PROSPECTUS SUPPLEMENT
- ---------------------
(TO PROSPECTUS DATED OCTOBER 18, 1995)
$150,000,000
FRANCHISE FINANCE CORPORATION OF AMERICA
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
----------
Franchise Finance Corporation of America (the "Company") may offer from time
to time up to $150,000,000 aggregate initial offering price 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 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. The
Notes will be issued in minimum denominations of $1,000 and integral multiples
thereof, unless otherwise specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, the 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 at Maturity.
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, unless otherwise specified in the applicable Pricing Supplement, will be
payable semiannually in arrears on May 30 and November 30 of each year and at
Maturity. Notes may also be issued that do not bear interest currently or that
bear interest at below market rates. See "Description of Notes."
The interest rate, or formula for the determination of the interest rate, if
any, 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 formulae and
other terms of the 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.
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will be issued only in fully registered book-entry form (a "Book-Entry Note").
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 and its participants. Except as described herein
under "Description of Notes--Book-Entry Notes," owners of beneficial interests
in a Global Security will not be considered the Holders thereof and will not be
entitled to receive physical delivery of Notes in definitive form, and no Global
Security will be exchangeable except for another Global Security of like
denomination and terms to be registered in the name of the Depositary or its
nominee. See "Description of Notes."
----------
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 SUPPLEMENT HERETO. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
----------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
================================================================================
Price to Agents' Discounts and Proceeds to
Public(1)(2) Commissions(2)(3) Company(2)(4)
- --------------------------------------------------------------------------------
Per Note... 100% .125%-.750% 99.875%-99.250%
- --------------------------------------------------------------------------------
Total .....$150,000,000 $187,500-$1,125,000 $149,812,500-$148,875,000
================================================================================
(1) Unless otherwise specified in an applicable Pricing Supplement, the Notes
will be issued at 100% of their principal amount.
(2) Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
NationsBanc Capital Markets, Inc. and Smith Barney Inc. (each an "Agent" and
together, the "Agents"), may purchase 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 any such
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. In
connection with the purchase by an Agent as principal, such Agent may use a
selling group and may reallow any portion of such discount to other dealers
or purchasers. 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. The Company will pay a
commission in the form of a discount to the Agents, ranging from .125% to
.750% of the principal amount of a Note, depending upon its Stated Maturity
Date, sold through the Agents. Commissions with respect to Notes with Stated
Maturity Dates in excess of 30 years that are sold through an Agent will be
negotiated between the Company and such Agent at the time of sale. See "Plan
of Distribution."
(3) 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 "Plan of Distribution."
(4) Before deducting expenses payable by the Company estimated at $300,000.
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. The Company reserves the right to
cancel or modify the offer made hereby without notice. The Company or the
Agents, if the offer is solicited on an agency basis, may reject any offer to
purchase Notes in whole or in part. See "Plan of Distribution."
----------
MERRILL LYNCH & CO.
NATIONSBANC CAPITAL MARKETS, INC.
SMITH BARNEY INC.
----------
The date of this Prospectus Supplement is February 9, 1996.
<PAGE>
IN CONNECTION WITH AN OFFERING OF NOTES PURCHASED BY THE AGENTS AS PRINCIPAL
ON A FIXED OFFERING PRICE BASIS, THE AGENTS 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.
----------
THE PROSPECTUS THAT ACCOMPANIES THIS PROSPECTUS SUPPLEMENT CONTAINS
IMPORTANT INFORMATION REGARDING THIS OFFERING, AND PROSPECTIVE INVESTORS ARE
URGED TO READ BOTH THE PROSPECTUS AND THIS PROSPECTUS SUPPLEMENT IN FULL TO
OBTAIN MATERIAL INFORMATION CONCERNING THE NOTES.
----------
<PAGE>
RISK FACTORS
STRUCTURE RISKS
An investment in Notes indexed, as to principal, premium, if any, and/or
interest, to one or more interest rates, currencies or composite currencies
(including exchange rates and swap indices between currencies or composite
currencies), commodities 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 such indices or formulas
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 at Maturity (as defined under
"Description of Notes -- General"). 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, if any, 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 be expected to continue 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. See "Description of Notes -- Indexed Notes."
Any optional redemption feature of the 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 continued
liquidity of such market if one develops. See "Plan of Distribution."
The secondary market for such 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, if any, 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. 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
such Notes will fluctuate over time and that such fluctuations may be
significant.
CREDIT RATINGS
Any 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 market 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 for investment in
light of their particular circumstances.
S-3
<PAGE>
THE COMPANY
BACKGROUND
The Company believes it is the largest independent source of chain restaurant
real estate financing in the United States. The Company, together with its
predecessors, has been engaged in the financing of chain restaurant real estate
since 1980. As of December 31, 1995, the Company had investments in over 1,500
properties operated by approximately 400 restaurant operators in over 35 chains
located in 46 states. The Company is a fully integrated and self-administered
real estate investment trust ("REIT"). The common stock of the Company began
trading on the New York Stock Exchange ("NYSE") on June 29, 1994 under the
symbol "FFA." The corporate offices of the Company are located at 17207 North
Perimeter Drive, Scottsdale, Arizona 85255-5402 and its telephone number is
602-585-4500.
The Company's primary investment strategy is to finance chain restaurant
properties which are operated by multi-unit restaurant operators with
experienced management in established restaurant chains through mortgage loans
("Participating Mortgage Loans") and sale and leaseback transactions. The
Participating Mortgage Loans and sale and leaseback financings entered into by
the Company generally provide for payment escalations based upon specified
contractual increases or participation in the gross sales of the restaurant.
Properties financed by the Company are generally operated by multi-unit
restaurant operators which include both chain restaurant franchisors and
franchisees. Over 90% of the restaurant properties financed by the Company are
fast food restaurants, in chains such as Arby's, Burger King, Hardee's, Jack In
The Box, Kentucky Fried Chicken, Pizza Hut, Taco Bell and Wendy's. Most of the
remaining properties financed by the Company are part of midscale and casual
dining chains, such as Applebee's and Denny's.
Since 1980, members of the Company's management group have gained extensive
experience in the development and refinement of systems of operation, management
and research which have enhanced the Company's ability to identify, evaluate and
structure new investments. The Company's experience in the chain restaurant real
estate industry results in efficient, in-house performance of virtually every
aspect of real estate acquisition and management and is reflected in the
Company's eight departments, which include Real Estate Acquisitions, Asset
Management, Property Management, Research and Underwriting, Accounting, Legal
Services, Information Systems and Investor Relations.
BUSINESS STRATEGY
The Company's principal business objective is to increase cash flow (i)
through continued investment activity, (ii) by controlling expenses through
greater economies of scale, (iii) by increasing lease and mortgage revenues
through payment escalations based upon performance, inflation or specified
payment increases and (iv) by increasing its use of internally generated cash
flow for investments. Manage- ment seeks to achieve growth in cash flow, while
maintaining low portfolio investment risk, through diligent adherence to its
tested underwriting criteria, investment diversification and a conservative
capital structure.
The Company intends to provide capital to large, multi-unit chain restaurant
operating companies principally through sale and leaseback transactions and
Participating Mortgage Loans. The Company may also provide financing, under
certain circumstances, through fixed-rate mortgage loans and may also, under
certain circumstances, make equipment loans. Chain restaurant properties
financed by the Company are anticipated to be primarily existing restaurant
locations which are either being refinanced or financed in connection with
acquisitions by restaurant operating companies. The Company also anticipates
financing new chain restaurant locations, primarily for expansion by multi-unit
operators in existing markets or in markets adjacent to those markets in which
the restaurant chain brand is established and recognized. In addition, the
Company will finance existing chain restaurant properties by acquiring such
properties subject to existing long-term lease arrangements with operators.
The Company structures its investments to enhance the stability of its cash
flows. The Company's sale and leaseback transactions provide that lessees are
responsible for the payment of all property operating expenses, including
property taxes, maintenance and insurance expenses. Both sale and leaseback
financing and Participating Mortgage Loans provided by the Company generally are
for twenty-year terms. The
S-4
<PAGE>
Company is generally not required to make significant capital expenditures in
connection with any property it finances. The Company generally targets a fixed
rate of return for leases and mortgages which typically ranges between 400 and
500 basis points over the current interest rate for ten-year United States
Treasury Bonds, with escalations over time based on performance, inflation or
specified payment increases. The Company's objective is to enter into financings
in which the returns exceed the Company's cost of capital.
The Company continually monitors and administers its investments to enhance
the stability of its cash flows. The Company's eight departments include Asset
Management, Property Management and Legal Services which together serve to
monitor all aspects of portfolio performance. The Company's properties are
regularly inspected by an in-house appraisal staff to monitor asset condition.
Financial data is regularly collected on the restaurant locations financed to
determine their profitability. Asset Management staff monitor payment receipts,
as well as property tax and insurance compliance. Lease and mortgage payments
are generally collected by electronic account debits on the first day of each
month. Underperforming and nonperforming leases and loans are administered by
Property Management and Legal Services personnel who also oversee the in-house
administration of property dispositions and tenant substitutions. The Company
has an established track record of identifying and resolving underperforming and
nonperforming assets, with an average time of approximately six months to relet
or sell such properties.
The Company's investments are diversified by geographic location, restaurant
operator and restaurant chain. Management anticipates that such diversification
will become greater as growth is achieved through new investments. The Company's
future investments are anticipated to be funded through a combination of debt
and equity issuances, revolving credit facilities, internally generated cash and
anticipated securitization of mortgage loan investments.
INFORMATION SYSTEMS
The Company's databases include specific chain restaurant location data for
over 100,000 locations in the United States, including demographic information,
traffic volumes and information regarding surrounding retail and other
commercial development that generate customer traffic for restaurants. The
Company also maintains a database of approximately 7,000 chain restaurant
industry participants, as well as databases of unit-level financial performance
for existing and prospective clients. The Company has the ability to integrate
information collected on sales performance and restaurant location with a
mapping system which contains demographic, retail space, traffic count and
street location information for every significant market in the United States.
The Company has also collected extensive data regarding management practices
within the chain restaurant industry, franchisor practices and industry trends.
The Company has invested extensively in the development of a proprietary
portfolio management system suited to its specialized focus on the chain
restaurant industry. As a result of the development by the Company of its
automated systems technology, the Company can monitor large diversified
portfolios by exception, including lease and mortgage payments made through
automated bank account debits, property taxes, property insurance coverage,
property sales and property profitability.
The information collected by the Company is actively used to assess
investment opportunities, measure prospective investment risk, evaluate
portfolio performance and manage underperforming and nonperforming assets. The
Company publishes research on the chain restaurant industry which includes
observations of industry issues and trends, areas of growth and the economics of
chain restaurant operation. The Company intends to continually develop, improve
and use its restaurant industry knowledge through research and broader
application of information technology to lower portfolio risk, improve
performance and improve its competitive advantage.
INVESTMENT CRITERIA
Real estate investment opportunities undergo an underwriting process designed
to maintain a conservative investment profile. This process includes a review of
the following factors:
o Restaurant Profitability. The Company seeks to invest in restaurant real
estate where the underlying operations are profitable and able to support
lease or mortgage payments.
S-5
<PAGE>
o Restaurant Investment Amount. The Company seeks to finance properties for
amounts which are equal to, or less than, replacement cost.
o Site Considerations. The Company seeks to invest in high profile, high
traffic real estate which it believes exhibits strong retail property
fundamentals.
o Market Considerations. The Company seeks to emphasize investments in
properties used by restaurant systems having significant market area
penetration.
o Operating Experience. The Company seeks to invest in properties of
restaurant operators with strong restaurant industry backgrounds.
Management believes that most properties financed will be operated by
experienced multi-unit restaurant operators.
o Tenant Credit. The Company's investments have full tenant or borrower
recourse. Many of the Company's leases and mortgages also have recourse to
individual guarantors. The Company reviews tenant, borrower and guarantor
financial strength to assess the availability of alternate sources of
payments in the event that restaurant profits might be insufficient to
provide lease or mortgage payments.
o Physical Condition. The Company seeks to invest in well-maintained
existing properties or in newly constructed properties. The Company has a
staff of appraisal professionals who conduct physical site inspections of
each property financed by the Company.
o Return Attributes. Investments are targeted that have initial returns
generally ranging from four hundred to five hundred basis points over the
current interest rate for United States Treasury Bonds of 10-year maturity
and increases over time.
o Restaurant Chain Suitability. The Company seeks to invest primarily in
real estate used in large national and regional chain restaurant systems
having annual system-wide restaurant sales of at least $250,000,000.
o Environmental Considerations. The Company engages outside professionals to
independently conduct Phase I environmental assessments for all new
financings. Phase II environmental assessment reports are also prepared if
recommended by the Phase I assessments. The Company will not finance a
property if a Phase II report indicates evidence of significant
environmental concerns.
THE INDUSTRY
The food service industry employs more people and has more locations than any
other retail industry in the United States. According to industry publications,
total food service industry sales during 1995 were estimated at approximately
$298 billion. In 1995 there were approximately 180,000 chain restaurant
locations in the United States. During 1994 and 1995 the largest seventy chains
as targeted by management for potential Company investment had estimated unit
increases of approximately 6.2% and 6.7%, respectively. Industry sources
estimated that during 1995 the fast food segment of the food service industry
had revenues of approximately $94 billion.
Development and maturation of the fast food segment of the food service
industry has led to a consolidation of restaurant operators. Increased
competition has decreased profit margins which has contributed to the emergence
of increasingly large and professionally managed restaurant operating companies.
Large operators typically have greater economies of scale and better management
systems which allow them to compete more effectively. As size and
diversification become increasingly important, many chain restaurant operators
are becoming affiliated with multiple restaurant systems. The Company believes
that the maturation of the fast food segment is likely to result in greater
stability for this industry segment. Chain restaurant consolidation has also
created real estate investment opportunities for the Company arising from the
demand by restaurant operators for acquisition financing.
S-6
<PAGE>
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered hereby
supplements and, to the extent inconsistent therewith, replaces the description
of the general terms and provisions of the Debt Securities set forth in the
accompanying Prospectus, to which description reference is hereby made. Unless
different terms or additional terms are specified in the applicable Pricing
Supplement, capitalized terms used but not defined herein shall have the
respective meanings given to them in the accompanying Prospectus, the Notes or
the Indenture, as the case may be. References to interest payments and interest
related information do not apply to original issue discount Notes that do not
pay interest.
