<PAGE>
Filed Pursuant to Rule 424(b)(3) of the Securities Act,
SEC File No. 333-49359
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 13, 1998)
$250,000,000
MEDIUM-TERM NOTES, SERIES A
DUE NINE MONTHS OR MORE
FROM THE DATE OF ISSUE
[LOGO]
1808 SWIFT ROAD
OAK BROOK, ILLINOIS 60523
(630) 586-8000
- --------------------------------------------------------------------------------
TERMS OF SALE
THE FOLLOWING TERMS MAY APPLY TO THE NOTES WHICH WE MAY SELL AT ONE OR MORE
TIMES. THE FINAL TERMS OF EACH NOTE WILL BE SPECIFIED IN A PRICING SUPPLEMENT.
FOR MORE INFORMATION, SEE "DESCRIPTION OF NOTES." WE WILL RECEIVE BETWEEN
$249,687,500 AND $248,125,000 OF PROCEEDS FROM THE SALE OF THE NOTES, AFTER
PAYING THE AGENTS COMMISSIONS OF BETWEEN $312,500 AND $1,875,000.
- - Mature 9 months to 30 years
- - Fixed or floating interest rate. The floating interest rate formula may be
based on:
- Commercial paper rate
- Prime rate
- LIBOR
- Treasury rate
- CD rate
- CMT rate
- Federal funds rate
- - Fixed rate notes may bear no interest when issued at a discount from the
principal amount due at maturity
- - Certificated or book-entry form
- - May be subject to redemption at the option of CenterPoint or repurchase at
the option of the holder
- - Denominated and/or payable in United States dollars or a foreign currency or
currency units
- - Interest paid on fixed rate notes on March 15 and September 15
- - Interest paid on floating rate notes monthly, quarterly, semi-annually or
annually
- - Minimum denominations of $1,000, increased in multiples of $1,000
- --------------------------------------------------------------------------------
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE S-3 OF THIS PROSPECTUS
SUPPLEMENT AND PAGE 5 OF THE ACCOMPANYING PROSPECTUS.
THE NOTES HAVE NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION, NOR HAVE THESE ORGANIZATIONS DETERMINED THAT
THIS PROSPECTUS SUPPLEMENT IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
CenterPoint Properties is offering the notes on a continuous basis through the
Agents listed below acting as agent or principal. Each Agent has agreed to use
its reasonable efforts to solicit offers to purchase the notes.
LEHMAN BROTHERS
FIRST CHICAGO CAPITAL MARKETS, INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
AGENTS
October 23, 1998
<PAGE>
THE COMPANY
GENERAL
CenterPoint Properties Trust (the "Company") is a self-managed real estate
investment trust focused on the acquisition, development, redevelopment,
management and ownership of warehouse/industrial property. Our properties are
located within a 150-mile radius of Chicago, including Milwaukee, Wisconsin and
South Bend, Indiana ("Greater Chicago").
The Company, founded in 1984, completed its initial public offering of
securities in December 1993. Between completion of the initial public offering
and September 30, 1998, we have increased the size of our owned
warehouse/industrial portfolio by 19.6 million square feet or 376.9% by
acquiring (net of dispositions) 86 fully-leased warehouse/industrial properties.
As of September 30, 1998, our investment and management portfolio consisted
of 126 warehouse/industrial properties containing approximately 26.1 million
square feet. Based on published statistics regarding square feet of space owned
and managed by other firms and publicly available information filed with the
Securities and Exchange Commission, as well as our knowledge and experience in
the market, we believe we are the largest owner and operator of
warehouse/industrial property in Greater Chicago. We also own and manage three
retail properties, one parking lot and one apartment property, hold mortgages on
two warehouse/ industrial properties, and are developing eight build-to-suit
projects. As of September 30, 1998, we leased 95% of our properties, excluding
properties which are currently being redeveloped and not leasable, with the
warehouse/industrial properties occupied by 203 tenants in diverse industries.
No tenant accounts for more than 4% of our total revenues. We have constructed
or renovated substantially all of our properties during the past ten years.
We believe that Greater Chicago offers significant opportunities for
investment in and ownership of warehouse/industrial property. Greater Chicago
supports a diverse industrial and service industry base, due to its central
location and extensive air, roadway, rail, and water transportation
infrastructure.
We believe that investment in warehouse/ industrial property offers
attractive returns and stable cash flow. Published statistics indicate that
total returns from warehouse/industrial properties have been among the highest
of any commercial property type in each of the past 15 years. We believe that
cash flow from warehouse/ industrial property investments is generally more
predictable than cash flow from other property types because: (1) relatively
short construction periods discourage speculative building; (2) lower capital
expenditures are required to sustain rental income due to the adaptable
character of warehouse/industrial property; and (3) tenant renewal rates are
higher due to the significant cost and disruption to tenant operations resulting
from relocations. Moreover, leases for warehouse/industrial properties provide
generally for rent growth through contractual rent increases or rents tied to
certain indices such as the Consumer Price Index. Such leases are generally
structured as net leases, providing for the pass through to tenants of all
operating and real estate tax expenses.
Our business objective is to maximize shareholder value by pursuing a growth
strategy consisting of (1) intensive management of our existing properties and
(2) the acquisition of existing leased properties, build-to-suit projects and
properties suitable for redevelopment.
Our principal executive office is located at 1808 Swift Road, Oak Brook,
Illinois 60523, and our telephone number is (630) 586-8000.
SHAREHOLDER RIGHTS PLAN
On July 30, 1998, the Board of Trustees of the Company adopted a Preferred
Share Purchase Rights Agreement and declared a dividend distribution of one
Preferred Share Purchase Right (a "Right") on each outstanding share of the
Company's common shares of beneficial interest.
Each Right entitles the holder to purchase from the Company one
one-thousandth of a
S-2
<PAGE>
Junior Participating Preferred Share of Beneficial Interest, Series A (a "Rights
Preferred Share"), at a price of $120, subject to adjustment. The Rights
Preferred Shares (1) are non-redeemable, (2) are entitled to a minimum
preferential quarterly dividend payment equal to the greater of $25 per share or
1,000 times the Company's common share dividend, (3) have a minimum liquidation
preference equal to the greater of $100 per share or 1,000 times the liquidation
payment made per common share and (4) are entitled to vote with the common
shares with each Rights Preferred Share having 1,000 votes.
The Rights trade together with the Company's common shares of beneficial
interest and do not become exercisable until the "distribution date." A
distribution date will occur ten days after any person (including a group)
becomes an "acquiring person" by acquiring 15% or more of the Company's
outstanding common shares or if a person commences a tender offer that would
result in that person owning 15% or more of the Company's outstanding common
shares. On the distribution date, (1) the Rights will be traded separately from
the Company's common shares and (2) a holder of the Rights (other than an
"acquiring person"), instead of purchasing Rights Preferred Shares, may exercise
the Rights for a number of common shares having a market value equal to two
times the exercise price of the Rights.
At any time after a person becomes an "acquiring person," if the Company is
involved in any merger, consolidation or other transaction in which the Company
is not the survivor, if common shares of the Company are exchanged, or if 50% or
more of the Company's consolidated assets or earning power are sold, the holder
of the Rights (other than an "acquiring person") may exercise the Rights to
purchase a number of shares of common stock of the acquiring corporation having
a market value equal to two times the exercise price of the Rights. In addition,
at any time after a person becomes an "acquiring person" but before such person
has acquired 50% or more of the Company's common shares, the Company may elect
to exchange any or all of the Rights (other than those held by an "acquiring
person") for common shares of beneficial interest of the Company on a
one-for-one basis.
The Company may generally redeem the Rights, in whole but not in part, at a
price of $.01 per right. If not exercised or redeemed, the Rights will expire on
the close of business on July 30, 2008.
A complete description of the terms of the Rights is set forth in the
Preferred Share Purchase Rights Agreement, dated as of July 30, 1998 between the
Company and First Chicago Trust Company of New York, as agent, which is an
exhibit to a Form 8-K of the Company filed with the Securities and Exchange
Commission on August 3, 1998. See "Risk Factors--Limitations on a Change of
Control of the Company" in this Prospectus Supplement.
RISK FACTORS
REAL ESTATE INVESTMENT RISKS
GENERAL RISKS. The business of owning and investing in real estate is
highly competitive. Several factors may adversely affect the economic
performance and value of our properties. These factors include:
- adverse changes in general or local economic conditions affecting real
estate values, rental rates, interest rates, real estate tax rates and
other operating expenses;
- competitive overbuilding;
- our inability to keep high levels of occupancy in our properties;
- tenant defaults;
- unfavorable changes in governmental rules and fiscal policies (including
rent control legislation); and
- acts of God and other factors which are beyond our control.
In addition, these and other factors may affect our ability to sell our
properties.
RISKS RELATED TO REDEVELOPMENT ACTIVITIES. We are also subject to risks when
we redevelop and improve properties, including (1) the risk
S-3
<PAGE>
that the properties may operate at a cash deficit during the redevelopment
and/or lease-up period and (2) the risk that a contractor will be unable to
control costs or conform to the original plans and timetables. The contractor's
ability to control costs or conform to plans and timetables may be affected by
strikes, weather, government regulations and other conditions beyond the
contractor's control. As a result, we may not realize the projected benefits
from the redevelopment and improvement of properties.
INABILITY TO RENEW LEASES OR RELET SPACE. When our tenants decide not to
renew their leases upon their expiration, we may not be able to relet the space.
Even if our tenants do renew or we are able to relet the space, the terms of
renewal or reletting (including the cost of renovations, if necessary) may be
less favorable than current lease terms. Over the next five years (through the
end of 2003), leases will expire on a total of 71.4% of the gross leasable area
of our current properties. If we are unable to promptly renew our leases or
relet space, or if the rental rates upon such renewal or reletting are
significantly lower than expected rates, then our profitability may be adversely
affected.
LACK OF GEOGRAPHIC AND PROPERTY-TYPE DIVERSIFICATION. All of our properties
are located in the Greater Chicago area, and substantially all of our properties
are warehouse/industrial properties. While we believe that our focus on this
geographical area and property type is an advantage, adverse economic
developments in the Greater Chicago area may adversely affect our properties
and, therefore, our profitability.
COMPETITION. Our properties are located in areas that have other
warehouse/industrial properties which may be more attractive to potential
tenants. Competition from other warehouse/industrial properties may adversely
affect our ability to lease our properties and to increase the rentals charged
on our leases.
UNINSURED LOSS. We carry comprehensive liability, fire, flood (where
appropriate), extended coverage and rental loss insurance on all of our
properties. We believe the policy specifications and insured limits of these
policies are adequate and appropriate. There are certain types of losses that
are generally not insured, such as losses relating to earthquakes, riots or acts
of war or losses relating to contract or lease claims. If an uninsured loss
occurred, we could lose both our investment in and anticipated profits and cash
flow from a property and we would continue to be obligated on any mortgage
indebtedness or other obligations related to the property.
DEBT FINANCING RISKS
GENERAL DEBT FINANCING RISKS. Our business is subject to the risks normally
associated with debt financing, including the risks that (1) we will be unable
to meet required payments of principal and interest, (2) we will not be able to
refinance our existing indebtedness or, if we are able to refinance our existing
indebtedness, the terms of such refinancing will not be as favorable as the
original terms of such indebtedness or (3) we will not be able to finance
necessary capital expenditures for renovations and other improvements or, if
financed, we will not be able to be finance such capital expenditures on
favorable terms. If we have mortgaged a property to secure payment of
indebtedness and we are unable to meet the mortgage payments, the lender may
foreclose on the property and we will lose the income and asset value of such
property.
LEVERAGE. We intend to continue our policy of maintaining a ratio of debt
to total market capitalization of less than 50%. However, our Declaration of
Trust does not contain any limitations on the ratio of debt to total market
capitalization. Accordingly, our Board of Trustees could alter or eliminate the
current limitation on borrowing without the approval of our shareholders. If
this policy were changed, we could become more highly leveraged. A higher degree
of leverage will increase our debt service, and, as a result, could adversely
affect our ability to make expected distributions to shareholders and increase
the risk of default on the Medium Term Notes offered by this Prospectus
Supplement (the "Notes") and other indebtedness. In addition, the degree of
leverage could adversely affect our ability to obtain additional financing in
the future.
S-4
<PAGE>
RISKS ASSOCIATED WITH RISING INTEREST RATES. While our $100 million Senior
Notes due 2005 have a fixed interest rate of 6-3/4%, advances under our $150
million credit facility bear interest at variable rates, based on LIBOR or
prime. To limit our exposure to rising interest rates, we had, as of September
30, 1998, hedging agreements for $25 million of our floating rate debt. If any
of the Notes bear a floating rate of interest or are denominated in a currency
other than U.S. dollars, we may enter into additional hedging agreements to
further limit our exposure to rising interest rates or foreign currency rate
fluctuations. Although hedging agreements enable us to convert floating rate
liabilities to fixed rate liabilities, such agreements expose us to the risk
that the counterparties to such agreements may not perform, which could increase
our exposure to rising interest rates or foreign currency rate fluctuations.
Increases in interest rates, or the loss of the benefits of hedging agreements,
would increase our interest expense which could adversely affect our
profitability and our ability to service our debt.
REGULATORY RISKS
ENVIRONMENTAL MATTERS. Federal, state and local laws and regulations to
protect the environment may require a current or previous owner or operator of
real estate to investigate and clean up hazardous or toxic substances or
petroleum product releases at such property. The owner or operator may have to
pay a governmental entity or third parties for property damage and for
investigation and clean-up costs incurred by such parties in connection with the
contamination. Such laws typically impose clean-up responsibility and liability
without regard to whether the owner or operator knew of or caused the presence
of the contaminants. Even if more than one person may have been responsible for
the contamination, each person covered by the environmental laws may be held
responsible for all of the clean-up costs incurred. In addition, third parties
may sue the owner or operator of a site for damages and costs resulting from
environmental contamination arising from that site.
Environmental laws also govern the presence, maintenance and removal of
asbestos. Such laws require that (1) owners or operators of buildings containing
asbestos properly manage and maintain the asbestos, (2) they notify and train
those who may come into contact with asbestos and (3) they undertake special
precautions, including removal or other abatement, if asbestos would be
disturbed during renovation or demolition of a building. Such laws may impose
fines and penalties on building owners or operators who fail to comply with
these requirements. Such laws may allow third parties to seek recovery from
owners or operators for personal injury associated with exposure to asbestos
fibers.
Independent consultants have conducted Phase I environmental site
assessments at all of our properties and will conduct Phase I environmental site
assessments at all properties acquired by us in the future. The Phase I
environmental assessments include, at a minimum, (1) a visual inspection of the
properties and the surrounding areas, (2) a walk through survey for suspected
asbestos or other toxic materials, (3) an examination of current and historical
uses of the properties and the surrounding areas and (4) a review of relevant
state, federal and historical documents. Where appropriate, on a property by
property basis, these consultants have conducted additional testing, including
sampling for asbestos, or lead in drinking water, for soil contamination where
underground storage tanks are or were located or where other past site usages
create a potential environmental problem, and for contamination in groundwater.
Environmental assessments of the Company's properties to date have not
revealed any environmental condition on any of our existing properties that we
believe could adversely affect our business or assets. However, environmental
assessments may not reveal all potentially negative environmental conditions
that may exist. Unidentified environmental liabilities could arise and could
adversely affect our financial condition and performance.
COST OF COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all public accommodations
are required to meet certain
S-5
<PAGE>
federal requirements related to access and use by disabled persons. Existing
warehouse/ industrial properties generally are exempt from the provisions of ADA
but may be subject to provisions requiring that buildings be made accessible to
people with disabilities. Compliance with the ADA could require removal of
access barriers. Non-compliance could result in the imposition of fines by the
federal government or an award of damages to private litigants.
CERTAIN RISKS RELATED TO REIT STATUS
The Company elected to be taxed as a REIT for federal income tax purposes
effective January 1, 1994. We believe we have qualified for taxation as a REIT
for all subsequent periods, and we plan to continue to meet the requirements for
REIT status. The rules for maintaining REIT status are highly technical and
complex. Some of the requirements depend on factors that are not entirely within
our control. For example, at least 95% of our gross income must come from
sources itemized in the REIT tax laws. The Company is also required to
distribute to shareholders at least 95% of its REIT taxable income (excluding
capital gains). Even a technical or inadvertent failure to meet all the
requirements could jeopardize our REIT status. Furthermore, changes in the tax
law could make it more difficult for us to maintain REIT status (although we are
not aware of any currently pending or proposed changes that would have this
effect).
If the Company fails to qualify as a REIT, it would be subject to federal
income tax at corporate rates. The Company would remain disqualified as a REIT
for four years after the year of disqualification unless the IRS granted relief
from this waiting period. During any period it did not qualify as a REIT, the
Company would have to pay income taxes and would therefore have significantly
less money available for investments, for distributions to shareholders, or for
payments to creditors. In addition, the Company would no longer be required to
make distributions to shareholders. These consequences would likely have an
adverse effect on the value of our securities. See "Certain United States
Federal Income Tax Considerations--Adverse Consequences of Failure to Qualify as
a REIT" in this Prospectus Supplement.
Even if the Company qualifies as a REIT, it has to pay certain federal,
state and local taxes on its income and property. In addition, the Company holds
interests in entities that are required to pay federal and state income tax on
their net taxable income.
LACK OF CONTROL OF CERTAIN SUBSIDIARY CORPORATIONS
To permit the Company to obtain income from certain activities (such as
management of properties owned by third parties) in excess of the amounts the
Company could earn directly without jeopardizing the Company's REIT status, the
Company owns a small, non-controlling interest in the voting stock of
CenterPoint Realty Services Corporation ("CRS") but receives substantially all
of the economic interest in CRS. Several officers of the Company own
substantially all of the voting stock of CRS and exercise voting and management
control of CRS. CRS and its subsidiaries, among other things, provide services
and commodities to tenants of the Company, develop and improve real property and
manage properties owned by third parties.
LIMITATIONS ON A CHANGE IN CONTROL OF THE COMPANY
SHAREHOLDER RIGHTS PLAN. The Board of Trustees recently adopted a
Shareholder Rights Plan under which the Company grants a dividend distribution
of one preferred share purchase right on each outstanding common share of the
Company. The preferred share purchase rights generally become exercisable (1) if
a person becomes an "acquiring person" by acquiring 15% or more of the
outstanding common shares of the Company or (2) if a person commences a tender
offer that would result in that person owning 15% or more of the outstanding
common shares of the Company. See "The Company--Shareholder Rights Plan" in this
Prospectus Supplement. The Shareholder Rights Plan may delay or prevent a change
in control of the Company or other transaction that could provide shareholders
with a premium over
S-6
<PAGE>
the then-prevailing market price of the common shares.
MARYLAND LAW. Certain provisions of Maryland law applicable to real estate
investment trusts prohibit "business combinations" (including certain issuances
of equity securities):
- with any person who beneficially owns ten percent or more of the voting
power of outstanding shares;
- with an affiliate of the trust who, at any time within the two-year period
prior to the date in question, was the beneficial owner of ten percent or
more of the voting power of the outstanding shares (an "Interested
Shareholder"); or
- with an affiliate of an Interested Shareholder.
These prohibitions last for five years after the most recent date on which
the Interested Shareholder became an Interested Shareholder. After the five-year
period, a business combination with an Interested Shareholder must be approved
by two super-majority shareholder votes unless, among other conditions, the
Company's common shareholders receive a minimum price for their shares and the
consideration is received in cash or in the same form as previously paid by the
Interested Shareholder for its common shares. The Board of Trustees recently
opted out of these business combination provisions. Consequently, the five-year
prohibition and the super-majority vote requirements will not apply to a
business combination involving the Company. The Board of Trustees may, however,
repeal this election and cause the Company to become subject to these provisions
in the future.
LIMITATION ON OWNERSHIP OF SHARES. In order 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 the Company's outstanding shares of beneficial interest may
be owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entities). Due to this limitation on the
concentration of ownership of shares of beneficial interest in a REIT, the
Declaration of Trust restricts ownership of more than 9.8% of the value of the
outstanding shares of beneficial interest by any single shareholder, except for
the ownership of the Common Shares by the Company's former parent company,
CRP-London.
In connection with such ownership concentration limitation, shares held by
certain domestic pension trusts are treated as held by the beneficiaries of such
trusts. The Company does not intend to rely on this rule to maintain compliance
with such limitation. Under the Declaration of Trust, domestic pension funds are
subject to the restriction on ownership of more than 9.8% of the value of the
outstanding shares of beneficial interest.
These ownership limits, as well as the ability of the Company to issue
additional Common Shares and Preferred Shares, may discourage a change of
control of the Company. The ownership limits may also (1) deter tender offers
for the Common Shares, which offers may be advantageous to shareholders, and (2)
limit the opportunity for shareholders to receive a premium over then prevailing
market prices for their Common Shares.
RISKS RELATED TO OWNERSHIP OF THE NOTES
CREDIT RATINGS. Any credit ratings that are assigned to the Company's
medium-term note program may not reflect the potential impact of all risks
related to structure and other factors on the value of the Notes. As a result,
you should consult your own financial and legal advisors as to the risks of an
investment in the Notes and the suitability of investing in such Notes. Any
credit rating is not a recommendation to buy, sell or hold the Notes, and may be
subject to revision or withdrawal at any time by the organization assigning it.
You should evaluate each credit rating independently of any other rating.
FOREIGN CURRENCY RISKS
GOVERNING LAW AND JUDGMENTS. The laws of the State of New York will govern
the Notes. Courts in the United States have not customarily rendered judgments
for money damages denominated in any currency other than the U.S.
S-7
<PAGE>
dollar. The Judiciary Law of the State of New York provides, for example, that a
judgment granted in connection with an obligation denominated in a currency
other than U.S. dollars will be granted in the foreign currency of the
underlying obligation and converted into U.S. dollars at a rate of exchange on
the date of the entry of the judgment. However, a state court outside the State
of New York may not follow the same rules and procedures on conversions of
foreign currency judgments.
EXCHANGE RATES AND EXCHANGE CONTROLS. If you invest in Notes that are
denominated in a currency other than U.S. dollars ("Foreign Currency Notes"),
your investment will be subject to significant risks that are not associated
with a similar investment in notes denominated in U.S. dollars. Such risks
include (1) the possibility of significant changes in rates of exchange between
U.S. dollars and such currency, (2) the possibility of significant changes in
rates of exchange between U.S. dollars and such currency resulting from official
redenomination of such currency and (3) the possibility of the imposition or
modification of foreign exchange controls by either the United States or foreign
governments. Such risks generally depend on factors over which the Company has
no control, such as economic and political events, and on the supply of and
demand for the relevant currencies. In recent years, rates of exchange between
the U.S. dollar and certain foreign currencies, and between certain foreign
currencies and other foreign currencies, have been volatile. Such volatility may
continue in the future. Even if fluctuations have occurred in any particular
exchange rate in the past, fluctuations may not occur in the rate during the
term of any Foreign Currency Note. Depreciation of the currency of a Foreign
Currency Note against U.S. dollars would result in a decrease in the effective
yield of such Foreign Currency Note below its coupon rate and, in certain
circumstances, could result in a loss on a U.S. dollar basis.
Governments may impose exchange controls that could affect exchange rates as
well as the availability of a currency (other than U.S. dollars) at the time of
payment of amounts due on a Foreign Currency Note. Exchange controls may
restrict or prohibit payments of principal (and premium, if any) or interest in
any such currency. Even if there are no actual exchange controls, a currency may
not be available to the Company when payments on such Notes are due because of
circumstances beyond the Company's control.
WE HAVE NOT DESCRIBED ALL OF THE RISKS OF AN INVESTMENT IN NOTES DENOMINATED
IN, OR THE PAYMENT OF WHICH IS RELATED TO, A CURRENCY OTHER THAN U.S. DOLLARS.
YOU SHOULD CONSULT YOUR OWN FINANCIAL AND LEGAL ADVISORS ABOUT THE RISKS OF AN
INVESTMENT IN FOREIGN CURRENCY NOTES. FOREIGN CURRENCY NOTES ARE NOT AN
APPROPRIATE INVESTMENT IF YOU HAVE NOT HAD PRIOR EXPERIENCE WITH FOREIGN
CURRENCY TRANSACTIONS.
No Foreign Currency Note will be sold in or to residents of the country
issuing the currency of such Foreign Currency Note, with certain exceptions
specified in the applicable Pricing Supplement (as defined below). The
information in this Prospectus Supplement is directed to prospective purchasers
who are United States residents. We are not advising prospective purchasers who
are residents of countries other than the United States with respect to any
matters that may affect the purchase, holding or receipt of payments of
principal (and premium, if any) or interest on such Foreign Currency Notes. Such
persons should consult their own counsel about such matters.
Pricing Supplements relating to Foreign Currency Notes will contain
information about:
- historical exchange rates for the applicable currency against the U.S.
dollar or other relevant currency;
- a description of such currency or currencies; and
- any exchange controls affecting such currency or currencies.
You should use the exchange rate information contained in any Pricing
Supplement for information only. Such information does not necessarily indicate
the range of or trends in fluctuations in currency exchange rates that may occur
in the future.
S-8
<PAGE>
PRICING SUPPLEMENT
The Pricing Supplement ("Pricing Supplement") for each offering of the Notes
will contain the specific information and terms for that offering of Notes. The
Pricing Supplement may also add, update or change information contained in this
Prospectus Supplement and the Prospectus. It is important for you to consider
the information contained in the Prospectus, this Prospectus Supplement and the
Pricing Supplement in making your investment decision.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for the six months ended
June 30, 1998 and June 30, 1997 was 3.08 and 3.30, respectively. See "Certain
Ratios" in the accompanying Prospectus.
The ratio of earnings to fixed charges means the ratio of pretax income from
continuing operations (with certain adjustments) to the total of: (1) interest,
(2) amortization of debt expense and (3) such portion of rental expense as can
be demonstrated to be representative of the interest factor in the particular
case.
DESCRIPTION OF NOTES
The Notes offered hereby will be issued as a series of Debt Securities under
an Indenture, dated as of April 7, 1998, as amended or supplemented from time to
time, by and between the Company and U.S. Bank Trust National Association, as
trustee (the "Trustee"), as supplemented by the First Supplemental Indenture,
dated as of April 7, 1998, by and between the Company and the Trustee and by the
Second Supplemental Indenture, dated as of October 23, 1998, by and between the
Company and the Trustee (collectively, the "Indenture"). The Indenture is
subject to, and governed by, the Trust Indenture Act of 1939, as amended. The
following summary of certain provisions of the Notes and the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
actual provisions of the Notes and the Indenture. Capitalized terms used but not
defined herein shall have the meanings given to them in the accompanying
Prospectus, the Notes or the Indenture, as the case may be. The term "Debt
Securities" as used in this Prospectus Supplement, refers to all debt
securities, including the Notes, issued and issuable from time to time under the
Indenture. The following description of Notes will apply to each Note offered
hereby, unless otherwise specified in the applicable Pricing Supplement, and
supplements, and to the extent inconsistent therewith replaces, the description
of the general terms and provisions of the Debt Securities set forth in the
Prospectus.
GENERAL
All Debt Securities, including the Notes, issued and to be issued under the
Indenture will be direct, unsecured general obligations of the Company and will
rank PARI PASSU with each other and with all other unsecured and unsubordinated
indebtedness of the Company from time to time outstanding. The Indenture does
not limit the aggregate initial offering price of Debt Securities that may be
issued thereunder and Debt Securities may be issued thereunder from time to time
in one or more series up to the aggregate initial offering price from time to
time authorized by the Company for each series. The Notes will be effectively
subordinated to (i) the prior claims of each secured mortgage lender to any
specific property of the Company (a "Property") which secures such lender's
mortgage and (ii) any claims of creditors of entities wholly or partly owned,
directly or indirectly, by the Company. Subject to certain limitations set forth
in the Indenture, and as described under "--Certain Covenants-- Limitations on
Incurrence of Debt" below, the Indenture will permit the Company to incur
additional secured and unsecured indebtedness. The Company may, from time to
time, without the consent of the Holders of the Notes, provide for the issuance
of Notes or other Debt Securities under the Indenture, or the issuance of other
debt under another indenture entered into by the Company in addition to the
$250,000,000 aggregate initial offering price of Notes offered hereby.
The Company will at all times have appointed and maintained a Paying Agent
(which may be the Trustee) authorized to pay the principal of (and premium, if
any) or interest
S-9
<PAGE>
on any Notes on the Company's behalf and having an office or agency (the "Paying
Agent Office") in the City of New York, New York, where the Notes may be
presented or surrendered for payment and where notices, designations, or
requests in respect of payments with respect to Notes may be served. The Company
has initially appointed the Trustee as the Paying Agent, with its Paying Agent
Office currently at 100 Wall Street, Suite 2000, New York, New York 10005.
Unless previously redeemed by the Company or repaid by the Company at the
option of the holder of the Notes (a "Holder"), a Note will mature on the date
("Stated Maturity") nine months or more from the date of issue that is specified
on its face and in the applicable Pricing Supplement. The "maturity" of any Note
refers herein to the date on which its principal becomes due and payable,
whether at Stated Maturity, upon redemption by the Company, repayment by the
Company at the option of the Holders, or otherwise.
Each Note will be denominated in a currency, currency unit or composite
currency ("Specified Currency") as specified on its face and in the applicable
Pricing Supplement. Purchasers of the Notes are required to pay for them by
delivery of the requisite amount of the Specified Currency to an Agent, unless
other arrangements have been made. Unless otherwise specified in the applicable
Pricing Supplement, payments on the Notes will be made in the applicable
Specified Currency in the country issuing the Specified Currency (or, for
European Currency Units ("ECUs"), Brussels), provided that, at the election of
the Holder and in certain circumstances at the Company's option, payments on
Notes denominated in other than U.S. dollars may be made in U.S. dollars. See
"--Payment of Principal and Interest."
