenture). Unless otherwise
provided in the applicable Prospectus Supplement, all payments of principal of
(and premium or Make-Whole Amount, if any) and interest on any Debt Security
that is payable in a Foreign Currency that ceases to be used by its government
of issuance will be made in U.S. dollars.
In the event 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 (d) under 'Events of Default, Notice and Waiver' with respect to Sections
1004 to 1009, inclusive, of the applicable Indenture (which Sections would no
longer be applicable to such Debt Securities) or described in clause (g) 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 Preferred Shares or Common Shares will be set forth in the applicable
Prospectus Supplement relating thereto. Such terms will include whether such
Debt Securities are convertible into Preferred Shares or Common 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.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the form of
one or more fully registered 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 are expected to be deposited with The Depository Trust
Company, as Depositary. Global Securities may be issued in either registered or
bearer form and in either temporary or permanent form.
Unless and until it is exchanged in whole or in part for the individual Debt
Securities represented thereby, a Global Security may not be transferred except
as a whole by the Depositary for such Global Security to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by the Depositary or any nominee of such
Depositary to a successor Depositary or any nominee of such successor.
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. Unless otherwise indicated in the applicable Prospectus
Supplement, the Company anticipates that the following provisions will apply to
depositary arrangements.
Upon the issuance of a Global Security, the Depositary for such Global Security
or its nominee will credit on its book-entry registration and transfer system
the respective principal amounts of the individual Debt Securities represented
by such Global Security to the accounts of persons that have accounts with such
Depositary ('Participants'). Such accounts shall be designated by the
underwriters, dealers or agents with respect to such Debt Securities or by the
Company if such Debt Securities are offered and sold directly by the Company.
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Ownership of beneficial interests in a Global Security will be limited to
Participants or persons that may hold interests through Participants. Ownership
of beneficial interests in such Global Security will be shown on, and the
transfer of that ownership will be effected only through, records maintained by
the applicable Depositary or its nominee (with respect to beneficial interests
of Participants) and records of Participants (with respect to beneficial
interests of persons who hold through Participants). The laws of some states
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and laws may impair the ability to
own, pledge or transfer beneficial interest in a Global Security.
So long as the Depositary for a Global Security or its nominee is the registered
owner of such Global Security, such Depositary or such nominee, as the case may
be, will be considered the sole owner or holder of the Debt Securities
represented by such Global Security for all purposes under the applicable
Indenture. Except as provided below or in the applicable Prospectus Supplement,
owners of a beneficial interest in a Global Security will not be entitled to
have any of the individual Debt Securities of the series represented by such
Global Security registered in their names, will not receive or be entitled to
receive physical delivery of any such Debt Securities of such series in
definitive form and will not be considered the owners or holders thereof under
the applicable Indenture.
Payments of principal of, any premium or Make-Whole Amount on, and any interest
on, or any Additional Amounts payable with respect to, individual Debt
Securities represented by a Global Security registered in the name of a
Depositary or its nominee will be made to the Depositary or its nominee, as the
case may be, as the registered owner of the Global Security representing such
Debt Securities. None of the Company, the Trustees, any Paying Agent or the
Security Registrar for such Debt Securities will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Security for such Debt
Securities or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
The Company expects that the Depositary for a series of Debt Securities or its
nominee, upon receipt of any payment of principal, premium or interest in
respect of a permanent Global Security representing any of such Debt Securities,
will immediately credit Participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of such Global Security for such Debt Securities as shown on the records of such
Depositary or its nominee. The Company also expects that payments by
Participants to owners of beneficial interests in such Global Security held
through such Participants will be governed by standing instructions and
customary practices, as is the case with securities held for the account of
customers in bearer form or registered in 'street name.' Such payments will be
the responsibility of such Participants.
If a Depositary for a series of Debt Securities is at any time unwilling, unable
or ineligible to continue as depositary and a successor depositary is not
appointed by the Company within 90 days, the Company will issue individual Debt
Securities of such series in exchange for the Global Security representing such
series of Debt Securities. In addition, the Company may, at any time and in its
sole discretion, subject to any limitations described in the applicable
Prospectus Supplement relating to such Debt Securities, determine not to have
any Debt Securities of such series represented by one or more Global Securities
and, in such event, will issue individual Debt Securities of such series in
exchange for the Global Security or Securities representing such series of Debt
Securities. Individual Debt Securities of such series so issued will be issued
in denominations, unless otherwise specified by the Company, of $1,000 and
integral multiples thereof.
NO PERSONAL LIABILITY
No past, present or future trustee, officer, employee or shareholder, as such,
of the Company or any successor thereof shall have any liability for any
obligations of the Company under the Debt Securities or the applicable Indenture
or for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder of Debt Securities by accepting such Debt Securities
waives and releases all such liability. The waiver and release are part of the
consideration for the issue of Debt Securities. Each Holder of Debt Securities
shall look solely to the assets of the Company for satisfaction of any liability
of the Company in respect of the applicable Indenture or the Debt Securities and
will not seek recourse or commence any action against any of the trustees,
officers or shareholders of the Company or any of their personal assets for the
performance or payment of any obligation thereunder (Section 111 of each
Indenture).
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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 Securities Indenture in right of payment to the prior payment in
full of all Senior Debt (Sections 1601 and 1602 of the Subordinated Securities
Indenture), but the obligation of the Company to make payment of the principal
and interest on the Subordinated Securities will not otherwise be affected
(Section 1608 of the Subordinated Securities 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
Securities 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 receive distributions applicable to 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
Securities 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 Securities 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 Securities Indenture or thereafter incurred, created or
assumed: (a) indebtedness of the Company for money borrowed or represented by
purchase-money obligations, (b) 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, (c) 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, (d)
indebtedness of partnerships and joint ventures that is included in the
consolidated financial statements of the Company, (e) 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
(f) 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 (1) any such indebtedness, obligation or liability referred to
in clauses (a) through (f) above as to which, in the instrument creating or
evidencing the same or 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, (2) 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, (3)
any trade accounts payable and (4) the Subordinated Securities (Section 101 of
the Subordinated Securities Indenture). There are no restrictions in the
Subordinated Securities Indenture upon the creation of additional Senior Debt.
However, the Senior Securities Indenture contains limitations on incurrence of
indebtedness by the Company. See 'Certain Covenants--Senior Securities Indenture
Limitations on Incurrence of Debt.'
DESCRIPTION OF PREFERRED SHARES
The Company's Amended and Restated Declaration of Trust, as amended (the
'Declaration of Trust'), authorizes the Company to issue up to 100,000,000
shares of beneficial interest, consisting of Common Shares and such other types
or classes of shares of beneficial interest as the trustees may create and
authorize from time to time and designate as representing a beneficial interest
in the Company. As of September 30, 1996, the Company has issued 3,999,800
Convertible Preferred Shares and 2,300,000 Series B Preferred Shares.
The holders of the Convertible Preferred Shares (the 'Convertible Preferred
Holders') are entitled to cumulative cash distributions at the annual rate of
$1.75 per share, payable quarterly. In the event of any liquidation, dissolution
or winding-up of the affairs of the Company, the Convertible Preferred Holders
are entitled to receive, out of the assets of the Company legally available
therefor, the amount of $25.00 in cash for each Convertible Preferred Share,
plus an amount in cash equal to all accrued and unpaid distributions on each
such share. The Convertible Preferred Shares rank pari passu with the Series B
Preferred Shares as to priority for receiving distributions, including
liquidating distributions. The Convertible Preferred Holders have the right,
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exercisable at any time, to convert all or any of their respective Convertible
Preferred Shares into Common Shares at a conversion rate of .8122 Common Shares
for each Convertible Preferred Share. The Convertible Preferred Shares are not
redeemable prior to November 1, 1998. On and after November 1, 1998, the
Convertible Preferred Shares may be redeemed at the option of the Company, in
whole or in part, initially at $25.875 per share and thereafter at prices
declining to $25.00 per share on and after November 1, 2003, plus in each case
accrued and unpaid distributions, if any, to the redemption date.