The Notes will be issued as a series of Debt Securities under an Indenture,
dated as of November 21, 1995, as amended or supplemented from time to time (the
"Indenture"), between the Company and Norwest Bank Arizona, National
Association, as trustee (the "Trustee"). The Trustee serves as the trustee with
respect to the Company's 7% Senior Notes due 2000 and 7 7/8 % Senior Notes due
2005 issued under the Indenture. 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. 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
Notes will apply to each Note offered hereby unless otherwise specified in the
applicable Pricing Supplement.
GENERAL
The Notes will be unsecured general 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 Indenture does not limit the
principal amount 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. As of the date of this Prospectus Supplement, the
Company has issued and outstanding $200,000,000 aggregate principal amount of
Debt Securities. 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 $150,000,000 aggregate initial offering
price of Notes offered hereby.
The Notes are currently limited to up to $150,000,000 aggregate initial
offering price. Such aggregate initial offering price is subject to reduction as
a result of the sale by the Company of other Securities described in the
accompanying Prospectus. The Notes will be offered on a continuous basis and
will mature on any day nine months or more from their dates of issue (each, a
"Stated Maturity Date"), as specified in the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement,
interest-bearing Notes will either be Fixed Rate Notes or Floating Rate Notes,
as specified in the applicable Pricing Supplement. Notes may also be issued that
do not bear any interest currently or that bear interest at a below market rate.
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will be denominated in, and payments of principal, premium, if any, and/or
interest, if any, will be made in, U.S. dollars. References herein to "United
States dollars", "U.S. dollars" or "$" 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
U.S. dollars.
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 formulae 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, in
certain limited circumstances, a Certificated Note. The authorized denominations
of each Note will be $1,000 and integral multiples thereof, unless otherwise
specified in the applicable Pricing Supplement.
S-7
<PAGE>
Payments of principal of, and premium, if any, and interest, if any, 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 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 "Maturity" with
respect to the principal repayable on such date) will be made in immediately
available funds upon presentation and surrender thereof at the office or agency
maintained by the Company for such purpose in the Borough of Manhattan, The City
of New York (or, in the case of any repayment on an Optional Repayment Date,
upon presentation of such Certificated Note and a duly completed election form
in accordance with the provisions described below), located at Norwest Trust
Company New York, 3 New York Plaza, 15th Floor, New York, New York 10004.
Payment of interest, if any, due on Maturity 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, if any, due on each Certificated Note on any
Interest Payment Date (as hereinafter defined) other than the Maturity 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 more in initial aggregate principal amount of Notes (whether
having identical or different terms and provisions) will be entitled to receive
interest payments, if any, on any Interest Payment Date other than at Maturity
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.
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 Notes as to which
LIBOR is an applicable Interest Rate Basis, such day is also a London Business
Day. "London Business Day" means (i) if the Index Currency (as hereinafter
defined) is other than European Currency Units ("ECU"), any day on which
dealings in such Index Currency are transacted in the London interbank market or
(ii) if the Index Currency is ECU, any day 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 currency or composite currency in which any payment in respect of the
related Notes is to be made or, solely with respect to the calculation of LIBOR,
the Index Currency, except that with respect to U.S. dollars, Australian
dollars, Deutsche marks, Dutch guilders, Italian lire, Swiss francs and ECUs,
the Principal Financial Center shall be The City of New York, Sydney, Frankfurt,
Amsterdam, Milan, Zurich and Luxembourg, respectively.
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).
REDEMPTION AT THE OPTION OF THE COMPANY
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will not be subject to any sinking fund. The Notes will be redeemable at the
option of the Company prior to the Stated Maturity Date only if an Initial
Redemption Date is specified in the applicable Pricing Supplement. If so
specified,
S-8
<PAGE>
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 hereinafter defined), 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. "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 OPTION OF THE HOLDER
The Notes will be repayable by the Company at the option of the Holders
thereof prior to the Stated Maturity Date only if one or more Optional Repayment
Dates are specified in the applicable Pricing Supplement. If so specified, the
Notes will be subject to repayment at the option of the Holders thereof on any
Optional Repayment Date in whole or from time to time in part in increments of
$1,000 or such other minimum denomination specified in the applicable Pricing
Supplement (provided that any remaining principal amount thereof shall be at
least $1,000 or such other minimum denomination), at a repayment price equal to
100% of the unpaid principal amount to be repaid, together with unpaid interest
accrued to the date of repayment. For any Note to be repaid, such Note must be
received, together with the form thereon entitled "Option to Elect Repayment"
duly completed, by the Trustee at its Corporate Trust Office (or such other
address of which the Company shall from time to time notify the Holders) not
more than 60 nor less than 30 calendar days prior to the date of repayment.
Exercise of such repayment option by the Holder will be irrevocable. See also
"-- Original Issue Discount Notes."
Only the Depositary may exercise a repayment option in respect of Global
Securities representing Book-Entry Notes. Accordingly, Beneficial Owners (as
hereinafter defined) of Global Securities that desire to have all or any portion
of the Book-Entry Notes represented by such Global Securities repaid must
instruct the Participant (as hereinafter defined) through which they own their
interest to direct the Depositary to exercise the repayment option on their
behalf by delivering the related Global Security and duly completed election
form to the Trustee as aforesaid. In order to ensure that such Global Security
and election form are received by the Trustee on a particular day, the
applicable Beneficial Owner must so instruct the Participant through which it
owns its interest before such Participant's deadline for accepting instructions
for that day. Different Participants may have different deadlines for accepting
instructions from their customers. Accordingly, Beneficial Owners should consult
the Participants through which they own their interest for the respective
deadlines for such Participants. All instructions given to Participants from
Beneficial Owners of Global Securities relating to an option to elect repayment
shall be irrevocable. In addition, at the time such instructions are given, each
such Beneficial Owner shall cause the Participant through which it owns its
interest to transfer such Beneficial Owner's interest in the Global Security or
Securities representing the related Book-Entry Notes, on the Depositary's
records, to the Trustee. See "-- Book-Entry Notes."
If applicable, the Company will comply with the requirements of Rule 14e-1
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
any other securities laws or regulations in connection with any such repayment.
The Company may at any time purchase Notes at any price or prices in the open
market or otherwise. Notes so purchased by the Company may, at the discretion of
the Company, be held, resold or surrendered to the Trustee for cancellation.
S-9
<PAGE>
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) to but
excluding the applicable Interest Payment Date or the date of Maturity, 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 at Maturity. Unless otherwise
specified in the applicable Pricing Supplement, the first payment of interest on
any such Note originally issued between a Record Date (as hereinafter defined)
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
Unless otherwise specified in the applicable Pricing Supplement, interest on
Fixed Rate Notes will be payable on May 30 and November 30 of each year (each,
an "Interest Payment Date") and at Maturity. Unless otherwise specified in the
applicable Pricing Supplement, interest on Fixed Rate Notes will be computed on
the basis of a 360-day year consisting of twelve 30-day months.
If any Interest Payment Date or Maturity 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 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 Maturity,
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 also specify the
Index Currency 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, 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
S-10
<PAGE>
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.
(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 Maturity 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 hereinafter defined) 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
Maturity 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
S-11
<PAGE>
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 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 on or prior to the Calculation Date (as hereinafter
defined). 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 working day of the month immediately
preceding the applicable Interest Reset Date on which the Federal Home Loan Bank
of San Francisco (the "FHLB of San Francisco") publishes the Index (as
hereinafter defined); 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 hereinafter defined) 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 on 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
S-12
<PAGE>
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, at Maturity. If
any Interest Payment Date other than at Maturity 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 date of
Maturity of a Floating Rate Note falls on a day that is not a Business Day, the
required payment of principal, premium, if any, and interest will be made on the
next succeeding Business Day as if made on the date such payment was due, and no
interest will accrue on such payment for the period from and after Maturity 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 to the
nearest cent.
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, Norwest Bank
Arizona, National Association will be the "Calculation Agent." 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 Maturity, 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,
S-13
<PAGE>
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 the
Agent or its affiliates) selected by the Calculation Agent for negotiable United
States dollar certificates of deposit of major United States money market banks
for negotiable 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, 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
week, or the month, as specified in the applicable Pricing Supplement, ended
immediately preceding the week 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 the Agent or its
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
million. 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
S-14
<PAGE>
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, quotes for the Treasury Note with the
shorter remaining term to maturity will be used.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service on the page specified in the applicable Pricing Supplement (or any other
page as may replace such page on that service for the purpose of displaying
Treasury Constant Maturities as reported in H.15(519)) for the purpose of
displaying Treasury Constant Maturities as reported in H.15(519). If no such
page is specified in the applicable Pricing Supplement, the Designated CMT
Telerate Page shall be 7052 for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of the
U.S. Treasury securities (either 1, 2, 3, 5, 7, 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 2 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 hereinafter
defined) 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 the Agent or its 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:
D x 360
Money Market Yield = ---------- x 100
360 - (D x M)
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
S-15
<PAGE>
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 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 the Agent or its
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.
S-16
<PAGE>
(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.
"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 U.S. 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) 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) 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 such rate 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 (as hereinafter defined) 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 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 as many
substitute banks or trust companies as necessary in order to obtain four such
prime rate quotations, provided such substitute banks or trust companies are
organized and doing business under the laws of the United States, or any State
thereof, each having total equity capital of at least $500 million and being
subject to supervision or examination by Federal or State authority, selected by
the Calculation Agent to provide such rate or rates; provided, however, that if
the banks or trust companies so selected
S-17
<PAGE>
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" means the display designated as page "USPRIME1" on
the Reuter Monitor Money Rates Service (or such other page as may replace the
USPRIME1 page on that service for the purpose of displaying prime rates or base
lending rates of major United States banks).
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 United States government securities dealers (which may include the Agent
or its 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.
OTHER/ADDITIONAL PROVISIONS; ADDENDUM
Any provisions with respect to the Notes, including the specification and
determination of one or more Interest Rate Bases, the calculation of the
interest rate applicable to a Floating Rate Note, the Interest Payment Dates,
Maturity or any other term relating thereto, may be modified and/or supplemented
as specified under "Other/Additional Provisions" on the face thereof or in an
Addendum relating thereto, if so specified on the face thereof. Such provisions
will be described in the applicable Pricing Supplement.
AMORTIZING NOTES
The Company may from time to time offer 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 ("Original Issue 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).
Original Issue 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 an Original Issue Discount Note and par is
referred to herein as the "Discount." In the event of
S-18
<PAGE>
redemption, repayment or acceleration of maturity of an Original Issue Discount
Note, the amount payable to the Holder of such Original Issue 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 Original Issue 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
Original Issue Discount Note accrued from the date of issue to the date of such
redemption, repayment or acceleration of maturity, as the case may be.
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 an Original Issue
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 hereinafter
defined), corresponds to the shortest period between Interest Payment Dates for
the applicable Original Issue Discount Note (with ratable accruals within a
compounding period), a coupon rate equal to the initial coupon rate applicable
to such Original Issue Discount Note and an assumption that the maturity of such
Original Issue Discount Note will not be accelerated. If the period from the
date of issue to the initial Interest Payment Date for an Original Issue
Discount Note (the "Initial Period") is shorter than the compounding period for
such Original Issue 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 Original Issue Discount
Notes may not be treated as having original issue discount within the meaning of
the Code, and Notes other than Original Issue 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
specified currencies (including a composite currency such as the ECU) relative
to an indexed currency or to other price(s) or exchange rate(s) ("Indexed
Notes"), in each case as specified in the applicable Pricing Supplement. In
certain cases, Holders of Indexed Notes may receive a principal payment at
Maturity that is greater than or less than the principal amount of such Indexed
Notes depending upon the relative value at Maturity of the specified indexed
item. Information as to the method for determining the amount of principal,
premium, if any, and/or interest, if any, payable in respect of Indexed Notes,
certain historical information with respect to the specified indexed item and
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 (if any) at the same rate or pursuant to the same
formula and having the same date of issue, currency of denomination and payment,
Interest Payment Dates (if any), Stated Maturity Dates, 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
S-19
<PAGE>
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
transferrable. Accordingly, each Beneficial Owner must rely on the procedures of
the Depositary and, if such Beneficial Owner is not a Participant, 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, (ii) the Depositary ceases to be a clearing agency registered under
the Exchange Act, (iii) the Company in its sole discretion determines that the
Global Securities shall be exchangeable for Certificated Notes or (iv) there
shall have occurred and be continuing an Event of Default under the Indenture
with respect to the Notes. 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 following is based on information furnished by the Depositary:
The Depositary will act as securities depository for the Book-Entry Notes.
The Book-Entry Notes will be issued as fully registered securities registered
in the name of Cede & Co. (the Depositary's partnership nominee). One fully
registered Global Security will be issued for each issue of Book-Entry Notes,
each in the aggregate principal amount of such issue, and will be deposited
with the Depositary. If, however, the aggregate principal amount of any issue
exceeds $200,000,000, one Global Security will be issued with respect to each
$200,000,000 of principal amount and an additional Global Security will be
issued with respect to any remaining principal amount of such issue.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization"within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its participants ("Participants")
deposit with the Depositary. The Depositary also facilitates the settlement
among Participants of securities transactions, such as transfers and pledges,
in deposited securities through electronic 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
S-20
<PAGE>
records. The ownership interest of each actual purchaser of each Book-Entry
Note represented by a Global Security ("Beneficial Owner") is in turn to be
recorded on the Direct and Indirect Participants' records. Beneficial Owners
will not receive written confirmation from the Depositary of their purchase,
but Beneficial Owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the Direct or Indirect Participants through which such Beneficial Owner
entered into the transaction. Transfers of ownership interests in a Global
Security representing Book-Entry Notes are to be accomplished by entries made
on the books of Participants acting on behalf of Beneficial Owners.
Beneficial Owners of a Global Security representing Book-Entry Notes will not
receive 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 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
and Indirect Participants to Beneficial Owners will by 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, if any, payments on the
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 any, and/or
interest, if any, 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 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.
S-21
<PAGE>
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.
The information in this section concerning the Depositary and the
Depositary's system has been obtained from sources that the Company believes to
be reliable, but the Company takes no responsibility for the accuracy thereof.
