<PAGE> 1
Filed pursuant to Rule 424(b)(2)
under the Securities Act of 1933, as amended
Commission File Nos. 333-43267 and 333-22211
PROSPECTUS SUPPLEMENT
(To Prospectus dated January 7, 1998)
$450,000,000
LIBERTY PROPERTY LIMITED PARTNERSHIP
MEDIUM-TERM NOTES
DUE NINE MONTHS OR MORE FROM DATE OF ISSUE
---------------------------
Liberty Property 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 $450,000,000 (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 does not limit the aggregate principal amount of
Debt Securities that may be issued thereunder and provides that Debt Securities
may be issued from time to time in one or more series. See "Description of Debt
Securities -- General" in the accompanying Prospectus. 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 thereof (each, a "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 unless other currencies or currency units are designated in the
applicable Pricing Supplement (the "Multi-Currency Notes"). 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 Notes -- Interest." 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 March 15 and September 15 of each
year and at Stated Maturity. The Company may also issue Discount Notes, Reset
Notes, Currency Indexed Notes, Commodity Indexed Notes, Renewable Notes and
Amortizing Notes. See "Description of Notes -- Discount Notes," "-- Reset
Notes," "-- Currency Indexed Notes," "-- Commodity Indexed Notes," "-- Renewal
Notes" and "-- Amortizing Notes."
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 depositary
identified in the applicable Pricing Supplement) (the "Depositary") and
registered in the name of the Depositary or the Depositary's nominee. Interests
in the Global Securities will be shown on, and transfers thereof will be
effected only through, records maintained by the Depositary (with respect to its
participants) and the Depositary's participants (with respect to beneficial
owners). Except in limited circumstances, Book-Entry Notes will not be
exchangeable for Certificated Notes.
---------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE S-3 OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 3 OF THE ACCOMPANYING PROSPECTUS FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES OFFERED HEREBY.
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS OR ANY PRICING
SUPPLEMENT HERETO. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
===========================================================================================================================
PRICE TO AGENTS' DISCOUNTS PROCEEDS
PUBLIC(1) AND COMMISSIONS(2) TO COMPANY(2)(3)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note.................................... 100.0% 0.125% - 0.750% 99.875% - 99.250%
- ---------------------------------------------------------------------------------------------------------------------------
Total(4).................................... $450,000,000 $562,500 - $3,375,000 $449,437,500 - $446,625,000
===========================================================================================================================
</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., Donaldson, Lufkin & Jenrette
Securities Corporation, First Chicago Capital Markets, Inc., J.P. Morgan
Securities Inc. and UBS Securities LLC (each, an "Agent" and, together, the
"Agents") a commission ranging from 0.125% to 0.750% of the principal amount
of any Note, depending on its Stated Maturity, sold through the Agents. 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. Any of the Agents, 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 such Agent, or, if so agreed, at a
fixed public offering price. The Company has agreed to reimburse such Agent
for certain expenses and has agreed to indemnify such Agent against certain
liabilities, including liabilities under applicable federal securities laws.
(3) Before deducting offering expenses payable by the Company estimated at
$685,000.
(4) Or the equivalent thereof in one or more foreign or composite currencies.
---------------------------
The Notes are being offered from time to time by the Company to or through
the Agents. Unless otherwise specified in the applicable Pricing Supplement, the
Notes will not be listed on any securities exchange and there 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 an Agent, if it solicits the offer on
an agency basis, may reject any such offer to purchase Notes in whole or in
part. See "Plan of Distribution" herein and in the accompanying Prospectus.
---------------------------
LEHMAN BROTHERS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
FIRST CHICAGO CAPITAL MARKETS, INC.
J.P.MORGAN & CO.
UBS SECURITIES
January 12, 1998
<PAGE> 2
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" HEREIN AND IN THE ACCOMPANYING PROSPECTUS.
<PAGE> 3
RISK FACTORS
Liberty Property Limited Partnership, a Pennsylvania limited partnership
(the "Company"), is the Operating Partnership of Liberty Property Trust, a
Maryland real estate investment trust (the "Trust"). The Trust conducts
substantially all of its operations through the Company. Unless the context
otherwise requires, the term "Company," as used in this Prospectus Supplement,
means Liberty Property Limited Partnership and its subsidiaries (and, where the
context indicates, its predecessor entities, Rouse & Associates, a Pennsylvania
general partnership, and certain affiliated entities (collectively, the
"Predecessor")).
Except as otherwise indicated, the cross-references in this Prospectus
Supplement are to sections hereof. This Prospectus Supplement contains and the
accompanying Prospectus contains or incorporates by reference forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). The Company's actual results could
differ materially from those set forth in the forward-looking statements. For a
discussion of certain factors that might cause such a difference, prospective
investors should carefully consider, among others, the factors described below.