Each Note will be represented by either a permanent global Note registered
in the name of, or a nominee of, the Depositary (each such Note represented by a
permanent global Note being referred to below as a "Book-Entry Note") or a
certificate issued in definitive registered form, without coupons, as set forth
in the applicable Pricing Supplement. Except as set forth under "--Book Entry
Notes" below, Book-Entry Notes will not be issuable in certificated form. So
long as the Depositary or its nominee is the registered holder of any permanent
global Note, the Depository Trust Company (or such other depositary identified
in the applicable Pricing Supplement) (the "Depositary") or its nominee, as the
case may be, will be considered the sole Holder of the Book-Entry Note or Notes
represented by such permanent global Note for all purposes under the Indenture
and the Notes. For a further description of the respective forms, denominations,
and transfer and exchange procedures for any such permanent global Note and the
Book-Entry Notes, refer to "--Book-Entry Notes" below and to the applicable
Pricing Supplement. Unless otherwise specified in the applicable Pricing
Supplement, the authorized denominations of any Note denominated in U.S. dollars
will be $1,000 and integral multiples thereof. The authorized denominations of
any Note denominated in other than U.S. dollars will be the amount of the
Specified Currency for such Note equivalent, at the noon buying rate in the City
of New York for cable transfers for such Specified Currency (the "Exchange
Rate") on the sixth Business Day in the City of New York and in the country
issuing such currency (or, for ECUs, Brussels) next preceding the date of issue
of such Note, to U.S. $1,000 (rounded to the nearest 1,000 units of such
Specified Currency) and any greater amount that is an integral multiple of 1,000
units of such Specified Currency unless specified in the applicable Pricing
Supplement.
Notes will be sold in individual issues of Notes having such interest rate
and/or interest rate formula, if any, Stated Maturity, and date of original
issuance as shall be selected by the initial purchasers and agreed to by the
Company. Interest rates offered by the Company with respect to the Notes may
differ depending upon, among other things, the aggregate principal amount of the
Notes purchased in any single transaction. Unless otherwise indicated in the
applicable Pricing Supplement, each Note, except any Zero Coupon Note (as
hereinafter defined), will bear interest at a fixed rate and/or a rate
determined by reference to one or more of the
S-10
<PAGE>
Commercial Paper Rate, the Prime Rate, LIBOR, the Treasury Rate, the CD Rate,
CMT Rate or the Federal Funds Rate, as adjusted by the Spread and/or Spread
Multiplier, if any, applicable to such Note. See "--Interest Rate." The Notes
may be issued as Zero Coupon Notes ("Zero Coupon Notes"). Zero Coupon Notes will
be issued at a discount from the principal amount payable at maturity thereof,
but holders of Zero Coupon Notes will not receive periodic payments of interest
thereon.
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will not be subject to any sinking fund. Unless the Company specifies an initial
date on which a Note may be redeemed by the Company (a "Redemption Commencement
Date") in the applicable Pricing Supplement, the Notes will not be redeemable
before their maturity. If the Company does specify a Redemption Commencement
Date for any Note, the applicable Pricing Supplement will also specify one or
more redemption prices ("Redemption Prices") and the redemption period or
periods ("Redemption Periods") during which such Redemption Prices shall apply.
Unless otherwise specified in the Pricing Supplement, any such Note shall be
redeemable at the Company's option at any time on or after such specified
Redemption Commencement Date at the specified Redemption Price applicable to the
Redemption Period during which such Note is to be redeemed, together with
interest accrued
to the date fixed for redemption (the "Redemption Date").
The Notes (other than Book-Entry Notes) may be presented for registration of
transfer or exchange at the Paying Agent Office in the City of New York, New
York. With respect to transfers of Book-Entry Notes and exchanges of permanent
global Notes representing Book-Entry Notes, see "--Book-Entry Notes."
The Indenture provisions relating to satisfaction and discharge and legal
and covenant defeasance which are described in the accompanying Prospectus under
"Description of Debt Securities--Provisions Applicable to Senior Debt Securities
and Subordinated Debt Securities--Discharge, Defeasance and Covenant Defeasance"
will apply to the Notes.
INTEREST RATE
Each Note, other than a Zero Coupon Note, will bear interest from the date
of issue or from the most recent Interest Payment Date to which interest on such
Note has been paid or duly provided for at the fixed rate per annum, or at the
rate per annum determined pursuant to the interest rate formula, stated therein
and in the applicable Pricing Supplement until the principal thereof is paid or
made available for payment. Interest will be payable on each Interest Payment
Date and at maturity or earlier date of redemption by the Company or repayment
by the Company at the option of the Holder, as specified below under "--Payment
of Principal and Interest."
Each Note, other than a Zero Coupon Note, will bear interest at either:
(a) a fixed rate (a "Fixed Rate Note"); or
(b) a variable rate determined by reference to an interest rate formula
(a "Floating Rate Note," including a Regular Floating Rate Note, an Inverse
Floating Rate Note or a Floating Rate/Fixed Rate Note (each as defined
below)), determined as follows:
(i) Unless such Floating Rate Note is designated as a Floating Rate/
Fixed Rate Note, an Inverse Floating Rate Note or as having an Addendum
(as defined below) attached, such Floating Rate Note will be designated
a "Regular Floating Rate Note" and, except as described below or in an
applicable Pricing Supplement, will bear interest at the rate determined
by reference to the applicable Interest Rate Basis (as defined below)
(i) plus or minus the applicable Spread (as defined below), if any,
and/or (ii) multiplied by the applicable Spread Multiplier (as defined
below), if any.
(ii) If such Floating Rate Note is designated as a "Floating
Rate/Fixed Rate Note," then, except as described below or in an
applicable Pricing Supplement, such Floating Rate Note
S-11
<PAGE>
will initially bear interest at the rate determined by reference to the
applicable interest Rate Basis (i) plus or minus the applicable Spread,
if any, and/or (ii) multiplied by the applicable Spread Multiplier, if
any. The interest rate in effect commencing on, and including, the date
for interest to begin accruing at the Fixed Interest Rate (the "Fixed
Rate Commencement Date") to the Maturity Date shall be the Fixed
Interest Rate, if such rate is specified in the applicable Pricing
Supplement, or if no such Fixed Interest Rate is so specified and the
Floating Rate/Fixed Rate Note is still outstanding on such day, the
interest rate in effect thereon on the day immediately preceding the
Fixed Rate Commencement Date.
(iii) If such Floating Rate Note is designated as an "Inverse
Floating Rate Note," then, except as described below or in an applicable
Pricing Supplement, such Floating Rate Note will bear interest equal to
the Fixed Interest Rate specified in the related Pricing Supplement
minus the rate determined by reference to the Interest Rate Basis (i)
plus or minus the applicable Spread, if any, and/or (ii) multiplied by
the applicable Spread Multiplier, if any; provided, however, unless
otherwise specified in the applicable Pricing Supplement, the interest
rate thereon will not be less than zero.
A Floating Rate Note may also have either or both:
(a) a maximum, or ceiling, on the rate of interest that may accrue
during any interest period (a "Maximum Rate"); and
(b) a minimum, or floor, on the rate of interest that may accrue during
any interest period (a "Minimum Rate").
The "Spread" is the number of basis points specified in the applicable
Pricing Supplement as applying to the Interest Rate Basis (as defined below) for
such Note, and the "Spread Multiplier" is the percentage specified in the
applicable Pricing Supplement as applying to the Interest Rate Basis for such
Note.
"Market Day" means:
(a) with respect to any Note, any Business Day in the City of New York,
New York and the City of Chicago, Illinois; and
(b) with respect to any LIBOR Note, any Business Day in the City of New
York, New York and the City of Chicago, Illinois which is also a day on
which dealings in deposits in U.S. dollars are transacted in the London
interbank market (a "London Business Day"). "Business Day," as used herein
for any particular location, means each Monday, Tuesday, Wednesday, Thursday
and Friday that is not a day on which banking institutions in such locations
are authorized or obligated by law or executive order to close.
"Index Maturity" means, for a Floating Rate Note, the period to maturity of
the interest or obligation on which the interest rate formula is based, as
specified in the applicable Pricing Supplement. Unless otherwise provided in the
applicable Pricing Supplement, the Trustee will be the calculation agent (the
"Calculation Agent") for Floating Rate Notes.
The applicable Pricing Supplement relating to a Fixed Rate Note will
designate a fixed rate of interest per annum payable on such Fixed Rate Note,
the Interest Payment Dates (if other than March 15 and September 15), the
Regular Record Dates (if other than March 1 and September 1), and, if
applicable, the Redemption Commencement Date, Redemption Prices and Redemption
Periods relating to such Fixed Rate Note. The applicable Pricing Supplement
relating to a Floating Rate Note will designate an interest rate basis (the
"Interest Rate Basis") for such Floating Rate Note. The Interest Rate Basis for
each Floating Rate Note will be one or more of the following:
(a) the Commercial Paper Rate for "Commercial Paper Rate Notes";
(b) the Prime Rate for "Prime Rate Notes";
(c) LIBOR for "LIBOR Notes";
S-12
<PAGE>
(d) the Treasury Rate for "Treasury Rate Notes";
(e) the CD Rate for "CD Rate Notes";
(f) the CMT Rate for "CMT Rate Notes";
(g) the Federal Funds Rate for "Federal Funds Rate Notes"; or
(h) such other interest rate formula as such Pricing Supplement sets
forth;
provided, however, that with respect to a Floating Rate/Fixed Rate Note, the
interest rate commencing on the Fixed Rate Commencement Date and continuing,
unless otherwise specified in the applicable Pricing Supplement, until the
Maturity Date shall be the Fixed Interest Rate, if such rate is specified in the
applicable Pricing Supplement, or if no such Fixed Interest Rate is so
specified, the interest rate in effect thereon on the day immediately preceding
the Fixed Rate Commencement Date. In addition, if so specified in the applicable
Pricing Supplement, a Floating Rate Note may bear interest calculated based upon
two or more Interest Rate Bases.
The applicable Pricing Supplement for a Floating Rate Note will specify the
Interest Rate Basis and, if applicable, the Calculation Agent, the Index
Maturity, the Spread and/or Spread Multiplier, the Maximum Rate, the Minimum
Rate, the Initial Interest Rate, the Interest Payment Dates, the Regular Record
Dates, the Calculation Date, the Interest Determination Date, and the Interest
Reset Date for such Note.
The interest rate on each Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semi-annually, annually, or otherwise (such period being the
"Interest Reset Period" for such Floating Rate Note, and the first date of each
Interest Reset Period being an "Interest Reset Date"), as specified in the
applicable Pricing Supplement. The Interest Reset Date will be:
(a) for Floating Rate Notes (other than Treasury Rate Notes) that reset
daily, each Business Day;
(b) for Floating Rate Notes (other than Treasury Rate Notes) that reset
weekly, the Wednesday of each week;
(c) for Treasury Rate Notes that reset weekly, the Tuesday of each week,
except as provided below;
(d) for Floating Rate Notes that reset monthly, the third Wednesday of
each month;
(e) for Floating Rate Notes that reset quarterly, the third Wednesday of
March, June, September and December;
(f) for Floating Rate Notes that reset semi-annually, the third
Wednesday of two months of each year as specified in the applicable Pricing
Supplement;
(g) for Floating Rate Notes that reset annually, the third Wednesday of
one month of each year as specified in the applicable Pricing Supplement;
and
(h) for Floating Rate Notes that reset at intervals other than those
described above, the days specified in the applicable Pricing Supplement;
provided, however, that the interest rate in effect from the date of issue to
the first Interest Reset Date for a Floating Rate Note will be the Initial
Interest Rate (as set forth in the applicable Pricing Supplement) and provided
further that, with respect to Floating Rate/Fixed Rate Notes, the fixed rate of
interest in effect for the period from the Fixed Rate Commencement Date until
the Maturity Date shall be the Fixed Interest Rate or the interest rate in
effect on the day immediately preceding the Fixed Rate Commencement Date, as
specified in the applicable Pricing Supplement.
If any Interest Reset Date for any Floating Rate Note would otherwise be a
day that is not a Market Day for such Floating Rate Note, the Interest Reset
Date for such Floating Rate Note shall be postponed to the next day that is a
Market Day for such Floating Rate Note (except that for a LIBOR Note, if such
Market Day is in the next succeeding calendar month, such Interest Reset Date
shall be the immediately preceding Market Day). In addition, if the
S-13
<PAGE>
Treasury Rate is an applicable Base Rate and the Interest Determination Date
would otherwise fall on an Interest Reset Date, then such Interest Reset Date
will be postponed to the next succeeding Business Day.
The Interest Determination Date pertaining to an Interest Reset Date for a
Commercial Paper Rate Note (the "Commercial Paper Interest Determination Date"),
for a Prime Rate Note (the "Prime Rate Interest Determination Date"), for a CD
Rate Note (the "CD Rate Interest Determination Date"), for a CMT Rate Note (the
"CMT Rate Interest Determination Date") and for a Federal Funds Rate Note (the
"Federal Funds Rate Interest Determination Date") will be the second Market Day
preceding such Interest Reset Date. The Interest Determination Date pertaining
to an Interest Reset Date for a LIBOR Note (the "LIBOR Interest Determination
Date") will be the second London Business Day preceding such Interest Reset
Date. The Interest Determination Date pertaining to an Interest Reset Date for a
Treasury Rate Note (the "Treasury Interest Determination Date") will be the day
of the week in which such Interest Reset Date falls on which Treasury bills
would normally be auctioned. Treasury bills are usually sold at auction on the
Monday of each week, unless that day is a legal holiday, in which case the
auction is usually held on the following Tuesday, except that such auction may
be held on the preceding Friday. If, as the result of a legal holiday, an
auction is so held on the preceding Friday, such Friday will be the Treasury
Interest Determination Date pertaining to the Interest Reset Date occurring in
the next succeeding week. If an auction date shall fall on any Interest Reset
Date for a Treasury Rate Note, then such Interest Reset Date shall instead be
the first Market Day immediately following such auction date.
All percentages resulting from any calculations referred to in this
Prospectus Supplement will be rounded, if necessary, to the nearest one
hundred-thousandth of a percentage point with five one-millionths of a
percentage point rounded upward (e.g., 9.876546% or .09876546) being rounded to
9.87655% (or .0987655)), and all U.S. dollar amounts used in or resulting from
such calculations will be rounded to the nearest cent (with one-half cent being
rounded upwards).
In addition to any maximum interest rate that may apply to a Floating Rate
Note under the above provisions, the interest rate on the Floating Rate Notes
will in no event be higher than the maximum rate permitted by New York law, as
the same may be modified by United States law of general application. Under
present New York law, the maximum rate of interest is 25% per annum on a simple
interest basis, with certain exceptions. The limit may not apply to Floating
Rate Notes in which U.S. $2,500,000 or more has been invested.
Upon the request of the Holder of any Floating Rate Note, the Calculation
Agent will provide the interest rate then in effect, and, if determined, the
interest rate that will become effective on the next Interest Reset Date for
such Floating Rate Note. Unless otherwise specified in the applicable Pricing
Supplement, the "Calculation Date," if applicable, pertaining to any Interest
Determination Date will be the earlier of (i) the tenth calendar day after such
Interest Determination Date, or, if such day is not a Business Day, the next
succeeding Business Day or (ii) the Business Day immediately preceding the
applicable Interest Payment Date or the Stated Maturity, as the case may be. The
Calculation Agent's determination of any interest rate will be final and binding
in the absence of manifest error.
COMMERCIAL PAPER RATE NOTES
Commercial Paper Rate Notes will bear interest at the interest rates
(calculated with reference to the Commercial Paper Rate and the Spread and/or
Spread Multiplier, if any), and be payable on the dates, specified on the face
of the Commercial Paper Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Commercial
Paper Rate" means, for any Interest Reset Date, the Money Market Yield
(calculated as described below) of the per annum rate (quoted on a bank discount
basis) for the relevant Commercial Paper Interest Determination Date for
commercial
S-14
<PAGE>
paper having the specified Index Maturity as published by the Board of Governors
of the Federal Reserve System in "Statistical Release H.15(519), Selected
Interest Rates," or any successor publication of the Board of Governors of the
Federal Reserve System ("H.15(519)") under the heading "Commercial Paper." If
such rate is not published before 3:00 p.m., New York City time, on the relevant
Calculation Date, then the Commercial Paper Rate for such Interest Reset Date
shall be the Money Market Yield of such rate on such Commercial Paper Interest
Determination Date for commercial paper having the specified Index Maturity as
published by the Federal Reserve Bank of New York in its daily statistical
release, "Composite 3:30 p.m. Quotations for U.S. Government Securities" or any
successor publication published by the Federal Reserve Bank of New York
("Composite Quotations") under the heading "Commercial Paper." If by 3:30 p.m.,
New York City time, on such Calculation Date such rate is not yet published in
either H.15(519) or Composite Quotations, the Commercial Paper Rate for such
Interest Reset Date shall be calculated by the Calculation Agent and shall be
the Money Market Yield of the arithmetic mean of the offered per annum rates
(quoted on a bank discount basis), as of 11:00 a.m., New York City time, on such
Commercial Paper Interest Determination Date, of three leading dealers of
commercial paper in the City of New York (which may include the Agents) selected
by the Calculation Agent for commercial paper of the specified Index Maturity
placed for an industrial issuer whose bond rating is "AA," or the equivalent,
from a nationally recognized rating agency; provided, however, that if fewer
than three dealers selected by the Calculation Agent are quoting as mentioned in
this sentence, the Commercial Paper Rate for such Interest Reset Date will be
the Commercial Paper Rate in effect on such Commercial Paper Interest
Determination Date.
"Money Market Yield" shall be a yield (expressed as a percentage) calculated
in accordance with the following formula:
360 x D
Money Market Yield = 100 X ---------------
360 - (D X M)
where "D" refers to the per annum rate for commercial paper quoted on a bank
discount basis and expressed as a decimal and "M" refers to the actual number of
days in the period from the Interest Reset Date to but excluding the day that
numerically corresponds to such Interest Rate Date (or, if there is not any such
numerically corresponding day, the last day) in the calendar month that is the
number of months corresponding to the specified Index Maturity after the month
in which such Interest Reset Date falls.
PRIME RATE NOTES
Prime Rate Notes will bear interest at the interest rates (calculated with
reference to the Prime Rate and the Spread and/or Spread Multiplier, if any),
and will be payable on the dates specified on their faces and in the applicable
Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Prime
Rate" means, for any Interest Reset Date, the rate set forth for the relevant
Prime Rate Interest Determination Date in H.15(519) under the heading "Bank
Prime Loan." If such rate is not published before 3:00 p.m., New York City time,
on the relevant Calculation Date, then the Prime Rate for such Interest Reset
Date will be the arithmetic mean of the rates of interest publicly announced by
each bank that appears on the display designated as page "USPRIME1" on the
Reuters Monitor Money Rates Service or any successor service (or such other page
as may replace the USPRIME1 page on that service or any successor service for
the purpose of displaying prime rates or base lending rates of major United
States banks) ("Reuters Screen USPRIME1 Page") as such bank's prime rate or base
lending rate as in effect for such Prime Rate Interest Determination Date as
quoted on the Reuters Screen USPRIME1 Page on such Prime Rate Interest
Determination Date. If fewer than four such rates appear on the Reuters Screen
USPRIME1 Page on such Prime Rate Interest Determination Date, the Prime Rate for
such Interest Reset Date will be the arithmetic mean of the prime rates or base
lending rates (quoted on the basis of the actual number of days in the year
divided by a 360-day
S-15
<PAGE>
year) as of the close of business on such Prime Rate Interest Determination Date
by four major banks in the City of New York selected by the Calculation Agent;
provided, however, that if fewer than four banks selected as provided above by
the Calculation Agent are quoting as mentioned in this sentence, the Prime Rate
for such Interest Reset Date will be the Prime Rate in effect on such Prime Rate
Interest Determination Date.
LIBOR NOTES
LIBOR Notes will bear interest at the interest rates (calculated with
reference to LIBOR and the Spread and/or Spread Multiplier, if any), and will be
payable on the dates, specified on the face of the LIBOR Note and in the
applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, LIBOR for
any Interest Reset Date will be determined by the Calculation Agent as follows:
(a) The Calculation Agent will determine either (i) the arithmetic mean
of the offered rates for deposits in U.S. dollars for the period of the
applicable Index Maturity commencing on the Interest Reset Date which appear
on the Reuters Screen LIBO Page at approximately 11:00 a.m., London time, on
such LIBOR Interest Determination Date if at least two such offered rates
appear on the Reuters screen LIBO Page ("LIBOR Reuters"), or (ii) the rate
for deposits in U.S. dollars for the period of the applicable Index Maturity
commencing on the Interest Reset Date that appears on the Telerate Page 3750
as of 11:00 a.m., London Time, on such LIBOR Interest Determination Date
("LIBOR Telerate"). "Reuters Screen LIBO Page" means the display designated
as Page "LIBO" on the Reuters Monitor Money Rate Service (or such other page
as may replace the LIBO page on the service for the purpose of displaying
London interbank offered rates of major banks). "Telerate Page 3750" means
the display designated as page "3750" on the Telerate Service (or such other
page as may replace the 3750 page on that service or such other service or
services as may be nominated by the British Bankers' Association for the
purpose of displaying London interbank offered rates for U.S. dollar
deposits). If neither LIBOR Reuters nor LIBOR Telerate is specified in the
applicable Pricing Supplement, LIBOR will be determined as if LIBOR Telerate
had been specified. If fewer than two offered rates appear on the Reuters
Screen LIBO Page, or if no rate appears on the Telerate Page 3750, as
applicable, LIBOR in respect of that LIBOR Interest Determination Date will
be determined as if the parties had specified the rate described in (b)
below.
(b) If fewer than two offered rates appear on the Reuters Screen LIBO
Page or no rate appears on Telerate Page 3750, as applicable, the
Calculation Agent will request the principal London Offices of four major
banks in the London interbank market, as selected by the Calculation Agent,
to provide the Calculation Agent with its offered quotation for deposits in
U.S. dollars for the period of the applicable Index Maturity to prime banks
in the London interbank market at approximately 11:00 a.m., London time,
commencing on the second London Business Day immediately following such
LIBOR Interest Determination Date and in a principal amount equal to an
amount of not less than U.S. $1 million that is representative of a single
transaction in such market at such time. If at least two quotations are
provided, LIBOR in respect of that LIBOR Interest Determination Date will be
the arithmetic mean of such quotations. If fewer than two quotations are
provided, LIBOR in respect of that LIBOR Interest Determination Date will be
the arithmetic mean of the rates quoted by three major banks in the City of
New York selected by the Calculation Agent at approximately 11:00 a.m., New
York City time, commencing on the second London Business Day immediately
following such
S-16
<PAGE>
LIBOR Interest Determination Date for loans in U.S. dollars to leading
European banks, for the period of the applicable Index Maturity and in a
principal amount equal to an amount of not less than U.S. $1 million that is
representative for a single transaction in such market at such time;
provided, however, that if fewer than three banks selected as aforesaid by
the Calculation Agent are quoting rates as mentioned in this sentence, the
rate of interest in effect for the applicable period will be the LIBOR in
effect on such LIBOR Interest Determination Date.
TREASURY RATE NOTES
Treasury Rate Notes will bear interest at the interest rates (calculated
with reference to the Treasury Rate and the Spread and/or Spread Multiplier, if
any), and will be payable on the dates specified on the face of the Treasury
Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Treasury
Rate" means, for any Interest Reset Date, the rate for the auction on the
relevant Treasury Interest Determination Date of direct obligations of the
United States ("Treasury Bills") having the specified Index Maturity as
published in H.15(519) under the heading "U.S. Government Securities/Treasury
Bills/Auction Average (Investment)" or, if not so published by 3:00 p.m., New
York City time, on the relevant Calculation Date, the auction average rate
(expressed as a bond equivalent, on the basis of a year of 365 or 366 days, as
applicable, and applied on a daily basis) for such auction as otherwise
announced by the United States Department of the Treasury. If the results of
such auction of Treasury bills having the specified Index Maturity are not
published or reported as provided above by 3:00 p.m., New York City time, on
such Calculation Date, or if no such auction is held during such week, then the
Treasury Rate shall be the rate set forth in H.15(519) for the relevant Treasury
Interest Determination Date for the specified Index Maturity under the heading
"U.S. Government Securities/Treasury Bills/Secondary Market." If such rate is
not so published by 3:00 p.m., New York City time, on the relevant Calculation
Date, the Treasury Rate for such Interest Reset Date shall be calculated by the
Calculation Agent and shall be a yield to maturity (expressed as a bond
equivalent, on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) of the arithmetic mean of the secondary market bid
rates as of approximately 3:30 p.m., New York City time, on such Treasury
Interest Determination Date, of three primary United States government
securities dealers in the City of New York selected by the Calculation Agent for
the issue of Treasury bills with a remaining maturity closest to the specified
Index Maturity; provided, however, that if fewer than three dealers selected as
provided above by the Calculation Agent are quoting as mentioned in this
sentence, the Treasury Rate for such Interest Reset Date will be the Treasury
Rate in effect on such Treasury Interest Determination Date.
CD RATE NOTES
CD Rate Notes will bear interest at the interest rates (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any), and
will be payable on the dates, specified on the face of the CD Rate Note and in
the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "CD Rate"
means, for any Interest Reset Date, the rate for the relevant CD Rate Interest
Determination Date for negotiable U.S. dollar certificates of deposit having the
specified Index Maturity as published in H.15(519) under the heading "CDs
(Secondary Market)." If such rate is not published before 3:00 p.m., New York
City time, on the relevant Calculation Date, then the CD Rate for such Interest
Reset Date shall be the rate on such CD Rate Interest Determination Date for
negotiable U.S. dollar certificates of deposit having the specified Index
Maturity as published in Composite Quotations under the heading "Certificates of
Deposit." If by 3:00 p.m., New York City time, on such Calculation Date such
rate is not published in either H.15(519) or Composite Quotations, the CD Rate
for such Interest Reset Date shall be calculated by the Calculation Agent and
shall be the arithmetic mean of the secondary market offered rates, as of 10:00
a.m., New York City time, on such CD
S-17
<PAGE>
Rate Interest Determination Date, of three leading nonbank dealers of negotiable
U.S. dollar certificates of deposit in the City of New York selected by the
Calculation Agent for negotiable U.S. dollar certificates of deposit of major
United States money market banks in the market for negotiable U.S. dollar
certificates of deposit with a remaining maturity closest to the specified Index
Maturity in a denomination of U.S. $5 million; provided, however, that if fewer
than three dealers selected as provided above by the Calculation Agent are
quoting as mentioned in this sentence, the CD Rate for such Interest Reset Date
will be the CD Rate in effect on such CD Rate Interest Determination Date.
CMT RATE NOTES
CMT Rate Notes will bear interest at the interest rates (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any), and
will be payable on the dates, specified on the face of the CMT Rate Note and in
the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "CMT Rate"
means, with respect to any CMT Rate Interest Determination Date, the rate
displayed on the Designated CMT Telerate Page under the caption ". . . Treasury
Constant Maturities. . . Federal Reserve Board Release H.15. . . Mondays
Approximately 3:45 p.m.," under the column for the Designated CMT Maturity Index
for (i) if the Designated CMT Telerate Page is 7055, the rate on such CMT Rate
Interest Determination Date and (ii) if the Designated CMT Telerate Page is
7052, the weekly or monthly average, as specified in the applicable Pricing
Supplement, for the week or the month, as applicable, ended immediately
preceding the week in which the related CMT Rate Interest Determination Date
occurs. If such rate is no longer displayed on the relevant page or is not
displayed by 3:00 p.m., New York City time, on the related Calculation Date,
then the CMT Rate for such CMT Rate Interest Determination Date will be such
treasury constant maturity rate for the Designated CMT Maturity Index as
published in the relevant H.15(519). If such rate is no longer published or is
not published by 3:00 p.m., New York City time, on the related Calculation Date,
then the CMT Rate on such CMT Rate Interest Determination Date will be such
treasury constant maturity rate for the Designated CMT Maturity Index (or other
United States Treasury rate for the Designated CMT Maturity Index) for the CMT
Rate Interest Determination Date with respect to such Interest Reset Date as may
then be published by either the Board of Governors of the Federal Reserve System
or the United States Department of the Treasury that the Calculation Agent
determines to be comparable to the rate formerly displayed on the Designated CMT
Telerate Page and published in the relevant H.15(519). If such information is
not provided by 3:00 p.m., New York City time, on the related Calculation Date,
then the CMT Rate on the CMT Rate Interest Determination Date will be calculated
by the Calculation Agent and will be a yield to maturity, based on the
arithmetic mean of the secondary market closing offer side prices as of
approximately 3:30 p.m., New York City time, on such CMT Rate Interest
Determination Date reported, according to their written records, by three
leading primary United States government securities dealers (each, a "Reference
Dealer") in the City of New York (which may include the Agent or its affiliates)
selected by the Calculation Agent (from five such Reference Dealers selected by
the Calculation Agent and eliminating the highest quotation (or, in the event of
equality, one of the highest) and the lowest quotation (or, in the event of
equality, one of the lowest)), for the most recently issued direct noncallable
fixed rate obligations of the United States ("Treasury Notes") with an original
maturity of approximately the Designated CMT Maturity Index and a remaining term
to maturity of not less than such Designated CMT Maturity Index minus one year.
If the Calculation Agent is unable to obtain three such Treasury Note
quotations, the CMT Rate on such CMT Rate Interest Determination Date will be
calculated by the Calculation Agent and will be a yield to maturity based on the
arithmetic mean of the secondary market offer side prices as of approximately
3:30 p.m., New York City time, on such CMT Rate Interest Determination Date of
three Reference Dealers in the City of New York (from five such Reference
Dealers selected by the Calculation Agent and eliminating the
S-18
<PAGE>
highest quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest)), for
Treasury Notes with an original maturity of the number of years that is the next
highest to the Designated CMT Maturity Index and a remaining term to maturity
closest to the Designated CMT Maturity Index and in an amount of at least U.S.
$100 million. If three or four (and not five) of such Reference Dealers are
quoting as described above, then the CMT Rate will be based on the arithmetic
mean of the offer prices obtained and neither the highest nor the lowest of such
quotes will be eliminated; provided, however, that if fewer than three Reference
Dealers so selected by the Calculation Agent are quoting as mentioned herein,
the CMT Rate determined as of such CMT Rate Interest Determination Date will be
the CMT Rate in effect on such CMT Rate Interest Determination Date. If two
Treasury Notes with an original maturity as described in the second preceding
sentence have remaining terms to maturity equally close to the Designated CMT
Maturity Index, the Calculation Agent will obtain from five Reference Dealers
quotations for the Treasury Note with the shorter remaining term to maturity and
will use such quotations to calculate the CMT Rate as set forth above.
"Designated CMT Telerate Page" means the display on the Dow Jones Telerate
Service (or any successor service) on the page specified in the applicable
Pricing Supplement (or any other page as may replace such page on that service
(or any successor service) for the purpose of displaying Treasury Constant
Maturities as reported in H.15(519)) for the purpose of displaying Treasury
Constant Maturities as reported in H.15(519). If no such page is specified in
the applicable Pricing Supplement, the Designated CMT Telerate Page shall be
7052 for the most recent week.