ADDITIONAL COVENANTS OF THE COMPANY
Reference is made to the section titled "Description of Debt Securities" in
the accompanying Prospectus for a description of the covenants applicable to the
Notes. In addition to the foregoing, the following covenants of the Company will
apply to the Notes for the benefit of the holders of the Notes:
LIMITATION ON INCURRENCE OF TOTAL DEBT. The Company will not, and will not
permit any Subsidiary (as defined below) 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 therefrom, 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 (a) the Company's Total Assets (as defined below)
as of the end of the calendar quarter prior to the incurrence of such additional
Debt and (b) the increase in Total Assets from the end of such quarter
including, without limitation, any increase in Total Assets caused by the
incurrence of such additional Debt.
LIMITATION ON INCURRENCE OF SECURED DEBT. 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 on any of its properties, and will
not otherwise grant or convey any such mortgage, charge, pledge, encumbrance or
security interest of any kind, if immediately after giving effect thereto, 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 which is secured by any mortgage, charge, pledge,
encumbrance or security interest of any kind on property of the Company or any
Subsidiary is greater than 40% of the sum of (a) the Company's Total Assets as
of the end of the calendar quarter prior to the incurrence of such Debt, and (b)
any increase in Total Assets from the end of such quarter including, without
limitation, any increase in Total Assets caused by the incurrence of such
additional Debt.
DEBT SERVICE COVERAGE. 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 Annual Service Charge (as defined below) for the four
consecutive calendar quarters most recently ended prior to the date on which
such additional Debt is to be incurred is less than 1.5 to 1.0 on a pro forma
basis after giving effect to the incurrence of such Debt and the application of
the proceeds therefrom.
MAINTENANCE OF TOTAL UNENCUMBERED ASSETS. The Company will maintain at all
times Total Unencumbered Assets (as defined below) of not less than 150% of the
aggregate outstanding principal amount of all outstanding unsecured Debt of the
Company and its Subsidiaries.
As used herein:
"Annual Service Charge" means the interest expense of the Company and its
Subsidiaries for the four consecutive fiscal quarters most recently ended,
including, without limitation, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, net
costs pursuant to hedging obligations, the interest component of all payments
associated with Capitalized Leases, amortization of debt issuance costs,
amortization of original issue discount, non-cash interest payments and the
interest component of any deferred payment obligations.
S-22
<PAGE>
"Capitalized Lease" means any lease of property by the Company or any
Subsidiary as lessee that is reflected on the Company's consolidated balance
sheet as a capitalized lease in accordance with generally accepted accounting
principles.
"Consolidated Income Available for Debt Service" for any period means
Consolidated Net Income (as defined below) of the Company and its Subsidiaries
plus amounts which have been deducted, and minus amounts which have been added,
for (a) interest on Debt of the Company and its Subsidiaries, (b) provision for
taxes of the Company and its Subsidiaries based on income, (c) amortization of
debt discount, (d) provisions for gains and losses on properties, (e)
depreciation, (f) the effect of any non-cash charge resulting from a change in
accounting principles in determining Consolidated Net Income for such period and
(g) amortization of deferred charges.
"Consolidated Net Income" for any period means the amount of consolidated net
income (or loss) of the Company and its Subsidiaries for such period determined
on a consolidated basis in accordance with generally accepted accounting
principles.
"Debt" means any indebtedness of the Company or any Subsidiary, whether or
not contingent, in respect of (a) borrowed money or evidenced by bonds, notes,
debentures or similar instruments, (b) indebtedness secured by any mortgage,
pledge, lien, charge, encumbrance or any security interest existing on property
owned by the Company or any Subsidiary, (c) letters of credit or amounts
representing the balance deferred and unpaid of the purchase price of any
property except any such balance that constitutes an accrued expense or trade
payable or (d) Capitalized Leases, in the case of items of indebtedness under
(a) through (c) above to the extent that any such items (other than letters of
credit) would appear as liabilities 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),
indebtedness 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).
"Subsidiary" means (a) any corporation, association, joint venture or other
business entity of which more than 50% of the total voting power of shares of
stock or other ownership interests entitled to vote in the election of the
directors, managers, trustees or other persons having the power to direct or
cause the direction of the management and policies thereof is at the time owned
or controlled, directly or indirectly, by the Company or one or more of the
other Subsidiaries of the Company, and (b) any partnership or limited liability
company in which the Company or one or more of the other Subsidiaries of the
Company, directly or indirectly, possesses more than a 50% interest in the total
capital or total income of such partnership or limited liability company.
"Total Assets" as of any date means the sum of (i) 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 Total Assets minus the value of any
properties of the Company and its Subsidiaries that are encumbered by any
mortgage, charge, pledge, lien, security interest or other encumbrance of any
kind, including the value of any stock of any Subsidiary that is so encumbered.
For purposes of this definition, the value of each property shall be equal to
the purchase price or cost of each such property and the value of any stock
subject to any encumbrance shall be determined by reference to the value of the
properties owned by the issuer of such stock as aforesaid.
"Undepreciated Real Estate Assets" as of any date means the amount 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.
S-23
<PAGE>
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, 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). Persons considering the purchase of the Notes should consult their own
tax advisors concerning the application of United States Federal income tax laws
to their particular situations as well as any consequences of the purchase,
ownership and disposition of the Notes arising under the laws of any other
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 ("Discount Notes"). The
following summary is based upon final Treasury regulations (the "OID
Regulations") released by the Internal Revenue Service ("IRS") on January 27,
1994 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
hereinafter defined) prior to maturity, multiplied by the weighted average
maturity of such Note). The issue price of each Note in an issue of Notes equals
the first price at which a substantial amount of such Notes has been sold
(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 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
S-24
<PAGE>
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 period. An "accrual period" may be of
any length and the accrual periods may vary in length over the term of the
Discount Note, provided that each accrual period is no longer than one year and
each scheduled payment of principal or interest occurs either on the final day
of an accrual period or on the first day of an accrual period. The amount of
original issue discount allocable to each accrual period is generally equal to
the difference between (i) the product of the Discount Note's adjusted issue
price at the beginning of such accrual period and its yield to maturity
(determined on the basis of compounding at the close of each accrual period and
appropriately adjusted to take into account the length of the particular accrual
period) and (ii) the amount of any qualified stated interest payments allocable
to such accrual period. The "adjusted issue price" of a Discount Note at the
beginning of any accrual period is the sum of the issue price of the Discount
Note plus the amount of original issue discount allocable to all prior accrual
periods minus the amount of any prior payments on the Discount Note that were
not qualified stated interest payments. Under these rules, U.S. Holders
generally will have to include in income increasingly greater amounts of
original issue discount in successive accrual periods.
A U.S. Holder who purchases a Discount Note for an amount that is greater
than its adjusted issue price as of the purchase date and less than or equal to
the sum of all amounts payable on the Discount Note after the purchase date
other than payments of qualified stated interest, will be considered to have
purchased the Discount Note at an "acquisition premium." Under the acquisition
premium rules, the amount of original issue discount which such U.S. Holder must
include in its gross income with respect to such Discount Note for any taxable
year (or portion thereof in which the U.S. Holder holds the Discount Note) will
be reduced (but not below zero) by the portion of the acquisition premium
properly allocable to the period.
Under the OID Regulations, Floating Rate Notes 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 zero 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 zero 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
S-25
<PAGE>
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 (i) one or more qualified floating rates, (ii) one or more rates where each
rate would be a qualified floating rate for a debt instrument denominated in a
currency other than the currency in which the Variable Note is denominated,
(iii) either the yield or changes in the price of one or more items of actively
traded personal property (other than stock or debt of the issuer or a related
party) or (iv) a combination of objective rates. 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 cost of newly borrowed funds. The OID
Regulations also provide that if a Variable Note provides for stated interest at
a fixed rate for an initial period of less than one year followed by a variable
rate that is either a qualified floating rate or an objective rate 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 is
allocated to an accrual period using the constant yield method described above
by assuming that the variable rate is a fixed rate equal to (i) in the case of a
qualified floating rate or qualified inverse floating rate, the value as of the
issue date, of the qualified floating rate or qualified inverse floating rate,
or (ii) in the case of an objective rate (other than a qualified inverse
floating rate), a fixed rate that reflects the yield that is reasonably expected
for the Variable Note.
In general, any other Variable Note that qualifies as a "variable rate debt
instrument" will be converted into an "equivalent" fixed rate debt instrument
for purposes of determining the amount and accrual of original issue discount
and qualified stated interest on the Variable Note. The OID Regulations
generally require that such a Variable Note be converted into an "equivalent"
fixed rate debt instrument by substituting any qualified floating rate or
qualified inverse floating rate provided for under the terms of the Variable
Note with a fixed rate equal to the value of the qualified floating rate or
qualified inverse floating rate, as the case may be, as of the Variable Note's
issue date. Any objective rate (other than a qualified inverse floating rate)
provided for under the terms of the Variable Note is converted into a fixed rate
that reflects the yield that is reasonably expected for the Variable Note. In
the case of a Variable Note that qualifies as a "variable rate debt instrument"
and provides for stated interest at a fixed rate in addition to either one or
more qualified floating rates or a qualified inverse floating rate, the fixed
rate is initially converted into a qualified floating rate (or a qualified
inverse floating rate, if the Variable Note provides for a qualified inverse
floating rate). Under such circumstances, the qualified floating rate or
qualified inverse floating rate that replaces the fixed rate must be such that
the fair market value of the Variable Note as of the Variable Note's issue date
is approximately the same as the fair market value of an otherwise identical
debt instrument that provides for either the qualified floating rate or
qualified inverse floating rate rather than the fixed rate. Subsequent to
converting the fixed rate into either a qualified floating rate or a qualified
inverse floating rate, the Variable Note is then converted into an "equivalent"
fixed rate debt instrument in the manner described above.
S-26
<PAGE>
Once the Variable Note is converted into an "equivalent" fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S. Holder
of the Variable Note will account for such original issue discount and qualified
stated interest as if the U.S. Holder held the "equivalent" fixed rate debt
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.
U.S. Holders should be aware that on December 15, 1994, the IRS released
proposed amendments to the OID Regulations which would broaden the definition of
an objective rate and would further clarify certain other provisions contained
in the OID Regulations. If ultimately adopted, these amendments to the OID
Regulations would be effective for debt instruments issued 60 days or more after
the date on which such proposed amendments are finalized.
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. It is not entirely clear under current law
how a Variable Note would be taxed if such Note were treated as a contingent
payment debt obligation. The proper United States Federal income tax treatment
of Variable Notes that are treated as contingent payment debt obligations will
be more fully described in the applicable Pricing Supplement. Furthermore, any
other special United States Federal income tax considerations, not otherwise
discussed herein, which are applicable to any particular issue of Notes will be
discussed in the applicable Pricing Supplement.
Certain of the Notes (i) may be redeemable at the option of the Company prior
to their stated maturities (a "call option") and/or (ii) may be repayable at the
option of the holder prior to their stated maturities (a "put option"). Notes
containing such features may be subject to rules that differ from the general
rules discussed above. Investors intending to purchase Notes with such features
should consult their own tax advisors, since the original issue discount
consequences will depend, in part, on the particular terms and features of the
purchased Notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
Short-Term Notes
Notes that have a fixed maturity of one year or less ("Short-Term Notes")
will be treated as having been issued with original issue discount. In general,
an individual or other cash method U.S. Holder is not required to accrue such
original issue discount unless the U.S. Holder elects to do so. If such an
election is not made, any gain recognized by the U.S. Holder on the sale,
exchange or maturity of the Short-Term Note will be ordinary income to the
extent of the original issue discount accrued on a straight-line basis, or upon
election under the constant yield method (based on daily compounding), through
the date of sale or maturity, and a portion of the deductions otherwise
allowable to the U.S. Holder for interest on borrowings allocable to the
Short-Term Note will be deferred until a corresponding amount of income is
realized. U.S. Holders who report income for United States Federal income tax
purposes under the accrual method, and certain other holders including banks and
dealers in securities, are required to accrue original issue discount on a
Short-Term Note on a straight-line basis unless an election is made to accrue
the original issue discount under a constant yield method (based on daily
compounding).
Market Discount
If a U.S. Holder purchases a Note, other than a Discount Note, for an amount
that is less than its issue price (or, in the case of a subsequent purchaser,
its stated redemption price at maturity) or, in the
S-27
<PAGE>
case of a Discount Note, for an amount that is less than its adjusted issue
price as of the purchase date, such U.S. Holder will be treated as having
purchased such Note at a "market discount," unless such market discount is less
than a specified de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat any
partial principal payment (or, in the case of a Discount Note, any payment that
does not constitute qualified stated interest) on, or any gain realized on the
sale, exchange, retirement or other disposition of, a Note as ordinary income to
the extent of the lesser of (i) the amount of such payment or realized gain or
(ii) the market discount which has not previously been included in income and is
treated as having accrued on such Note at the time of such payment or
disposition. Market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the Note, unless the
U.S. Holder elects to accrue market discount on the basis of semiannual
compounding.
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 net direct interest expense exceeds an allocable portion of market
discount. A U.S. Holder may elect to include market discount in income currently
as it accrues (on either a ratable or semiannual compounding basis), in which
case the rules described above regarding the treatment as ordinary income of
gain upon the disposition of the Note and upon the receipt of certain cash
payments and regarding the deferral of interest deductions will not apply.
Generally, such currently included market discount is treated as ordinary
interest for United States Federal income tax purposes. Such an election will
apply to all debt instruments acquired by the U.S. Holder on or after the first
day of the taxable year to which such election applies and may be revoked only
with the consent of the IRS.
Premium
If a U.S. Holder purchases a Note for an amount that is greater than the sum
of all amounts payable on the Note after the purchase date other than payments
of qualified stated interest, such U.S. Holder will be considered to have
purchased the Note with "amortizable bond premium" equal in amount to such
excess. A U.S. Holder may elect to amortize such premium using a constant yield
method over the remaining term of the Note and may offset interest otherwise
required to be included in respect of the Note during any taxable year by the
amortized amount of such excess for the taxable year. However, if the Note may
be optionally redeemed after the U.S. Holder acquires it at a price in excess of
its stated redemption price at maturity, special rules would apply which could
result in a deferral of the amortization of some bond premium until later in the
term of the Note. 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.
Unrelated Business Taxable Income
Under Section 512 of the Code, an entity which is otherwise exempt from
federal income tax will be subject to tax on its unrelated business taxable
income. In general, unrelated business taxable income is the income derived by a
tax-exempt entity from the conduct of a business not substantially related to
its exempt purpose, reduced by the deductions directly connected with such
business.