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 Agents disclaim any
responsibility to advise prospective investors of such risks as they exist at
the date of this Prospectus Supplement or as they change from time to time.
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. Prospective
investors should consult their 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.
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, 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 below). Such risks depend on a
number of interrelated factors, including economic, financial and political
events, over which the Company has no control. Additionally, if the formula used
to determine the amount of principal, premium, if any, and/or interest, 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.
S-3
<PAGE> 4
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.
FOREIGN CURRENCY RISKS
Exchange Rates and Exchange Controls. An investment in Multi-Currency
Notes (as defined below) entails significant risks that are not associated with
a similar investment in a debt security denominated and payable in United States
dollars. Such risks include, without limitation, the possibility of significant
changes in the rate of exchange between the United States dollar and the
Specified Currency (as defined below) 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 United States 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 United States
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
S-4
<PAGE> 5
or revaluation or imposition of exchange or other regulatory controls or taxes,
or in the event of other developments, affecting the United States dollar or any
applicable currency or currency unit.
THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS AND THE APPLICABLE
PRICING SUPPLEMENT DO 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 ARE 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. According to their terms, 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 United States dollars. New York statutory law provides that in an action
based on an obligation expressed in a currency other than United States dollars
a court shall render a judgment in the foreign currency of the underlying
obligation and that the judgment shall be converted into United States 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 United States dollars on the basis of the Market Exchange
Rate (as defined below) 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."
Should material information regarding the applicable Specified Currency
(which includes information with respect to applicable current foreign exchange
controls, if any) not be contained in this Prospectus Supplement or the
accompanying Prospectus, an applicable Pricing Supplement with respect to such
information will be delivered and will become part of this Prospectus Supplement
and the accompanying Prospectus. 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 RISKS
Any credit ratings that are assigned to the Company's medium-term note
program may not reflect the potential impact of all risks related to structure
and other factors on the value of the Notes. 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.
Such a credit rating would not constitute a recommendation to buy, sell or
hold the Notes, and may be subject to revision or withdrawal at any time by the
organization assigning it. Each credit rating should be evaluated independently
of any other such rating.
S-5
<PAGE> 6
DESCRIPTION OF NOTES
The Notes will be issued as a series of Debt Securities under an Indenture,
dated as of October 24, 1997, as amended or supplemented from time to time, by
and between the Company and The First National Bank of Chicago, as trustee (the
"Trustee"), as supplemented by (i) the First Supplemental Indenture, dated as of
October 24, 1997, by and between the Company and the Trustee and (ii) the Second
Supplemental Indenture, dated as of January 9, 1998, by and between the Company
and the Trustee (collectively, the "Indenture"). The Indenture is subject to,
and governed by, the Trust Indenture Act of 1939, as amended. The following
summary of certain provisions of the Notes and the Indenture does not purport to
be complete and is qualified in its entirety by reference to the actual
provisions of the Notes and the Indenture. Capitalized terms used but not
defined herein shall have the meanings given to them in the accompanying
Prospectus, the Notes or the Indenture, as the case may be. The term "Debt
Securities" as used in this Prospectus Supplement, refers to all debt
securities, including the Notes, issued and issuable from time to time under the
Indenture. The following description of Notes will apply to each Note offered
hereby unless otherwise specified in the applicable Pricing Supplement.
GENERAL
All Debt Securities, including the Notes, issued and to be issued under the
Indenture will be direct, unsecured general obligations of the Company and will
rank pari passu with each other and with all other unsecured and unsubordinated
indebtedness of the Company from time to time outstanding. The Indenture does
not limit the aggregate initial offering price of Debt Securities that may be
issued thereunder and Debt Securities may be issued thereunder from time to time
in one or more series up to the aggregate initial offering price from time to
time authorized by the Company for each series. The Notes will be effectively
subordinated to (i) the prior claims of each secured mortgage lender to any
specific property of the Company (a "Property") which secures such lender's
mortgage and (ii) any claims of creditors of entities wholly or partly owned,
directly or indirectly, by the Company. Subject to certain limitations set forth
in the Indenture, and as described under "-- Certain Covenants -- Limitations on
Incurrence of Debt" below, the Indenture will permit the Company to incur
additional secured and unsecured indebtedness. The Company may, from time to
time, without the consent of the Holders of the Notes, provide for the issuance
of Notes or other Debt Securities under the Indenture, or the issuance of other
debt under another indenture entered into by the Company in addition to the
$450,000,000 aggregate initial offering price of Notes offered hereby.
The Notes are currently limited to up to $450,000,000 aggregate initial
offering price, or the equivalent thereof in one or more foreign or composite
currencies. The Notes will be offered from time to time and will mature on a
Business Day (as defined below) nine months or more from their dates of issue
(each, a "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, Currency Indexed Notes, Commodity Indexed Notes,
Reset Notes, Renewable Notes and Amortizing Notes (each as defined below).