"Designated CMT Maturity Index" means the original period to maturity of the
U.S. Treasury securities (either 1, 2, 3, 5, 7, 10, 20 or 30 years) specified in
the applicable Pricing Supplement with respect to which the CMT Rate will be
calculated. If no such maturity is specified in the applicable Pricing
Supplement, the Designated CMT Maturity Index shall be two years.
FEDERAL FUNDS RATE NOTES
Federal Funds Rate Notes will bear interest at the interest rates
(calculated with reference to the Federal Funds Rate and the Spread and/or
Spread Multiplier, if any), and will be payable on the dates, specified on the
face of the Federal Funds Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Federal
Funds Rate" means, for any Interest Reset Date, the rate on the relevant Federal
Funds Interest Determination Date for Federal Funds as published in H.15(519)
under the heading "Federal Funds (Effective)." If such rate is not published
before 3:00 p.m., New York City time, on the relevant Calculation Date, then the
Federal Funds Rate for such Interest Reset Date will be the rate on such Federal
Funds Interest Determination Date as published in Composite Quotations under the
heading "Federal Funds/ Effective Rate." If by 3:00 p.m., New York City time, on
such Calculation Date such rate is not published in either H.15(519) or
Composite Quotations, the Federal Funds Rate for such Interest Reset Date shall
be calculated by the Calculation Agent and shall be the arithmetic mean of the
rates, as of 9:00 a.m., New York City time, on such Federal Funds Interest
Determination Date, for the last transaction in overnight Federal Funds arranged
by three leading brokers of Federal Funds transactions in the City of New York
selected by the Calculation Agent; provided, however, that if fewer than three
brokers selected by the Calculation Agent are quoting as mentioned in this
sentence, the Federal Funds Rate for such Interest Reset Date will be the
Federal Funds Rate in effect on such Federal Funds Interest Determination Date.
ORIGINAL ISSUE DISCOUNT NOTES
Original Issue Discount Notes are Notes issued at a discount from the
principal amount payable at maturity (including any Zero Coupon Note) and which
are considered to be issued with original issue discount which must be
S-19
<PAGE>
included in income for United States federal income tax purposes at a constant
rate ("Original Issue Discount Notes"). See "Certain United States Federal
Income Tax Considerations." Certain additional considerations relating to
Original Issue Discount Notes may be described in the Pricing Supplement
relating thereto.
AMORTIZING NOTES
The Company may from time to time offer Notes for which payments of
principal and interest are made over the life of the Notes ("Amortizing Notes").
Unless otherwise specified in the applicable Pricing Supplement, interest on
each Amortizing Note will be computed on the basis of a 360-day year of twelve
30-day months. Payments with respect to Amortizing Notes will be applied first
to interest due and payable thereon and then to the reduction of the unpaid
principal amount thereof. Further information concerning additional terms and
provisions of Amortizing Notes will be specified in the applicable Pricing
Supplement, including a table setting forth repayment information for such
Amortizing Notes.
OTHER PROVISIONS, ADDENDA
Any provisions with respect to the Notes, including the determination of an
Interest Rate Basis, the specification of Interest Rates Basis, calculation of
the interest rate applicable to a Floating Rate Note, its Interest Payment Dates
or any other matter relating thereto may be modified by the terms specified
under "Other Provisions" on the face thereof or in an addendum (an "Addendum")
relating thereto, if so specified on the face thereof and in the applicable
Pricing Supplement.
PAYMENT OF PRINCIPAL AND INTEREST
Unless otherwise specified in the applicable Pricing Supplement, payments of
principal of (and premium, if any) and interest on all Notes will be made in the
applicable Specified Currency; provided, however, that payments of principal
(and premium, if any) and interest on Notes denominated in other than U.S.
dollars will nevertheless be made in U.S. dollars:
(a) at the option of the Holders of such Notes under the procedures
described in the two following paragraphs; and
(b) at the Company's option in the case of imposition of exchange
controls or other circumstances beyond the Company's control as described in
the last paragraph under this heading.
Unless otherwise specified in the applicable Pricing Supplement, and except
as provided in the next paragraph, payments of interest and principal (and
premium, if any) for any Note denominated in other than U.S. dollars will be
made in U.S. dollars if the registered Holder of such Note on the relevant
Regular Record Date, or at maturity, redemption or repayment, as the case may
be, has transmitted a written request for such payment in U.S. dollars to the
Paying Agent at the Paying Agent Office on or before such Regular Record Date,
or the date 15 days before maturity, redemption or repayment, as the case may
be. Such request may be in writing (mailed or hand delivered) or by cable or
other form of facsimile transmission. Any such request made for any Note by a
registered Holder will remain in effect for any further payments of interest and
principal (and premium, if any) on such Note payable to such Holder, unless such
request is revoked on or before the relevant Regular Record Date or the date 15
days before maturity, redemption or repayment, as the case may be. Holders of
Notes denominated in other than U.S. dollars whose Notes are registered in the
name of a broker or nominee should contact such broker or nominee to determine
whether and how to elect to receive payments in U.S. dollars.
The U.S. dollar amount to be received by a Holder of a Note denominated in
other than U.S. dollars who elects to receive payment in U.S. dollars will be
determined by the exchange rate agent (the "Exchange Rate Agent"), at
approximately 11:00 a.m., New York City time, on the second Business Day
preceding the applicable Payment Date, by selecting the indicative quotations
for the Specified Currency appearing at such time on the bank composite or
S-20
<PAGE>
multi-contributor pages of the Quoting Source (as defined below) for the first
three banks, in descending order of their appearance, on a list of banks to be
agreed to by the Company and the Exchange Rate Agent (which may include an Agent
or the Calculation and Exchange Rate Agent) prior to such second Business Day,
which are offering quotes on the Quoting Source. The Exchange Rate Agent shall
select from among the selected quotations the one which will yield the largest
number of U.S. dollars upon conversion from such Specified Currency. The
"Quoting Source" shall mean Reuters Monitor Foreign Exchange Service, or if the
Exchange Rate Agent determines that such service is not available, Telerate
Monitor Foreign Exchange Service. If the Exchange Rate Agent determines that
neither service is available, the Company and the Exchange Rate Agent shall
agree on a comparable display or other comparable manner of obtaining quotations
and such display or manner shall become the Quoting Source.
In the case of a Specified Currency other than ECUs, if (i) fewer than three
bid quotations are available at the time a determination is to be made by the
Exchange Rate Agent pursuant to the preceding paragraph, or (ii) the Exchange
Rate Agent received no later than 12:00 noon, New York City time, on such second
Business Day preceding the applicable Payment Date notice from the Company that
there exist exchange controls or other circumstances beyond the Company's
control rendering such Specified Currency unavailable, then the Exchange Rate
Agent shall, prior to such Payment Date, notify the Company and the Trustee of
the noon buying rate in New York City for cable transfers, in the Specified
Currency indicated in such notice, as certified for customers' purposes by the
Federal Reserve Bank of New York (the "Market Exchange Rate") as of such second
Business Day. If the Market Exchange Rate for such date is not then available,
the Exchange Rate Agent shall immediately notify the Company and the Trustee of
the most recently available Market Exchange Rate for such Specified Currency. In
the case of ECUs, if: (i) fewer than three bid quotations are available at the
time a determination is to be made by the Exchange Rate Agent pursuant to the
preceding paragraph, or (ii) the Exchange Rate Agent received no later than
12:00 noon, New York City time, on such second Business Day preceding the
applicable Payment Date notice from the Company that (A) there exist exchange
controls or other circumstances beyond the Company's control, rendering ECUs
unavailable or (B) ECUs are no longer used in the European Monetary System,
rendering ECUs unavailable, then the Exchange Rate Agent shall, prior to such
Payment Date, notify the Company and the Trustee of the rate of conversion for
ECUs into U.S. dollars, determined as of such second Business Day on the
following basis: The component currencies of the ECUs for this purpose (the
"Components") shall be the currency amounts that were components of the ECUs as
of the last date on which ECUs were used in the European Monetary System. The
equivalent of ECUs in U.S. dollars shall be calculated by aggregating the U.S.
dollar equivalent of the Components. The U.S. dollar equivalent of each of the
Components shall be determined by the Exchange Rate Agent on the basis of the
most recently available Market Exchange Rate for the Components, or as otherwise
specified to the Exchange Rate Agent by the Company.
Interest will be payable to the person in whose name a Note is registered
(which for a permanent global Note representing Book-Entry Notes will be the
Depositary or a nominee of the Depositary) at the close of business on the
Regular Record Date next preceding each Interest Payment Date; provided,
however, that interest payable at maturity will be payable to the person to whom
principal shall be payable (which for permanent global Notes representing
Book-Entry Notes will be the Depositary or a nominee of the Depositary). The
first payment of interest on any Note originally issued between a Regular Record
Date and an Interest Payment Date will be made on the second such Interest
Payment Date next succeeding its date of issue to the registered owner on the
Regular Record Date relating to such second Interest Payment Date. Unless
otherwise indicated in the applicable Pricing Supplement, the "Regular Record
Date" for any Floating Rate Note shall
S-21
<PAGE>
be the date 15 calendar days before each Interest Payment Date, whether or not
such date shall be a Business Day, and the "Regular Record Date" for any Fixed
Rate Note shall be the March 1 and September 1 next preceding the March 15 and
September 15 Interest Payment Dates unless otherwise indicated in the applicable
Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement and except
as provided below, interest will be payable:
(a) for Floating Rate Notes that reset daily, on the third Wednesday of
each month or on the third Wednesday of March, June, September, and December
of each year (as indicated in the applicable Pricing Supplement);
(b) for Floating Rate Notes that reset weekly, on the third Wednesday of
each month or on the third Wednesday of March, June, September, and December
of each year (as indicated in the applicable Pricing Supplement);
(c) for Floating Rate Notes that reset monthly, on the third Wednesday
of each month or on the third Wednesday of March, June, September, and
December of each year (as indicated in the applicable Pricing Supplement);
(d) for Floating Rate Notes that reset quarterly, on the third Wednesday
of March, June, September, and December of each year;
(e) for Floating Rate Notes that reset semi-annually, on the third
Wednesday of the two months of each year specified in the applicable Pricing
Supplement;
(f) for Floating Rate Notes that reset annually, on the third Wednesday
of the month specified in the applicable Pricing Supplement; and
(g) for Floating Rate Notes that reset at intervals other than those
described above, on the days specified in the applicable Pricing Supplement,
each an "Interest Payment Date," and in each case, at maturity. If an Interest
Payment Date (other than at Stated Maturity, a Redemption Date or an Optional
Repayment Date (as defined below under "Repayment at the Option of the Holder"))
with respect to any Floating Rate Note would otherwise fall on a day that is not
a Market Day with respect to such Note (and for any Note denominated in other
than U.S. dollars, a Business Day in the country issuing the Specified Currency
(or, for ECUs, Brussels)), such Interest Payment Date will be on the next
succeeding Market Day (with interest accruing to but excluding the next
succeeding Market Day) (or, in the case of a LIBOR Note, if such day falls in
the next calendar month, the next preceding Market Day (with interest accruing
to but excluding the next preceding Market Day)). If the Stated Maturity,
Redemption Date or Optional Repayment Date of a Floating Rate Note falls on a
day that is not a Market Day (and for any Note denominated in other than U.S.
dollars, a Business Day in the country issuing the Specified Currency (or, for
ECUs, Brussels)), the required payment of principal, premium, if any, and
interest will be made on the next succeeding Market Day as if made on the date
such payment was due, and no interest will accrue on such payment for the period
from and after the Stated Maturity, Redemption Date or Optional Repayment Date,
as the case may be, to the date of such payment on the next succeeding Market
Day.
Unless otherwise specified in the applicable Pricing Supplement, interest
payments in respect of Fixed Rate Notes and Floating Rate Notes will equal the
amount of interest accrued from and including the immediately preceding Interest
Payment Date in respect of which interest has been paid or duly made available
for payment (or from and including the date of issue, if no interest has been
paid or duly made available for payment) to but excluding the applicable
Interest Payment Date or the Stated Maturity, as the case may be.
For a Floating Rate Note, accrued interest from (and including) the date of
issue or from (and including) the last date to which interest has been paid is
calculated by multiplying the face amount of such Floating Rate Note by an
S-22
<PAGE>
accrued interest factor. Such accrued interest factor is computed by adding the
interest factor calculated for each day from (and including) the date of issue,
or from (and including) the last date to which interest has been paid, but
excluding the date for which accrued interest is being calculated. The interest
factor (expressed as a decimal) for each such day is computed by dividing the
interest rate (expressed as a decimal) applicable to such date by 360 for
Commercial Paper Rate Notes, Prime Rate Notes, LIBOR Notes, CD Rate Notes, or
Federal Funds Rate Notes, or by the actual number of days in the year for
Treasury Rate Notes or CMT Rate Notes. Interest on Fixed Rate Notes will be
computed on the basis of a 360-day year of twelve 30-day months.
A payment on any Fixed Rate Note due on any day that is not a Market Day
(and, for any Note denominated in other than U.S. dollars, a Business Day in the
country issuing the Specified Currency (or, for ECUs, Brussels)) need not be
made on such a day, but may be made on the next succeeding Market Day with the
same force and effect as if made on the due date, and no interest shall accrue
for the period from and after such date.
Payment of the principal of (and premium, if any) and any interest due with
respect to any Note (other than a Book-Entry Note) at maturity will be made in
immediately available funds upon surrender of such Note at the Payment Agent
Office, provided that the Note is presented to the Paying Agent in time for the
Paying Agent to make such payments in such funds in accordance with its normal
procedures. Payments of interest on any Note (other than any Book-Entry Note)
other than at maturity will be made by check mailed to the address of the Person
(which, in the case of a permanent global Note representing Book-Entry Notes,
shall be the Depositary) entitled thereto as it appears in the Security Register
or by wire transfer to such account as may have been appropriately designated by
such Person. Payments in respect of Book-Entry Notes are further discussed under
"--Book-Entry Notes."
If the principal of (and premium, if any) or interest on any Note is payable
in other than U.S. dollars and such Specified Currency is not available due to
the imposition of exchange controls or other circumstances beyond the control of
the Company, the Company will be entitled to satisfy its obligations to Holders
of the Notes by making such payment in U.S. dollars on the basis of the most
recently available Exchange Rate. Any payment made under such circumstances in
U.S. dollars where the required payment is in other than U.S. dollars will not
constitute an Event of Default under the Indenture.
REPAYMENT AT THE OPTION OF THE HOLDER
The Notes will be repayable by the Company at the option of the Holders
thereof prior to Stated Maturity only if one or more optional repayment dates
are specified in the applicable Pricing Supplement ("Optional Repayment Dates").
If so specified, the Notes will be subject to repayment at the option of the
Holders thereof on any Optional Repayment Date in whole or in part in increments
of U.S. $1,000 or such other minimum denomination specified in the applicable
Pricing Supplement (provided that any remaining principal amount thereof shall
be at least U.S. $1,000 or such other minimum denomination), at a repayment
price equal to 100% of the unpaid principal amount to be repaid (or, if this
Note is an Original Issue Discount Note, such lesser amount as provided
therein), together with unpaid interest accrued to the date of repayment. For
any Note to be repaid, such Note must be received, together with the form
thereon entitled "Option to Elect Repayment" duly completed, by the Trustee at
its Corporate Trust Office (or such other address of which the Company shall
from time to time notify the Holders) not more than 60 nor less than 30 calendar
days prior to the date of repayment. Exercise of such repayment option by the
Holder will be irrevocable.
Only the Depositary may exercise the repayment option in respect of Global
Securities representing Book-Entry Notes. Accordingly, holders of beneficial
interests ("Beneficial Owners") of a permanent global Note that desire to have
all or any portion of the Book-Entry Notes represented by such permanent
S-23
<PAGE>
global Note repaid must instruct the participant through which they own their
interest to direct the Depositary to exercise the repayment option on their
behalf by delivering the related permanent global Note and duly completed
election form to the Trustee as aforesaid. In order to ensure that such
permanent global Note and election form are received by the Trustee on a
particular day, the applicable Beneficial Owner must so instruct the participant
through which it owns its interest before such participant's deadline for
accepting instructions for that day. Different firms may have different
deadlines for accepting instructions from their customers. Accordingly,
Beneficial Owners should consult the participants through which they own their
interest for the respective deadlines for such participants. All instructions
given to participants from Beneficial Owners of permanent global Notes relating
to the option to elect repayment shall be irrevocable. In addition, at the time
such instructions are given, each such Beneficial Owner shall cause the
participant through which it owns its interest to transfer such Beneficial
Owner's interest in the permanent global Note or Notes representing the related
Book-Entry Notes, on the Depositary's records, to the Trustee. See "--Book Entry
Notes."
If applicable, the Company will comply with the requirements of Rule 14e-1
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
any other securities laws or regulations in connection with any such repayment.
The Company may at any time purchase Notes at any price or prices in the
open market or otherwise. Notes so purchased by the Company may, at the
discretion of the Company, be held, resold or surrendered to the Trustee for
cancellation.
OPTIONAL REDEMPTION
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will be redeemable at the option of the Company at any time after the date or
dates specified therein. If one or more such dates are so specified with respect
to any Note, the applicable Pricing Supplement will also specify one or more
redemption prices (expressed as a percentage of the principal amount of such
Note) ("Redemption Prices") and the redemption period or periods ("Redemption
Periods") during which such Redemption Prices shall apply. Unless otherwise
specified in the Pricing Supplement, any such Note shall be redeemable at the
option of the Company at the specified Redemption Price applicable to the
Redemption Period during which such Note is to be redeemed, together with
interest accrued to the Redemption Date.
If so specified in the applicable Pricing Supplement, the Notes will be
redeemable at the Company's option, as a whole or from time to time in part in
increments of U.S. $1,000 or such other minimum denomination specified in the
applicable Pricing Supplement (provided that any remaining principal amount
thereof shall be at least U.S. $1,000 or such other minimum denomination), on
any date prior to their Stated Maturity at a Redemption Price equal to 100% of
the principal amount thereof plus accrued interest to the Redemption Date
(subject to the right of Holders of record on the relevant Regular Record Date
to receive interest due on an Interest Payment Date that is on or prior to the
Redemption Date), plus a Make-Whole Premium, if any.
The "Make-Whole Premium" in respect of any Note is intended to be the
amount, if any, which, when added to the then outstanding principal amount of
such Note, would, if invested on the Redemption Date of such Note in U.S.
Treasury securities with maturities equal to the Remaining Life of the Notes,
have a yield to maturity equal to the original yield to maturity of the Notes,
based on the initial public offering price of the Notes set forth in the
applicable Pricing Supplement. The amount of the Make-Whole Premium in respect
of the principal amount of any Note to be redeemed will be calculated by the
Company and will be the excess, if any, of (i) the sum of the present values, as
of the Redemption Date of such Note, of (A) the respective interest payments
(exclusive of the amount of accrued interest to the Redemption Date) on such
Note that, but for such redemption, would have been payable on their respective
Interest Payment Dates after
S-24
<PAGE>
such Redemption Date, and (B) the payment of such principal amount that, but for
such redemption, would have been payable on the Stated Maturity over (ii) the
amount of such principal to be redeemed. Such present values will be determined
in accordance with generally accepted principles of financial analysis by
discounting the amounts of such payments of interest and principal from their
respective Stated Maturities to such Redemption Date at a discount rate equal to
the Treasury Yield.
The "Treasury Yield" in respect of any Note to be redeemed shall be
determined as of the date on which notice of redemption of such Note is sent to
the Holder thereof by reference to the most recent Federal Reserve Statistical
Release H.15(519) (or successor publication) which has become publicly available
not more than two Business Days prior to such date (or, if such Statistical
Release (or successor publication) is no longer published or no longer contains
the applicable data, to the most recently published issue of THE WALL STREET
JOURNAL (Eastern Edition) published not more than two Business Days prior to
such date that contains such data or, if THE WALL STREET JOURNAL (Eastern
Edition) is no longer published or no longer contains such data, to any publicly
available source of similar market data), and shall be the most recent weekly
average yield on actively traded U.S. Treasury securities adjusted to a constant
maturity equal to the Remaining Life of the Notes and, if applicable, converted
to a bond equivalent yield basis as described below. The "Remaining Life of the
Notes" shall equal the number of years from the Redemption Date to the Stated
Maturity of the Notes; provided that if the Remaining Life of the Notes being
redeemed is not equal to the constant maturity of a U.S. Treasury security for
which a weekly average yield is specified in the applicable source, then the
Remaining Life of the Notes shall be rounded to the nearest one-twelfth of one
year and the Treasury Yield shall be obtained by linear interpolation (computed
to the fifth decimal place (one thousandth of a percentage point) and then
rounded to the fourth decimal place (one hundredth of a percentage point)),
after rounding to the nearest one-twelfth of one year, from the weekly average
yields of (a) the actively traded U.S. Treasury security with a maturity closest
to and less than the Remaining Life of the Notes and (b) the actively traded
U.S. Treasury security with a maturity closest to and greater than the Remaining
Life of the Notes, except that if the Remaining Life of the Notes is less than
three months, the weekly average yield on actively traded U.S. Treasury
securities adjusted to a constant maturity of three months shall be used. The
Treasury Yield shall, if expressed on a yield basis other than that equivalent
to a bond equivalent yield basis, be converted to a bond equivalent yield basis
and shall be computed to the fifth decimal place (one thousandth of a percentage
point) and then rounded to the fourth decimal place (one hundredth of a
percentage point).
Notice of redemption will be provided by mailing a notice of such redemption
to each Holder by first class mail, postage prepaid, at least 30 calendar days
and not more than 60 calendar days prior to the date fixed for redemption to the
respective address of each Holder as that address appears in the Security
Register.
The Company may purchase Notes at any price in the open market or otherwise.
Notes so purchased by the Company may, at the discretion of the Company, be held
or resold or surrendered to the Trustee for cancellation.
BOOK-ENTRY NOTES
Upon issuance, all Book-Entry Notes of like tenor and having the same date
of issue will be represented by a single permanent global Note. Each permanent
global Note representing Book-Entry Notes will be deposited with, or on behalf
of, The Depositary Trust Company, as Depositary (the "Depositary"), located in
the Borough of Manhattan, the City of New York, and will be registered in the
name of the Depositary or a nominee of the Depositary. Currently, the Depositary
will accept the deposit of only permanent global Notes denominated in U.S.
dollars.
Ownership of beneficial interests in a permanent global Note representing
Book-Entry Notes will be limited to institutions that have
S-25
<PAGE>
accounts with the Depositary or its nominee ("participants") or persons that may
hold interests through participants. In addition, ownership of beneficial
interests by participants in such a permanent global Note will be evidenced only
by, and the transfer of that ownership interest will be effected only through,
records maintained by the Depositary or its nominee for such permanent global
Note. Ownership of beneficial interests in such a permanent global Note by
persons that hold through participants will be evidenced only by, and the
transfer of that ownership interest within such participant will be effected
only through, records maintained by such participant. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in definitive form. Such laws may impair the ability
to transfer beneficial interests in such a permanent global Note.
The Company has been advised by the Depositary that upon the issuance of a
permanent global Note representing Book-Entry Notes, and the deposit of such
permanent global Note with the Depositary, the Depositary will immediately
credit, on its book-entry registration and transfer system, the respective
principal amounts of the Book-Entry Notes represented by such permanent global
Note to the accounts of participants. The accounts to be credited shall be
designated by the soliciting Agent or, to the extent that the Book-Entry Notes
are offered and sold directly, by the Company.
Payment of principal of and any premium and interest on Book-Entry Notes
represented by any permanent global Note registered in the name of or held by
the Depositary or its nominee will be made to the Depositary or its nominee, as
the case may be, as the registered owner and Holder of the permanent global Note
representing such Book-Entry Notes. Neither the Company, the Trustee, nor any
agent of the Company or the Trustee will have any responsibility or liability
for any aspect of the Depositary's records or any participant's records relating
to or payments made on account of beneficial ownership interests in a permanent
global Note representing such Book-Entry Notes or for maintaining, supervising
or reviewing any of the Depositary's records or any participant's records
relating to such beneficial ownership interests.
The Company has been advised by the Depositary that upon receipt of any
payment of principal of or any premium or interest in respect of a permanent
global Note, the Depositary will immediately credit, on its book-entry
registration and transfer system, accounts of participants with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of such permanent global Note as shown on the records of the Depositary.
Payments by participants to owners of beneficial interests in a permanent global
Note held through such participants will be governed by standing instructions
and customary practices, as is now the case with securities held for the
accounts of customers registered in "street name," and will be the sole
responsibility of such participants.
No permanent global Note described above may be transferred except as a
whole by the Depositary for such permanent global Note to a nominee of the
Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary.
A permanent global Note representing Book-Entry Notes is exchangeable for
definitive Notes registered in the name of, and a transfer of a permanent global
Note may be registered to, any Person other than the Depositary or its nominee,
only if:
(a) the Depositary notifies the Company that it is unwilling or unable
to continue as Depositary for such permanent global Note or if at any time
the Depositary ceases to be a clearing agency registered under the Exchange
Act;
(b) the Company in its sole discretion determines that such permanent
global Note shall be exchangeable for definitive Notes in registered form;
or
(c) any event shall have happened and be continuing that constitutes or,
after notice or lapse of time, or both, would constitute an Event of Default
with respect to the Notes.
S-26
<PAGE>
Any permanent global Note that is exchangeable pursuant to the preceding
sentence shall be exchangeable in whole for definitive Notes in registered form,
of like tenor and of an equal aggregate principal amount, in denominations of
U.S. $1,000 and integral multiples of U.S. $1,000 in excess thereof. Such
definitive Notes shall be registered in the name or names of such person or
persons as the Depositary shall instruct the Trustee. It is expected that such
instructions may be based upon directions received by the Depositary from its
participants with respect to ownership of beneficial interests in such permanent
global Note.
Except as provided above, owners of beneficial interests in such permanent
global Note will not be entitled to receive physical delivery of Notes in
definitive form and will not be considered the Holders thereof for any purpose
under the Indenture, and no permanent global Note representing Book-Entry Notes
shall be exchangeable, except for another permanent global Note of like
denomination and tenor to be registered in the name of the Depositary or its
nominee. Accordingly, each person owning a beneficial interest in such permanent
global Note must rely on the procedures of the Depositary and, if such person is
not a participant, on the procedures of the participant through which such
person owns its interest, to exercise any rights of a Holder under the
Indenture.
The Indenture provides that the Depositary, as a Holder, may appoint agents
and otherwise authorize participants to give or take any request, demand,
authorization, direction, notice, consent, waiver, or other action which a
Holder is entitled to give or take under the Indenture. The Company understands
that, under existing industry practices, in the event that the Company requests
any action of Holders or an owner of a beneficial interest in such permanent
global Note desires to give or take any action that a Holder is entitled to give
or take under the Indenture, the Depositary would authorize the participants
holding the relevant beneficial interests to give or take such action, and such
participants would authorize beneficial owners owning through such participants
to give or take such action or would otherwise act upon the instructions of
beneficial owners owning through them.
The Depositary has advised the Company that the Depositary is a limited
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered under the Exchange Act. The Depositary was created to hold securities
of its participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the need
for physical movement of securities certificates. The Depositary's participants
include securities brokers and dealers (including the Agents), banks, trust
companies, clearing corporations, and certain other organizations, some of whom
(or their representatives) own the Depositary. Access to the Depositary's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly.
S-27
<PAGE>
CERTAIN COVENANTS
The Indenture contains the following covenants:
LIMITATIONS ON INCURRENCE OF DEBT. The Company will not, and will not
permit any Subsidiary (as defined below) to, incur any Debt (as defined below),
other than Intercompany Debt (as defined below), if, immediately after giving
effect to the incurrence of such Debt and the application of the proceeds
thereof, the aggregate principal amount of all outstanding Debt of the Company
and its Subsidiaries on a consolidated basis determined in accordance with GAAP
(as defined below) is greater than 60% of the sum of (i) the Company's Adjusted
Total Assets (as defined below) as of the end of the most recent fiscal quarter
prior to the incurrence of such additional Debt, and (ii) the increase in
Adjusted Total Assets since the end of such quarter (including any increase
resulting from the incurrence of additional Debt) (Section 1004(a) of the
Indenture).
In addition to the foregoing limitation on the incurrence of Debt, the
Company will not, and will not permit any Subsidiary to, incur any Debt if the
ratio of Consolidated Income Available for Debt Service (as defined below) to
the Annual Service Charge (as defined below) on the date on which such
additional debt is to be incurred, on a pro forma basis, after giving effect to
the incurrence of such Debt and to the application of the proceeds thereof,
would have been less than 1.5 to 1 (Section 1004(b) of the Indenture).
Further, the Company will not, and will not permit any Subsidiary to, incur
any Debt secured by any mortgage, lien, charge, pledge, encumbrance or security
interest of any kind upon any of the properties of the Company or any Subsidiary
("Secured Debt"), whether owned at the date of the Indenture or thereafter
acquired, if, immediately after giving effect to the incurrence of such Secured
Debt and the application of the proceeds thereof, the aggregate principal amount
of all outstanding Secured Debt of the Company and its Subsidiaries on a
consolidated basis is greater than 40% of the sum of: (i) the Company's Adjusted
Total Assets as of the end of the most recent fiscal quarter prior to the
incurrence of such additional Debt; and (ii) the increase in Adjusted Total
Assets since the end of such quarter (including any increase resulting from the
incurrence of additional Debt) (Section 1004(c) of the Indenture).
Further, the Company will at all times maintain an Unencumbered Total Asset
Value (as defined below) in an amount not less than 150% of the aggregate
principal amount of all outstanding unsecured Debt of the Company and its
Subsidiaries on a consolidated basis (Section 1004(d) of the Indenture).
For purposes of the foregoing paragraphs regarding the limitation on the
incurrence of Debt, Debt shall be deemed to be "incurred" by the Company or a
Subsidiary whenever the Company or such Subsidiary shall create, assume,
guarantee or otherwise become liable in respect thereof.
DEFINITIONS. As used in the Indenture and the description thereof herein:
"Adjusted Total Assets" as of any date means the total of all assets
determined in accordance with generally accepted accounting principles ("GAAP")
plus accumulated depreciation.
"Annual Service Charge" as of any date means the aggregate amount of any
interest expensed for the four consecutive fiscal quarters most recently ended,
as determined in accordance with GAAP.