A tax-exempt entity generally may exclude interest from the calculation of
unrelated business taxable income. Such exclusion does not apply to any interest
accruing with respect to an obligation subject to acquisition indebtedness.
Acquisition indebtedness includes debt incurred in connection with the
acquisition of debt securities, as well as certain debt incurred either prior or
subsequent to such acquisition. In addition, interest may not be excluded from
the calculation of unrelated business taxable income if derived from an
obligation of a controlled borrower.
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
S-28
<PAGE>
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.
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. Market discount will
not constitute interest for purposes of the portfolio debt provisions. 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. 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.
S-29
<PAGE>
Any amounts withheld under the backup withholding rules from a payment to a
beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuous basis for sale by the Company to
or through Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, NationsBanc Capital Markets, Inc. and Smith Barney Inc. (each an
"Agent" and together, 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 Agents, 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 any Agent, ranging from .125% to .750% of
the principal amount of each Note, depending upon its Stated Maturity Date, 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. The Agents may sell Notes they have purchased from the
Company as principal to other dealers for resale to investors and other
purchasers, and may allow 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
offering price basis), the concession and the discount may be changed.
The Company may sell Notes directly on its own behalf. No Commission will be
payable on any Notes sold directly by the Company. 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). An 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 U.S. dollars in The City of New York on the date of
settlement. See "Description of Notes -- General."
The Agents may sell to or through dealers who may resell to investors, and
the Agents may pay all or part of their discount or commission to such dealers.
Such dealers may be deemed to be "underwriters" within the meaning of the Act.
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, as agents or principals, 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 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 business, the Agents and their affiliates may be
customers of, engage in transactions with and perform services for the Company
and certain of its affiliates. NationsBank of
S-30
<PAGE>
Texas, N.A., an affiliate of NationsBanc Capital Markets, Inc., has a commercial
banking relationship with the Company and has provided the Company with a $200
million credit facility.
Concurrently with the offering of Notes described herein, the Company may
issue and sell other Securities described in the accompanying Prospectus and
such sales shall reduce the aggregate initial offering price of the Notes
offered hereby.
LEGAL MATTERS
The legality of the Notes offered hereby will be passed upon for the Company
by the law firm of Kutak Rock, Denver, Colorado and for the Agents by Latham &
Watkins, Los Angeles, California. Members and attorneys of Kutak Rock own
approximately 27,800 shares of common stock of the Company.
S-31
<PAGE>
PROSPECTUS
- ----------
FRANCHISE FINANCE CORPORATION OF AMERICA
$500,000,000
DEBT SECURITIES, PREFERRED STOCK
AND COMMON STOCK
Franchise Finance Corporation of America (the "Company") may from time to
time offer in one or more series (i) its debt securities (the "Debt
Securities"), or (ii) shares of its preferred stock (the "Preferred Stock"), or
(iii) shares of its Common Stock, par value $.01 per share (the "Common Stock"),
with an aggregate public offering price of up to $500,000,000 on terms to be
determined at the time of offering. The Debt Securities, the Preferred Stock and
the Common Stock (collectively, the "Securities") may be offered, separately or
together, in separate series, in amounts, at prices and on terms to be set forth
in one or more supplements to this Prospectus (each, a "Prospectus Supplement").
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable: (i) in the case of Debt Securities, the specific
title, aggregate principal amount, currency, form (which may be registered or
bearer, or certificated or global), authorized denominations, maturity, rate (or
manner of calculation thereof) and time of payment of interest, terms for
redemption at the Company's option or repayment at the holder's option, terms
for sinking fund payments, terms for conversion into Preferred Stock or Common
Stock, covenants and any initial public offering price; and (ii) in the case of
Preferred Stock, the specific designation and stated value, any dividend,
liquidation, redemption, conversion, voting and other rights, and any initial
public offering price; and (iii) in the case of Common Stock, any initial public
offering price. In addition, such specific terms may include limitations on
actual or constructive ownership and restrictions on transfer of the Securities,
in each case as may be appropriate to preserve the status of the Company as a
real estate investment trust ("REIT") for federal income tax purposes. See
"Restrictions on Transfers of Capital Stock."
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities covered
by such Prospectus Supplement.
The Securities may be offered directly, through agents designated from time
to time by the Company, or to or through underwriters or dealers. If any agents
or underwriters are involved in the sale of any of the Securities, their names,
and any applicable purchase price, fee, commission or discount arrangement
between or among them, will be set forth, or will be calculable from the
information set forth, in the applicable Prospectus Supplement. See "Plan of
Distribution." No Securities may be sold without delivery of the applicable
Prospectus Supplement describing the method and terms of the offering of such
series of Securities.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
----------
The date of this Prospectus is October 18, 1995
<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 registration
statement on Form S-3 (of which this Prospectus is a part) (the "Registration
Statement"), the exhibits and schedules forming a part thereof and 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 Citicorp Center, 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
Common Stock is listed on the New York Stock Exchange and similar information
concerning the Company can be inspected and copied at the New York Stock
Exchange, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission the Registration Statement under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Securities. This Prospectus does not contain all the information set forth
in the Registration Statement, certain portions of which have been omitted as
permitted by the Commission's rules and regulations. 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,
each such statement being qualified in all respects by such reference and the
exhibits and schedules thereto.
The Company will provide without charge to each person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents incorporated by reference in this Prospectus (not
including exhibits to the documents that have been incorporated herein by
reference unless the exhibits are themselves specifically incorporated by
reference). Such written or oral request should be directed to the Secretary at
17207 North Perimeter Drive, Scottsdale, Arizona 85255, telephone number (602)
585-4500.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated in this Prospectus by reference:
(i) the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994;
(ii) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995
and June 30, 1995; and
(iii) the description of the Common Stock contained in the Company's
Registration Statement on Form 8-A filed June 28, 1994.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date hereof
prior to termination of the offering of the Securities, shall be deemed to be
incorporated by reference in this Prospectus from the date of the filing of such
reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this Prospectus shall be deemed to be modified or
superseded to the extent that a statement contained in this Prospectus or in any
document filed after the date of this Prospectus which is deemed to be
incorporated by reference in this Prospectus 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.
2
<PAGE>
THE COMPANY
Franchise Finance Corporation of America (the "Company") is a fully
integrated and self- administered real estate investment trust which invests in
chain restaurant real estate throughout the United States primarily through
sale/leaseback or participating mortgage loan financing transactions. The
Company's portfolio of properties is diversified by tenant, restaurant concept
and geographic location. The Company's Common Stock trades on the New York Stock
Exchange (the "NYSE") under the symbol FFA. The Company is a Delaware
corporation and maintains its corporate offices at 17207 North Perimeter Drive,
Scottsdale, Arizona 85255 and its telephone number is (602) 585-4500.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Securities for
general corporate purposes, which may include investment in additional
properties, the expansion and improvement of certain properties in the Company's
portfolio, and the repayment of indebtedness.
RATIOS OF EARNINGS TO FIXED CHARGES
The following table sets forth ratios of earnings to fixed charges for the
periods shown. The ratio shown for the six months ended June 30, 1995 is for the
Company. Ratios shown for the years ended December 31, 1990, 1991, 1992, and
1993 are derived from combined historical financial information of Franchise
Finance Corporation of America I, a Delaware corporation ("FFCA I"), and eleven
real estate limited partnerships, the predecessors to the Company (the "Combined
Predecessors"). The ratio shown for the year ended December 31, 1994, is derived
from financial information of both the Combined Predecessors and the Company.
The Company commenced operations on June 1, 1994 as a result of the merger of
the Combined Predecessors. The information for the periods prior to that date
is, in effect, a restatement of the historical operating results of Franchise
Finance Corporation of America I and eleven real estate limited partnerships as
if they had been consolidated since January 1, 1990, however, the information
does not necessarily present the information as it would have been had the
Company operated as a REIT for all periods presented.
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------- --------------
COMBINED PREDECESSORS COMPANY COMPANY
------------------------------- --------- --------------
1990 1991 1992 1993 1994 1995
------- ------- ------- ------- --------- --------------
72.83 51.07 36.82 43.73 16.78 5.58
The ratios of earnings to fixed charges were computed by dividing earnings by
fixed charges. For this purpose, earnings consist of income (including gain or
loss on the sale of property) before REIT transaction related costs plus fixed
charges. Fixed charges consist of interest expense (including interest costs
capitalized, if any) and the amortization of debt issuance costs. To date, the
Company has not issued any Preferred Stock; therefore, the ratios of earnings to
combined fixed charges and preferred share dividends are the same as the ratios
presented above.
3
<PAGE>
DESCRIPTION OF DEBT SECURITIES
GENERAL
The Debt Securities will be direct obligations of the Company, which may be
secured or unsecured, and which may be senior or subordinated indebtedness of
the Company. An unqualified opinion of counsel as to legality of the Debt
Securities will be obtained by the Company and filed by means of a
post-effective amendment or Form 8-K prior to the time any sales of the Debt
Securities are made. The Debt Securities may be issued under one or more
indentures, each dated as of a date on or before the issuance of the Debt
Securities to which it relates and in the form that has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part, subject to
such amendments or supplements as may be adopted from time to time. Each such
indenture (collectively, the "Indenture") will be entered into between the
Company and a trustee (the "Trustee"), which may be the same Trustee. The
Indenture will be subject to, and governed by, the Trust Indenture Act of 1939,
as amended. The statements made hereunder relating to the Indenture and the Debt
Securities are summaries of the anticipated provisions thereof, do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all provisions of the Indenture and such Debt Securities.
Capitalized terms used but not defined herein shall have the respective meanings
set forth in the Indenture.
TERMS
The particular terms of the Debt Securities offered by a Prospectus
Supplement will be described in the particular Prospectus Supplement, along with
any applicable modifications of or additions to the general terms of the Debt
Securities as described herein and in the applicable Indenture and any
applicable federal income tax considerations. Accordingly, for a description of
the terms of any series of Debt Securities, reference must be made to both the
Prospectus Supplement relating thereto and the description of the Debt
Securities set forth in this Prospectus.
Except as set forth in this Prospectus and any Prospectus Supplement, the
Debt Securities may be issued without limits as to aggregate principal amount,
in one or more series, in each case as established from time to time by the
Company's Board of Directors or as set forth in the applicable Indenture or 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.
Each Indenture will provide that the Company may, but need not, designate
more than one Trustee thereunder, each with respect to one or more series of
Debt Securities. Any Trustee under an Indenture may resign or be removed with
respect to one or more series of Debt Securities, and a successor Trustee may be
appointed to act with respect to such series. If two or more persons are acting
as Trustee with respect to different series of Debt Securities, each such
Trustee shall be a Trustee of a trust under the applicable Indenture separate
and apart from the trust administered by any other Trustee and, except as
otherwise indicated herein, any action described herein to be taken by a 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.
The following summaries set forth certain general terms and provisions of the
Indenture and the Debt Securities. The Prospectus Supplement relating to the
series of Debt Securities being offered will contain further terms of such Debt
Securities, including the following specific terms:
(a) the title of such Debt Securities;
(b) the aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount (subject to certain exceptions described
in the Indenture);
(c) the price (expressed as a percentage of the principal amount thereof
or otherwise) 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 that
is convertible into Common Stock or Preferred Stock or the method by which
any such portion shall be determined;
4
<PAGE>
(d) if convertible into Common Stock, Preferred Stock, or both, the terms
on which such Debt Securities are convertible (including the initial
conversion price or rate and conversion period) and, in connection with the
preservation of the Company's status as a REIT, any applicable limitations on
conversion or on the ownership or transferability of the Common Stock or the
Preferred Stock into which such Debt Securities are convertible;
(e) the date or dates, or the method for determining such date or dates,
on which the principal of such Debt Securities will be payable;
(f) the rate or rates, at which such Debt Securities will bear interest,
if any, or the method by which such rate or rates shall be determined, the
date or dates, or the method for determining such date or dates, from which
any interest will accrue, the dates upon which any such interest will be
payable, the record dates for payment of such interest, or the method by
which any such dates shall be determined, and the basis upon which interest
shall be calculated if other than that of a 360-day year of twelve 30-day
months;
(g) the place or places where the principal of (and premium, if any) and
interest, if any, on such Debt Securities will be payable, where such Debt
Securities may be surrendered for conversion, registration of transfer, or
exchange (each to the extent applicable), and where notices or demands to or
upon the Company in respect of such Debt Securities and the Indenture may be
served;
(h) the period or periods, if any, within which, the price or prices at
which, and the terms and conditions upon which such Debt Securities may be
redeemed, as a whole or, in part, at the Company's option (if the Company has
the option to redeem);
(i) 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, as a whole or in part,
pursuant to such obligation;
(j) 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,
currency unit, or a composite currency or currencies, and the terms and
conditions relating thereto;
(k) whether the amount of payments of principal of (and premium, if any)
or interest, if any, on such Debt Securities may be determined with reference
to an index, formula or other method (which index, formula or method may, but
need not, be based on a currency, currencies, currency unit or units or
composite currency or currencies) and the manner in which such amounts shall
be determined;
(l) whether such Debt Securities will be issued in certificated and/or
book-entry form, and the identity of any applicable depositary for such Debt
Securities;
(m) whether such Debt Securities will be in registered or bearer form and,
if in registered form, the denominations thereof if other than $1,000 and any
integral multiple thereof and, if in bearer form, the denominations thereof
and terms and conditions relating thereto;
(n) the applicability, if any, of the defeasance and covenant defeasance
provisions described herein or set forth in the applicable Indenture, or any
modification thereof or addition thereto;
(o) any deletions from, modifications of or additions to the events of
default or covenants of the Company, described herein or in the applicable
Indenture with respect to such Debt Securities, and any change in the right
of any Trustee or any of the holders to declare the principal amount of any
such Debt Securities due and payable;
(p) whether and under what circumstances the Company will pay any
additional amounts on such Debt Securities in respect of any tax, assessment
or governmental charge to holders that are not United States persons, and, if
so, whether the Company will have the option to redeem such Debt Securities
in lieu of making such payment (and the terms of any such option);
(q) the subordination provisions, if any, relating to such Debt
Securities;
5
<PAGE>
(r) the provisions, if any, relating to any security provided for such
Debt Securities; and
(s) any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture.