The holders of the Series B Preferred Shares (the 'Series B Preferred Holders')
are entitled to cumulative cash distributions at the annual rate of $2.4125 per
share, payable quarterly. In the event of any liquidation, dissolution or
winding-up of the affairs of the Company, the Series B Preferred Holders are
entitled to receive, out of the assets of the Company legally available
therefor, a liquidation preference in cash or property at its fair market value
as determined by the Board of Trustees in the amount of $25.00 per share, plus
an amount equal to all accrued and unpaid distributions on each such share. The
Series B Preferred Shares rank pari passu with the Convertible Preferred Shares
as to priority for receiving distributions, including liquidating distributions.
The Series B Preferred Shares are not redeemable prior to August 24, 2000. On
and after August 24, 2000, the Series B Preferred Shares may be redeemed at the
option of the Company, in whole or in part, at $25.00 per share, plus accrued
and unpaid distributions, if any, to the redemption date.
The following description of the Preferred Shares which may be offered pursuant
to a Prospectus Supplement sets forth certain general terms and provisions of
the Preferred Shares to which any Prospectus Supplement may relate. The
particular terms of the Preferred Shares being offered and the extent to which
such general provisions may or may not apply will be described in a Prospectus
Supplement relating to such Preferred Shares. 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 Declaration of Trust
(including the applicable Articles Supplementary) and the Company's Amended and
Restated Bylaws (the 'Bylaws').
GENERAL
Subject to limitations prescribed by Maryland law and the Declaration of Trust,
the Board of Trustees is authorized to fix the number of shares constituting
each series of Preferred Shares and the designations and powers, preferences and
the relative participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including such provisions as may be desired
concerning voting, redemption, distributions, dissolution or the distribution of
assets, conversion or exchange, and such other subjects or matters as may be
fixed by resolution of the Board of Trustees or a duly authorized committee
thereof. The Preferred Shares will, when issued, be fully paid and nonassessable
and will have no preemptive rights.
Both Maryland statutory law governing real estate investment trusts organized
under the laws of that state and the Declaration of Trust provide that no
shareholder of the Company will be personally liable for any obligation of the
Company solely as a result of his status as a shareholder. The Company's Bylaws
further provide that the Company shall indemnify each shareholder or former
shareholder against any claim or liability to which the shareholder may become
subject by reason of his being or having been a shareholder or a former
shareholder and that the Company shall reimburse each shareholder for all legal
and other expenses reasonably incurred by him in connection with any such claim
or liability. In addition, it is the Company's policy to include a clause in its
contracts which provides that shareholders assume no personal liability for
obligations entered into on behalf of the Company. However, with respect to tort
claims, contractual claims where shareholder liability is not so negated, claims
for taxes and certain statutory and other liabilities, a shareholder may, in
some jurisdictions, be personally liable to the extent that such claims are not
satisfied by the Company. Inasmuch as the Company carries public liability
insurance which it considers adequate, 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 Register and Transfer Agent for any Preferred Shares will be set forth in
the applicable Prospectus Supplement.
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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 shares of such Preferred Shares being offered, the liquidation
preference per share and the offering price of such Preferred Shares;
(3) the distribution 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 distributions 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 provisions 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, including the conversion price (or
manner of calculation thereof);
(10) a discussion of federal income tax considerations applicable to such
Preferred Shares;
(11) the relative ranking and preferences of such Preferred Shares as to
distribution rights (including whether any liquidation preference as to the
Preferred Shares will be treated as a liability for purposes of determining the
availability of assets of the Company for distributions to holders of Shares
remaining junior to the Preferred Shares as to distribution rights) and rights
upon liquidation, dissolution or winding up of the affairs of the Company;
(12) 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 distribution
rights and rights upon liquidation, dissolution or winding up of the affairs of
the Company;
(13) any limitations on direct or beneficial ownership and restrictions on
transfer of such Preferred Shares, in each case as may be appropriate to
preserve the status of the Company as a REIT; and
(14) any other specific terms, preferences, rights, limitations or restrictions
of such Preferred Shares.
RANK
Unless otherwise specified in the applicable Prospectus Supplement, the
Preferred Shares will, with respect to distribution rights and/or rights upon
liquidation, dissolution or winding up of the Company, rank (i) senior to all
classes or series of Common Shares, and to all equity securities ranking junior
to such Preferred Shares with respect to distribution rights and/or rights upon
liquidation, dissolution or winding up of the Company, as the case may be; (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 with respect to distribution rights and/or rights upon
liquidation, dissolution or winding up of the Company, as the case may be; 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 with respect to distribution rights and/or rights upon liquidation,
dissolution or winding up of the Company, as the case may be. As used in the
Declaration of Trust, for these purposes, the term 'equity securities' does not
include convertible debt securities. The Preferred Shares will rank on a parity
with or junior to the Convertible Preferred Shares and the Series B Preferred
Shares unless the Convertible Preferred Holders or the Series B Preferred
Holders agree otherwise with respect to the Convertible Preferred Shares or the
Series B Preferred Shares, respectively.
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DISTRIBUTIONS
Holders of Preferred Shares shall be entitled to receive, when, as and if
authorized by the Board of Trustees of the Company, out of assets of the Company
legally available for payment, cash distributions at such rates (or method of
calculation thereof) and on such dates as will be set forth in the applicable
Prospectus Supplement. Each such distribution 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 Trustees of the Company.
Distributions on any series of the Preferred Shares may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement.
Distributions, if cumulative, will be cumulative from and after the date set
forth in the applicable Prospectus Supplement. If the Board of Trustees of the
Company fails to authorize a distribution payable on a distribution payment date
on any series of the Preferred Shares for which distributions are noncumulative,
then the holders of such series of the Preferred Shares will have no right to
receive a distribution in respect of the distribution period ending on such
distribution payment date, and the Company will have no obligation to pay the
distribution accrued for such period, whether or not distributions on such
series are authorized for payment on any future distribution payment date.
If any Preferred Shares of any series are outstanding, no full distributions
shall be authorized or paid or set apart for payment on the preferred shares of
the Company of any other series ranking, as to distributions, 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 distribution, full cumulative
distributions have been or contemporaneously are authorized and paid or
authorized and a sum sufficient for the payment thereof set apart for such
payment on the Preferred Shares of such series for all past distribution periods
and the then current distribution period or (ii) if such series of Preferred
Shares does not have a cumulative distribution, full distributions for the then
current distribution period have been or contemporaneously are authorized and
paid or authorized and a sum sufficient for the payment thereof set apart for
such payment on the Preferred Shares of such series. When distributions are not
paid in full (or a sum sufficient for such full payment is not so set apart)
upon the Preferred Shares of any series and the shares of any other series of
preferred shares ranking on a parity as to distributions with the Preferred
Shares of such series, all distributions authorized upon the Preferred Shares of
such series and any other series of preferred shares ranking on a parity as to
distributions with such Preferred Shares shall be authorized pro rata so that
the amount of distributions authorized per share on the Preferred Shares of such
series and such other series of preferred shares shall in all cases bear to each
other the same ratio that accrued and unpaid distributions per share on the
Preferred Shares of such series (which shall not include any accumulation in
respect of unpaid distributions for prior distribution periods if such Preferred
Shares do not have a cumulative distribution) 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 distribution payment or payments on Preferred
Shares of such series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if such
series of Preferred Shares has a cumulative distribution, full cumulative
distributions on the Preferred Shares of such series have been or
contemporaneously are authorized and paid or authorized and a sum sufficient for
the payment thereof set apart for payment for all past distribution periods and
the then current distribution period and (ii) if such series of Preferred Shares
does not have a cumulative distribution, full distributions on the Preferred
Shares of such series have been or contemporaneously are authorized and paid or
authorized and a sum sufficient for the payment thereof set apart for payment
for the then current distribution period, no distributions (other than in common
shares or other shares of beneficial interest ranking junior to the Preferred
Shares of such series as to distributions and upon liquidation, dissolution or
winding up of the affairs of the Company) shall be authorized or paid or set
aside for payment or other distribution upon the Common Shares or any other
shares of beneficial interest of the Company ranking junior to or on a parity
with the Preferred Shares of such series as to distributions or upon
liquidation, dissolution or winding up of the affairs of the Company, nor shall
any Common Shares or any other shares of beneficial interest of the Company
ranking junior to or on a parity with the Preferred Shares of such series as to
distributions or upon liquidation, dissolution or winding up of the affairs of
the Company 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 shares of beneficial interest) by the Company (except by
conversion into or exchange for other shares of beneficial interest of the
Company ranking junior to the Preferred Shares of such series as to
distributions and upon liquidation, dissolution or winding up of the affairs of
the Company).