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.
S-6
<PAGE> 7
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. Each applicable
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 third 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, premium, if any, and/or interest, if any, on,
Book-Entry Notes will be made by the Company through the Trustee to the
Depositary. See "Description of Debt Securities -- Book-Entry System" in the
accompanying Prospectus. 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 New York City (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 14 Wall Street, 8th Floor, New York, New York 10005.
Payment of interest due on the Maturity Date of each Certificated Note will be
made to the person to whom payment of the principal and premium, if any, shall
be made. Payment of interest due on each Certificated Note on any Interest
Payment Date (as defined below) other than the Maturity Date will be made at the
office or agency referred to above maintained by the Company for such purpose
or, at the option of the Company, may be made by check mailed to the address of
the Holder entitled thereto as such address shall appear in the Security
Register of the Company. Notwithstanding the foregoing, a Holder of $10,000,000
(or, if the 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 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 or Chicago, Illinois, provided, however, that, with respect to
Multi-
S-7
<PAGE> 8
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 defined below) of the
country issuing the Specified Currency (unless the Specified Currency is
European Currency Units ("ECUs"), 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
defined below). "London Business Day" means any day on which dealings in the
Designated LIBOR Currency (as defined below) 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 ECUs, 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 "Description of Debt Securities -- Book-Entry System" in the
accompanying Prospectus. Registration of transfer or exchange of Certificated
Notes will be made at the office or agency maintained by the Company for such
purpose in New York, New York, 14 Wall Street, 8th Floor, New York, New York
10005. 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. See "Description of Debt
Securities -- Discharge, Defeasance and Covenant Defeasance" in the accompanying
Prospectus.
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. See
"-- Other/Additional Provisions; Addendum."
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 defined below), 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
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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."
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 New York, New York, currently the corporate trust office of the
Trustee located at 14 Wall Street, 8th Floor, New York, New York 10005 (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
defined below) 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 defined below) 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 "Description of Debt Securities -- Book-Entry
System" in the accompanying Prospectus.
If applicable, the Company will comply with the requirements of Section
14(e) of the Exchange Act, and Rule 14e-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
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and including the date of issue, if no interest has been paid or duly made
available for payment with respect to the applicable Note) to but excluding the
applicable Interest Payment Date or the Maturity Date, as the case may be (each,
an "Interest Period").
Interest on Fixed Rate Notes and Floating Rate Notes will be payable in
arrears on each Interest Payment Date and on the Maturity Date. Unless otherwise
specified in the applicable Pricing Supplement, the first payment of interest on
any such Note originally issued between a Record Date (as defined below) and the
related Interest Payment Date will be made on the Interest Payment Date
immediately following the next succeeding Record Date to the Holder on such next
succeeding Record Date. Unless otherwise specified in the applicable Pricing
Supplement, a "Record Date" shall be the fifteenth calendar day (whether or not
a Business Day) immediately preceding the related Interest Payment Date.
Fixed Rate Notes
Unless otherwise specified in the applicable Pricing Supplement, interest
on Fixed Rate Notes will be payable on March 15 and September 15 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
Unless otherwise specified in the applicable Pricing Supplement, Floating
Rate Notes will be issued as described below. The applicable Pricing Supplement
will specify certain terms with respect to which each Floating Rate Note is
being delivered, including whether such Floating Rate Note is a "Regular
Floating Rate Note," a "Floating Rate/Fixed Rate Note" or an "Inverse Floating
Rate Note," the Fixed Rate Commencement Date, if applicable, Fixed Interest
Rate, if applicable, Interest Rate Basis or Bases, Initial Interest Rate, if
any, Initial Interest Reset Date, Interest Reset 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
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applicable Spread, if any, and/or (b) multiplied by the applicable Spread
Multiplier, if any. Commencing on the Initial Interest Reset Date, the rate
at which interest on such Floating Rate/Fixed Rate Note shall be payable
shall be reset as of each Interest Reset Date; provided, however, that (y)
the interest rate in effect for the period, if any, from the date of issue
to the Initial Interest Reset Date will be the Initial Interest Rate and
(z) the interest rate in effect for the period commencing on the Fixed Rate
Commencement Date to the Maturity Date shall be the Fixed Interest Rate, if
such rate is specified in the applicable Pricing Supplement or, if no such
Fixed Interest Rate is specified, the interest rate in effect thereon on
the day immediately preceding the Fixed Rate Commencement Date.