If so provided in the applicable Prospectus Supplement, the Debt Securities
may be issued at a discount below their principal amount and provide for less
than the entire principal amount thereof to be payable upon declaration of
acceleration of the maturity thereof ("Original Issue Discount Securities"). In
such cases, any 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 may be set forth in any Prospectus Supplement, the Debt Securities
will not contain any provisions that would limit the Company's ability 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. Certain existing restrictions on ownership and
transfers of the Common Stock and Preferred Stock are, however, designed to
preserve the Company's status as a REIT and, therefore, may act to prevent or
hinder a change of control. See "Restrictions on Transfers of Capital Stock."
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, 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
principal of (and applicable premium, if any) and interest on any series of Debt
Securities will be payable at the applicable Trustee's corporate trust office,
the address of which will be set forth in the applicable Prospectus Supplement;
provided, however, that, at the Company's option, payment of interest may be
made by check mailed to the address of the person entitled thereto as it appears
in the applicable register for such Debt Securities or by wire transfer of funds
to such person at an account maintained within the United States.
Subject to certain limitations imposed on Debt Securities in the Indenture,
the Debt Securities of any series will be exchangeable for any authorized
denomination of other Debt Securities of the same series and of a like aggregate
principal amount and tender upon surrender of such Debt Securities at the
applicable Trustee's corporate trust office or at the applicable office of any
agency of the Company. In addition, subject to certain limitations imposed on
Debt Securities in the Indenture, the Debt Securities of any series may be
surrendered for registration by transfer thereof at the applicable Trustee's
corporate trust office or at the applicable office of any agency of the Company.
Every Debt Security surrendered for registration of transfer or exchange shall
be duly endorsed or accompanied by a written instrument of transfer and evidence
of title and identity satisfactory to the Trustee, the Company, or its transfer
agent, as applicable. No service charge will be made for any registration of
transfer or exchange of any Debt Securities. However, (with certain exceptions)
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. If the applicable
Prospectus Supplement refers to any transfer agent (in addition to the
applicable Trustee) initially designated by the Company with respect to any
series of Debt Securities, the Company may at any time rescind the designation
of any such transfer agent or approve a change in the location through which any
such transfer agent acts, except that the Company will be required to maintain a
transfer agent in each place of payment for such series. The Company may at any
time designate additional transfer agents with respect to any series of Debt
Securities.
Neither the Company nor any Trustee shall be required to (a) issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before the day of mailing of notice
of redemption of any Debt Securities of that series that may be selected for
redemption and ending at the close of business on the day of mailing the
relevant notice of redemption (or publication of such notice with respect to
bearer securities); (b) register the transfer of or exchange
6
<PAGE>
any Debt Security, or portion thereof, so selected for redemption, in whole or
in part, except the unredeemed portion of any Debt Security being redeemed in
part; or (c) issue, register the transfer of or exchange any Debt Security that
has been surrendered for repayment at the holder's option, except the portion,
if any, of such Debt Security not to be so repaid.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture will provide that the Company may, with or without the consent
of the holders of any outstanding Debt Securities, 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 shall be an entity organized and existing under the
laws of the United States or a state thereof and such successor entity shall
expressly assume the Company's obligation to pay the principal of (and premium,
if any) and interest on all the Debt Securities and shall also assume the due
and punctual performance and observance of all the covenants and conditions
contained in the Indenture; (b) immediately after giving effect to such
transaction and treating any indebtedness that becomes an obligation of such
successor entity, the Company or any subsidiary as a result thereof as having
been incurred by such successor entity, the Company or such subsidiary at the
time of such transaction, no event of default under the Indenture, and no event
that, 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 officers' certificate
and legal opinion covering such conditions shall be delivered to each Trustee.
CERTAIN COVENANTS
Existence. Except as permitted under "Consolidation, Merger, Sale, Lease or
Conveyance," the Indenture will require the Company to do or cause to be done
all things necessary to preserve and keep in full force and effect its corporate
existence, material rights (by certificate of incorporation, bylaws and statute)
and material franchises; provided, however, that the Company shall not be
required to preserve any right or franchise if its Board of Directors determines
that the preservation thereof is no longer desirable in the conduct of its
business.
Maintenance of Properties. The Indenture will require the Company to cause
all of its material properties used or useful in the conduct of its business or
the business of any subsidiary to be maintained and kept in good condition,
repair and working order and supplied with all necessary equipment and to cause
to be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the Company's judgment may be necessary so that
the business carried on or in connection therewith may be properly and
advantageously conducted at all times; provided, however, that the Company and
its subsidiaries shall not be prevented from selling or otherwise disposing of
their properties for value in the ordinary course of business.
Insurance. The indenture will require the Company to, and to cause each of
its subsidiaries to, keep in force upon all of its properties and operations
policies of insurance carried with responsible companies in such amounts and
covering all such risks as shall be customary in the industry in accordance with
prevailing market conditions and availability.
Payment of Taxes and Other Claims. The Indenture will require the Company to
pay or discharge or cause to be paid or discharged, before the same shall become
delinquent, (a) all taxes, assessments and governmental charges levied or
imposed on it or any subsidiary or on the income, profits or property of the
Company or any subsidiary and (b) all lawful claims for labor, materials and
supplies that, if unpaid, might by law become a lien upon the property of the
Company or any subsidiary; provided, however, that the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim the amount, applicability or validity of which is
being contested in good faith by appropriate proceedings.
Provision of Financial Information. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Indenture will require the
Company, within 15 days after each of the respective
7
<PAGE>
dates by which the Company would have been required to file annual reports,
quarterly reports and other documents with the Commission if the Company were so
subject, (a) to transmit by mail to all holders of Debt Securities, as their
names and addresses appear in the applicable register for such Debt Securities,
without cost to such holders, copies of the annual reports, quarterly reports
and other documents that the Company would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if the Company
were subject to such Sections, (b) to file with the Trustee copies of the annual
reports, quarterly reports and other documents that the Company would have been
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act if the Company were subject to such Sections, and (c) to supply,
promptly upon written request and payment of the reasonable cost of duplication
and delivery, copies of such documents to any prospective holder of Debt
Securities.
Additional Covenants. Any additional covenants of the Company with respect
to any of the series of Debt Securities will be set forth in the Prospectus
Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Unless otherwise provided in the applicable Indenture, each Indenture will
provide 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 on any Debt Security of such series; (b)
default in the payment of the principal of (or premium, if any, on) any Debt
Security of such series at its Maturity; (c) default in making any sinking fund
payment as required for any Debt Security of such series; (d) default in the
performance or breach of any other covenant or warranty of the Company contained
in the Indenture (other than a covenant or warranty a default in the performance
of which or the breach of which is elsewhere in this paragraph specifically
dealt with), continued for 60 days after written notice as provided in the
applicable Indenture; (e) a default under any bond, debenture, note or other
evidence of indebtedness for money borrowed by the Company or any of its
subsidiaries (including obligations under leases required to be capitalized on
the balance sheet of the lessee under generally accepted accounting principles),
in an aggregate principal amount in excess of $10 million or under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness for money borrowed by the Company or any
of its subsidiaries (including such leases), in an aggregate principal amount in
excess of $10 million, whether such indebtedness now exists or shall hereafter
be created, which default shall have resulted in such indebtedness becoming or
being declared due and payable prior to the date on which it would otherwise
have become due and payable or such obligations being accelerated, without such
acceleration having been rescinded or annulled; (f) certain events of
bankruptcy, insolvency or reorganization, or court appointment of a receiver,
liquidator or trustee of the Company or any Significant Subsidiary of the
Company; and (g) any other Event of Default as defined with respect to a
particular series of Debt Securities. The term "Significant Subsidiary" has the
meaning ascribed to such term in Regulation S-K promulgated under the Securities
Act.
If an event of default under any Indenture with respect to Debt Securities of
any series at the time outstanding occurs and is continuing, then in every such
case the applicable Trustee or the holders of not less than 25% in principal
amount of the outstanding Debt Securities of that series may declare the
principal amount (or, if the Debt Securities of that series are Original Issue
Discount Securities or indexed securities, such portion of the principal amount
as may be specified in the terms thereof) of all the Debt Securities of that
series to be due and payable immediately by written notice thereof to the
Company (and to the applicable Trustee if given by the holders). However, at any
time after such a declaration of acceleration with respect to Debt Securities of
such series 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 of the principal amount of the outstanding Debt Securities of
such series may rescind and annul such declaration and its consequences if (a)
the Company shall have deposited with the applicable Trustee all required
payments of the principal of (and premium, if any) and overdue interest on the
Debt Securities of such series, plus certain fees, expenses, disbursements and
advances of the applicable Trustee and (b) all events of default, other than the
nonpayment of accelerated principal (or specified portion thereof), with respect
to Debt Securities of such series have been cured or waived as provided in the
8
<PAGE>
Indenture. The Indenture will also provide that the holders of not less than a
majority in principal amount of the outstanding Debt Securities of any series
may waive any past default with respect to such series and its consequences,
except a default (y) in the payment of the principal of (or premium, if any) or
interest on any Debt Security of such series or (z) in respect of a covenant or
provision contained in the Indenture that cannot be modified or amended without
the consent of the holder of each outstanding Debt Security affected thereby.
The Indenture will require each Trustee to give notice to the holders of Debt
Securities within 90 days of a default under the Indenture unless such default
shall have been cured or waived; provided, however; that such Trustee may
withhold notice to the holders of any series of Debt Securities of any default
with respect to such series (except a default in the payment of the principal of
(or premium, if any) or interest on any Debt Security of such series or in the
payment of any sinking fund installment in respect of any Debt Security of such
series) if specified responsible officers of the Trustee consider such
withholding to be in such holders' interest.
The Indenture will provide that no holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to the
Indenture or for any remedy thereunder, except in the case of failure of the
Trustee, for 60 days, to act after it has received a written request to
institute proceedings in respect of an event of default from the holders of not
less than 25% in principal amount of the outstanding Debt Securities of such
series, as well as an offer of indemnity reasonably satisfactory to it and no
contrary directions from the holders of more than 50% of the outstanding Debt
Securities of such series. This provision will not prevent, however, any holder
of Debt Securities from instituting suit for the enforcement of payment of the
principal of (and premium, if any) and interest on such Debt Securities at the
respective due dates thereof.
The Indenture will provide that the Trustee is under no obligation to
exercise any of its rights or powers under the Indenture at the request or
direction of any holders of any series of Debt Securities then outstanding under
the Indenture, unless such holders shall have offered to the Trustee reasonable
security or indemnity. The holders of not less than a majority in principal
amount of the outstanding Debt Securities of any series 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. The Trustee may, however, refuse to follow any direction that is in
conflict with any law or the Indenture or that may involve the Trustee in
personal liability or that may be unduly prejudicial to the holders of Debt
Securities of such series not joining therein.
MODIFICATION OF THE INDENTURE
Modifications and amendments of any Indenture with respect to any series will
be permitted only with the consent of the holders of not less than a majority in
principal amount of all outstanding Debt Securities of such series; provided,
however, that no such modification or amendment may, without the consent of the
holder of each Debt Security of such series, (a) change the Stated Maturity of
the principal of, or any installment of principal of or interest (or premium, if
any) on any such Debt Security; (b) reduce the principal amount of, or the rate
or amount of interest on, or any premium payable on redemption of, any such Debt
Security, or reduce the amount of principal of an Original Issue Discount
Security that would be due and payable upon declaration of acceleration of the
Maturity thereof or would be provable in bankruptcy, or adversely affect any
right of repayment of the holder of any such Debt Security; (c) change the place
of payment, or the coin or currency, for payment of principal of (and premium,
if any), or interest on 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 on or after the Stated Maturity or redemption date thereof; (e)
reduce the above-stated percentage of outstanding Debt Securities of any series
necessary to modify or amend the Indenture, to waive compliance with certain
provisions thereof or certain defaults and consequences thereunder or to reduce
the quorum or voting requirements set forth in the 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.
9
<PAGE>
The holders of a majority in aggregate principal amount of outstanding Debt
Securities of each series may, on behalf of all holders of Debt Securities of
that series waive, insofar as that series is concerned, compliance by the
Company with certain restrictive covenants in the applicable Indenture.
Modifications and amendments of the Indenture will be permitted to be made by
the Company and the Trustee without the consent of any holder of Debt Securities
for any of the following purposes: (a) to evidence the succession of another
person to the Company as obligor under the Indenture; (b) 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 Indenture; (c) to add additional events of default for the benefit of the
holders of all or any series of Debt Securities; (d) to add or change certain
provisions of the 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; (e) to change or eliminate any provisions
of the Indenture, provided that any such change or elimination shall become
effective only when there are no Debt Securities outstanding of any series
created prior thereto that are entitled to the benefit of such provision; (f) to
secure the Debt Securities; (g) to establish the form or terms of Debt
Securities of any Series, including the provisions and procedures, if
applicable, for the conversion of such Debt Securities into Common Stock or
Preferred Stock; (h) to provide for the acceptance of appointment by a successor
Trustee or facilitate the administration of the trusts under the Indenture by
more than one Trustee; (i) to cure any ambiguity, defect or inconsistency in the
Indenture; provided, however, that such action shall not adversely affect the
interests of holders of Debt Securities of any series in any material respect;
or (j) to supplement any of the provisions of the Indenture to the extent
necessary to permit or facilitate defeasance and discharge of any series of such
Debt Securities, provided, however, that such action shall not adversely affect
the interests of the holders of the Debt Securities of any series in any
material respect.
The Indenture will provide 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, (a) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (b) the principal amount of
any Debt Security denominated in a foreign currency that shall be deemed
outstanding shall 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 (a) above), (c) the
principal amount of an indexed security that shall be deemed outstanding shall
be the principal face amount of such indexed security at original issuance,
unless otherwise provided with respect to such indexed security in the
applicable Indenture, and (d) 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 shall be disregarded.
The Indenture will contain provisions for convening meetings of the holders
of Debt Securities of a series. A meeting may be permitted to be called at any
time by the Trustee, and also, upon request, by the Company 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 Indenture. Except for any
consent that must be given by the holder of each Debt Security affected by
certain modifications and amendments of the 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
10
<PAGE>
in accordance with the 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 that 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.