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Any distribution payment made on a series of Preferred Shares shall first be
credited against the earliest accrued but unpaid distribution due with respect
to shares of such series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Shares of
any series 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 distributions thereon (which shall not,
if such Preferred Shares does not have a cumulative distribution, include any
accumulation in respect of unpaid distributions for prior distribution periods)
to the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Shares of any series is payable only from the net
proceeds of the issuance of shares of beneficial interest of the Company, the
terms of such Preferred Shares may provide that, if no such shares of beneficial
interest shall have been issued or to the extent the net proceeds from any
issuance are insufficient to pay in full the aggregate redemption price then
due, such Preferred Shares shall automatically and mandatorily be converted into
shares of the applicable shares of beneficial interest of the Company pursuant
to conversion provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Shares has
a cumulative distribution, full cumulative distributions on all shares of such
series have been or contemporaneously are authorized and paid or authorized and
a sum sufficient for the payment thereof set apart for payment for all past
distribution periods and the then current distribution period and (ii) if such
series of Preferred Shares does not have a cumulative distribution, full
distributions on all shares of such series have been or contemporaneously are
authorized and paid or authorized and a sum sufficient for the payment thereof
set apart for payment for the then current distribution period, no shares of
such 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 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 distribution, full
cumulative distributions on all outstanding shares of such series have been or
contemporaneously are authorized and paid or authorized and a sum sufficient for
the payment thereof set apart for payment for all past distribution periods and
the then current distribution period and (ii) if such series of Preferred Shares
does not have a cumulative distribution, full distributions on all shares of
such series have been or contemporaneously are authorized and paid or authorized
and a sum sufficient for the payment thereof set apart for payment for the then
current distribution 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 shares of beneficial interest of the Company ranking junior
to the Preferred Shares of such series as to distributions and upon
liquidation).
If fewer than all of the outstanding Preferred Shares of any series are to be
redeemed, the number of 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 any other equitable
method 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 stock 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 distributions 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
shall terminate. If fewer than all 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
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Shares has been properly given and if the funds necessary for such redemption
have been irrevocably 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 distributions will cease to accrue on such Preferred Shares,
such Preferred Shares shall no longer be deemed outstanding and all rights of
the holders of such shares will terminate, except the right to receive the
redemption price. Any moneys so deposited which remain unclaimed by the holders
of such Preferred Shares at the end of two years after the redemption date will
be returned by the applicable bank or trust company to the Company.
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 or any other class or series of shares of
beneficial interest of the Company ranking junior to any series of Preferred
Shares in the distribution of assets upon any liquidation, dissolution or
winding up of the Company, the holders of such series of Preferred Shares shall
be entitled to receive, after payment or provision for payment of the Company's
debts and other liabilities, 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 distributions accrued and unpaid
thereon (which shall not include any accumulation in respect of unpaid
distributions for prior distribution periods if such Preferred Shares do not
have a cumulative distribution). After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of such series
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 legally available assets of the
Company are insufficient to pay the amount of the liquidating distributions on
all such outstanding Preferred Shares and the corresponding amounts payable on
all shares of other classes or series of shares of beneficial interest of the
Company ranking on a parity with such series of Preferred Shares in the
distribution of assets upon liquidation, dissolution or winding up, then the
holders of such series of Preferred Shares and all other such classes or series
of shares of beneficial interest 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 the liquidating distributions shall have been made in full to all holders of
a series of Preferred Shares, the remaining assets of the Company shall be
distributed among the holders of any other classes or series of shares of
beneficial interest ranking junior to such series of 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
purposes of this section, a distribution of assets in any dissolution, winding
up or liquidation will not include (i) any consolidation or merger of the
Company with or into any other corporation, (ii) any dissolution, liquidation,
winding up, or reorganization of the Company immediately followed by
organization of another entity to which such assets are distributed or (iii) a
sale or other disposition of all or substantially all of the Company's assets to
another entity; provided that, in each case, effective provision is made in the
charter of the resulting and surviving entity or otherwise for the recognition,
preservation and protection of the rights of the holders of Preferred Shares.
VOTING RIGHTS
Holders of any series of Preferred Shares will not have any voting rights,
except as set forth below or as indicated in the applicable Prospectus
Supplement.
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 a majority 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, create or issue, or increase the authorized or issued amount of,
any class or series of shares of beneficial interest ranking prior to such
series of Preferred Shares with respect to payment of distributions or the
distribution of assets upon liquidation, dissolution or winding up, or
reclassify any authorized shares of beneficial interest 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 Declaration of Trust whether by
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merger, consolidation or otherwise, 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, that any increase in the amount of
the authorized preferred shares or the creation or issuance of any other series
of preferred shares, or any increase in the amount 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 payment of
distributions 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
affected, all outstanding shares of such series of Preferred Shares shall have
been redeemed or called for redemption upon proper notice and sufficient funds
shall have been irrevocably deposited in trust to effect such redemption.
Whenever distributions on any Preferred Shares shall be in arrears for six or
more consecutive quarterly periods, the holders of such Preferred Shares (voting
together 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 trustees of the Company until, (i) if such
series of Preferred Shares has a cumulative distribution, all distributions
accumulated on such Preferred Shares for the past distribution periods and the
then current distribution period shall have been fully paid or authorized 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 distribution, four
consecutive quarterly distributions shall have been fully paid or authorized and
a sum sufficient for the payment thereof set aside for payment. In such case,
the entire Board of Trustees of the Company will be increased by two trustees.
The Convertible Preferred Holders and Series B Preferred Holders have rights
similar to those set forth in this section.
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.
RESTRICTIONS ON TRANSFER
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
stock may be owned, directly or constructively, by five or fewer individuals (as
defined in the Code) during the last half of a taxable year, and the capital
stock must be beneficially owned by 100 or more persons during at least 335 days
of a taxable year of 12 months (or during a proportionate part of a shorter
taxable year). Therefore, the Declaration of Trust imposes certain restrictions
on the ownership and transferability of Preferred Shares. For a general
description of such restrictions, see 'Description of Common
Shares--Restrictions on Ownership.' All certificates representing Preferred
Shares will bear a legend referring to these restrictions.
DESCRIPTION OF COMMON SHARES
As of September 30, 1996, the Company had outstanding 17,099,935 Common Shares.
