<PAGE> 1
FILED PURSUANT TO RULE 424(b)(2)
FILE NO. 333-14595
PROSPECTUS SUPPLEMENT
- ---------------------
(To Prospectus dated October 30, 1996)
$100,000,000
SUN COMMUNITIES OPERATING
LIMITED PARTNERSHIP
MEDIUM-TERM NOTES DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
Sun Communities Operating Limited Partnership (the "Company") may offer
from time to time its Medium Term Notes (the "Notes"), having an aggregate
initial offering price not to exceed $100,000,000 (or the equivalent thereof in
one or more foreign currencies or currency units), subject to reduction under
certain circumstances as a result of the sale by the Company of other
Securities of the Company under the Prospectus to which this Prospectus
Supplement relates. The Notes will rank pari passu with the Company's other
unsecured, unsubordinated indebtedness. The Indenture limits the total
indebtedness the Company may incur, but does not specifically limit the amount
of indebtedness the Company may incur pari passu with or senior to the Notes.
The Notes will be offered in varying maturities nine months or more from their
dates of issue and may be subject to redemption at the option of the Company or
repayment at the option of the Holder, in each case, in whole or in part prior
to the maturity date (as further defined below, the "Stated Maturity") thereof
as set forth in a Pricing Supplement to this Prospectus Supplement (a "Pricing
Supplement"). Each Note will be denominated and/or payable in United States
dollars or a foreign or composite currency, as specified in the applicable
Pricing Supplement. The Notes, other than Multi-Currency Notes, will be issued
in minimum denominations of $1,000 and integral multiples thereof, unless
otherwise specified in the applicable Pricing Supplement, while Multi-Currency
Notes will be issued in the minimum denominations specified in the applicable
Pricing Supplement.
Each Note will bear interest at a fixed rate ("Fixed Rate Notes"), which
may be zero in the case of certain Notes issued at a price representing a
discount from the principal amount payable at maturity (a "Zero-Coupon Note"),
or at a variable rate (a "Floating Rate Note") determined by reference to one
or more of the CD Rate, the CMT Rate, the Commercial Paper Rate, the 11th
District Cost of Funds Rate, the Federal Funds Rate, LIBOR, the Kenny Rate, the
Prime Rate or the Treasury Rate, or any other rate basis or formula (each, an
"Interest Rate Basis") as may be indicated in the applicable Pricing
Supplement, as adjusted by a Spread or Spread Multiplier, if any, applicable to
such Notes. See "Description of the Notes." Interest on each Floating Rate
Note will accrue from its date of issue and, unless otherwise specified in the
applicable Pricing Supplement, will be payable monthly, quarterly, semiannually
or annually in arrears, as specified in the applicable Pricing Supplement, and
at Stated Maturity. Unless otherwise specified in the applicable Pricing
Supplement, the rate of interest on each Floating Rate Note will be reset
daily, weekly, monthly, quarterly, semiannually or annually, as specified in
the applicable Pricing Supplement. Interest on each Fixed Rate Note will
accrue from its date of issue and, unless otherwise specified in the applicable
Pricing Supplement, will be payable semiannually in arrears on May 1 and
November 1 of each year and at Stated Maturity. The Company may also issue
Discount Notes, Indexed Notes and Amortizing Notes (as hereinafter defined).
See "Description of the Notes."
The interest rate, or formula for the determination of the interest rate,
if any, applicable to each Note and the other variable terms thereof will be
established by the Company on the date of issue of such Note and will be
specified in the applicable Pricing Supplement. Interest rates or formulas and
other terms of Notes are subject to change by the Company, but no such change
will affect any Note previously issued or as to which an offer to purchase has
been accepted by the Company.
Each Note will be issued in book-entry form (a "Book-Entry Note") or in
fully registered certificated form (a "Certificated Note"), as specified in the
applicable Pricing Supplement. Each Book-Entry Note will be represented by one
or more fully registered global securities (the "Global Securities") deposited
with or on behalf of The Depository Trust Company (or such other depository
identified in the applicable Pricing Supplement) (the "Depository") and
registered in the name of the Depository or the Depository's nominee.
Interests in the Global Securities will be shown on, and transfers thereof will
be effected only through, records maintained by the Depository (with respect to
its participants) and the Depository's participants (with respect to beneficial
owners). Except in limited circumstances, Book-Entry Notes will not be
exchangeable for Certificated Notes.
SEE "RISK FACTORS" COMMENCING ON PAGE S-3 FOR A DISCUSSION OF CERTAIN
RISKS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES
OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, THE PROSPECTUS OR ANY
PRICING SUPPLEMENT HERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
-------------------------------
<TABLE>
<CAPTION>
Price to Agent's Discounts and
Public (1) Commissions (2) Proceeds to Company (2) (3)
----------- --------------------- ---------------------------
<S> <C> <C> <C>
Per Note....................... 100% .125%-.750% 99.875%-99.250%
Total (4)...................... $100,000,000 $125,000 - $750,000 $99,875,000 - $99,250,000
</TABLE>
(1) Unless otherwise indicated in the applicable Pricing Supplement, Notes
will be sold at 100% of their principal amounts.
(2) The Company will pay Lehman Brothers Inc. (the "Agent") a commission
ranging from .125% to .750% of the principal amount of any Note, depending
on its Stated Maturity, sold through the Agent. The commission on any Note
with a maturity of more than 30 years from the date of issue will be
negotiated at the time of sale. The Agent, acting as principal, may also
purchase Notes at a discount for resale to one or more investors or one or
more broker-dealers (acting as principal for purposes of resale) at
varying prices related to prevailing market prices at the time of resale,
as determined by the Agent, or, if so agreed, at a fixed public offering
price. The Company has agreed to reimburse the Agent for certain expenses
and has agreed to indemnify the Agent against certain liabilities,
including liabilities under applicable federal and state securities laws.
(3) Before deducting offering expenses payable by the Company estimated at
$250,000.
(4) Or the equivalent thereof in one or more foreign or composite currencies.
-------------------------------
<PAGE> 2
The Notes are being offered on a continuing basis by the Company to or
through the Agent. The Notes will not be listed on any securities exchange and
there is no assurance that the Notes offered hereby will be sold or, if sold,
that there will be a secondary market for the Notes or liquidity in the
secondary market if one develops. The Company reserves the right to withdraw,
cancel or modify the offer made hereby without notice. The Company or the
Agent may reject any such offer to purchase Notes in whole or in part. See
"Plan of Distribution."
-------------------------------
LEHMAN BROTHERS
August 20, 1997
S-2
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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.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF NOTES PRIOR TO THE PRICING OF THE
OFFERING FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE NOTES, THE PURCHASE OF
NOTES FOLLOWING THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT POSITION
IN THE NOTES OR FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE NOTES, AND THE
IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN
OF DISTRIBUTION."
S-3
<PAGE> 4
RISK FACTORS
This Prospectus Supplement does not describe all of the risk of an
investment in Notes, whether resulting from such Notes being denominated or
payable in or determined by reference to a currency or composite currency other
than United States dollars or to one or more interest rate, currency or other
indices or formulas, or otherwise. The Company and the Agent disclaim any
responsibility to advise prospective investors of such risks as they exist at
the date of this Prospectus Supplement or as they change from time to time.
Prospective investors should consult their own financial and legal advisors as
to the risks entailed by an investment in such Notes and the suitability of
investing in such Notes in light of their particular circumstances. Each
prospective investor should consult his own financial and legal advisors as to
the risks entailed by an investment in Notes denominated or payable in or
determined by reference to a currency or composite currency other than United
States dollars or to one or more interest rate, currency or other indices or
formulas. Such Notes are not an appropriate investment for investors who are
unsophisticated with respect to foreign currency transactions or transactions
involving the applicable interest rate or currency index or other indices or
formulas. Prospective investors should carefully consider, among other factors,
the matters described below.
STRUCTURE RISKS
An investment in Notes indexed, as to principal, premium, if any, and/or
interest, if any, to one or more interest rate, currency (including exchange
rates and swap indices between currencies or composite currencies) or other
indices or formulas, either directly or inversely, entails significant risks
that are not associated with similar investments in a conventional fixed rate
or floating rate debt security. Such risks include, without limitation, the
possibility that such indices or formulas may be subject to significant
changes, that no interest will be payable in respect of such Notes or will be
payable at a rate less than that applicable to a conventional fixed rate or
floating rate debt security issued by the Company at the same time, that
repayment of the principal and/or premium, if any, in respect of such Notes may
occur at times other than that expected by the Holders (as defined in the
accompanying Prospectus), and that the Holders could lose all or a substantial
portion of principal and/or premium, if any, payable with respect to such Notes
at Stated Maturity (as defined under "Description of the Notes - General").
Such risks depend on a number of interrelated factors, including economic,
financial and political events, over which the Company has no control.
Additionally, if the formula used to determine the amount of principal,
premium, if any, and/or interest, if any, payable with respect to such Notes
contains a multiplier or leverage factor, the effect of any change in the
applicable index or indices or formula or formulas will be magnified. In recent
years, values of certain indices and formulas have been highly volatile and
such volatility may be expected to continue in the future. Fluctuations in the
value of any particular index or formula that have occurred in the past are not
necessarily indicative, however, of fluctuations that may occur in the future.
Any optional redemption feature of Notes might affect the market value of
such Notes. Since the Company may be expected to redeem such Notes when
prevailing interest rates are relatively low, Holders generally will not be
able to reinvest the redemption proceeds in a comparable security at an
effective interest rate as high as the current interest rate on such Notes.
The Notes will not have an established trading market when issued, and
there can be no assurance of a secondary market for the Notes or the liquidity
of the secondary market if one develops. See "Plan of Distribution."
The secondary market, if any, for Notes will be affected by a number of
factors independent of the creditworthiness of the Company and the value of the
applicable index or indices or formula or formulas, including the complexity
and volatility of each such index or formula, the method of calculating the
principal, premium, if any, and/or interest, if any, in respect of such Notes,
the time remaining to the maturity of such Notes, the outstanding amount of
such Notes, any redemption features of such Notes, the amount of other debt
securities linked to such index or formula and the level, direction and
volatility of market interest rates generally. Such factors also will affect
the market value of such Notes. In addition, certain Notes may be designed for
specific investment objectives or strategies and, therefore, may have a more
limited secondary market and experience more price volatility than conventional
debt securities. Holders may not be able to sell such Notes readily or at
prices that will enable them to realize their anticipated yield. No investor
should purchase Notes unless such investor understands and is able to bear the
risk that such Notes may not be readily saleable, that the value of such Notes
will fluctuate over time and that such fluctuations may be significant.
S-4
<PAGE> 5
FOREIGN CURRENCY RISKS
Exchange Rates and Exchange Controls
An investment in Multi-Currency Notes (as defined under "Description of
the Notes - General") entails significant risks that are not associated with a
similar investment in a debt security denominated and payable in United States
dollars. Such risks include, without limitation, the possibility of significant
changes in the rate of exchange between the United States dollar and the
Specified Currency (as defined under "Description of the Notes - General") and
the possibility of the imposition or modification of foreign exchange controls
by the applicable governments or monetary authorities. Such risks generally
depend on economic and political events over which the Company has no control.
In addition, if the formula used to determine the amount of principal,
premium, if any, and/or interest, if any, payable with respect to
Multi-Currency Notes contains a multiplier or leverage factor, the effect of
any change in the applicable currencies or composite currencies will be
magnified. In recent years, rates of exchange between the United States dollar
and certain foreign currencies have been highly volatile and such volatility
may be expected to continue in the future. The exchange rate between the
United States dollar and a foreign currency or currency unit is at any moment a
result of the supply of and demand for such currencies, and changes in the rate
as a result over time from the interaction of many factors, among which are
rates of inflation, interest rate levels, balances of payment and the extent of
governmental surpluses or deficits in the countries of such currencies. These
factors are in turn sensitive to the monetary, fiscal and trade policies of
other countries important to international trade and finance. Fluctuations in
any particular exchange rate that have occurred in the past are not necessarily
indicative, however, of fluctuations that may occur in the future. Depreciation
of the Specified Currency applicable to a Multi-Currency Note against the
United States dollar would result in a decrease in the United States
dollar-equivalent yield of such Multi-Currency Note, in the United States
dollar-equivalent value of the principal and premium, if any, payable on the
Stated Maturity of such Multi-Currency Note, and, generally, in the United
States dollar-equivalent market value of such Multi-Currency Note.
Foreign exchange rates can either be fixed by sovereign governments or
float. Exchange rates of most economically developed noncommunist nations are
permitted to fluctuate in value relative to the U.S. dollar. Sovereign
governments, however, rarely voluntarily allow their currencies to float freely
in response to economic forces. In fact, such governments use a variety of
techniques, such as intervention by a country's central bank or imposition of
regulatory controls or taxes, to affect the exchange rate of their currencies.
Governments may also issue a new currency to replace an existing currency or
alter the exchange rate or relative exchange characteristics by devaluation or
revaluation of a currency. Thus, a special risk in purchasing Notes that are
denominated in a foreign currency or currency unit is that their U.S.
dollar-equivalent yields could be affected by governmental actions which could
change or interfere with a theretofore freely determined currency valuation, by
fluctuations in response to other market forces and by the movement of
currencies across borders. There will be no adjustment or change in the terms
of the Multi-Currency Notes in the event that exchange rates should become
fixed, or in the event of any devaluation or revaluation or imposition of
exchange or other regulatory controls or taxes, or in the event of other
developments, affecting the U.S. dollar or any applicable currency or currency
unit.
THE PROSPECTUS, INCLUDING THIS PROSPECTUS SUPPLEMENT, DOES NOT DESCRIBE
ALL RISKS OF AN INVESTMENT IN MULTI-CURRENCY NOTES THAT RESULT FROM SUCH NOTES
BEING DENOMINATED IN A FOREIGN CURRENCY OR CURRENCY UNIT EITHER AS SUCH RISKS
EXIST AT THE DATE OF THIS PROSPECTUS SUPPLEMENT OR AS SUCH RISKS MAY CHANGE
FROM TIME TO TIME. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL
AND LEGAL ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN MULTI-CURRENCY
NOTES. MULTI-CURRENCY NOTES AE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS WHO
ARE UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
Unless otherwise indicated in the applicable Pricing Supplement,
Multi-Currency Notes will not be sold in, or to residents of, the country of
the Specified Currency in which particular Multi-Currency Notes are
denominated. The information set forth in this Prospectus Supplement is
directed to prospective purchasers who are United States residents, and the
Company disclaims any responsibility to advise prospective purchasers who are
residents of countries other than the United States with respect to any matters
that may affect the purchase, holding or receipt of payments of principal of,
premium, if any, and interest on Multi-Currency Notes. Such persons should
contact their own legal advisors with regard to such matters.
Judgments
The Notes will be governed by and construed in accordance with the laws of
the State of New York. A judgment for money damages by courts in the United
States, including money damages based on an obligation expressed in a foreign
currency, will ordinarily be rendered only in U.S. dollars. New York statutory
law provides
S-5
<PAGE> 6
that in an action based on an obligation expressed in a currency
other than U.S. dollars a court shall render a judgment in the foreign currency
of the underlying obligation and that the judgment shall be converted into U.S.
dollars at the exchange rate prevailing on the date of entry of the judgment.
See "Special Provisions Relating to Multi-Currency Notes - Judgments."
Exchange Controls, Etc.
Governments have imposed from time to time exchange controls and may in
the future impose or revise exchange controls at or prior to a Note's Stated
Maturity. Even if there are no exchange controls, it is possible that the
Specified Currency for any particular Multi-Currency Note would not be
available at such Note's Stated Maturity. In that event, the Company will pay
in U.S. dollars on the basis of the Market Exchange Rate on the second day
prior to such payment, or if such Market Exchange Rate is not then available,
on the basis of the most recently available Market Exchange Rate. See "Special
Provisions Relating to Multi-Currency Notes - Payment of Principal, Premium, if
any, and Interest, if any."
An applicable Pricing Supplement with respect to the applicable Specified
Currency (which includes information with respect to applicable current foreign
exchange controls, if any) will be delivered and will become part of this
Prospectus and Prospectus Supplement. The information concerning exchange
rates is furnished as a matter of information only and should not be regarded
as indicative of the range of or trends in fluctuations in currency exchange
rates that may occur in the future.
CREDIT RATINGS
The credit ratings assigned to the Company's medium-term note program may
not reflect the potential impact of all risks related to structure and other
factors on the value of the Notes. Accordingly, prospective investors should
consult their own financial and legal advisors as to the risks entailed by an
investment in the Notes and the suitability of investing in such Notes in light
of their particular circumstances.
DESCRIPTION OF THE NOTES
The Notes will be issued as a series of Debt Securities under an
Indenture, dated as of April 24, 1996, as amended or supplemented from time to
time (referred to as the "Senior Indenture" in the accompanying Prospectus and
as the "Indenture" in this Prospectus Supplement), among the Company, Sun
Communities, Inc., the General Partner of the Company ("Sun"), and Bankers
Trust Company, as trustee (the "Trustee"), as supplemented by the First
Supplemental Indenture, dated as of August 20, 1997 among the Company, Sun and
the Trustee (together, 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.
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. As
of the date of this Prospectus Supplement, the Company has issued $150,000,000
aggregate initial offering price of Debt Securities. 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
in addition to the $100,000,000 aggregate initial offering price of Notes
offered hereby.
S-6
<PAGE> 7
The Notes are currently limited to up to $100,000,000 aggregate initial
offering price, or the equivalent thereof in one or more foreign or composite
currencies. The Notes will be offered on a continuous basis and will mature on
a Business Day (as defined below) nine months or more from their date of issue
(the "Stated Maturity"), as specified in the applicable Pricing Supplement,
unless the principal thereof (or any installment of principal thereof) becomes
due and payable prior to Stated Maturity, whether by the declaration of
acceleration of maturity, notice of redemption at the option of the Company, if
applicable, notice of the Holder's option to elect repayment, if applicable, or
otherwise (Stated Maturity or such prior date, as the case may be, is herein
referred to as the "Maturity Date" with respect to the principal of such Note
repayable on such date). Unless otherwise specified in the applicable Pricing
Supplement, interest-bearing Notes will either be Fixed Rate Notes or Floating
Rate Notes, as specified in the applicable Pricing Supplement. The Company may
also issue Discount Notes, Indexed Notes and Amortizing Notes (as such terms
are hereinafter defined).
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will be denominated in, and payments of principal, premium, if any, and/or
interest, if any, in respect thereof will be made in, United States dollars.
The Notes also may be denominated in, and payments of principal, premium, if
any, and/or interest, if any, in respect thereof may be made in, one or more
foreign or composite currencies ("Multi-Currency Notes"). See "Special
Provisions Relating to Multi-Currency Notes - Payment of Principal, Premium, if
any, and Interest, if any." The currency or composite currency in which a
particular Note is denominated (or, if such currency or composite currency is
no longer legal tender for the payment of public and private debts, such other
currency or composite currency of the relevant country which is then legal
tender for the payment of such debts) is herein referred to as the "Specified
Currency" with respect to such Note. References herein to "United States
dollars," "U.S. dollars" or "$" are to the lawful currency of the United States
of America (the "United States").
Unless otherwise specified in the applicable Pricing Supplement,
purchasers are required to pay for the Notes in the applicable Specified
Currencies. At the present time, there are limited facilities in the United
States for the conversion of United States dollars into foreign or composite
currencies and vice versa, and commercial banks do not generally offer
non-United States dollar checking or savings account facilities in the United
States. The Agent may be prepared to arrange for the conversion of United
States dollars into the applicable Specified Currency in order to enable the
purchaser to pay for such Multi-Currency Note, provided that a request is made
to the Agent on or prior to the fifth Business Day preceding the date of
delivery of such Multi-Currency Note, or by such other day as determined by the
Agent. Each such conversion will be made by the Agent on such terms and subject
to such conditions, limitations and charges as the Agent may from time to time
establish in accordance with its regular foreign exchange practices. All costs
of exchange will be borne by the purchaser of each such Multi-Currency Note.
See "Special Provisions Relating to Multi-Currency Notes."
Interest rates offered by the Company with respect to the Notes may differ
depending upon, among other factors, the aggregate principal amount of Notes
purchased in any single transaction. Notes with different variable terms other
than interest rates may also be offered concurrently to different investors.
Interest rates or formulas and other terms of Notes are subject to change by
the Company from time to time, but no such change will affect any Note
previously issued or as to which an offer to purchase has been accepted by the
Company.
Each Note will be issued as a Book-Entry Note represented by one or more
fully registered Global Securities or as a fully registered Certificated Note.
The minimum denominations of each Note other than a Multi-Currency Note will be
$1,000 and integral multiples thereof, unless otherwise specified in the
applicable Pricing Supplement, while the minimum denominations of each
Multi-Currency Note will be specified in the applicable Pricing Supplement.
Payments of principal of, and premium, if any, and interest, if any, on,
Book-Entry Notes will be made by the Company through the Trustee to the
Depositary. See "- Book-Entry Notes." In the case of Certificated Notes,
payment of principal and premium, if any, due on the Maturity Date will be made
in immediately available funds upon presentation and surrender thereof at the
office or agency maintained by the Company for such purpose in the City of New
York (or, in the case of any repayment on an Optional Repayment Date, upon
presentation of such Certificated Note and a duly completed election form in
accordance with the provisions described below), currently the corporate trust
office of the Trustee located initially at Four Albany Street, New York, New
York 10006. Payment of interest due on the Maturity Date of each Certificated
Note will be made to the person to whom payment of the principal and premium,
if any, shall be made. Payment of interest due on each Certificated Note on any
Interest Payment Date (as hereinafter defined) other than the Maturity Date
will be made at the office or agency referred to above maintained by the
Company for such purpose or, at the option of the Company, may be made by check
mailed to the address of the Holder entitled thereto as such address shall
appear in the Security Register of the Company. Notwithstanding the foregoing,
a Holder of $10,000,000 (or, if the Specified Currency is other than United
States dollars, the equivalent thereof in such Specified Currency) or more in
aggregate principal amount of Certificated Notes (whether having identical or
different terms and provisions) will be entitled to
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receive interest payments, if any, on any Interest Payment Date other than
the Maturity Date by wire transfer of immediately available funds if
appropriate wire transfer instructions have been received in writing by the
Trustee not less than 15 days prior to such Interest Payment Date. Any such
wire transfer instructions received by the Trustee shall remain in effect until
revoked by such Holder. For special payment terms applicable to Multi-Currency
Notes, see "Special Provisions Relating to Multi-Currency Notes - Payment of
Principal, Premium, if any, and Interest, if any."
As used herein, "Business Day" means any day, other than a Saturday or
Sunday, that is neither a legal holiday nor a day on which banking institutions
are authorized or required by law, regulation or executive order to close in
The City of New York, provided, however, that, with respect to Multi-Currency
Notes the payment of which is to be made in a currency or composite currency
other than United States dollars, such day is also not a day on which banking
institutions are authorized or required by law, regulation or executive order
to close in the Principal Financial Center (as hereinafter defined) of the
country issuing the Specified Currency (unless the Specified Currency is
European Currency Units ("ECU"), in which case such day is also not a day that
appears as an ECU non-settlement day on the display designated as "ISDE" on the
Reuter Monitor Money Rates Service (or is not a day designated as an ECU
non-settlement day by the ECU Banking Association) or, if ECU non-settlement
days do not appear on that page (and are not so designated), a day that is not
a day on which payments in ECU cannot be settled in the international interbank
market); provided, further, that, with respect to Notes as to which LIBOR is an
applicable Interest Rate Basis, such day is also a London Business Day (as
hereinafter defined). "London Business Day" means any day on which dealings in
the Designated LIBOR Currency (as hereinafter defined) are transacted in the
London interbank market.
"Principal Financial Center" means (i) the capital city of the country
issuing the Specified Currency (except as described in the immediately
preceding paragraph with respect to ECU) or (ii) the capital city of the
country to which the Designated LIBOR Currency, if applicable, relates (or, in
the case of ECU, Luxembourg), except, in each case, that with respect to United
States dollars, Australian dollars, Canadian dollars, Deutsche marks, Dutch
guilders, Italian lire, Swiss francs and ECU's, the "Principal Financial
Center" shall be The City of New York, Sydney, Toronto, Frankfurt, Amsterdam,
Milan (solely in the case of clause (i) above), Zurich, and Luxembourg,
respectively.
Book-Entry Notes may be transferred or exchanged only through the
Depositary. See "- Book-Entry Notes." Registration of transfer or exchange of
Certificated Notes will be made at the office or agency maintained by the
Company for such purpose in the Borough of Manhattan, The City of New York,
currently the corporate trust office of the Trustee located at Four Albany
Street, New York, New York 10006. No service charge will be made by the
Company or the Trustee for any such registration of transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any tax
or other governmental charge that may be imposed in connection therewith (other
than exchanges pursuant to the Indenture not involving any transfer).
The defeasance and covenant defeasance provisions contained in the
Indenture shall apply to the Notes.
Notwithstanding any provisions described in this Prospectus Supplement to
the contrary, if a Note specifies that an Addendum is attached thereto or that
"Other/Additional Provisions" apply, such Note will be subject to the terms
specified in such Addendum or "Other/Additional Provisions," as the case may
be, and will be described in the applicable Pricing Supplement.
REDEMPTION AT THE OPTION OF THE COMPANY
Unless otherwise specified in the applicable Pricing Supplement, the Notes
will not be subject to any sinking fund. The Notes will be redeemable at the
option of the Company prior to Stated Maturity only if an Initial Redemption
Date is specified in the applicable Pricing Supplement. If so specified, the
Notes will be subject to redemption at the option of the Company on any date on
and after the applicable Initial Redemption Date in whole or from time to time
in part in increments of $1,000 or such other minimum denomination specified in
such Pricing Supplement (provided that any remaining principal amount thereof
shall be at least $1,000 or such minimum denomination), at the applicable
Redemption Price (as hereinafter defined), together with unpaid interest
accrued thereon to the date of redemption, on written notice given to the
Holders thereof not more than 60 nor less than 30 calendar days prior to the
date of redemption and in accordance with the provisions of the Indenture.
"Redemption Price," with respect to a Note, means an amount equal to the
Initial Redemption Percentage specified in the applicable Pricing Supplement
(as adjusted by the Annual Redemption Percentage Reduction, if applicable)
multiplied by the unpaid principal amount to be redeemed. The Initial
Redemption Percentage, if any, applicable to a Note shall decline at each
anniversary of the Initial Redemption Date by an amount equal to the applicable
Annual Redemption Percentage Reduction, if any, until the Redemption Price is
equal to 100% of the unpaid principal amount to be redeemed. For a discussion
of the redemption of Discount Notes, see "- Discount Notes."
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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. If so specified, the Notes
will be subject to repayment at the option of the Holders thereof on any
Optional Repayment Date in whole or from time to time in part in increments of
$1,000 or such other minimum denomination specified in the applicable Pricing
Supplement (provided that any remaining principal amount thereof shall be at
least $1,000 or such other minimum denomination), at a repayment price equal to
100% of the unpaid principal amount to be repaid, together with unpaid interest
accrued thereon 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 office maintained for such
purpose in the Borough of Manhattan, The City of New York, currently the
corporate trust office of the Trustee located at Four Albany Street, New York,
New York 10006 (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. For a discussion of the repayment of Discount Notes, see
"-Discount Notes."
Only the Depositary may exercise the repayment option in respect of Global
Securities representing Book-Entry Notes. Accordingly, Beneficial Owners (as
hereinafter defined) of Global Securities that desire to have all or any
portion of the Book-Entry Notes represented by such Global Securities repaid
must instruct the Participant (as hereinafter defined) through which they own
their interest to direct the Depositary to exercise the repayment option on
their behalf by delivering the related Global Security and duly completed
election form to the Trustee as aforesaid. In order to ensure that such Global
Security and election form are received by the Trustee on a particular day, the
applicable Beneficial Owner must so instruct the Participant through which it
owns its interest before such Participant's deadline for accepting instructions
for that day. Different firms may have different deadlines for accepting
instructions from their customers. Accordingly, Beneficial Owners should
consult the Participants through which they own their respective interests for
the respective deadlines for such Participants. All instructions given to
Participants from Beneficial Owners of Global Securities 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 Global Security or Securities representing the related Book-Entry Notes,
on the Depositary's records, to the Trustee. See "- Book-Entry Notes."