Notwithstanding the foregoing provisions, the Indenture will provide that 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 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: (a) there shall be no minimum
quorum requirement for such meeting and (b) 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 Indenture.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
If provided for in the applicable Prospectus Supplement, the Company will be
permitted, at its option, to discharge certain obligations to holders of any
series of Debt Securities by irrevocably depositing with the applicable Trustee,
in trust, funds in such currency or currencies, currency unit or units or
composite currency or currencies in which such Debt Securities are payable in an
amount sufficient to pay the entire indebtedness on such Debt Securities in
respect of principal (and premium, if any) and interest.
If provided for in the applicable Prospectus Supplement, the Company may
elect either to (a) defease and be discharged from any and all obligations with
respect to any series of 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 money for payment in trust) ("defeasance") or (b) be released from
certain obligations with respect to such Debt Securities under the applicable
Indenture (generally being the restrictions described under "Certain Covenants,"
herein) or, if provided in the applicable Prospectus Supplement, its obligations
with respect to any other covenant, and any omission to comply with such
obligations shall not constitute a default or an event of default with respect
to such Debt Securities ("covenant defeasance"), 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 that through the scheduled payment of principal and
interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium, if any) and interest on such
Debt Securities, and any mandatory sinking fund or analogous payments thereon,
on the scheduled due dates therefor.
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 on a ruling of the Internal Revenue Service (the "IRS") or a change
in applicable U.S. federal income tax law occurring after the date of the
Indenture. In the event of such defeasance, the holders of such Debt Securities
would thereafter be able to look only to such trust fund for payment of
principal (and premium, if any) and interest.
11
<PAGE>
"Government Obligations" means securities that are (a) 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 (b) obligations of a person
controlled or supervised by and acting as an agency or instrumentality of the
United States of America or such government which issued the foreign Currency in
which the Debt Securities of such series are payable, the payment of which is
unconditionally guaranteed as a full faith and credit Obligation by the United
States of America or such other government, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a 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, however, 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.
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 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 will be deemed to have been, and
will be, fully discharged and satisfied through the payment of the principal of
(and premium, if any) and interest on such Debt Security as they become due out
of the proceeds yielded by converting the amount so deposited in respect of such
Debt Security into the currency, currency unit or composite currency in which
such Debt Security becomes payable as a result of such election or Conversion
Event based on the applicable market exchange rate. "Conversion Event" means the
cessation of use of (i) a currency, currency unit or composite currency both by
the government of the country which issued such currency and for the settlement
of transactions by a central bank or other public institution of or within the
international banking community, (ii) the ECU 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.
Unless otherwise provided in the applicable Prospectus Supplement, all payments
of principal of (and premium, 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 shall 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 the
specified sections of the applicable Indenture (which sections would no longer
be applicable to such Debt Securities) or clause (g) thereunder 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.
The Company would, however, 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.
12
<PAGE>
CONVERSION RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into Common Stock or Preferred Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include
whether such Debt Securities are convertible into Common Stock or Preferred
Stock, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be, at the option of the
holders or the Company, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of such
Debt Securities and any restrictions on conversion, including restrictions
directed at maintaining the Company's REIT status.
PAYMENT
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any Series of Debt
Securities will be payable at the Trustee's corporate trust office, the address
of which will be stated in the applicable Prospectus Supplement; provided,
however, that, at the Company's option, payment of interest may be made by check
mailed to the address of the person entitled thereto as it appears in the
applicable register for such Debt Securities or by wire transfer of funds to
such person at an account maintained within the United States.
All amounts paid by the Company to a paying agent or a Trustee for the
payment of the principal of or any premium or interest on any Debt Security that
remain unclaimed at the end of two years after such principal, premium or
interest has become due and payable will be repaid to the Company, and the
holder of such Debt Security thereafter may look only to the Company for payment
thereof, subject to applicable state escheat laws.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the form
of one or more global securities (the "Global Securities") that will be
deposited with, or on behalf of, a depositary identified in the applicable
Prospectus Supplement relating to such series. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depositary arrangement with respect to a series of
Debt Securities will be described in the applicable Prospectus Supplement
relating to such Series.
DESCRIPTION OF COMMON STOCK
The Company has authority to issue 200,000,000 shares of Common Stock, par
value $.01 per share (the "Common Stock"). At September 14, 1995, the Company
had outstanding 40,250,719 shares of Common Stock.
GENERAL
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that the Common Stock will
be issuable upon conversion of Debt Securities or Preferred Stock. An
unqualified opinion of counsel as to legality of the Common Stock will be
obtained by the Company and filed by means of a post-effective amendment or Form
8-K prior to the time any sales of Common Stock are made. The statements below
describing the Common Stock are in all respects subject to and qualified in
their entirety by reference to the applicable provisions of the Company's
Restated Certificate of Incorporation (the "Certificate of Incorporation") and
Bylaws.
TERMS
Subject to the preferential rights of any other shares or series of stock,
holders of Common Stock will be entitled to receive dividends when, as and if
declared by the Company's Board of Directors out of funds legally available
therefor. Payment and declaration of dividends on the Common Stock and purchases
of shares thereof by the Company will be subject to certain restrictions if the
Company fails to pay
13
<PAGE>
dividends on the Preferred Stock. See "Description of Preferred Stock." Upon any
liquidation, dissolution or winding up of the Company, holders of Common Stock
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 Preferred Stock. The Common Stock will possess ordinary
voting rights for the election of directors and in respect of other corporate
matters, each share entitling the holder thereof to one vote. Holders of Common
Stock will not have cumulative voting rights in the election of directors, which
means that holders of more than 50% of all the shares of the Company's Common
Stock voting for the election of directors can elect all the directors if they
choose to do so and the holders of the remaining shares of Common Stock cannot
elect any directors. Holders of shares of Common Stock will not have preemptive
rights, which means they have no right to acquire any additional shares of
Common Stock that may be issued by the Company at a subsequent date. All shares
of Common Stock now outstanding are, and additional shares of Common Stock
offered will be when issued, fully paid and nonassessable; and no shares of
Common Stock are or will be subject to any exchange or conversion rights.
RESTRICTIONS ON OWNERSHIP
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, actually or constructively, by five or fewer individuals
(defined in the Code to include certain entities) during the last half of a
taxable year. To assist the Company in meeting this requirement, the Company may
take certain actions to limit the beneficial ownership, actually or
constructively, by a single person or entity of the Company's outstanding equity
securities. See "Restrictions on Transfers of Capital Stock."
TRANSFER AGENT
The registrar and transfer agent for the Common Stock is Gemisys Transfer
Agents, 7103 South Revere Parkway, Englewood, CO 80112.
14
<PAGE>
DESCRIPTION OF PREFERRED STOCK
The Company's Certificate of Incorporation does not currently authorize the
issuance of Preferred Stock. Subject to approval by the Company's stockholders
at the Company's next annual meeting, the Restated Certificate of Incorporation
will be amended to provide for the issuance of shares of Preferred Stock as
described below. No shares of Preferred Stock will be issued or sold under the
Registration Statement prior to proper authorization of the Preferred Stock.
GENERAL
The following description of the Preferred Stock sets forth certain general
terms and provisions of the Preferred Stock to which any Prospectus Supplement
may relate. An unqualified opinion of counsel as to legality of the Preferred
Stock will be obtained by the Company and filed by means of a post-effective
amendment or Form 8-K prior to the time any sales of Preferred Stock are made.
The statements below describing the Preferred Stock are in all respects subject
to and qualified in their entirety by reference to the applicable provisions of
the Certificate of Incorporation (including the applicable Certificate of
Designations) and Bylaws.
Shares of Preferred Stock may be issued from time to time in one or more
series as authorized by the Company's Board of Directors. Subject to limitations
prescribed by the Delaware General Corporation Law and the Certificate of
Incorporation, the Company's Board of Directors will be authorized to fix the
number of shares constituting each series of Preferred Stock and the
designations and powers, preferences and relative, participating, optional or
other special rights and qualifications, limitations or restrictions thereof,
including such provisions as may be desired concerning voting, redemption,
dividends, dissolution or the distribution of assets, conversion or exchange,
and such other subjects or matters as may be fixed by resolution by the Board of
Directors or a duly authorized committee thereof. The Preferred Stock will, when
issued, be fully paid and nonassessable and will have no preemptive rights.
Reference is made to the Prospectus Supplement relating to the Preferred
Stock offered thereby for specific terms, including:
(a) the title and stated value of such Preferred Stock;
(b) the number of shares of such Preferred Stock offered, the liquidation
preference per share and the offering price of such Preferred Stock;
(c) the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Stock;
(d) the date from which dividends on such Preferred Stock shall
accumulate;
(e) the procedures for any auction and remarketing, if any, for such
Preferred Stock;
(f) the provision for a sinking fund, if any, for such Preferred Stock;
(g) any voting rights of such Preferred Stock;
(h) the provision for redemption, if applicable, of such Preferred Stock;
(i) any listing of such Preferred Stock on any securities exchange;
(j) the terms and conditions, if applicable, upon which such Preferred
Stock will be convertible into Common Stock, including the conversion price
(or manner of calculation thereof);
(k) a discussion of federal income tax considerations applicable to such
Preferred Stock;
(l) any limitations on actual, beneficial or constructive ownership and
restrictions on transfer, in each case as may be appropriate to preserve the
Company's REIT status;
(m) the relative ranking and preferences of such Preferred Stock as to
dividend rights and rights upon liquidation, dissolution or winding up of the
affairs of the Company;
15
<PAGE>
(n) any limitations on issuance of any series of Preferred Stock ranking
senior to or on a parity with such series of Preferred Stock as to dividend
rights and rights upon liquidation, dissolution or winding up of the affairs
of the Company; and
(o) any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Stock.
RANK
Unless otherwise specified in the applicable Prospectus Supplement, the
Preferred Stock will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the affairs of the Company, rank (a)
senior to all Common Stock and to all equity or other securities ranking junior
to such Preferred Stock with respect to dividend rights or rights upon
liquidation, dissolution or winding up of the Company; (b) 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 Stock with
respect to dividend rights or rights upon liquidation, dissolution or winding up
of the affairs of the Company; and (c) junior to all equity securities issued by
the Company the terms of which specifically provide that such equity securities
rank senior to the Preferred Stock with respect to dividend rights or rights
upon liquidation, dissolution or winding up of the affairs of the Company. For
these purposes, the term "equity securities" does not include convertible debt
securities.
DIVIDENDS
Holders of shares of the Preferred Stock of each series shall be entitled to
receive, when, as and if declared by the Company's Board of Directors, out of
the Company's assets legally available for payment, cash dividends at such rates
and on such dates as will be set forth in the applicable Prospectus Supplement.
Each such dividend shall be payable to holders of record as they appear on the
Company's stock transfer books on such record dates as shall be fixed by the
Company's Board of Directors.
Dividends on any series of Preferred Stock will be cumulative. Dividends will
be cumulative from and after the date set forth in the applicable Prospectus
Supplement.
If any shares of Preferred Stock of any series are outstanding, full
dividends shall not be declared or paid or set apart for payment on the
Preferred Stock of any other series ranking, as to dividends, on a parity with
or junior to the Preferred Stock of such series for any period unless full
cumulative dividends have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof is set apart for such
payment on the Preferred Stock of such series for all past dividend periods and
the then current dividend period. When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon the shares of
Preferred Stock of any series and the shares of any other series of Preferred
Stock ranking on a parity as to dividends with the Preferred Stock of such
series, all dividends declared on shares of Preferred Stock of such series and
any other series of Preferred Stock ranking on a parity as to dividends of such
Preferred Stock shall be declared pro rata so that the amount of dividends
declared per share on the Preferred Stock of such series and such other series
of Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the shares of Preferred Stock of such series and
such other series of Preferred Stock bear to each other. No interest, or sum of
money in lieu of interest, shall be payable in respect of any dividend payment
or payments on Preferred Stock of such series that may be in arrears.
Except as provided in the immediately preceding paragraph, unless full
cumulative dividends on the Preferred Stock of such series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for payment for all past dividend periods and the
then current dividend period, no dividends (other than in the Common Stock or
other capital stock of the Company ranking junior to the Preferred Stock of such
series as to dividends and upon liquidation) shall be declared or paid or set
aside for payment nor shall any other distribution be declared or made on the
Common Stock or any other capital stock of the Company ranking junior to or on a
parity with the Preferred Stock of such series as to dividends or upon
liquidation, nor shall the Common Stock or any other capital stock of the
Company ranking junior to or on a parity with the Preferred Stock of such series
16
<PAGE>
as to dividends or upon liquidation be redeemed, purchased or otherwise acquired
for any consideration (or any amounts be paid to or made available for a sinking
fund for the redemption of any shares of any such stock) by the Company (except
by conversion into or exchange for other capital stock of the Company ranking
junior to the Preferred Stock of such series as to dividends and upon
liquidation).
Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series that remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the shares of
Preferred Stock will be subject to mandatory redemption or redemption at the
Company's option, as a whole or in part, in each case on 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 Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock 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 accumulated and unpaid dividends thereon 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 Stock of any series is payable only from the net
proceeds of the issuance of capital stock of the Company, the terms of such
Preferred Stock may provide that, if no such capital stock 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 Stock shall
automatically and mandatorily be converted into shares of the applicable capital
stock of the Company pursuant to conversion provisions specified in the
applicable Prospectus Supplement.
Notwithstanding the foregoing, unless full cumulative dividends on all shares
of such series of Preferred Stock have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof is set apart
for payment for all past dividend periods and the then current dividend period,
no shares of such series of Preferred Stock shall be redeemed unless all
outstanding shares of Preferred Stock of such series are simultaneously
redeemed; provided, however, that the foregoing shall not prevent the purchase
or acquisition of shares of Preferred Stock of such series to preserve the
Company's REIT status or pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding shares of Preferred Stock of such
series. In addition, unless full cumulative dividends on all outstanding shares
of such series of Preferred Stock have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof is set apart
for payment for all past dividend periods and the then current dividend period,
the Company shall not purchase or otherwise acquire directly or indirectly any
shares of Preferred Stock of such series (except by conversion into or exchange
for capital stock of the Company ranking junior to the Preferred Stock of such
series as to dividends and upon liquidation); provided, however, that the
foregoing shall not prevent the purchase or acquisition of shares of Preferred
Stock of such series to preserve the Company's REIT status or pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
shares of Preferred Stock of such series.
If fewer than all the outstanding shares of Preferred Stock 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 that is consistent with the
Certificate of Incorporation.