(iii) If such Floating Rate Note is designated as an "Inverse Floating
Rate Note," then, except as described below or in the applicable Pricing
Supplement, such Floating Rate Note will bear interest at the Fixed
Interest Rate minus the rate determined by reference to the applicable
Interest Rate Basis or Bases (a) plus or minus the applicable Spread, if
any, and/or (b) multiplied by the applicable Spread Multiplier, if any;
provided, however, that, unless otherwise specified in the applicable
Pricing Supplement, the interest rate thereon will not be less than zero.
Commencing on the Initial Interest Reset Date, the rate at which interest
on such Inverse Floating Rate Note shall be payable shall be reset as of
each Interest Reset Date; provided, however, that the interest rate in
effect for the period, if any, from the date of issue to the Initial
Interest Reset Date will be the Initial Interest Rate.
The "Spread" is the number of basis points to be added to or subtracted
from the related Interest Rate Basis or Bases applicable to such Floating Rate
Note. The "Spread Multiplier" is the percentage of the related Interest Rate
Basis or Bases applicable to such Floating Rate Note by which such Interest Rate
Basis or Bases will be multiplied to determine the applicable interest rate on
such Floating Rate Note. The "Index Maturity" is the period to maturity of the
instrument or obligation with respect to which the related Interest Rate Basis
or Bases will be calculated.
Unless otherwise specified in the applicable Pricing Supplement, the
interest rate with respect to each Interest Rate Basis will be determined in
accordance with the applicable provisions below. Except as set forth above or in
the applicable Pricing Supplement, the interest rate in effect on each day shall
be (i) if such day is an Interest Reset Date, the interest rate determined as of
the Interest Determination Date (as defined below) immediately preceding such
Interest Reset Date or (ii) if such day is not an Interest Reset Date, the
interest rate determined as of the Interest Determination Date immediately
preceding the most recent Interest Reset Date.
Interest on Floating Rate Notes will be determined by reference to the
applicable Interest Rate Basis or Interest Rate Bases, which may, as described
below, include (i) the CD Rate, (ii) the CMT Rate, (iii) the Commercial Paper
Rate, (iv) the 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 defined below) will be the
Initial Interest Rate; provided, further, that with respect to a Floating
Rate/Fixed Rate Note the interest rate in effect for the period commencing on
the Fixed Rate Commencement Date to the Maturity Date shall be the Fixed
Interest Rate, if such rate is specified in the applicable Pricing Supplement
or, if no such Fixed Interest Rate is specified, the interest rate in effect
thereon on the day immediately preceding the Fixed Rate Commencement Date.
The applicable Pricing Supplement will specify whether the rate of interest
on the related Floating Rate Note will be reset daily, weekly, monthly,
quarterly, semiannually or annually or on such other specified basis (each, an
"Interest Reset Period") and the dates on which such rate of interest will be
reset (each, an "Interest Reset Date"). Unless otherwise specified in the
applicable Pricing Supplement, the Interest Reset Dates will be, in the case of
Floating Rate Notes which reset: (i) daily, each Business Day; (ii) weekly, the
Wednesday of each week (with the exception of weekly reset Floating Rate Notes
as to which the Treasury Rate is an applicable Interest 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
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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 defined below), 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 defined below); and the "Interest Determination Date"
with respect to LIBOR will be the second London Business Day immediately
preceding the applicable Interest Reset Date, unless the 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 defined
below) are normally auctioned (Treasury Bills are normally sold at an auction
held on Monday of each week, unless that day is a legal holiday, in which case
the auction is normally held on the following Tuesday, except that such auction
may be held on the preceding Friday); provided, however, that if an auction is
held on the Friday of the week preceding the applicable Interest Reset Date, the
"Interest Determination Date" will be such preceding Friday; 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
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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
0.09876545) would be rounded to 9.87655% (or 0.0987655)), 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, Lehman
Brothers Inc. 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.
CD Rate. Unless otherwise specified in the applicable Pricing Supplement,
"CD Rate" means, with respect to any Interest Determination Date relating to a
Floating Rate Note for which the interest rate is determined with reference to
the CD Rate (a "CD Rate Interest Determination Date"), the rate on such date for
negotiable United States dollar certificates of deposit having the Index
Maturity specified in the applicable Pricing Supplement as published by the
Board of Governors of the Federal Reserve System in "Statistical Release
H.15(519), Selected Interest Rates" or any successor publication ("H.15(519)")
under the heading "CDs (Secondary Market)," or, if not published by 3:00 P.M.,
New York City time, on the related Calculation Date, the rate on such CD Rate
Interest Determination Date for negotiable United States dollar certificates of
deposit of the Index Maturity specified in the applicable Pricing Supplement as
published by the Federal Reserve Bank of New York in its daily statistical
release "Composite 3:30 P.M. Quotations for U.S. Government Securities" or any
successor publication ("Composite Quotations") under the heading "Certificates
of Deposit." If such rate is not yet published in either H.15(519) or Composite
Quotations by 3:00 P.M., New York City time, on the related Calculation Date,
then the CD Rate on such CD Rate Interest Determination Date will be calculated
by the Calculation Agent and will be the arithmetic mean of the secondary market
offered rates as of 10:00 A.M., New York City time, on such CD Rate Interest
Determination Date, of three leading nonbank dealers in negotiable United States
dollar certificates of deposit in The City of New York (which may include 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
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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 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
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<PAGE> 15
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 United States Treasury securities (either l, 2, 3, 5, 7, 10, 20 or 30 years)
specified in the applicable Pricing Supplement with respect to which the CMT
Rate will be calculated or, if no such maturity is specified in the applicable
Pricing Supplement, the Designated CMT Maturity Index shall be two years.