The following description of the Common Shares sets forth certain general terms
and provisions of the Common Shares to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Shares will be
issuable upon conversion of Debt Securities or Preferred Shares or upon the
exercise of Warrants. The statements below describing the Common Shares are in
all respects subject to and qualified in their entirety by reference to the
applicable provisions of the Declaration of Trust and Bylaws.
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Holders of Common Shares will be entitled to receive distributions when, as and
if authorized and declared by the Board of Trustees of the Company, out of funds
legally available therefor. Payment and authorization of distributions on the
Common Shares and purchases of Common Shares by the Company will be subject to
certain restrictions if the Company fails to pay distributions on the
Convertible Preferred Shares, Series B Preferred Shares or Preferred Shares. See
'Description of Preferred Shares.' Upon any liquidation, dissolution or winding
up of the Company, holders of Common Shares will be entitled to share equally
and ratably in any assets available for distribution to them, after payment or
provision for payment of the debts and other liabilities of the Company and the
preferential amounts owing with respect to any outstanding Convertible Preferred
Shares, Series B Preferred Shares or Preferred Shares. The Common Shares will
possess ordinary voting rights for the election of trustees and in respect of
other trust matters, each share entitling the holder thereof to one vote.
Holders of Common Shares will not have cumulative voting rights in the election
of trustees, which means that holders of more than 50% of all of the outstanding
Common Shares voting for the election of trustees can elect all of the trustees
if they choose to do so and the holders of the remaining shares cannot elect any
trustees. Approval of the following matters requires the affirmative vote of the
holders of at least 66 2/3% of all outstanding Common Shares: certain amendments
to the Declaration of Trust, termination of the Company, removal of a trustee,
certain mergers, reorganizations or consolidations of the Company or the sale,
conveyance, exchange or other disposition of all or substantially all of the
Company's property. Holders of Common Shares will not have preemptive rights,
which means they have no right to acquire any additional Common Shares that may
be issued by the Company at a subsequent date. The Common Shares will, when
issued, be fully paid and nonassessable.
The description of the limitations on the liability of shareholders of the
Company set forth under 'Description of Preferred Shares--General' is applicable
to holders of Common Shares.
The Registrar and Transfer Agent for the Company's Common Shares is United
States Trust Company of New York.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, among other requirements,
not more than 50% in value of its outstanding shares of beneficial interest may
be owned, directly or indirectly, by five or fewer individuals (after applying
certain attribution rules) during the last half of a taxable year; the shares
must be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months or during a proportionate part of a shorter taxable
year (see 'Certain Federal Income Tax Considerations To The Company Of Its REIT
Election--Federal Income Taxation of the Company'). Therefore, the Declaration
of Trust, subject to certain exceptions, provides that no holder (other than (i)
Edward Lowenthal and Jeffrey H. Lynford and (ii) any other person approved by
the trustees, at their option and in their discretion, provided that such
approval will not result in the termination of the status of the Company as a
REIT) may own, or be deemed to own by virtue of the attribution provisions of
the Code, more than 9.8% (the 'Ownership Limit') of the lesser of the number or
value (in either case as determined in good faith by the trustees) of the total
outstanding shares. All certificates representing Common Shares will bear a
legend referring to these restrictions.
The trustees may waive the Ownership Limit if evidence satisfactory to the
trustees and the Company's tax counsel is presented that such ownership will not
then or in the future jeopardize the Company's status as a REIT. As a condition
of such waiver, the intended transferee must give written notice to the Company
of the proposed transfer and must furnish such opinions of counsel, affidavits,
undertakings, agreements and information as may be required by the trustees no
later than the 15th day prior to any transfer which, if consummated, would
result in the intended transferee owning shares in excess of the Ownership
Limit. The foregoing restrictions on transferability and ownership will not
apply if the trustees determine that it is no longer in the best interests of
the Company to attempt to qualify, or to continue to qualify, as a REIT. Any
transfer of shares that would (i) create a direct or indirect ownership of
shares in excess of the Ownership Limit, (ii) result in the shares being owned
by fewer than 100 persons or (iii) result in the Company being 'closely held'
within the meaning of Section 856(h) of the Code, shall be null and void, and
the intended transferee will acquire no rights to the shares. The Declaration of
Trust provides that the Company, by notice to the holder thereof, may purchase
any or all shares of beneficial interest of the Company (the 'Excess Shares')
that are proposed to be transferred pursuant to a transfer which, if
consummated, would result in the intended transferee owning shares in excess of
the Ownership Limit or would otherwise jeopardize the REIT status of the
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Company. The purchase price of any Excess Shares shall be equal to the fair
market value of such shares reflected in the closing sales price for the shares,
if then listed on a national securities exchange, or such price for the shares
on the principal exchange if then listed on more than one national securities
exchange, or, if the shares are not then listed on a national securities
exchange, the latest bid quotation for the shares if then traded
over-the-counter, or, if such quotation is not available, the fair market value
as determined by the trustees in good faith, on the last trading day immediately
preceding the day on which notice of such proposed purchase is sent by the
Company. From and after the date fixed for purchase by the trustees, the holder
of such shares to be purchased by the Company shall cease to be entitled to
distribution, voting rights and other benefits with respect to such shares
except the right to payment of the purchase price for the shares. Any
distribution paid to a proposed transferee on Excess Shares prior to the
discovery by the Company that such shares have been transferred in violation of
the provisions of the Declaration of Trust shall be repaid to the Company upon
demand. If the foregoing transfer restrictions are determined to be void or
invalid by virtue of any legal decision, statute, rule or regulation, then the
intended transferee of any Excess Shares may be deemed, at the option of the
Company, to have acted as an agent on behalf of the Company in acquiring such
Excess Shares and to hold such Excess Shares on behalf of the Company.
All persons who own, directly or by virtue of the attribution provisions of the
Code, more than 5% in number or value of the outstanding shares of beneficial
interest of the Company must give a written notice to the Company containing the
information specified in the Declaration of Trust by January 30 of each year. In
addition, each shareholder shall upon demand be required to disclose to the
Company in writing such information with respect to the direct, indirect and
constructive ownership of beneficial interests as the trustees deem necessary to
comply with the provisions of the Code applicable to a REIT, to comply with the
requirements of any taxing authority or governmental agency or to determine any
such compliance.
These ownership limitations may have the effect of precluding acquisition of
control of the Company unless the trustees determine that maintenance of REIT
status is no longer in the best interests of the Company.
DESCRIPTION OF WARRANTS
The Company may issue Warrants for the purchase of Debt Securities, Preferred
Shares or Common Shares. Warrants may be issued independently or together with
any Offered Securities and may be attached to or separate from such securities.
Each series of Warrants will be issued under a separate warrant agreement (each,
a 'Warrant Agreement') to be entered into between the Company and a warrant
agent ('Warrant Agent'). The Warrant Agent will act solely as an agent of the
Company in connection with the Warrants of such series and will not assume any
obligation or relationship of agency or trust for or with any holders or
beneficial owners of Warrants. The following sets forth certain general terms
and provisions of the Warrants offered hereby. Further terms of the Warrants and
the applicable Warrant Agreement will be set forth in the applicable Prospectus
Supplement.
The applicable Prospectus Supplement will describe the following terms, where
applicable, of the Warrants in respect of which this Prospectus is being
delivered: (1) the title of such Warrants; (2) the aggregate number of such
Warrants; (3) the price or prices at which such Warrants will be issued; (4) the
currencies in which the price of such Warrants may be payable; (5) the
designation, aggregate principal amount and terms of the securities purchasable
upon exercise of such Warrants; (6) the designation and terms of the Offered
Securities with which such Warrants are issued and the number of such Warrants
issued with each such security; (7) the currency or currencies, including
composite currencies, in which the principal of or any premium or interest on
the securities purchasable upon exercise of such Warrants will be payable; (8)
if applicable, the date on and after which such Warrants and the related
securities will be separately transferable; (9) the price at which and currency
or currencies, including composite currencies, in which the securities
purchasable upon exercise of such Warrants may be purchased; (10) the date on
which the right to exercise such Warrants shall commence and the date on which
such right shall expire; (11) the minimum or maximum amount of such Warrants
which may be exercised at any one time; (12) information with respect to
book-entry procedures, if any; (13) a discussion of certain Federal income tax
considerations; and (14) any other terms of such Warrants, including terms,
procedures and limitations relating to the exchange and exercise of such
Warrants.