"Consolidated Income Available for Debt Service" as of any date means
Consolidated Net Income (as defined below) of the Company and its Subsidiaries
plus amounts that have been deducted for (a) interest on Debt of the Company and
its Subsidiaries; (b) provision for taxes of the Company and its Subsidiaries
based on income; (c) amortization of debt discount; (d) depreciation and
amortization; (e) the effect of any noncash charge resulting from a change in
accounting principles in determining Consolidated Net Income; and (f)
amortization of deferred charges, for the four consecutive fiscal quarters most
recently ended, all as
S-28
<PAGE>
determined in accordance with GAAP, and without taking into account any
provision for gains and losses on properties.
"Consolidated Net Income" for any period means the amount of net income (or
loss) of the Company and its Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP.
"Debt" of the Company or any Subsidiary means any indebtedness of the
Company or any Subsidiary, whether or not contingent, in respect of: (i)
borrowed money evidenced by bonds, notes, debentures or similar instruments;
(ii) indebtedness secured by any mortgage, pledge, lien, charge, encumbrance or
any security interest existing on property owned by the Company or any
Subsidiary; (iii) reimbursement obligations in connection with any letters of
credit actually issued or amounts representing the balance deferred and unpaid
of the purchase price of any property except any such balance that constitutes
an accrued expense or trade payable; or (iv) any lease of property by the
Company or any Subsidiary as lessee which is reflected on the Company's
consolidated balance sheet as a capitalized lease in accordance with GAAP; but
in the case of items of indebtedness incurred under (i) through (iii) above only
to the extent that any such items (other than letters of credit) would appear as
a liability on the Company's consolidated balance sheet in accordance with GAAP,
and also includes, to the extent not otherwise included, any obligation of the
Company or any Subsidiary to be liable for, or to pay, as obligor, guarantor or
otherwise (other than for purposes of collection in the ordinary course of
business), indebtedness of another person (other than the Company or any
Subsidiary).
"Intercompany Debt" means Debt to which the only parties are the Company and
any Subsidiary and, in the case of Debt owed by the Company to any Subsidiary,
such Debt is subordinate in right of payment to the holders of the Notes.
"Security Register" means a register maintained at a place of payment for
the registration and transfer of the Notes.
"Subsidiary" means a corporation, real estate investment trust, partnership
or limited liability company, a majority of the outstanding voting stock,
partnership interests or membership interests, as the case may be, of which is
owned or controlled, directly or indirectly, by the Company or by one or more
Subsidiaries of the Company. CenterPoint Realty Services Corporation and its
subsidiaries are Subsidiaries for purposes of this definition. For the purposes
of this definition, "voting stock" means stock having the voting power for the
election of directors, trustees, general partners or managers, as the case may
be, whether at all times or only so long as no senior class of stock has such
voting power by reason of any contingency.
"Undepreciated Real Estate Assets" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Company and its
Subsidiaries on such date, before depreciation and amortization, determined on a
consolidated basis in accordance with GAAP.
"Unencumbered Total Asset Value" as of any date means the sum of (i) the
value of those Undepreciated Real Estate Assets not subject to an encumbrance;
and (ii) the value of all other assets of the Company and its Subsidiaries on a
consolidated basis not subject to an encumbrance determined in accordance with
GAAP (but excluding accounts receivable and intangibles).
Reference is made to the section entitled "Description of Debt
Securities--Provisions Applicable to Senior Debt Securities and Subordinated
Debt Securities--Certain Covenants" in the accompanying Prospectus for a
description of additional covenants applicable to the Notes. Compliance with the
covenants described herein and such additional covenants with respect to the
Notes generally may not be waived by the Board of Trustees of the Company, or by
the Trustee unless the Holders of at least a majority in principal amount of all
outstanding Notes consent to such waiver; provided, however, that the defeasance
and covenant defeasance provisions of the Indenture described under "Description
of Debt
S-29
<PAGE>
Securities--Provisions Applicable to Senior Debt Securities and Subordinated
Debt Securities-- Discharge, Defeasance and Covenant Defeasance" in the
accompanying Prospectus will apply to the Notes, including with respect to the
covenants described in this Prospectus Supplement.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations that may be relevant to a holder of a Note who purchases the Note
upon its original issuance. The summary is based on laws, regulations, rulings
and decisions now in effect, all of which are subject to change, possibly with
retroactive effect. This summary deals only with holders that will hold Notes as
capital assets, and does not address tax considerations applicable to investors
that may be subject to special tax rules, including, without limitation, banks,
tax-exempt entities, insurance companies, regulated investment companies, common
trust funds or dealers in securities or currencies, persons that will hold Notes
as part of an integrated investment (including a "straddle" or "conversion
transaction") comprised of a Note and one or more other positions, or persons
that have a "functional currency" other than the U.S. dollar. Any special United
States federal income tax considerations relevant to a particular issue of
Notes, including any Variable Notes, Notes providing for payment in more than
one currency or Notes providing for contingent payments, will be provided in the
applicable Pricing Supplement. Purchasers of such Notes should carefully examine
the applicable Pricing Supplement and should consult with their tax advisors
with respect to such Notes.
Investors should consult their tax advisors in determining the tax
consequences to them of holding Notes, including the application to their
particular situation of the United States federal income tax considerations
discussed below, as well as the application of state, local, foreign or other
tax laws.
As used herein, the term "United States holder" means a person who is a
citizen or resident of the United States, or that is a corporation, partnership
or other entity created or organized in or under the laws of the United States
or any political subdivision thereof, an estate the income of which is subject
to United States federal income taxation regardless of its source or a trust if
(i) a U.S. court is able to exercise primary supervision over the trust's
administration and (ii) one or more United States persons have the authority to
control all of the trust's substantial decisions, and the term "United States"
means the United States of America (including the States and the District of
Columbia).
UNITED STATES HOLDERS
PAYMENTS OF INTEREST
Payments of "qualified stated interest" (as defined below under "Original
Issue Discount") on a Note will be taxable to a United Stated holder as ordinary
interest income at the time that such payments are accrued or are received (in
accordance with the United States holder's method of tax accounting). If such
payments of interest are made with respect to a Note that is denominated in a
Specified Currency other than the U.S. dollar (a "Foreign Currency Note"), the
amount of interest income realized by a United States holder that uses the cash
method of tax accounting will be the U.S. dollar value of the Specified Currency
payment based on the spot rate of exchange on the date of receipt regardless of
whether the payment in fact is converted into U.S. dollars. A United States
holder that uses the accrual method of tax accounting will accrue interest
income on the Foreign Currency Note in the relevant foreign currency and
translate the amount accrued into U.S. dollars based on the average exchange
rate in effect during the interest accrual period (or portion thereof within
such holder's taxable year), or, at such holder's election, at the spot rate of
exchange on (i) the last day of the accrual period (or the last day of the
taxable year within such accrual period if the accrual period spans more than
one taxable year), or (ii) the date of receipt, if such date is within five
business days of the last day of the accrual period. Such election must be
applied consistently by the United States holder to all
S-30
<PAGE>
debt instruments from year to year, and can be changed only with the consent of
the Internal Revenue Service (the "IRS"). A United States holder that uses the
accrual method of tax accounting will recognize foreign currency gain or loss,
which will be treated as ordinary income or loss, on the receipt of an interest
payment made with respect to a Foreign Currency Note if the spot rate of
exchange on the date the payment is received differs from the rate applicable to
a previous accrual of the interest income.
PURCHASE, SALE AND RETIREMENT OF NOTES
A United States holder's tax basis in a Note generally will equal the cost
of such Note to such holder, increased by any amounts includible in income by
the holder as original issue discount ("OID") and reduced by any amortized bond
premium (each as described below) and any payments other than payments of
qualified stated interest made on such Note. In the case of a Foreign Currency
Note, the cost of such Note to a United States holder will be the U.S. dollar
value of the foreign currency purchase price on the date of purchase. In the
case of a Foreign Currency Note that is traded on an established securities
market, a United States holder that uses the cash method of tax accounting (and,
if it so elects, a United States holder that uses the accrual method of tax
accounting) will determine the U.S. dollar value of the cost of such Note by
translating the amount paid at the spot rate of exchange on the settlement date
of the purchase. The amount of any subsequent adjustments to a United States
holder's tax basis in a Foreign Currency Note in respect of OID, and amortizable
bond premium denominated in a Specified Currency other than the U.S. dollar will
be determined in the manner described under "Original Issue Discount" and "Notes
Purchased at a Premium" below. The conversion of U.S. dollars to another
Specified Currency and the immediate use of such Specified Currency to purchase
a Foreign Currency Note generally will not result in taxable gain or loss for a
United States holder.
Upon the sale, exchange or retirement (collectively, a "disposition") of a
Note, a United States holder generally will recognize gain or loss equal to the
difference between the amount realized on the disposition (less any accrued
qualified stated interest, which will be taxable as ordinary income) and the
United States holder's adjusted tax basis in such Note. If a United States
holder receives a Specified Currency other than the U.S. dollar in respect of
the disposition of a Note, the amount realized will be the U.S. dollar value of
the Specified Currency received calculated at the spot rate of exchange on the
date of disposition. In the case of a Foreign Currency Note that is traded on an
established securities market, a United States holder that uses the cash method
of tax accounting, and if it so elects, a United States holder that uses the
accrual method of tax accounting, will determine the U.S. dollar value of the
amount realized by translating such amount at the spot rate of exchange on the
settlement date of the disposition. The election available to accrual basis
United States holders in respect of the purchase and sale of Foreign Currency
Notes traded on an established securities market, discussed above, must be
applied consistently by the United States holder to all debt instruments from
year to year and can be changed only with the consent of the IRS.
Except as discussed below with respect to Short-Term Notes (as defined
below) and foreign currency gain or loss, gain or loss recognized by a United
States holder will generally be long term capital gain or loss if the United
States holder's holding period for the Note exceeded one year at the time of
disposition. Recently enacted United States tax legislation reduced the maximum
United States federal income tax rate applicable to long term capital gains
recognized by individuals. Prospective investors should consult their tax
advisors regarding the possible effect of such legislation on such investors.
Gain or loss recognized by a United States holder on the disposition of a
Foreign Currency Note generally will be treated as ordinary income or loss to
the extent that the gain or loss is attributable to changes in exchange rates
during the period in which the holder held such Note.
S-31
<PAGE>
ORIGINAL ISSUE DISCOUNT
IN GENERAL. Notes with a term greater than one year may be issued with OID
for United States federal income tax purposes ("OID Notes"). For United States
federal income tax purposes, United States holders generally must accrue OID in
gross income over the term of the OID Notes on a constant yield basis,
regardless of their regular method of tax accounting. As a result, United States
holders generally will recognize income in respect of an OID Note in advance of
the receipt of cash attributable to such income.
OID generally will arise if the "stated redemption price at maturity" of the
Note exceeds its "issue price" by more than a de minimis amount (0.25% of the
Note's stated redemption price at maturity multiplied by the number of complete
years to maturity, or if a Note has certain interest payment characteristics
such as interest holidays, interest payable in additional securities or stopped
interest, by the weighted average maturity of such Note.) For this purpose, the
"issue price" of a Note is the first price at which a substantial amount of
Notes is sold for cash (other than to bond houses, brokers or similar persons or
organizations acting in the capacity of underwriters, placement agents or
wholesalers), and the "stated redemption price at maturity" of a Note is the sum
of all payments due under the Note, other than payments of "qualified stated
interest." The term "qualified stated interest" generally means stated interest
that is unconditionally payable in cash or property (other than debt instruments
of the Company) at least annually during the entire term of the OID Notes at a
single fixed rate of interest or, subject to certain conditions, based on one or
more interest indices. Unless an election to treat all interest as OID is made,
a United States holder of a Note issued with de minimis OID must include such de
minimis OID in income as capital gain, as stated principal payments on the Note
are made. The includible amount with respect to such payment will equal the
product of the total amount of the de minimis OID and a fraction, the numerator
of which is the amount of the principal payments made and the denominator of
which is the stated principal amount of the Note.
For each taxable year of a United States holder, the amount of OID that must
be included in gross income in respect of an OID Note will be the sum of the
daily portions of OID for each day during such taxable year (or any portion
thereof) in which such a United States holder held the OID Note. Such daily
portions are determined by allocating to each day in an accrual period a pro
rata portion of the OID allocable to that accrual period. Accrual periods may be
of any length and may vary in length over the term of an OID Note, provided that
each accrual period is no longer than one year and each scheduled payment of
principal or interest occurs on the first day or the final day of such period.
The amount of OID allocable to any accrual period generally will equal the
product of the OID Note's "adjusted issue price" at the beginning of such
accrual period multiplied by its yield to maturity (determined on the basis of
compounding at the close of each accrual period and properly adjusted for the
length of the accrual period) and subtracting from that product the amount (if
any) of qualified stated interest allocable to that accrual period. The
"adjusted issue price" of an OID Note at the beginning of any accrual period
will equal the issue price of the OID Note, as defined above, increased by
previously accrued OID from prior accrual periods, and reduced by any payment
made on such Note (other than payments of qualified stated interest) on or
before the first day of the accrual period.
FOREIGN CURRENCY NOTES. In the case of an OID Note that is also a Foreign
Currency Note, a United States holder should determine the U.S. dollar amount
includible in income as OID for each accrual period by (a) calculating the
amount of OID allocable to each accrual period in the Specified Currency using
the constant-yield method described above, and (b) translating the amount of the
Specified Currency so derived at the average exchange rate in effect during the
accrual period (or portion thereof within a United States holder's taxable year)
or, at the United States holder's election (as described above under "PAYMENTS
OF INTEREST"), at the spot rate of exchange on (i) the last day of
S-32
<PAGE>
the accrual period (or the last day of the taxable year ending within such
accrual period if the accrual period spans more than one taxable year), or (ii)
on the date of receipt, if such date is within five business days of the last
day of the accrual period. All payments on an OID Note (other than payments of
qualified stated interest) will generally be viewed first as payments of
previously accrued OID (to the extent thereof), with payments attributed first
to the earliest accrued OID, and then as payments of principal. Upon the receipt
of an amount attributable to OID (whether in connection with a payment of an
amount that is not qualified stated interest or the disposition of the OID
Note), a United States holder will recognize ordinary income or loss measured by
the difference between the amount received (translated into U.S. dollars at the
spot rate of exchange on the date of receipt or on the date of disposition of
the OID Note, as the case may be) and the amount accrued (using the spot rate of
exchange applicable to such previous accrual).
NOTES PURCHASED AT A PREMIUM
A United States holder that purchases a Note for an amount in excess of all
amounts payable with respect to such Note other than qualified stated interest
will be considered to have purchased the Note at a premium. Such holder may
elect to amortize such premium (as an offset to interest income), using a
constant-yield method, over the remaining term of the Note. Such election, once
made, generally applies to all debt instruments held or subsequently acquired by
the United States holder on or after the first taxable year to which the
election applies, and may be revoked only with the consent of the IRS. A United
States holder that elects to amortize such premium must reduce its tax basis in
a Note by the amount of the premium amortized during its holding period. With
respect to a United States holder that does not elect to amortize bond premium,
the amount of such premium will be included in the United States holder's tax
basis when the Note matures or is disposed of by the United States holder.
Amortizable bond premium in respect of a Foreign Currency Note will be computed
in the Specified Currency and will reduce interest income in the Specified
Currency. At the time amortized bond premium offsets interests income, exchange
gain or loss, which will be taxable as ordinary income or loss, will be realized
with respect to amortized bond premium on such Note based on the difference
between the spot rate of exchange on the date or dates such premium is recovered
through interest payments on the Note and the spot rate of exchange on the date
on which the United States holder acquired the Note.
VARIABLE RATE NOTES
A "Variable Rate Note" is a note that: (i) has an issue price that does not
exceed the total non-contingent principal payments by more than an amount equal
to the lesser of (1) the product of (x) the total non-contingent principal
payments, (y) the number of complete years to maturity (or weighted average
maturity in certain cases) from the issue date and (z) 0.15, and, and (2) 15
percent of the total non-contingent principal payments, and (ii) provides for
stated interest (compounded or paid at least annually) at the current value of
(1) one or more "qualified floating rates", (2) a single fixed rate and one or
more qualified floating rates, (3) a single "objective rate" or (4) a single
fixed rate and a single objective rate that is a "qualified inverse floating
rate". A "current value" of a qualified floating rate or objective rate is the
value of the rate on any day that is no earlier than 3 months prior to the first
day on which that value is in effect and no later than 1 year following that
first day. Finally, a Variable Rate Note must not provide for any contingent
principal payments.
A variable rate is a "qualified floating rate" if (i) variations in the
value of the rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the Note
is denominated or (ii) is equal to the product of such rate and either (a) a
fixed multiple that is greater than 0.65 but not more than 1.35 or (b) a fixed
multiple greater than 0.65 but not more than 1.35 increased or decreased by a
fixed rate. If a Note provides for two or more qualified floating rates that (i)
are within 0.25 percent of each other on the issue
S-33
<PAGE>
date or (ii) can reasonably be expected to have approximately the same values
throughout the term of the Note, the qualified floating rates together
constitute a single qualified floating rate. A rate is not a qualified floating
rate, however, if the rate is subject to certain restrictions (including caps,
floors, governors, or other similar restrictions) unless such restrictions are
fixed throughout the term of the Note or are not reasonably expected to
significantly affect the yield on the Note.
An "objective rate" is a rate, other than a qualified floating rate, that is
determined using a single, fixed formula and that is based on objective
financial or economic information that is not within the control of or unique to
the circumstances of the Company or a related party. A variable rate is not an
objective rate, however, if it is reasonably expected that the average value of
the rate during the first half of the Note's term will be either significantly
less than or significantly greater than the average value of the rate during the
final half of the Note's term. An objective rate is a "qualified inverse
floating rate" if (i) the rate is equal to a fixed rate minus a qualified
floating rate and (ii) the variations in the rate can reasonably be expected to
inversely reflect contemporaneous variations in the cost of newly borrowed
funds.
In general, if a Variable Rate Note provides for stated interest at a single
qualified floating rate or an objective rate and the interest is generally
unconditionally payable at least annually in cash or property (other than debt
instruments of the Company), all stated interest on the Note is qualified stated
interest and the amount of OID, if any, is determined as described in
"--Original Issue Discount" above by using, in the case of a qualified floating
rate or qualified inverse rate, the value as of the issue date of the qualified
floating rate or qualified inverse floating rate, or, in the case of any other
objective rate (other than a qualified inverse floating rate), a fixed rate that
reflects the yield reasonably expected on the Note. The qualified stated
interest allocable to an accrual period is increased (or decreased) if the
interest actually paid during an accrual period exceeds (or is less than) the
interest assumed to be paid during the accrual period.
If a Variable Rate Note does not provide for stated interest at a single
qualified floating rate or an objective rate and also does not provide for
interest payable at a fixed rate (other than a fixed rate for an initial period
only), the amount of interest and OID accruals on the Note are generally
determined by (i) determining a fixed rate substitute for each variable rate
provided under the Variable Rate Note (generally, the value of each variable
rate as of the issue date or, in the case of an objective rate that is not a
qualified inverse floating rate, a rate that reflects the reasonably expected
yield on the Note), (ii) constructing an equivalent fixed rate debt instrument
(using the fixed rate substitute described above), (iii) determining the amount
of qualified stated interest and OID with respect to the equivalent fixed rate
debt instrument, and (iv) making the appropriate adjustments for the actual
variable rate during the applicable accrual period.
If a Variable Rate Note provides for stated interest either at one or more
qualified floating rates or at a qualified inverse floating rate, and in
addition provides for stated interest at a single fixed rate (other than at a
single fixed rate for an initial period only), the amount of interest and OID
accruals are determined as in the immediately preceding paragraph with the
modification that the Variable Rate Note is treated, for purposes of the first
three steps of the determination, as if it provides for a qualified floating
rate (or a qualified inverse floating rate) rather than the fixed rate. The
qualified floating rate (or qualified inverse floating rate) replacing the fixed
rate must be such that the fair market value of the Variable Rate Note as of the
issue date would be approximately the same as the fair market value of an
otherwise identical debt instrument that provides for the qualified floating
rate (or qualified inverse floating rate) rather than the fixed rate.
SHORT-TERM NOTES
The rules set forth above also will generally apply to Notes having
maturities of not more than one year from the date of issuance ("Short-Term
Notes"), but with certain modifications.
S-34
<PAGE>
First, none of the interest on a Short-Term Note is treated as qualified
stated interest but instead is treated as part of the Short-Term Note's stated
redemption price at maturity, thereby giving rise to OID. Thus, all Short-Term
Notes will be OID Notes. OID will be treated as accruing on a Short-Term Note
ratably or, at the election of a United States holder, under a constant yield
method.
Second, a United States holder of a Short-Term Note that uses the cash
method of tax accounting will generally not be required to include OID in
respect of the Short-Term Note in income on a current basis. Such a United
States holder may not be allowed to deduct all of the interest paid or accrued
on any indebtedness incurred or maintained to purchase or carry such Note until
the maturity of the Note or its earlier disposition in a taxable transaction. In
addition, such a United States holder will be required to treat any gain
realized on a disposition of the Note as ordinary income to the extent of the
holder's accrued OID with respect to the Note. Notwithstanding the foregoing, a
United States holder of a Short-Term Note using the cash method of tax
accounting may elect to accrue OID into income on a current basis (in which case
the limitation on the deductibility of interest described above will not apply).
A United States holder using the accrual method of tax accounting generally will
be required to include OID on a Short-Term Note in income on a current basis.
Third, any United States holder of a Short-Term Note (whether using the cash
or accrual method of tax accounting) can elect to accrue the "acquisition
discount," if any, with respect to the Note on a current basis. If such an
election is made, the OID rules will not apply to the Note. Acquisition discount
is the excess of the Note's stated redemption price at maturity over the
holder's purchase price for the Note. Acquisition discount will be treated as
accruing ratably or, at the election of the United States holder, if available,
under a constant-yield method based on daily compounding.
As described above, certain of the Notes may be subject to special
redemption features. These features may affect the determination of whether a
Note has a maturity of not more than one year and thus is a Short-Term Note.
Purchasers of Notes with such features should carefully examine the applicable
Pricing Supplement and should consult their tax advisors with respect to such
features.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Trustee will be required to file information returns with the IRS with
respect to payments made to certain United States holders of Notes. In addition,
certain United States holders may be subject to a 31 percent backup withholding
tax in respect of such payments if they do not provide their taxpayer
identification numbers to the Trustee, or if other conditions are met.
NON-UNITED STATES HOLDERS
PAYMENTS OF INTEREST
Interest (including OID) paid by the Company to Non-United States holders
will not be subject to United States federal income or withholding tax if the
requirements of section 871(b) or 881(c) of the Code are satisfied as described
below under the heading "Owner's Statement Requirement," and provided that (i)
such holder does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote,
(ii) such holder is not a controlled foreign corporation that is related to the
Company through stock ownership, a foreign tax-exempt organization or foreign
private foundation for United States federal income tax purposes, and (iii) the
interest is not "contingent interest". Notwithstanding the above, a Non-United
States holder that is engaged in the conduct of a United States trade or
business will be subject to (i) United States federal income tax on interest
that is effectively connected with the conduct of such trade or business and
(ii) if the Non-United States holder is a corporation, a United States branch
profits tax equal to 30% of its "effectively connected earnings and profits" as
adjusted for the taxable year, unless the holder
S-35
<PAGE>
qualifies for an exemption from such tax or a lower tax rate under an applicable
treaty.
GAIN ON DISPOSITION
A Non-United States holder will generally not be subject to United States
federal income tax on gain recognized on a sale, redemption, or other
disposition of a Note unless (i) the gain is effectively connected with the
conduct of a trade or business within the United States by the Non-United States
holder or (ii) in the case of a Non-United States holder who is a nonresident
alien individual, such holder is present in the United States for 183 or more
days during the taxable year and certain other requirements are met. Any such
gain that is effectively connected with the conduct of a United States trade or
business by a Non-United States holder will be subject to United States federal
income tax on a net income basis in the same manner as if such holder were a
United States holder and, if such Non-United States holder is a corporation,
such gain may also be subject to the 30% United States branch profits tax
described above.
FEDERAL ESTATE TAXES
A Note held by an individual who at the time of death is not a citizen or
resident of the United States will not be subject to United States federal
estate tax as a result of such individual's death, provided that (i) the
individual does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote
and (ii) the interest accrued on the Note was not effectively connected with the
conduct of a United States trade or business.
OWNER'S STATEMENT REQUIREMENT
Sections 871(h) and 881(c) of the Code require that either the beneficial
owner of a Note or a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business (a "Financial Institution") and that holds a Note on behalf of such
owner file a statement with the Company or its agent to the effect that the
beneficial owner is not a United States holder in order to avoid withholding of
United States federal income tax. Under current regulations, this requirement
will be satisfied if the Company or its agent receives (i) a statement (an
"Owner's Statement") from the beneficial owner of a Note in which such holder
certifies, under penalties of perjury, that such holder is not a United States
holder and provides such holder's name and address or (ii) a statement from the
Financial Institution holding the Note on behalf of the beneficial owner in
which the Financial Institution certifies, under penalties of perjury, that it
has received the Owner's Statement together with a copy of the Owner's
Statement. The beneficial owner must inform the Company or its agent (or, in the
case of a statement described in clause (ii) of the immediately proceeding
sentence, the Financial Institution) within 30 days of any change in information
on the Owner's Statement. The foregoing certifications may be made on Internal
Revenue Service Form W-8.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Current United States federal income tax law provides that in the case of
payments of interest to Non-United States holders, the 31% backup withholding
tax will not apply to payments made outside the United States by the Company or
a paying agent on a Note if an Owner's Statement is received or an exemption has
otherwise been established; provided in each case that the Company or the paying
agent, as the case may be, does not have actual knowledge that the payee is a
United States holder.
Under current Treasury Regulations, payments of the proceeds of the sale of
a Note to or through a foreign office of a "broker" will not be subject to
backup withholding but will be subject to information reporting if the broker is
a United States holder, a controlled foreign corporation for United States
federal income tax purposes, or a foreign holder 50% or more of its gross income
is from a United States trade or business for a specified three-year period,
unless the broker has in its records documentary evidence that the holder is not
a United States holder and certain conditions are met or the holder otherwise
establishes an exemption. Payment of the proceeds of a sale to or through
S-36
<PAGE>
the United States office of a broker is subject to backup withholding and
information reporting unless the holder certifies its non-United States status
under penalties of perjury or otherwise establishes an exemption.
Recently, the Treasury Department has promulgated final regulations (the
"Final Regulations") regarding withholding and information reporting rules
discussed above. In general, the Final Regulations do not significantly alter
the substantive withholding and information reporting requirements but unify
current certification procedures and forms and clarify reliance standards. Under
the Final Regulations, special rules apply which permit the shifting of primary
responsibility for withholding to certain financial intermediaries acting on
behalf of beneficial owners. The Final Regulations are generally effective for
payments made after December 31, 1999, subject to certain transition rules.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
Qualification as a REIT involves the application of highly technical and
complex provisions of the Code for which there are only limited judicial and
administrative interpretations, and the determination of various factual matters
and circumstances not entirely within the control of the Company. No assurance
can be given that the Company is or will remain qualified as a REIT. In
addition, changes in the tax law applicable to REITs could adversely affect the
ability of the Company to operate as a REIT, and no assurance can be given that
any such changes in the tax law will not affect the Company's qualification as a
REIT or the federal income tax consequences of such qualification.
The Company intends to continue to operate in a manner so as to qualify as a
REIT under the Code. However, if in any taxable year, the Company failed to
qualify as a REIT (a "Disqualified Corporation"), the Disqualified Corporation
would not be allowed a deduction for dividends paid to its shareholders in
computing its taxable income and would be subject to federal income taxation
(and possibly additional state and local taxes) at corporate rates (including
any applicable alternative minimum tax). As a result of the additional tax
liability, the Disqualified Corporation might need to borrow funds or liquidate
investments on terms that could be disadvantageous in order to pay the tax. In
addition, a Disqualified Corporation would not be required to make dividend
distributions under the Code. Unless entitled to relief under certain statutory
provisions, the Disqualified Corporation would also be disqualified from
treatment as a REIT for the four taxable years following the year during which
qualification was lost. Although the Company currently intends to operate in a
manner designed to qualify as a REIT, it is possible that future economic,
market, legal, tax or other considerations or other events could cause the
Company to fail to qualify as a REIT or could cause the Company's Board of
Directors, as the case may be, to revoke its REIT election.
SUPPLEMENTAL PLAN OF DISTRIBUTION
Under the terms of a Distribution Agreement by and between the Company,
Lehman Brothers Inc., First Chicago Capital Markets, Inc. and NationsBanc
Montgomery Securities LLC (collectively the "Agents") dated as of October 23,
1998 (the "Distribution Agreement"), the Notes are being and will in the future
be offered from time to time for sale by the Company to or through the Agents.
The Agents, individually or in a syndicate, may purchase Notes, as principal,
from the Company from time to time for resale to investors and other purchasers
at varying prices relating to prevailing market prices at the time of resale as
determined by the applicable Agent(s), or, if so specified in the applicable
Pricing Supplement, for resale at a fixed offering price. If agreed to by the
Company and an Agent, such Agent may also utilize its reasonable efforts on an
agency basis to solicit offers to purchase the Notes at 100% of the principal
amount thereof, unless otherwise specified in the applicable Pricing Supplement.
The Company will pay a commission to an Agent, ranging from 0.125% to 0.750%
of the principal amount of each Note, depending upon
S-37
<PAGE>
its stated maturity, sold through such Agent as an agent of the Company. We will
receive from 99.875% to 99.250% of the principal amount of each Note, before
deducting estimated expenses of approximately $225,000 payable by the Company.
Commissions with respect to Notes with stated maturities in excess of 30 years
that are sold through an Agent as an agent of the Company will be negotiated
between the Company and such Agent at the time of such sale.
Unless otherwise specified in the applicable Pricing Supplement, any Note
sold to an Agent as principal will be purchased by such Agent at a price equal
to 100% of the principal amount thereof less a percentage of the principal
amount equal to the commission applicable to an agency sale of a Note of
identical maturity. An Agent may sell Notes it has purchased from the Company as
principal to certain dealers less a concession equal to all or any portion of
the discount received in connection with such purchase. Such Agent may allow,
and such dealers may reallow, a discount to certain other dealers. After the
initial offering of Notes, the offering price (in the case of Notes to be resold
on a fixed offering price basis), the concession and the reallowance may be
changed.