If applicable, the Company will comply with the requirements of Section
14(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and Rule l4e-l of the rules promulgated thereunder, 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.
INTEREST
General
Unless otherwise specified in the applicable Pricing Supplement, each
interest-bearing Note will bear interest from its date of issue at the rate per
annum, in the case of a Fixed Rate Note, or pursuant to the interest rate
formula, in the case of a Floating Rate Note, in each case as specified in the
applicable Pricing Supplement, until the principal thereof is paid or duly made
available for payment. Unless otherwise specified in the applicable Pricing
Supplement, interest payments in respect of Fixed Rate Notes and Floating Rate
Notes will be made in an amount equal to the interest accrued from and
including the immediately preceding Interest Payment Date in respect of which
interest has been paid or duly made available for payment (or from and
including the date of issue, if no interest has been paid or duly made
available for payment with respect to the applicable Note) to but excluding the
applicable Interest Payment Date or the Maturity Date, as the case may be
(each, an "Interest Period").
Interest on Fixed Rate Notes and Floating Rate Notes will be payable in
arrears on each Interest Payment Date and on the Maturity Date. Unless
otherwise specified in the applicable Pricing Supplement, the first payment
of interest on any such Note originally issued between a Record Date (as
hereinafter defined) and the related Interest Payment Date will be made on the
Interest Payment Date immediately following the next succeeding Record Date to
the Holder on such next succeeding Record Date. Unless otherwise specified in
the applicable
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Pricing Supplement, a "Record Date" shall be the fifteenth calendar day
(whether or not a Business Day) immediately preceding the related Interest
Payment Date.
Fixed Rate Notes
Unless otherwise specified in the applicable Pricing Supplement, interest
on Fixed Rate Notes will be payable on May 1 and November 1 of each year (each,
an "Interest Payment Date" with respect to Fixed Rate Notes) and on the
Maturity Date. Unless otherwise specified in the applicable Pricing
Supplement, interest on Fixed Rate Notes will be computed on the basis of a
360-day year of twelve 30-day months.
If any Interest Payment Date or the Maturity Date of a Fixed Rate Note
falls on a day that is not a Business Day, the required payment of principal,
premium, if any, and/or interest will be made on the next succeeding Business
Day with the same force and effect as if made on the date such payment was due,
and no interest will accrue on such payment for the period from and after such
Interest Payment Date or the Maturity Date, as the case may be, to the date of
such payment on the next succeeding Business Day.
Floating Rate Notes
Interest on Floating Rate Notes will be determined by reference to the
applicable Interest Rate Basis or Interest Rate Bases, which may, as described
below, include (i) the CD Rate, (ii) the CMT Rate, (iii) the Commercial Paper
Rate, (iv) the 11th District Cost of Funds Rate, (v) the Federal Funds Rate,
(vi) LIBOR, (vii) the Kenny Rate, (viii) the Prime Rate, (ix) the Treasury
Rate, or (x) such other Interest Rate Basis or interest rate formula as may be
specified in the applicable Pricing Supplement; provided, however, that the
interest rate in effect on a Floating Rate Note for the period, if any, from
the date of issue to the first Interest Reset Date (as hereinafter defined)
will be the Initial Interest Rate; provided, further, that with respect to a
Floating Rate/Fixed Rate Note the interest rate in effect for the period
commencing on the Fixed Rate Commencement Date to the Maturity Date shall be
the Fixed Interest Rate, if such rate is specified in the applicable Pricing
Supplement or, if no such Fixed Interest Rate is specified, the interest rate
in effect thereon on the day immediately preceding the Fixed Rate Commencement
Date. The applicable Pricing Supplement will specify certain terms with respect
to which each Floating Rate Note is being delivered, including whether such
Floating Rate Note is a "Regular Floating Rate Note," a "Floating Rate/Fixed
Rate Note" or an "Inverse Floating Rate Note," the Fixed Rate Commencement
Date, if applicable, Fixed Interest Rate, if applicable, Interest Rate Basis or
Bases, Initial Interest Rate, if any, Initial Interest Reset Date, Interest
Reset Dates, Interest Payment Period and Dates, Index Maturity, Maximum
Interest Rate and/or Minimum Interest Rate, if any, and Spread and/or Spread
Multiplier, if any, as such terms are defined below. If one or more of the
applicable Interest Rate Bases is LIBOR or the CMT Rate, the applicable Pricing
Supplement will also specify the Designated LIBOR Currency, and Designated
LIBOR Page or the Designated CMT Maturity Index and Designated CMT Telerate
Page, respectively, as such terms are defined below.
The interest rate borne by the Floating Rate Notes will be determined as
follows:
(i) Unless such Floating Rate Note is designated as a "Floating
Rate/Fixed Rate Note" or an "Inverse Floating Rate Note," or as having an
Addendum attached or having "Other/Additional Provisions" apply, in each
case relating to a different interest rate formula, such Floating Rate
Note will be designated as a "Regular Floating Rate Note" and, except as
described below or in the applicable Pricing Supplement, will bear
interest at the rate determined by reference to the applicable Interest
Rate Basis or Bases (a) plus or minus the applicable Spread, if any,
and/or (b) multiplied by the applicable Spread Multiplier, if any.
Commencing on the Initial Interest Reset Date, the rate at which interest
on such Regular Floating Rate Note shall be payable shall be reset as of
each Interest Reset Date; provided, however, that the interest rate in
effect for the period, if any, from the date of issue to the Initial
Interest Reset Date will be the Initial Interest Rate.
(ii) If such Floating Rate Note is designated as a "Floating
Rate/Fixed Rate Note," then, except as described below or in the
applicable Pricing Supplement, such Floating Rate Note will bear interest
at the rate determined by reference to the applicable Interest Rate Basis
or Bases (a) plus or minus the applicable Spread, If any, and/or (b)
multiplied by the applicable Spread Multiplier, if any. Commencing on the
Initial Interest Reset Date, the rate at which interest on such Floating
Rate/Fixed Rate Note shall be payable shall be reset as of each Interest
Reset Date: provided, however, that (y) the interest rate in effect for
the period, if any, from the date of issue to the Initial Interest Reset
Date will be the Initial Interest Rate and (z) the interest rate in effect
for the period commencing on the Fixed Rate Commencement Date to the
Maturity Date shall be the Fixed Interest Rate, if such rate is specified
in the
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<PAGE> 11
applicable Pricing Supplement or, if no such Fixed Interest Rate is
specified, the interest rate in effect thereon on the day immediately
preceding the Fixed Rate Commencement Date.
(iii) If such Floating Rate Note is designated as an "Inverse
Floating Rate Note," then, except as described below or in the applicable
Pricing Supplement, such Floating Rate Note will bear interest at the
Fixed Interest Rate minus the rate determined by reference to the
applicable Interest Rate Basis or Bases (a) plus or minus the applicable
Spread, if any, and/or (b) multiplied by the applicable Spread Multiplier,
if any; provided, however, that, unless otherwise specified in the
applicable Pricing Supplement, the interest rate thereon will not be less
than zero. Commencing on the Initial Interest Reset Date, the rate at
which interest on such Inverse Floating Rate Note shall be payable shall
be reset as of each Interest Reset Date; provided, however, that the
interest rate in effect for the period, if any, from the date of issue to
the Initial Interest Reset Date will be the Initial Interest Rate.
The "Spread" is the number of basis points to be added to or subtracted
from the related Interest Rate Basis or Bases applicable to such Floating Rate
Note. The "Spread Multiplier" is the percentage of the related Interest Rate
Basis or Bases applicable to such Floating Rate Note by which such Interest
Rate Basis or Bases will be multiplied to determine the applicable interest
rate on such Floating Rate Note. The "Index Maturity" is the period to maturity
of the instrument or obligation with respect to which the related Interest Rate
Basis or Bases will be calculated.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate with respect to each Interest Rate Basis will be determined in
accordance with the applicable provisions below. Except as set forth above or
in the applicable Pricing Supplement, the interest rate in effect on each day
shall be (i) if such day is an Interest Reset Date, the interest rate
determined as of the Interest Determination Date (as hereinafter defined)
immediately preceding such Interest Reset Date or (ii) if such day is not an
Interest Reset Date, the interest rate determined as of the Interest
Determination Date immediately preceding the most recent Interest Reset Date.
The applicable Pricing Supplement will specify whether the rate of
interest on the related Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semiannually or annually or on such other specified basis
(each, an "Interest Reset Period") and the dates on which such rate of interest
will be reset (each, an "Interest Reset Date"). Unless otherwise specified in
the applicable Pricing Supplement, the Interest Reset Dates will be, in the
case of Floating Rate Notes which reset: (i) daily, each Business Day; (ii)
weekly, the Wednesday of each week (with the exception of weekly reset Floating
Rate Notes as to which the Treasury Rate is an applicable Interest Rate Basis,
which will reset the Tuesday of each week, except as described below); (iii)
monthly, the third Wednesday of each month (with the exception of monthly reset
Floating Rate Notes as to which the 11th District Cost of Funds Rate is an
applicable Interest Rate Basis, which will reset on the first calendar day of
the month); (iv) quarterly, the third Wednesday of March, June, September and
December of each year; (v) semiannually, the third Wednesday of the two months
specified in the applicable Pricing Supplement; and (vi) annually, the third
Wednesday of the month specified in the applicable Pricing Supplement; provided
however, that, with respect to Floating Rate/Fixed Rate Notes, the rate of
interest thereon will not reset after the applicable Fixed Rate Commencement
Date. If any Interest Reset Date for any Floating Rate Note would otherwise be
a day that is not a Business Day, such Interest Reset Date will be postponed
to the next succeeding Business Day, except that in the case of a Floating
Rate Note as to which LIBOR is an applicable Interest Rate Basis and such
Business Day falls in the next succeeding calendar month, such Interest Reset
Date will be the immediately preceding Business Day.
The interest rate applicable to each Interest Reset Period commencing on
the related Interest Reset Date will be the rate determined by the Calculation
Agent as of the applicable Interest Determination Date and calculated on or
prior to the Calculation Date (as hereinafter defined), except with respect to
LIBOR and the 11th District Cost of Funds Rate, which will be calculated on
such Interest Determination Date. The "Interest Determination Date" with
respect to the CD Rate, the CMT Rate, the Commercial Paper Rate, the Federal
Funds Rate, the Kenny Rate and the Prime Rate will be the second Business Day
immediately preceding the applicable Interest Reset Date; the "Interest
Determination Date" with respect to the 11th District Cost of Funds Rate will
be the last working day of the month immediately preceding the applicable
Interest Reset Date on which the Federal Home Loan Bank of San Francisco (the
"FHLB of San Francisco") publishes the Index (as hereinafter defined); and the
"Interest Determination Date" with respect to LIBOR will be the second London
Business Day immediately preceding the applicable Interest Reset Date, unless
the Designated LIBOR Currency is British pounds sterling, in which case the
"Interest Determination Date" will be the applicable Interest Reset Date. With
respect to the Treasury Rate, the "Interest Determination Date" will be the day
in the week in which the applicable Interest Reset Date falls on which day
Treasury Bills (as hereinafter defined) are normally auctioned (Treasury Bills
are normally sold at an auction held on Monday of each week, unless that day is
a legal holiday, in which case the auction is normally held on the following
Tuesday, except that such auction may be held on the preceding Friday);
provided, however, that if an auction is held on the Friday of the week
preceding the applicable Interest
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<PAGE> 12
Reset Date, the "Interest Determination Date" will be such preceding Friday;
provided, further, that if 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 a Floating Rate Note the interest rate of which is determined by reference
to two or more Interest Rate Bases will be the most recent Business Day which
is at least two Business Days prior to the applicable Interest Reset Date for
such Floating Rate Note on which each Interest Rate Basis is determinable. Each
Interest Rate Basis will be determined as of such date, and the applicable
interest rate will take effect on the applicable Interest Reset Date.
Notwithstanding the foregoing, a Floating Rate Note may also have either
or both of the following: (i) a Maximum Interest Rate, or ceiling, that may
accrue during any Interest Period and (ii) a Minimum Interest Rate, or floor,
that may accrue during any Interest Period. In addition to any Maximum Interest
Rate that may apply to any Floating Rate Note, the interest rate on Floating
Rate Notes will in no event be higher than the maximum rate permitted by New
York law, as the same may be modified by United States law of general
application.
Except as provided below or in the applicable Pricing Supplement, interest
will be payable, in the case of Floating Rate Notes which reset: (i) daily,
weekly or monthly, on the third Wednesday of each month or on the third
Wednesday of March, June, September and December of each year, as specified in
the applicable Pricing Supplement; (ii) quarterly, on the third Wednesday of
March, June, September and December of each year; (iii) semiannually, on the
third Wednesday of the two months of each year specified in the applicable
Pricing Supplement; and (iv) annually, on the third Wednesday of the month of
each year specified in the applicable Pricing Supplement (each, an "Interest
Payment Date" with respect to Floating Rate Notes) and, in each case, on the
Maturity Date. If any Interest Payment Date other than the Maturity Date for
any Floating Rate Note would otherwise be a day that is not a Business Day,
such Interest Payment Date will be postponed to the next succeeding Business
Day, except that in the case of a Floating Rate Note as to which LIBOR is an
applicable Interest Rate Basis and such Business Day falls in the next
succeeding calendar month, such Interest Payment Date will be the immediately
preceding Business Day. If the Maturity Date of a Floating Rate Note falls on a
day that is not a Business Day, the required payment of principal, premium, if
any, and interest will be made on the next succeeding Business Day with the
same force and effect as if made on the date such payment was due, and no
interest will accrue on such payment for the period from and after the Maturity
Date to the date of such payment on the next succeeding Business Day.
All percentages resulting from any calculation on Floating Rate Notes will
be rounded to the nearest one hundred-thousandth of a percentage point, with
five-one millionths of a percentage point rounded upwards (e.g., 9.876545% (or
.09876545) would be rounded to 9.87655% (or .0987655)), and all amounts used in
or resulting from such calculation on Floating Rate Notes will be rounded, in
the case of United States dollars, to the nearest cent or, in the case of a
foreign or composite currency, to the nearest unit (with one-half cent or unit
being rounded upwards).
With respect to each Floating Rate Note, accrued interest is calculated by
multiplying its principal amount by an accrued interest factor. Such accrued
interest factor is computed by adding the interest factor calculated for each
day in the applicable Interest Period. Unless otherwise specified in the
applicable Pricing Supplement, the interest factor for each such day will be
computed by dividing the interest rate applicable to such day by 360, in the
case of Floating Rate Notes for which an applicable Interest Rate Basis is the
CD Rate, the Commercial Paper Rate, the 11th District Cost of Funds Rate, the
Federal Funds Rate, LIBOR or the Prime Rate, or by the actual number of days in
the year in the case of Floating Rate Notes for which an applicable Interest
Rate Basis is the CMT Rate or the Treasury Rate or by 365 days in the case of
Floating Rate Notes for which the applicable Interest Rate Basis is the Kenny
Rate. Unless otherwise specified in the applicable Pricing Supplement, the
interest factor for Floating Rate Notes for which the interest rate is
calculated with reference to two or more Interest Rate Bases will be calculated
in each period in the same manner as if only the applicable Interest Rate Basis
specified in the applicable Pricing Supplement applied.
Unless otherwise specified in the applicable Pricing Supplement, Bankers
Trust Company will be the "Calculation Agent." Upon request of the Holder of
any Floating Rate Note, the Calculation Agent will disclose the interest rate
then in effect and, if determined, the interest rate that will become effective
as a result of a determination made for the next succeeding Interest Reset Date
with respect to such Floating Rate Note. Unless otherwise specified in the
applicable Pricing Supplement, the "Calculation Date," if applicable,
pertaining to any Interest Determination Date will be the earlier of (i) the
tenth calendar day after such Interest Determination Date or, if such day is
not a Business Day, the next succeeding Business Day or (ii) the Business Day
immediately preceding the applicable Interest Payment Date or the Maturity
Date, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, the
Calculation Agent shall determine each Interest Rate Basis in accordance with
the following provisions.
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<PAGE> 13
CD Rate. Unless otherwise specified in the applicable Pricing Supplement,
"CD Rate" means, with respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference to
the CD Rate (a "CD Rate Interest Determination Date"), the rate on such date
for negotiable United States dollar certificates of deposit having the Index
Maturity specified in the applicable Pricing Supplement as published by the
Board of Governors of the Federal Reserve System in "Statistical Release
H.15(5l9), Selected Interest Rates" or any successor publication ("H.15 (519)")
under the heading "CDs (Secondary Market)," or, if not published by 3:00 P.M.,
New York City time, on the related Calculation Date, the rate on such CD Rate
Interest Determination Date for negotiable United States dollar certificates of
deposit of the Index Maturity specified in the applicable Pricing Supplement as
published by the Federal Reserve Bank of New York in its daily statistical
release "Composite 3:30 P.M. Quotations for U.S. Government Securities" or any
successor publication ("Composite Quotations") under the heading "Certificates
of Deposit." If such rate is not yet published in either H.15 (519) or
Composite Quotations by 3:00 P.M., New York City time, on the related
Calculation Date, then the CD Rate on such CD Rate Interest Determination Date
will be calculated by the Calculation Agent and will be the arithmetic mean of
the secondary market offered rates as of 10:00 A.M., New York City time, on
such CD Rate Interest Determination Date, of three leading nonbank dealers in
negotiable United States dollar certificates of deposit in The City of New York
(which may include the Agent or its affiliates) selected by the Calculation
Agent after consultation with the Company for negotiable United States dollar
certificates of deposit of major United States money market banks with a
remaining maturity closest to the Index Maturity specified in the applicable
Pricing Supplement in an amount that is representative for a single transaction
in that market at that time; provided, however, that if the dealers so selected
by the Calculation Agent are not quoting as mentioned in this sentence, the CD
Rate determined as of such CD Rate Interest Determination Date will be the CD
Rate in effect on such CD Rate Interest Determination Date.
CMT Rate. Unless otherwise specified in the applicable Pricing
Supplement, "CMT Rate" means, with respect to any Interest Determination Date
relating to a Floating Rate Note for which the interest rate is determined with
reference to the CMT Rate (a "CMT Rate Interest Determination Date"), the rate
displayed on the Designated CMT Telerate Page under the caption "...Treasury
Constant Maturities...Federal Reserve Board Release H.15...Mondays
Approximately 3:45 P.M.," under the column for the Designated CMT Maturity
Index for (i) if the Designated CMT Telerate Page is 7055, the rate on such CMT
Rate Interest Determination Date and (ii) if the Designated CMT Telerate Page
is 7052, the weekly or monthly average, as specified in the applicable Pricing
Supplement, for the week or the month, as applicable, ended immediately
preceding the week or the month, as applicable, in which the related CMT Rate
Interest Determination Date occurs. If such rate is no longer displayed on the
relevant page or is not displayed by 3:00 P.M., New York City time, on the
related Calculation Date, then the CMT Rate for such CMT Rate Interest
Determination Date will be such treasury constant maturity rate for the
Designated CMT Maturity Index as published in the relevant H.15 (519). If such
rate is no longer published or is not published by 3:00 P.M., New York City
time, on the related Calculation Date, then the CMT Rate on such CMT Rate
Interest Determination Date will be such treasury constant maturity rate for
the Designated CMT Maturity Index (or other United States Treasury rate for the
Designated CMT Maturity Index) for the CMT Rate Interest Determination Date
with respect to such Interest Reset Date as may then be published by either the
Board of Governors of the Federal Reserve System or the United States
Department of the Treasury that the Calculation Agent determines to be
comparable to the rate formerly displayed on the Designated CMT Telerate Page
and published in the relevant H.15(519). If such information is not provided by
3:00 P.M., New York City time, on the related Calculation Date, then the CMT
Rate on the CMT Rate Interest Determination Date will be calculated by the
Calculation Agent and will be a yield to maturity, based on the arithmetic mean
of the secondary market closing offer side prices as of approximately 3:30
P.M., New York City time, on such CMT Rate Interest Determination Date
reported, according to their written records, by three leading primary United
States government securities dealers in The City of New York (which may include
the Agent or its affiliates) (each, a "Reference Dealer") selected by the
Calculation Agent (from five such Reference Dealers selected by the Calculation
Agent after consultation with the Company and eliminating the highest quotation
(or, in the event of quotation equality, one of the highest) and the lowest
quotation (or, in the event of quotation 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 closing 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 after consultation with the Company and eliminating the
highest quotation (or, in the event of quotation equality, one of the highest)
and the lowest quotation (or, in the event of quotation 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
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CMT Maturity Index and in an amount of at least $100 million. If three or
four (and not five) of such Reference Dealers are quoting as described above,
then the CMT Rate will be based on the arithmetic mean of the offer prices
obtained and neither the highest nor the lowest of such quotes will be
eliminated; provided, however, that if fewer than three Reference Dealers so
selected by the Calculation Agent are quoting as mentioned herein, the CMT Rate
determined as of such CMT Rate Interest Determination Date will be the CMT Rate
in effect on such CMT Rate Interest Determination Date. If two Treasury Notes
with an original maturity as described in the second preceding sentence have
remaining terms to maturity equally close to the Designated CMT Maturity Index,
the Calculation Agent will obtain quotations for the Treasury Note with the
shorter remaining term to maturity.
"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
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 l, 2,3,5,7, l0, 20 or 30 years) specified
in the applicable Pricing Supplement with respect to which the CMT Rate will be
calculated or, if no such maturity is specified in the applicable Pricing
Supplement, the Designated CMT Maturity Index shall be 2 years.
Commercial Paper Rate. Unless otherwise specified in the applicable
Pricing Supplement. "Commercial Paper Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest rate
is determined with reference to the Commercial Paper Rate (a "Commercial Paper
Rate Interest Determination Date"), the Money Market Yield (calculated as
described below) on such date of the rate for commercial paper having the Index
Maturity specified in the applicable Pricing Supplement as published by the
Board of Governors of the Federal Reserve System in H.15 (519) under the
heading "Commercial Paper" or, if unavailable, under such heading representing
commercial paper issued by non-financial entities whose bond rating is "AA" or
the equivalent from a nationally recognized statistical rating agency. In the
event that such rate is not published prior to 9:00 A.M., New York City time,
on the applicable Calculation Date, then the Commercial Paper Rate on such
Commercial Paper Rate Interest Determination Date will be the Money Market
Yield of the rate for commercial paper having the Index Maturity specified in
the applicable Pricing Supplement as published by the Federal Reserve Bank of
New York in its daily statistical release "Composite 3:30 P.M. Quotations for
U.S. Government Securities" or any successor publication ("Composite
Quotations") under the heading "Commercial Paper." If such rate is not yet
published in either H.15 (519) or Composite Quotations by 3:00 P.M., New York
City time, on the related Calculation Date, then the Commercial Paper Rate on
such Commercial Paper Rate Interest Determination Date will be calculated by
the Calculation Agent and will be the Money Market Yield of the arithmetic mean
of the offered rates as of 11:00 A.M., New York City time, on such Commercial
Paper Rate Interest Determination Date of three leading dealers of commercial
paper in The City of New York (which may include the Agent or its affiliates)
selected by the Calculation Agent for commercial paper having the Index
Maturity specified in the applicable Pricing Supplement placed for an
industrial issuer whose bond rating is "AA," or the equivalent, from a
nationally recognized statistical rating organization; provided, however, that
if the dealers so selected by the Calculation Agent after consultation with the
Company are not quoting as mentioned in this sentence, the Commercial Paper
Rate determined as of such Commercial Paper Rate Interest Determination Date
will be the Commercial Paper Rate in effect immediately prior to such
Commercial Paper Rate Interest Determination Date.
"Money Market Yield" shall be a yield (expressed as a percentage, rounded,
if necessary, to the nearest one hundred-thousandth of a percent) calculated in
accordance with the following formula:
Money Market Yield = Dx360 x 100
-----------
360 - (DxM)
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 for which accrued interest is being calculated.
11th District Cost of Funds Rate. Unless otherwise specified in the
applicable Pricing Supplement, "11th District Cost of Funds Rate" means, with
respect to any Interest Determination Date relating to a Floating Rate Note for
which the interest rate is determined with reference to the 11th District Cost
of Funds Rate (an "11th District Cost of Funds Rate Interest Determination
Date"), the rate equal to the monthly weighted average cost of funds for the
calendar month immediately preceding the month in which such 11th District Cost
of Funds Rate Interest Determination Date falls, as set forth under the caption
"11th District" on Telerate Page 7058 as of 11:00 A.M., San Francisco time, on
such 11th District Cost of Funds Rate Interest Determination Date. If such rate
does
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not appear on Telerate Page 7058 on such 11th District Cost of Funds Rate
Interest Determination Date, then the 11th District Cost of Funds Rate on such
11th District Cost of Funds Rate Interest Determination Date shall be the
monthly weighted average cost of funds paid by member institutions of the
Eleventh Federal Home Loan Bank District that was most recently announced (the
"Index") by the FHLB of San Francisco as such cost of funds for the calendar
month immediately preceding such 11th District Cost of Funds Rate Interest
Determination Date. If the FHLB of San Francisco fails to announce the Index on
or prior to such 11th District Cost of Funds Rate Interest Determination Date
for the calendar month immediately preceding such 11th District Cost of Funds
Rate Interest Determination Date, the 11th District Cost of Funds Rate
determined as of such 11th District Cost of Funds Rate Interest Determination
Date will be the 11th District Cost of Funds Rate in effect on such 11th
District Cost of Funds Rate Interest Determination Date.
Federal Funds Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Federal Funds Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest rate
is determined with reference to the Federal Funds Rate (a "Federal Funds Rate
Interest Determination Date"), the rate on such date for United States dollar
federal funds as published in H.15 (519) under the heading "Federal Funds
(Effective)" or, if not published by 9:00 A.M., New York City time, on the
related Calculation Date, the rate on such Federal Funds Rate Interest
Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate." If such rate is not published in either H.15
(519) or Composite Quotations by 3:00 P.M., New York City time, on the related
Calculation Date, then the Federal Funds Rate on such Federal Funds Rate
Interest Determination Date will be calculated by the Calculation Agent and
will be the arithmetic mean (each as rounded, if necessary, to the nearest one
hundred-thousandth of a percent) of the rates for the last transaction in
overnight United States dollar federal funds arranged by three leading brokers
of federal funds transactions in The City of New York (which may include the
Agent or its affiliates) selected by the Calculation Agent after consultation
with the Company prior to 9:00 A.M., New York City time, on such Federal Funds
Rate Interest Determination Date; provided, however, that if the brokers so
selected by the Calculation Agent are not quoting as mentioned in this
sentence, the Federal Funds Rate determined as of such Federal Funds Rate
Interest Determination Date will be the Federal Funds Rate in effect on such
Federal Funds Rate Interest Determination Date.
LIBOR. Unless otherwise specified in the applicable Pricing Supplement,
"LIBOR" means the rate determined in accordance with the following provisions:
(i) With respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with
reference to LIBOR (a "LIBOR Interest Determination Date"), LIBOR will be
either: (a) if "LIBOR Reuters" is specified in the Note and the applicable
Pricing Supplement, the arithmetic mean of the offered rates (unless the
Designated LIBOR Page by its terms provides only for a single rate, in
which case such single rate shall be used) for deposits in the Designated
LIBOR Currency having the Index Maturity specified in the Note and the
applicable Pricing Supplement, commencing on the applicable Interest Reset
Date, that appear (or, if only a single rate is required as aforesaid,
appears) on the Designated LIBOR Page as of 11:00 A.M., London time, on
such LIBOR Interest Determination Date, or (b) if "LIBOR Telerate" is
specified in the Note and the applicable Pricing Supplement or if neither
"LIBOR Reuters" nor "LIBOR Telerate" is specified in the Note and the
applicable Pricing Supplement as the method for calculating LIBOR the rate
for deposits in the Designated LIBOR Currency having the Index Maturity
specified in such Pricing Supplement, commencing on the applicable
Interest Reset Date, that appears on the Designated LIBOR Page as of 11:00
A.M., London time, on such LIBOR Interest Determination Date. If fewer
than two such offered rates so appear, or if no such rate so appears, as
applicable, LIBOR on such LIBOR Interest Determination Date will be
determined in accordance with the provisions described in clause (ii)
below.