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<PAGE>
DESCRIPTION OF RIGHTS
The Company may issue Rights to its shareholders for the purchase of Common
Shares. Each series of Rights will be issued under a separate rights agreement
(a 'Rights Agreement') to be entered into between the Company and a bank or
trust company, as Rights agent, all as set forth in the Prospectus Supplement
relating to the particular issue of Rights. The Rights agent will act solely as
an agent of the Company in connection with the certificates relating to the
Rights and will not assume any obligation or relationship of agency or trust for
or with any holders of Rights certificates or beneficial owners of Rights. The
Rights Agreement and the Rights certificates relating to each series of Rights
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 Rights.
The applicable Prospectus Supplement will describe the terms of the Rights to be
issued, including the following where applicable: (i) the date for determining
the shareholders entitled to the Rights distribution; (ii) the aggregate number
of Common Shares purchasable upon exercise of such Rights and the exercise
price; (iii) the aggregate number of Rights being issued; (iv) the date, if any,
on and after which such Rights may be transferable separately; (v) the date on
which the right to exercise such Rights shall commence and the date on which
such right shall expire; (vi) any special United States federal income tax
consequences; and (vii) any other terms of such Rights, including terms,
procedures and limitations relating to the distribution, exchange and exercise
of such Rights.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general summary of the Code provisions governing
the United States federal income tax treatment of a REIT and is not tax advice.
The discussion is based upon the Code, Treasury regulations, and IRS rulings and
judicial decisions now in effect, all of which are subject to change at any
time, possibly with retroactive effect, by legislative, judicial or
administrative action. The tax treatment of a holder of any of the Offered
Securities will vary depending upon the terms of the specific securities
acquired by such holder, as well as his particular situation, and this
discussion does not attempt to address any aspects of Federal income taxation
relating to holders of Offered Securities. Certain Federal income tax
considerations relevant to holders of the Offered Securities will be provided in
the applicable Prospectus Supplement relating thereto.
EACH INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS SUPPLEMENT, AS
WELL AS HIS OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES OF THE ACQUISITION,
OWNERSHIP AND SALE OF THE OFFERED SECURITIES, INCLUDING THE FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP, AND
SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
FEDERAL INCOME TAXATION OF THE COMPANY
General
The Company has elected to be taxed as a REIT under Sections 856 through 860 of
the Code, commencing with its taxable year ended December 31, 1992. The Company
believes that, commencing with its taxable year ended December 31, 1992, it was
organized and operated in such a manner as to qualify for taxation as a REIT
under the Code, and the Company intends to continue to operate in such a manner,
but no assurance can be given that it will operate in a manner so as to qualify
or remain qualified.
27
<PAGE>
In the opinion of Robinson Silverman Pearce Aronsohn & Berman LLP, commencing
with the Company's taxable year ended December 31, 1992, the Company was
organized in conformity with the requirements for qualification as a REIT, and
its method of operation enabled it to meet the requirements for qualification
and taxation as a REIT under the Code. It must be emphasized that this opinion
is based on various assumptions and is conditioned upon certain representations
made by the Company as to factual matters. Such factual assumptions and
representations are set forth below in this discussion of 'Federal Income Tax
Considerations.' In addition, this opinion is based upon the factual
representations of the Company concerning its business and properties as set
forth in this Prospectus. Moreover, such qualification and taxation as a REIT
depends upon the Company's ability to meet, through actual annual operating
results, distribution levels, diversity of share ownership, and the various
other qualification tests imposed under the Code discussed below, the results of
which have not been and will not be reviewed by Robinson Silverman Pearce
Aronsohn & Berman LLP. Accordingly, no assurance can be given that the actual
results of the Company's operation for any one taxable year will satisfy such
requirements. See 'Failure to Qualify as a Real Estate Investment Trust.'
If the Company qualifies for tax treatment as a REIT, it will generally not be
subject to Federal corporate taxation on its net income to the extent currently
distributed to its shareholders. This substantially eliminates the 'double
taxation' (at both the corporate and stockholder levels) that typically results
from the use of corporate investment vehicles.
The Company will be subject to Federal income tax, however, as follows: First,
the Company will be taxed at regular corporate rates on its undistributed REIT
taxable income, including undistributed net capital gains. Second, under certain
circumstances, the Company may be subject to the 'alternative minimum tax' to
the extent that tax exceeds its regular tax. Third, if the Company has net
income from the sale or other disposition of 'foreclosure property' that is held
primarily for sale to customers in the ordinary course of business or other
nonqualifying income from foreclosure property, it will be subject to tax at the
highest corporate rate on such income. Fourth, any net income that the Company
has from prohibited transactions (which are, in general, certain sales or other
dispositions of property other than foreclosure property held primarily for sale
to customers in the ordinary course of business) will be subject to a 100% tax.
Fifth, if the Company should fail to satisfy either the 75% or 95% gross income
tests (as discussed below), and has nonetheless maintained its qualification as
a REIT because certain other requirements have been met, it will be subject to a
100% tax on an amount equal to (a) the gross income attributable to the greater
of the amount by which the Company fails the 75% or 95% test, multiplied by (b)
a fraction intended to reflect the Company's profitability. Sixth, if the
Company fails to distribute during each year at least the sum of (i) 85% of its
REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income
for such year, and (iii) any undistributed taxable income from preceding
periods, the Company will be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. Seventh, if an
election is made pursuant to IRS Notice 88-19 and during the 10-year period
commencing on the first day of the first taxable year that the Company qualifies
as a REIT, the Company recognizes a gain from the disposition of an asset held
by the Company at the beginning of such period, or if during the 10-year period
commencing on the day on which an asset acquired by the Company from a C
corporation in a transaction in which the Company inherits the tax basis of the
asset from the C corporation, the Company recognizes a gain from the disposition
of such asset, then the Company will be subject to tax at the highest regular
corporate rate on the excess, if any, of the fair market value over the adjusted
basis of any such asset as of the beginning of the relevant period (the
'Built-In-Gain').
Requirements for Qualification
A REIT is defined in the Code as a corporation, trust or association: (1) which
is managed by one or more trustees or directors; (2) the beneficial ownership of
which is evidenced by transferable shares or by transferable certificates of
beneficial interest; (3) which would be taxable as a domestic corporation, but
for Sections 856 through 860 of the Code; (4) which is neither a financial
institution nor an insurance company subject to certain provisions of the Code;
(5) the beneficial ownership of which is held by 100 or more persons; (6) not
more than 50% in value of the outstanding shock of which is owned during the
last half of each taxable year, directly or indirectly, by or for five or fewer
individuals (as defined in the Code to include certain entities) (the 'Five or
Fewer Requirement'); and (7) which meets certain income and asset tests
described below. Conditions (1) to (4), inclusive, must be met during the entire
taxable year and condition (5) must be met during at least 335 days of a taxable
year of 12 months or during a proportionate part of a taxable year of less than
12 months. However, conditions (5) and (6) will not apply until after the first
taxable year for which an election is made to be taxed as REIT. For purposes of
conditions (5) and (6), pension funds and certain other
28
<PAGE>
tax-exempt entities are treated as individuals, subject to a 'look-through'
exception in the case of condition (6).
