PROSPECTUS SUPPLEMENT
- --------------------- Filed Pursuant to Rule 424(b)(3)
(To Prospectus dated April 16, 1998) File No: 333-26437
892,857 Shares
FRANCHISE FINANCE CORPORATION OF AMERICA
Common Stock
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Franchise Finance Corporation of America (the "Company") is a specialty
retail finance company dedicated primarily to providing real estate financing to
the chain restaurant industry, as well as to the convenience store and
automotive parts and service industries. The Company is a fully integrated and
self-administered real estate investment trust ("REIT"). The Company, together
with its predecessors, has been engaged in the financing of chain restaurant
real estate since 1980. As of December 31, 1997, the Company had interests
(which include interests in mortgage loan securitization transactions) in
approximately 2,500 properties operated by more than 400 operators in over 50
chains located in 47 states. The Company's primary strategy is to finance chain
properties which are operated by experienced multi-unit operators in established
chains through various financial products, including sale and leaseback
transactions, mortgage loans, equipment loans and construction financing. See
"The Company" in the accompanying Prospectus.
All the shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby are being sold by the Company. Since the Company began
operations, the Company has paid regular quarterly dividends to holders of its
outstanding shares of Common Stock. The Common Stock is listed on the New York
Stock Exchange (the "NYSE") under the symbol "FFA." On April 21, 1998, the last
reported sale price of the Common Stock on the NYSE was $28.00 per share.
The shares of Common Stock are subject to certain restrictions on
ownership designed to preserve the Company's status as a REIT for federal income
tax purposes. See "Description of Common Stock" in the accompanying Prospectus.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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The Underwriter has agreed to purchase the shares of Common Stock from
the Company at a price of $26.60 per share in cash, resulting in aggregate
proceeds to the Company of $23,749,996.20 before payment of expenses by the
Company estimated at $20,000, subject to the terms and conditions in the
Underwriting Agreement. The Underwriter intends to sell the shares of Common
Stock to Nike Securities L.P. (the "Sponsor"), for an aggregate purchase price
of $23,999,996.16, resulting in an underwriting discount of $249,999.96. The
Sponsor intends to deposit the shares of Common Stock with the trustee of a
newly formed unit investment trust (the "Trust") in exchange for units in the
Trust. If all of the shares of Common Stock so deposited with the trustee of the
Trust are valued at their last reported sale price on April 21, 1998, the total
underwriting discount would be $1,249,999.80. See "Underwriting."
The shares of Common Stock offered hereby are being offered by the
Underwriter, subject to prior sale, when, as and if issued by the Company and
delivered to and accepted by the Underwriter, subject to approval of certain
legal matters by counsel for the Underwriter and certain other conditions. It is
expected that delivery of the shares of Common Stock will be made in New York,
New York on or about April 24, 1998.
A.G. EDWARDS & SONS, INC.
The date of this Prospectus Supplement is April 21, 1998.
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THE OFFERING
The shares of Common Stock offered hereby are being sold by the
Company. None of the Company's shareholders is selling any shares of Common
Stock in this offering (the "Offering"). The number of shares of Common Stock
outstanding after the Offering will be 48,779,413.
USE OF PROCEEDS
The net proceeds to the Company from the Offering (after deducting
estimated offering expenses) is estimated to be approximately $23,730,000 and
will be used to reduce amounts outstanding under the Company's Credit Agreement
with NationsBank of Texas, N.A. (the "Credit Agreement") which were used to
acquire and finance new investments and for general corporate purposes. As of
March 31, 1998, the amount outstanding under the Credit Agreement was
approximately $289 million.
UNDERWRITING
Pursuant to the terms and subject to the conditions of the Underwriting
Agreement (the "Underwriting Agreement") between the Company and A.G. Edwards &
Sons, Inc. (the "Underwriter"), the Underwriter has agreed to purchase from the
Company, and the Company has agreed to sell to the Underwriter, 892,857 shares
of Common Stock.
The Underwriter intends to sell the shares of Common Stock to Nike
Securities L.P., which intends to deposit such shares, together with shares of
common stock of other entities also acquired from the Underwriter, into a newly
formed unit investment trust (the "Trust") registered under the Investment
Company Act of 1940, as amended, in exchange for units in the Trust. The
Underwriter is not an affiliate of Nike Securities L.P. or the Trust. The
Underwriter intends to sell the shares of Common Stock to Nike Securities L.P.
at an aggregate purchase price of $23,999,996.16. It is anticipated that the
Underwriter will also participate in the distribution of units of the Trust and
will receive compensation therefor.
Pursuant to the Underwriting Agreement, the Company has agreed to
indemnify the Underwriter against certain liabilities, including liabilities
under the Securities Act of 1933, as amended, or to contribute to payments the
Underwriter may be required to make in respect thereof.
Until the distribution of the shares of Common Stock is completed,
rules of the Securities and Exchange Commission may limit the ability of the
Underwriter to bid for and purchase shares of Common Stock. As an exception to
these rules, the Underwriter is permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock. It is not currently anticipated that the Underwriter will engage
in any such transactions in connection with this Offering.