(ii) With respect to a LIBOR Interest Determination Date on which
fewer than two offered rates appear, or no rate appears, as the case
may be, on the Designated LIBOR Page as specified in clause (i) above, the
Calculation Agent will request the principal London offices of each of
four major reference banks (which may include affiliates of the Agent) in
the London interbank market, as selected by the Calculation Agent after
consultation with the Company, to provide the Calculation Agent with its
offered quotation for deposits in the Designated LIBOR Currency for the
period of the Index Maturity specified in the applicable Pricing
Supplement, commencing on the applicable Interest Reset Date, to prime
banks in the London interbank market at approximately 11:00 A.M., London
time, on such LIBOR Interest Determination Date and in a principal amount
that is representative for a single transaction in the Designated LIBOR
Currency in such market at such time. If at least two such quotations are
so provided, then LIBOR on such LIBOR Interest Determination Date will be
the arithmetic mean of such quotations. If fewer than two such quotations
are so provided, then LIBOR on such LIBOR Interest Determination Date will
be the arithmetic mean of the rates quoted at approximately 11:00 A.M., in
the applicable
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Principal Financial Center, on such LIBOR Interest Determination
Date by three major banks (which may include affiliates of the Agent) in
such Principal Financial Center selected by the Calculation Agent after
consultation with the Company for loans in the Designated LIBOR Currency
to leading European banks, having the Index Maturity specified in the
applicable Pricing Supplement and in a principal amount that is
representative for a single transaction in the Designated LIBOR Currency
in such market at such time; provided, however, that if the banks so
selected by the Calculation Agent are not quoting as mentioned in this
sentence, LIBOR determined as of such LIBOR Interest Determination Date
will be LIBOR in effect on such LIBOR Interest Determination Date.
"Designated LIBOR Currency" means the currency or composite currency
specified in the applicable Pricing Supplement as to which LIBOR shall be
calculated or, if no such currency or composite currency is specified in the
applicable Pricing Supplement, the Designated LIBOR Currency shall be United
States dollars.
"Designated LIBOR Page" means (a) if "LIBOR Reuters" is specified in the
applicable Pricing Supplement, the display on the Reuters Monitor Money Rates
Service (or any successor service) on the page specified in such Pricing
Supplement (or any other page as may replace such page on such service) for the
purpose of displaying the London interbank rates of major banks for the
Designated LIBOR Currency, or (b) if "LIBOR Telerate" is specified in the
applicable Pricing Supplement or neither "LIBOR Reuters" nor "LIBOR Telerate"
is specified in the applicable Pricing Supplement as the method for calculating
LIBOR, the display on the Dow Jones Telerate Service (or any successor service)
on the page specified in such Pricing Supplement (or any other page as may
replace such page on such service) for the purpose of displaying the London
interbank rates of major banks for the Designated LIBOR Currency.
Kenny Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Kenny Rate" means, with respect to any Interest Determination Date
relating to a Floating Rate Note for which the interest rate is determined with
reference to the Kenny Rate (a "Kenny Rate Interest Determination Date"), the
high grade weekly index (the "Weekly Index") on such date made available by
Kenny Information Systems ("Kenny") to the Calculation Agent. The Weekly Index
is, and shall be, based upon 30 day yield evaluations at par of bonds, the
interest on which is exempt from Federal income taxation under the Internal
Revenue Code of 1986, as amended (the "Code"), of not less than five high grade
component issuers selected by Kenny which shall include, without limitation,
issuers of general obligation bonds. The specific issuers included among the
component issuers may be changed from time to time by Kenny in its discretion.
The bonds on which the Weekly Index is based shall not include any bonds on
which the interest is subject to a minimum tax or similar tax under the Code,
unless all tax-exempt bonds are subject to such tax. In the event Kenny ceases
to make available such Weekly Index, a successor indexing agent will be
selected by the Calculation Agent, such index to reflect the prevailing rate
for bonds rated in the highest short-term rating category by Moody's Investors
Service, Inc. and Standard & Poor's Corporation in respect of issuers most
closely resembling the high grade component issuers selected by Kenny for its
Weekly Index, the interest on which is (A) variable on a weekly basis, (B)
exempt from Federal income taxation under the Code, and (C) not subject to a
minimum tax or similar tax under the Code, unless all tax-exempt bonds are
subject to such tax. If such successor indexing agent is not available, the
rate for any Kenny Rate Interest Determination Date shall be 67% of the rate
determined if the Treasury Rate option had been originally selected.
Prime Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Prime Rate" means, with respect to any Interest Determination Date
relating to a Floating Rate Note for which the interest rate is determined with
reference to the Prime Rate (a "Prime Rate Interest Determination Date"), the
rate on such date as such rate is published in H.15(5l9) under the heading
"Bank Prime Loan." If such rate is not published prior to 3:00 P.M., New York
City time, on the related Calculation Date, then the Prime Rate shall be the
arithmetic mean of the rates of interest publicly announced by each bank that
appears on the Reuters Screen USPRIME1 Page (as hereinafter defined) as such
bank's prime rate or base lending rate as in effect for such Prime Rate
Interest Determination Date. If fewer than four such rates appear on the
Reuters Screen USPRIME1 Page for such Prime Rate Interest Determination Date,
then the Prime Rate shall be the arithmetic mean of the prime rates or base
lending rates quoted on the basis of the actual number of days in the year
divided by a 360-day year as of the close of business on such Prime Rate
Interest Determination Date by four major money center banks (which may include
affiliates of the Agent) in The City of New York selected by the Calculation
Agent after consultation with the Company. If fewer than four such quotations
are so provided, then the Prime Rate shall be the arithmetic mean of four prime
rates quoted on the basis of the actual number of days in the year divided by a
360-day year as of the close of business on such Prime Rate Interest
Determination Date as furnished in The City of New York by the major money
center banks, if any, that have provided such quotations and by a reasonable
number of substitute banks or trust companies (which may include affiliates of
the Agent) necessary in order to obtain four such prime rate quotations,
provided such substitute banks or trust companies are organized and doing
business under the laws of the United States, or any State thereof, each having
total equity capital of at least $500 million and being subject to supervision
or examination by Federal or State authority, selected by the Calculation Agent
after consultation with
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the Company to provide such rate or rates; provided, however, that if the
banks or trust companies so selected by the Calculation Agent are not quoting
as mentioned in this sentence, the Prime Rate determined as of such Prime Rate
Interest Determination Date will be the Prime Rate in effect on such Prime Rate
Interest Determination Date.
"Reuters Screen USPRIME1 Page" means the display on the Reuters Monitor
Money Rates Service (or any successor service) on the "USPRIMEl" page (or such
other page as may replace the USPRIMEl page on such service) for the purpose of
displaying prime rates or base lending rates of major United States banks.
Treasury Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Treasury Rate" means, with respect to any Interest Determination
Date relating to a Floating Rate Note for which the interest rate is determined
by reference to the Treasury Rate (a "Treasury Rate Interest Determination
Date"), the rate from the auction held on such Treasury Rate Interest
Determination Date (the "Auction") of direct obligations of the United States
("Treasury Bills") having the Index Maturity specified in the applicable
Pricing Supplement, as such rate is published in H.15(519) under the heading
"Treasury Bills - auction average (investment)" or, if not published by 3:00
P.M.. New York City time, on the related Calculation Date, the auction average
rate of such Treasury Bills (expressed as a bond equivalent on the basis of a
year of 365 or 366 days, as applicable, and applied on a daily basis) as
otherwise announced by the United States Department of the Treasury. In the
event that the results of the Auction of Treasury Bills having the Index
Maturity specified in the applicable Pricing Supplement are not reported as
provided by 3:00 P.M., New York City time, on the related Calculation Date, or
if no such Auction is held, then the Treasury Rate will be calculated by the
Calculation Agent and will be a yield to maturity (expressed as a bond
equivalent on the basis of a year of 365 or 366 days, as applicable, and
applied on a daily basis) of the arithmetic mean of the secondary market bid
rates, as of approximately 3:30 P.M., New York City time, on such Treasury Rate
Interest Determination Date, of three leading primary United States government
securities dealers (which may include the Agent or its affiliates) selected by
the Calculation Agent after consultation with the Company, for the issue of
Treasury Bills with a remaining maturity closest to the Index Maturity
specified in the applicable Pricing Supplement; provided, however, that if the
dealers so selected by the Calculation Agent are not quoting as mentioned in
this sentence, the Treasury Rate determined as of such Treasury Rate Interest
Determination Date will be the Treasury Rate in effect on such Treasury Rate
Interest Determination Date.
OTHER/ADDITIONAL PROVISIONS; ADDENDUM
Any provisions with respect to the Notes, including the specification and
determination of one or more Interest Rate Bases, the calculation of the
interest rate applicable to a Floating Rate Note, the Interest Payment Dates,
Stated Maturity, any redemption or repayment provisions or any other term
relating thereto, may be modified and/or supplemented as specified under
"Other/Additional Provisions" on the face thereof or in an Addendum relating
thereto, if so specified on the face thereof and described in the applicable
Pricing Supplement.
DISCOUNT NOTES
The Company may offer Notes ("Discount Notes") from time to time that have
an Issue Price (as specified in the applicable Pricing Supplement) that is less
than 100% of the principal amount thereof (i.e. par) by more than a percentage
equal to the product of 0.25% and the number of full years to Stated Maturity.
Discount Notes may not bear any interest currently or may bear interest at a
rate that is below market rates at the time of issuance. The difference between
the Issue Price of a Discount Note and par is referred to herein as the
"Discount." In the event of redemption, repayment or acceleration of maturity
of a Discount Note, the amount payable to the Holder of such Discount Note will
be equal to the sum of (i) the Issue Price (increased by any accruals of
Discount) and, in the event of any redemption of such Discount Note (if
applicable), multiplied by the Initial Redemption Percentage (as adjusted by
the Annual Redemption Percentage Reduction, if applicable) and (ii) any unpaid
interest accrued thereon to the date of such redemption, repayment or
acceleration of maturity, as the case may be.
Unless otherwise specified in the applicable Pricing Supplement, for
purposes of determining the amount of Discount that has accrued as of any date
on which a redemption, repayment or acceleration of maturity occurs for a
Discount Note, such Discount will be accrued using a constant yield method. The
constant yield will be calculated using a 30-day month, 360-day year
convention, a compounding period that, except for the Initial Period (as
hereinafter defined), corresponds to the shortest period between Interest
Payment Dates for the applicable Discount Note (with ratable accruals within a
compounding period), a coupon rate equal to the initial coupon rate applicable
to such Discount Note and an assumption that the maturity of such Discount Note
will not be accelerated. If the period from the date of issue to the initial
Interest Payment Date for a Discount Note (the "Initial Period") is shorter
than the compounding period for such Discount Note, a proportionate amount of
the yield for an entire compounding period will be accrued. If the Initial
Period is longer than the compounding period, then such period will be divided
into a regular compounding period and a short period with the short period
being treated as provided in the preceding sentence. The accrual of the
applicable Discount may differ from the accrual of original
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issue discount for purposes of the Code, certain Discount Notes may not be
treated as having original issue discount within the meaning of the Code, and
Notes other than Discount Notes may be treated as issued with original issue
discount for federal income tax purposes. See "Certain United States Federal
Income Tax Considerations."
INDEXED NOTES
The Company may from time to time offer Notes ("Indexed Notes") with the
amount of principal, premium and/or interest payable in respect thereof to be
determined with reference to the price or prices of specified commodities or
stocks, to the exchange rate of one or more designated currencies (including a
composite currency such as the ECU) relative to an indexed currency or to other
items, in each case as specified in the applicable Pricing Supplement. In
certain cases, Holders of Indexed Notes may receive a principal payment on the
Maturity Date that is greater than or less than the principal amount of such
Indexed Notes depending upon the relative value on the Maturity Date of the
specified indexed item. Information as to the method for determining the amount
of principal, premium, if any, and/or interest, if any, payable in respect of
Indexed Notes, certain historical information with respect to the specified
indexed item and any material tax considerations associated with an investment
in Indexed Notes will be specified in the applicable Pricing Supplement. See
also "Risk Factors."
AMORTIZING NOTES
The Company may from time to time offer Notes ("Amortizing Notes") with
the amount of principal thereof and interest thereon payable in installments
over the term of such 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.
CERTAIN COVENANTS
The Indenture contains the following covenants:
Limitations on Incurrence of Debt. The Company may not, and may not permit
any Subsidiary to, incur any Debt if, immediately after giving effect to the
incurrence of such Debt, the aggregate principal amount of all outstanding Debt
of the Company and its Subsidiaries on a consolidated basis determined in
accordance with generally accepted accounting principles is greater than 55% of
the sum of (i) the Company's Total Assets as of the end of the calendar quarter
prior to the incurrence of such additional Debt and (ii) the purchase price of
all real estate assets acquired by the Company or any Subsidiary since the end
of such calendar quarter, including those obtained in connection with the
incurrence of such Debt (Section 1004(a) of the Indenture).
In addition, the Company may not, and may not permit any Subsidiary to,
incur any Debt if the ratio of the Consolidated Income Available for Debt
Service to the Maximum Annual Service Charge for the four consecutive fiscal
quarters most recently ended prior to the date such additional Debt is to be
incurred shall have been less than 1.5 to 1 on a pro forma basis after giving
effect thereto and to the application of proceeds therefrom (Section 1004(b) of
the Indenture).
Further, the Company will not incur any secured Debt if immediately after
giving effect to the incurrence of that Debt, the aggregate principal amount of
all outstanding secured Debt of the Company and its Subsidiaries on a
consolidated basis is greater than 35% of the sum of (i) the Company's Total
Assets as of the end of the most recent calendar quarter prior to the
incurrence of such additional Debt, and (ii) the purchase price of any real
estate assets acquired by the Company since the end of such calendar quarter,
including those obtained in the connection with the incurrence of such
additional Debt (Section 1004(c) of the Indenture).
Restrictions on Distributions. The Company may not, with respect to any
partnership interest in the Company, (i) declare or pay any distributions
(other than distributions payable in securities evidencing interests in the
Company's capital, except for distributions in Disqualified Stock, for the
purpose of acquiring interests in real property or otherwise) thereon, (ii)
apply any of its property or assets to the purchase, redemption or other
acquisition or retirement thereof, (iii) set apart any sum for the purchase,
redemption or other acquisition or retirement thereof, or (iv) make any other
distribution thereon if, immediately after such declaration or other action
referred to above, the aggregate of all such declarations and other actions
since the date on which the Indenture was originally executed exceeds the sum
of (i) Funds from Operations from December 15, 1993 until the end of the
calendar quarter covered in the Company's Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, as
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the case may be, most recently filed with the Securities and Exchange
Commission (the "SEC") (or, if such filing is not permitted under the
Securities Exchange Act of 1934, with the Trustee) prior to such declaration or
other action and (ii) $5 million; provided, however, that the foregoing
limitation shall not apply to any declaration or other action referred to above
which is necessary to maintain Sun's status as a REIT under the Code, if the
aggregate principal amount of all outstanding Debt of the Company and its
Subsidiaries on a consolidated basis determined in accordance with generally
accepted accounting principles at such time is less than 55% of the Company's
Total Assets as of the end of the calendar quarter covered in the Company's
Annual Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may
be, most recently filed with the SEC (or, if such filing is not permitted under
the Securities Exchange Act of 1934, with the Trustee) prior to such
declaration or other action (Section 1005 of the Indenture).
Notwithstanding the provisions described in the immediately preceding
paragraph, the Company will not be prohibited from making the payment of any
distribution within 30 days after the declaration thereof if, at the date of
declaration, such payment would have complied with those provisions (Section
1005 of the Indenture).
Provision of Financial Information. Whether or not the Company is subject
to Section 13 or 15(d) of the Exchange Act, the Company must, to the extent
permitted under the Exchange Act, file with the SEC the annual reports,
quarterly reports and other documents which the Company would have been
required to file with the SEC pursuant to such Section 13 or 15(d) (the
"Financial Statements") 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. The Company will also in any event (i) within 15 days after each
Required Filing Date (a) transmit by mail to all Holders of Notes, as their
names and addresses appear in the Security Register, without cost to such
Holders, copies of the annual reports and quarterly reports which the Company
would have been required to file with the SEC pursuant to Section 13 or 15(d)
of the Exchange Act if the Company were subject to such Sections, and (b) file
with the Trustee copies of the annual reports, quarterly reports and other
documents which the Company would have been required to file with the SEC
pursuant to Section 13 or 15(d) of the Exchange Act if the Company were subject
to such Sections and (ii) if filing such documents by the Company with the SEC
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 of the Notes (Section 1010 of the
Indenture).
Maintenance of Unencumbered Real Estate Assets. The Company must maintain
an Unencumbered Real Estate Asset Value of not less than 150% of the aggregate
principal amount of all outstanding unsecured Debt of the Company and its
Subsidiaries (Section 1011 of the Indenture).
Unsecured Indebtedness. Sun and the Company may not permit any Subsidiary
of the Company in which both (i) Sun or any Subsidiary of Sun (other than the
Company) and (ii) the Company or any Subsidiary of the Company are partners,
shareholders, or members to incur any unsecured Debt (Section 1012 of the
Indenture).
Definitions. As used herein,
"Consolidated Income Available for Debt Service" for any period means
Consolidated Net Income of the Company and its Subsidiaries (i) plus amounts
which 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, and (d) depreciation and
amortization, and (ii) adjusted, as appropriate, for (a) the effect of any
non-cash charge resulting from a change in accounting principles in determining
Consolidated Net Income for such period and (b) the effect of equity in net
income or loss of joint ventures in which the Company owns an interest to the
extent not providing a source of, or requiring a use of, cash, respectively.
"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 generally accepted accounting principles.
"Debt" of the Company or any Subsidiary means any indebtedness of the
Company or any Subsidiary, whether or not contingent, in respect of (i)
borrowed money or evidenced by bonds, notes, debentures or similar instruments,
(ii) indebtedness secured by any mortgage, pledge, lien, charge, encumbrance or
any security interest existing on property owned by the Company or any
Subsidiary, (iii) letters of credit or amounts representing the balance
deferred and unpaid of the purchase price of any property except any such
balance that constitutes an accrued expense or trade payable, (iv) the
principal amount of all obligations of the Company or any Subsidiary with
respect to redemption, repayment or other repurchase of any Disqualified Stock,
or (v) any lease of property by the Company or any Subsidiary as lessee which
is reflected on the Company's consolidated balance sheet as a capitalized lease
in accordance with generally accepted accounting principles, in the case of
items of indebtedness
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under (i) through (iii) above 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 generally accepted accounting principles, and
also includes, to the extent not otherwise included, any obligation by the
Company or any Subsidiary to be liable for, or to pay, as obligor, guarantor or
otherwise (other than for purposes of collection in the ordinary course of
business), indebtedness of another person (other than the Company or any
Subsidiary).
"Disqualified Stock" means, with respect to any person, any capital stock
or partnership interest of such person which by the terms of such capital stock
or partnership interest (or by the terms of any security into which it is
convertible or for which it is exchangeable or exercisable), upon the
occurrence of any event or otherwise: (i) matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise; (ii) is convertible into or
exchangeable or exercisable for Debt or Disqualified Stock; or (iii) is
redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the maturity of the relevant series of Notes.
"Funds from Operations" for any period means the Consolidated Net Income
of the Company and its Subsidiaries for such period excluding gains (or losses)
from debt restructuring, and sales of property, plus depreciation and
amortization (other than that related to corporate office assets or deferred
financing costs), after adjustment for unconsolidated partnerships and joint
ventures, all determined on a consistent basis for such period.
"Maximum Annual Service Charge" as of any date means the maximum amount
which may become payable in an period of 12 consecutive calendar months from
such date for interest on, and required amortization of, Debt. The amount
payable for amortization will include the amount of any sinking fund or other
analogous fund for the retirement of Debt and the amount payable on account of
principal on any such Debt which matures serially other than at the final
maturity date of such Debt.
"Subsidiary" means a corporation, partnership, joint venture, limited
liability company or other entity, a majority of the outstanding voting stock,
partnership interests or membership interests of which is owned or controlled,
directly or indirectly, by the Company or by one or more other Subsidiaries of
the Company. For the purposes of this definition, "voting stock" means stock
having voting power for the election of directors, whether at all times or only
so long as no senior class of stock has such voting power by reason of any
contingency.
"Total Assets" as of any date means the sum of (i) the Company's
Undepreciated Real Estate Assets; and (ii) all other assets of the Company
determined in accordance with generally accepted accounting principles (but
excluding intangibles and accounts receivable).
"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 and determined
on a consolidated basis in accordance with generally accepted accounting
principles.
"Unencumbered Real Estate Asset Value" as of any date means the sum of (i)
the Company's Undepreciated Real Estate Assets as of the end of the latest
calendar quarter covered in the Company's Annual Report on Form 10-K or
Quarterly Report on Form 10-Q, as the case may be, most recently filed with the
SEC (or, if that filing is not required under the Exchange Act, with the
Trustee) prior to such date which Undepreciated Real Estate Assets are not
encumbered by any mortgage, lien, charge, pledge, or security interest and (ii)
the purchase price of any real estate assets that are not encumbered by any
mortgage, lien, charge, pledge, or security interest and were acquired by the
Company or any Subsidiary since the end of such calendar quarter.
Reference is made to the section entitled "Description of 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 Directors of the general partners
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 Securities - Discharge" and "-
Defeasance and Covenant Defeasance" in the accompanying Prospectus will apply
to the Notes and the Guarantee, including with respect to the covenants
described in this Prospectus Supplement.
BOOK-ENTRY NOTES
The Company has established a depositary arrangement with The Depository
Trust Company with respect to the Book-Entry Notes, the terms of which are
summarized below. Any additional or differing terms of the depositary
arrangement with respect to the Book-Entry Notes will be described in the
applicable Pricing Supplement.
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Upon issuance, all Book-Entry Notes of up to $200,000,000 aggregate
principal amount bearing interest (if any) at the same rate or pursuant to the
same formula and having the same date of issue, currency of denomination and
payment, Interest Payment Dates (if any), Stated Maturity Date, redemption
provisions (if any), repayment provisions (if any) and other terms will be
represented by a single Global Security. Each Global Security representing
Book-Entry Notes will be deposited with, or on behalf of, the Depositary and
will be registered in the name of the Depositary or a nominee of the
Depositary. No Global Security may be transferred except as a whole by a
nominee of the Depositary to the Depositary or to another nominee of the
Depositary, or by the Depositary or such nominee to a successor of the
Depositary or a nominee of such successor.
So long as the Depositary or its nominee is the registered owner of a
Global Security, the Depositary or its nominee, as the case may be, will be the
sole Holder of the Book-Entry Notes represented thereby for all purposes under
the Indenture. Except as otherwise provided below, the Beneficial Owners (as
defined below) of the Global Security or Securities representing Book-Entry
Notes will not be entitled to receive physical delivery of Certificated Notes
and will not be considered the Holders thereof for any purpose under the
Indenture, and no Global Security representing Book-Entry Notes shall be
exchangeable or transferable. Accordingly, each Beneficial Owner must rely on
the procedures of the Depositary and, if such Beneficial Owner is not a
Participant (as defined below), on the procedures of the Participant through
which such Beneficial Owner owns its interest in order to exercise any rights
of a Holder under such Global Security or the Indenture. The laws of some
jurisdictions require that certain purchasers of securities take physical
delivery of such securities in certificated form. The above restrictions and
laws may impair the ability to transfer beneficial interests in a Global
Security representing Book-Entry Notes.
Unless otherwise specified in the applicable Pricing Supplement, each
Global Security representing Book-Entry Notes will be exchangeable for
Certificated Notes of like tenor and terms and of differing authorized
denominations in a like aggregate principal amount, only if (i) the Depositary
notifies the Company that it is unwilling or unable to continue as Depositary
for the Global Securities or the Company becomes aware that the Depositary has
ceased to be a clearing agency registered under the Exchange Act and, in any
such case, the Company shall not have appointed a successor to the Depositary
within 60 days thereafter, (ii) the Company, in its sole discretion, determines
that the Global Securities shall be exchangeable for Certificated Notes or
(iii) an Event of Default under the Indenture shall have occurred and be
continuing with respect to the Notes. Upon any such exchange, the Certificated
Notes shall be registered in the names of the Beneficial Owners of the Global
Security or Securities representing Book-Entry Notes, which names shall be
provided by the Depositary's relevant Participants (as identified by the
Depositary) to the Trustee.
The following is based on information furnished by the Depositary:
The Depositary will act as securities depository for the Book-Entry Notes.
The Book-Entry Notes will be issued as fully registered securities registered
in the name of Cede & Co. (the Depositary's partnership nominee). One fully
registered Global Security will be issued for each issue of Book-Entry Notes,
each in the aggregate principal amount of such issue, and will be deposited
with the Depositary.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its participants ("Participants")
deposit with the Depositary. The Depositary also facilitates the settlement
among Participants of securities transactions, such as transfers and pledges,
in deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants of the Depositary ("Direct
Participants") include securities brokers and dealers (including the Agent),
banks, trust companies, clearing corporations and certain other organizations.
The Depositary is owned by a number of its Direct Participants and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to the Depositary's system is
also available to others such as securities brokers and dealers, banks and
trust companies that clear through or maintain a custodial relationship with a
Direct Participant, either directly or indirectly ("Indirect Participants").
The rules applicable to the Depositary and its Participants are on file with
the Securities and Exchange Commission.
Purchases of Book-Entry Notes under the Depositary's system must be made
by or through Direct Participants, which will receive a credit for such
Book-Entry Notes on the Depositary's records. The ownership interest of each
actual purchaser of each Book-Entry Note represented by a Global Security
("Beneficial Owner") is in turn to be recorded on the records of Direct
Participants and Indirect Participants. Beneficial Owners will not receive
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written confirmation from the Depositary of their purchase, but Beneficial
Owners are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the Direct
Participants or Indirect Participants through which such Beneficial Owner
entered into the transaction. Transfers of ownership interests in a Global
Security representing Book-Entry Notes are to be accomplished by entries made
on the books of Participants acting on behalf of Beneficial Owners. Beneficial
Owners of a Global Security representing Book-Entry Notes will not receive
Certificated Notes representing their ownership interests therein, except in
the event that use of the book-entry system for such Book-Entry Notes is
discontinued.
To facilitate subsequent transfers, all Global Securities representing
Book-Entry Notes which are deposited with, or on behalf of, the Depositary are
registered in the name of the Depositary's nominee, Cede & Co. The deposit of
Global Securities with, or on behalf of, the Depositary and their registration
in the name of Cede & Co. effect no change in beneficial ownership. The
Depositary has no knowledge of the actual Beneficial Owners of the Global
Securities representing the Book-Entry Notes; the Depositary's records reflect
only the identity of the Direct Participants to whose accounts such Book-Entry
Notes are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither the Depositary nor Cede & Co. will consent or vote with respect to
the Global Securities representing the Book-Entry Notes. Under its usual
procedures, the Depositary mails an Omnibus Proxy to the Company as soon as
possible after the applicable record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose
accounts the Book Entry Notes are credited on the applicable record date
(identified in a listing attached to the Omnibus Proxy).
Principal, premium, if any, and/or interest, if any, payments on the Global
Securities representing the Book-Entry Notes will he made in immediately
available funds to the Depositary. The Depositary's practice is to credit
Direct Participants' accounts on the applicable payment date in accordance with
their respective holdings shown on the Depositary's records unless the
Depositary has reason to believe that it will not receive payment on such date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices, as is the case with securities held for
the accounts of customers In bearer form or registered in "street name," and
will be the responsibility of such Participant and not of the Depositary, the
Trustee or the Company, subject to any statutory or regulatory requirements as
may be in effect from time to time. Payment of principal, premium, if any,
and/or interest, if any, to the Depositary is the responsibility of the Company
and the Trustee, disbursement of such payments to Direct Participants shall be
the responsibility of the Depositary, and disbursement of such payments to the
Beneficial Owners shall be the responsibility of Direct Participants and
Indirect Participants.
If applicable, redemption notices shall be sent to Cede & Co. If less than
all of the Book-Entry Notes of like tenor and terms are being redeemed, the
Depositary's practice Is to determine by lot the amount of the interest of each
Direct Participant in such issue to be redeemed.