The Company has satisfied the share ownership requirements set forth in (5) and
(6) above. In addition, the Company's Declaration of Trust provides restrictions
regarding the transfer of its Shares which are intended to assist the Company in
continuing to satisfy the shares ownership requirements described in (5) and (6)
above. Such transfer restrictions are described in 'Description of Common
Shares--Restrictions on Ownership.'
Income Tests
There are three percentage tests relating to the sources of the Company's gross
income. First, at least 75% of the Company's gross income (excluding gross
income from certain sales of property held primarily for sale and from discharge
of indebtedness) must be directly or indirectly derived each taxable year from
investments relating to real property or mortgages on real property or certain
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from certain sales of property held primarily for sale
and from discharge of indebtedness) must be directly or indirectly derived each
taxable year from any of the sources qualifying for the 75% test and from
dividends, interest, and gain from the sale or disposition of stock or
securities. Third, in each taxable year short-term gains from sales of stock or
securities, gains from sales of property (other than foreclosure property) held
primarily for sale and gains from the sale or other taxable disposition of real
property held for less than four years (other than from involuntary conversions
and foreclosure property) must represent less than 30% of the Company's gross
income. In applying these tests, if the Company invests in a partnership, the
Company will be treated as realizing its share of the income and bearing its
share of the loss of the partnership, and the character of such income or loss,
as well as other partnership items, will be determined at the partnership level.
Rents received by the Company will qualify as 'rents from real property' for
purposes of satisfying the gross income tests for a REIT only if several
conditions are met. First, the amount of rent must not be based in whole or in
part on the income or profits of any person, although rents generally will not
be excluded merely because they are based on a fixed percentage of receipts or
sales. None of the rents under the Company's existing leases are based on income
or profits of a kind that would disqualify such rents from being treated as
rents from real property. Second, rents received from a tenant will not qualify
as 'rents from real property' if the REIT, or an owner of 10% or more of the
REIT, also directly or constructively owns 10% or more of such tenant. Third, if
rent attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent received under the lease, then
the portion of rent attributable to such personal property will not qualify as
'rents from real property.' Finally, for rents to qualify as 'rents from real
property,' the REIT generally must not operate or manage the property or furnish
or render services to the tenants of such property, other than through an
independent contractor from whom the REIT derives no income; provided, however,
the Company may directly perform certain services other than services which are
considered rendered to the occupant of the property. The Company will, in a
timely manner, hire independent contractors from whom it derives no revenue to
perform such services, except that the Company will directly perform services
under certain of its leases with respect to which it will receive an opinion of
counsel or otherwise satisfy itself that its performance of such services will
not cause the rents received with respect to such leases to fail to qualify as
'rents from real property.'
The term 'interest' generally does not include any amount if the determination
of such amount depends in whole or in part on the income or profits of any
person, although an amount generally will not be excluded from the term
'interest' solely by reason of being based on a fixed percentage of receipts or
sales.
If the Company fails to satisfy one or both of the 75% or 95% gross income tests
for any taxable year, it may nevertheless qualify as a REIT for such year if it
is eligible for relief under certain provisions of the Code. These relief
provisions will be generally available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not now possible to determine the circumstances under which the
Company may be entitled to the benefit of these relief provisions. If these
relief provisions apply, a 100% tax is imposed on the net income attributable to
the greater of the amount by which the Company failed the 75% test or the 95%
test.
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<PAGE>
Asset Tests
At the close of each quarter of its taxable year, the Company must also satisfy
several tests relating to the nature and diversification of its assets. First,
at least 75% of the value of the Company's total assets must be represented by
real estate assets, cash, cash items (including receivables arising in the
ordinary course of the Company's operation) and government securities. In
addition, not more than 25% of the value of the Company's total assets may be
represented by securities other than those includible in the 75% asset class.
Moreover, of the investments included in the 25% asset class, the value of any
one issuer's securities owned by the Company may not exceed 5% of the value of
the Company's total assets. Finally, of the investments included in the 25%
asset class, the Company may not own more than 10% of any one issuer's
outstanding voting securities.
Annual Distribution Requirements
The Company, in order to avoid being taxed as a regular corporation, is required
to make distributions (other than capital gain distributions) to its
shareholders which qualify for the dividends paid deduction in an amount at
least equal to (A) the sum of (i) 95% of the Company's 'REIT taxable income'
(computed without regard to the dividends paid deduction and the Company's net
capital gain) and (ii) 95% of the after-tax net income, if any, from foreclosure
property, minus (B) the sum of certain items of non-cash income. Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular distribution
payment after such declaration. To the extent that the Company does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its 'REIT taxable income,' as adjusted, it will be subject to tax
thereon at regular corporate tax rates. Finally, as discussed above, the Company
may be subject to an excise tax if it fails to meet certain other distribution
requirements.
It is possible that the Company, from time to time, may not have sufficient cash
or other liquid assets to meet the 95% distribution requirement, or to
distribute such greater amount as may be necessary to avoid income and excise
taxation, due to timing differences between (i) the actual receipt of income and
actual payment of deductible expenses and (ii) the inclusion of such income and
deduction of such expenses in arriving at taxable income of the Company. In the
event that such timing differences occur, the Company may find it necessary to
arrange for borrowings or, if possible, pay taxable share distributions in order
to meet the distribution requirement.
Under certain circumstances, in the event of a deficiency determined by the IRS,
the Company may be able to rectify a resulting failure to meet the distribution
requirement for a year by paying 'deficiency dividends' to shareholders in a
later year, which may be included in the Company's deduction for distributions
paid for the earlier year. Thus, although the Company may be able to avoid being
taxed on amounts distributed as deficiency distributions, it will be required to
pay interest based upon the amount of any deduction taken for deficiency
distributions.
FAILURE TO QUALIFY AS A REAL ESTATE INVESTMENT TRUST
The Company's election to be treated as a REIT will be automatically terminated
if the Company fails to meet the requirements described above. In that event,
the Company will be subject to tax (including any applicable minimum tax) on its
taxable income at regular corporate rates, and distributions to shareholders
will not be deductible by the Company. All distributions to shareholders will be
taxable as ordinary income to the extent of current and accumulated earnings and
profits allocable to such distributions and will be eligible for the 70%
dividends received deduction for corporate shareholders (although special rules
apply in the case of any 'extraordinary dividend' as defined in Code Section
1059). The Company will not be eligible again to elect REIT status until the
fifth taxable year which begins after the year for which the Company's election
was terminated unless the Company did not willfully fail to file a timely return
with respect to the termination taxable year, inclusion of incorrect information
in such return was not due to fraud with intent to evade tax, and the Company
establishes that failure to meet the requirement was due to reasonable cause and
not willful neglect. Failure to qualify for even one year could result in the
Company incurring substantial indebtedness (to the extent borrowings are
feasible) or liquidating substantial investments in order to pay the resulting
taxes.
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<PAGE>
FEDERAL INCOME TAXATION OF SHAREHOLDERS
General
So long as the Company qualifies for taxation as a REIT, distributions with
respect to its Shares made out of current or accumulated earnings and profits
allocable thereto (and not designated as capital gain dividends) will be
includible by the shareholders as ordinary income for Federal income tax
purposes. For this purpose, the current and accumulated earnings and profits of
the Company will be allocated first to distributions with respect to Convertible
Preferred Shares and Series B Preferred Shares and then to distributions with
respect to Common Shares. None of these distributions will be eligible for the
dividends received deduction for corporate shareholders. Distributions that are
designated as capital gain dividends will be taxed as long-term capital gains
(to the extent they do not exceed the Company's actual net capital gain for the
taxable year) without regard to the period for which the shareholder has held
his share. Corporate shareholders, however, may be required to treat up to 20%
of certain capital gain dividends as ordinary income.