The Notes may also be sold by the Company directly to investors (other than
broker-dealers) in those jurisdictions in which the Company is permitted to do
so. No commission will be paid on Notes sold directly by the Company.
The Company may also accept (but not solicit) offers to purchase Notes from
time to time through one or more additional agents or dealers, acting either as
agent or principal, on substantially the same terms as those applicable to sales
of Notes to or through the Agents pursuant to the Distribution Agreement. In any
such events, the names of the other agents or principals will be set forth in
the applicable Pricing Supplement. Any such additional agent shall, with respect
to such Notes, be deemed to be included in all references to an "Agent" or the
"Agents" hereunder.
The Company reserves the right to withdraw, cancel or modify the offer made
hereby without notice and may reject offers in whole or in part (whether placed
directly with the Company or through either of the Agents). Each of the Agents
will have the right, in its discretion reasonably exercised, to reject in whole
or in part any offer to purchase Notes.
Unless otherwise specified in the applicable Pricing Supplement, payment of
the purchase price of the Notes will be required to be made in immediately
available funds in the Specified Currency in the City of New York on the date of
settlement. See "Description of Notes-- General."
Upon issuance, the Notes will not have an established trading market. The
Notes will not be listed on any securities exchange. The Agents may from time to
time purchase and sell Notes in the secondary market, but the Agents are not
obligated to do so, and there can be no assurance that there will be a secondary
market for the Notes or that there will be liquidity in the secondary market if
one develops. From time to time, the Agents may make a market in the Notes, but
the Agents are not obligated to do so and may discontinue any market-making
activity at any time.
The Agents, as agents or principals, may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"). The Company and certain of its affiliates have agreed to indemnify the
Agents against, and to provide contribution with respect to, certain liabilities
(including liabilities under the Securities Act). The Company has agreed to
reimburse the Agents for certain other expenses.
The Agents may sell to or through dealers who may resell to investors, and
the Agents may pay all or part of their discount or commission to such dealers.
Such dealers may be deemed to be "underwriters" within the meaning of the
Securities Act.
The Agents have, from time to time, provided, and may continue to provide in
the future, various investing banking, commercial banking and/or financial
advisory services to the Company and certain of its affiliates, for which
certain customary compensation has been, and will be, received. The Company has
a $150
S-38
<PAGE>
million unsecured credit facility under which Lehman Brothers Holdings Inc., an
affiliate of Lehman Brothers Inc. (an Agent of this Offering), and The First
National Bank of Chicago, an affiliate of First Chicago Capital Markets, Inc.
(an Agent of this Offering), are the co-lead lenders and NationsBank, N.A., an
affiliate of NationsBanc Montgomery Securities, LLC (an Agent of this Offering),
is a participating lender. The Company may use all or a portion of the net
proceeds to the Company from the sale of the Notes offered hereby to reduce
amounts outstanding under this unsecured credit facility. In the event that a
default occurs under the aforementioned unsecured credit facility, Lehman
Brothers Holdings Inc., The First National Bank of Chicago, NationsBank, N.A.
and the other lenders thereunder have the right to pursue various remedies which
may be to the disadvantage of the holders of the Notes.
In connection with certain types of offers and sales of the Notes, the rules
of the Securities and Exchange Commission permit the Agents to engage in certain
transactions that stabilize the price of the Notes. Certain persons
participating in this offering may engage in transactions that stabilize,
maintain or otherwise affect the price of the Notes. Such transactions may
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Notes, the purchase of Notes to cover syndicate short positions
and the imposition of a penalty bid. If the Agents create a short position in
the Notes in connection with this offering (i.e., if it sells more Notes than
are set forth in the applicable Pricing Supplement), the Agents may reduce that
short position by purchasing Notes 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 otherwise be in the
absence of such purchases.
Neither the Company nor any of the Agents makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Notes. In addition, neither the
Company nor any of the Agents makes any representation that anyone will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without notice.
LEGAL MATTERS
The legality of the Notes offered hereby will be passed upon for the Company
by Ungaretti & Harris. Certain legal matters will be passed upon for the Agents
by Skadden, Arps, Slate, Meagher & Flom LLP. The opinions of Ungaretti & Harris
and Skadden, Arps, Slate, Meagher & Flom LLP will be based upon, and subject to,
certain assumptions as to future actions required to be taken in connection with
the issuance and sale of the Notes and as to other events that may affect the
validity of the Notes but that cannot be ascertained on the date of such
opinions.
S-39
<PAGE>
PROSPECTUS
$500,000,000
CENTERPOINT PROPERTIES TRUST
DEBT SECURITIES, COMMON SHARES, PREFERRED SHARES, SECURITIES WARRANTS
----------------
CenterPoint Properties Trust (the "Company") may from time to time offer in
one or more series its (i) senior debt securities ("Senior Debt Securities"),
(ii) subordinated debt securities ("Subordinated Debt Securities") (Senior Debt
Securities and Subordinated Debt Securities being collectively referred to
herein as "Debt Securities"), (iii) common shares of beneficial interest, $.001
par value per share ("Common Shares"), (iv) preferred shares of beneficial
interest, par value $.001 per share ("Preferred Shares"), and (v) warrants
exercisable for Debt Securities, Common Shares or Preferred Shares ("Securities
Warrants"), in amounts, at prices and on terms to be determined at the time of
offering. The Senior Debt Securities, Subordinated Debt Securities, Common
Shares, Preferred Shares and Securities Warrants (collectively referred to
herein as the "Securities") may be offered separately or together, in separate
series, in amounts, at prices and on terms to be described in one or more
supplements to this Prospectus (a "Prospectus Supplement").
The aggregate public offering price for Securities offered by the Company
will be up to $500,000,000 (or the equivalent based on the applicable exchange
rate at the time of the offering).
The specific terms of the Securities with respect to 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, any terms for
redemption at the option of the Company or repayment at the option of the
holder, any terms for any sinking fund payment, covenants and any initial public
offering price; (ii) in the case of Common Shares, any initial public offering
price; (iii) in the case of Preferred Shares, the specific title and stated
value, any dividend, liquidation, redemption, conversion, voting and other
rights, and any initial public offering price; and (iv) in the case of
Securities Warrants, the specific title and aggregate number, the issue price
and the exercise price. In addition, such specific terms may include limitations
on direct or beneficial ownership and restrictions on transfer of the
Securities, in each case as may be appropriate to preserve the status of the
Company as a real estate investment trust ("REIT") for U.S. federal income tax
purposes.
The applicable Prospectus Supplement also will contain information, where
applicable, about certain U.S. federal income tax considerations relating to,
and any listing on a securities exchange of, the Securities covered by such
Prospectus Supplement.
The Securities may be offered directly by the Company, through agents
designated from time to time by the Company, or 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 with, between or among them, will be set forth, or will be
calculable from the information set forth, in an accompanying Prospectus
Supplement. See "Plan of Distribution." No Securities may be sold without
delivery of a Prospectus Supplement describing the method and terms of the
offering of such Securities.
SEE "RISK FACTORS" ON PAGE 5 OF THIS PROSPECTUS FOR CERTAIN FACTORS AND
MATERIAL RISKS IN CONNECTION WITH THE PURCHASE OF THE SECURITIES.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
April 13, 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and other applicable legal
or New York Stock Exchange, Inc. ("NYSE") requirements, pursuant to which the
Company files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company under the Exchange Act may
be examined without charge at, or copies obtained upon payment of prescribed
fees from, the Public Reference Section of the Commission at Judiciary Plaza
Office Building, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be
available for inspection and copying at the regional offices of the Commission
located at 13th Floor, 7 World Trade Center, New York, New York 10048 and at
Citicorp Center, Suite 1400, 500 West Madison Street, Chicago, Illinois
60661-2511, and at the NYSE, 20 Broad Street, New York, New York 10005.
Electronic filings made through the Electronic Data Gathering, Analysis and
Retrieval System are publicly available through the Commission's Web Site
(http://www.sec.gov).
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement"), of which this Prospectus is a part, under the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
promulgated thereunder, with respect to the Securities offered pursuant to this
Prospectus. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the Securities, reference is made to the Registration
Statement, which may be inspected and copied in the manner and at the sources
described above.
Statements contained in this Prospectus as to the contents of any contract
or other document that is filed as an exhibit to the Registration Statement are
not necessarily complete, and each such statement is qualified in its entirety
by reference to the full text of such contract or document.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the year ended December 31,
1997;
2. The Company's Current Report on Form 8-K/A No. 1 filed with the
Commission on February 27, 1998;
3. The Company's Current Report on Form 8-K filed with the Commission on
March 27, 1998;
4. The Company's Current Report on Form 8-K filed with the Commission on
April 3, 1998; and
5. The description of the Company's Common Shares set forth in the
Company's Pre-Effective Amendment No. 1 to Form S-4 registration
statement filed with the Commission on August 28, 1997 (File No.
333-33515).
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of all Securities offered hereby shall be deemed
to be incorporated by reference in this Prospectus and to be a part hereof from
the date of filing of such documents. Any statement herein or in any document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for the purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed to constitute a part of this Prospectus except as so modified or
superseded.
2
<PAGE>
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any and all of the documents
that have been or may be incorporated herein by reference (excluding exhibits to
such information unless such exhibits are specifically incorporated by reference
into the information that this Prospectus incorporates). Requests for such
information should be directed to CenterPoint Properties Trust, 401 North
Michigan, 30th Floor, Chicago, Illinois 60611; Attention: Paul S. Fisher,
Secretary; telephone (312) 346-5600.
THE COMPANY
The Company is a self administered and self managed real estate investment
trust focused on the acquisition, development, redevelopment, management and
ownership of warehouse/industrial property located in Greater Chicago (defined
as the area within a 150-mile radius of Chicago, including Milwaukee, Wisconsin
and South Bend, Indiana). The Company has elected and qualified for REIT status
since January 1, 1994. See "Federal Income Tax Considerations Relating to the
Company's REIT status-- Qualification as a REIT; Opinion of Counsel."
The Company, a Maryland real estate investment trust, was founded in 1984
and completed its initial public offering of securities in December 1993 (the
"IPO"). Between completion of the IPO and December 31, 1997, the Company has
increased the size of its warehouse/industrial portfolio by 16.9 million square
feet or 325% by acquiring (net of dispositions) 60 fully-leased
warehouse/industrial properties. On October 15, 1997, the Company completed a
corporate reorganization pursuant to which the Company was converted from a
Maryland corporation to a Maryland real estate investment trust.
As of December 31, 1997, the Company's investment and management portfolio
consisted of 95 warehouse/industrial properties containing approximately 22.1
million square feet. Based on published statistics regarding square feet of
space owned and managed by other firms and publicly available information filed
with the Commission, as well as its knowledge and experience in the market, the
Company believes it is the largest owner and operator of warehouse/industrial
property in Greater Chicago. The Company also owns and manages three retail
properties, one parking lot and one apartment property, holds mortgages on two
warehouse/industrial properties, and is developing eight build-to-suit projects.
As of December 31, 1997, the Company's properties were 97% leased, excluding
properties which are currently being redeveloped and not leasable, with the
warehouse/industrial properties occupied by 178 tenants in diverse industries.
No tenant accounts for more than 5% of the Company's total revenues.
Substantially all of the Company's properties have been constructed or renovated
during the past ten years.
The Company believes that Greater Chicago offers significant opportunities
for investment in and ownership of warehouse/industrial property. Greater
Chicago, due to its central location and extensive air, roadway, rail, and water
transportation infrastructure, supports a diverse industrial and service
industry base. Based on published statistics regarding square feet of space
owned and managed by other firms and publicly available information filed with
the Securities and Exchange Commission, as well as its knowledge and experience
in the market, the Company believes it is the largest owner and operator of
warehouse/ industrial property in Greater Chicago.
The Company believes that investment in warehouse/industrial property offers
attractive returns and stable cash flow. Published statistics indicate that
total returns from warehouse/industrial properties have been among the highest
of any commercial property type in each of the past 15 years. The Company
believes that cash flow from warehouse/industrial property investments is
generally more predictable than cash flow from other property types because: (i)
relatively short construction periods discourage speculative building; (ii)
lower capital expenditures are required to sustain rental income due to the
adaptable character of warehouse/industrial property; and (iii) tenant renewal
rates are higher due to the significant cost and disruption to tenant operations
resulting from relocations. Moreover, leases for warehouse/ industrial
properties provide generally for rent growth through contractual rent increases
or rents tied to
3
<PAGE>
certain indices such as the Consumer Price Index and are generally structured as
net leases, providing for the pass through to tenants of all operating and real
estate tax expenses.
The Company's objective is to maximize stockholder value by pursuing a
growth strategy consisting of (i) intensive management of the Company's existing
properties and (ii) the acquisition of existing leased properties, build-to-suit
projects and properties suitable for redevelopment.
The Company's principal executive office is located at 401 North Michigan
Avenue, 30th Floor, Chicago, Illinois 60611, and its telephone number is (312)
346-5600.
4
<PAGE>
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below.
LIMITED GEOGRAPHICAL AND PROPERTY-TYPE DIVERSIFICATION
All of the Company's properties are located in Greater Chicago, and
substantially all of the Company's properties are warehouse/industrial
properties. While the Company believes that its focus on this geographical area
and property type is an advantage, the Company's performance and its ability to
make distributions to stockholders could be adversely affected by unfavorable
economic and/or warehouse/ industrial real estate conditions in Greater Chicago.
RISKS OF DEBT FINANCING
The Company is subject to the risks normally associated with the incurrence
of debt financing, including the risks that (i) the Company will be unable to
meet required payments of principal and interest, (ii) existing indebtedness
will not be able to be refinanced or, if refinanced, the terms of such
refinancing will not be as favorable as the original terms of such indebtedness
and (iii) necessary capital expenditures for such purposes as renovations and
other improvements will not be able to be financed or, if financed, will not be
able to be financed on terms favorable to the Company. If a property is
mortgaged to secure payment of indebtedness and the Company is unable to meet
mortgage payments, the property could be foreclosed upon by the mortgagee with a
consequent loss of income and asset value to the Company.
The Company intends to continue its policy of maintaining a ratio of debt to
total market capitalization of the Company of less than 50%. However, the
Declaration of Trust does not contain any limitations on the ratio of debt to
total market capitalization. Accordingly, the Board of Trustees could alter or
eliminate the current limitation on borrowing without the approval of the
Company's shareholders. If this policy were changed, the Company could become
more highly leveraged, resulting in an increase in debt service that could
adversely affect the Company's Funds from Operations and its ability to make
expected distributions to shareholders, as well as increase the risk of default
on the Company's other indebtedness and any borrowings incurred under the
Company's lines of credit.
Certain of the Company's debt now provides, and may in the future provide,
for variable interest rates. To the extent that the Company has variable
interest rate debt, the Company is exposed to the risk of interest rate
fluctuations and, consequently, an increase in interest expense. An increase in
interest expense could have a material adverse impact on the Company's
operations.
LIMITATION ON OWNERSHIP OF SHARES
In order 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 the
Company's outstanding shares of beneficial interest may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities). Due to this limitation on the concentration of ownership of
shares of beneficial interest in a REIT, ownership of more than 9.8% of the
value of the outstanding shares of beneficial interest by any single shareholder
has been restricted in the Declaration of Trust, with the exception of the
ownership of the Common Shares by the Company's former parent company,
CRP-London.
In connection with the limitation described in the preceding paragraph,
shares held by certain domestic pension trusts are treated as held by the
beneficiaries of such trusts. The Company does not intend to rely on this rule
to maintain compliance with such limitation. Under the Declaration of Trust,
domestic pension funds are subject to the restriction on ownership of more than
9.8% of the value of the outstanding shares of beneficial interest.
These ownership limits, as well as the ability of the Company to issue
additional Common Shares and Preferred Shares, may discourage a change of
control of the Company and may also (i) deter tender offers
5
<PAGE>
for the Common Shares, which offers may be advantageous to shareholders, and
(ii) limit the opportunity for shareholders to receive a premium over then
prevailing market prices for their Common Shares that might otherwise exist if
an investor were attempting to assemble a block of Common Shares or otherwise
effect a change of control of the Company. See "Description of Shares of
Beneficial Interest--Restrictions on Transfer."
CHANGES IN INVESTMENT AND FINANCING OBJECTIVES
The investment and financing objectives of the Company, and its objectives
with respect to certain other activities, including without limitation, the
objective that the Company continue to qualify as a REIT, will be determined by
the Board of Trustees. Although the Board of Trustees has no present intention
to do so, the Board may revise current objectives of the Company at any time and
from time to time in its sole discretion. Accordingly, shareholders will have no
direct control over changes in the objectives of the Company.
REAL ESTATE INVESTMENT CONSIDERATIONS
GENERAL. The business of owning and investing in real estate is highly
competitive and is subject to numerous inherent risks, including adverse changes
in general or local economic conditions and/or specific industry segments, real
estate values, rental rates, interest rates, real estate tax rates and other
operating expenses, the possibility of competitive overbuilding and of the
Company's inability to obtain or maintain high levels of occupancy in the
Company's properties, tenant defaults, unfavorable changes in governmental rules
and fiscal policies (including rent control legislation), acts of God and other
factors which are beyond the control of the Company. In addition to affecting
the profitability of operations, these and other factors could impact the
marketability of the Company's properties.
In addition to the general risks of ownership and investment in real
property, the Company will be subject to other risks in connection with the
leasing, redevelopment and improvement of properties, such as the risk that the
properties may operate at a cash deficit during the redevelopment and/or
lease-up period, and the risk of a contractor's inability to control costs and
to conform to plans, specifications and timetables, which may in turn be
affected by strikes, weather, government regulations and other conditions beyond
the contractor's control. The benefits anticipated from such transactions,
therefore, may be reduced or may not materialize. The Company may in the future
acquire properties in need of additional leasing activity, rehabilitation or
improvement.
COMPETITION. All of the Company's existing properties are, and all of the
properties that it may acquire in the future are expected to be, located in
areas that include numerous other warehouse/ industrial, retail or apartment
properties, many of which may be deemed to be more suitable to any potential
tenant. The resulting competition could have a material adverse effect on the
Company's ability to lease its properties and to increase the rentals charged on
existing leases.
ENVIRONMENTAL MATTERS. All of the Company's existing properties have been,
and all properties the Company may acquire in the future will be, subjected to a
Phase I or similar environmental assessment. The purpose of a Phase I
environmental assessment is to determine if past and present uses of a property
indicate the potential for soil or groundwater contamination or if other
environmental conditions might affect the value of or future uses of the
property. Phase I environmental assessments generally include the following:
visual inspection of environmental conditions at and around the property; review
of available land use records; interviews with the property representatives;
examination of information from environmental agencies; and a walk through
survey for suspected asbestos containing or other toxic materials. These
environmental assessments have not revealed any environmental condition with
respect to any of the Company's existing properties that the Company believes
could have a material adverse effect upon the business or assets of the Company.
However, no assurance can be given that environmental assessments have revealed
or will reveal all potentially negative environmental conditions that may exist.
6
<PAGE>
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is potentially liable to governmental entities
or third parties for property damage and the costs of investigation, removal or
remediation of contamination caused by certain hazardous or toxic substances on
or in such property. Such laws often impose liability without regard to whether
the owner knew of, or was responsible for, the presence of such hazardous or
toxic substances. The presence of such substances, or the failure to properly
remove such substances or remediate any contamination caused thereby, may
adversely affect the owner's ability to sell or rent such property or to borrow
using such property as collateral. Persons who arrange for the disposal of
hazardous substances at a treatment, storage or disposal facility may be liable
for the cost of removal or remediation of such substances at such treatment,
storage or disposal facility, whether or not such facility is owned or operated
by such person. Certain environmental laws impose liability for release of
asbestos-containing materials into the air, and third parties may seek recovery
from owners or operators of real properties for personal injury associated with
such materials. In connection with the ownership, operation, management and
development of properties, the Company may be considered the owner or operator
of such properties or as having arranged for the disposal of hazardous or toxic
substances and, therefore, may be potentially liable for removal or remediation
costs, as well as certain other related costs, including governmental fines and
damages for injuries to persons and properties.
UNINSURED LOSS. The Company maintains comprehensive liability, fire, flood
(where appropriate), extended coverage and rental loss insurance with respect to
its properties, with limits and deductibles customary in the industry. Certain
types of losses, however, may be either uninsurable or not economically
insurable, such as those due to earthquakes, riots or acts of war. Should an
uninsured loss occur, the Company could lose both its investment in and
anticipated profits and cash flow from a property and would continue to be
obligated on any mortgage indebtedness or other obligations related to the
property. Any such loss could adversely affect the Company.
COST OF COMPLIANCE WITH THE AMERICANS WITH DISABILITIES ACT. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all public accommodations
are required to meet certain federal requirements related to access and use by
disabled persons. Existing warehouse/industrial properties generally are exempt
from the provisions of ADA but may be subject to provisions requiring that
buildings be made accessible to people with disabilities. Compliance with the
ADA could require removal of access barriers, and non-compliance could result in
the imposition of fines by the federal government or an award of damages to
private litigants. While the amounts of such compliance costs, if any, are not
currently ascertainable, they are not expected to have an adverse effect on the
Company.
CERTAIN RISKS RELATED TO REIT STATUS AND STRUCTURE
TAXATION AS A CORPORATION. The Company has elected and qualified for REIT
status since January 1, 1994. Although the Company believes that it has operated
in such a manner as to qualify as a REIT, no assurance can be given that the
Company will remain so qualified. Qualification as a REIT involves the
satisfaction of numerous requirements (some on an annual and quarterly basis)
established under highly technical and complex Code provisions for which there
are only limited judicial or administrative interpretations, and involves the
determination of various factual matters and circumstances not entirely within
the Company's control.
If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at corporate rates. Moreover,
unless entitled to relief under certain statutory provisions, the Company would
also be disqualified from treatment as a REIT for the four taxable years
following the year during which disqualification occurred. This treatment would
reduce the net earnings of the Company available for investment or distribution
to shareholders because of the additional tax liability to the Company for the
years involved. In addition, distributions to shareholders would no longer be
required to be made.
7
<PAGE>
LACK OF CONTROL OF CERTAIN SUBSIDIARY CORPORATIONS. The Company expects to
derive income from certain activities (such as management of properties owned by
third parties) in excess of amounts the Company could earn directly or through
an entity controlled by the Company without jeopardizing its REIT status.
Accordingly, the Company owns a small percentage of the voting stock of
corporations carrying on such activities, and the Company has limited ability to
influence the day-to-day management of such corporations, even though the
Company owns stock representing most of the economic interest in such
corporations.
OTHER TAX LIABILITIES. Even as a REIT, the Company will be subject to
certain federal, state and local taxes on its income and property.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the
Company intends to invest the net proceeds of any sale of Securities for general
business purposes, including the development, redevelopment and acquisition of
additional properties and repayment of outstanding debt.
CERTAIN RATIOS
The Company's ratios of earnings to fixed charges for the years ended
December 31, 1997, 1996, 1995 and 1994 were 3.27, 2.33, 1.63 and 1.19,
respectively. The ratio of earnings to fixed charges for the year ended December
31, 1993 was less than one-to-one.
The ratio of earnings to fixed charges means the ratio of pretax income from
continuing operations (with certain adjustments) to the total of: (i) interest,
(ii) amortization of debt expense and (iii) such portion of rental expense as
can be demonstrated to be representative of the interest factor in the
particular case.
The Company issued 2,272,727 shares of Series A Preferred Stock in
September, 1995, which was converted into 2,272,727 shares of Class B Common
Stock in May, 1996, and issued 3,000,000 8.48% Series A Cumulative Redeemable
Preferred Shares of Beneficial Interest in November, 1997. The Company's ratios
of earnings to combined fixed charges and Preferred Share dividends for the
years ended December 31, 1997, 1996 and 1995 were 3.04, 2.15 and 1.51. The
Company had not issued any Preferred Stock prior to 1995; therefore, the ratios
of earnings to combined fixed charges and Preferred Stock dividends for years
prior to 1995 are unchanged from the ratios of earnings to fixed charges for
such years as set forth above.
DESCRIPTION OF DEBT SECURITIES
The following description sets forth certain general terms and provisions of
the Debt Securities to which this Prospectus and any applicable Prospectus
Supplement may relate. The particular terms of the Debt Securities being offered
and the extent to which such general provisions may apply will be set forth in
the applicable Indenture or in one or more indentures supplemental thereto and
described in a Prospectus Supplement relating to such Debt Securities.
The Senior Debt Securities will be issued under an Indenture, as amended or
supplemented from time to time (the "Senior Indenture"), between the Company and
a trustee to be selected by the Company (the "Senior Trustee"), and the
Subordinated Debt Securities will be issued under an Indenture, as amended and
supplemented from time to time (the "Subordinated Indenture"), between the
Company and a trustee to be selected by the Company (the "Subordinated
Trustee"). The Senior Indenture and the Subordinated Indenture are each referred
to herein individually as an "Indenture," and they are together referred to
herein as the "Indentures;" the Senior Trustee and the Subordinated Trustee are
each referred to herein individually as a "Trustee," and they are together
referred to herein as the "Trustees." Forms of the Senior Indenture and of the
Subordinated Indenture have been filed as exhibits to the Registration Statement
of
8
<PAGE>
which this Prospectus is a part and will be available for inspection at the
corporate office of the Senior Trustee and Subordinated Trustee, respectively,
or as described above under "Available Information." The Indentures will be
subject to, and governed by, the Trust Indenture Act of 1939, as amended. The
Company will execute the applicable Indenture when and if the Company issues
Debt Securities. The statements made hereunder relating to the Indentures and
the Debt Securities to be issued thereunder are summaries of certain provisions
thereof and do not purport to be complete and are subject to, and are qualified
in their entirety by reference to, all provisions of the Indentures and such
Debt Securities. Unless otherwise indicated, all Section references appearing
herein are to Sections of the Indentures and capitalized terms used but not
otherwise defined herein will have the meanings set forth in the Indentures.
PROVISIONS APPLICABLE TO SENIOR DEBT SECURITIES AND SUBORDINATED DEBT SECURITIES
GENERAL. The Debt Securities will be direct, unsecured obligations of the
Company and may be either Senior Debt Securities or Subordinated Debt
Securities.
The indebtedness represented by the Senior Debt Securities will rank pari
passu with other Senior Debt (as defined under "Provisions Applicable Solely to
Subordinated Debt Securities--General") of the Company that may be outstanding
from time to time. The payment of principal of (and premium, if any) and
interest on indebtedness represented by Subordinated Debt Securities will be
subordinated, to the extent and in the manner provided in the Subordinated
Indenture, in right of payment to the prior payment in full of the Senior Debt
of the Company, including the Senior Debt Securities, as described under the
heading "Provisions Applicable Solely to Subordinated Debt
Securities--Subordination."
Each Indenture will provide that the Debt Securities may be issued without
limit as to aggregate principal amount, in one or more series, in each case as
established from time to time in or pursuant to authority granted by a
resolution of the Board of Trustees of the Company or as established in the
applicable Indenture or as may be established in one or more indentures
supplemental thereto. All Debt Securities of one series need not be issued at
the same time and, unless otherwise provided, a series may be reopened, without
the consent of the Holders of the Debt Securities of such series, for issuances
of additional Debt Securities of such series (Section 301).
Each Indenture will provide that there may be more than one Trustee
thereunder, each with respect to one or more series of Debt Securities. Any
Trustee under an Indenture may resign or be removed with respect to one or more
series of Debt Securities, and a successor Trustee may be appointed to act with
respect to such series (Section 608). In the event that two or more persons are
acting as Trustee with respect to different series of Debt Securities, each such
Trustee will be a trustee of a trust under the applicable Indenture separate and
apart from the trust administered by any other Trustee thereunder, and, except
as otherwise indicated herein, any action described herein to be taken by each
Trustee may be taken by each such Trustee with respect to, and only with respect
to, the one or more series of Debt Securities for which it is Trustee under the
applicable Indenture.
The Prospectus Supplement relating to any series of Debt Securities being
offered will contain the specific terms thereof, including, without limitation:
(1) the title of such Debt Securities;
(2) the classification of such Debt Securities as Senior Debt Securities or
Subordinated Debt Securities;
(3) The aggregate principal amount of such Debt Securities and any limit on
such aggregate principal amount;
(4) The percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof, the
portion of the principal amount thereof payable upon declaration of
acceleration of the maturity thereof;
9
<PAGE>
(5) If convertible in whole or in part into Common Shares or Preferred
Shares, the terms on which such Debt Securities are convertible,
including the initial conversion price or rate (or method for
determining the same), the portion that is convertible and the
conversion period, and any applicable limitations on the ownership or
transferability of the Common Shares or Preferred Shares receivable on
conversion;
(6) The date or dates, or the method for determining such date or dates, on
which the principal of such Debt Securities will be payable;
(7) The rate or rates (which may be fixed or variable), or the method by
which such rate or rates will be determined, at which such Debt
Securities will bear interest, if any;
(8) The date or dates, or the method for determining such date or dates,
from which any such interest will accrue, the dates on which any such
interest will be payable, the Regular Record Dates for such Interest
Payment Dates, or the method by which such dates will be determined, the
person to whom such interest will be payable, and the basis upon which
interest will be calculated if other than that of a 360-day year of
twelve 30-day months;
(9) The place or places where the principal of (and premium or Make-Whole
Amount, if any) and interest and Additional Amounts, if any, on such
Debt Securities will be payable, where such Debt Securities may be
surrendered for conversion or registration of transfer or exchange and
where notices or demands to or upon the Company in respect of such Debt
Securities and the applicable Indenture may be served;
(10) The period or periods within which, the price or prices at which and the
other terms and conditions upon which such Debt Securities may be
redeemed, in whole or in part, at the option of the Company, if the
Company is to have such an option;
(11) The obligation, if any, of the Company to redeem, repay or purchase such
Debt Securities pursuant to any sinking fund or analogous provision or
at the option of a Holder thereof, and the period or periods within
which or the date and dates on which, the price or prices at which and
the other terms and conditions upon which such Debt Securities will be
redeemed, repaid or purchased, in whole or in part, pursuant to such
obligation;
(12) If other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating thereto;
(13) Whether the amount of payments of principal of (and premium or
Make-Whole Amount, if any) or interest and Additional Amounts, 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
will be determined;
(14) Any additions to, modifications of or deletions from the terms of such
Debt Securities with respect to Events of Default or covenants set forth
in the applicable Indenture;
(15) Whether such Debt Securities will be issued in certificated or
book-entry form;
(16) 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;
(17) The applicability, if any, of the defeasance and covenant defeasance
provisions of Article Fourteen of the applicable Indenture;
10
<PAGE>
(18) If such Debt Securities are to be issued upon the exercise of Warrants,
the time, manner and place for such Debt Securities to be authenticated
and delivered;
(19) 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 and, if so, whether the Company will have the option
to redeem such Debt Securities in lieu of making such payment; and
(20) Any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture (Section 301).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special federal income tax, accounting
and other considerations applicable to Original Issue Discount Securities will
be described in the applicable Prospectus Supplement.