A Beneficial Owner shall give notice of any election to have its
Book-Entry Notes repaid by the Company, through its Participant, to the
Trustee, and shall effect delivery of such Book-Entry Notes by causing the
Direct Participant to transfer the Participant's interest in the Global
Security or Securities representing such Book-Entry Notes, on the Depositary's
records, to the Trustee. The requirement for physical delivery of Book-Entry
Notes in connection with a demand for repayment will be deemed satisfied when
the ownership rights in the Global Security or Securities representing such
Book-Entry Notes are transferred by Direct Participants on the Depositary's
records.
The Depositary may discontinue providing its services as securities
depository with respect to the Book-Entry Notes at any time by giving
reasonable notice to the Company or the Trustee. Under such circumstances, in
the event that a successor securities depository is not obtained, Certificated
Notes are required to be printed and delivered.
The Company may decide to discontinue use of the system of book-entry
transfers through the Depositary (or a successor securities depository). In
that event, Certificated Notes will be printed and delivered.
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The information in this section concerning the Depositary and the
Depositary's system has been obtained from sources that the Company believes to
be reliable, but the Company takes no responsibility for the accuracy thereof.
SPECIAL PROVISIONS RELATING TO MULTI-CURRENCY NOTES
GENERAL
Unless otherwise specified in the applicable Pricing Supplement.
Multi-Currency Notes will not be sold in, or to residents of, the country
issuing the applicable currency. The information set forth in this Prospectus
Supplement is directed to prospective purchasers who are United States
residents and, with respect to Multi-Currency Notes, is by necessity
incomplete. The Company and the Agent disclaim any responsibility to advise
prospective purchasers who are residents of countries other than the United
States with respect to any matters that may affect the purchase, holding or
receipt of payments of principal of, and premium, if any, and interest, if any,
on, Multi-Currency Notes. Such persons should consult their own financial and
legal advisors with regard to such matters. See "Risk Factors - Exchange Rates
and Exchange Controls."
PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST, IF ANY
Unless otherwise specified in the applicable Pricing Supplement, the
Company is obligated to make payments of principal of, and premium, if any, and
interest, if any, on, a Multi-Currency Note in the Specified Currency (or, if
such Specified Currency is not at the time of such payment legal tender for the
payment of public and private debts, in such other coin or currency of the
country which issued such Specified Currency as at the time of such payment is
legal tender for the payment of such debts). Any such amounts payable by the
Company in the Specified Currency will be converted by the exchange rate agent
named in the applicable Pricing Supplement (the "Exchange Rate Agent") into
United States dollars for payment to Holders unless otherwise specified below
or in the applicable Pricing Supplement or unless the Holder of such
Multi-Currency Note elects, in the manner hereinafter described, to receive
such amounts in the Specified Currency.
Any United States dollar amount to be received by a Holder of a
Multi-Currency Note will be based on the highest bid quotation in The City of
New York received by the Exchange Rate Agent at approximately 11:00 A.M., New
York City time, on the second Business Day preceding the applicable payment
date from three recognized foreign exchange dealers (one of whom may be the
Exchange Rate Agent) selected by the Exchange Rate Agent and approved by the
Company for the purchase by the quoting dealer of the Specified Currency for
United States dollars for settlement on such payment date in the aggregate
amount of such Specified Currency payable to all Holders of Multi-Currency
Notes scheduled to receive United States dollar payments and at which the
applicable dealer commits to execute a contract. All currency exchange costs
will be borne by the Holders of such Multi-Currency Notes by deductions from
such payments. If three such bid quotations are not available, payments will be
made in the Specified Currency unless the Specified Currency is not available
due to the imposition of exchange controls or other circumstances beyond the
control of the Company.
Holders of Multi-Currency Notes may elect to receive all or a specified
portion of any payment of principal, premium, if any, and/or interest, if any,
in the Specified Currency by submitting a written request for such payment to
the Trustee at its corporate trust office in The City of New York on or prior
to the applicable Record Date or at least fifteen calendar days prior to the
Maturity Date, as the case may be. Such written request may be mailed or hand
delivered or sent by facsimile transmission. Holders of Multi-Currency Notes
may elect to receive all or a specified portion of all future payments in the
Specified Currency and need not file a separate election for each payment. Such
election will remain in effect until revoked by written notice to the Trustee,
but written notice of any such revocation must be received by the Trustee on or
prior to the applicable Record Date or at least fifteen calendar days prior to
the Maturity Date, as the case may be. Holders of Multi-Currency Notes to be
held in the name of a broker or nominee should contact such broker or nominee
to determine whether and how an election to receive payments in the Specified
Currency may be made.
Unless otherwise specified in the applicable Pricing Supplement, if the
Specified Currency is other than United States dollars, a Beneficial Owner of
the related Global Security or Securities which elects to receive payments of
principal, premium, if any, and/or interest, if any, in the Specified Currency
must notify the Participant through which it owns its interest on or prior to
the applicable Record Date or at least fifteen calendar days prior to the
Maturity Date, as the case may be, of such Beneficial Owners election. Such
Participant must notify the Depositary of such election on or prior to the
third Business Day after such Record Date or at least twelve calendar days
prior to the
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Maturity Date, as the case may be, and the Depositary will notify
the Trustee of such election on or prior to the fifth Business Day after such
Record Date or at least ten calendar days prior to the Maturity Date, as the
case may be. If complete instructions are received by the Participant from the
Beneficial Owner and forwarded by the Participant to the Depositary, and by the
Depositary to the Trustee, on or prior to such dates, then such Beneficial
Owner will receive payments in the Specified Currency.
Payments of the principal of, and premium, if any, and/or interest, if any,
on, Multi-Currency Notes which are to be made in United States dollars will be
made in the manner specified herein with respect to Notes denominated in United
States dollars. See "Description of the Notes - General." Payments of interest,
if any, on Multi-Currency Notes which are to be made in the Specified Currency
on an Interest Payment Date other than the Maturity Date will be made by check
mailed to the address of the Holders of such Multi-Currency Notes as they
appear in the Security Register, subject to the right to receive such interest
payments by wire transfer of immediately available funds under the
circumstances described under "Description of the Notes - General." Payments of
principal of, and premium, if any, and/or interest, if any, on, Multi-Currency
Notes which are to be made in the Specified Currency on the Maturity Date will
be made by wire transfer of immediately available funds to an account with a
bank designated at least fifteen calendar days prior to the Maturity Date by
each Holder thereof, provided that such bank has appropriate facilities
therefor and that the applicable Multi-Currency Note is presented and
surrendered at the office or agency maintained by the Company for such purpose
in the City of New York, currently the corporate trust office of the Trustee
located at Four Albany Street, New York, New York 10006, in time for the
Trustee to make such payments in such funds in accordance with its normal
procedures.
AVAILABILITY OF SPECIFIED CURRENCY
Except as set forth below, if the Specified Currency for a Multi-Currency
Note is not available for the required payment of principal, premium, if any,
and/or interest, if any, in respect thereof due to the imposition of exchange
controls or other circumstances beyond the control of the Company, the Company
will be entitled to satisfy its obligations to the Holder of such
Multi-Currency Note by making such payment in United States dollars on the
basis of the Market Exchange Rate (as defined below), computed by the Exchange
Rate Agent, on the second Business Day prior to such payment or, if such Market
Exchange Rate is not then available, on the basis of the most recently
available Market Exchange Rate, or as otherwise specified in the applicable
Pricing Supplement.
If the Specified Currency for a Multi-Currency Note is a composite
currency that is not available for the required payment of principal, premium,
if any, and/or interest, if any, in respect thereof due to the imposition of
exchange controls or other circumstances beyond the control of the Company, the
Company will be entitled to satisfy its obligations to the Holder of such
Multi-Currency Note by making such payment in United States dollars on the
basis of the equivalent of the composite currency in United States dollars. The
component currencies of the composite currency for this purpose (the "Component
Currencies") shall be the currency amounts that were components of the
composite currency as of the last day on which the composite currency was used.
The equivalent of the composite currency in United States dollars shall be
calculated by aggregating the United States dollar equivalents of the Component
Currencies. The United States dollar equivalent of each of the Component
Currencies shall be determined by the Exchange Rate Agent on the basis of the
Market Exchange Rate on the second Business Day prior to the required payment
or, if such Market Exchange Rate is not then available, on the basis of the
most recently available Market Exchange Rate for each such Component Currency,
or as otherwise specified in the applicable Pricing Supplement.
If the official unit of any Component Currency is altered by way of
combination or subdivision, the number of units of the currency as a Component
Currency shall be divided or multiplied in the same proportion. If two or more
Component Currencies are consolidated into a single currency, the amounts of
those currencies as Component Currencies shall be replaced by an amount in such
single currency equal to the sum of the amounts of the consolidated Component
Currencies expressed in such single currency. If any Component Currency is
divided into two or more currencies, the amount of the original Component
Currency shall be replaced by the amounts of such two or more currencies, the
sum of which shall be equal to the amount of the original Component Currency.
The "Market Exchange Rate" for a Specified Currency other than United
States dollars means the noon dollar buying rate in The City of New York for
cable transfers for such Specified Currency as certified for customs purposes
(or, if not so certified, as otherwise determined) by the Federal Reserve Bank
of New York. Any payment made in United States dollars under such circumstances
where the required payment is in a Specified Currency other than United States
dollars will not constitute an Event of Default under the Indenture with
respect to the Notes.
All determinations referred to above made by the Exchange Rate Agent shall
be at its sole discretion and shall, in the absence of manifest error, be
conclusive for all purposes and binding on the Holders of the Multi-Currency
Notes.
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JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of New York. If an action based on Multi-Currency Notes were
commenced in a court of the United States, it is likely that such court would
grant judgment relating to such Multi-Currency Notes only in United States
dollars. It is not clear, however, whether, in granting such judgment, the rate
of conversion into United States dollars would be determined with reference to
the date of default, the date of entry of the judgment or some other date.
Under current New York law, a state court in the State of New York rendering a
judgment in respect of a Multi-Currency Note would be required to render such
judgment in the Specified Currency, and such foreign currency judgment would be
converted into United States dollars at the exchange rate prevailing on the
date of entry of such judgment. Accordingly, the Holder of such Multi-Currency
Note would be subject to exchange rate fluctuations between the date of entry
of such foreign currency judgment and the time the amount of such foreign
currency judgment is paid to such Holder in United States dollars and converted
by such Holder into the Specified Currency. It is not certain, however, whether
a non-New York state court would follow the same rules and procedures with
respect to conversions of foreign currency judgments.
The Company will indemnify the Holder of any Note against any loss
incurred by such Holder as a result of any judgment or order being given or
made for any amount due under such Note and such judgment or order requiring
payment in a currency or composite currency (the "Judgment Currency") other
than the Specified Currency, and as a result of any variation between (i) the
rate of exchange at which the Specified Currency amount is converted into the
Judgment Currency for the purpose of such judgment or order, and (ii) the rate
of exchange at which the Holder of such Note, on the date of payment of such
judgment or order, is able to purchase the Specified Currency with the amount
of the Judgment Currency actually received by such Holder, as the case may be.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain United States Federal income tax
consequences of the purchase, ownership and disposition of the Notes is based
upon laws, regulations, rulings and decisions now in effect, all of which are
subject to change (including changes in effective dates) or possible differing
interpretations. It deals only with Notes held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities or currencies, persons holding Notes as a hedge against currency
risks or as a position in a "straddle" for tax purposes, or persons whose
functional currency is not the United States dollar. It also does not deal with
holders other than original purchasers (except where otherwise specifically
noted). Persons considering the purchase of the Notes should consult their own
tax advisors concerning the application of United States Federal income tax
laws to their particular situations as well as any consequences of the
purchase, ownership and disposition of the Notes arising under the laws of any
other taxing jurisdiction.
As used herein, the term "U.S. Holder" means a beneficial owner of a Note
that is for United States Federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation, partnership or other entity created
or organized in or under the laws of the United States or of any political
subdivision thereof, (iii) an estate or trust the income of which is subject to
United States Federal income taxation regardless of its source or (iv) any
other person whose income or gain in respect of a Note is effectively connected
with the conduct of a United States trade or business. As used herein, the term
"non-U.S. Holder" means a beneficial owner of a Note that is not a U.S. Holder.
U.S. HOLDERS
Payments of Interest
Payments of (i) interest on a Note without original issue discount or (ii)
"qualified stated interest" on a Note with original issue discount, as
discussed below, generally will be taxable to a U.S. Holder as ordinary
interest income at the time such payments are accrued or are received (in
accordance with the U.S. Holder's regular method of tax accounting).
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Original Issue Discount
The following summary is a general discussion of the United States Federal
income tax consequences to U.S. Holders of the purchase, ownership and
disposition of Notes issued with original issue discount ("Original Issue
Discount Notes"). The following summary is based upon final Treasury
regulations (the "OID Regulations") released by the Internal Revenue Service
("IRS") on January 27, 1994, as amended on June 11, 1996 and December 31, 1996,
under the original issue discount provisions of the Code.
For United States Federal income tax purposes, original issue discount is
the excess of the stated redemption price at maturity of a Note over its issue
price, if such excess equals or exceeds a de minimis amount (generally 1/4 of
1% of the Note's stated redemption price at maturity multiplied by the number
of complete years to its maturity from its issue date or, in the case of a Note
providing for the payment of any amount other than qualified stated interest
(as hereinafter defined) prior to maturity, multiplied by the weighted average
maturity of such Note). The issue price of each Note in an issue of Notes
equals the first price at which a substantial amount of such Notes has been
sold (ignoring sales to bond houses, brokers, or similar persons or
organizations acting in the capacity of underwriters, placement agents, or
wholesalers). The stated redemption price at maturity of a Note is the sum of
all payments provided by the Note other than "qualified stated interest"
payments. The term "qualified stated interest" generally means stated interest
that is unconditionally payable in cash or property (other than debt
instruments of the issuer) at least annually at a single fixed rate or
"qualified floating rate" as discussed below. In addition, under the OID
Regulations, if a Note bears interest for one or more accrual periods at a rate
below the rate applicable for the remaining term of such Note (e.g., Notes with
teaser rates or interest holidays), and if the greater of either the resulting
foregone interest on such Note or any "true" discount on such Note (i.e., the
excess of the Note's stated principal amount over its issue price) equals or
exceeds a specified de minimis amount, then the stated interest payments on the
Note would not be treated as qualified stated interest payments.
Payments of qualified stated interest on a Note are taxable to a U.S.
Holder as ordinary interest income at the time such payments are accrued or are
received (in accordance with the U.S. Holder's regular method of tax
accounting). A U.S. Holder of an Original Issue Discount Note must include
original issue discount in income as ordinary interest for United States
Federal income tax purposes as it accrues under a constant yield to maturity
method in advance of receipt of the cash payments attributable to such income,
regardless of such U.S. Holder's regular method of tax accounting. In general,
the amount of original issue discount included in income by the initial U.S.
Holder of an Original Issue Discount Note is the sum of the daily portions of
original issue discount with respect to such Original Issue Discount Note for
each day during the taxable year (or portion of the taxable year) on which such
U.S. Holder held such Original Issue Discount Note. The "daily portion" of
original issue discount on any Original Issue Discount Note is determined by
allocating to each day in any accrual period a ratable portion of the original
issue discount allocable to that accrual period. An "accrual period" may be of
any length and the accrual periods may vary in length over the term of the
Original Issue Discount Note, provided that each accrual period is no longer
than one year and each scheduled payment of principal or interest occurs either
on the final day of an accrual period or on the first day of an accrual period.
The amount of original issue discount allocable to each accrual period is
generally equal to the difference between (i) the product of the Original Issue
Discount Note's adjusted issue price at the beginning of such accrual period
and its yield to maturity (determined on the basis of compounding at the close
of each accrual period and appropriately adjusted to take into account the
length of the particular accrual period) and (ii) the amount of any qualified
stated interest payments allocable to such accrual period. The "adjusted issue
price" of an Original Issue Discount Note at the beginning of any accrual
period is the sum of the issue price of the Original Issue Discount Note plus
the amount of original issue discount allocable to all prior accrual periods
minus the amount of any prior payments on the Original Issue Discount Note that
were not qualified stated interest payments. Under these rules, U.S. Holders
generally will have to include in income increasingly greater amounts of
original issue discount in successive accrual periods.
A U.S. Holder who purchases an Original Issue Discount Note for an amount
that is greater than its adjusted issue price as of the purchase date and less
than or equal to the sum of all amounts payable on the Original Issue Discount
Note after the purchase date other than payments of qualified stated interest,
will be considered to have purchased the Original Issue Discount Note at an
"acquisition premium." Under the acquisition premium rules, the amount of
original issue discount which such U.S. Holder must include in its gross income
with respect to such Original Issue Discount Note for any taxable year (or
portion thereof in which the U.S. Holder holds the original Issue Discount
Note) will be reduced (but not below zero) by the portion of the acquisition
premium properly allocable to the period.
Under the OID Regulations, Floating Rate Notes and Indexed Notes
("Variable Notes") are subject to special rules whereby a Variable Note will
qualify as a "variable rate debt instrument" if (a) its issue price does not
exceed the total noncontingent principal payments due under the Variable Note
by more than a specified de minimis amount and (b) it provides for stated
interest, paid or compounded at least annually, at current values of (i)
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one or more qualified floating rates, (ii) a single fixed rate and one or more
qualified floating rates, (iii) a single objective rate, or (iv) a single fixed
rate and a single objective rate that is a qualified inverse floating rate.
A "qualified floating rate" is any variable rate where variations in the
value of such rate can reasonably be expected to measure contemporaneous
variations in the cost of newly borrowed funds in the currency in which the
Variable Note is denominated. Although a multiple of a qualified floating rate
will generally not itself constitute a qualified floating rate, a variable rate
equal to the product of a qualified floating rate and a fixed multiple that is
greater than .65 but not more than 1.35 will constitute a qualified floating
rate. A variable rate equal to the product of a qualified floating rate and a
fixed multiple that is greater than .65 but not more than 1.35, increased or
decreased by a fixed rate, will also constitute a qualified floating rate. In
addition, under the OID Regulations, two or more qualified floating rates that
can reasonably be expected to have approximately the same values throughout the
term of the Variable Note (e.g., two or more qualified floating rates with
values within 25 basis points of each other as determined on the Variable
Note's issue date) will be treated as a single qualified floating rate.
Notwithstanding the foregoing, a variable rate that would otherwise constitute
a qualified floating rate but which is subject to one or more restrictions such
as a maximum numerical limitation (i.e., a cap) or a minimum numerical
limitation (i.e.. a floor) may, under certain circumstances, fail to be treated
as a qualified floating rate under the OID Regulations unless such cap or floor
is fixed throughout the term of the Note. An "objective rate" is a rate that is
not itself a qualified floating rate but which is determined using a single
fixed formula and which is based upon objective financial or economic
information. A rate will not qualify as an objective rate if it is based on
information that is within the control of the issuer (or a related party) or
that is unique to the circumstances of the issuer (or a related party), such as
dividends, profits or the value of the issuer's stock (although a rate does not
fail to be an objective rate merely because it is based on the credit quality
of the issuer). Despite the foregoing, a variable rate of interest on a
Variable Note will not constitute an objective rate if it is reasonably
expected that the average value of such rate during the first half of the
Variable Note's term will be either significantly less than or significantly
greater than the average value of the rate during the final half of the
Variable Note's term. A "qualified inverse floating rate" is any objective rate
where such rate is equal to a fixed rate minus a qualified floating rate, as
long as variations in the rate can reasonably be expected to inversely reflect
contemporaneous variations in the qualified floating rate. The OID Regulations
also provide that if a Variable Note provides for stated interest at a fixed
rate for an initial period of one year or less followed by a variable rate that
is either a qualified floating rate or an objective rate and if the variable
rate on the Variable Note's issue date is intended to approximate the fixed
rate (e.g.. the value of the variable rate on the issue date does not differ
from the value of the fixed rate by more than 25 basis points), then the fixed
rate and the variable rate together will constitute either a single qualified
floating rate or objective rate, as the case may be.
If a Variable Note that provides for stated interest at either a single
qualified floating rate or a single objective rate throughout the term thereof
qualifies as a "variable rate debt instrument" under the OID Regulations and if
interest on such Note is unconditionally payable in cash or property (other
than debt instruments of the issuer) at least annually, then all stated
interest on such Note will constitute qualified stated interest and will be
taxed accordingly. Thus, a Variable Note that provides for stated interest at
either a single qualified floating rate or a single objective rate throughout
the term thereof and that qualifies as a variable rate debt instrument" under
the OID Regulations will generally not be treated as having been issued with
original issue discount unless the Variable Note is issued at a "true" discount
(i.e., at a price below the Note's stated principal amount) in excess of a de
minimis amount as discussed above. The amount of qualified stated interest and
the amount of original issue discount, if any, that accrues during an accrual
period on such Variable Note is determined under the rules applicable to fixed
rate debt instruments by assuming that the variable rate is a fixed rate equal
to (i) in the case of a qualified floating rate or qualified inverse floating
rate, the value as of the issue date, of the qualified floating rate or
qualified inverse floating rate, or (ii) in the case of an objective rate
(other than a qualified inverse floating rate), a fixed rate that reflects the
yield that is reasonably expected for the Variable Note. The 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 pursuant to the foregoing
rules.
In general, any other Variable Note that qualifies as a "variable rate
debt instrument" will be converted into an "equivalent" fixed rate debt
instrument for purposes of determining the amount and accrual of original issue
discount and qualified stated interest on the Variable Note. The OID
Regulations generally require that such a Variable Note be converted into an
"equivalent" fixed rate debt instrument by substituting any qualified floating
rate or qualified inverse floating rate provided for under the terms of the
Variable Note with a fixed rate equal to the value of the qualified floating
rate or qualified inverse floating rate, as the case may be, as of the Variable
Note's issue date. Any objective rate (other than a qualified inverse floating
rate) provided for under the terms of the Variable Note is converted into a
fixed rate that reflects the yield that is reasonably expected for the Variable
Note. In the case of a Variable Note that qualifies as a "variable rate debt
instrument" and provides for stated interest at a fixed rate (subject to
certain exceptions) in addition to either one or more qualified floating rates
or a qualified inverse floating rate, the fixed rate is initially converted
into a qualified floating rate (or a qualified
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inverse floating rate, if the Variable Note provides for a qualified inverse
floating rate). Under such circumstances, the qualified floating rate or
qualified inverse floating rate that replaces the fixed rate must be such that
the fair market value of the Variable Note as of the Variable Note's issue date
is approximately the same as the fair market value of an otherwise identical
debt instrument that provides for either the qualified floating rate or
qualified inverse floating rate rather than the fixed rate. Subsequent to
converting the fixed rate into either a qualified floating rate or a qualified
inverse floating rate, the Variable Note is then converted into an "equivalent"
fixed rate debt instrument in the manner described above.
Once the Variable Note is converted into an "equivalent" fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
"equivalent" fixed rate debt instrument by applying the general original issue
discount rules to the "equivalent" fixed rate debt instrument and a U.S. Holder
of the Variable Note will account for such original issue discount and
qualified stated interest as if the U.S. Holder held the "equivalent" fixed
rate debt instrument. Each accrual period appropriate adjustments will be made
to the amount of qualified stated interest or original issue discount assumed
to have been accrued or paid with respect to the "equivalent" fixed rate debt
instrument in the event that such amounts differ from the actual amount of
interest accrued or paid on the Variable Note during the accrual period.
If a Variable Note does not qualify as a "variable rate debt instrument"
under the OID Regulations, then the Variable Note would be treated as a
contingent payment debt obligation. U.S. Holders should be aware that on June
11, 1996 and December 31, 1996 the Treasury Department issued final regulations
(the "CPDI Regulations") concerning the proper United States Federal income tax
treatment of contingent payment debt instruments. In general, the CPDI
Regulations cause the timing and character of income, gain or loss reported on
a contingent payment debt instrument to substantially differ from the timing
and character of income, gain or loss reported on a contingent payment debt
instrument under general principles of prior United States Federal income tax
law. Specifically, the CPDI Regulations generally require a U.S. Holder of such
an instrument to include contingent and noncontingent interest payments in
income as such interest accrues based upon a projected payment schedule.
Moreover, in general, under the CPDI Regulations, any gain recognized by a U.S.
Holder on the sale, exchange, or retirement of a contingent payment debt
instrument will be treated as ordinary income and all or a portion of any
loss realized could be treated as ordinary loss as opposed to capital loss
(depending upon the circumstances). The proper United States Federal income tax
treatment of Variable Notes that are treated as contingent payment debt
obligations will be more fully described in the applicable Pricing Supplement.
Furthermore, any other special United States Federal income tax considerations,
not otherwise discussed herein, which are applicable to any particular issue of
Notes will be discussed in the applicable Pricing Supplement.
Certain of the Notes (i) may be redeemable at the option of the Company
prior to their stated maturity (a "call option") and/or (ii) may be repayable
at the option of the holder prior to their stated maturity (a "put option").
Notes containing such features may be subject to rules that differ from the
general rules discussed above. Investors intending to purchase Notes with such
features should consult their own tax advisors, since the original issue
discount consequences will depend, in part, on the particular terms and
features of the purchased Notes.
U.S. Holders may generally, upon election, include in income all interest
(including stated interest, acquisition discount, original issue discount, de
minimis original issue discount, market discount, de minimis market discount,
and unstated interest, as adjusted by any amortizable bond premium or
acquisition premium) that accrues on a debt instrument by using the constant
yield method applicable to original issue discount, subject to certain
limitations and exceptions.
The OID Regulations contain certain special rules that generally allow any
reasonable method to be used in determining the amount of original issue
discount allocable to a short initial accrual period (if all other accrual
periods are of equal length) and require that the amount of original issue
discount allocable to the final accrual period equal the excess of the amount
payable at the maturity of the Original Issue Discount Note (other than any
payment of qualified stated interest) over the Original Issue Discount Note's
adjusted issue price as of the beginning of such final accrual period. In
addition, if an interval between payments of qualified stated interest on an
Original Issue Discount Note contains more than one accrual period, then the
amount of qualified stated interest payable at the end of such interval is
allocated pro rata (on the basis of their relative lengths) between the accrual
periods contained in the interval.
Short-Term Notes
Notes that have a fixed maturity of one year or less ("Short-Term Notes")
will be treated as having been issued with original issue discount equal to the
excess of the stated redemption price at maturity on the short-term Note over
the taxpayer's basis in such obligation. In general, an individual or other
cash method U.S. Holder is not required to accrue such original issue discount
unless the U.S. Holder elects to do so. If such an election is not
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<PAGE> 29
made, any gain recognized by the U.S. Holder on the sale, exchange or
maturity of the Short-Term Note will be ordinary income to the extent of the
original issue discount accrued on a straight-line basis, or upon election
under the constant yield method (based on daily compounding), through the date
of sale or maturity, and a portion of the deductions otherwise allowable to the
U.S. Holder for interest on borrowings allocable to the Short-Term Note will be
deferred until a corresponding amount of income is realized. U.S. Holders who
report income for United States Federal income tax purposes under the accrual
method, and certain other holders including banks and dealers in securities,
are required to accrue original issue discount on a Short-Term Note on a
straight-line basis unless an election is made to accrue the original issue
discount under a constant yield method (based on daily compounding).
Market Discount
If a U.S. Holder purchases a Note, other than an Original Issue Discount
Note or a Short-Term Note, for an amount that is less than its issue price (or,
in the case of a subsequent purchaser, its stated redemption price at maturity)
or, in the case of an Original Issue Discount Note, for an amount that is less
than its adjusted issue price as of the purchase date, such U.S. Holder will be
treated as having purchased such Note at a "market discount," unless such
market discount is less than a specified de minimis amount.
Under the market discount rules, a U.S. Holder will be required to treat
any partial principal payment (or, in the case of an Original Issue Discount
Note, any payment that does not constitute qualified stated interest) on, or
any gain realized on the sale, exchange, retirement or other disposition of, a
Note purchased at a market discount as ordinary income to the extent of the
lesser of (i) the amount of such payment or realized gain or (ii) the market
discount which has not previously been included in income and is treated as
having accrued on such Note at the time of such payment or disposition. Market
discount will be considered to accrue ratably during the period from the date
of acquisition to the maturity date of the Note, unless the U.S. Holder elects
to accrue market discount on the basis of semiannual compounding. Once made,
with respect to a Note, such election is irrevocable.