Distributions in excess of current or accumulated earnings and profits will not
be taxable to a shareholder to the extent that they do not exceed the adjusted
basis of the shareholder's Shares. Shareholders will be required to reduce the
tax basis of their Shares by the amount of such distributions until such basis
has been reduced to zero, after which such distributions will be taxable as
capital gain (ordinary income in the case of a shareholder who holds his Shares
as a dealer). The tax basis as so reduced will be used in computing the capital
gain or loss, if any, realized upon sale of the Shares. Any loss upon a sale or
exchange of Shares by a shareholder who held such Shares for six months or less
(after applying certain holding period rules) will generally be treated as a
long-term capital loss to the extent such shareholder previously received
capital gain distributions with respect to such Shares.
In general, net capital gains of noncorporate shareholders are taxed at a
maximum rate of 28%, while short-term capital gains and ordinary income are
taxed at a maximum rate of 39.6%. In general, net capital gains, short-term
capital gains and ordinary income of corporate shareholders are taxed at a
maximum rate of 34% (35% for taxable income in excess of $10 million).
Shareholders may not include in their individual Federal income tax returns any
net operating losses or capital losses of the Company. In addition, any
distribution declared by the Company in October, November or December of any
year payable to a shareholder of record on a specified date in any such month
shall be treated as both paid by the Company and received by the shareholder on
December 31 of such year, provided that the distribution is actually paid by the
Company no later than January 31 of the following year. The Company may be
required to withhold a portion of capital gain distributions to any shareholders
who fail to certify their non-foreign status to the Company.
Upon the sale or exchange of Shares to or with a person other than the Company,
a holder will recognize capital gain or loss equal to the difference between the
amount realized on such sale or exchange and the holder's adjusted tax basis in
such shares. Any capital gain or loss recognized will generally be treated as
long-term capital gain or loss if the holder held such shares for more than one
year.
Backup Withholding and Information Reporting
A noncorporate holder of Shares who is not otherwise exempt from backup
withholding may be subject to backup withholding at the rate of 31% with respect
to distributions paid on, or the proceeds of a sale, exchange or redemption of,
the Shares. Generally, backup withholding applies only when the taxpayer (i)
fails to furnish or certify his correct taxpayer identification number to the
payor in the manner requested, (ii) is notified by the IRS that he has failed to
report payments of interest or dividends properly, or (iii) under certain
circumstances, fails to certify that he has not been notified by the IRS that he
is subject to backup withholding for failure to report interest or dividend
payments. Any amounts withheld under the backup withholding rules from a payment
to a holder will be allowed as a credit against the holder's federal income tax
liability or as a refund, provided that the required information is furnished to
the IRS. Holders should consult their own tax advisors regarding their
qualification for exemption from backup withholding and the procedure for
obtaining any applicable exemption.
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Foreign Shareholders
The rules governing United States Federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, 'Non-U.S. Shareholders') are complex and no attempt
will be made herein to provide more than a general summary of such rules.
Prospective Non-U.S. Shareholders should consult with their own tax advisors to
determine the impact of Federal, state and local income tax laws with regard to
an investment in Shares, including any reporting requirements, as well as the
tax treatment of such an investment under their home country laws.
Distributions that are not attributable to gain from sales or exchanges by the
Company of United States real property interests and not designated by the
Company as capital gain dividends will be treated as dividends of ordinary
income to the extent that they are made out of current or accumulated earnings
and profits of the Company. Such distributions ordinarily will be subject to a
withholding tax equal to 30% of the gross amount of the distribution unless an
applicable tax treaty reduces or eliminates that tax. However, if income from
the investment in the Shares is treated as effectively connected with the
Non-U.S. Shareholder's conduct of a United States trade or business, the
Non-U.S. Shareholder generally will be subject to a tax at graduated rates, in
the same manner as U.S. Shareholders are taxed with respect to such dividends
(and may also be subject to the 30% branch profits tax in the case of a
shareholder that is a foreign corporation). The Company expects to withhold
United States income tax at the rate of 30% on the gross amount of any such
dividends paid to a Non-U.S. Shareholder unless (i) a lower treaty rate applies
and the Non-U.S. Shareholder files an IRS Form 1001 with the Company claiming a
lower treaty rate or (ii) the Non-U.S. Shareholder files an IRS Form 4224 with
the Company claiming that the distribution is effectively connected income.
Distributions in excess of current and accumulated earnings and profits of the
Company will not be taxable to a shareholder to the extent that they do not
exceed the adjusted basis of the shareholder's Shares, but rather will reduce
the adjusted basis of such Shares. To the extent that such distributions exceed
the adjusted basis of a Non-U.S. Shareholder's Shares, they will give rise to
tax liability if the Non-U.S. Shareholder would otherwise be subject to tax on
any gain from the sale or disposition of his Shares in the Company, as described
below. If it cannot be determined at the time a distribution is made whether or
not such distribution will be in excess of current and accumulated earnings and
profits, the distributions will be subject to withholding at the same rate as
dividends (although Proposed Treasury Regulations would allow the Company to
make a reasonable estimate of any excess distributions and avoid withholding
thereon). However, amounts thus withheld are refundable if it is subsequently
determined that such distribution was, in fact, in excess of current and
accumulated earnings and profits of the Company.
For any year in which the Company qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by the Company of United States
real property interests will be taxed to a Non-U.S. Shareholder under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
('FIRPTA'). Under FIRPTA, these distributions are taxed to a Non-U.S.
Shareholder as if such gain were effectively connected with a United States
business. Non-U.S. Shareholders would thus be taxed at the normal capital gain
rates applicable to U.S. shareholders (subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of nonresident alien
individuals). Also, distributions subject to FIRPTA may be subject to a 30%
branch profits tax in the hands of a foreign corporate shareholder not entitled
to treaty exemption. The Company is required to withhold 35% of any distribution
that could be designated by the Company as a capital gain dividend. This amount
is creditable against the Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of Shares generally will
not be taxed under FIRPTA if the Company is a 'domestically controlled REIT,'
defined generally as a REIT in which at all times during a specified testing
period less than 50% in value of the stock was held directly or indirectly by
foreign persons. It is currently anticipated that the Company will be a
'domestically controlled REIT,' and that therefore the sale of Shares will not
be subject to taxation under FIRPTA. However, gain not subject to FIRPTA will be
taxable to a Non-U.S. Shareholder if (i) investment in the Shares is effectively
connected with the Non-U.S. Shareholder's United States trade or business, in
which case the Non-U.S. Shareholder will be subject to the same treatment as
U.S. shareholders with respect to such gain, or (ii) the Non-U.S. Shareholder is
a nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a 'tax home' in the United States, in
which case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains. If the gain on the sale of Shares were to be subject
to taxation under FIRPTA, the Non-U.S. Shareholder will be subject to the same
treatment as U.S. shareholders with respect to such gain
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<PAGE>
(subject to applicable alternative minimum tax and a special alternative minimum
tax in the case of nonresident alien individuals).