If the Underwriter creates a short position in the Common Stock in
connection with this Offering, i.e., if it sells more shares of Common Stock
than are set forth on the cover page of this Prospectus Supplement, the
Underwriter may reduce that short position by purchasing shares in the open
market.
In general, purchases of a security for the purpose of stabilization or
to reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases.
Neither the Company nor the Underwriter makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above might have on the price of the shares. In addition, neither the
Company nor the Underwriter makes any representation that the Underwriter will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
In the ordinary course of business, the Underwriter and its affiliates
have engaged, and may in the future engage, in investment banking transactions
with the Company.
S-2
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LEGAL MATTERS
The legality of the shares of Common Stock to be issued in connection
with this Offering is being passed upon for the Company by the law firm of Kutak
Rock, Denver, Colorado. Certain legal matters relating to this Offering are
being passed upon for the Underwriter by the law firm of Latham & Watkins, Los
Angeles, California. Members and attorneys of Kutak Rock own approximately
32,000 shares of Common Stock of the Company.
S-3
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PROSPECTUS
FRANCHISE FINANCE CORPORATION OF AMERICA
$1,000,000,000
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 $1,000,000,000 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
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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.
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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.
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The date of this Prospectus is April 16, 1998
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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. The Company makes its
filings electronically. The Commission maintains a website that contains
reports, proxy and information statements and other information regarding
registrants that file electronically, which information can be accessed at
http://www.sec.gov. 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.
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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, 1997;
(ii) the Company's Current Report on Form 8-K dated January
27, 1998;
(iii) the Company's Current Report on Form 8-K dated February
17, 1998; and
(iv) the description of the Common Stock contained in the Company's
Registration Statement on Form 8-A
filed June 28, 1994.
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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 and 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.
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 Corporate
Secretary at 17207 North Perimeter Drive, Scottsdale, Arizona 85255, telephone
number (602) 585-4500.
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THE COMPANY
Franchise Finance Corporation of America (the "Company") is a specialty
retail finance company dedicated primarily to providing real estate financing to
the chain restaurant industry, as well as to the convenience store and
automotive parts and service industries. The Company's primary strategy is to
provide all necessary financing for multi-unit operators and franchisors who
operate retail properties in which the Company invests. The Company's
investments are diversified by geographic region, operator and chain. 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 year ended December 31, 1993 is
derived from the combined historical financial information of Franchise Finance
Corporation of America I, a Delaware corporation, 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 the financial
information of both the Combined Predecessors and the Company. The ratios shown
for the years ended December 31, 1995, 1996 and 1997 are for 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, 1993. The
predecessor companies were primarily public real estate limited partnerships
which were prohibited from borrowing for real estate acquisitions and had no
opportunity for growth through acquisitions; therefore, the investment
objectives of the Company are different than the objectives of the Combined
Predecessors, and the information presented below does not necessarily present
the ratios of earnings to fixed charges as they would have been had the Company
operated as a REIT for all periods presented.
Year Ended December 31,
- --------------------------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
43.73 16.78 4.16 3.54 3.04
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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.
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 will be issued under an indenture,
dated as of November 21, 1995, subject to such amendments or supplements as may
be adopted from time to time (the "Indenture") between the Company and Norwest
Bank Arizona, National Association, as trustee (the "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 to be issued thereunder are summaries of certain 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 material 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.
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The Indenture provides that 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
established in one or more indentures supplemental to the Indenture. All Debt
Securities of one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the holders
(the "Holders") of the Debt Securities of such series, for issuances of
additional Debt Securities of such series.
The 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 the 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 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
Indenture.
Reference is made to the Prospectus Supplement relating to the series
of Debt Securities offered thereby for the specific terms thereof, including:
(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;
(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;
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(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;
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(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 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;
(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 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.
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Denominations, Interest, Registration and Transfer
Unless otherwise described in the applicable Prospectus Supplement, the
Debt Securities of any series will be issuable in denominations of $1,000 and
integral multiples thereof.
Unless otherwise described in the applicable Prospectus Supplement, the
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
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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 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 "Merger, Consolidation or Sale of
Assets," 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
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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 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.
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Events of Default, Notice and Waiver
Unless otherwise provided in the applicable Prospectus Supplement, the
following events are "events of default" with respect to any series of Debt
Securities issued under the Indenture: (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 the 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
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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 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
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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 the 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 premium, if any, on), or any installment
of principal of or interest 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 (or 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.
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 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
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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 provides that in determining whether the holders of the
requisite principal amount of outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of Debt
Securities, (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 contains 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
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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 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 provides 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
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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.
"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
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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
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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.
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.
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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 March 13, 1998, the Company
had outstanding 97,885,524 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
Second Amended and 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 dividends on the Preferred Stock, if
any. 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
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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.
DESCRIPTION OF PREFERRED STOCK
The Company has authority to issue up to 10,000,000 shares of Preferred
Stock as described below. At March 13, 1998, there were no shares of Preferred
Stock issued or outstanding.