A U.S. Holder may be required to defer the deduction of a portion of the
interest paid or accrued on any indebtedness incurred or maintained to purchase
or carry a Note with market discount until the maturity of the Note or certain
earlier dispositions, because a current deduction is only allowed to the extent
of the amount of income included in gross income with respect to the Note plus
the amount by which any remaining interest expense exceeds an allocable portion
of market discount. A U.S. Holder may elect to include market discount in
income currently as it accrues (on either a ratable or semiannual compounding
basis), in which case the rules described above regarding the treatment as
ordinary income of gain upon the disposition of the Note and upon the receipt
of certain cash payments and regarding the deferral of interest deductions will
not apply. Generally, such currently included market discount is treated as
ordinary interest for United States Federal income tax purposes. Such an
election will apply to all debt instruments acquired by the U.S. Holder on or
after the first day of the first taxable year to which such election applies
and may be revoked only with the consent of the IRS.
Premium
If a U.S. Holder purchases a Note for an amount that is greater than the
sum of all amounts payable on the Note after the purchase date other than
payments of qualified stated interest, such U.S. Holder will be considered to
have purchased the Note with "amortizable bond premium" equal in amount to such
excess. A U.S. Holder may elect to amortize such premium using a constant yield
method over the remaining term of the Note and may offset interest otherwise
required to be included in respect of the Note during any taxable year by the
amortized amount of such excess for the taxable year. However, if the Note may
be optionally redeemed after the U.S. Holder acquires it at a price in excess
of its stated redemption price at maturity, special rules would apply which
could result in a deferral of the amortization of some bond premium. Any
election to amortize bond premium applies to all taxable debt instruments then
owned and thereafter acquired by the U.S. Holder on or after the first day of
the first taxable year to which such election applies and may be revoked only
with the consent of the IRS.
Disposition of a Note
Except as discussed above, upon the sale, exchange or retirement of a
Note, a U.S. Holder generally will recognize taxable gain or loss equal to the
difference between the amount realized on the sale, exchange or retirement
(other than amounts representing accrued and unpaid interest) and such U.S.
Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax basis in
a Note generally will equal such U.S. Holder's initial investment in the Note
increased by any original issue discount included in income (and accrued market
discount, if any, if the U.S. Holder has included such market discount in
income) and decreased by the amount of any payments, other than qualified
stated interest payments, received and amortizable bond premium taken with
respect to such Note. Such gain or loss generally will be long-term capital
gain or loss if the Note were held for more than one year.
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NOTES DENOMINATED, OR IN RESPECT OF WHICH INTEREST IS PAYABLE, IN A FOREIGN
CURRENCY
As used herein, "Foreign Currency" means a currency or composite currency
other than U.S. dollars.
Payments Of Interest in a Foreign Currency
CASH METHOD. A U.S. Holder who uses the cash method of accounting for
United States Federal income tax purposes and who receives a payment of
interest denominated in, or determined by reference to, a foreign currency
(other than original issue discount or market discount) on a Note will be
required to include in income the U.S. dollar value of the Foreign Currency
payment (determined on the date such payment is received) regardless of whether
the payment is in fact converted to U.S. dollars at that time, and such U.S.
dollar value will be the U.S. Holder's tax basis in such Foreign Currency.
ACCRUAL METHOD. A U.S. Holder who uses the accrual method of accounting
for United States Federal income tax purposes, or who otherwise is required to
accrue interest prior to receipt, will be required to include in income the
U.S. dollar value of the amount of interest income denominated in, or
determined by reference to, a foreign currency (including original issue
discount or market discount and reduced by amortizable bond premium to the
extent applicable) that has accrued and is otherwise required to be taken into
account with respect to a Note during an accrual period. The U.S. dollar value
of such accrued income will be determined by translating such income at the
average rate of exchange for the accrual period or, with respect to an accrual
period that spans two taxable years, at the average rate for the partial period
within the taxable year. A U.S. Holder may elect, however, to translate such
accrued interest income using the rate of exchange on the last day of the
accrual period or, with respect to an actual period that spans two taxable
years, using the rate of exchange on the last day of the taxable year. If the
last day of an accrual period is within five business days of the date of
receipt of the accrued interest, a U.S. Holder may translate such interest
using the rate of exchange on the date of receipt. The above election will
apply to other debt obligations held by the U.S. Holder and may not be changed
without the consent of the IRS. A U.S. Holder should consult a tax advisor
before making the above election. A U.S. Holder will recognize exchange gain or
loss (which will be treated as ordinary income or loss) with respect to accrued
interest income on the date such income is received. The amount of ordinary
income or loss recognized will equal the difference, if any, between the U.S.
dollar value of the Foreign Currency payment received (determined on the date
such payment is received) in respect of such accrual period and the U.S. dollar
value of interest income that has accrued during such accrual period (as
determined above).
Purchase, Sale and Retirement of Notes
A U.S. Holder who purchases a Note with previously owned Foreign Currency
will recognize ordinary income or loss in an amount equal to the difference, if
any, between such U.S. Holder's tax basis in the Foreign Currency and the U.S.
dollar fair market value of the Foreign Currency used to purchase the Note,
determined on the date of purchase.
Except as discussed above with respect to Short-Term Notes, upon the sale,
exchange or retirement of a Note, a U.S. Holder will recognize taxable gain or
loss equal to the difference between the amount realized on the sale, exchange
or retirement and such U.S. Holder's adjusted tax basis in the Note. Such gain
or loss generally will be capital gain or loss (except to the extent of any
accrued market discount not previously included in the U.S. Holder's income)
and will be long-term capital gain or loss if at the time of sale, exchange or
retirement the Note has been held by such U.S. Holder for more than one year.
To the extent the amount realized represents accrued but unpaid interest,
however, such amounts must be taken into account as interest income, with
exchange gain or loss computed as described in "Payments of Interest in a
Foreign Currency" above. If a U.S. Holder receives Foreign Currency on such a
sale, exchange or retirement the amount realized will be based on the U.S.
dollar value of the Foreign Currency on the date the payment is received or the
Note is disposed of (or deemed disposed of as a result of a material change in
the terms of such Note). In the case of a Note that is denominated in Foreign
Currency and is traded on an established securities market, a cash basis U.S.
Holder (or, upon election, an accrual basis U.S. Holder) will determine the
U.S. dollar value of the amount realized by translating the Foreign Currency
payment at the spot rate of exchange on the settlement date of the sale. A U.S.
Holder's adjusted tax basis in a Note will equal the cost of the Note to such
holder, increased by the amounts of any market discount or original issue
discount previously included in income by the holder with respect to such Note
and reduced by any amortized acquisition or other premium and any principal
payments received by the holder. A U.S. Holder's tax basis in a Note, and the
amount of any subsequent adjustments to such holder's tax basis, will be the
U.S. dollar value of the Foreign Currency amount paid for such Note, or of the
Foreign Currency amount of the adjustment, determined on the date of such
purchase or adjustment.
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Gain or loss realized upon the sale, exchange or retirement of a Note that
is attributable to fluctuations in currency exchange rates will be ordinary
income or loss which will not be treated as interest income or expense. Gain or
loss attributable to fluctuations in exchange rates will equal the difference
between the U.S. dollar value of the Foreign Currency principal amount of the
Note, determined on the date such payment is received or the Note is disposed
of, and the U.S. dollar value of the Foreign Currency principal amount of the
Note, determined on the date the U.S. Holder acquired the Note. Such Foreign
Currency gain or loss will be recognized only to the extent of the total gain
or loss realized by the U.S. Holder on the sale, exchange or retirement of the
Note.
Original Issue Discount
In the case of an Original Issue Discount Note or Short-Term Note, (i)
original issue discount is determined in units of the Foreign Currency, (ii)
accrued original issue discount is translated into U.S. dollars as described in
"Payments of Interest in a Foreign Currency - Accrual Method" above and (iii)
the amount of Foreign Currency gain or loss on the accrued original issue
discount is determined by comparing the amount of income received attributable
to the discount (either upon payment, maturity or an earlier disposition), as
translated into U.S. dollars at the rate of exchange on the date of such
receipt, with the amount of original issue discount accrued, as translated
above.
Premium and Market Discount
In the case of a Note that is denominated in, or determined by reference
to, a foreign currency with market discount, (i) market discount is determined
in units of the Foreign Currency, (ii) accrued market discount taken into
account upon the receipt of any partial principal payment or upon the sale,
exchange, retirement or other disposition of the Note (other than accrued
market discount required to be taken into account currently) is translated into
U.S. dollars at the exchange rate on such disposition date (and no part of such
accrued market discount is treated as exchange gain or loss) and (iii) accrued
market discount currently includable in income by a U.S. Holder for any accrual
period is translated into U.S. dollars on the basis of the average exchange
rate in effect during such accrual period, and the exchange gain or loss is
determined upon the receipt of any partial principal payment or upon the sale,
exchange, retirement or other disposition of the Note in the manner described
in "Payments of Interest in a Foreign Currency - Accrual Method" above with
respect to computation of exchange gain or loss on accrued interest.
With respect to a Note that is denominated in, or determined by reference
to, a foreign currency issued with amortizable bond premium, such premium is
determined in the relevant Foreign Currency and reduces interest income in
units of the Foreign Currency. Although not entirely clear, a U.S. Holder
should recognize exchange gain or loss equal to the difference between the U.S.
dollar value of the bond premium amortized with respect to a period, determined
on the date the interest attributable to such period is received, and the U.S.
dollar value of the bond premium determined on the date of the acquisition of
the Note.
Exchange of Foreign Currencies
A U.S. Holder will have a tax basis in any Foreign Currency received as
interest or on the sale, exchange or retirement of a Note equal to the U.S.
dollar value of such Foreign Currency, determined at the time the interest is
received or at the time of the sale, exchange or retirement. Any gain or loss
realized by a U.S. Holder on a sale or other disposition of Foreign Currency
(including its exchange for U.S. dollars or its use to purchase Notes) will be
ordinary income or loss.
NON-U.S. HOLDERS
A non-U.S. Holder will not be subject to United States Federal income taxes
on payments of principal, premium (if any) or interest (including original
issue discount, if any) on a Note, unless such non-U.S. Holder is a direct or
indirect 10% or greater shareholder of the Company, a controlled foreign
corporation related to the Company or a bank receiving interest described in
section 881(c) (3) (A) of the Code. To qualify for the exemption from taxation,
the last United States payor in the chain of payment prior to payment to a
non-U.S. Holder (the "Withholding Agent") must have received in the year in
which a payment of interest or principal occurs, or in either of the two
preceding calendar years, a statement that (i) is signed by the beneficial
owner of the Note under penalties of perjury, (ii) certifies that such owner is
not a U.S. Holder and (iii) provides the name and address of the beneficial
owner. The statement may be made on an IRS Form W-8 or a substantially similar
form, and the beneficial owner must inform the Withholding Agent of any change
in the information on the statement within 30 days of such change. If a Note is
held through a securities clearing organization or certain other financial
institutions, the organization or institution may provide a signed statement to
the Withholding Agent. However, in such case, the signed statement must be
accompanied by a copy of the IRS Form W-8 or the substitute form
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provided by the beneficial owner to the organization or institution. The
Treasury Department is considering implementation of further certification
requirements aimed at determining whether the issuer of a debt obligation is
related to holders thereof.
Generally, a non-U.S. Holder will not be subject to Federal income taxes
on any amount which constitutes capital gain upon retirement or disposition of
a Note, provided the gain is not effectively connected with the conduct of a
trade or business in the United States by the non-U.S. Holder. Certain other
exceptions may be applicable, and a non-U.S. Holder should consult its tax
advisor in this regard.
The Notes will not be includable in the estate of a non-U.S. Holder unless
the individual is a direct or indirect 10% or greater shareholder of the
Company or, at the time of such individual's death, payments in respect of the
Notes would have been effectively connected with the conduct by such individual
of a trade or business in the United States.
BACKUP WITHHOLDING
Backup withholding of United States Federal income tax at a rate of 31%
may apply to payments made in respect of the Notes to registered owners who are
not "exempt recipients" and who fail to provide certain identifying information
(such as the registered owner's taxpayer identification number) in the required
manner. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities generally are exempt recipients. Payments made in
respect of the Notes to a U.S. Holder must be reported to the IRS, unless the
U.S. Holder is an exempt recipient or establishes an exemption. Compliance with
the identification procedures described in the preceding section would
establish an exemption from backup withholding for those non-U.S. Holders who
are not exempt recipients.
In addition, upon the sale of a Note to (or through) a broker, the broker
must withhold 31% of the entire purchase price, unless either (i) the broker
determines that the seller is a corporation or other exempt recipient or (ii)
the seller provides, in the required manner, certain identifying information
and, in the case of a non-U.S. Holder, certifies that such seller is a non-U.S.
Holder (and certain other conditions are met). Such a sale must also be
reported by the broker to the IRS, unless either (i) the broker determines that
the seller is an exempt recipient or (ii) the seller certifies its non-U.S.
status (and certain other conditions are met). Certification of the registered
owner's non-U.S. status would be made normally on an IRS Form W-8 under
penalties of perjury, although in certain cases it may be possible to submit
other documentary evidence.
Any amounts withheld under the backup withholding rules from a payment to
a beneficial owner would be allowed as a refund or a credit against such
beneficial owner's United States Federal income tax provided the required
information is furnished to the IRS.
PLAN OF DISTRIBUTION
The Notes are being offered on a continuous basis for sale by the Company
to or through the Agent. The Agent 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 Agent or, if so specified in the applicable Pricing
Supplement, for resale at a fixed offering price. If agreed to by the Company
and the Agent, the 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 the Agent, ranging from .125% to .750% of the
principal amount of each Note, depending upon its stated maturity, sold through
the Agent as an agent of the Company. Commissions with respect to Notes with
stated maturities in excess of 30 years that are sold through the Agent as an
agent of the Company will be negotiated between the Company and the Agent at
the time of such sale.
Unless otherwise specified in the applicable Pricing Supplement, any Note
sold to the Agent as principal will be purchased by the Agent at a price equal
to 100% of the principal amount thereof less a percentage of the principal
amount equal to the commission applicable to an agency sale of a Note of
identical maturity. The 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. The 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.
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The Company has reserved the right to sell the Notes through one or more
other agents or to other persons as principal. In any such events, the names of
the other agents or principals will be set forth in the applicable Pricing
Supplement.
The Company reserves the right to withdraw, cancel or modify the offer
made hereby without notice and may reject offers in whole or in part (whether
placed directly with the Company or through the Agent). The Agent will have
the right, in its discretion reasonably exercised, to reject in whole or in
part any offer to purchase Notes received by it on an agency basis.
Unless otherwise specified in the applicable Pricing Supplement, payment
of the purchase price of the Notes will be required to be made in immediately
available funds in the Specified Currency in The City of New York on the date
of settlement. See "Description of the Notes - General."
Upon issuance, the Notes will not have an established trading market. The
Notes will not be listed on any securities exchange. The Agent may from time to
time purchase and sell Notes in the secondary market, but the Agent is 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 Agent may make a market in the
Notes, but the Agent is not obligated to do so and may discontinue any
market-making activity at any time.
Until the distribution of the Notes is completed, rules of the Securities
and Exchange Commission may limit the ability of the Agent to bid for and
purchase Notes. As an exception to these rules, the Agent is permitted to
engage in certain transactions that stabilize 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.
If the Agent creates a short position in the Notes in connection with the
offering, (i.e., if it sells more Notes than are set forth on the cover page of
this Prospectus Supplement), it 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 syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the offering.
The Agent also may impose a penalty bid on certain other agents, if any.
This means that if the Agent purchases Notes in the open market to reduce the
Agent's short position or to stabilize the price of the Notes, it may reclaim
the amount of the selling concession from the agents who sold those Notes as
part of the offering.
Neither the Company nor the Agent makes any representation or prediction
as to the direction or magnitude of any effect that the transactions described
above may have on the prices of the Notes. In addition, neither the Company
nor the Agent makes any representation that the Agent will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
The Agent may be deemed to be an "underwriter" 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 Agent against, and to
provide contribution with respect to, certain liabilities (including
liabilities under the Securities Act). The Company has agreed to reimburse the
Agent for certain other expenses.
The Agent has, from time to time, provided, and may continue to provide in
the future, various investing banking, commercial banking and/or financial
advisory services to Sun, the Company and certain of their affiliates, for
which certain customary compensation has been, and will be, received. The
Agent has acted as representative of various underwriters in connection with
public offerings of Sun's Common Stock in 1993, 1995 and 1996 and of the
Company's Debt Securities in 1996.
From time to time, the Company may issue and sell other Debt Securities
described in the accompanying Prospectus, and the amount of Notes offered
hereby is subject to reduction as a result of such sales.
LEGAL MATTERS
The legality of the Notes offered hereby and the description of Federal
income tax matters contained in this Prospectus Supplement will be passed upon
for the Company by Jaffe, Raitt, Heuer & Weiss, Professional Corporation,
Detroit, Michigan. Certain legal matters will be passed upon for the Agent by
Skadden, Arps, Slate,
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<PAGE> 34
Meagher & Flom LLP, New York, New York. Jaffe, Raitt, Heuer & Weiss,
Professional Corporation will rely on the opinions of Ober, Kaler, Grimes &
Shriver, a professional corporation, Baltimore, Maryland, as to matters of
Maryland law.
S-34
<PAGE> 35
Prospectus dated October 30, 1996
PROSPECTUS
$500,000,000
SUN COMMUNITIES, INC.
COMPANY DEBT SECURITIES, PREFERRED STOCK,
COMMON STOCK, AND SECURITIES WARRANTS
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP
PARTNERSHIP DEBT SECURITIES
Sun Communities, Inc. (the "Company") may from time to time offer, with an
aggregate public offering price of up to $250,000,000 (or its equivalent in
another currency based on the exchange rate at the time of sale), in one or
more series: (i) unsecured debt securities ("Company Debt Securities"), (ii)
shares of its preferred stock, par value $0.01 per share ("Preferred Stock"),
(iii) shares of its common stock, par value $0.01 per share (the "Common
Stock"), and (iv) its warrants exercisable for Preferred Stock or Common Stock
("Securities Warrants"), and Sun Communities Operating Limited Partnership (the
"Operating Partnership") may from time to time offer in one or more series its
unsecured non-convertible investment grade debt securities ("Partnership Debt
Securities"; Company Debt Securities and Partnership Debt Securities are
sometimes hereinafter collectively referred to as the "Debt Securities") with
an aggregate public offering price of up to $250,000,000 (or its equivalent in
another currency based on the exchange rate at the time of sale), in each case
in amounts, at prices and on terms to be determined at the time of offering.
The Debt Securities, Preferred Stock, Common Stock and Securities Warrants
(collectively, 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").
With respect to the Debt Securities, the issuer, specific title, aggregate
principal amount, form (which may be registered or bearer, or certificated or
global), maturity, rate (or manner of calculation thereof) and time of payment
of interest, terms for redemption at the option of the issuer or repayment at
the option of the holder, any sinking fund provisions and any conversion
provisions will be set forth in the applicable Prospectus Supplement. The
terms of the Preferred Stock, including the specific designation and stated
value per share, any dividend, liquidation, redemption, conversion, voting and
other rights, and all other specific terms of the Preferred Stock will be set
forth in the applicable Prospectus Supplement. In the case of the Common
Stock, the specific number of shares and issuance price per share will be set
forth in the applicable Prospectus Supplement. In the case of the Securities
Warrants, the duration, offering price, exercise price and detachability, if
applicable, will be set forth in the applicable Prospectus Supplement. 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 United States federal income tax purposes. The
applicable Prospectus Supplement will also contain information, where
applicable, about all material United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Securities
covered by such Prospectus Supplement.
The Securities may be offered directly by the Company or the Operating
Partnership, through agents designated from time to time by the Company or the
Operating Partnership, or to or through underwriters or dealers. If any agents
or underwriters are involved in the sale of any of the Securities, their names,
and any applicable purchase price, fee, commission or discount arrangement
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 4 FOR CERTAIN FACTORS RELATING TO AN INVESTMENT IN
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.
The date of this Prospectus is October 30, 1996.
<PAGE> 36
AVAILABLE INFORMATION
The Company and the Operating Partnership are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, the Company and the Operating Partnership
file reports and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy statements and other information filed
can be inspected at the Public Reference Section maintained by the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and the following
regional offices of the Commission: 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. In addition, the Company's Common Stock is listed
on the New York Stock Exchange and such reports, proxy statements and other
information concerning the Company can be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Company and the Operating Partnership have filed with the Commission a
registration statement on Form S-3 (the "Registration Statement"), of which
this Prospectus is a part, under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Securities offered hereby. This
Prospectus does not contain portions of the information set forth in the
Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. Statements contained
in this Prospectus as to the contents of any contract or other documents are
not necessarily complete, and in each instance, reference is made to the copy
of such contract or documents filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference and the exhibits and schedules thereto. For further information
regarding the Company, the Operating Partnership and the Securities, reference
is hereby made to the Registration Statement and such exhibits and schedules
which may be obtained from the Commission at its principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company or the Operating
Partnership under the Exchange Act with the Commission and are incorporated
herein by reference.
1. The Company's Annual Report on Form 10-K for the year ended
December 31, 1995, filed with the Commission on March 18, 1996, as
amended by Form 10-K/A, filed with the Commission on April 18, 1996,
and as amended by Form 10-K/A, filed with the Commission on May 3,
1996.
2. The Operating Partnership's Annual Report on Form 10-K for the
year ended December 31, 1995, filed with the Commission on March 18,
1996.
3. The Company's current report on Form 8-K dated March 20, 1996
and filed with the Commission on March 26, 1996.
4. The Company's current report on Form 8-K dated April 2, 1996
and filed with the Commission on April 4, 1996.
5. The Company's current report on Form 8-K dated April 24, 1996
and filed with the Commission on April 29, 1996.
6. The Company's current report on Form 8-K dated May 1, 1996 and
filed with the Commission on May 3, 1996.
7. The Company's current report on Form 8-K dated August 20, 1996
and filed with the Commission on August 22, 1996.
8. The Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996, filed with the Commission on May 3, 1996.
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<PAGE> 37
9. The Operating Partnership's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, filed with the Commission on May 3,
1996.
10. The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996, filed with the Commission on August 14, 1996.
11. The Operating Partnership's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, filed with the Commission on August 14,
1996.
12. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A dated November 23, 1993, No.
1-12616.
13. The information contained in the section "Policies With Respect
to Certain Activities" contained in the Registration Statement on Form
S-11 (File No. 33-80972) filed on June 30, 1994, as amended.
All documents filed by the Company or the Operating Partnership subsequent
to the date of this Prospectus pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act and prior to termination of the offering of all Securities to
which this Prospectus relates shall be deemed to be incorporated by reference
in this Prospectus and shall be part hereof from the date of filing of such
document.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained in this Prospectus (in the case of a statement in a previously filed
document incorporated or deemed to be incorporated by reference herein), in any
accompanying Prospectus Supplement relating to a specific offering of
Securities or in any other subsequently filed document that is also
incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus or any accompanying Prospectus Supplement. Subject to the
foregoing, all information appearing in this Prospectus and each accompanying
Prospectus Supplement is qualified in its entirety by the information appearing
in the documents incorporated by reference.
The Company and the Operating Partnership will provide without charge to
each person, including any beneficial owner, to whom a copy of this Prospectus
is delivered, upon their written or oral request, a copy of any or all of the
documents incorporated herein by reference (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference in
such documents). Written requests for such copies should be addressed to
Jeffrey P. Jorissen, the Company's Senior Vice President and Chief Financial
Officer at Sun Communities, Inc., 31700 Middlebelt Road, Suite 145, Farmington
Hills, Michigan 48334, telephone number (810) 932-3100.
As used herein, the term "Company" includes Sun Communities, Inc., a
Maryland corporation, and one or more of its subsidiaries (including the
Operating Partnership, Sun Communities Finance Limited Partnership (the
"Financing Partnership"), Sun Home Services, Inc., and Sun Management, Inc.).
THE COMPANY AND THE OPERATING PARTNERSHIP
The Company owns and operates manufactured housing communities
concentrated in the midwestern and southeastern United States. The Company is
a fully integrated real estate company which, together with its affiliates and
predecessors, has been in the business of acquiring, operating, and expanding
manufactured housing communities since 1975. As of September 1, 1996, the
Company owned and managed a portfolio of 79 manufactured housing community
properties (the "Properties") located in twelve states and Canada containing an
aggregate of approximately 28,700 developed sites and approximately 2,800
potential expansion sites. Consistent with the Company's strategy of growth
through acquisitions, the Company has acquired 48 of the Properties since its
initial public offering in December 1993 (the "IPO").
The Company is the sole general partner of, and, as of September 1, 1996,
held approximately 89% of the interests (not including Preferred OP Units) in,
the Operating Partnership. Substantially all of the Company's assets are held
by or through the Operating Partnership and the Operating Partnership receives
substantially the same economic benefits as the Company. The description of
business, property information, policies with respect to certain activities and
management information for the Operating
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<PAGE> 38
Partnership are virtually identical to that of the Company. Such information
may be found in the Company's annual report on Form 10-K for the year ended
December 31, 1995 and in the Company's definitive prospectus, dated July 21,
1994, contained in its registration statement on Form S-11 (File No. 33-80972).
The ownership and management of the Properties is allocated among the
Subsidiaries; however, subject to the tax and other risks discussed in the
section entitled "Risk Factors": (i) the Company controls the management of all
the Properties either directly or through a management contract with Sun
Management, Inc., a Michigan corporation ("Sun Management") cancelable upon 30
days written notice; and (ii) stockholders in the Company achieve substantially
the same economic benefits as direct ownership, operation, and management of
the Properties, except that 5% of the cash flow from operating activities of
Sun Home Services, Inc., a Michigan corporation ("Home Services") and Sun
Management (estimated to be an aggregate of no greater than approximately
$2,000 in 1996) will be distributed to Gary A. Shiffman, Milton M. Shiffman
(Gary A. Shiffman and Milton M. Shiffman are sometimes hereinafter collectively
referred to as the "Principals"), and Jeffrey P. Jorissen, each an officer of
the Company, as the holders of all the common stock of Home Services and Sun
Management. There is no assurance that such distributions will not increase in
the future. As sole general partner of the Operating Partnership, the Company
has the exclusive power to manage and conduct the business of the Operating
Partnership, subject to certain limited exceptions.
The Company is a Maryland corporation and the Operating Partnership is a
Michigan limited partnership. The Operating Partnership was formed in 1993 in
connection with the IPO. The Company's and the Operating Partnership's
executive and principal property management office is located at 31700
Middlebelt Road, Suite 145, Farmington Hills, Michigan 48334, and telephone
number is (810) 932-3100. The Company has regional property management offices
in Elkhart, Indiana and Tampa, Florida.
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters described below.
CONFLICTS OF INTEREST
Failure to Enforce Terms of Management Contract. Through their ownership
of all of the common stock of Sun Management, the Principals and Jeffrey P.
Jorissen, an officer of the Company (the Principals and Jeffrey P. Jorissen are
sometimes hereinafter collectively referred to as the "Subsidiary
Shareholders") have a 5% interest in Sun Management. Sun Management has
entered into a management contract with the Financing Partnership with respect
to each of the Properties subject to the Mortgage Debt (as defined below),
which was not negotiated on an arm's length basis. The Subsidiary Shareholders
will have a conflict of interest with respect to their obligations as officers
and/or directors of the Company to enforce the terms of the management
contract. The failure to enforce the material terms of this agreement could
have an adverse effect on the Company. The Operating Partnership, on account
of its ownership of the preferred stock of Sun Management, and the Subsidiary
Shareholders, on account of their ownership of the common stock of Sun
Management, are entitled to 95% and 5%, respectively, of cash flow from
operating activities of Sun Management.