The Indentures will not contain any provisions that would limit the ability
of the Company to incur indebtedness or that would afford Holders of Debt
Securities protection in the event of a highly leveraged or similar transaction
involving the Company or in the event of a change of control. Restrictions on
ownership and transfers of the Company's Common Shares and Preferred Shares are
designed to preserve its status as a REIT and, therefore, may act to prevent or
hinder a change of control. See "Description of Shares of Beneficial
Interest--Restrictions on Transfer" and "Risk Factors--Limitation on Ownership
of Shares." Reference is made to the applicable Prospectus Supplement for
information with respect to any deletions from, modifications of or additions to
the Events of Default or covenants of the Company that are described below,
including any addition of a covenant or other provision providing event risk or
similar protection.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER. Unless otherwise
described in the applicable Prospectus Supplement, the Debt Securities of any
series will be issuable in denominations of $1,000 and integral multiples
thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium or Make-Whole Amount, if any) and interest
and Additional Amounts, if any, on any series of Debt Securities will be payable
at the corporate trust office of the applicable Trustee, the address of which
will be stated in the applicable Prospectus Supplement; provided that, at the
option of the Company, payment of interest may be made by check mailed to the
address of the person entitled thereto as it appears in the applicable register
for such Debt Securities or by wire transfer of funds to such person at an
account maintained within the United States (Sections 301, 305, 306, 307 and
1002).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
applicable Trustee, notice whereof will be given to the Holder of such Debt
Security not less than ten days prior to such Special Record Date, or may be
paid at any time in any other lawful manner, all as more completely described in
the applicable Indenture (Section 307).
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and of a like aggregate principal
amount and tenor of different authorized denominations upon surrender of such
Debt Securities at the corporate trust office of the applicable Trustee. In
addition, subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series may be surrendered for
conversion or registration of transfer or exchange thereof at the corporate
trust office of the applicable Trustee. Every Debt Security surrendered for
conversion, registration of transfer or exchange must be duly endorsed or
accompanied by a written instrument of transfer. No service charge will
11
<PAGE>
be made for any registration of transfer or exchange of any Debt Securities, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith (Section 305). If the
applicable Prospectus Supplement refers to any transfer agent (in addition to
the applicable Trustee) initially designated by the Company with respect to any
series of Debt Securities, the Company may at any time rescind the designation
of any such transfer agent or approve a change in the location through which any
such transfer agent acts, except that the Company will be required to maintain a
transfer agent in each place of payment for such series. The Company may at any
time designate additional transfer agents with respect to any series of Debt
Securities (Section 1002).
Neither the Company nor any Trustee will be required to (i) issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business on
the day of mailing of the relevant notice of redemption; (ii) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed in
part; (iii) exchange any Bearer Security so selected for redemption, except to
exchange such Bearer Security for a Registered Security of that series of like
tenor when immediately surrendered for redemption; or (iv) issue, register the
transfer of or exchange any Debt Security which has been surrendered for
repayment at the option of the Holder, except the portion, if any, of such Debt
Security not to be so repaid (Section 305).
MERGER, CONSOLIDATION OR SALE. The Company will be permitted to 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 will
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 has
received the transfer of such assets will expressly assume payment of the
principal of (and premium or Make-Whole Amount, if any) and interest and
Additional Amounts, if any, on all of the Debt Securities and the due and
punctual performance and observance of all of the covenants and conditions
contained in each Indenture; (b) immediately after giving effect to such
transaction and treating any indebtedness that becomes an obligation of the
Company or any Subsidiary as a result thereof as having been incurred by the
Company or such Subsidiary at the time of such transaction, no Event of Default
under the Indentures, and no event which, after notice or the lapse of time, or
both, would become such an Event of Default, has occurred and be continuing; and
(c) an officer's certificate and legal opinion covering such conditions will be
delivered to each Trustee (Sections 801 and 803).
CERTAIN COVENANTS.
Existence. Except as described above under "Merger, Consolidation or Sale,"
the Company will be required to do or cause to be done all things necessary to
preserve and keep in full force and effect its existence, rights and franchises;
provided, however, that the Company will not be required to preserve any right
or franchise if it determines that the preservation thereof is no longer
desirable in the conduct of its business and that the loss thereof is not
disadvantageous in any material respect to the Holders of the Debt Securities
(Section 1006).
Maintenance of Properties. The Company will be required to cause all of its
material properties used or useful in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, the Company and its Subsidiaries will
not be prevented from selling or otherwise disposing for value its properties in
the ordinary course of business (Section 1007).
12
<PAGE>
Insurance. The Company will be required to, and will be required to cause
each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value with
financially sound and reputable insurers and, if described in the applicable
Prospectus Supplement, having a specified rating from a recognized insurance
rating service (Section 1008).
Payment of Taxes and Other Claims. The Company will be required to pay or
discharge or cause to be paid or discharged, before the same becomes delinquent,
(i) all taxes, assessments and governmental charges levied or imposed upon it or
any Subsidiary or upon the income, profits or property of the Company or any
Subsidiary, and (ii) all lawful claims for labor, materials and supplies which,
if unpaid, might by law become a lien upon the property of the Company or any
Subsidiary; provided, however, that the Company will not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim (i) whose amount, applicability or validity is being contested in good
faith by appropriate proceedings or (ii) for which the Company has set apart and
maintains an adequate reserve (Section 1009).
Provision of Financial Information. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents (the "Financial Information") which the
Company would have been required to file with the Commission pursuant to such
Sections 13 or 15(d) if the Company were so subject, such documents to be filed
with the Commission on or prior to the respective dates (the "Required Filing
Dates") by which the Company would have been required so to file such documents
if the Company were so subject. The Company will also in any event (x) within 15
days of each Required Filing Date (i) transmit by mail to all Holders of Debt
Securities, as their names and addresses appear in the Security Register,
without cost to such Holders, copies of the annual reports and quarterly reports
and (ii) file with the Trustees copies of the Financial Information, and (y) if
filing such documents by the Company with the Commission is not permitted under
the Exchange Act, promptly upon written request and payment of the reasonable
cost of duplication and delivery, supply copies of such documents to any
prospective Holder (Section 1010).
ADDITIONAL COVENANTS AND/OR MODIFICATIONS TO THE COVENANTS DESCRIBED
ABOVE. Any additional covenants of the Company and/or modifications to the
covenants described above with respect to any Debt Securities or series thereof,
including any covenants relating to limitations on incurrence of indebtedness or
other financial covenants, will be set forth in the applicable Indenture or an
indenture supplemental thereto and described in the Prospectus Supplement
relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER. Each Indenture will provide that the
following events are "Events of Default" with respect to any series of Debt
Securities issued thereunder: (i) default for 30 days in the payment of any
installment of interest on any Debt Security of such series; (ii) default in the
payment of principal of (or premium or Make-Whole Amount, if any, on) any Debt
Security of such series at its Maturity; (iii) default in making any sinking
fund payment as required for any Debt Security of such series; (iv) default in
the performance or breach of any other covenant or warranty of the Company
contained in the applicable Indenture (other than a covenant added to the
Indenture solely for the benefit of a series of Debt Securities issued
thereunder other than such series), that continues for 60 days after written
notice as provided in the applicable Indenture; (v) default in the payment of an
aggregate principal amount exceeding $10,000,000 of any indebtedness of the
Company or any mortgage, indenture or other instrument under which such
indebtedness is issued or by which such indebtedness is secured, such default
having occurred after the expiration of any applicable grace period and having
resulted in the acceleration of the maturity of such indebtedness, but only if
such indebtedness is not discharged or such acceleration is not rescinded or
annulled within a specified period of time; (vi) certain events of bankruptcy,
insolvency or reorganization, or court appointment of a receiver, liquidator or
trustee of the Company or any Significant Subsidiary or either of its property;
and (vii) any other Event of Default provided with respect to a particular
series of Debt Securities (Section 501). The term "Significant Subsidiary" will
mean each
13
<PAGE>
significant subsidiary (as defined in Regulation S-X promulgated under the
Securities Act) of the Company.
If an Event of Default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the Holders of not less than 25% of the
principal amount of the Outstanding Debt Securities of that series will have the
right to 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 (or of all Debt Securities then Outstanding under
any Indenture, as the case may be) has been made, but before a judgment or
decree for payment of the money due has been obtained by the applicable Trustee,
the Holders of not less than a majority in principal amount of Outstanding Debt
Securities of such series (or of all Debt Securities then Outstanding under the
applicable Indenture, as the case may be) may rescind and annul such declaration
and its consequences if (a) the Company has deposited with the applicable
Trustee all required payments of the principal of (and premium, if any) and
interest on the Debt Securities of such series (or of all Debt Securities then
Outstanding under the applicable Indenture, as the case may be), plus certain
fees, expenses, disbursements and advances of the applicable Trustee and (b) all
events of default, other than the non-payment of accelerated principal (or
specified portion thereof), with respect to Debt Securities of such series (or
of all Debt Securities then Outstanding under the applicable Indenture, as the
case may be) have been cured or waived as provided in such Indenture (Section
502). Each Indenture also will provide that the Holders of not less than a
majority in principal amount of the Outstanding Debt Securities of any series
(or of all Debt Securities then Outstanding under the applicable Indenture, as
the case may be) may waive any past default with respect to such series and its
consequences, except a default (x) in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or (y) in
respect of a covenant or provision contained in the applicable Indenture that
cannot be modified or amended without the consent of the Holder of each
Outstanding Debt Security affected thereby (Section 513).
Each Trustee will be required to give notice to the Holders of Debt
Securities within 90 days of a default under the applicable Indenture unless
such default has 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 Responsible Officers of such Trustee consider such withholding to be
in the interest of such Holders (Section 601).
Each Indenture will provide that no Holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to such
Indenture or for any remedy thereunder, except in the cases of failure of the
applicable Trustee, for 60 days, to act after it has received a written request
to institute proceedings in respect of an Event of Default from the Holders of
not less than 25% in principal amount of the Outstanding Debt Securities of such
series, as well as an offer of indemnity reasonably satisfactory to it (Section
507). This provision will not prevent, however, any Holder of Debt Securities
from instituting suit for the enforcement of payment of the principal of (and
premium or Make-Whole Amount, if any) and interest on, and any Additional
Amounts in respect of such Debt Securities at the respective due dates thereof
(Section 508).
Subject to provisions in each Indenture relating to its duties in case of
default, no Trustee will be under any obligation to exercise any of its rights
or powers under an Indenture at the request or direction of any Holders of any
series of Debt Securities then Outstanding under such Indenture, unless such
Holders have offered to the Trustee thereunder reasonable security or indemnity
(Section 602). The Holders of not less than a majority in principal amount of
the Outstanding Debt Securities of any series (or of all Debt Securities then
Outstanding under an Indenture, as the case may be) will have the right to
14
<PAGE>
direct the time, method and place of conducting any proceeding for any remedy
available to the applicable Trustee, or of exercising any trust or power
conferred upon such Trustee. However, a Trustee may refuse to follow any
direction which is in conflict with any law or the applicable Indenture, which
may involve such Trustee in personal liability or which may be unduly
prejudicial to the Holders of Debt Securities of such series not joining therein
(Section 512).
Within 120 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers, stating whether or not such officer has knowledge of any
default under the applicable Indenture and, if so, specifying each such default
and the nature and status thereof (Section 1011).
MODIFICATION OF THE INDENTURES. Modifications and amendments of an
Indenture will be permitted to be made only with the consent of the Holders of
not less than a majority in principal amount of all Outstanding Debt Securities
issued under such Indenture which are affected by such modification or
amendment; provided, however, that no such modification or amendment may,
without the consent of the Holder of each such Debt Security affected thereby,
(a) change the stated maturity of the principal of, or any installment of
interest (or premium or Make-Whole Amount, if any) on, any such Debt Security;
(b) reduce the principal amount of, or the rate or amount of interest on or any
Additional Amounts payable in respect thereof, 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 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; (e) reduce the above-stated percentage of
Outstanding Debt Securities of any series necessary to modify or amend the
applicable Indenture, to waive compliance with certain provisions thereof or
certain defaults and consequences thereunder or to reduce the quorum or voting
requirements set forth in the applicable Indenture; (f) if Subordinated Debt
Securities, modify any of the provisions of the Subordinated Indenture relating
to the subordination of such Subordinated Debt Securities in a manner adverse to
the Holders thereof; or (g) modify any of the foregoing provisions or any of the
provisions relating to the waiver of certain past defaults or certain covenants,
except to increase the required percentage to effect such action or to provide
that certain other provisions may not be modified or waived without the consent
of the Holder of such Debt Security (Section 902).
The Holders of not less than a majority in principal amount of Outstanding
Debt Securities of each series affected thereby will have the right to waive
compliance by the Company with certain covenants in such Indenture (Section
1013).
Modifications and amendments of each Indenture will be permitted to be made
by the Company and the respective Trustee thereunder without the consent of any
Holder of Debt Securities for any of the following purposes: (i) to evidence the
succession of another person to the Company as obligor under such Indenture;
(ii) to add to the covenants of the Company for the benefit of the Holders of
all or any series of Debt Securities or to surrender any right or power
conferred upon the Company in an Indenture; (iii) to add Events of Default for
the benefit of the Holders of all or any series of Debt Securities; (iv) to add
or change any provisions of an 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 will not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect; (v) to change or eliminate any
provisions of an Indenture, provided that any such change or elimination will
become effective only when there are no Debt Securities Outstanding of any
series created prior thereto which are entitled to the benefit of such
provision; (vi) to secure the Debt Securities; (vii) to establish the form or
terms of Debt Securities of any series, including the provisions and procedures,
if applicable, for the conversion of such Debt Securities into Common Shares or
Preferred Shares of the Company; (viii) to provide for the acceptance of
appointment by a successor Trustee or
15
<PAGE>
facilitate the administration of the trusts under an Indenture by more than one
Trustee; (ix) to cure any ambiguity, defect or inconsistency in an Indenture,
provided that such action will not adversely affect the interests of Holders of
Debt Securities of any series issued under such Indenture in any material
respect; (x) to close either Indenture with respect to the authentication and
delivery of additional sums of Debt Securities or to qualify, or maintain
qualification of either Indenture under the Trust Indenture Act; or (xi) to
supplement any of the provisions of an Indenture to the extent necessary to
permit or facilitate defeasance and discharge of any series of such Debt
Securities, provided that such action will not adversely affect the interests of
the Holders of the Debt Securities of any series in any material respect
(Section 901).
Each Indenture will provide that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
will be deemed to be Outstanding will be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of any Debt Security denominated in a foreign currency that will be deemed
Outstanding will be the U.S. dollar equivalent, determined on the issue date for
such Debt Security, of the principal amount (or, in the case of Original Issue
Discount Security, the U.S. dollar equivalent on the issue date of such Debt
Security of the amount determined as provided in (i) above), (iii) the principal
amount of an indexed security that will be deemed Outstanding will be the
principal face amount of such indexed security at original issuance, unless
otherwise provided with respect to such indexed security pursuant to Section 301
of the applicable Indenture, and (iv) Debt Securities owned by the Company or
any other obligor upon the Debt Securities or any affiliate of the Company or of
such other obligor will be disregarded (Section 101).
Each Indenture will contain provisions for convening meetings of the Holders
of Debt Securities of a series (Section 1501). A meeting may be called at any
time by the applicable Trustee, and also, upon request, by the Company or the
Holders of at least 10% in principal amount of the Outstanding Debt Securities
of such series, in any such case upon notice given as provided in the Indenture
(Section 1502). Except for any consent that must be given by the Holder of each
Debt Security affected by certain modifications and amendments of an 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 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 an Indenture will be binding on all Holders of Debt
Securities of that series. The quorum at any meeting called to adopt a
resolution, and at any reconvened meeting, will be persons holding or
representing a majority in principal amount of the Outstanding Debt Securities
of a series; provided, however, that if any action is to be taken at such
meeting with respect to a consent or waiver which may be given by the Holders of
not less than a specified percentage in principal amount of the Outstanding Debt
Securities of a series, the persons holding or representing such specified
percentage in principal amount of the Outstanding Debt Securities of such series
will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, each Indenture will provide that
if any action is to be taken at a meeting of Holders of Debt Securities of any
series with respect to any request, demand, authorization, direction, notice,
consent, waiver and other action that such 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 the Holders of
such series and one or more additional series: (i) there will
16
<PAGE>
be no minimum quorum requirement for such meeting, and (ii) the principal amount
of the Outstanding Debt Securities of such series that vote in favor of such
request, demand, authorization, direction, notice, consent, waiver or other
action will 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 such Indenture (Section 1504).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE. The Company may be permitted
under the applicable Indenture to discharge certain obligations to Holders of
any series of Debt Securities issued thereunder that have not already been
delivered to the applicable Trustee for cancellation and that either have become
due and payable or will become due and payable within one year (or scheduled for
redemption within one year) by irrevocably depositing with the applicable
Trustee, in trust, funds in such currency or currencies, currency unit or units
or composite currency or currencies in which such Debt Securities are payable in
an amount sufficient to pay the entire indebtedness on such Debt Securities in
respect of principal (and premium, if any) and interest and any Additional
Amounts to the date of such deposit (if such Debt Securities have become due and
payable) or to the stated maturity or redemption date, as the case may be
(Section 401).
Each Indenture will provide that, if the provisions of Article Fourteen are
made applicable to the Debt Securities of or within any series pursuant to
Section 301 of such Indenture, the Company may elect either (a) to defease and
be discharged from any and all obligations with respect to such Debt Securities
(except for the obligation to pay Additional Amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities, and the obligations to register the
transfer or exchange of such Debt Securities, to replace temporary or mutilated,
destroyed, lost or stolen Debt Securities, to maintain an office or agency in
respect of such Debt Securities and to hold moneys for payment in trust)
("defeasance") (Section 1402) or (b) to be released from its obligations with
respect to such Debt Securities under certain specified sections of Article Ten
of such Indenture as specified in the applicable Prospectus Supplement,
whereupon any omission to comply with such obligations will not constitute an
Event of Default with respect to such Debt Securities ("covenant defeasance")
(Section 1403), in either case upon the irrevocable deposit by the Company with
the applicable Trustee, in trust, of an amount, in such currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are payable at stated maturity, or Government Obligations (as defined
below), or both, applicable to such Debt Securities which through the scheduled
payment of principal and interest in accordance with their terms will provide
money in an amount sufficient without reinvestment 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 will only be permitted to 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
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to 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, will be required to refer to and be based upon a ruling of
the Internal Revenue Service or a change in applicable U.S. federal income tax
law occurring after the date of the Indenture (Section 1404).
"Government Obligations" will be defined in the Indentures to mean
securities which are (i) direct obligations of the United States of America or
the government which issued the foreign currency in which the Debt Securities of
a particular series are payable, for the payment of which its full faith and
credit is pledged or (ii) obligations of a person controlled or supervised by
and acting as an agency or instrumentality of the United States of America or
such government which issued the foreign currency in which the Debt Securities
of such series are payable, the timely payment of which is unconditionally
guaranteed as a full faith and credit obligation of the United States of America
or such government, which, in either case, are not callable or redeemable at the
option of the issuer thereof, and will also include a depository receipt
17
<PAGE>
issued by a bank or trust company as custodian with respect to any such
Government Obligation or a specific payment of interest on or principal of any
such Government Obligation held by such custodian for the account of the Holder
of a depository receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
Holder of such depository receipt from any amount received by the custodian in
respect of the Government Obligation or the specific payment of interest on or
principal of the Government Obligation evidenced by such depository receipt
(Section 101).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any series,
(a) the Holder of a Debt Security of such series is entitled to, and does, elect
pursuant to Section 301 of the applicable Indenture or the terms of such Debt
Security to receive payment in a currency, currency unit or composite currency
other than that in which such deposit has been made in respect of such Debt
Security, or (b) a Conversion Event (as defined below) occurs in respect of the
currency, currency unit or composite currency in which such deposit has been
made, the indebtedness represented by such Debt Security 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 such cessation of usage 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 institutions 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 will be made in U.S.
dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because of
the occurrence of any Event of Default other than the Event of Default described
in clause (iv) under "Events of Default, Notice and Waiver" with respect to
certain specified sections of Article Ten of each Indenture (which sections
would no longer be applicable to such Debt Securities as a result of such
covenant defeasance) or described in clause (vii) under "Events of Default,
Notice and Waiver" with respect to any other covenant as to which there has been
covenant defeasance, the amount in such currency, currency unit or composite
currency in which such Debt Securities are payable, and Government Obligations
on deposit with the applicable Trustee, will be sufficient to pay amounts due on
such Debt Securities at the time of their stated maturity but may not be
sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Event of Default. However, the Company would
remain liable to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
CONVERSION RIGHTS. The terms and conditions, if any, upon which the Debt
Securities are convertible into Common Shares or Preferred Shares will be set
forth in the applicable Prospectus Supplement relating thereto. Such terms will
include whether such Debt Securities are convertible into Common Shares or
Preferred Shares, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at the option of
the Holders or the Company, the events requiring an adjustment of the conversion
price and provisions affecting conversion in the event of the redemption of
18
<PAGE>
such Debt Securities and any restrictions on conversion, including restrictions
directed at maintaining the Company's REIT status.
REDEMPTION OF SECURITIES. Each Indenture will provide that the Debt
Securities may be redeemed at any time at the option of the Company, in whole or
in part, at the Redemption Price, except as may otherwise be provided in
connection with any Debt Securities or series thereof (Section 1102).
From and after notice has been given as provided in the Indentures, if funds
for the redemption of any Debt Securities called for redemption have been made
available on such redemption date, such Debt Securities will cease to bear
interest on the date fixed for such redemption specified in such notice (Section
1105), and the only right of the Holders of the Debt Securities will be to
receive payment of the Redemption Price (Section 1106).
Notice of any optional redemption of any Debt Securities will be given to
Holders at their addresses, as shown in the Security Register, not more than 60
nor less than 30 days prior to the date fixed for redemption. The notice of
redemption will specify, among other items, the Redemption Price and the
principal amount of the Debt Securities held by such Holder to be redeemed
(Section 1104). With respect to Bearer Securities, notice will be sufficiently
given if published in an Authorized Newspaper in the City of New York and in
such other city or cities as may be specified in the Debt Securities (Section
106).
If the Company elects to redeem Debt Securities, it will notify the
applicable Trustee at least 45 days prior to the redemption date (or such
shorter period as satisfactory to such Trustee) of the aggregate principal
amount of Debt Securities to be redeemed and the redemption date (Section 1102).
If less than all the Debt Securities are to be redeemed, the applicable Trustee
will select the Debt Securities to be redeemed PRO RATA, by lot or in such
manner as it deems fair and appropriate (Section 1103).
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 depository
identified in the applicable Prospectus Supplement relating to such series
(Section 201). Global Securities, if any, issued in the United States are
expected to be deposited with the Depository Trust Company, as Depository.
Global Securities may be issued in fully registered form and may be issued in
either temporary or permanent form. Unless and until a Global Security is
exchanged in whole or in part for the individual Securities represented thereby,
it may not be transferred except as a whole by the Depository for such Global
Security to a nominee of such Depository or by a nominee of such Depository to
such Depository or another nominee of such Depository or by such Depository or
any nominee of such Depository to a successor Depository or any nominee of such
successor.
The specific terms of the depository arrangement with respect to particular
Securities will be described in the Prospectus Supplement relating to such
Securities. The Company expects that unless otherwise indicated in the
applicable Prospectus Supplement, the following provisions will apply to
depository arrangements.
Upon the issuance of a Global Security, the Depository for such Global
Security or its nominee will credit on its book-entry registration and transfer
system the respective principal amounts of the individual Securities represented
by such Global Security to the accounts of persons that have accounts with such
Depository ("Participants"). Such accounts will be designated by the
underwriters, dealers or agents with respect to such Securities or by the
Company if such Securities are offered directly by the Company. Ownership of
beneficial interests in such Global Security will be limited to Participants or
person that may hold interests through Participants. Ownership of beneficial
interests in such Global Security will be shown on, and the transfer of that
ownership will be effected only through, records maintained by the Depository
for such Global Security or its nominee (with respect to beneficial interests of
participants) and records of Participants (with respect to beneficial interests
of persons who hold through Participants). The laws of some states require that
certain purchasers of securities take physical delivery of such securities in
19
<PAGE>
definitive form. Such limits and laws may impair the ability to own, pledge or
transfer beneficial interest in a Global Security.
So long as the Depository for a Global Security or its nominee is the
registered owner of such Global Security, such Depository or such nominee, as
the case may be, will be considered the sole owner or holder of the Securities
represented by such Global Security for all purposes. Except as described below
or in the applicable Prospectus Supplement, owners of beneficial interest in a
Global Security will not be entitled to have any of the individual Securities
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of any such Securities in definitive
form and will not be considered the Owners or Holders thereof.
Payment with respect to Securities represented by a Global Security
registered in the name of a Depository or its nominee (including dividends, with
respect to Common Shares, dividends and any redemption payments on Preferred
Shares and principal of, any premium or Make-Whole Amount and any interest on,
or any Additional Amounts payable with respect to, individual Debt Securities)
will be made to the Depository or its nominee, as the case may be, as the
registered owner of the Global Security. None of the Company, any Trustee, any
Paying Agent, the Security Registrar or any transfer agent for Securities
represented by a Global Security will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Security for such Securities or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests.
The Company expects that the Depository for any Securities or its nominee,
upon receipt of any payment with respect to Securities represented by a Global
Security will immediately credit Participants' accounts with payments in amounts
proportionate to their respective beneficial interests in such Global Security
as shown on the records of such Depository or its nominee. The Company also
expects that payments by Participants to owners of beneficial interests in such
Global Security held through such Participants will be governed by standing
instructions and customary practices, as is the case with securities held for
the account of customers in bearer form or registered in street name. Such
payments will be the responsibility of such Participants.
If a Depository for any Securities is at any time unwilling, unable or
ineligible to continue as depository and a successor depository is not appointed
by the Company within 90 days, the Company will issue individual Securities in
exchange for the Global Security representing such discretion, subject to any
limitations described in the Prospectus Supplement relating to such Securities,
determine not to have any of such Securities represented by one or more Global
Securities and in such event will issue individual Securities in exchange for
the Global Security or Securities representing such Securities. Individual Debt
Securities so issued will be issued in denominations of $1,000 and integral
multiples thereof.
PROVISIONS APPLICABLE SOLELY TO SUBORDINATED DEBT SECURITIES
GENERAL. Subordinated Debt Securities will be issued under the Subordinated
Indenture and will rank pari passu with certain other subordinated debt of the
Company that may be outstanding from time to time and will rank junior to all
Senior Debt of the Company, including the Senior Debt Securities, that may be
outstanding from time to time. All Section references appearing below are to
Sections of the Subordinated Indenture.
If Subordinated Debt Securities are issued under the Subordinated Indenture,
the aggregate principal amount of Senior Debt outstanding as of a recent date
will be set forth in the Prospectus Supplement. The Subordinated Indenture will
not restrict the amount of Senior Debt that the Company may incur.
The term "Senior Debt" will be defined in the Subordinated Indenture to
mean: (i) the principal of and premium, if any, and interest on indebtedness for
borrowed money; (ii) purchase money and similar obligations; (iii) obligations
under capital leases; (iv) guarantees, assumptions or purchase commitments
20
<PAGE>
relating to, or other transactions as a result of which the Company is
responsible for payment of, such indebtedness of others; (v) renewals,
extensions and refunding of any such indebtedness; (vi) interest or obligations
in respect of any such indebtedness accruing after the commencement of any
insolvency or bankruptcy proceedings; and (vii) obligations associated with
derivative products such as interest rate and currency exchange contracts,
foreign exchange contracts, commodity contracts, and similar arrangements,
unless, in each case, the instrument by which the Company incurred, assumed or
guaranteed the indebtedness or obligations described in clauses (i) through
(vii) expressly provides that such indebtedness or obligation is subordinate or
junior in right of payment to any other indebtedness or obligations of the
Company. As used in the preceding sentence, the term "purchase-money
obligations" means indebtedness or obligations evidenced by a note, debenture,
bond or other instrument (whether or not secured by any lien or other security
interest but excluding indebtedness or obligations for which recourse is limited
to the property purchased) issued or assumed as all or a part of the
consideration for the acquisition of property, whether by purchase, merger,
consolidation or otherwise, but will not include any trade accounts payable
(Section 101).
SUBORDINATION. The payment of the principal of (and premium, if any) and
interest on the Subordinated Debt Securities is expressly subordinated, to the
extent and in the manner set forth in the Subordinated Indenture, in right of
payment to the prior payment in full of all Senior Debt of the Company (Section
1601).
No Payment or Distribution will be made by the Company, the Trustee or the
Paying Agent on account of principal of (or premium, if any) or interest on the
Subordinated Debt Securities, whether upon stated maturity, upon redemption or
acceleration, or otherwise, or on account of the purchase or other acquisition
of Subordinated Debt Securities, whether upon stated maturity, upon redemption
or acceleration, or otherwise, if there has occurred and be continuing a default
with respect to any Senior Debt permitting the acceleration thereof or with
respect to the payment of any Senior Debt and (a) such default is the subject of
a judicial proceeding or (b) notice of such default in writing or by telegram
has been given to the Company by any holder or holders of any Senior Debt,
unless and until the Company has received written notice from such holder or
holders that such default or event of default has been cured or waived or has
ceased to exist (Section 1602).