Commercial Paper Rate. Unless otherwise specified in the applicable
Pricing Supplement, "Commercial Paper Rate" means, with respect to any Interest
Determination Date relating to a Floating Rate Note for which the interest rate
is determined with reference to the Commercial Paper Rate (a "Commercial Paper
Rate Interest Determination Date"), the Money Market Yield (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." In the event that such rate is not published prior to 3:00
P.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 caption "Commercial
Paper -- Nonfinancial" (with an Index Maturity of one month or three months
being deemed to be equivalent to an Index Maturity of 30 days or 90 days,
respectively). If such rate is not yet published in either H.15(519) or
Composite Quotations by 3:00 P.M., New York City time, on the related
Calculation Date, then the Commercial Paper Rate on such Commercial Paper Rate
Interest Determination Date will be calculated by the Calculation Agent and will
be the Money Market Yield of the arithmetic mean of the offered rates 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 an 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:
<TABLE>
<S> <C> <C> <C>
D X 360
Money Market Yield = -------------- X 100
360 - (D X M)
</TABLE>
where "D" refers to the applicable per annum rate for commercial paper quoted on
a bank discount basis and expressed as a decimal; and "M" refers to the actual
number of days in the 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
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<PAGE> 16
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 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 3:00 P.M., New York City time, on the
related Calculation Date, the rate on such Federal Funds Rate Interest
Determination Date as published in Composite Quotations under the heading
"Federal Funds/Effective Rate." If such rate is not published in either
H.15(519) or Composite Quotations by 3:00 P.M., New York City time, on the
related Calculation Date, then the Federal Funds Rate on such Federal Funds Rate
Interest Determination Date will be calculated by the Calculation Agent and will
be the arithmetic mean (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
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<PAGE> 17
(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 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 if 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.
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<PAGE> 18
Prime Rate. Unless otherwise specified in the applicable Pricing
Supplement, "Prime Rate" means, with respect to any Interest Determination Date
relating to a Floating Rate Note for which the interest rate is determined with
reference to the Prime Rate (a "Prime Rate Interest Determination Date"), the
rate on such date as such rate is published in H.15(519) under the heading "Bank
Prime Loan." If such rate is not published prior to 3:00 P.M., New York City
time, on the related Calculation Date, then the Prime Rate shall be the
arithmetic mean of the rates of interest publicly announced by each bank that
appears on the Reuters Screen USPRIME1 Page (as defined below) as such bank's
prime rate or base lending rate as in effect for such Prime Rate Interest
Determination Date. If fewer than four such rates appear on the Reuters Screen
USPRIME1 Page for such Prime Rate Interest Determination Date, then the Prime
Rate shall be the arithmetic mean of the prime rates 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 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.
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<PAGE> 19
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 defined below),
corresponds to the shortest period between Interest Payment Dates for the
applicable Discount Note (with ratable accruals within a compounding period), a
coupon rate equal to the initial coupon rate applicable to such Discount Note
and an assumption that the maturity of such Discount Note will not be
accelerated. If the period from the date of issue to the initial Interest
Payment Date for a Discount Note (the "Initial Period") is shorter than the
compounding period for such Discount Note, a proportionate amount of the yield
for an entire compounding period will be accrued. If the Initial Period is
longer than the compounding period, then such period will be divided into a
regular compounding period and a short period with the short period being
treated as provided in the preceding sentence. The accrual of the applicable
Discount may differ from the accrual of original issue discount for purposes of
the 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 -- United
States Holders -- Original Issue Discount."