Failure to Enforce Terms of Home Services Agreement. Through their
ownership of all of the common stock of Home Services, the Subsidiary
Shareholders have a 5% interest in Home Services. Home Services has entered
into an agreement with the Operating Partnership for sales, brokerage, and
leasing services, which was not negotiated on an arm's length basis. The
Subsidiary Shareholders will have a conflict of interest with respect to their
obligations as officers and/or directors of the Company to enforce the terms of
the services agreement. The failure to enforce the material terms of this
agreement could have an adverse effect on the Company. The Operating
Partnership, on account of its ownership of the preferred stock of Home
Services, and the Subsidiary Shareholders, on account of their ownership of the
common stock of Home Services, are entitled to 95% and 5%, respectively, of the
cash flow from operating activities of Home Services.
Tax Consequences Upon Sale of Properties. Prior to the redemption of
partnership interests in the Operating Partnership ("OP Units") for Common
Stock, the Principals will have tax consequences different from those of the
Company and its public stockholders upon the sale of any of the 24 Properties
acquired from partnerships previously affiliated with the Principals (the "Sun
Partnerships") and, therefore, the Principals and the Company, as partners in
the Operating Partnership, may have different objectives
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<PAGE> 39
regarding the appropriate pricing and timing of any sale of those Properties.
Consequently, the Principals may influence the Company not to sell those
Properties even though such sale might otherwise be financially advantageous to
the Company.
ADVERSE CONSEQUENCES OF DEBT FINANCING
The Company is subject to the risks normally associated with debt
financing, including the risk that the Company's cash flow will be insufficient
to meet required payments of principal and interest, the risk that existing
indebtedness will not be able to be refinanced, or that the terms of such
refinancing will not be as favorable as the terms of such indebtedness and the
risk that necessary capital expenditures for such purposes as renovations and
other improvements will not be able to be financed on favorable terms or at
all. If a property is mortgaged to secure payment of indebtedness and the
Company is unable to meet mortgage payments, the property could be transferred
to the mortgagee with a consequent loss of income and asset value to the
Company.
As of September 1, 1996, the Financing Partnership had outstanding $30.0
million of indebtedness that is collateralized by mortgage liens on five of the
Properties (the "Mortgage Debt"). If the Company fails to meet its obligations
under the Mortgage Debt, the lender would be entitled to foreclose on all or
some of the Properties securing such debt, which could have a material adverse
effect on the Company and its ability to make expected distributions and could
threaten the continued viability of the Company.
The Company has a one-time right to obtain the release of one Property
from the lien of the Mortgage Debt. In the event the Company desires to obtain
the release of a Property from the lien of such debt, such release may only be
obtained by satisfaction of each of the following: (i) prepayment of such debt
in an amount equal to 125% of the loan amount allocated to the Property being
released; (ii) payment of certain prepayment expenses that may be incurred by
the lender in connection with a partial prepayment of such debt; and (iii)
satisfaction of a specified debt service coverage ratio with respect to the
remaining four Properties not being released. In the event the Company is
unable to obtain the release of a Property from any such lien, it would be
unable to consummate a sale of such Property which might otherwise be in the
best interest of the Company.
CHANGES IN INVESTMENT AND FINANCING POLICIES WITHOUT STOCKHOLDER APPROVAL
The investment and financing policies of the Company, and its policies
with respect to certain other activities, including its growth, debt,
capitalization, distributions, REIT status, and operating policies, are
determined by the Board of Directors. Although the Board of Directors has no
present intention to do so, these policies may be amended or revised from time
to time at the discretion of the Board of Directors without notice to or a vote
of the stockholders of the Company. Accordingly, stockholders may not have
control over changes in policies of the Company and changes in the Company's
policies may not fully serve the interests of all stockholders.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers,
particularly the Principals. While the Company believes that it could find
replacements for these key personnel, the loss of their services could have a
temporary adverse effect on the operations of the Company. The Company does
not currently maintain or contemplate obtaining any "key-man" life insurance on
the Principals.
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<PAGE> 40
OWNERSHIP LIMIT AND LIMITS ON CHANGES IN CONTROL
9.8% Ownership Limit; Inapplicability to Founders. In order to qualify
and maintain its qualification as a REIT, not more than 50% of the outstanding
shares of the capital stock of the Company may be owned, directly or
indirectly, by five or fewer individuals. Thus, ownership of more than 9.8% of
the outstanding shares of Common Stock by any single stockholder has been
restricted, with certain exceptions, for the purpose of maintaining the
Company's qualification as a REIT under the Internal Revenue Code of 1986, as
amended (the "Code"). Such restrictions in the Company's charter do not apply
to the Principals and Robert B. Bayer, a former director and officer of the
Company (Robert B. Bayer and the Principals are sometimes hereinafter
collectively referred to as the "Founders"), who may acquire additional shares
of Common Stock through the redemption of OP Units, through the Stock Option
Plan, from other stockholders or otherwise, but in no event will they be
entitled to acquire additional shares such that the five largest beneficial
owners of the Company's stock hold more than 50% of the total outstanding
stock. Additionally, the Company's charter allows certain transfers of such
shares without the transferees being subject to the 9.8% ownership limit,
provided such transfers do not result in an increased concentration in the
ownership of the Company. The Company's Board of Directors, upon receipt of a
ruling from the Internal Revenue Service (the "Service"), an opinion of counsel
or other evidence satisfactory to the Board of Directors and upon such other
conditions as the Board of Directors may direct, may also exempt a proposed
transferee from this restriction. See "Description of Common Stock C
Restrictions on Ownership."
The 9.8% ownership limit, as well as the ability of the Company to issue
additional shares of Common Stock or shares of other stock (which may have
rights and preferences over the Common Stock), may discourage a change of
control of the Company and may also: (i) deter tender offers for the Common
Stock, which offers may be advantageous to stockholders; and (ii) limit the
opportunity for stockholders to receive a premium for their Common Stock that
might otherwise exist if an investor were attempting to assemble a block of
Common Stock in excess of 9.8% of the outstanding shares of the Company or
otherwise effect a change of control of the Company.
Staggered Board. The Board of Directors of the Company has been divided
into three classes of directors. The term of one class will expire each year.
Directors for each class will be chosen for a three-year term upon the
expiration of such class's term, and the directors in the other two classes
will continue in office. The staggered terms for directors may affect the
stockholders' ability to change control of the Company even if a change in
control were in the stockholders' interest.
Preferred Stock. The Company's charter authorizes the Board of Directors
to issue up to 10,000,000 shares of preferred stock and to establish the
preferences and rights (including the right to vote and the right to convert
into shares of Common Stock) of any shares issued. See "Description of
Preferred Stock." The power to issue preferred stock could have the effect of
delaying or preventing a change in control of the Company even if a change in
control were in the stockholders' interest.
REAL ESTATE INVESTMENT CONSIDERATIONS
General. Income from real property investments, and the Company's
resulting ability to make expected distributions to stockholders, may be
adversely affected by the general economic climate, local conditions such as
oversupply of manufactured housing sites or a reduction in demand for
manufactured housing sites in an area, the attractiveness of the Properties to
tenants, zoning or other regulatory restrictions, competition from other
available manufactured housing sites and alternative forms of housing (such as
apartment buildings and site-built single-family homes), the ability of the
Company to provide adequate maintenance and insurance, and increased operating
costs (including insurance premiums and real estate taxes). The Company's
income would also be adversely affected if tenants were unable to pay rent or
sites were unable to be rented on favorable terms. If the Company were unable
to promptly relet or renew the leases for a significant number of the sites, or
if the rental rates upon such renewal or reletting were significantly lower
than expected rates, then the Company's funds from operations and ability to
make expected distributions to stockholders could be adversely affected. In
addition, certain expenditures associated with each equity investment (such as
real estate taxes and maintenance costs) generally are not reduced when
circumstances cause a reduction in income from the investment. Furthermore,
real estate investments are relatively illiquid and, therefore, will tend to
limit the ability of the Company to vary its portfolio promptly in response to
changes in economic or other conditions.
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<PAGE> 41
Competition. All of the Properties are located in developed areas that
include other manufactured housing community properties. The number of
competitive manufactured housing community properties in a particular area
could have a material effect on the Company's ability to lease sites and on
rents charged at the Properties or at any newly acquired properties. The
Company may be competing with others that have greater resources than the
Company and whose officers and directors have more experience than the
Company's officers and directors. In addition, other forms of multi-family
residential properties, such as private and federally funded or assisted
multi-family housing projects and single-family housing, provide housing
alternatives to potential tenants of manufactured housing communities.
Changes in Laws. Costs resulting from changes in real estate tax laws
generally may be passed through to tenants and will not affect the Company.
Increases in income, service or other taxes, however, generally are not passed
through to tenants under leases and may adversely affect the Company's funds
from operations and its ability to make distributions to stockholders.
Similarly, changes in laws increasing the potential liability for environmental
conditions existing on properties or increasing the restrictions on discharges
or other conditions may result in significant unanticipated expenditures, which
would adversely affect the Company's funds from operations and its ability to
make distributions to stockholders.
Investments in Mortgages. Although the Company currently has no plans to
invest in mortgages other than an approximately $4.0 million mortgage loan it
has made to an entity that operates two manufactured housing communities in
Alberta, Canada (the "Canadian Mortgage"), the Company may invest in additional
mortgages in the future. By virtue of its investment in the Canadian Mortgage
and if the Company were to invest in additional mortgages, it is and would be
subject to the risks of such investment, which include the risk that borrowers
may not be able to make debt service payments or pay principal when due, the
risk that the value of mortgaged property may be less than the amounts owed,
and the risk that interest rates payable on the mortgages may be lower than the
Company's costs of funds. If any of the above occurred, funds from operations
and the Company's ability to make expected distributions to stockholders could
be adversely affected.
Development of New Communities. The Company is not restricted from
engaging in the development of new communities in the future. The manufactured
housing community development business involves significant risks in addition
to those involved in the ownership and operation of established manufactured
housing communities, including the risks that financing may not be available on
favorable terms for development projects, that construction and lease-up may
not be completed on schedule resulting in increased debt service expense and
construction costs, that long-term financing may not be available upon
completion of construction, and that sites may not be leased on profitable
terms. If the Company entered the manufactured housing community development
business, and if any of the above occurred, the Company's ability to make
expected distributions to stockholders could be adversely affected.
Rent Control Legislation. State and local rent control laws in certain
jurisdictions may limit the Company's ability to increase rents and to recover
increases in operating expenses and the costs of capital improvements.
Enactment of such laws has been considered from time to time in other
jurisdictions. Certain of the Properties are located, and the Company may
purchase additional properties, in markets that are either subject to rent
control or in which rent-limiting legislation exists or may be enacted.
Environmental Matters. Under various Federal, state and local laws,
ordinances and regulations, an owner of real estate is liable for the costs of
removal or remediation of certain hazardous or toxic substances on or in such
property. Such laws often impose such 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
remediate such substances, 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 or treatment of hazardous or toxic substances may also
be liable for the costs of removal or remediation of such substances at a
disposal or treatment facility, whether or not such facility is owned or
operated by such person. Certain environmental laws impose liability for
release of asbestos-containing materials ("ACMs") into the air and third
parties may seek recovery from owners or operators of real properties for
personal injury associated with ACMs. In connection with the ownership (direct
or indirect), operation, management, and development of real properties, the
Company or the Operating Partnership, as the case may be, may be considered an
owner or operator of such properties or as having arranged for the disposal or
treatment of hazardous or toxic substances and, therefore, potentially liable
for removal or remediation costs, as well as certain other related costs,
including governmental fines and injuries to persons and property. All of the
Properties have been subject to a Phase I or similar environmental audit (which
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involves general inspections without soil sampling or ground water
analysis) completed by independent environmental consultants. These
environmental audits have not revealed any significant environmental liability
that would have a material adverse effect on the Company's business. No
assurances can be given that existing environmental studies with respect to any
of the Properties reveal all environmental liabilities, that any prior owner of
a Property did not create any material environmental condition not known to the
Company, or that a material environmental condition does not otherwise exist as
to any one or more Properties.
Uninsured Loss. The Company maintains comprehensive liability, fire,
flood (where appropriate), extended coverage, and rental loss insurance with
respect to the Properties with policy specifications, limits, and deductibles
customarily carried for similar properties. Certain types of losses, however,
may be either uninsurable or not economically insurable, such as losses 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.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT
Taxation as a Corporation. The Company expects to qualify and has made an
election to be taxed as a REIT under the Code, commencing with the calendar
year beginning January 1, 1994. Although the Company believes that it is
organized and will operate in such a manner, no assurance can be given that the
Company is organized or will be able to operate in a manner so as to qualify or
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 also
would be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification is lost. This treatment would
reduce the net earnings of the Company available for investment or distribution
to stockholders because of the additional tax liability to the Company for the
years involved. In addition, distributions to stockholders would no longer be
required to be made.
Other Tax Liabilities. Even though the Company qualifies as a REIT, it is
subject to certain Federal, state and local taxes on its income and property.
In addition, the management operations relating to the Properties subject to
the mortgages granted in connection with the Mortgage Debt and the Company's
sales operations, which are conducted through Sun Management and Home Services,
respectively, generally will be subject to Federal income tax at regular
corporate rates.
ADVERSE EFFECT OF DISTRIBUTION REQUIREMENTS
The Company may be required from time to time, under certain
circumstances, to accrue as income for tax purposes interest and rent earned
but not yet received. In such event, the Company could have taxable income
without sufficient cash to enable the Company to meet the distribution
requirements of a REIT. Accordingly, the Company could be required to borrow
funds or liquidate investments on adverse terms in order to meet such
distribution requirements.
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A PARTNERSHIP
The Company believes that the Operating Partnership and the Financing
Partnership have each been organized as partnerships and will qualify for
treatment as such under the Code. If the Operating Partnership and the
Financing Partnership fail to qualify for such treatment under the Code, the
Company would cease to qualify as a REIT, and the Operating Partnership and the
Financing Partnership would be subject to Federal income tax (including any
alternative minimum tax) on their income at corporate rates.
ADVERSE EFFECT ON PRICE OF SHARES AVAILABLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock, or the perception
that such sales could occur, could adversely affect prevailing market prices
for shares. The Principals hold 943,456 shares of
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Common Stock. In addition, up to 3,208,519 shares of Common Stock may be
issued in the future to the Principals, the general partners of the Sun
Partnerships other than the Principals (the "Former General Partners"), and the
sellers of certain properties as a result of the potential redemption of their
outstanding OP Units (both Common and Preferred OP Units). Except in certain
limited circumstances or with the prior written consent of Lehman Brothers Inc.
and the Company, the Principals and the Former General Partners may not sell
more than one-third of such holder's shares prior to December 15, 1995 or
two-thirds of such holders' shares prior to December 15, 1996. After December
15, 1996, the Principals and the Former General Partners may sell remaining
unsold shares pursuant to registration rights or an available exemption from
registration. Also, the former owner of one of the Properties will be issued OP
Units with an aggregate value of $10.85 million over the 11-year period
beginning in January 1997 and continuing on an annual basis through 2007. In
addition, 1,461,513 shares have been reserved for issuance pursuant to the
Company's Stock Option Plan and 1993 Non-Employee Director Stock Option Plan (of
which 353,997 shares were issued to the Principals upon the exercise of options
pursuant to the Company's Stock Option Plan), and the Principals' employment
agreements provide for incentive compensation payable in shares of Common Stock.
These shares may be sold without the consent of Lehman Brothers Inc. and the
Company. No prediction can be made regarding the effect that future sales of
shares of Common Stock will have on the market price of shares.
ADVERSE EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK
One of the factors that may influence the price of the Company's shares in
the public market will be the annual distributions to stockholders relative to
the prevailing market price of the Common Stock. An increase in market interest
rates may tend to make the Common Stock less attractive relative to other
investments, which could adversely affect the market price of Common Stock.
USE OF PROCEEDS
Unless otherwise specified in the applicable Prospectus Supplement, the
Company intends to invest, contribute or otherwise transfer the net proceeds of
any sale of Common Stock, Preferred Stock, Company Debt Securities, or
Securities Warrants to the Operating Partnership. Unless otherwise specified
in the applicable Prospectus Supplement, the Operating Partnership intends to
use such net proceeds and the net proceeds from the sale of any Partnership
Debt Securities for general business purposes, including the development and
acquisition of additional properties and other acquisition transactions, the
payment of certain outstanding debt and improvements to certain properties in
the Company's portfolio.
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's and the Operating Partnership's ratios of earning to fixed
charges for the six-month period ended June 30, 1996 and the years ended
December 31, 1991, 1992, 1993, 1994 and 1995 was 2.71:1, 0.95:1, 1.05:1,
1.05:1, 2.79:1, and 3.03:1, respectively. The ratio of earnings to fixed
charges for the years ended December 31, 1991 and 1992 relate to the
predecessor business of the Company.
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 forms of the Senior Indenture (as defined herein) and the
Subordinated Indenture (as defined herein) have been filed as exhibits to the
Registration Statement of which this Prospectus is a part.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Company
or the Operating Partnership (the entity issuing the Debt Securities is
hereinafter referred to as the "Issuer"), and may be either senior Debt
Securities ("Senior Securities") or subordinated Debt Securities ("Subordinated
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Securities"). The Debt Securities will be issued under one or more indentures
(the "Indentures"). Senior Securities and Subordinated Securities will be
issued pursuant to separate indentures (respectively, a "Senior Indenture" and
a "Subordinated Indenture"), in each case between the Issuer and a trustee (a
"Trustee"). The Indentures will be subject to and governed by the Trust
Indenture Act of 1939, as amended (the "TIA"). The statements made under this
heading relating to the Debt Securities and the Indentures are summaries of the
anticipated provisions thereof, do not purport to be complete and are qualified
in their entirety by reference to the Indentures and such Debt Securities. All
section references appearing herein are to sections of each Indenture unless
otherwise indicated and capitalized terms used but not defined below shall have
the respective meanings set forth in each Indenture.
The indebtedness represented by Subordinated Securities will be
subordinated in right of payment to the prior payment in full of the Senior
Debt (as defined below) of the Issuer as described under "-- Subordination."
Except as set forth in the applicable Indenture or in one or more
indentures supplemental thereto and described in a Prospectus Supplement
relating thereto, 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 Directors of the Company, either in its own capacity or in its
capacity as sole general partner of the Operating Partnership, or as
established in the applicable Indenture or in one or more indentures
supplemental to such Indenture. All Debt Securities of one series need not be
issued at the same time and, unless otherwise provided, a series may be
reopened, without the consent of the Holders of the Debt Securities of such
series, for issuances of additional Debt Securities of such series.
It is anticipated that 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. In the event that two or more
persons are acting as Trustee with respect to different series of Debt
Securities, each such Trustee shall be a trustee of a trust under the
applicable Indenture separate and apart from the trust administered by any
other Trustee, 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 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 and whether such Debt
Securities are Senior Securities or Subordinated Securities;
(2) The aggregate principal amount of such Debt Securities and
any limit on such aggregate principal amount;
(3) The percentage of the principal amount at which such Debt
Securities will be issued and, if other than the principal amount
thereof, the portion of the principal amount thereof payable upon
declaration of acceleration of the maturity thereof;
(4) The date or dates, or the method for determining such date or
dates, on which the principal of such Debt Securities will be
payable;
(5) The rate or rates (which may be fixed or variable), or the
method by which such rate or rates shall be determined, at which
such Debt Securities will bear interest, if any;
(6) 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 shall be
determined, the persons to whom such interest shall be payable, and
the basis upon which interest shall be calculated if other than that
of a 360-day year of twelve 30-day months;
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(7) The place or places where the principal (and premium, if any)
and interest, if any, on such Debt Securities will be payable, where
such Debt Securities may be surrendered for conversion or
registration of transfer or exchange and where notices or demands to
or upon the Issuer in respect of such Debt Securities and the
applicable Indenture may be served;
(8) 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 Issuer, if the Issuer is to have such an option;
(9) The obligation, if any, of the Issuer 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;
(10) If other than U.S. dollars, the currency or currencies in
which such Debt Securities are denominated and/or 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;
(11) Whether the amount of payments of principal of (and premium,
if any) or interest, if any, on such Debt Securities may be
determined with reference to an index, formula or other method
(which index, formula or method may, but need not be, based on a
currency, currencies, currency unit or units or composite currency
or currencies) and the manner in which such amounts shall be
determined;
(12) 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;
(13) Whether such Debt Securities will be issued in certificate or
book-entry form;
(14) 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;
(15) The applicability, if any, of the defeasance and covenant
defeasance provisions of Article Fourteen of the applicable
Indenture;
(16) Whether and under what circumstances the Issuer will pay any
additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Issuer
will have the option to redeem such Debt Securities in lieu of
mailing such payment; and
(17) Any other terms of such Debt Securities not inconsistent with
the provisions of the applicable Indenture (Section 301).
In addition, the Prospectus Supplement relating to any series of Debt
Securities that provides for redemption, prepayment, or conversion upon the
occurrence of certain events (i.e. a change of control) at the option of the
Holder thereof will disclose the following to the extent applicable:
(1) the effect that such provisions may have in deterring certain
mergers, tender offers or other takeover attempts, as well as any
possible adverse effect on the market price of the Issuer's
securities or the ability to obtain additional financing in the
future;
(2) the Issuer's compliance with the requirements of Rule 14e-1
under the Securities Exchange Act of 1934 and any other applicable
securities laws in connection with such provisions and any related
offers by the Issuer;
(3) whether the occurrence of the specified events may give rise
to cross-defaults on other indebtedness such that payment on the
Debt Securities may be effectively subordinated;
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(4) any limitations on the Issuer's financial or legal ability to
repurchase the Debt Securities upon the triggering of an event risk
provision requiring such a repurchase or offer to repurchase;
(5) the impact, if any, under the governing instrument of the
failure to repurchase, including whether such failure to make any
required repurchases in the event of a change of control will create
an Event of Default with respect to the Debt Securities or will
become an Event of Default only after the continuation of such
failure for a specified period of time after written notice is given
to the Issuer by the Trustee or to the Issuer and the Trustee by the
holders of a specified percentage in aggregate principal amount of
the Debt Securities outstanding;
(6) to the extent true, that there can be no assurance that
sufficient funds will be available at the time of the triggering of
an event risk provision to make any required repurchases;
(7) if the Debt Securities are to be subordinated to other
obligations of the Issuer or its subsidiaries that would be
accelerated upon the triggering of a change in control, fundamental
change or poison put feature, the material effect thereof of a
triggering of the change in control, fundamental change or poison
put feature with respect to the Debt Securities;
(8) if there is any anti-takeover device relating to the Issuer's
equity securities, any material effects thereof on the Issuer's debt
securities, including the Debt Securities;
(9) to the extent that there is a definition of "Change in
Control" that includes the concept of "all or substantially all,"
how such term will be quantified or, in the alternative, the
established meaning of the phrase under the applicable governing law
of the Indenture will be provided. If an established meaning for
the phrase is not available, then disclosure as to the effects of
such an uncertainty on the ability of a holder of the Debt
Securities to determine when a "Change of Control" has occurred will
be provided; and
(10) if applicable, the ramifications and limitations of the
"Change of Control" definition will be described in a manner that
clearly states whether the "Change of Control" provisions will be
triggered if a change in control of the Board of Directors occurs as
a result of a proxy contest involving the solicitation of revocable
proxies.
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"). Material federal income tax,
accounting and other considerations applicable to Original Issue Discount
Securities will be described in the applicable Prospectus Supplement.
Except as set forth in the applicable Indenture or in one or more
indentures supplemental thereto, the applicable Indenture will not contain any
provisions that would limit the ability of the Issuer to incur indebtedness or
that would afford Holders of Debt Securities protection in the event of a
highly leveraged or similar transaction involving the Issuer. However,
restrictions on ownership and transfers of the Company's Common Stock and
Preferred Stock, designed to preserve the Company's status as a REIT, may act
to prevent or hinder a change of control. See "Description of Preferred Stock
- -- Restrictions on Ownership" and "Description of Common Stock -- Restrictions
on Ownership." 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 Issuer 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, if any) and interest on any series of
Debt Securities will be payable at the corporate
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trust office of the Trustee, the address of which will be stated in the
applicable Prospectus Supplement; provided that, at the option of the Issuer,
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
Trustee, notice whereof shall 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
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
referred to above. In addition, subject to certain limitations imposed upon
Debt Securities issued in book-entry form, the Debt Securities of any series
may be surrendered for conversion or registration of transfer or exchange
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 be made for any registration of transfer or exchange of any
Debt Securities, but the Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith. If
the applicable Prospectus Supplement refers to any transfer agent (in addition
to the applicable Trustee) initially designated by the Issuer with respect to
any series of Debt Securities, the Issuer 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 Issuer will be
required to maintain a transfer agent in each place of payment for such series.
The Issuer may at any time designate additional transfer agents with respect to
any series of Debt Securities (Section 1002).
Neither the Issuer nor any Trustee shall be required to (i) issue,
register the transfer of or exchange Debt Securities of any series during a
period beginning at the opening of business 15 days before any selection of
Debt Securities of that series to be redeemed and ending at the close of
business on the day of mailing of the relevant notice of redemption; (ii)
register the transfer of or exchange any Debt Security, or portion thereof,
called for redemption, except the unredeemed portion of any Debt Security being
redeemed in part; or (iii) issue, register the transfer of or exchange any Debt
Security that has been surrendered for repayment at the option of the Holder,
except the portion, if any, of such Debt Security not to be so repaid (Section
305).
MERGER, CONSOLIDATION OR SALE
The Issuer 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 Issuer shall be the continuing entity, or
the successor entity (if other than the Issuer) formed by or resulting from any
such consolidation or merger or which shall have received the transfer of such
assets shall expressly assume payment of the principal of (and premium, if any)
and interest 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 Issuer or any Subsidiary as a
result thereof as having been incurred by the Issuer or such Subsidiary at the
time of such transaction, no Event of Default under the Indentures, and no event
which, after notice or the lapse of time, or both, would become such an Event of
Default, shall have occurred and be continuing; and (c) an officer's certificate
of the Company, either in its own capacity or in its capacity as sole general
partner of the Operating Partnership, and legal opinion covering such conditions
shall be delivered to each Trustee (Sections 801 and 803).
CERTAIN COVENANTS
Existence. Except as described above under "Merger, Consolidation or
Sale", the Issuer will be required to do or cause to be done all things
necessary to preserve and keep in full force and effect its
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existence, rights (declaration and statutory) and franchises; provided, however,
that the Issuer shall not be required to preserve any right or franchise if it
determines that the preservation thereof is no longer desirable in the conduct
of its business 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 Issuer 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 Issuer may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that the issuer and
its Subsidiaries are not prevented from selling or disposing of for value its
or their properties in the ordinary course of business (Section 1007).
Insurance. The Issuer 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
insurers of recognized responsibility 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 Issuer will be required to pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon the income, profits or property of
the Issuer 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 Issuer or any Subsidiary; provided, however, that the Issuer shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings (Section 1009).
ADDITIONAL COVENANTS AND/OR MODIFICATIONS TO THE COVENANTS DESCRIBED ABOVE
Any additional covenants of the Issuer 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, 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 Issuer 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), continued 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 Issuer 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; (vi) certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee of the
Issuer 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).
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 Issuer
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(and to the applicable Trustee if given by the Holders); provided, however,
that in the case of an Event of Default described under clause (vi) of the
preceding paragraph, acceleration is automatic. 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
Issuer shall have deposited with the applicable Trustee all required payments of
the principal of (and premium, if any) and interest on the Debt Securities of
such series (or of all Debt Securities then Outstanding under the applicable
Indenture, as the case may be), plus certain fees, expenses, disbursements and
advances of the applicable Trustee and (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 shall have been cured or waived; provided, however, that such
Trustee may withhold notice to the Holders of any series of Debt Securities of
any default with respect to such series (except a default in the payment of the
principal of (or premium, if any) or interest on any Debt Security of such
series or in the payment of any sinking fund installment in respect of any Debt
Security of such series) if specified responsible officers of 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 case of failure of
the applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an Event of Default from the
Holders of not less than 25% in principal amount of the Outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it (Section 507). This provision will not prevent, however,
any Holder of Debt Securities from instituting suit for the enforcement of
payment of the principal of (and premium, if any) and interest on such Debt
Securities at the respective due dates thereof (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 shall 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) shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the applicable Trustee, or of exercising any trust or
power conferred upon such Trustee. However, a Trustee may refuse to follow any
direction which is in conflict with any law or the applicable Indenture, which
may subject such Trustee to 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 Issuer will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers of the Company, either in its own capacity or in its
capacity as sole general partner of the Operating Partnership, 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 1013).