Notice of redemption will be mailed at least 30, but not more than 60, days
before the redemption date to each holder of record of a share of Preferred
Stock of any series to be redeemed at the address shown on the Company's stock
transfer books. Each notice shall state: (a) the redemption date; (b) the number
of shares and series of the Preferred Stock to be redeemed; (c) the redemption
price; (d) the place or places where certificates for such Preferred Stock are
to be surrendered for payment of the redemption price; (e) that dividends on the
shares to be redeemed will cease to accumulate on such redemption date; and (f)
the date on which the holder's conversion rights, if any, as to such shares
shall terminate. If fewer
17
<PAGE>
than all the shares of Preferred Stock of any series are to be redeemed, the
notice mailed to each such holder thereof shall also specify the number of
shares of Preferred Stock to be redeemed from each such holder and, upon
redemption, a new certificate shall be issued representing the unredeemed shares
without cost to the holder thereof. If notice of redemption of any shares of
Preferred Stock has been given and if the funds necessary for such redemption
have been set aside by the Company in trust for the benefit of the holders of
any shares of Preferred Stock so called for redemption, then from and after the
redemption date dividends will cease to accrue on such shares of Preferred
Stock, such shares of Preferred Stock 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. In order to facilitate the redemption of shares of
Preferred Stock of any series, the Board of Directors may fix a record date for
the determination of shares of such series of Preferred Stock to be redeemed.
Subject to applicable law and the limitation on purchases when dividends on a
series of Preferred Stock are in arrears, the Company may, at any time and from
time to time purchase any shares of such series of Preferred Stock in the open
market, by tender or by private agreement.
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 the Common Stock or any other class or series of capital
stock of the Company ranking junior to any series of the Preferred Stock in the
distribution of assets upon any liquidation, dissolution or winding up of the
affairs of the Company, the holders of such series of Preferred Stock shall be
entitled to receive out of assets of the Company legally available for
distribution to shareholders liquidating distributions in the amount of the
liquidation preference per share (set forth in the applicable Prospectus
Supplement), plus an amount equal to all dividends accrued and unpaid thereon.
After payment of the full amount of the liquidating distributions to which they
are entitled, the holders of Preferred Stock will have no right or claim to any
of the remaining assets of the Company. If, 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 outstanding shares of any series of Preferred Stock and the
corresponding amounts payable on all shares of other classes or series of
capital stock of the Company ranking on a parity with such series of Preferred
Stock in the distribution of assets upon liquidation, dissolution or winding up,
then the holders of such series of Preferred Stock and all other such classes or
series of capital stock shall share ratably in any such distribution of assets
in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
any series of Preferred Stock, the remaining assets of the Company shall be
distributed among the holders of any other classes or series of capital stock
ranking junior to such series of Preferred Stock upon liquidation, dissolution
or winding up, according to their respective rights and preferences and in each
case according to their respective number of shares. For such purposes, the
consolidation or merger of the Company with or into any other entity, or the
sale, lease, transfer or conveyance of all or substantially all of the Company's
property or business, shall not be deemed to constitute a liquidation,
dissolution or winding up of the affairs of the Company.
VOTING RIGHTS
Holders of the Preferred Stock will not have any voting rights, except as set
forth below or as otherwise from time to time required by law or as indicated in
the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Stock, so long as any
shares of Preferred Stock of a series remain outstanding, the Company shall not,
without the affirmative vote or consent of the holders of at least a majority of
the shares of such series of Preferred Stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such series voting
separately as a class), (a) authorize or create, or increase the authorized or
issued amount of, any class or series of capital stock ranking prior to such
series of Preferred Stock with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up or reclassify
any authorized capital stock of the
18
<PAGE>
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 (b) amend, alter or repeal the provisions of the Certificate of Incorporation
or the Certificate of Designations for such series of Preferred Stock, whether
by merger, consolidation or otherwise, so as to materially and adversely affect
any right, preference, privilege or voting power of such series of Preferred
Stock or the holders thereof; provided, however, that any increase in the amount
of the authorized Preferred Stock or the creation or issuance of any other
series of Preferred Stock, or any increase in the amount of authorized shares of
such series or any other series of Preferred Stock, in each case ranking on a
parity with or junior to the Preferred Stock of such series with respect to
payment of dividends or the distribution of assets upon liquidation, dissolution
or winding up, shall not be deemed to materially and adversely affect such
rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such series of Preferred Stock shall have
been redeemed or called for redemption upon proper notice and sufficient funds
shall have been deposited in trust to effect such redemption.
Under Delaware law, notwithstanding anything to the contrary set forth above,
holders of each series of Preferred Stock will be entitled to vote as a class
upon a proposed amendment to the Certificate of Incorporation, whether or not
entitled to vote thereon by the Restated Certificate of Incorporation, if the
amendment would increase or decrease the aggregate number of authorized shares
of such series, increase or decrease the par value of the shares of such series,
or alter or change the powers, preferences or special rights of the shares of
such series so as to affect them adversely.
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any series of
Preferred Stock are convertible into Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the Preferred Stock is 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 Stock 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 Stock.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding capital stock may be owned, actually or constructively,
by five or fewer individuals (defined in the Code to include certain entities)
during the last half of a taxable year. To assist the Company in meeting this
requirement, the Company may take certain actions to limit the beneficial
ownership, actually or constructively, by a single person or entity of the
Company's outstanding equity securities. See "Restrictions on Transfers of
Capital Stock."
TRANSFER AGENT
The transfer agent and registrar for any series of Preferred Stock will be
set forth in the applicable Prospectus Supplement.
RESTRICTIONS ON TRANSFERS OF CAPITAL STOCK
For the Company to qualify as a REIT under the Code, among other things, not
more than 50% in value of its outstanding capital stock may be owned, actually
or constructively, by five or fewer individuals (defined in the Code to include
certain entities) during the last half of a taxable year, and such capital stock
must be beneficially owned by 100 or more persons during at least 355 days of a
taxable year of 12 months or during a proportionate part of a shorter taxable
year. To ensure that the Company remains qualified as a REIT, the Certificate of
Incorporation, subject to certain exceptions, provides that
19
<PAGE>
a transfer of Common Stock is void if it would result in Beneficial Ownership
(as defined below) of the Common Stock in excess of the Ownership Limit (as
defined below) or would result in the Common Stock being beneficially owned by
less than 100 persons. "Transfer" generally means any sale, transfer, gift,
assignment, devise or other disposition of Common Stock, whether voluntary or
involuntary, whether of record or beneficially and whether by operation of law
or otherwise. "Beneficial Ownership" generally means ownership of Common Stock
by a person who would be treated as an owner of such shares of Common Stock
either actually or constructively through the application of Section 544 of the
Internal Revenue Code of 1986, as modified by Section 856(h)(1)(B) of the
Internal Revenue Code of 1986. "Ownership Limit" generally means 9.8% of the
outstanding Common Stock of the Company and, after certain adjustments pursuant
to the Certificate of Incorporation, means such greater percentage of the
outstanding Common Stock as so adjusted. The Board of Directors may, in its
discretion, adjust the Ownership Limit of any Person provided that after such
adjustment, the Ownership Limit of all other persons shall be adjusted such that
in no event may any five persons Beneficially Own more than 49% of the Common
Stock. Any class or series of Preferred Stock may be subject to these
restrictions if so stated in the resolutions providing for the issuance of such
Preferred Stock. The Restated Certificate of Incorporation provides certain
remedies to the Board of Directors in the event the restrictions on Transfer are
not met.
All certificates of Common Stock, any other series of the Company's Common
Stock and any class or series of Preferred Stock will bear a legend referring to
the restrictions described above and as described in the certificate of
designation relating to any issuance of Preferred Stock. All persons who have
Beneficial Ownership or who are a shareholder of record of a specified
percentage (or more) of the outstanding capital stock of the Company must file a
notice with the Company containing information regarding their ownership of
stock as set forth in the Treasury Regulations. Under current Treasury
Regulations, the percentage is set between .5% and 5%, depending on the number
of record holders of capital stock.
This ownership limitation may have the effect of precluding acquisition of
control of the Company by a third party unless the Board of Directors determines
that maintenance of REIT status is no longer in the best interests of the
Company.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following summary of certain federal income tax considerations to the
Company is based on current law, is for general information only, and is not tax
advice. The tax treatment of a holder of any of the Securities will vary
depending on the terms of the specific Securities acquired by such holder, as
well as his or her particular situation. This discussion does not attempt to
address any aspects of federal income taxation relating to holders of
Securities. Certain federal income tax considerations relevant to a holder of
Securities will be provided in the Prospectus Supplement relating thereto.
EACH INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS SUPPLEMENT, AS
WELL AS HIS OR HER OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES TO HIM OR HER
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 LAWS.
QUALIFICATION OF THE COMPANY AS A REIT; OPINION OF COUNSEL
The Company has elected to be taxed as a REIT under Sections 856 through 860
of the Code, commencing with its fiscal year ended December 31, 1994. The
election to be taxed as a REIT will continue until it is revoked or otherwise
terminated. The most important consequence to the Company of being treated as a
REIT for federal income tax purposes is that it will not be subject to federal
corporate income taxes on net income that is currently distributed to its
stockholders. This treatment
20
<PAGE>
substantially eliminates the "double taxation" (at the corporate and stockholder
levels) that typically results when a corporation earns income and distributes
that income to stockholders in the form of a dividend. Accordingly, if the
Company at any time fails to qualify as a REIT, the Company will be taxed on its
distributed income, thereby reducing the amount of cash available for
distribution to its stockholders.
In the opinion of Kutak Rock, counsel to the Company, commencing with the
taxable year ended December 31, 1994, the Company has been organized in
conformity with the requirements for qualification as a REIT and its proposed
method of operation will enable it to continue to meet the requirements for
qualification and taxation as a REIT under the Code. This opinion is based on
various assumptions and is conditioned upon the representations of the Company
as to factual matters. Moreover, continued qualification and taxation as a REIT
will depend on the Company's ability to satisfy on a continuing basis certain
distribution levels, diversity of stock ownership and various qualification
tests imposed by the Code as summarized below. While the Company intends to
operate so that it will continue to qualify as a REIT, given the highly complex
nature of the rules governing REITs, the ongoing importance of factual
determinations, and the possibility of future changes in the circumstances of
the Company, no assurance can be given by counsel or the Company that the
Company will so qualify for any particular year. Kutak Rock will not review
compliance with these tests on a continuing basis, and will not undertake to
update its opinion subsequent to the date hereof.
TAXATION OF THE COMPANY AS A REIT
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal income tax on net income that is currently distributed to its
stockholders. The Company may, however, be subject to certain federal taxes
based on the amount of its distributions or its inability to meet certain REIT
qualification requirements. These taxes are the following:
Tax on Undistributed Income. First, if the Company does not distribute all of
its net taxable income, including any net capital gain, the Company would be
taxed at regular corporate rates on the undistributed income or gains.
Tax on Prohibited Transactions. Second, if the Company has net income from
certain prohibited transactions, including sales or dispositions of property
held primarily for sale to customers in the ordinary course of business, such
net income would be subject to a 100% confiscatory tax.
Tax on Failure to Meet Gross Income Requirements. Third, if the Company
should fail to meet either the 75% or 95% gross income test as described below
but still qualify for REIT status because, among other requirements, it was able
to show that such failure was due to reasonable cause, it will be subject to a
100% tax on an amount equal to (a) the gross income attributable to the greater
of the amount, if any, by which the Company failed either the 75% or the 95%
gross income test, multiplied by (b) a fraction intended to reflect the
Company's profitability.
Tax on Failure to Meet Distribution Requirements. Fourth, if the Company
should fail to distribute during each calendar year at least the sum of (a) 85%
of its REIT ordinary income for such year, (b) 95% of its REIT capital gain net
income for such year, and (c) any undistributed taxable income from prior
periods, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed.
Alternative Minimum Tax. Fifth, the Company may be subject to alternative
minimum tax on certain items of tax preference.
Tax on Foreclosure Property. Sixth, if the Company has (a) 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 (b) other nonqualifying
income from foreclosure property, it will be subject to tax at the highest
corporate rate on such income.
Tax on Built-In Gain. Seventh, if during the 10-year period (the "Recognition
Period") beginning on the date that the Company's corporate predecessor merged
with and into the Company, the Company recognizes gain on the disposition of any
asset acquired by the Company from the corporate predecessor,
21
<PAGE>
then to the extent of the excess of (a) the fair market value of such asset as
of the beginning of such Recognition Period over (b) the Company's adjusted
basis in such asset as of the beginning of such Recognition Period, such gain
will be subject to tax at the highest regular corporate rate pursuant to IRS
regulations that have not yet been promulgated.
OVERVIEW OF REIT QUALIFICATION RULES
The following summarizes the basic requirements for REIT status:
(a) The Company must be a corporation, trust or association that is
managed by one or more trustees or directors.
(b) The Company's stock or beneficial interests must be transferable and
held by more than 100 stockholders, and no more than 50% of the value of the
Company's stock may be held, actually or constructively, by five or fewer
individuals (defined in the Code to include certain entities).
(c) Generally, 75% (by value) of the Company's investments must be in real
estate, mortgages secured by real estate, cash or government securities.
(d) The Company must meet three gross income tests:
(i) First, at least 75% of the gross income must be derived from
specific real estate sources;
(ii) Second, at least 95% of the gross income must be from the real
estate sources includable in the 75% test, or from dividends, interest or
gains from the sale or disposition of stock and securities; and
(iii) Third, less than 30% of the gross income may be derived from the
sale of real estate assets held for less than four years, from the sale of
certain "dealer" properties or from the sale of stock or securities having
a short-term holding period.
(e) The Company must distribute to its stockholders in each taxable year
an amount at least equal to 95% of the Company's "REIT taxable income" (which
is generally equivalent to taxable ordinary income and is defined below).
The discussion set forth below explains these REIT qualification requirements
in greater detail. It also addresses how these highly technical rules may be
expected to impact the Company in its operations, noting areas of uncertainty
that perhaps could lead to adverse consequences to the Company and its
stockholders.
Share Ownership. The Company's shares of stock are fully transferable and are
subject to transfer restrictions set forth in its Certificate of Incorporation.