CURRENCY INDEXED NOTES
General. The Company may from time to time offer Notes, the principal
amount payable at maturity and/or the interest rate of which is determined by a
formula which makes reference to the rate of exchange between one currency
("Currency I") and another currency ("Currency II" and, together with Currency
I, the "Selected Currencies," both as specified in the applicable Pricing
Supplement), neither of which need be the Specified Currency of such Notes (the
"Currency Indexed Notes"). Unless otherwise specified in the applicable Pricing
Supplement, Holders of Currency Indexed Notes will be entitled to receive (i) an
amount in respect of principal equal to the principal amount of the Currency
Indexed Notes plus an adjustment, which may be negative or positive, based on
the change in the relationship between Selected Currencies or (ii) an amount of
interest calculated at the stated rate of interest on the Currency Indexed Notes
plus an adjustment, which may be negative or positive, based on the change in
the relationship between the Selected Currencies, in each case determined as
described below under "Payment of Principal and Interest." As specified in the
applicable Pricing Supplement, the exchange rate designated as the base exchange
rate (the "Base Exchange
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<PAGE> 20
Rate") will be the initial rate at which Currency I can be exchanged for
Currency II and from which the change in such exchange rate will be measured.
Payment of Principal and Interest. Unless otherwise specified in the
applicable Pricing Supplement, the payment of principal at maturity and interest
on each Interest Payment Date (until the payment thereof is paid or made
available for payment) will be payable in the Specified Currency in amounts
calculated in the manner described below.
Unless otherwise specified in the applicable Pricing Supplement, principal
at maturity, if indexed, will be payable in an amount equal to the principal
amount of the Currency Indexed Note, plus or minus an amount determined by
reference to the difference between the Base Exchange Rate specified in the
applicable Pricing Supplement and the rate at which Currency I can be exchanged
for Currency II on the second Business Day prior to the maturity (the
"Determination Date") of such Currency Indexed Note, as determined by the
determination agent specified in the applicable Pricing Supplement (the
"Determination Agent"). Unless otherwise specified in the applicable Pricing
Supplement, the interest payable on any Interest Payment Date, if indexed, will
be payable in an amount equal to the stated interest rate of the Currency
Indexed Note, plus or minus a rate adjustment determined by reference to the
difference between the Base Exchange Rate specified in the applicable Pricing
Supplement and the rate at which Currency I can be exchanged for Currency II on
the second Business Day prior to the Interest Payment Date (the "Indexed
Interest Determination Date") of such Currency Indexed Note, as determined by
the Determination Agent, applied to the average principal amount outstanding of
such Note for the period being measured. For the purpose of this section, such
rate of exchange on the Determination Date or the Indexed Interest Determination
Date, as the case may be, will be the average of quotations for settlement on
the Maturity Date or the relevant Interest Payment Date, as the case may be,
obtained by the Determination Agent from three reference dealers in The City of
New York at approximately 11:00 A.M., New York City time, on either the
Determination Date or the relevant Indexed Interest Determination Date, as the
case may be.
The formulas to be used by the Determination Agent to determine the
principal amount and/or the stated interest rate of a Currency Indexed Note
payable at maturity or on any Interest Payment Date will be specified in the
applicable Pricing Supplement by reference to the appropriate formula and will
be as follows:
Principal
A. If principal is to increase when the Spot Rate exceeds the Base Exchange
Rate, and if principal is to decrease when the Spot Rate is less than the Base
Exchange Rate, the formula to determine the principal amount of a Currency
Indexed Note payable at maturity shall equal:
Principal Amount + (Principal Amount X F X [Spot Rate - Base Exchange Rate])
Spot Rate
To determine the "Spot Rate" for use in this formula, each Reference
Dealer's quotation will be the rate at which such Reference Dealer will sell
Currency I in exchange for a single unit of Currency II.
B. If principal is to increase when the Base Exchange Rate exceeds the Spot
Rate, and if principal is to decrease when the Base Exchange Rate is less than
the Spot Rate, the formula to determine the principal amount of a Currency
Indexed Note payable at maturity shall equal:
Principal Amount + (Principal Amount X F X [Base Exchange Rate - Spot Rate])
Spot Rate
To determine the "Spot Rate" for use in this formula, each Reference
Dealer's quotation will be the rate at which such Reference Dealer will purchase
Currency I in exchange for a single unit of Currency II.
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<PAGE> 21
Interest
A. If interest is to increase when the Spot Rate exceeds the Base Exchange
Rate, and if interest is to decrease when the Spot Rate is less than the Base
Exchange Rate, the formula to determine the interest rate payable on any
Interest Payment Date on a Currency Indexed Note shall equal:
Stated Interest Rate + F X (Spot Rate - Base Exchange Rate)
--------------------------------
Spot Rate
To determine the "Spot Rate" for use in this formula, each Reference
Dealer's quotation will be the rate at which such Reference Dealer will sell
Currency I in exchange for a single unit of Currency II.
B. If interest is to increase when the Base Exchange Rate exceeds the Spot
Rate, and if interest is to decrease when the Base Exchange Rate is less than
the Spot Rate, the formula to determine the interest rate payable on any
Interest Payment Date on a Currency Indexed Note shall equal:
Stated Interest Rate + F X (Base Exchange Rate - Spot Rate)
--------------------------------
Spot Rate
To determine the "Spot Rate" for use in this formula, each Reference
Dealer's quotation will be the rate at which such Reference Dealer will purchase
Currency I in exchange for a single unit of Currency II.