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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, if any) on, any such Debt
Security; (b) reduce the principal amount of, or the rate or amount of interest
on, or any premium payable on redemption of, any such Debt Security, or reduce
the amount of principal of an Original Issue Discount Security that would be
due and payable upon declaration of acceleration of the maturity thereof or
would be provable in bankruptcy, or adversely affect any right of repayment of
the Holder of any such Debt Security; (c) change the place of payment, or the
coin or currency, for payment of principal 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; or (f) modify any of the foregoing provisions or any of the
provisions relating to the waiver of certain past defaults or certain
covenants, except to increase the required percentage to effect such action or
to provide that certain other provisions may not be modified or waived without
the consent of the Holder of such Debt Security (Section 902).
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 Issuer with certain covenants in such Indenture (Section
1013).
Modifications and amendments of an Indenture will be permitted to be made
by the Issuer 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 Issuer as obligor under such Indenture;
(ii) to add to the covenants of the Issuer for the benefit of the Holders of
all or any series of Debt Securities or to surrender any right or power
conferred upon the Issuer in the 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 shall not adversely affect the interests of the Holders of the
Debt Securities of any series in any material respect; (v) to change or
eliminate any provisions of an Indenture, provided that any such change or
elimination shall become effective only when there are no Debt Securities
Outstanding of any series created prior thereto which are entitled to the
benefit of such provision; (vi) to secure the Debt Securities; (vii) to
establish the form or terms of Debt Securities of any series, including the
provisions and procedures, if applicable, for the conversion of such Debt
Securities into Common Stock or Preferred Stock; (viii) to provide for the
acceptance of appointment by a successor Trustee or 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 shall not adversely effect the interests of Holders of Debt
Securities of any series issued under such Indenture in any material respect;
or (x) 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 shall not adversely effect 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
shall be deemed to be Outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of any Debt Security denominated in a foreign currency that shall be deemed
Outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of 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 shall be deemed Outstanding shall
be the principal face amount of such indexed security pursuant to the
applicable
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Indenture, and (iv) Debt Securities owned by the Issuer or any other obligor
upon the Debt Securities or any affiliate of the Issuer or of such other obligor
shall be disregarded.
Each Indenture will contain provisions for convening meetings of the
Holders of Debt Securities of a series (Section 1501). A meeting will be
permitted to be called at any time by the applicable Trustee, and also, upon
request, by the Issuer or the Holders of at least 10% in principal amount of
the Outstanding Debt Securities of such series, in any such case upon notice
given as provided in the Indenture. Except for any consent that must be given
by the Holder of each Debt Security affected by certain modifications and
amendments of 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 the 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 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.
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 shall be no minimum
quorum requirement for such meeting, and (ii) the principal amount of the
Outstanding Debt Securities of such series that vote in favor of such request,
demand, authorization, direction, notice, consent, waiver or other action shall
be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been
made, given or taken under such Indenture.
SUBORDINATION
Upon any distribution to creditors of the Issuer in a liquidation,
dissolution or reorganization, the payment of the principal of and interest on
any Subordinated Securities will be subordinated to the extent provided in the
applicable Indenture in right of payment to the prior payment in full of all
Senior Debt (Sections 1601 and 1602 of the Subordinated Indenture), but the
obligation of the Issuer to make payment of the principal and interest on such
Subordinated Securities will not otherwise be affected (Section 1608 of the
Subordinated Indenture). No payment of principal or interest will be permitted
to be made on Subordinated Securities at any time if a default on Senior Debt
exists that permits the Holders of such Senior Debt to accelerate its maturity
and the default is the subject of judicial proceedings or the Issuer receives
notice of the default (Section 1602 of the Subordinated Indenture). After all
Senior Debt is paid in full and until the Subordinated Securities are paid in
full, Holders will be subrogated to the right of Holders of Senior Debt to the
extent that distributions otherwise payable to Holders have been applied to the
payment of Senior Debt (Section 1607 of the Subordinated Indenture). By reason
of such subordination, in the event of a distribution of assets upon insolvency,
certain general creditors of the Issuer may recover more, ratably, than Holders
of Subordinated Securities.
Senior Debt will be defined in the Subordinated Indenture as the principal
of and interest on, or substantially similar payments to be made by the Issuer
in respect of, the following; whether outstanding at the date of execution of
the applicable Indenture or thereafter incurred, created or assumed: (i)
indebtedness of the Issuer for money borrowed or represented by purchase money
obligations, (ii) indebtedness of the Issuer evidenced by notes, debentures, or
bonds or other securities issued under the provisions of an indenture, fiscal
agency agreement or other agreement, (iii) obligations of the Issuer as lessee
under leases of property either made as part of any sale and leaseback
transaction to which the Issuer is a party or
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otherwise, (iv) indebtedness, obligations and liabilities of others in respect
of which the Issuer is liable contingently or otherwise to pay or advance money
or property or as guarantor, endorser or otherwise or which the Issuer has
agreed to purchase or otherwise acquire, and (v) any binding commitment of the
Issuer to fund any real estate investment or to fund any investment in any
entity making such real estate investment, in each case other than (1) any such
indebtedness, obligation or liability referred to in clauses (i) through (v)
above as to which, in the instrument creating or evidencing the same pursuant to
which the same is outstanding, it is provided that such indebtedness, obligation
or liability is not superior in right of payment to the Subordinated Securities
or ranks pari passu with the Subordinated Securities, (2) any such indebtedness,
obligation or liability which is subordinated to indebtedness of the Issuer to
substantially the same extent as or to a greater extent than the Subordinated
Securities are subordinated, and (3) the Subordinated Securities.
If this Prospectus is being delivered in connection with a series of
Subordinated Securities, the accompanying Prospectus Supplement or the
information incorporated herein by reference will contain the approximate
amount of Senior Debt outstanding as of the end of the Issuer's most recent
fiscal quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Issuer 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 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.
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 Issuer 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 and any omission to comply with such obligations shall 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
Issuer 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 Issuer 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).
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"Government Obligations" means securities which are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations
of a person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government which issued
the foreign currency in which the Debt Securities of such series are payable,
the 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 shall also include a depository receipt issued by a bank or trust
company as custodian with respect to any such Government Obligation or a
specific payment of interest on or principal of any such Government Obligation
held by such custodian for the account of the Holder of a depository receipt,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the Holder of such depository
receipt from any amount received by the custodian in respect of the Government
Obligation or the specific payment of interest on or principal of the
Government Obligation evidenced by such depository receipt (Section 101 of each
Indenture).
Unless otherwise provided in the applicable Prospectus Supplement, if
after the Issuer has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any
series, (a) the Holder of a Debt Security of such series is entitled to, and
does, elect pursuant to the applicable Indenture or the terms of such Debt
Security to receive payment in a currency, currency unit or composite currency
other than that in which such deposit has been made in respect of such Debt
Security, or (b) a Conversion Event (as defined below) occurs in respect of the
currency, currency unit or composite currency in which such deposit has been
made, the indebtedness represented by such Debt Security will be deemed to have
been, and will be, fully discharged and satisfied through the payment of the
principal of (and premium, if any) and interest on such Debt Security as they
become due out of the proceeds yielded by converting the amount so deposited in
respect of such Debt Security into the currency, currency unit or composite
currency in which such Debt Security becomes payable as a result of such
election or 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 shall be made in U.S.
dollars.
In the event the Issuer 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 Default. However, the Issuer 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.
REDEMPTION OF SECURITIES
The Indenture provides that the Debt Securities may be redeemed at any
time at the option of the Issuer, in whole or in part, at the Redemption Price,
except as may otherwise be provided in connection with any Debt Securities or
series thereof.
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From and after notice has been given as provided in the Indenture, if
funds for the redemption of any Debt Securities called for redemption shall
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, and the only right of the Holders of the Debt Securities will be to
receive payment of the Redemption Price.
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.
If the Issuer elects to redeem Debt Securities, it will notify the Trustee
at least 45 days prior to the redemption date (or such shorter period as
satisfactory to the Trustee) of the aggregate principal amount of Debt
Securities to be redeemed and the redemption date. If less than all the Debt
Securities are to be redeemed, the Trustee shall select the Debt Securities to
be redeemed pro rata, by lot or in such manner as it shall deem fair and
appropriate.
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. Global Securities may be issued
in either registered or bearer form and in either temporary or permanent form.
The specific terms of the depository arrangement with respect to a series of
Debt Securities, including the terms under which the depository may take any
action permitted to be taken by an owner or holder of the Debt Securities, will
be described in the applicable Prospectus Supplement relating to such series.
DESCRIPTION OF COMMON STOCK
The Company has the authority to issue 100,000,000 shares of capital
stock, of which 90,000,000 are Common Stock, par value $0.01 per share, and
10,000,000 are Preferred Stock, par value $0.01 per share. As of September 1,
1996, the Company had outstanding 15,127,092 shares of Common Stock and no
shares of Preferred Stock.
The following description of the Common Stock sets forth certain general
terms and provisions of the Common Stock to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Stock will be
issuable upon conversion of Preferred Stock of the Company or upon the exercise
of the Securities Warrants issued by the Company. The statements below
describing the Common Stock are in all respects subject to and qualified in
their entirety by reference to the applicable provisions of the Company's
Amended Articles of Incorporation (the "Articles") and Bylaws.
GENERAL
Holders of the Company's Common Stock will be entitled to receive
dividends when, as and if declared by the Board of Directors of the Company, out
of funds legally available therefor. Payment and declaration of dividends on
the Common Stock and purchases of shares thereof by the Company will be subject
to certain restrictions if the Company fails to pay dividends on the Preferred
Stock. See "Description of Preferred Stock." Upon any liquidation, dissolution
or winding up of the Company, holders of Common Stock will be entitled to share
equally and ratably in any assets available for distribution to them, after
payment or provision for payment of the debts and other liabilities of the
Company and the preferential amounts owing with respect to any outstanding
Preferred Stock or senior debt securities. The Common Stock will possess
ordinary voting rights for the election of directors and in respect of other
corporate matters, each share entitling the holder thereof to one vote. Holders
of Common Stock will not have cumulative voting rights in the election of
directors. Upon receipt by the Company of lawful payment therefor, the Common
Stock will, when issued, be fully paid and nonassessable, and will not be
subject to redemption except (as described in the Articles) as necessary to
preserve the Company's status as a REIT. A stockholder of the Company has no
preemptive rights to subscribe for additional shares of Common Stock or other
securities of the Company except as may be granted by the Board of Directors.
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RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, the Common Stock 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) 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 capital stock may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities such as qualified private pension plans) during the last half
of a taxable year (other than the first year) or during a proportionate part of
a shorter taxable year.
Because the Board of Directors believes it is essential for the Company to
continue to qualify as a REIT, the charter, subject to certain exceptions,
provides that no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.8% (the "Ownership Limit") of
the value of the issued and outstanding shares of the Company's stock. The
Board of Directors may exempt a person from the Ownership Limit if evidence
satisfactory to the Board of Directors and the Company's tax counsel is
presented that the proposed transfer of stock to the intended transferee will
not then or in the future jeopardize the Company's status as a REIT. As a
condition of such exemption, the intended transferee must give written notice
to the Company of the proposed transfer and must furnish such opinions of
counsel, affidavits, undertakings, agreements, and information as may be
required by the Board of Directors no later than the fifteenth day prior to any
transfer which, if consummated, would result in the intended transferee owning
shares in excess of the Ownership Limit. The foregoing restrictions on
transferability and ownership will not apply if the Board of Directors
determines that it is no longer in the best interests of the Company to attempt
to qualify or to continue to qualify as a REIT. Any transfer of shares of
Common Stock that would: (i) create a direct or indirect ownership of shares of
stock in excess of the Ownership Limit; (ii) result in the shares of stock
being owned by fewer than 100 persons; or (iii) result in the Company being
"closely held" within the meaning of Section 856(h) of the Code, shall be null
and void, and the intended transferee will acquire no rights to the shares.
The Company's charter excludes the Principals and any brother, sister,
spouse, ancestor, or lineal descendant of a Principal from the Ownership Limit.
These persons may acquire additional shares of stock through the redemption of
OP Units, through the Stock Option Plan, from other stockholders or otherwise,
but in no event will they be entitled to acquire additional shares such that
the five largest beneficial owners of the Company's stock hold more than 50% of
the total outstanding stock.
Shares purported to be transferred in excess of the Ownership Limit that
are not otherwise permitted as provided above will constitute excess shares
("Excess Shares"), which will be transferred by operation of law to the Company
as trustee for the exclusive benefit of the person or persons to whom the Excess
Shares are ultimately transferred, until such time as the intended transferee
retransfers the Excess Shares. While these Excess Shares are held in trust,
they will not be entitled to vote or to share in any dividends or other
distributions. Subject to the Ownership Limit, the Excess Shares may be
retransferred by the intended transferee to any person who may hold such Excess
Shares at a price not to exceed the price paid by the intended transferee, at
which point the Excess Shares will automatically be exchanged for the stock to
which the Excess Shares are attributable. In addition, such Excess Shares held
in trust are subject to purchase by the Company. The purchase price of any
Excess Shares shall be equal to the lesser of the price paid for the stock by
the intended transferee and the fair market value of such shares of stock
reflected in the closing sales price for the shares of stock, if then listed on
a national securities exchange, or such price for the shares of stock on the
principal exchange if then listed on more than one national securities exchange,
or, if the shares of stock are not then listed on a national securities
exchange, the latest bid quotation for the shares of stock if then traded
over-the-counter, or, if such quotation is not available, the fair market value
as determined by the Board of Directors in good faith, on the last trading day
immediately preceding the day on which notice of such proposed purchase is sent
by the Company. From and after the intended transfer to the intended transferee
of the Excess Shares, the intended transferee shall cease to be entitled to
distributions, voting rights, and other benefits with respect to such shares of
the stock except the right to payment of the purchase price for the shares of
stock or the transfer of shares as provided above. Any dividend or distribution
paid to a proposed transferee on Excess Shares prior to the discovery by the
Company that such shares of stock have been transferred in violation of the
provisions of the Company's charter shall be repaid to the Company upon demand.
If the foregoing transfer restrictions are determined to be void or invalid by
virtue of any legal decision, statute, rule, or regulation, then the intended
transferee of any Excess Shares may be deemed, at the option of the Company, to
have acted as an agent on behalf of the Company in acquiring such Excess Shares
and to hold such Excess Shares on behalf of the Company.
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All certificates representing shares of stock will bear a legend referring
to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions
of the Code, more than 5% of the value of the outstanding shares of stock of
the Company must give a written notice to the Company containing the
information specified in the Company's charter by January 31 of each year. In
addition, each stockholder shall upon demand be required to disclose to the
Company in writing such information with respect to the direct, indirect and
constructive ownership of shares of Common Stock as the Board of Directors
deems necessary to comply with the provisions of the Code applicable to a REIT,
to comply with the requirements of any taxing authority or governmental agency
or to determine any such compliance.
These ownership limitations could have the effect of discouraging a
takeover or other transaction in which holders of some, or a majority of,
shares of Common Stock 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 interest.
The registrar and transfer agent for the Common Stock is State Street Bank
and Trust Company.
DESCRIPTION OF PREFERRED STOCK
The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which any
Prospectus Supplement may relate. Certain other terms of any series of the
Preferred Stock offered by any Prospectus Supplement will be described in such
Prospectus Supplement. The description of certain provisions of the Preferred
Stock set forth below and in any Prospectus Supplement does not purport to be
complete and is subject to and qualified in its entirety by reference to the
Company's Articles (including the Articles Supplementary relating to each
series of the Preferred Stock) 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 the Preferred Stock.
GENERAL
The Company is authorized to issue 10,000,000 shares of preferred stock,
par value $0.01 per share, of which no shares of Preferred Stock were
outstanding as of September 1, 1996.
Under the Company's Articles, the Board of Directors (without further
stockholder action) may from time to time establish and issue one or more
series of Preferred Stock with such designations, powers, preferences or rights
of the shares of such series and the qualifications, limitations or
restrictions thereon.
The Preferred Stock shall have the dividend, liquidation, redemption and
voting rights set forth below unless otherwise provided in a Prospectus
Supplement relating to a particular series of the Preferred Stock. Reference is
made to the Prospectus Supplement relating to the particular series of the
Preferred Stock offered thereby for specific terms, including: (i) the
designation and stated value per share of such Preferred Stock and the number of
shares offered; (ii) the amount of liquidation preference per share; (iii) the
initial public offering price at which such Preferred Stock will be issued; (iv)
the dividend rate (or method of calculation), the dates on which dividends shall
be payable and the dates from which dividends shall commence to accumulate, if
any; (v) any redemption or sinking fund provisions; (vi) any conversion rights;
and (vii) any additional voting, dividend, liquidation, redemption, sinking fund
and other rights, preferences, privileges, limitations and restrictions. The
Preferred Stock will, when issued for lawful consideration, be fully paid and
nonassessable and will have no preemptive rights.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Stock will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Stock and to all equity securities ranking junior to such
Preferred Stock; (ii) on a parity with all equity securities issued by
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the Company the terms of which specifically provide that such equity
securities rank on a parity with the Preferred Stock; and (iii) junior to all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank senior to the Preferred Stock. As used in the
Articles for these purposes, the term "equity securities" does not include
convertible debt securities. The rights of the holders of each series of the
Preferred Stock will be subordinate to those of the Company's general creditors.
DIVIDENDS
Holders of shares of Preferred Stock of each series shall be entitled to
receive, when, as and if declared by the Board of Directors of the Company, out
of assets of the Company legally available for payment, cash dividends at such
rates and on such dates as will be set forth in the applicable Prospectus
Supplement. Such rate may be fixed or variable or both. Each such dividend
shall be payable to holders of record as they appear on the stock transfer
books of the Company on such record dates as shall be fixed by the Board of
Directors of the Company, as specified in the Prospectus Supplement relating to
such series of Preferred Stock.
Dividends on any series of Preferred Stock 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 Directors of the
Company fails to declare a dividend payable on a dividend payment date on any
series of Preferred Stock for which dividends are noncumulative, then the
holders of such series of Preferred Stock 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. Dividends on shares of each series of
Preferred Stock for which dividends are cumulative will accrue from the date on
which the Company initially issues shares of such series.
So long as the shares of any series of Preferred Stock shall be
outstanding, the Company may not declare or pay any dividends, make a
distribution, or purchase, acquire, redeem, pay monies to the holders of in
respect of, or set aside or make funds available for a sinking or other
analogous fund for the purchase or redemption of, any shares of Common Stock of
the Company or any other stock of the Company ranking as to dividends or
distributions of assets junior to such series of Preferred Stock (the Common
Stock and any such other stock being herein referred to as "Junior Stock"),
whether in cash or property or in obligations or stock of the Company, other
than Junior Stock which is neither convertible into, nor exchangeable or
exercisable for, any securities of the Company other than Junior Stock, unless
(i) full dividends (including if such Preferred Stock is cumulative, dividends
for prior dividend periods) shall have been paid or declared and set apart for
payment on all outstanding shares of the Preferred Stock of such series and all
other classes and series of Preferred Stock of the Company (other than Junior
Stock, as defined below); and (ii) all sinking or other analogous fund payments
and amounts for the repurchase or other mandatory retirement of any shares of
Preferred Stock of such series or any shares of any other Preferred Stock of
the Company of any class or series (other than Junior Stock) have been paid or
duly provided for.
Any dividend payment made on shares of a series of Preferred Stock shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such series which remains payable.
REDEMPTION
A series of Preferred Stock may be redeemable, in whole or from time to
time in part, at the option of the Company, and may be subject to mandatory
redemption pursuant to a sinking fund or otherwise, in each case upon terms, at
the times and at the redemption prices set forth in the Prospectus Supplement
relating to such series. Shares of the Preferred Stock redeemed by the Company
will be restored to the status of authorized but unissued shares of Preferred
Stock.
The Prospectus Supplement relating to a series of Preferred Stock that is
subject to mandatory redemption will specify the number of shares of such
Preferred Stock that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon
(which shall not, if such Preferred Stock does 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
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Preferred Stock of any series is payable only from the net proceeds of the
issuance of capital stock of the Company, the terms of such Preferred Stock may
provide that, if no such capital stock shall have been issued or to the extent
the net proceeds from any issuance are insufficient to pay in full the aggregate
redemption price then due, such Preferred Stock shall automatically and
mandatorily be converted into shares of the applicable capital stock of the
Company pursuant to conversion provisions specified in the applicable Prospectus
Supplement.
So long as any dividends on shares of any series of the Preferred Stock or
any other series of preferred stock of the Company ranking on a parity as to
dividends and distribution of assets with such series of the Preferred Stock
are in arrears, no shares of any such series of the Preferred Stock or such
other series of Preferred Stock of the Company will be redeemed (whether by
mandatory or optional redemption) unless all such shares are simultaneously
redeemed, and the Company will not purchase or otherwise acquire any such
shares; provided, however, that the foregoing will not prevent the purchase or
acquisition of such shares pursuant to a purchase or exchange offer made on the
same terms to holders of all such shares outstanding.
In the event that fewer than all of the outstanding shares of a series of
the Preferred Stock are to be redeemed, whether by mandatory or optional
redemption, the number of shares to be redeemed will be determined by lot or
pro rata (subject to rounding to avoid fractional shares) as may be determined
by the Company or by any other method as may be determined by the Company in
its sole discretion to be equitable. From and after the redemption date
(unless default shall be made by the Company in providing for the payment of
the redemption price plus accumulated and unpaid dividends, if any), dividends
shall cease to accumulate on the shares of the Preferred Stock called for
redemption and all rights of the holders thereof (except the right to receive
the redemption price plus accumulated and unpaid dividends, if any) shall
cease.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Company, then, before any distribution or payment shall
be made to the holders of any Junior Stock, the holders of each series of
Preferred Stock shall be entitled to receive out of assets of the Company
legally available for distribution to stockholders, liquidating distributions
in the amount of the liquidation preference per share (set forth in the
applicable Prospectus Supplement), plus an amount equal to all dividends
accrued and unpaid thereon (which shall not include any accumulation in respect
of unpaid dividends for prior dividend periods if such Preferred Stock does not
have a cumulative dividend). After payment of the full amount of the
liquidating distributions to which they are entitled, the holders of Preferred
Stock will have no right or claim to any of the remaining assets of the
Company. In the event that upon any such voluntary or involuntary liquidation,
dissolution or winding up, the available assets of the Company are insufficient
to pay the amount of the liquidating distributions on all outstanding shares of
Preferred Stock and the corresponding amounts payable on all shares of other
classes or series of capital stock of the Company ranking on a parity with the
Preferred Stock in the distribution of assets, then the holders of the
Preferred Stock and all other such classes or series of capital stock shall
share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
If liquidating distributions shall have been made in full to all holders
of shares of Preferred Stock, the remaining assets of the Company shall be
distributed among the holders of Junior Stock, according to their respective
rights and preferences and in each case according to their respective number of
shares. For such purposes, the consolidation or merger of the Company with or
into any other corporation, or the sale, lease or conveyance of all or
substantially all of the property or business of the Company, shall not be
deemed to constitute a liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Except as indicated below or in a Prospectus Supplement relating to a
particular series of the Preferred Stock, or except as required by applicable
law, holders of the Preferred Stock will not be entitled to vote for any
purpose.
So long as any shares of the Preferred Stock of a series remain
outstanding, the consent or the affirmative vote of the holders of at least
66-2/3% of the votes entitled to be cast with respect to the then
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outstanding shares of such series of the Preferred Stock together with any
Other Preferred Stock (as defined below), voting as one class, either expressed
in writing or at a meeting called for that purpose, will be necessary (i) to
permit, effect or validate the authorization, or any increase in the authorized
amount, of any class or series of shares of the Company ranking prior to the
Preferred Stock of such series as to dividends, voting or upon distribution of
assets; and (ii) to repeal, amend or otherwise change any of the provisions
applicable to the Preferred Stock of such series in any manner which adversely
affects the powers, preferences, voting power or other rights or privileges of
such series of the Preferred Stock. In case any series of the Preferred Stock
would be so affected by any such action referred to in clause (ii) above in a
different manner than one or more series of the Other Preferred Stock which will
be similarly affected, the holders of such series of Preferred Stock will be
entitled to vote as a class, and the Company will not take such action without
the consent or affirmative vote, as above provided, of at least 66-2/3% of the
total number of votes entitled to be cast with respect to each such series of
the Preferred Stock and the Other Preferred Stock then outstanding, in lieu of
the consent or affirmative vote hereinabove otherwise required.
With respect to any matter as to which the Preferred Stock of any series
is entitled to vote, holders of the Preferred Stock of such series and any
other series of Preferred Stock of the Company ranking on a parity with such
series of the Preferred Stock as to dividends and distributions of assets and
which by its terms provides for similar voting rights (the "Other Preferred
Stock") will be entitled to cast the number of votes set forth in the
Prospectus Supplement with respect to that series of Preferred Stock. As a
result of the provisions described in the preceding paragraph requiring the
holders of shares of a series of the Preferred Stock to vote together as a
class with the holders of shares of one or more series of Other Preferred
Stock, it is possible that the holders of such shares of Other Preferred Stock
could approve action that would adversely affect such series of Preferred
Stock, including the creation of a class of capital stock ranking prior to such
series of Preferred Stock as to dividends, voting or distribution of assets.
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any series of
Preferred Stock are convertible into Common Stock will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of shares of Common Stock into which the Preferred Stock is convertible,
the conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Stock or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion.
RESTRICTIONS ON OWNERSHIP
See "Description of Common Stock -- Restrictions on Ownership" for a
discussion of the restrictions on capital stock (Common Stock and Preferred
Stock) ownership necessary for the Company to qualify as a REIT under the Code.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Preferred Stock will be set forth
in the applicable Prospectus Supplement.
DESCRIPTION OF SECURITIES WARRANTS
The Company may issue Securities Warrants for the purchase of Preferred
Stock or Common Stock. Securities Warrants may be issued independently or
together with any other Securities offered by any Prospectus Supplement and may
be attached to or separate from such Securities. Each series of Securities
Warrants will be issued under a separate warrant agreement (each, a "Warrant
Agreement") to be entered into between the Company and a warrant agent
specified in the applicable Prospectus Supplement (the "Warrant Agent"). The
Warrant Agent will act solely as an agent of the Company in connection with the
Securities Warrants of such series and will not 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
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Statement of which this Prospectus is a part at or prior to the time of the
issuance of such series of Securities Warrants.
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 Stock, the designation, aggregate number and terms of the series
of Preferred Stock purchasable upon exercise of such Securities Warrants; (iii)
the designation and terms of any series of Preferred Stock with which such
Securities Warrants are being offered and the number of such Securities
Warrants being offered with such Preferred Stock; (iv) the date, if any, on and
after which such Securities Warrants and the related series of Preferred Stock
or Common Stock will be transferable separately; (v) 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"); (vi) any special United States
federal income tax consequences; and (vii) any other material terms of such
Securities Warrants.
Securities Warrant certificates may be exchanged for new Securities
Warrant certificates of different denominations, may (if in registered form) be
presented for registration of transfer, and may be exercised at the corporate
trust office of the Securities Warrant agent or any other office indicated in
the applicable Prospectus Supplement. Prior to the exercise of any Securities
Warrants, holders of such Securities Warrants will not have any rights of
holders of such Preferred Stock or Common Stock, including the right to receive
payments of dividends, if any, on such Preferred Stock or Common Stock, or to
exercise any applicable right to vote.
EXERCISE OF SECURITIES WARRANTS
Each Securities Warrant will entitle the holder thereof to purchase such
number of shares of Preferred Stock or Common Stock, 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 Securities
Warrant Agent payment as provided in the applicable Prospectus Supplement of
the amount required to purchase the Preferred Stock or Common Stock, as the
case may be, purchasable upon such exercise together with certain information
set forth on the reverse side of the Securities Warrant certificate.
Securities Warrants will be deemed to have been exercised upon receipt of
payment of the exercise price, subject to the receipt within five (5) business
days, of the Securities Warrant certificate evidencing such Securities
Warrants. Upon receipt of such payment and the Securities Warrant certificate
properly completed and duly executed at the corporate trust office of the
Securities Warrant agent or any other office indicated in the applicable
Prospectus Supplement, the Company will, as soon as practicable, issue and
deliver the Preferred Stock or Common Stock, as the case may be, purchasable
upon such exercise. If fewer than all of the Securities Warrants represented
by such Securities Warrant certificate are exercised, a new Securities Warrant
certificate will be issued for the remaining amount of Securities Warrants.