Upon any acceleration of the principal of the Subordinated Debt Securities
or any payment by the Company or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to creditors upon
any dissolution or winding up or liquidation or reorganization of the Company,
whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or
other proceedings, all amounts due or to become due upon all Senior Debt will
first be paid in full in cash, or payment thereof provided for to the
satisfaction of the holders thereof, before any Payment or Distribution is made
on account of the redemption price or principal of (and premium, if any) or
interest on the Subordinated Debt Securities; and (subject to the power of a
court of competent jurisdiction to make other equitable provision, which has
been determined by such court to give effect to the rights conferred in Article
16 of the Subordinated Indenture upon the Senior Debt and the holders thereof
with respect to the Subordinated Debt Securities or the Holders thereof or the
Trustee, by a lawful plan of reorganization or readjustment under applicable
law) upon any such dissolution or winding up or liquidation or reorganization,
any Payment or Distribution by the Company or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
which the Holders of the Subordinated Debt Securities or the Trustee would be
entitled except for the provisions of Article 16 of the Subordinated Indenture,
will be paid by the Company or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other Person making such Payment or Distribution
directly to the holders of Senior Debt of the Company or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any Senior Debt may have been issued, as their
respective interests may appear, to the extent necessary to pay all Senior Debt
in full in cash, after giving effect to any concurrent payment or distribution
to or for the holders of Senior Debt, before any Payment or
21
<PAGE>
Distribution is made to the Holders of the Subordinated Debt Securities or to
the Trustee, except that the Trustee will have a lien for the payment of its
fees and expenses (Section 1602).
In the event that, notwithstanding the foregoing, any Payment or
Distribution by the Company of any kind or character, whether in cash, property
or securities, prohibited by the foregoing, will be received by the Trustee or
the Holders of the Subordinated Debt Securities before all Senior Debt is paid
in full in cash, or provision is made for such payment to the satisfaction of
the holders thereof, and if such fact has then been or thereafter is made known
to a Responsible Officer of the Trustee or, as the case may be, such Holder,
then and in such event such Payment or Distribution will be paid over or
delivered to the holders of Senior Debt or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of all Senior
Debt remaining unpaid to the extent necessary to pay all Senior Debt in full in
cash, after giving effect to any concurrent Payment or Distribution to or for
the holders of such Senior Debt, and, until so delivered, the same will be held
in trust by any Holder of a Security as the property of the holders of Senior
Debt (Section 1602).
The holders of Senior Debt may, at any time and from time to time, without
the consent of or notice to the Holders of the Subordinated Debt Securities,
without incurring responsibility to the Holders of the Subordinated Debt
Securities and without impairing or releasing the obligations of the Holders of
the Subordinated Debt Securities hereunder to the holders of Senior Debt: (i)
change the manner, place or terms of payment or change or extend the time of
payment of, or renew or alter, Senior Debt, or otherwise amend in any manner
Senior Debt or any instrument evidencing the same or any agreement under which
Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing Senior Debt; (iii) release
any Person liable in any manner for the collection of Senior Debt; and/or (iv)
exercise or refrain from exercising any rights against the Company and any other
Person (Section 1602).
SUBROGATION. Subject to the payment in full in cash of all amounts then due
(whether by acceleration of the maturity thereof or otherwise) on account of all
Senior Debt at the time outstanding, the Holders of the Subordinated Debt
Securities will be subrogated to the rights of the holders of Senior Debt to
receive Payments or Distributions of cash, property or securities of the Company
applicable to the Senior Debt until the principal of (and premium, if any) and
interest on the Subordinated Debt Securities is paid in full; and, for the
purposes of such subrogation, no Payments or Distributions to the holders of
Senior Debt to which the Holders of the Subordinated Debt Securities or the
Trustee would be entitled except for the provisions of Article 16 of the
Subordinated Indenture, and no payments other than pursuant to the provisions of
Article 16 of the Subordinated Indenture to the holders of Senior Debt by
Holders of the Subordinated Debt Securities or the Trustee, will, as between the
Company, the Company's creditors other than holders of Senior Debt, and the
Holders of the Subordinated Debt Securities, be deemed to be a payment by the
Company to or on account of the Senior Debt. It is understood that the
provisions of Article 16 of the Subordinated Indenture are and are intended
solely for the purpose of defining the relative rights of the Holders of the
Subordinated Debt Securities, on the one hand, and the holders of Senior Debt,
on the other hand (Section 1603).
DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The following is a summary of the terms of the shares of beneficial interest
in the Company. This summary does not purport to be complete and is subject to
and qualified in its entirety by reference to the Company's Declaration of Trust
and the By-laws. See "Available Information."
GENERAL
The Declaration of Trust authorizes the issuance of up to 60,000,000 shares
of beneficial interest in the Company, of which 47,727,273 are common shares,
par value $.001 per share ("Common Shares"),
22
<PAGE>
2,272,727 are Class B Common Shares, par value $.001 per share ("Class B Common
Shares"), and 10,000,000 are shares of Series Preferred Shares, par value $.001
per share ("Preferred Shares") of which 3,000,000 are 8.48% Series A Cumulative
Redeemable Preferred Shares ("Series A Preferred Shares"). As of March 25, 1998,
there were 16,923,565 Common Shares, 2,272,727 Class B Common Shares and
3,000,000 Series A Preferred Shares issued and outstanding, all of which are
fully-paid and non-assessable.
Title 8 of the Corporations and Associations Article of the Annotated Code
of Maryland (the "Maryland Real Investment Trust Law") and the Company's
Declaration of Trust provide that no shareholder shall be personally liable for
any obligation of the Company. However, with respect to tort claims, claims for
taxes and certain statutory liabilities, shareholders may, in some
jurisdictions, be personally liable to the extent such claims are not satisfied
by the Company. Because the Company has public liability insurance in amounts
that it considers adequate, any risk of personal liability to shareholders would
be limited to situations in which the Company's assets, together with its
insurance coverage, would be insufficient to satisfy the claims against the
Company and its shareholders.
COMMON SHARES
Holders of Common Shares are entitled to receive dividends when and as
declared by the Board of Trustees out of funds legally available therefor after
payment of any preferential dividends to the holders of any series of Preferred
Shares that may then be issued and outstanding. Upon any liquidation,
dissolution or winding up of the Company, holders of Common Shares are entitled
to receive ratably any assets remaining after payment in full of all liabilities
of the Company and any preferential payments to the holders of Preferred Shares.
The holders of Common Shares are entitled to one vote per share on all matters
voted on by shareholders, including elections of trustees, and, except as
otherwise required by law with respect to class voting rights, or as granted to
the holders of Class B Common Shares, or provided in any resolution adopted by
the Board of Trustees with respect to any series of Preferred Shares
establishing the powers, designations, preferences and relative, participating,
optional or other special rights of such series, the holders of Common Shares
possess all voting powers. Holders of Common Shares do not possess preemptive
rights to subscribe for additional securities of the Company or the right to
cumulate their shares in the election of trustees or in any other matter. All
Common Shares offered by the Company will be, and all issued and outstanding
Common Shares are, fully paid and non-assessable.
The current transfer agent and registrar for the Common Shares is First
Chicago Trust Company of New York, Jersey City, New Jersey.
PREFERRED SHARES
GENERAL. Preferred Shares may be issued from time to time, in one or more
series, as authorized by the Board of Trustees. Prior to issuance of shares of
each series, the Board is required to fix for each such series, subject to the
provisions of Maryland law and the Declaration of Trust, the powers,
designations, preferences and relative, participating, optional or other special
rights of such series 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 matters as may be fixed by resolution of the Board of Trustees or
a duly authorized committee thereof. The Board could authorize the issuance of
Preferred Shares with terms and conditions which could have the effect of
discouraging a takeover or other transaction which holders of some, or a
majority of, Common Shares might believe to be in their best interests, or in
which holders of some, or a majority of, Common Shares might receive a premium
for their Common Shares over the then market price of such shares. The Preferred
Shares will, when issued, be fully-paid and non-assessable and will have no
preemptive rights.
The Prospectus Supplement relating to any Preferred Shares offered thereby
will contain the specific terms, including:
(1) The title and stated value of such Preferred Shares;
23
<PAGE>
(2) The number of such Preferred Shares offered, the liquidation preference
per share and the offering price of such Preferred Shares;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to such Preferred Shares;
(4) The date from which dividends on such Preferred Shares will accumulate,
if applicable.
(5) The procedures for any auction and remarketing, if any, for such
Preferred Shares;
(6) The provision for a sinking fund, if any, for such Preferred Shares;
(7) The provisions for redemption, if applicable, of such Preferred Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Shares will be convertible into Common Shares of the Company, including
the conversion price (or manner of calculation thereof);
(10) A discussion of federal income tax considerations applicable to such
Preferred Shares;
(11) The relative ranking and preferences of such Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(12) Any limitations on issuance of any series of Preferred Shares ranking
senior to or on a parity with such series of Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up
of the affairs of the Company;
(13) Any limitations on direct or beneficial ownership and restrictions on
transfer of such Preferred Shares, in each case as may be appropriate to
preserve the status of the Company as a REIT; and
(14) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Shares.
The Registrar and Transfer Agent for the Preferred Shares will be set forth
in the applicable Prospectus Supplement.
The description of the provisions of the Preferred Shares as will be set
forth in the related Prospectus Supplement is only a summary, does not purport
to be complete and is subject to, and is qualified in its entirety by, reference
to the definitive Articles Supplementary to the Company's Declaration of Trust
relating to such series of Preferred Shares. In connection with any offering of
Preferred Shares, such Certificate of Amendment will be filed with the
Commission as an exhibit or incorporated by reference in the Registration
Statement.
RANK. Unless otherwise specified in the Prospectus Supplement, the
Preferred Shares will, with respect to dividend rights and/or rights upon
liquidation, dissolution or winding up of the Company, rank (i) senior to all
classes or series of Common Shares of the Company, and to all Equity Shares
(defined below) ranking junior to such Preferred Shares; (ii) on a parity with
all Equity Shares issued by the Company the terms of which specifically provide
that such Equity Shares rank on a parity with the Preferred Shares; and (iii)
junior to all Equity Shares issued by the Company the terms of which
specifically provide that such Equity Shares rank senior to the Preferred
Shares. The term "Equity Shares" includes Common Shares and Preferred Shares and
does not include convertible debt securities.
DIVIDENDS. Holders of the Preferred Shares of each series will be entitled
to receive, when, as and if declared by the Board of Trustees of the Company,
out of assets of the Company legally available for payment, cash dividends at
such rates (or method of calculation thereof) and on such dates as will be set
forth in the applicable Prospectus Supplement. Each such dividend will be
payable to holders of record as they appear on the stock transfer books of the
Company on such record dates as are fixed by the Board of Trustees of the
Company.
24
<PAGE>
Dividends on any series of Preferred Shares may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set forth in the
applicable Prospectus Supplement. If the Board of Trustees of the Company fails
to declare a dividend payable on a dividend payment date on any series of the
Preferred Shares for which dividends are non-cumulative, then the holders of
such series of the Preferred Shares will have no right to receive a dividend in
respect of the dividend period ending on such dividend payment date, and the
Company will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series are declared payable on any future
dividend payment date.
If any Preferred Shares of any series are outstanding, no full dividends
will be declared or paid or set apart for payment on any Preferred Shares of the
Company of any other series ranking, as to dividends, on a parity with or junior
to the Preferred Shares of such series for any period unless (i) if such series
of Preferred Shares has a cumulative dividend, full cumulative dividends have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Preferred Shares of
such series for all past dividend periods and the then current dividend period
or (ii) if such series of Preferred Shares does not have a cumulative dividend,
full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Preferred Shares of such
series. When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon the Preferred Shares of any series and the
shares of any other series of Preferred Shares ranking on a parity as to
dividends with the Preferred Shares of such series, all dividends declared upon
the Preferred Shares of such series and any other series of Preferred Shares
ranking on a parity as to dividends with such Preferred Shares will be declared
pro rata so that the amount of dividends declared per share on Preferred Shares
of such series and such other series of Preferred Shares will in all cases bear
to each other the same ratio that accrued dividends per share on the Preferred
Shares of such series (which will not include any accumulation in respect of
unpaid dividends for prior dividend periods if such Preferred Shares do not have
a cumulative dividend) and such other series of Preferred Shares bear to each
other. No interest, or sum of money in lieu of interest, will be payable in
respect of any dividend payment or payments on Preferred Shares of such series
which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends on the Preferred Shares of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in Common Shares or other shares of beneficial
interest ranking junior to the Preferred Shares of such series as to dividends
and upon liquidation) will be declared or paid or set aside for payment or other
distribution upon the Common Shares, or any other shares of beneficial interest
in the Company ranking junior to or on a parity with the Preferred Shares of
such series as to dividends or upon liquidation, nor will any Common Shares, or
any other shares of beneficial interest of the Company ranking junior to or on a
parity with the Preferred Shares of such series as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any consideration
(or any moneys be paid to or made available for a sinking fund for the
redemption of any such shares) by the Company (except by conversion into or
exchange for other shares of beneficial interest of the Company ranking junior
to the Preferred Shares of such series as to dividends and upon liquidation).
Any dividend payment made on a series of Preferred Shares will first be
credited against the earliest accrued but unpaid dividend due with respect to
shares of such series which remains payable.
25
<PAGE>
REDEMPTION. If so provided in the applicable Prospectus Supplement, the
Preferred Shares will be subject to mandatory redemption or redemption at the
option of the Company, in whole or in part, in each case upon the terms, at the
times and at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of Preferred Shares, if
any, that will be redeemed by the Company in each year commencing after a date
to be specified, at a redemption price per share to be specified, together with
an amount equal to all accrued and unpaid dividends thereon (which will not, if
such Preferred Shares do not have a cumulative dividend, include any
accumulation in respect of unpaid dividends for prior dividend periods) to the
date of redemption. The redemption price may be payable in cash or other
property as specified in the applicable Prospectus Supplement. If the redemption
price for Preferred Shares of any series is payable only from the net proceeds
of the issuance of shares of beneficial interest in the Company, the terms of
such Preferred Shares may provide that if no such shares of beneficial interest
have been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such
Preferred Shares will automatically and mandatorily be converted into the
applicable shares of beneficial interest in the Company pursuant to conversion
provisions specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred Shares
has a cumulative dividend, full cumulative dividends on all Preferred Shares of
any series have been or contemporaneously are declared and paid or declared and
a sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the current dividend period and (ii) if such series of
Preferred Shares does not have a cumulative dividend, full dividends on all
shares of such series have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
the then current dividend period, no Preferred Shares of such series will be
redeemed unless all outstanding Preferred Shares of such series are
simultaneously redeemed; provided, however, that the foregoing will not prevent
the purchase or acquisition of Preferred Shares of such series to preserve the
REIT status of the Company or pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding Preferred Shares of such series. In
addition, unless (i) if such series of Preferred Shares has a cumulative
dividend, full cumulative dividends on all outstanding Preferred Shares of any
series have been or contemporaneously are declared and paid or declared and a
sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period, and (ii) if such series
of Preferred Shares does not have a cumulative dividend, full dividends on all
shares of such series of Preferred Shares have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period, the Company will not
purchase or otherwise acquire directly or indirectly any Preferred Shares of
such series (except by conversion into or exchange for shares of beneficial
interest of the Company ranking junior to the Preferred Shares of such series as
to dividends and upon liquidation); provided, however, that the foregoing will
not prevent the purchase or acquisition of Preferred Shares of such series to
preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Preferred Shares of
such series.
If fewer than all of the outstanding Preferred Shares of any series are to
be redeemed, the number of shares to be redeemed will be determined by the
Company and such shares may be redeemed pro rata from the holders of record of
such shares in proportion to the number of such shares held or for which
redemption is requested by such holders (with adjustments to avoid redemption of
fractional shares) or in any other manner determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares of
any series to be redeemed at the address shown on the stock transfer books of
the Company. Each notice will state: (i) the redemption date; (ii) the number of
shares and series of Preferred Shares to be redeemed; (iii) the redemption
price; (iv) the place or places where certificates for such Preferred Shares are
to be surrendered for payment of the redemption prices;
26
<PAGE>
(v) that dividends on the shares to be redeemed will cease to accrue on such
redemption date; and (vi) the date upon which the holder's conversion rights, if
any, as to such shares will terminate. If fewer than all of the Preferred Shares
of any series are to be redeemed, the notice mailed to each such holder thereof
will also specify the number of Preferred Shares to be redeemed from each such
holder. If notice of redemption of any Preferred Shares has been given and if
the funds necessary for such redemption have been irrevocably set aside by the
Company in trust for the benefit of the holders of any Preferred Shares so
called for redemption, then from and after the redemption date dividends will
cease to accrue on such Preferred Shares, such Preferred Shares will no longer
be deemed outstanding and all rights of the holders of such shares will
terminate, except the right to receive the redemption price.
LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, then, before any
distribution or payment will be made to the holders of any Common Shares or any
other class or series of shares of beneficial interest in the Company ranking
junior to the Preferred Shares in the distribution of assets upon any
liquidation, dissolution or winding up of the Company, the holders of each
series of Preferred Shares will be entitled to receive out of assets of the
Company legally available for distribution to shareholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable Prospectus Supplement), plus an amount equal to all dividends
accrued and unpaid thereon (which will not include any accumulation in respect
of unpaid dividends for prior dividend periods if such Preferred Shares do not
have a cumulative dividend). After payment of the full amount for the
liquidating distributions to which they are entitled, the holders of Preferred
Shares will have no right or claim to any of the remaining assets of the
Company. In the event that, upon any such voluntary or involuntary liquidation,
dissolution or winding up, the legally available assets of the Company are
insufficient to pay the amount of the liquidating distributions on all
outstanding Preferred Shares and the corresponding amounts payable on all shares
of other classes or series of shares of beneficial interest in the Company
ranking on a parity with the Preferred Shares in the distribution of assets,
then the holders of the Preferred Shares and all other such classes or series of
shares of beneficial interest will 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 have been made in full to all holders of a
series of Preferred Shares, the remaining assets of the Company will be
distributed among the holders of any other classes or series of shares of
beneficial interest ranking junior to the Preferred Shares upon liquidation,
dissolution or winding up, according to their respective rights and preferences
and in each case according to their respective number of shares. For such
purposes, the consolidation or merger of the Company with or into any other
trust, corporation or entity, or the sale, lease or conveyance of all or
substantially all of the property or business of the Company, will not be deemed
to constitute a liquidation, dissolution or winding up of the Company.
VOTING RIGHTS. Holders of Preferred Shares will not have any voting rights,
except as set forth below or as otherwise from time to time required by law or
as indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any series of Preferred Shares, so long as any
Preferred Shares remain outstanding, the Company will not, without the
affirmative vote or consent of the holders of at least two-thirds of each series
of Preferred Shares outstanding at the time, given in person or by proxy, either
in writing or at a meeting (such series voting separately as a class), (i)
authorize, create or increase the authorized or issued amount of, any class or
series of shares of beneficial interest ranking prior to such series of
Preferred Shares with respect to the payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up or reclassify any authorized
shares of beneficial interest in the Company into such shares, or create,
authorize or issue any obligation or security convertible into or evidencing the
right to purchase any such shares; or (ii) amend, alter or repeal the provisions
of the Company's Declaration of Trust, whether by merger, consolidation or
otherwise (an "Event"), so as to materially adversely affect any right,
preference, privilege or voting power of such series of Preferred Shares or the
holders thereof; provided, however, with respect to the occurrence of any of the
Events set
27
<PAGE>
forth in (ii) above, so long as the Preferred Shares remains outstanding with
the terms thereof materially unchanged, taking into account that upon the
occurrence of an Event, the Company may not be the surviving entity, the
occurrence of any such Event will not be deemed to materially and adversely
affect such rights, preferences, privileges or voting power of holders of
Preferred Shares and provided further that (x) any increase in the amount of the
authorized Preferred Shares or the creation or issuance of any other series of
Preferred Shares, or (y) any increase in the amount of authorized shares of such
series or any other series of Preferred Shares, in each case ranking on a parity
with or junior to the Preferred Shares of such series with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or winding
up, will 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 is
effected, all outstanding Preferred Shares of such series have been redeemed or
called for redemption and sufficient funds have been deposited in trust to
effect such redemption.
CONVERSION RIGHTS. The terms and conditions, if any, upon which any series
of Preferred Shares is convertible into Common Shares will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of Common Shares into which the Preferred Shares are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Shares or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such series of Preferred Shares.
RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, Common Shares must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months (other than the first year for which REIT status is elected)
or during a proportionate part of a shorter taxable year. Also, not more than
50% of the value of the issued and outstanding shares of beneficial interest may
be owned, directly or indirectly, by five or fewer individuals (as defined in
the Code to include certain entitles) during the last half of a taxable year
(other than the first year for which REIT status is elected) or during a
proportionate part of a shorter taxable year. To ensure compliance with these
requirements, the Declaration of Trust contains provisions restricting the
ownership and acquisition of shares of beneficial interest in the Company,
including any Preferred Shares of the Company.
The Declaration of Trust, subject to an exception in favor of Capital and
Regional Properties, plc ("CRP-London"), provides that no holder may own, or be
deemed to own by virtue of the attribution provisions of the Code, more than
9.8% in value (the "Ownership Limit") of the issued and outstanding Common
Shares or Preferred Shares (collectively, "Equity Shares"). The constructive
ownership rules are complex and may cause Equity Shares owned directly or
constructively by a group of related individuals and/or entities to be deemed to
be constructively owned by one individual or entity. As a result, the
acquisition of less than 9.8% of the Equity Shares (or the acquisition of an
interest in an entity which owns Equity Shares) by an individual or entity could
cause that individual or entity (or another individual or entity) to own
constructively in excess of 9.8% of the Equity Shares, and thus subject such
Equity Shares to the Ownership Limit. In addition, for these purposes, Common
Shares that may be acquired upon conversion or exchange of convertible Debt
Securities directly or constructively held by an investor, but not necessarily
Common Shares issuable with respect to convertible Debt Securities held by
others, will be deemed to be outstanding prior to conversion or exchange, for
purposes of determining the percentage of ownership of Equity Shares held by
that investor. The Board of Trustees may, upon the receipt of a ruling from the
IRS or an opinion of counsel satisfactory to it, waive the Ownership Limit with
respect to a given holder if such holder's ownership will not then or in the
future jeopardize the Company's status as a REIT.
28
<PAGE>
Recent tax legislation relaxed the rules concerning ownership of stock in a
REIT by certain domestic pension trusts. The Declaration of Trust does not
implement this change in the tax law. Under the Declaration of Trust, domestic
pension funds are subject to the restriction on ownership of more than 9.8% of
the value of the outstanding shares of beneficial interest.
The Declaration of Trust contains a provision which limits the right of any
shareholder to transfer or otherwise dispose of his Equity Shares in a manner
which is contrary to the Ownership Limit. If any shareholder purports to
transfer his shares to another person and either the transfer would result in
the Company failing to qualify as a REIT or such transfer would cause the
transferee to hold more than the Ownership Limit, the purported transfer will be
null and void and the shareholder will be deemed not to have transferred his
shares. Moreover, if any person holds shares in excess of the Ownership Limit
("Excess Shares"), such person will be deemed to hold such Excess Shares that
cause such limit to be exceeded solely in trust for the benefit of the Company,
and will not receive distributions with respect to such Excess Shares or be
entitled to vote such shares. In such event, such person will be deemed to have
offered to sell such Excess Shares to the Company for the lesser of the amount
paid for such shares or the market price of such shares, which offer the Company
can accept for a period of 90 days after the later of (i) the date of the
transfer resulting in such excess shares and (ii) the date the Company's Board
of Trustees determines that such Excess Shares exist. In its sole discretion,
the Company may repurchase such shares for cash.
Federal income tax regulations require that the Company demand within 30
days after the end of each of its taxable years written statements from
shareholders of record holding more than a specified percentage of the Company's
shares of beneficial interest, in which the shareholders set out information
with respect to their actual and constructive ownership of the Equity Shares and
the Debentures. In addition, each shareholder must on demand disclose to the
Company in writing such additional information as the Company may request in
order to determine the effect of such shareholder's direct, indirect and
constructive ownership of such shares on the Company's status as a REIT.
All certificates representing Common Shares and/or Preferred Shares will
bear a legend referring to the restrictions on transfer described above.
These ownership limitations could have the effect of discouraging a takeover
or other transactions in which holders of some, or a majority, of Equity Shares
might receive a premium for their shares over the prevailing market price or
which such holders might believe to be otherwise in their best interest.
DESCRIPTION OF SECURITIES WARRANTS
The Company may issue Securities Warrants for the purchase of Debt
Securities, Preferred Shares or Common Shares. Securities Warrants may be issued
independently or together with any other Securities offered by any Prospectus
Supplement and may be attached to or separate from such Securities. Each series
of Securities Warrants will be issued under a separate warrant agreement (each a
"Securities Warrant Agreement") to be entered into between the Company and a
warrant agent specified in the applicable Prospectus Supplement (the "Warrant
Agent"). The Warrant Agent will act solely as an agent of the Company in
connection with the Securities Warrants of such series and will not assume any
obligation or relationship of agency or trust for or with any holders or
beneficial owners of Securities Warrants. The following summaries of certain
provisions of the Securities Warrant Agreement and the Securities Warrants do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all the provisions of the Securities Warrant Agreement
and the Securities Warrant certificates relating to each series of Securities
Warrants which will be filed with the Commission and incorporated by reference
as an exhibit to the Registration Statement of which this Prospectus is a part
at or prior to the time of the issuance of such series of Securities Warrants.
If Securities Warrants are offered, the applicable Prospectus Supplement
will describe the terms of such Securities Warrants, including, in the case of
Securities Warrants for the purchase of Debt Securities,
29
<PAGE>
the following where applicable: (i) the offering price; (ii) the denominations
and terms of the series of Debt Securities purchasable upon exercise of such
Securities Warrants; (iii) the designation and terms of any series of Debt
Securities with which such Securities Warrants are being offered and the number
of such Securities Warrants being offered with such Debt Securities; (iv) the
date, if any, on and after which such Securities Warrants and the related series
of Debt Securities will be transferable separately; (v) the principal amount of
the series of Debt Securities purchasable upon exercise of each such Securities
Warrant and the price at which such principal amount of Debt Securities of such
series may be purchased upon such exercise; (vi) the date on which the right to
exercise such Securities Warrants shall commence and the date on which such
right shall expire (the "Expiration Date"); (vii) whether the Securities
Warrants will be issued in registered or bearer form; (viii) any special United
States federal income tax consequences; (ix) the terms, if any, on which the
Company may accelerate the date by which the Securities Warrants must be
exercised; and (x) any other material terms of such Securities Warrants.
In the case of Securities Warrants for the purchase of Preferred Shares or
Common Shares, the applicable Prospectus Supplement will describe the terms of
such Securities Warrants, including the following where applicable: (i) the
offering price; (ii) the aggregate number of shares purchasable upon exercise of
such Securities Warrants, the exercise price, and in the case of Securities
Warrants for Preferred Shares, the designation, aggregate number and terms of
the series of Preferred Shares with which such Securities Warrants are being
offered and the number of such Securities Warrants being offered with such
Preferred Shares; (iii) the date, if any, on and after which such Securities
Warrants and the related series of Preferred Shares or Common Shares will be
transferable separately; (iv) the date on which the right to exercise such
Securities Warrants shall commence and the Expiration Date; (v) any special
United States federal income tax consequences; and (vi) any other material terms
of such Securities Warrants.
Securities Warrant certificates may be exchanged for new Securities Warrant
certificates of different denominations, may (if in registered form) be
presented for registration of transfer, and may be exercised at the corporate
trust office of the Warrant Agent or any other office indicated in the
applicable Prospectus Supplement. Prior to the exercise of any Securities
Warrant to purchase Debt Securities, holders of such Securities Warrants will
not have any of the rights of holders of the Debt Securities purchasable upon
such exercise, including the right to receive payments of principal, premium, if
any, or interest, if any, on such Debt Securities or to enforce covenants in the
applicable Indenture. Prior to the exercise of any Securities Warrants to
purchase Preferred Shares or Common Shares, holders of such Securities Warrants
will not have any rights of holders of such Preferred Shares or Common Shares,
including the right to receive payments of dividends, if any, on such Preferred
Shares or Common Shares, or to exercise any applicable right to vote.
EXERCISE OF SECURITIES WARRANTS
Each Securities Warrant will entitle the holder thereof to purchase such
principal amount of Debt Securities or number of Preferred Shares or Common
Shares, as the case may be, at such exercise price as shall in each case be set
forth in, or calculable from, the Prospectus Supplement relating to the offered
Securities Warrants. After the close of business on the Expiration Date (or such
later date to which such Expiration Date may be extended by the Company),
unexercised Securities Warrants will become void.
Securities Warrants may be exercised by delivering to the Warrant Agent
payment as provided in the applicable Prospectus Supplement of the amount
required to purchase the Common Shares purchasable upon such exercise, together
with certain information set forth on the reverse side of the Securities Warrant
certificate. Securities Warrants will be deemed to have been exercised upon
receipt of payment of the exercise price, subject to the receipt within five (5)
business days, of the Securities Warrant certificate evidencing such Securities
Warrants. Upon receipt of such payment and the Securities Warrant certificate
properly completed and duly executed at the corporate trust office of the
Securities Warrant agent or any other office indicated in the applicable
Prospectus Supplement, the Company will, as soon as practicable, issue and
deliver the Common Shares purchasable upon such exercise. If fewer than all of
the Securities
30
<PAGE>
Warrants represented by such Securities Warrant certificate are exercised, a new
Securities Warrant certificate will be issued for the remaining amount of
Securities Warrants.
AMENDMENTS AND SUPPLEMENTS TO WARRANT AGREEMENT
The Warrant Agreements may be amended or supplemented without the consent of
the holders of the Securities Warrants issued thereunder to effect changes that
are not inconsistent with the provisions of the Securities Warrants and that do
not adversely affect the interests of the holders of the Securities Warrants.
COMMON SHARES WARRANT ADJUSTMENTS
Unless otherwise indicated in the applicable Prospectus Supplement, the
exercise price of, and the number of Common Shares covered by, a Common Shares
Warrant are subject to adjustment in certain events, including (i) payment of a
dividend on the Common Shares payable in shares of beneficial interest and stock
splits, combinations or reclassification of the Common Shares; (ii) issuance to
all holders of Common Shares of rights or warrants to subscribe for or purchase
Common Shares at less than their current market price (as defined in the Warrant
Agreement for such series of Common Shares Warrants); and (iii) certain
distributions of evidences of indebtedness or assets (including securities but
excluding cash dividends or distributions paid out of consolidated earnings or
retained earnings or dividends payable in Common Shares) or of subscription
rights and warrants (excluding those referred to above).