In each of the above formulas "F" will be the leverage factor, if any, used
in such formula.
An investment in Notes indexed, as to principal or interest or both, to one
or more values of currency indices (including exchange rates between currencies)
entails significant risks that are not associated with similar investments in a
conventional fixed-rate debt security. If the interest rate of such a Note is so
indexed, it may result in an interest rate that is less than that payable on a
conventional fixed-rate debt security issued at the same time, including the
possibility that no interest will be paid, and, if the principal amount of such
a Note is so indexed, the principal amount payable at maturity may be less than
the original purchase price of such Note if allowed pursuant to the terms of
such Note, including the possibility that no principal will be paid. The
secondary market for such Notes will be affected by a number of factors,
independent of the creditworthiness of the Company and the value of the
applicable currency index, including the volatility of the applicable currency
index, the time remaining to the maturity of such Notes, the amount outstanding
of such Notes and market interest rates. The value of the applicable currency
index depends 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 principal amount or interest payable with
respect to such Notes contains a multiple or leverage factor, the effect of any
change in the applicable currency index may be increased. The historical
experience of the relevant currency indices should not be taken as an indication
of future performance of such currency indices during the term of any Note. The
credit ratings assigned to the Notes are a reflection of the Company's credit
status and in no way are a reflection of the potential impact of the factors
discussed above, or any other factors, on the market value of the Notes.
Accordingly, prospective investors should consult their own financial and legal
advisors as to the risks entailed by an investment in such Notes and the
suitability of such Notes in light of their particular circumstances. See "Risk
Factors."
COMMODITY INDEXED NOTES
The Company may from time to time offer Notes, the principal amount payable
at maturity and/or the interest rate of which is determined by a formula which
makes reference to the price or prices of specified commodities ("Commodity
Indexed Notes"). The Pricing Supplement relating to a Commodity Indexed Note
will set forth the method by which the amount of interest payable and the amount
payable at Stated Maturity in respect of such Commodity Indexed Note will be
determined, the tax consequences to holders of Commodity Indexed Notes, a
description of certain risks associated with investments in Commodity Indexed
Notes and other information relating to such Commodity Indexed Notes.
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<PAGE> 22
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.
RESET NOTES
The Pricing Supplement relating to each Note as to which the Company has
the option with respect to such Note to reset the interest rate, in the case of
a Fixed Rate Note, or to reset the Spread and/or Spread Multiplier, in the case
of a Floating Rate Note (in each case, a "Reset Note"), will indicate (i) the
date or dates on which such interest rate or such Spread and/or Spread
Multiplier, as the case may be, may be reset (each an "Optional Interest Reset
Date") and (ii) the basis or formula, if any, for such resetting.
The Company may exercise such option with respect to a Note by notifying
the Trustee of such exercise at least 45 but not more than 60 calendar days
prior to an Optional Interest Reset Date for such Note. If the Company so
notifies the Trustee of such exercise, the Trustee will send, not later than 40
calendar days prior to such Optional Interest Reset Date, by telegram, telex,
facsimile transmission, hand delivery or letter (first class, postage prepaid)
to the Holder of such Note a notice (the "Reset Notice") indicating (i) that the
Company has elected to reset the interest rate, in the case of a Fixed Rate
Note, or the Spread and/or Spread Multiplier, in the case of a Floating Rate
Note, (ii) such new interest rate or such new Spread and/or Spread Multiplier,
as the case may be, and (iii) the provisions, if any, for redemption during the
period from such Optional Interest Reset Date to the next Optional Interest
Reset Date or, if there is no such next Optional Interest Reset Date, to the
Stated Maturity of such Note (each such period a "Subsequent Interset Period"),
including the date or dates on which or the period or periods during which and
the price or prices at which such redemption may occur during such Subsequent
Interest Period.
Notwithstanding the foregoing, not later than 20 calendar days prior to an
Optional Interest Reset Date for a Note, the Company may, at its option, revoke
the interest rate, in the case of a Fixed Rate Note, or the Spread and/or Spread
Multiplier, in the case of a Floating Rate Note, provided for in the Reset
Notice and establish a higher interest rate, in the case of a Fixed Rate Note,
or a Spread and/or Spread Multiplier resulting in a higher interest rate, in the
case of a Floating Rate Note, for the Subsequent Interest Period commencing on
such Optional Interest Reset Date by causing the Trustee to send by telegram,
telex, facsimile transmission, hand delivery or letter (first class, postage
prepaid) notice of such higher interest rate or Spread and/or Spread Multiplier
resulting in a higher interest rate, as the case may be, to the Holder of such
Note. Such notice shall be irrevocable. All Notes with respect to which the
interest rate or Spread and/or Spread Multiplier is reset on a Optional Interest
Reset Date will bear such higher interest rate, in the case of a Fixed Rate
Note, or Spread and/or Spread Multiplier resulting in a higher interest rate, in
the case of a Floating Rate Note, whether or not tendered for repayment as
provided in the next paragraph.