AMENDMENTS AND SUPPLEMENTS TO WARRANT AGREEMENT
The Warrant Agreements may be amended or supplemented without the consent
of the holders of the Securities Warrants issued thereunder to effect changes
that are not inconsistent with the provisions of the Securities Warrants and
that do not adversely affect the interests of the holders of the Securities
Warrants.
COMMON STOCK WARRANT ADJUSTMENTS
Unless otherwise indicated in the applicable Prospectus Supplement, the
exercise price of, and the number of shares of Common Stock covered by, a
Common Stock Warrant are subject to adjustment in certain events, including (i)
payment of a dividend on the Common Stock payable in capital stock and stock
splits, combinations or reclassification of the Common Stock; (ii) issuance to
all holders of Common Stock of rights or warrants to subscribe for or purchase
shares of Common Stock at less than their current market price (as defined in
the Warrant Agreement for such series of Securities Warrants); and (iii)
certain distributions of evidences of indebtedness or assets (including
securities but excluding cash dividends or
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distributions paid out of consolidated earnings or retained earnings or
dividends payable other than in Common Stock) or of subscription rights and
warrants (excluding those referred to above).
No adjustment in the exercise price of, and the number of shares of Common
Stock covered by, a Common Stock 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 shares of Common
Stock covered by, a Common Stock Warrant will not be adjusted for the issuance
of Common Stock or any securities convertible into or exchangeable for Common
Stock, 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 shares of
Common Stock); (ii) sale, transfer, lease or conveyance of all or substantially
all of the assets of the Company; or (iii) reclassification, capital
reorganization or change of the Common Stock (other than solely a change in par
value or from par value to no par value), then any holder of a Common Stock
Warrant will be entitled, on or after the occurrence of any such event, to
receive on exercise of such Common Stock Warrant the kind and amount of shares
of stock or other securities, cash or other property (or any combination
thereof) that the holder would have received had such holder exercised such
holder's Common Stock Warrant immediately prior to the occurrence of such event.
If the consideration to be received upon exercise of the Common Stock 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
Stock 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 Stock.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain federal income tax considerations to the
Company is based on current law, is for general information only, and is not
tax advice. The tax treatment of a holder of any of the Securities will vary
depending upon the terms of the specific securities acquired by such holder, as
well as his particular situation, and this discussion does not attempt to
address any aspects of federal income taxation relating to holders of
Securities.
EACH INVESTOR IS ADVISED TO CONSULT HIS OWN TAX ADVISOR, REGARDING THE TAX
CONSEQUENCES TO HIM OF THE ACQUISITION, OWNERSHIP AND SALE OF THE SECURITIES,
INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH
ACQUISITION, OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX
LAWS.
TAXATION OF THE COMPANY AS A REIT
General. The Company has elected to be taxed as a real estate investment
trust under Sections 856 through 860 of the Code, commencing with its taxable
year ended December 31, 1994. The Company believes that, commencing with its
taxable year ended December 31, 1994 it was organized and has been operating in
such a manner as to qualify for taxation as a REIT under the Code and the
Company intends to continue to operate in such manner, but no assurance can be
given that it will operate in a manner so as to qualify or remain qualified.
These sections of the Code are highly technical and complex. The
following sets forth the material aspects of the sections that govern the
federal income tax treatment of a REIT. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretations thereof.
In the opinion of Jaffe, Raitt, Heuer & Weiss, Professional Corporation,
commencing with the Company's taxable year which ended December 31, 1994, the
Company has been organized in conformity with the requirements for
qualification as a REIT, and its method of operation enabled it to meet the
requirements for qualification and taxation as a REIT under the Code. It must
be emphasized that this opinion is based on various assumptions and is
conditioned upon certain representations made by the Company as to factual
matters. In addition, such qualification and taxation as a REIT depends upon
the
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Company's ability to meet, through actual annual operating results,
distribution levels, diversity of stock ownership, and the various qualification
tests imposed under the Code discussed below, the results of which have not been
and will not be reviewed by Jaffe, Raitt, Heuer & Weiss, Professional
Corporation. Accordingly, no assurance can be given that the actual results of
the Company's operation in any particular taxable year will satisfy such
requirements. See "Taxation of the Company C Failure to Qualify".
In brief, if certain detailed conditions imposed by the REIT provisions of
the Code are met, entities, such as the Company, that invest primarily in real
estate and that otherwise would be treated for Federal income tax purposes as
corporations, are generally not taxed at the corporate level on that portion of
their ordinary income or capital gain that is currently distributed to
stockholders. This treatment substantially eliminates the "double taxation" (at
both the corporate and stockholder levels) that generally results from the use
of corporate investment vehicles.
If the Company fails to qualify as a REIT in any year, however, it will be
subject to Federal income tax as if it were a domestic corporation, and its
stockholders will be taxed in the same manner as stockholders of ordinary
corporations. In this event, the Company could be subject to potentially
significant tax liabilities, and therefore the amount of cash available for
distribution to its stockholders would be reduced.
The Company has elected REIT status for the taxable year beginning January
1, 1994. The Board of Directors of the Company intends that the Company will
operate in a manner that permits it to continue qualification as a REIT in each
taxable year thereafter. There can be no assurance, however, that this
expectation will be fulfilled, since qualification as a REIT depends on the
Company continuing to satisfy numerous asset, income and distribution tests
described below, which in turn will be dependent in part on the Company's
operating results.
TAXATION OF THE COMPANY
General. In any year in which the Company qualifies as a REIT, in general
it will not be subject to Federal income tax on that portion of its ordinary
income or capital gain which is distributed to stockholders. The Company may,
however, be subject to tax at normal corporate rates upon any taxable income or
capital gain not distributed.
If the Company should fail either the 75% or the 95% gross income tests
(as discussed below), and nonetheless maintains its qualification as a REIT
because certain other requirements are met, it will be subject to a 100% tax on
the greater of the amount by which the Company fails either the 75% or the 95%
test, multiplied by a fraction intended to reflect the Company's profitability.
The Company will also be subject to a tax of 100% on net income from any
"prohibited transaction," as described below. In addition, if the Company
should fail to distribute during each calendar year at least the sum of: (i)
85% of its REIT ordinary income for such year; (ii) 95% of its REIT capital
gain net income for such year; and (iii) any undistributed taxable income from
prior years, the Company would be subject to a 4% excise tax on the excess of
such required distribution over the amounts actually distributed. The Company
may also be subject to the corporate "alternative minimum tax," as well as tax
in certain situations and on certain transactions not presently contemplated.
The Company will use the calendar year both for Federal income tax purposes and
for financial reporting purposes.
In order to qualify as a REIT, the Company must meet, among others, the
following requirements:
Share Ownership Test. The Company's Common Stock must be held by a minimum
of 100 persons for at least approximately 92% of the days in each taxable year.
In addition, at all times during the second half of each taxable year, no more
than 50% in value of the capital stock of the Company may be owned, directly,
or indirectly and by applying certain constructive ownership rules, by five or
fewer individuals. For this purpose, a pension and other exempt trusts will
generally not be treated as a single individual. Rather, based upon a look
through approach, the beneficial owners of the trust will be treated as owners
of the REIT in proportion to their actuarial interests in the trust.
In order to ensure compliance with these requirements, the Company has
placed certain restrictions on the transfer of the Common Stock to prevent
further concentration of stock ownership. Moreover, to evidence compliance with
these requirements, the Company must maintain records which disclose the actual
ownership of its outstanding Common Stock. In fulfilling its obligations to
maintain records, the
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Company must and will demand written statements each year from the record
holders of designated percentages of its Common Stock disclosing the actual
owners of such Common Stock. A list of those persons failing or refusing to
comply with such demand must be maintained as a part of the Company's records. A
stockholder failing or refusing to comply with the Company's written demand must
submit with his tax returns a similar statement disclosing the actual ownership
of Common Stock and certain other information. In addition, the Company's
charter provides restrictions regarding the transfer of its shares that are
intended to assist the Company in continuing to satisfy the share ownership
requirements. See "Description of Common Stock C Restrictions on Ownership."
Asset Tests. At the close of each quarter of the Company's taxable year,
the Company must satisfy two tests relating to the nature of its assets. First,
at least 75% of the value of the Company's total assets must be represented by
interests in real property, interests in mortgages on real property, shares in
other REITs, cash, cash items and government securities. Second, although the
remaining 25% of the Company's assets generally may be invested without
restriction, securities in this class may not exceed either: (i) 5% of the
value of the Company's total assets as to any one non-government issuer; or
(ii) 10% of the outstanding voting securities of any one issuer. Where the
Company invests in a partnership, it will be deemed to own a proportionate
share of the partnership's assets. See "Federal Income Tax Considerations C Tax
Aspects of the Company's Investment in the Operating Partnership C General."
The Company's investment in the Properties through its interest in the Issuer
will constitute a qualified asset for purposes of the 75% asset test.
Gross Income Tests. There are three separate percentage tests relating to
the sources of the Company's gross income which must be satisfied for each
taxable year. For purposes of these tests, where the Company invests in a
partnership, the Company will be treated as receiving its share of the
proportionate income and loss of the partnership, and the gross income of the
partnership will retain the same character in the hands of the Company as it
has in the hands of the partnership. See "Federal Income Tax Considerations C
Tax Aspects of the Company's Investment in the Operating Partnership C General"
below.
1. The 75% Test. At least 75% of the Company's gross income for the
taxable year must be "qualifying income." Qualifying income generally includes:
(i) rents from real property (except as modified below); (ii) interest on
obligations collateralized by mortgages on, or interests in, real property;
(iii) gains 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 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 a foreclosure of the mortgage
collateralized by such property ("foreclosure property"); and (vii) commitment
fees received for agreeing to make loans collateralized by mortgages on real
property or to purchase or lease real property.
Rents received from a tenant will not, however, qualify as rents from real
property in satisfying the 75% test (or the 95% gross income test described
below) if the Company, or an owner of 10% or more of the Company, directly or
constructively owns 10% or more of such tenant (a "Related Party Tenant"). In
addition, if rent attributable to personal property, leased in connection with
a lease of real property, is greater than 15% of the total rent received under
the lease, then the portion of rent attributable to such personal property will
not qualify as rents from real property. Moreover, an amount received or
accrued will not qualify as rents from real property (or as interest income)
for purposes of the 75% and 95% gross income tests if it is based in whole or
in part on the income or profits of any person. Finally, for rents received to
qualify as rents from real property, the Company generally must not operate or
manage the property or furnish or render services to tenants, other than
through an "independent contractor" from whom the Company derives no revenue.
The "independent contractor" requirement, however, does not apply to the extent
that the services provided by the Company are "usually or customarily rendered"
in connection with the rental of space for occupancy only, and are not
otherwise considered "rendered to the occupant."
The Company, through the Operating Partnership (which is not an
independent contractor), provides certain services with respect to the
Properties and any newly acquired manufactured housing community properties.
The Company believes that the services provided by the Operating Partnership
are usually or customarily rendered in connection with the rental of space for
occupancy only, and therefore that the provision of such services will not
cause the rents received with respect to the Properties to fail to qualify as
rents from real property for purposes of the 75% and 95% gross income tests.
The Company does not anticipate charging rent that is based in whole or in part
on the income or profits of any person. The
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Company does not anticipate deriving rent attributable to personal property
leased in connection with real property that exceeds 15% of the total rent.
Finally, the Company does not anticipate receiving rent from Related Party
Tenants.
2. The 95% Test. In addition to deriving 75% of its gross income from the
sources listed above, at least 95% of the Company's gross income for the
taxable year must be derived from the above-described qualifying income, or
from dividends, interest, or gains from the sale or disposition of stock or
other securities that are not dealer property. Dividends and interest on any
obligations not collateralized by an interest in real property are included for
purposes of the 95% test, but not for purposes of the 75% test.
For purposes of determining whether the Company complies with the 75% and
95% income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property,
excluding certain dealer property held by the Company for at least four years
and foreclosure property. See "Federal Income Tax Considerations C Taxation of
the Company C General" and "C Tax Aspects of the Company's Investment in the
Operating Partnership C Sale of the Properties."
The Company's investment in the Properties through the Operating
Partnership will in major part give rise to rental income qualifying under the
75% and 95% gross income tests. Gains on sales of the Properties, or of the
Company's interest in the Operating Partnership, will generally qualify under
the 75% and 95% gross income tests. The Company anticipates that income on its
other investments will not result in the Company failing the 75% or 95% gross
income test for any year.
Even if the Company fails to satisfy one or both of the 75% or 95% gross
income tests for any taxable year, it may still qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will generally be available if: (i) the Company's failure to comply
was due to reasonable cause and not to willful neglect; (ii) the Company
reports the nature and amount of each item of its income included in the tests
on a schedule attached to its tax return; and (iii) any incorrect information
on this schedule is not due to fraud with intent to evade tax. If these relief
provisions apply, the Company will, however, still be subject to a special tax
upon the greater of the amount by which it fails either the 75% or 95% gross
income test for that year. No similar mitigation provision provides relief if
the Company fails the 30% income test, and in such case, the Company will cease
to qualify as a REIT.
3. The 30% Test. The Company must derive less than 30% of its gross income
for each taxable year from the sale or other disposition of: (i) real property
held for less than four years (other than foreclosure property and involuntary
conversion); (ii) stock or securities held for less than one year; and (iii)
property in a prohibited transaction. The Company does not anticipate that it
will have any substantial difficulty in complying with this test.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends)
to its stockholders each year in an amount at least equal to: (i) the sum of:
(a) 95% of the Company's REIT taxable income (computed without regard to the
dividends paid deduction and the REIT's net capital gain); and (b) 95% of the
net income (after tax), if any, from foreclosure property; minus (ii) the sum
of certain items of non-cash income. Such distributions must be paid in the
taxable year to which they relate, or in the following taxable year if declared
before the Company timely files its tax return for such year and if paid on or
before the first regular dividend payment after such declaration. To the extent
that the Company does not distribute all of its net capital gain or distributes
at least 95%, but less than 100%, of its REIT taxable income, as adjusted, it
will be subject to tax on the undistributed amount at regular capital gains or
ordinary corporate tax rates, as the case may be. Moreover, if the Company
should fail to distribute during each calendar year at least the sum of: (i)
85% of its ordinary income for that year; (ii) 95% of its capital gain net
income for that year; and (iii) any undistributed taxable income from prior
periods, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. In addition,
during its Recognition Period (defined below), if the Company disposes of any
asset subject to the Built-In Gain Rules, the Company will be required,
pursuant to guidance issued by the Service, to distribute at least 95% of the
Built-In Gain (after tax), if any, recognized on the disposition of the asset.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements. In this regard, the partnership agreement of
the Operating Partnership authorizes the Company, as general partner, to take
such steps as may be necessary to cause the Operating Partnership to distribute
to its partners an amount sufficient to permit the Company to meet these
distribution
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requirements. It is possible that the Company may not have sufficient cash
or other liquid assets to meet the 95% distribution requirement, due to timing
differences between the actual report of income and actual payment of expenses
on the one hand, and the inclusion of such income and deduction of such expenses
in computing the Company's REIT taxable income on the other hand. To avoid any
problem 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 (or cause the Operating Partnership or other
affiliates to borrow funds) in order to satisfy the distribution requirement.
If the Company fails to meet the 95% distribution requirement 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.
Failure to Qualify. If the Company fails to qualify for taxation as a REIT
in any taxable year and the relief provisions do not apply, the Company will be
subject to tax (including any applicable alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to stockholders in any year in
which the Company fails to qualify will not be deductible by the Company, nor
will they be required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to stockholders will be
taxable as ordinary income, and, subject to certain limitations in the Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, the Company also
will be disqualified from taxation as a REIT for the four taxable years
following the year during which qualification was lost. It is not possible to
state whether in all circumstances the Company would be entitled to such
statutory relief.
TAX ASPECTS OF THE COMPANY'S INVESTMENT IN THE OPERATING PARTNERSHIP
General. The Company holds a direct interest in the Operating Partnership,
and an indirect interest in certain other Partnerships, including the Financing
Partnership (collectively, the "Partnerships"). In general, partnerships are
"pass-through" entities which are not subject to Federal income tax. Rather,
partners are allocated their proportionate shares of the items of income, gain,
loss, deduction, and credit of a partnership, and are potentially subject to
tax thereon, without regard to whether the partners receive a distribution from
the partnership. The Company will include its proportionate share of the
foregoing partnership items for purposes of the various REIT income tests and
in the computation of its REIT taxable income. See "Federal Income Tax
Considerations C Taxation of the Company C General" and "C Gross Income Tests."
Any resultant increase in the Company's REIT taxable income will increase its
distribution requirements (see "Federal Income Tax Considerations C Taxation of
the Company C Annual Distribution Requirements"), but will not be subject to
Federal income tax in the hands of the Company provided that such income is
distributed by the Company to its stockholders. Moreover, for purposes of the
REIT asset tests (see "Federal Income Tax Considerations C Taxation of the
Company C Asset Tests"), the Company includes its proportionate share of assets
held by the Partnerships.
Entity Classification. The Company's interests in the Partnerships involve
special tax considerations, including the possibility of a challenge by the
Service of the status of each Partnership as a partnership (as opposed to an
association taxable as a corporation) for Federal income tax purposes. If the
Operating Partnership or the Financing Partnership were to be treated as an
association, it would be taxable as a corporation and therefore subject to an
entity-level tax on its income. In such a situation, the character of the
Company's assets and items of gross income would change, which would preclude
the Company from satisfying the asset tests and possibly the income tests (see
"Federal Income Tax Considerations C Taxation of the Company C Asset Tests" and
"C Gross Income Tests"), and in turn would prevent the Company from qualifying
as a REIT. See "Taxation of the Company C Failure to Qualify" above for a
discussion of the effect of the Company's failure to meet such tests for a
taxable year. Based on certain representations of the Company, in the opinion
of Jaffe, Raitt, Heuer & Weiss, Professional Corporation, each Partnership will
be treated for Federal income tax purposes as a partnership (and not as an
association taxable as a corporation). Such opinion, however, is not binding on
the Service, and no assurance can be given that the Service will not challenge
the tax status of any Partnership.
Tax Allocations with Respect to the Properties. Pursuant to Section 704(c)
of the Code, income, gain, loss, and deduction attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the partnership (such as the Properties deemed contributed by the
Principals and the Former General Partners), must be allocated in a manner such
that the contributing partner is charged with, or benefits from, respectively,
the unrealized gain, or unrealized loss associated
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with the property at the time of the contribution. The amount of such
unrealized gain or unrealized loss is generally equal to the difference between
the fair market value of contributed property at the time of contribution, and
the adjusted tax basis of such property at the time of contribution (a "Book-Tax
Difference"). Such allocations are solely for Federal income tax purposes and do
not affect the book capital accounts or other economic or legal arrangements
among the partners. The Operating Partnership was formed with contributions of
appreciated property (including the Properties deemed contributed by the
Principals and the Former General Partners). Consequently, the partnership
agreement will require such allocations to be made in a manner consistent with
Section 704(c) of the Code.
In general, the Principals, the Former General Partners, and certain other
persons and entities that contributed Properties to the Partnerships will be
allocated less depreciation, and increased taxable gain on sale of certain
Properties. This will tend to eliminate the Book-Tax Difference. However, the
special allocation rules of Section 704(c) do not always rectify the Book-Tax
Difference on an annual basis or with respect to a specific taxable transaction
such as a sale. Under the applicable Treasury Regulations, such special
allocations of income and gain and depreciation deductions must be made on a
property-by-property basis. Depreciation deductions resulting from the carryover
basis of a contributed property are used to eliminate the Book-Tax Difference by
allocating such deductions to the non-contributing partners (i.e., the REIT) up
to the amount of their share of book depreciation. Any remaining tax
depreciation for the contributed property would be allocated to the partners who
contributed the property. Each Partnership has elected the traditional method of
rectifying the Book-Tax Difference under the applicable Treasury Regulations,
pursuant to which, if depreciation deductions are less than the non-contributing
partners' share of book depreciation, then the non-contributing partners lose
the benefit of these deductions ("ceiling rule"). When the property is sold, the
resulting tax gain is used to the extent possible to eliminate the Book-Tax
Difference (reduced by any previous book depreciation). Even under the
traditional method, it is possible that the carryover basis of the contributed
assets in the hands of a Partnership may cause the Company to be allocated lower
depreciation and other deductions. This may cause the Company to recognize
taxable income in excess of cash proceeds, which might adversely affect the
Company's ability to comply with the REIT distribution requirements. See
"Federal Income Tax Considerations C Taxation of the Company C Annual
Distribution Requirements."
With respect to any property purchased by the Operating Partnership
subsequent to the admission of the Company to the Operating Partnership, such
property will initially have a tax basis equal to its fair market value and
Section 704(c) of the Code will not apply.
Sale of the Properties. The Company's share of any gain realized by the
Operating Partnership on the sale of any dealer property generally will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "Federal Income Tax Considerations C Taxation of the Company C
General" and "C Gross Income Tests C The 95% Test." Under existing law, whether
property is dealer property is a question of fact that depends on all the facts
and circumstances with respect to the particular transaction. The Partnerships
intend to hold the Properties for investment with a view to long-term
appreciation, to engage in the business of acquiring, developing, owning, and
operating the Properties and other manufactured housing communities, and to
make such occasional sales of the Properties as are consistent with the
Company's investment objectives. Based upon such investment objectives, the
Company believes that in general the Properties should not be considered dealer
property and that the amount of income from prohibited transactions, if any,
will not be material.
TAX CONSEQUENCES OF CONVERSION TO REIT STATUS
The Company elected to be taxed as a REIT by filing such an election with
its United States Federal income tax return for the taxable year beginning
January 1, 1994. The Code provides that, in the case of an entity such as the
Company, such corporation is eligible to be taxed as a REIT for a taxable year
only if, as of the close of such year, it has no earnings and profits
accumulated in any non-REIT year. Under the Code, in order to distribute all
earnings and profits accumulated as of the end of a prior taxable year it is
necessary to distribute all earnings and profits accumulated in the current
taxable year. Although calculations of earnings and profits are complex and it
is possible for divergences of opinion with respect to the amount of
accumulated earnings and profits, the Company believes that its pre-1995
distributions have satisfied the special distribution requirements of the Code
in a timely fashion.
If during the 10-year period (the "Recognition Period") beginning on the
first day of the first taxable year for which the Company qualified as a REIT,
the Company recognizes gain on the disposition of any
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asset held by the Company as of the beginning of such Recognition Period,
then, to the extent of the excess of: (i) the fair market value of such asset as
of the beginning of such Recognition Period; over (ii) the Company's adjusted
basis in such asset as of the beginning of such Recognition period (the
"Built-in Gain"), such gain will be subject to tax at the highest regular
corporate rate to the extent of the Company's net Built-in Gain as of the
beginning of such Recognition Period, pursuant to regulations that have not yet
been promulgated by the Service. Furthermore, if the Company acquires any asset
from a corporation in a transaction in which the basis of the asset in the
Company's hands is determined by reference to the basis of the asset (or any
other property) in the hands of the transferor, and the Company recognizes gain
on the disposition of such asset during the Recognition Period beginning on the
date on which such asset was acquired by the Company, then, pursuant to
regulations that have not yet been promulgated by the Service, to the extent of
the Built-in Gain, such gain will be subject to tax at the highest regular
corporate rate.
These provisions regarding the potential taxation of Built-in Gains would
not be applicable to the Properties and would only be applicable to the assets
owned by the Company prior to January 1, 1994, the first day of the first year
that the Company elected to be taxed as a REIT. Accordingly, the Company does
not expect this provision to have any significant effect.
PLAN OF DISTRIBUTION
The Company and the Operating Partnership may sell the Securities to one
or more underwriters for public offering and sale by them or may sell the
Securities to investors directly or through agents, which agents may be
affiliated with the Company. Direct sales to investors may be accomplished
through subscription rights distributed to the Company's stockholders. In
connection with the distribution of subscription rights to stockholders, if all
of the underlying Securities are not subscribed for, the Company and the
Operating Partnership may sell such unsubscribed Securities directly to third
parties or may engage the services of an underwriter to sell such unsubscribed
Securities to third parties. 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, or 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 and the Operating Partnership 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 or from the Operating
Partnership 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 or the Operating
Partnership to underwriters or agents in connection with the offering of
Securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, will be set forth in the applicable
Prospectus Supplement. Underwriters, dealers and agents participating in the
distribution of the Securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the Securities may be deemed to be underwriting discounts and
commissions, under the Securities Act. 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. Any such indemnification agreements will
be described in the applicable Prospectus Supplement.
If so indicated in the applicable Prospectus Supplement, the Company or
the Operating Partnership, as the case may be, will authorize dealers acting as
the Company's or the Operating Partnership's agents to solicit offers by
certain institutions to purchase Securities from the Company or the Operating
Partnership 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 shall be not less nor more
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
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charitable institutions, and other institutions but will in all cases be
subject to the approval of the Company or the Operating Partnership, as the case
may be. Contracts will not be subject to any conditions except (i) the purchase
by an institution of the Securities covered by its Contracts shall not at the
time of delivery be prohibited under the laws of any jurisdiction in the United
States to which such institution is subject; and (ii) if the Securities are
being sold to underwriters, the Company shall have sold to such underwriters the
total principal amount of the Securities less the principal amount thereof
covered by the Contracts.
Certain of the underwriters and their affiliates may be customers of,
engage in transactions with and perform services for the Company or the
Operating Partnership in the ordinary course of business.
LEGAL MATTERS
The legality of the Securities will be passed upon for the Company and the
Operating Partnership by Jaffe, Raitt, Heuer & Weiss, Professional Corporation.
In addition, Jaffe, Raitt, Heuer & Weiss, Professional Corporation, will
provide an opinion as to the basis of the description of Federal income tax
consequences contained in the section titled "Federal Income Tax Consequences."
EXPERTS
The consolidated financial statements and consolidated financial statement
schedules of the Company as of December 31, 1995 and 1994, and for the years
ended December 31, 1995, 1994 and 1993 included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995 and incorporated by reference
herein, and the consolidated financial statements of the Operating Partnership,
which report is included in the Operating Partnership's Form 10-K for the year
ended December 31, 1995, incorporated by reference herein, have been audited by
Coopers & Lybrand L.L.P., independent certified public accountants, to the
extent and for the periods indicated in their reports and have been
incorporated herein in reliance on such reports given on the authority of that
firm as experts in accounting and auditing.
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING
SUPPLEMENT OR THE PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS
PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE AGENT. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT, THE APPLICABLE PRICING SUPPLEMENT OR
THE PROSPECTUS NOR ANY SALE MADE HEREUNDER AND THEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS SUPPLEMENT, THE
APPLICABLE PRICING SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT QUALIFIED TO
DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
-----------------
TABLE OF CONTENTS
Page
----
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary ....................................... S-1
Risk Factors ........................................................ S-4
Description of the Notes............................................. S-6
Special Provisions Relating to Multi-
Currency Notes...................................................... S-23
Certain United States Federal Income Tax
Considerations...................................................... S-25
Plan of Distribution................................................. S-32
Legal Matters........................................................ S-33
PROSPECTUS
Available Information................................................ 2
Incorporation of Certain Documents by
Reference........................................................... 2
The Company and the Operating Partnership............................ 3
Risk Factors......................................................... 4
Use of Proceeds...................................................... 9
Ratios of Earnings to Fixed Charges.................................. 9
Description of Debt Securities....................................... 9
Description of Common Stock.......................................... 20
Description of Preferred Stock....................................... 22
Description of Securities Warrants................................... 25
Federal Income Tax Considerations.................................... 27
Plan of Distribution................................................. 33
Legal Matters........................................................ 34
Experts.............................................................. 34
$100,000,000
SUN COMMUNITIES OPERATING
LIMITED PARTNERSHIP
[SUN LOGO]
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE
FROM DATE OF ISSUE
---------------------
PROSPECTUS SUPPLEMENT
August 20, 1997
---------------------
LEHMAN BROTHERS