No adjustment in the exercise price of, and the number of Common Shares
covered by, a Common Shares Warrant will be made for regular quarterly or other
periodic or recurring cash dividends or distributions or for cash dividends or
distributions to the extent paid from consolidated earnings or retained
earnings. No adjustment will be required unless such adjustment would require a
change of at least 1% in the exercise price then in effect. Except as stated
above, the exercise price of, and the number of Common Shares covered by, a
Common Shares Warrant will not be adjusted for the issuance of Common Shares or
any securities convertible into or exchangeable for Common Shares, or carrying
the right or option to purchase or otherwise acquire the foregoing, in exchange
for cash, other property or services.
In the event of any (i) consolidation or merger of the Company with or into
any entity (other than a consolidation or a merger that does not result in any
reclassification, conversion, exchange or cancellation of outstanding Common
Shares); (ii) sale, transfer, lease or conveyance of all or substantially all of
the assets of the Company; or (iii) reclassification, capital reorganization or
exchange of the Common Shares (other than solely a change in par value or from
par value to no par value), then any holder of a Common Shares Warrant will be
entitled, on or after the occurrence of any such event, to receive on exercise
of such Common Shares Warrant the kind and amount of shares of beneficial
interest or other securities, cash or other property (or any combination
thereof) that the holder would have received had such holder exercised such
holder's Common Shares Warrant immediately prior to the occurrence of such
event. If the consideration to be received upon exercise of the Common Shares
Warrant following any such event consists of common stock of the surviving
entity, then from and after the occurrence of such event, the exercise price of
such Common Shares Warrant will be subject to the same anti-dilution and other
adjustments described in the second preceding paragraph, applied as if such
common stock were Common Shares.
CERTAIN PROVISIONS OF THE COMPANY'S DECLARATION OF TRUST AND BYLAWS
The following paragraphs summarize certain provisions of the Company's
Declaration of Trust and Bylaws. The summary does not purport to be complete and
is subject to and qualified in its entirety by reference to the Declaration of
Trust and Bylaws. See "Available Information."
31
<PAGE>
THE BOARD OF TRUSTEES
The Company's Bylaws provide that the number of trustees of the Company may
be established by the Board but may not be fewer than three nor more than ten, a
majority of which must be independent. Any vacancy will be filled at any regular
meeting or at any special meeting of shareholders called for that purpose or by
a majority of the remaining directors, except that a vacancy resulting from an
increase in the number of directors will be filled by a majority of the entire
Board. Pursuant to the terms of the Declaration of Trust, each trustee will hold
office for a one-year term expiring at the annual meeting of shareholders to be
held the following year and until his successor is duly elected and qualified.
Holders of shares will have no right to cumulative voting in the election of
trustees.
AMENDMENT TO THE DECLARATION OF TRUST
The Company's Declaration of Trust may be amended only by the affirmative
vote of the holders of not less than two-thirds of all of the votes entitled to
be cast on the matter.
DISSOLUTION OF THE COMPANY
The dissolution of the Company must be approved by the affirmative vote of
the holders of not less than two-thirds of all of the votes entitled to be cast
on the matter or the written consent of all holders of shares entitled to vote
on this matter.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Company's Declaration of Trust establishes an advance notice procedure
for shareholders to make nominations of candidates for election as trustees or
bring other business before an annual meeting of shareholders ("Shareholder
Notice Procedures").
The Shareholder Notice Procedures provide that (1) only persons who are
nominated by or at the direction of the Board of Trustees, or by a shareholder
who has given timely written notice containing specified information to the
Secretary of the Company prior to the meeting at which directors are to be
elected, will be eligible for election as trustees and (2) at an annual meeting
only such business may be conducted as has been brought before the meeting by or
at the direction of the Chairman of the Board of Trustees or by a shareholder
who has given timely written notice to the Secretary of such shareholder's
intention to bring such business before the meeting. In general, to be
considered timely, notice of shareholder nominations to be made or business to
be conducted at an annual meeting must be received not less than 60 days nor
more than 90 days prior to the first anniversary of the previous year's annual
meeting.
The purpose of requiring such advance notice by shareholders is to provide
the Board of Trustees a meaningful opportunity to consider the qualifications of
the proposed nominees or the advisability of the other proposed business and, to
the extent deemed necessary or advisable by the Board of Trustees, to inform
shareholders and make recommendations about such qualifications or business, as
well as to provide a more orderly procedure for conducting meetings of
shareholders. Although the Company's Declaration of Trust do not give the Board
of Trustees any power to disapprove of shareholder nominations or proposals for
action, they may have the effect of precluding a contest for the election of
trustees or the consideration of shareholder proposals if the proper procedures
are not followed. In addition, the Declaration of Trust may discourage or deter
a third party from conducting a solicitation of proxies to elect its own slate
of trustees or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or in the best
interests of the Company and its shareholders. The provisions in the Company's
Declaration of Trust regarding advance notice provisions could have the effect
of discouraging a takeover or other transaction in which holders of some, or a
majority, of the Common Shares might receive a premium for their shares over the
then prevailing market price or which such holders might believe to be otherwise
in their best interests.
32
<PAGE>
FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE COMPANY'S REIT STATUS
The following is a summary of certain federal income tax considerations
regarding the Company's REIT election. 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 particular situation, and this
discussion does not attempt to address any aspects of federal income taxation
relating to holders of Securities. A description of certain federal income tax
considerations pertaining to holders of the Securities will be provided in the
relevant Prospectus Supplement.
The following summary is based on federal income tax law in effect as of the
date hereof. Such law is subject to change without notice, and may be changed
with retroactive effect. The summary is for general information only, and does
not constitute tax advice.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS
SUPPLEMENT, AS WELL AS HIS OWN TAX ADVISOR, REGARDING THE SPECIFIC FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES, IN LIGHT OF HIS INDIVIDUAL
CIRCUMSTANCES, OF THE ACQUISITION, OWNERSHIP AND SALE OF THE SECURITIES, AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
QUALIFICATION AS A REIT; OPINION OF COUNSEL
The Company's REIT election was effective as of January 1, 1994. The tax
consequences described herein and in any Prospectus Supplement are largely
contingent on the qualification of the Company as a REIT for federal income tax
purposes. Failure of the Company to maintain its REIT status would materially
alter the tax and economic consequences to a purchaser. See "Failure to Qualify
as a REIT" below. Ungaretti & Harris, Chicago, Illinois ("Counsel"), has
provided its opinion that the Company's method of operation as described herein
and as represented by the Company will permit it to continue to qualify as a
REIT for the current and subsequent taxable years. Such opinion is based upon
the Code, as amended, applicable Treasury Regulations adopted thereunder,
reported judicial decisions, and IRS rulings, all as of the date hereof, and
certain representations of the Company and factual assumptions related to the
ownership and operation of the Company. It should be noted that whether the
Company will maintain its status as a REIT under the Code will depend upon
whether the Company meets the various qualification tests imposed under the Code
through actual annual operating results. No assurance can be given that the
actual results of the Company's operations will satisfy such requirements. The
principal requirements the Company must meet to maintain its status as a REIT
are described below.
SHARE OWNERSHIP
FREE TRANSFERABILITY. In general, shares representing ownership of a REIT
must be freely transferable. The Company's shares will be subject to certain
restrictions designed to assure compliance with the rule prohibiting
closely-held status, described below. A REIT will not fail the requirement of
free transferability by reason of such restrictions.
100 SHAREHOLDERS REQUIRED. The beneficial ownership of an entity seeking to
qualify as a REIT must be held by 100 or more persons. This requirement must be
met for at least 335 days of a 12-month year, or a proportionate part of a
shorter tax year. For purposes of this rule, the word "person" generally
includes individuals and entities, with pension and profit-sharing trusts,
rather than their beneficiaries, being treated as persons. The Company
anticipates that this requirement will continue to be met.
CLOSELY-HELD STATUS NOT PERMITTED. An entity does not qualify as a REIT if
a group of five or fewer individuals own, directly or indirectly, more than 50%
of the value of the outstanding shares of the entity at any time during the last
half of the taxable year. For this purpose, certain entities are treated as
individuals, but stock owned, directly or indirectly, by a corporation,
partnership, estate or trust is generally considered as being owned
proportionately by such entity's shareholders, partners or beneficiaries.
Accordingly, shares
33
<PAGE>
held by CRP-London will be considered as being owned proportionately by the
individual shareholders of CRP-London. In addition, pursuant to the Taxpayer
Relief Act of 1997, compliance with certain procedural requirements may protect
the Company from loss of REIT status by reason of an inadvertent violation of
this rule. The Declaration of Trust provides certain restrictions on ownership
of shares designed to assure compliance with this requirement.
Domestic pension funds generally are not treated as a single person for
purposes of this rule. Instead, the beneficiaries of the fund are treated as
holding stock in the REIT in proportion to their actuarial interests in the
fund. In the event the Company relies on this rule to maintain its status as a
REIT, however, it is possible that pension funds holding more than 10% of the
interests in the Company will be subject to unrelated business income tax on a
portion of the dividends they receive from the Company. Under the Company's
Declaration of Trust, pension funds are subject to the same ownership
restrictions as other persons, without regard to this rule.
SHAREHOLDER INFORMATION. Federal income tax regulations require that the
Company demand within 30 days after the end of each of its taxable years written
statements from shareholders of record holding more than a specified percentage
of the Company's shares of beneficial interest, in which the shareholders set
out information with respect to their actual and constructive ownership of the
Common Shares and the Debentures. In addition, each shareholder must on demand
disclose to the Company in writing such additional information as the Company
requests in order to determine the effect of such shareholder's direct, indirect
and constructive ownership of such shares on the Company's status as a REIT.
ASSET TESTS
An entity seeking to maintain its qualification as a REIT must meet certain
tests with regard to its assets. Assets held by a qualified REIT subsidiary are
treated as if they were owned directly by the REIT. A corporation is a qualified
REIT subsidiary if 100% of its stock is owned by a REIT.
75% ASSET TEST. On the last day of each calendar quarter, at least 75% of a
REIT's assets must consist of real estate assets, cash and cash items, and
government securities. Real estate assets include interests in real property,
interests in mortgages on real property, and shares in other qualified REITs. In
addition, real estate assets include any property attributable to the temporary
investment of new capital if the property is stock or a debt instrument, and the
investment is only for the one-year period beginning on the date the REIT
receives the capital (a "Qualified Temporary Investment"). Cash and cash items
include receivables that arise in the ordinary course of the REIT's business,
but not receivables purchased from another person. It is anticipated that
substantially all of the Company's assets will qualify under this test.
5% ASSET TEST. A REIT must not own securities of any one non-governmental
issuer (other than another qualified REIT, or a qualified REIT subsidiary) in an
amount greater in value than 5% of the value of the REIT's total assets. The
Company intends to comply with this requirement.
10% ASSET TEST. A REIT must not own securities of any one non-governmental
issuer (other than another qualified REIT or a qualified REIT subsidiary)
representing more than 10% of the outstanding voting securities of such issuer.
The Company intends to comply with this requirement.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposition of sufficient non-qualifying assets within 30 days after the close
of the quarter. The Company intends to maintain adequate records of the value of
its assets to ensure compliance with the asset tests, and to take such other
actions within 30 days after the close of any quarter as may be required to cure
any noncompliance.
34
<PAGE>
INTEREST IN MANAGEMENT CORPORATION. The Company expects to derive some of
its income from activities (such as management of properties owned by third
parties) which, if carried on directly by the Company or by an entity controlled
by the Company, would jeopardize its REIT status. The Company will own
non-voting stock representing more than 90 percent of the value of corporations
carrying on such activities, but intends to own less than 10% of the voting
stock of such corporations in order to comply with the 10% asset test described
above, and to hold stock in such corporations representing less than 5% of the
value of its overall assets in order to comply with the 5% assets test described
above. There can be no assurance, however, that the IRS will not contend that
the non-voting stock held by the Company should be considered voting stock for
purposes of these rules, or that the value of the stock held by the Company
exceeds the 5% limitation.
INCOME TESTS
An entity will not maintain its qualification as a REIT unless its income
meets certain tests. In connection with these tests, income received from a
qualified REIT subsidiary is treated as having the same character as it had when
received by the subsidiary.
75% INCOME TEST. At least 75% of the REIT's gross income (excluding gross
income from "prohibited transactions," as described below) for each taxable year
must be derived from (i) rents from real property, (ii) interest on obligations
collateralized by mortgages on, or interests in, real property; (iii) gain from
the sale or other disposition of interests in real property and real estate
mortgages, other than gain from property held primarily for sale to customers in
the ordinary course of the Company's trade or business ("dealer property"); (iv)
dividends or other distributions on shares in other REITs as well as the gain
from the sale of such shares; (v) abatements and refunds of real property taxes;
(vi) income from the operation, and gain from the sale, of property acquired at
or in lieu of foreclosure of the mortgage collateralized by such property
("foreclosure property"); (vii) commitment fees received for agreeing to make
loans collateralized by mortgages on real property or to purchase or lease real
property; and (viii) certain qualified temporary investment income.
95% INCOME TEST. At least 95% of the REIT's gross income (excluding gross
income from "prohibited transactions") for each taxable year must be derived
from sources qualifying for the 75% test, plus dividend and interest income,
certain hedging income and capital gain on the sale or other disposition of
stocks or securities.
RENTS FROM REAL PROPERTY. Rents received by the Company will constitute
"rents from real property," qualifying for the 75% and 95% income tests, if the
following requirements are met:
- The amount of rent received generally must not be based in whole or in
part on the income or profits of any person.
- Rents will not qualify as "rents from real property" if the REIT, or a 10%
owner of the REIT, owns directly or indirectly a 10% or greater interest
in any tenant or in the assets or net profits of a tenant.
- The term "rents from real property" does not include "impermissible tenant
service income," which is generally income from providing "disqualifying
services" to tenants other than through an independent contractor (as
specially defined for this purpose) from whom the REIT itself does not
derive or receive any income. For this purpose, "disqualifying services"
are services which, if provided by certain tax-exempt entities, would
cause rents received by such entities to be treated as unrelated business
taxable income. Generally, services other than services usually or
customarily rendered in connection with the rental of rooms or other space
for occupancy only are disqualifying services. Charges for services of a
type customarily furnished or rendered to tenants in connection with the
rental of real property of a similar class in the geographic market in
which the property is located qualify as "rents from real property." If
impermissible tenant service income with respect to
35
<PAGE>
a property exceeds 1% of all amounts received or accrued with respect to
such property, then all such amounts are treated as impermissible tenant
service income. The Company represents that it will not furnish or render
services with respect to any of the Properties that would cause rental
income from such Properties to fail to qualify as "rents from real
property."
- Rent attributable to personal property will not qualify as "rents from
real property" unless the personal property is leased in connection with a
lease of real property and such rent is no more than 15% of the total rent
received under the lease. Rent attributable to personal property is that
amount which bears the same ratio to total rent as the average of the
adjusted bases of the personal property at the beginning and end of the
taxable year bears to the average of the aggregate adjusted bases of both
the real property and personal property at the beginning and end of such
taxable year.
PROHIBITED TRANSACTIONS. The 75% and 95% income tests described above are
measured by reference to gross income of the Company. For this purpose, however,
gross income does not include income from "prohibited transactions." Moreover,
income from prohibited transactions is subject to a 100% tax.
The Company will be considered to have engaged in a prohibited transaction
if it sells stock in trade or other property of a kind which would properly be
included in inventory if on hand at the close of the taxable year, or property
held primarily for sale to customers in the ordinary course of business. The
Code provides a safe harbor under which certain sales of real estate assets will
not be considered to be a prohibited transaction. The safe harbor applies if (a)
the Company has held the property for at least four years; (b) the total
expenditures made by the Company, or any partner of the Company, and capitalized
as part of the basis of the property during the four-year period preceding the
sale, do not exceed 30% of the net sales price; and (c) the Company meets the
limitation on sales of such property. The Company will meet the limitation on
sales if (d) it makes no more than seven sales of property during the year, or
(e) the aggregate of the adjusted bases of the properties sold does not exceed
10% of the aggregate adjusted bases of all the Company's properties during the
year. If the property consists of land or improvements not acquired through
foreclosure, the Company must have held the property for production of rental
income for at least four years to be eligible for the safe harbor. Also, if the
Company sold more than seven properties during the year, substantially all of
the marketing and development expenditures with respect to the property must
have been made through an independent contractor from whom the Company itself
does not derive or receive any income.
FAILURE TO MEET INCOME TESTS. If certain requirements are met, the Company
may retain its status as a REIT even in a year in which it fails either the 75%
or the 95% income test. In such event, however, the Company will be subject to
an excise tax based on the greater of the amount by which it failed the 75% or
95% gross income test for that year, less expenses. The Company will qualify for
this relief if (a) it reports the amount and nature of each item of its gross
income in its federal income tax return for such year; (b) the inclusion of any
incorrect information in its return is not due to fraud with intent to evade
tax; and (c) the failure to meet such tests is due to reasonable cause and not
willful neglect.
DISTRIBUTIONS TO SHAREHOLDERS
95% DISTRIBUTION REQUIREMENT. In order to maintain its qualification as a
REIT, the Company is required to distribute dividends (other than capital gains
dividends) to its shareholders in an amount equal to 95% of the sum of (a) its
"REIT taxable income" before deduction of dividends paid and excluding any net
capital gain, plus (b) any net income from foreclosure property less the tax on
such income, minus (c) any "excess noncash income." The deduction for dividends
paid is discussed below. See "Federal Income Tax Considerations--Taxation of the
Company."
"REIT taxable income" for purposes of this requirement is the taxable income
of a REIT, computed as if it were an ordinary corporation, adjusted by certain
items, including an exclusion for net income from foreclosure property, a
deduction for the excise tax on the failure of the 75% or 95% income tests, and
an exclusion for an amount equal to any net income derived from prohibited
transactions.
36
<PAGE>
"Foreclosure property" is any real property, interest in real property, or
personal property incident to the real property, acquired by the REIT in a
foreclosure or by a deed in lieu of foreclosure following a default of a debt
obligation or after termination of a defaulted lease, provided the REIT elects
to treat the property as foreclosure property. The property ceases to be
foreclosure property as of the close of the third taxable year following the
taxable year in which the REIT acquires it, unless the IRS consents to an
extension of this time period.
"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 or income from cancellation of
indebtedness, over 5% of REIT taxable income before deduction for dividends paid
and excluding any net capital gain.
The Company intends to make distributions to the shareholders on a quarterly
basis sufficient to meet the 95% distribution requirement. However, because of
the possible receipt of income without corresponding cash receipts, timing
differences that may rise between the realization of taxable income and net cash
flow, and the possible disallowance by the IRS of deductions claimed by the
Company, it is possible that the Company may not have sufficient cash or liquid
assets at a particular time to meet the 95% distribution requirement. To assure
compliance with the 95% distribution requirement, the Company will closely
monitor the relationship between its REIT taxable income and cash flow and, if
necessary, will borrow funds in order to satisfy the distribution requirement.
If the Company fails to meet the 95% distribution requirements as a result of an
adjustment to the Company's tax return by the Service, the Company may
retroactively cure the failure by paying a "deficiency dividend" (plus
applicable penalties and interest) within a specified period.
NON-REIT ACCUMULATED EARNINGS AND PROFITS. The Company will not qualify as
a REIT if, as of the close of its taxable year, it has earnings and profits
accumulated in any non-REIT year. For purposes of this rule, positive earnings
and profits of a corporation that is liquidated or merged into another
corporation may not be netted against the other corporation's deficit in
earnings and profits. The Company believes that it and each of its subsidiaries
had negative earnings and profits as of the effective date of its REIT election.
FAILURE TO QUALIFY AS A REIT
For any taxable year the Company fails to qualify as a REIT, it would be
taxed as a corporation. It would not be entitled to a deduction for dividends
paid to its shareholders in computing its taxable income. Assets of the Company
and distributions to shareholders would be reduced to the extent necessary to
pay any resulting tax liability of the Company. Distributions from the Company
at such time would be taxable to shareholders as dividends to the extent of the
current and accumulated earnings and profits of the Company and would be
eligible for the 70% dividend-received deduction for shareholders which are
corporations.
If the Company's election to be treated as a REIT is terminated
automatically, the Company will not be eligible to elect REIT status until the
fifth taxable year which begins after the year for which the Company's election
was terminated, unless (a) the Company did not willfully fail to file a timely
return with respect to the termination taxable year, (b) the incorrect
information in such return was not due to fraud with intent to evade tax, and
(c) the Company establishes that failure to meet the requirements was due to
reasonable cause and not to willful neglect.
TAXATION OF THE COMPANY
GENERAL. In general, corporations are subject to federal income tax on
their net income regardless of whether such income is currently distributed to
shareholders. Distributions to shareholders constitute taxable dividends to the
extent of current and accumulated earnings and profits of the corporation. Under
this general rule, double taxation of corporate profits--that is, taxation at
the corporate level and the
37
<PAGE>
shareholder level--is the norm. However, the rules pertaining to REITs provide
an exception to this general rule. Except as otherwise discussed below, for any
taxable year in which the Company qualifies as a REIT, it will generally be able
to deduct for federal income tax purposes the portion of its ordinary income or
capital gain which is timely distributed to shareholders.
Even if the Company is treated as a REIT for federal income tax purposes,
however, it is subject to tax on any REIT taxable income and net capital gain
not distributed to shareholders. The Company may reinvest income or gain
recognized upon the sale of property or repayment of an investment, although it
does not intend to do so unless it has satisfied the 95% income distribution
test. Capital gain income which is not distributed will be taxable to the
Company. The Company will not be required to distribute capital gain income to
maintain its status as a REIT. In addition, the Company will be taxed at regular
corporate tax rates on net income from foreclosure property which is not
otherwise REIT qualifying income. Any tax incurred by the Company for these
reasons, or for any of the reasons discussed below, would reduce the amount of
cash available for distribution to shareholders, and ultimately reduce the
return on an investment in shares of the Company.
DIVIDENDS PAID DEDUCTION. For any taxable year it qualifies as a REIT, the
Company can claim the dividends paid deduction for dividends actually and
constructively paid during that tax year. The Company can also claim a dividends
paid deduction for dividends paid in the following year if it declares the
dividends before the time prescribed by law for filing its return for the year,
including extensions, and distributes the amount of the dividend during the
12-month period following the close of the year but not later than the date of
the first regular dividend payment made after the declaration. In this event,
the Company will be required to specify the dollar amount of the dividend, and
send any notices required with respect to the dividend not later than 30 days
after the close of the tax year or by mail with its annual report for the tax
year. Certain so-called consent dividends declared in subsequent years are also
eligible for the dividends paid deduction.
TAX ON BUILT-IN GAIN. The Internal Revenue Service has announced its
intention to issue regulations dealing with "built-in gain" of REITs. A REIT has
built-in gain to the extent it has, at the time its status as a REIT commences,
any asset with a fair market value in excess of its adjusted tax basis. The
regulations would provide that a corporation that becomes a REIT recognizes net
built-in gain, and pays corporate level tax, as if it had been liquidated at the
end of the last taxable year before it qualified as a REIT unless it makes an
election under which it will recognize such gain only upon disposition of such
assets within the first ten years after it became a REIT. If the election is
made, the portion of any gain on such dispositions that is built-in gain is
taxable to the REIT without regard to whether the gain is distributed to
shareholders.
Some or all of the assets held by the Company on January 1, 1994, the
effective date of its REIT election, had built-in gain. The Company made the
election described above. The Company will therefore recognize built-in gain
only upon disposition of those assets prior to January 1, 2004. If such a
disposition occurs, the corporate level tax paid by the Company will reduce the
amount available for distribution to shareholders.
EXCISE TAX ON FAILURE TO MEET 75% OR 95% INCOME TESTS. Regardless of
distributions to shareholders, if the Company fails either or both of the 75%
and 95% income tests, but still maintains its qualification as a REIT, it will
be subject to an excise tax on an amount equal to the greater of the amount by
which it failed the 75% test or the 95% test multiplied by a fraction the
numerator of which is REIT taxable income (determined without deductions for
dividends paid or net operating losses and excluding capital gains) and the
denominator of which is the gross income of the REIT (determined, generally, by
excluding income from prohibited transactions, certain gross income from
foreclosure property, long-term capital gain, and short-term capital gain to the
extent of any short-term capital loss).
38
<PAGE>
100% TAX ON PROHIBITED TRANSACTIONS. To the extent the Company derives any
net income from a prohibited transaction, the Company will be subject to a 100%
tax on such net income.
ALTERNATIVE MINIMUM TAX. The Company will also be subject to the
alternative minimum tax on items of tax preference allocable to it. The Code
authorizes the Treasury Department to issue regulations allocating items of tax
preference between a REIT and its shareholders. Such regulations have not been
issued. The Company does not expect to have any significant items of tax
preference.
4% EXCISE TAX. A 4% excise tax applies if a REIT's "distributed amount" for
any year is less than its "required distribution." For this purpose, the
required distribution is specially defined, and does not correspond to the
amount the REIT must distribute in order to maintain its status as a REIT. The
required distribution is (a) 85% of the REIT's ordinary income for the year,
plus (b) 95% of the REIT's capital gain net income reduced by any net ordinary
loss. This amount must be "grossed up" for certain amounts of undistributed
income from prior years. For purposes of this rule, the REIT's ordinary income
is determined without regard to the dividends paid deduction. The distributed
amount includes dividends paid during the calendar year, plus any tax imposed on
REIT taxable income or capital gains, plus any excess of the distributed amount
for the preceding calendar year over the grossed up required distribution for
the preceding year.
TAX ELECTIONS. The Company's taxable year ends December 31. The Company
uses the accrual method of accounting. The effective date of the Company's
election to be taxed as a REIT is January 1, 1994.
STATE AND LOCAL TAXES
The Company may be subject to state and local taxes in various jurisdictions
such as those in which the Company owns property or may be deemed to be engaged
in activities. The tax treatment of the Company in states having taxing
jurisdiction over it may differ from the federal income tax treatment described
in this summary. No discussion of state taxation of the Company, the shares or
the shareholders is provided herein.
PLAN OF DISTRIBUTION
The Company may sell Securities to one or more underwriters for public offer
and sale by them or may sell Securities offered hereby to investors directly or
through agents. Any underwriter or agent involved in the offer and sale of the
Securities will be named in the applicable Prospectus Supplement.
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, at prices
related to the prevailing market prices at the time of sale or at negotiated
prices (any of which may represent a discount from the prevailing market
prices). The Company also may, from time to time, authorize underwriters acting
as the Company's agents to offer and sell the Securities upon the terms and
conditions as are set forth in the applicable Prospectus Supplement. In
connection with the sale of Securities, underwriters may be deemed to have
received compensation from the Company in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of Securities for
whom they may act as agent. Underwriters may sell Securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters and/or commissions from the
purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Securities and any discounts, concessions or
commissions allowed by underwriters to participating dealers, will be set forth
in the applicable Prospectus Supplement. Underwriters, dealers and agents
participating in the distribution of the Securities may be deemed to be
underwriters, and any discounts and commissions received by them and any profit
realized by them on resale of the Securities
39
<PAGE>
may be deemed to be underwriting discounts and commissions, under the Securities
Act. Underwriters, dealers and agents may be entitled, under agreements entered
into with the Company, to indemnification against and contribution toward
certain civil liabilities, including liabilities under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize the underwriters, dealers or other persons acting as the Company's
agents to solicit offers by certain institutions to purchase Securities from the
Company at the public offering price set forth in such Prospectus Supplement
pursuant to Delayed Delivery Contracts ("Contracts") providing for payment and
delivery on the date or dates stated in such Prospectus Supplement. Each
Contract will be for an amount not less than, and the aggregate principal amount
of Securities sold pursuant to Contracts will not be less than nor greater than,
the respective amounts stated in the applicable Prospectus Supplement.
Institutions with whom Contracts, when authorized, may be made include
commercial and savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other institutions but
will in all cases be subject to the approval of the Company. Contracts will not
be subject to any conditions except that (i) the purchase by an institution of
the Securities covered by its Contract will not at the time of delivery be
prohibited under the laws of any jurisdiction in the United States to which such
institution is subject; and (ii) if the Securities are being sold to
underwriters, the Company has sold to such underwriters the total principal
amount of the Securities less the principal amount thereof covered by the
Contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for the Company and its subsidiaries
in the ordinary course of business.
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Ungaretti &
Harris, Chicago, Illinois. Ungaretti & Harris will rely on the opinion of
Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC, Baltimore, Maryland, as
to certain matters of Maryland law.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1997 and
1996 and the consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997
included in the Company's Annual Report on Form 10-K and the combined statement
of revenues and certain expenses of the Other Acquisition II Properties for the
year ended December 31, 1996 included in the Company's Current Report on Form
8-K/A No. 1 filed with the Commission on February 27, 1998, both incorporated by
reference in this Prospectus, have been incorporated herein in reliance on the
reports of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
40
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus
Supplement and the accompanying Prospectus. If given or made, such information
or representations must not be relied upon as having been authorized by the
Company or the Agents. This Prospectus Supplement and the accompanying
Prospectus do not constitute an offer to sell, or a solicitation of any offer to
buy, the Notes in any jurisdiction where, or to any person to whom, it is
unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus Supplement or the accompanying Prospectus nor any sale made hereunder
shall, under any circumstances, create an implication that there has not been
any change in the facts set forth in this Prospectus or the accompanying
Prospectus or in the affairs of the Company since the date thereof.
---------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
Page
---------
<S> <C>
The Company...................................... S-2
Risk Factors..................................... S-3
Pricing Supplement............................... S-9
Ratio of Earnings to Fixed Charges............... S-9
Description of Notes............................. S-9
Certain United States Federal Income Tax
Considerations................................. S-30
Supplemental Plan of Distribution................ S-37
Legal Matters.................................... S-39
PROSPECTUS
Available Information............................ 2
Incorporation of Certain Documents by
Reference...................................... 2
The Company...................................... 3
Risk Factors..................................... 5
Use of Proceeds.................................. 8
Certain Ratios................................... 8
Description of Debt Securities................... 8
Description of Shares of Beneficial Interest..... 22
Description of Securities Warrants............... 29
Certain Provisions of the Company's Declaration
of Trust and Bylaws............................ 31
Federal Income Tax Considerations Relating to the
Company's REIT Status.......................... 33
Plan of Distribution............................. 39
Legal Matters.................................... 40
Experts.......................................... 40
</TABLE>
$250,000,000
[LOGO]
MEDIUM-TERM NOTES
SERIES A
-------------------
PROSPECTUS SUPPLEMENT
October 23, 1998
---------------------
LEHMAN BROTHERS
FIRST CHICAGO CAPITAL MARKETS, INC.
NATIONSBANC MONTGOMERY SECURITIES LLC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