Tax-Exempt Shareholders
Distributions from the Company to a tax-exempt employee pension trust or other
domestic tax-exempt shareholder generally will not constitute 'unrelated
business taxable income' ('UBTI') unless the shareholder has borrowed to acquire
or carry its Shares. Qualified trusts that hold more than 10% (by value) of the
shares of certain REITs, however, may be required to treat a certain percentage
of such a REIT's distributions as UBTI. This requirement will apply only if (i)
the REIT would not qualify as such for Federal income tax purposes but for the
application of a 'look-through' exception to the Five or Fewer Requirement
applicable to shares held by qualified trusts and (ii) the REIT is
'predominantly held' by qualified trusts. A REIT is predominantly held by
qualified trusts if either (i) a single qualified trust holds more than 25% by
value of the interests in the REIT or (ii) one or more qualified trusts, each
owning more than 10% by value of the interests in the REIT, hold in the
aggregate more than 50% of the interests in the REIT. The percentage of any REIT
distribution treated as UBTI is equal to the ratio of (a) the UBTI earned by the
REIT (treating the REIT as it were a qualified trust and therefore subject to
tax on UBTI) to (b) the total gross income of the REIT. A de minimis exception
applies where the percentage is less than 5% for any year. For these purposes, a
qualified trust is any trust described in section 401(a) of the Code and exempt
from tax under section 501(a) of the Code. The provisions requiring qualified
trusts to treat a portion of REIT distributions as UBTI will not apply if the
REIT is able to satisfy the Five or Fewer Requirement without relying upon the
'look-through' exception.
STATE, LOCAL AND FOREIGN TAXATION
The Company and its shareholders may be subject to state, local or foreign
taxation in various state, local or foreign jurisdictions, including those in
which it or they transact business or reside. Such state, local or foreign
taxation may differ from the Federal income tax treatment described above.
Consequently, prospective holders of Offered Securities should consult their own
tax advisors regarding the effect of state, local and foreign tax laws on an
investment in the Company.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to fixed
charges of the Company for the periods indicated:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
* * 2.12 1.11 1.21 1.28
</TABLE>
- ------------------
* Prior to the completion of the Company's initial public offering in November
1992 (the 'IPO'), the Company maintained a different capital structure. As a
result, the historical operations of the Company indicate a net loss for each
of the two fiscal years preceding the fiscal year ended December 31, 1993,
although the Company's properties have historically generated positive cash
flow. Consequently, the computation of the ratio of earnings to fixed charges
for such periods indicates that earnings were inadequate to cover fixed
charges by approximately $762,000 and $2,781,000 for the fiscal years ended
December 31, 1992 and 1991, respectively. The recapitalization of the Company
effected in connection with the IPO permitted the Company to significantly
deleverage its properties, resulting in a significantly improved ratio of
earnings to fixed charges subsequent to the IPO.
For purposes of these computations, earnings consist of net income available to
holders of Common Shares (excluding extraordinary gains or losses), if any, plus
fixed charges. Fixed charges consist of interest, amortization of debt expense
and discount related to indebtedness and distributions on the Convertible
Preferred Shares and Series B Preferred Shares.
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RATIOS OF EARNINGS TO DEBT SERVICE
The following table sets forth the historical ratios of earnings to debt service
of the Company for the periods indicated:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------------------------------- JUNE 30,
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
* * 2.75 1.85 1.73 2.00
</TABLE>
- ------------------
* Prior to the completion of the Company's IPO, the Company maintained a
different capital structure. As a result, the historical operations of the
Company indicate a net loss for each of the two fiscal years preceding the
fiscal year ended December 31, 1993, although the Company's properties have
historically generated positive cash flow. Consequently, the computation of
the ratio of earnings to debt service for such periods indicates that earnings
were inadequate to cover debt service by approximately $762,000 and $2,781,000
for the fiscal years ended December 31, 1992 and 1991 respectively. The
recapitalization of the Company effected in connection with the IPO permitted
the Company to significantly deleverage its properties, resulting in a
significantly improved ratio of earnings to debt service subsequent to the
IPO.
For purposes of these computations, earnings consist of net income available to
holders of Common Shares (excluding extraordinary gains or losses), if any, plus
fixed charges. Debt service consists of interest and recurring principal
amortization (excluding maturities) and excludes amortization of debt expense
and discount related to indebtedness.
PLAN OF DISTRIBUTION
The Company may sell the Offered Securities to one or more underwriters for
public offering and sale by them or may sell the Offered Securities to investors
directly or through agents. Any such underwriter or agent involved in the offer
and sale of the Offered Securities will be named in the applicable Prospectus
Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, at prices related to the prevailing market prices
at the time of sale or at negotiated prices. The Company also may, from time to
time, authorize underwriters acting as the Company's agents to offer and sell
the Offered Securities upon the terms and conditions as are set forth in the
applicable Prospectus Supplement. In connection with the sale of Offered
Securities, underwriters may be deemed to have received compensation from the
Company in the form of underwriting discounts or commissions and may also
receive commissions from purchasers of Offered Securities for whom they may act
as agent. Underwriters may sell Offered 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 agent.
Any underwriting compensation paid by the Company to underwriters or agents in
connection with the offering of Offered Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in the applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of the Offered Securities may be
deemed to be underwriters, and any discounts and commissions received by them
and any profit realized by them on resale of the Offered Securities may be
deemed to be underwriting discounts and commissions, under the Securities Act.
Underwriters, dealers and agents may be entitled, under agreements entered into
with the Company, to indemnification against and contribution toward certain
civil liabilities, including liabilities under the Securities Act.
If so indicated in a Prospectus Supplement, the Company will authorize agents,
underwriters or dealers to solicit offers by certain institutional investors to
purchase Offered Securities of the series to which such Prospectus Supplement
relates providing for payment and delivery on a future date specified in such
Prospectus Supplement. There may be limitations on the minimum amount which may
be purchased by any such institutional investor or on the portion of the
aggregate principal amount of the particular Offered Securities which may be
sold pursuant to such arrangements. Institutional investors to which such offers
may be made,
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when authorized, include commercial and savings banks, insurance companies,
pension funds, investment companies, educational and charitable institutions and
such other institutions as may be approved by the Company. The obligations of
any such purchasers pursuant to such delayed delivery and payment arrangements
will not be subject to any conditions except that (i) the purchase by an
institution of the particular Offered Securities shall not at the time of
delivery be prohibited under the laws of any jurisdiction in the United States
to which such institution is subject, and (ii) if the particular Offered
Securities are being sold to underwriters, the Company shall have sold to such
underwriters the total principal amount of such Offered Securities or number of
Warrants less the principal amount or number thereof, as the case may be,
covered by such arrangements. Underwriters will not have any responsibility in
respect of the validity of such arrangements or the performance of the Company
or such institutional investors thereunder.
Certain of the underwriters and their affiliates may be customers of, engage in
transactions with and perform services for the Company and its subsidiaries in
the ordinary course of business.
ERISA MATTERS
The Company may be considered a 'party in interest' within the meaning of the
Employee Retirement Income Security Act of 1974, as amended ('ERISA'), and a
'disqualified person' under corresponding provisions of the Code with respect to
certain employee benefit plans. Certain transactions between an employee benefit
plan and a party in interest or disqualified person may result in 'prohibited
transactions' within the meaning of ERISA and the Code, unless such transactions
are effected pursuant to an applicable exemption. Any employee benefit plan or
other entity subject to such provisions of ERISA or the Code proposing to invest
in the Offered Securities should consult with its legal counsel.
LEGAL OPINIONS
Certain legal matters will be passed upon for the Company by Robinson Silverman
Pearce Aronsohn & Berman LLP, New York, New York. The legal authorization and
issuance of the Offered Securities, as well as certain other legal matters
concerning Maryland law, will be passed upon for the Company by Ballard Spahr
Andrews & Ingersoll, Baltimore, Maryland. In addition, the description of
Federal income tax consequences contained in this Prospectus entitled 'Federal
Income Tax Considerations' is based upon the opinion of Robinson Silverman
Pearce Aronsohn & Berman LLP.
EXPERTS
The consolidated financial statements of the Company appearing in the Company's
Annual Report (Form 10-K) for the year ended December 31, 1995, have been
audited by Ernst & Young L.L.P, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
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