Furthermore, the Company has more than 100 shareholders and its Certificate of
Incorporation provides, to decrease the possibility that the Company will ever
be closely held, that no individual, corporation or partnership is permitted to
actually or constructively own more than 9.8% of the number of outstanding
shares of Common Stock. The Ownership Limit may be adjusted, however, by the
Company's Board of Directors in certain circumstances. Purported transfers which
would violate the Ownership Limit will be void. In addition, shares of Common
Stock acquired in excess of the Ownership Limit may be redeemed by the Company.
The ownership and transfer restrictions pertaining generally to a particular
issue of Preferred Stock will be described in the Prospectus Supplement relating
to such issue.
Nature of Assets. On the last day of each calendar quarter, at least 75% of
the value of the Company's total assets must consist of (a) real estate assets
(including interests in real property and mortgages on loans secured by real
property), (b) cash and cash items (including receivables), and (c) government
securities (collectively, the "real estate assets"). Except for certain
partnerships and "qualified REIT subsidiaries," as described below, the
securities of any issuer, other than the United States government, may not
represent more than 5% of the value of the Company's total assets or 10% of the
outstanding voting securities of any one issuer.
While, as noted above, a REIT cannot own more than 10% of the outstanding
voting securities of any single issuer, an exception to this rule permits REITs
to own "qualified REIT subsidiaries." A "qualified REIT subsidiary" is any
corporation in which 100% of its stock is owned by the REIT at all times during
22
<PAGE>
which the corporation was in existence. The Company currently has two wholly
owned corporate subsidiaries that were formed and 100% owned at all times during
their existence by the Company. These corporations will be treated as "qualified
REIT subsidiaries" and will not adversely affect the Company's qualification as
a REIT.
The Company may acquire interests in partnerships that directly or indirectly
own and operate properties similar to those currently owned by the Company. The
Company, for purposes of satisfying its REIT asset and income tests, will be
treated as if it owns a proportionate share of each of the assets of these
partnerships attributable to such interests. For these purposes, the Company's
interest in each of the partnerships will be determined in accordance with its
capital interest in such partnership. The character of the various assets in the
hands of the partnership and the items of gross income of the partnership will
remain the same in the Company's hands for these purposes. Accordingly, to the
extent the partnership receives qualified real estate rentals and holds real
property, a proportionate share of such qualified income and assets, based on
the Company's capital interest in the partnerships, will be treated as qualified
rental income and real estate assets of the Company for purposes of determining
its REIT characterization. It is expected that substantially all the properties
of the partnerships will constitute real estate assets and generate qualified
rental income for these REIT qualification purposes.
This treatment for partnerships is conditioned on the treatment of these
entities as partnerships for federal income tax purposes (as opposed to
associations taxable as corporations). If any of the partnerships is treated as
an association, it would be taxable as a corporation. In such situation, if the
Company's ownership in any of the partnerships exceeded 10% of the partnership's
voting interests or the value of such interest exceeded 5% of the value of the
Company's assets, the Company would cease to qualify as a REIT. Furthermore, in
such a situation, distributions from any of the partnerships to the Company
would be treated as dividends, which are not taken into account in satisfying
the 75% gross income test described below and which could therefore make it more
difficult for the Company to qualify as a REIT for the taxable year in which
such distribution was received. In addition, in such a situation, the interest
in any of the partnerships held by the Company would not qualify as "real estate
assets," which could make it more difficult for the Company to meet the 75%
asset test described above. Finally, in such a situation, the Company would not
be able to deduct its share of any losses generated by the partnerships in
computing its taxable income. The Company will take all steps reasonably
necessary to ensure that any partnership in which it acquires an interest will
be treated for tax purposes as a partnership (and not as an association taxable
as a corporation). However, there can be no assurance that the IRS may not
successfully challenge the tax status of any such partnership.
Income Tests. To maintain its qualification as a REIT, the Company must meet
three gross income requirements that must be satisfied annually. First, at least
75% of the REIT's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments. Second, at least 95% of the REIT's gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived from such real property investments, and from dividends,
interest and gain from the sale or disposition of stock or securities, or from
any combination of the foregoing. Third, short-term gain from the sale or other
disposition of stock or securities, gain from prohibited transactions and gain
from the sale or other disposition of real property held for less than four
years (apart from involuntary conversions and sales of foreclosure property)
must represent less than 30% of the REIT's gross income (including gross income
from prohibited transactions) for each taxable year.
Rents received by the Company on the lease of its properties will qualify as
"rents from real property" in satisfying the gross income requirements for a
REIT described above 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. However, an amount received or accrued generally will not be excluded
from the term "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales. Second, the Code provides
that rents received from a tenant will not qualify as "rents from real property"
in satisfying the gross income test if the Company, or an owner of 10% or more
of the Company, actually or constructively owns 10% or more of such tenant (a
"Related-Party Tenant"). Third, if rent
23
<PAGE>
attributable to personal property leased in connection with the 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." The Company does not anticipate charging rent for
any property that is based in whole or in part on the income or profits of any
person (other than rent based on a fixed percentage or percentages of receipts
or sales) and the Company does not anticipate receiving any rents from
Related-Party Tenants. Furthermore, the Company expects that in substantially
all cases the rents attributable to its leased personal property will be less
than 15% of the total rent payable under such lease.
Finally, for rents to qualify as "rents from real property," the Company must
not operate or manage the property or furnish or render services to tenants
unless the Company furnishes or renders such services through an independent
contractor from whom the Company derives no revenue. The Company need not
utilize an independent contractor to the extent that services provided by the
Company are usually and customarily rendered in connection with the rental of
space for occupancy only and are not otherwise considered "rendered to the
occupant." The Company does not anticipate that it will provide any services
with respect to its properties.
The Company intends to monitor the percentage of nonqualifying income and
reduce the percentage of nonqualifying income if necessary. Because the income
tests are based on a percentage of total gross income, increases in qualifying
rents will reduce the percentage of nonqualifying income. In addition, the
Company intends to acquire additional real estate assets that would generate
qualifying income, thereby lowering the percentage of total nonqualifying
income. Increases in other nonqualifying income may similarly affect these
calculations. Reference is made to the applicable Prospectus Supplement for a
current discussion, if any, relating to the amount of nonqualifying income
expected to be generated by the Company.
If the Company fails to satisfy one or both of the 75% and 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if the Company's failure to meet such
test was due to reasonable cause and not willful neglect and the Company
attaches a schedule of its income sources to its tax return that does not
fraudulently or intentionally exclude any income sources. As discussed above,
even if these relief provisions apply, a tax would be imposed with respect to
such excess income.
Annual Distribution Requirements. Each year, the Company must have a
deduction for dividends paid (determined under Section 561 of the Code) to its
stockholders in an amount equal to (a) 95% of the sum of (i) its "REIT taxable
income" as defined below (computed without a deduction for dividends paid and
excluding any net capital gain), (ii) any net income from foreclosure property
less the tax on such income, minus (b) any "excess noncash income," as defined
below. "REIT taxable income" is the taxable income of a REIT subject to certain
adjustments, including, without limitation, an exclusion for net income from
foreclosure property, a deduction for the excise tax on the greater of the
amount by which the REIT fails the 75% or the 95% income test, and an exclusion
for an amount equal to any net income derived from prohibited transactions.
"Excess noncash income" means the excess of certain amounts that the REIT is
required to recognize as income in advance of receiving cash, such as original
issue discount on purchase money debt, over 5% of the REIT taxable income before
deduction for dividends paid and excluding any net capital gain. Such
distributions must be made in the taxable year to which they relate, or in the
following taxable year if declared before the REIT timely files its tax return
for such year and is paid on or before the first regular dividend payment after
such declaration.
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 due to
timing differences between (a) the actual receipt of income and the actual
payment of deductible expenses and (b) the inclusion of such income and
deduction of such expenses in arriving at taxable income of the Company.
Furthermore, principal payments on Company indebtedness, which would have the
effect of lowering the amount of distributable cash without an offsetting
deduction to Company taxable income, may adversely affect the Company's ability
to meet this distribution requirement. In the event that such timing differences
or reduction to distributable cash
24
<PAGE>
occurs, in order to meet the 95% distribution requirement, the Company may find
it necessary to arrange for short-term, or possible long-term, borrowings or to
pay dividends in the form of taxable stock dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
stockholders in a later year that may be included in the Company's deduction for
dividends paid for the earlier year. Thus, the Company may be able to avoid
being taxed on amounts distributed as deficiency dividends; however, the Company
will be required to pay to the IRS interest based on the amount of any deduction
taken for deficiency dividends.
FAILURE OF THE COMPANY TO QUALIFY AS A REIT
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company would be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates, thereby reducing the amount of cash available for
distribution to its stockholders. Distributions to stockholders in any year in
which the Company fails to qualify would not be deductible by the Company nor
would they be required to be made. In such an event, to the extent of current
and accumulated earnings and profits, all distributions to stockholders would be
taxable as ordinary income and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends-received deduction.
Unless entitled to relief under specific statutory relief provisions, the
Company would also be disqualified from taxation as a REIT for the four taxable
years following the year during which such qualification was lost. It is not
possible to state whether in all circumstances the Company would be entitled to
such statutory relief.
THE MERGER
At the time of its organization the Company obtained an opinion from Kutak
Rock that, among other things, the merger of FFCA I into the Company should be
treated as a reorganization under Section 368(a) of the Code and that no gain or
loss should be recognized by either party thereto. No ruling from the IRS was
requested with respect to the federal income tax consequences of such merger.
Thus, there can be no assurance that the IRS will agree with the conclusions set
forth in such opinion. If the merger does not qualify as a reorganization under
Section 368(a) of the Code, then FFCA I would recognize gain or loss in an
amount equal to the difference between the fair market value of the Common Stock
issued in the merger and the adjusted tax basis of its assets. Although the
Company would not directly recognize gain or loss as a result of the failure of
the merger to qualify as a reorganization under Section 368(a) of the Code, the
Company would be primarily liable as the successor to FFCA I for the resulting
tax liability.
STATE AND LOCAL TAXES
The Company may be subject to state or local taxes in other jurisdictions
such as those in which the Company may be deemed to be engaged in activities or
own property or other interests. Such tax treatment of the Company in states
having taxing jurisdiction over it may differ from the federal income tax
treatment described in this summary. Each stockholder should consult his or her
tax advisor as to the status of the Company and the Securities under the
respective state laws applicable to them.
25
<PAGE>
PLAN OF DISTRIBUTION
An issuance of Debt Securities under this Registration Statement is being
contemplated by the Company. However, the terms of such offering, including
interest rates, call provisions, maturities and sinking fund schedule have not
yet been determined and remain subject to market conditions and other
considerations of the Company. The terms of such offering will be set forth in
the applicable Prospectus Supplement. The Company may sell the Securities to one
or more underwriters for public offering and sale by them or may sell the
Securities to investors directly or through agents. Any such underwriter or
agent involved in the offer and sale of the Securities will be named in the
applicable Prospectus Supplement.
Underwriters may offer and sell the Securities at a fixed price or prices,
which may be changed, at prices relating 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
Securities upon the terms and conditions as are set forth in the applicable
Prospectus Supplement. In connection with the sale of 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 Securities for whom they may act as agent. Underwriters may sell
Securities to or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the underwriters and/or
commissions from the purchasers for whom they may act as agent. Any underwriting
compensation paid by the Company to underwriters or agents in connection with
the offering of 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 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 Securities may be deemed to be underwriting discounts and
commissions, under the Securities Act. Any such underwriter or agent will be
identified, and such compensation received from the Company will be described,
in the applicable Prospectus Supplement.
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.
Certain of the underwriters, dealers and agents 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.
Unless otherwise specified in the related Prospectus Supplement, each series
of Securities will be a new issue with no established trading market, other than
the Common Stock. The Common Stock is currently quoted on the NYSE. Unless
otherwise specified in the related Prospectus Supplement, any shares of Common
Stock sold pursuant to a Prospectus Supplement will be listed on the NYSE,
subject to official notice of issuance. The Company may elect to list any series
of Debt Securities or Preferred Stock on the NYSE or other exchange, but is not
obligated to do so. It is possible that one or more underwriters may make a
market in a series of Securities, but will not be obligated to do so and may
discontinue any market making at any time without notice. Therefore, there can
be no assurance as to the liquidity of, or the trading market for, the
Securities.
In order to comply with the securities laws of certain states, if applicable,
the Securities offered hereby will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states
Securities may not be sold unless they have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Securities offered hereby may not
simultaneously engage in market making activities with respect to the Securities
for a period of two business days prior to the commencement of such
distribution.
26
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the Securities to be offered hereby, and
certain REIT matters relating to the Company, will be passed upon for the
Company by the law firm of Kutak Rock, 717 Seventeenth Street, Suite 2900,
Denver, Colorado 80202.
EXPERTS
The financial statements and schedules for the fiscal year ended December 31,
1994 incorporated by reference in this Prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
27
<PAGE>
===============================================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN CONTAINED OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT OR
THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT,
THE APPLICABLE PRICING SUPPLEMENT AND 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. NEITHER THE DELIVERY OF THIS PROSPECTUS
SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE
MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT AND THE
PROSPECTUS DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION.
----------
TABLE OF CONTENTS
PAGE
--------
PROSPECTUS SUPPLEMENT
Risk Factors ..................................S-3
The Company ...................................S-4
The Industry ..................................S-6
Description of Notes ..........................S-7
Certain United States Federal Income
Tax Considerations ...........................S-24
Plan of Distribution ..........................S-30
Legal Matters .................................S-31
PROSPECTUS
Available Information ......................... 2
Incorporation of Certain Documents by
Reference .................................... 2
The Company ................................... 3
Use of Proceeds ............................... 3
Ratios of Earnings to Fixed Charges ........... 3
Description of Debt Securities ................ 4
Description of Common Stock ...................13
Description of Preferred Stock ................15
Restrictions on Transfers of Capital Stock ...19
Certain Federal Income Tax
Considerations ...............................20
Plan of Distribution ..........................26
Legal Matters .................................27
Experts .......................................27
================================================================================
FFCA
FRANCHISE FINANCE
CORPORATION
OF AMERICA
$150,000,000
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE
FROM DATE OF ISSUE
----------
PROSPECTUS SUPPLEMENT
----------
MERRILL LYNCH & CO.
NATIONSBANC CAPITAL MARKETS, INC.
SMITH BARNEY INC.
FEBRUARY 9, 1996