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
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Company's Board of Directors is 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. Notwithstanding the foregoing (i) any series of
Preferred Stock may be voting or non-voting, provided that the voting rights of
any voting shares of Preferred Stock will be limited to no more than one vote
per share on matters voted upon by the holders of such series, and (ii) in the
event any person acquires 20% or more of the outstanding shares of Common Stock
and/or Preferred Stock, the Board of Directors cannot issue any series of
Preferred Stock unless such issuance is approved by the vote of holders of at
least 50% of the outstanding shares of Common Stock. 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
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calculation thereof);
(k) a discussion of material 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;
(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.
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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
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
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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.
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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 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
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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 Company into any such shares, or
create, authorize or issue any obligation or security convertible into or
evidencing the right to purchase any such
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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
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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 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
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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 provisions of the Code pertaining to REITs are highly technical and
complex. The following is a summary of the material provisions which govern the
federal income tax treatment of the Company. The summary 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 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,
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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 income and asset limitations, including certain
limitations concerning the ownership of securities, 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. The
Company may elect to retain and pay tax on its capital 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,
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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,
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
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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, for taxable years beginning on or before
August 5, 1997, 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, as a general matter, 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. In the case of a REIT which
solicits certain required information from its shareholders, the failure to
satisfy the closely held requirement described above will result in
disqualification only if the REIT had knowledge or upon the exercise of
reasonable diligence would have known of the failure to satisfy such
requirement.
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
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subsidiaries." A "qualified REIT subsidiary" is any corporation in which 100% of
its stock is owned by the REIT . The Company owns the stock or beneficial
interests of several entities which 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 were treated
as an association (or, in some cases, a publicly traded partnership), 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.
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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, from any
combination of the foregoing or from certain hedging agreements entered into to
reduce interest rate risks. Third, for taxable years commencing on or before
August 5, 1997, 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 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
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with the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant." If the amount received by the Company from
impermissible tenant services does not exceed 1% of the total amounts received
by the Company with respect to such related property, such rents will not as a
result be treated as nonqualifying income. Impermissible tenant services include
services rendered by the Company to tenants, other than the foregoing customary
services and services with regard to managing or operating the property. 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. The Company does not expect to generate nonqualifying
income in quantities which would cause it to fail either at the foregoing 75% or
95% gross income tests.
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
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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 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.
Congress is currently considering several proposals which, if adopted,
would modify the requirements applicable to REITs. Among such requirements is
one which would preclude a REIT from owning more than 10% of the value of the
stock of any subsidiary, other than a qualified REIT subsidiary. An additional
proposal would prohibit an existing corporation from deferring built-in gains
upon filing an election to be treated as a REIT. If an entity's election to be
treated as a REIT were terminated, such provision, if enacted, would make
requalification as a REIT substantially more difficult. It is not possible to
predict which, if any, of the current proposals will be enacted or the effect of
such proposals on the Company.
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.
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
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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.
PLAN OF DISTRIBUTION
The terms of any offering of Securities under this Registration
Statement 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 or
dealers. 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 market prices prevailing at the time of sale,
at prices relating to such prevailing market prices or at negotiated prices. The
Company also may, from time to time, authorize dealers 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 receive 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. 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.
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 listed on the NYSE.
Unless otherwise
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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.
If so indicated in the Prospectus Supplement, the Company will
authorize agents and underwriters or dealers to solicit offers by certain
purchasers to purchase Securities from the Company at the public offering price
set forth in the Prospectus Supplement pursuant to delayed delivery contracts
providing for payment and delivery on a specified date in the future. Such
contracts will be subject to only those conditions set forth in the Prospectus
Supplement, and the Prospectus Supplement will set forth the commission payable
for solicitation of such offers.
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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 national 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, 1997 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.
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TABLE OF CONTENTS
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Page
Prospectus Supplement
THE OFFERING.........................................S-2
USE OF PROCEEDS......................................S-2
UNDERWRITING.........................................S-2
LEGAL MATTERS........................................S-3
Prospectus
AVAILABLE INFORMATION............................... 2
INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE......................... 2
THE COMPANY......................................... 4
USE OF PROCEEDS..................................... 4
RATIOS OF EARNINGS TO FIXED
CHARGES........................................ 4
DESCRIPTION OF DEBT SECURITIES...................... 5
DESCRIPTION OF COMMON STOCK......................... 14
DESCRIPTION OF PREFERRED STOCK...................... 15
RESTRICTIONS ON TRANSFERS OF
CAPITAL STOCK.................................. 20
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS.................................... 21
PLAN OF DISTRIBUTION................................ 26
LEGAL MATTERS....................................... 27
EXPERTS............................................. 27
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892,857 Shares
[GRAPHIC OMITTED]
FRANCHISE FINANCE CORPORATION OF AMERICA
COMMON STOCK
_____________________
PROSPECTUS SUPPLEMENT
_____________________
A.G. EDWARDS & SONS, INC.
April 21, 1998
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