If the Company elects prior to an Optional Interest Reset Date to reset the
interest rate or the Spread and/or Spread Multiplier of a Note, the Holder of
such Note will have the option to elect repayment of such Note by the Company on
such Optional Interest Reset Date at a price equal to the principal amount
thereof plus any accrued interest to such Optional Interest Reset Date. In order
for a Note to be so repaid on an Optional Interest Reset Date, the Holder
thereof must follow the procedures set forth above under "Redemption at the
Option of the Company" and "Repayment at the Option of the Holder" for optional
repayment, except that the period for delivery of such Note or notification to
the Trustee shall be at least 25 but not more than 35 calendar days prior to
such Optional Interest Reset Date. A Holder who has tendered a Note for
repayment following receipt of a Reset Notice may revoke such tender for
repayment by written notice to the Trustee received prior to 5:00 P.M., New York
City time, on the tenth calendar day prior to such Optional Interest Reset Date.
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EXTENSION OF MATURITY
The Pricing Supplement relating to each Note as to which the Company has
the option to extend the Stated Maturity of such Note for one or more periods of
from one to five whole years (each an "Extension Period") up to but not beyond
the date (the "Final Maturity Date") will set forth each applicable Extension
Period and the Final Maturity Date.
The Company may exercise such option with respect to a Note by notifying
the Trustee of such exercise at least 45 but not more than 60 calendar days
prior to the Stated Maturity of such Note in effect prior to the exercise of
such option (the "Original Stated Maturity Date"). If the Company so notifies
the Trustee of such exercise, the Trustee will send, not later than 40 calendar
days prior to the Original Stated Maturity Date, by telegram, telex, facsimile
transmission, hand delivery or letter (first class, postage prepaid), to the
Holder of such Note a notice (the "Extension Notice") relating to such Extension
Period, indicating (i) that the Company has elected to extend the Stated
Maturity of such Note, (ii) the new Stated Maturity, (iii) in the case of a
Fixed Rate Note, the interest rate applicable to the Extension Period or, in the
case of a Floating Rate Note, the Spread and/or Spread Multiplier applicable to
the Extension Period, and (iv) the provisions, if any, for redemption during the
Extension Period, including the date or dates on which or the period or periods
during which and the price or prices at which such redemption may occur during
the Extension Period. Upon the sending by the Trustee of an Extension Notice to
the Holder of a Note, the Stated Maturity of such Note shall be extended
automatically, and, except as modified by the Extension Notice and as described
in the next two paragraphs, such Note will have the same terms as prior to the
sending of such Extension Notice.
Notwithstanding the foregoing, not later than 20 calendar days prior to the
Original Stated Maturity Date of a Note, the Company may, at its option, revoke
the interest rate, in the case of a Fixed Rate Note, or the Spread and/or Spread
Multiplier, in the case of a Floating Rate Note, provided for in the Extension
Notice and establish a higher interest rate, in the case of a Fixed Rate Note,
or a Spread and/or Spread Multiplier resulting in a higher interest rate, in the
case of a Floating Rate Note, for the Extension Period by causing the Trustee to
send by telegram, telex, facsimile transmission, hand delivery or letter (first
class, postage prepaid) notice of such higher interest rate or Spread and/or
Spread Multiplier resulting in a higher interest rate, as the case may be, to
the Holder of such Note. Such notice shall be irrevocable. All Notes with
respect to which the Stated Maturity is extended will bear such higher interest
rate, in the case of a Fixed Rate Note, or Spread and/or Spread Multiplier
resulting in a higher interest rate, in the case of a Floating Rate Note, for
the Extension Period, whether or not tendered for repayment as provided in the
next paragraph.
If the Company elects to extend the Stated Maturity of a Note, the Holder
of such Note will have the option to elect repayment of such Note by the Company
on the Original Stated Maturity Date at a price equal to the principal amount
thereof plus any accrued and unpaid interest to such date. In order for a Note
to be so repaid on the Original Stated Maturity Date, the Holder thereof must
follow the procedures set forth above under "Repayment at the Option of the
Holder" for optional repayment, except that the period for delivery of such Note
or notification to the Trustee shall be at least 25 but not more than 35
calendar days prior to the Original Stated Maturity Date. A Holder who has
tendered a Note for repayment following receipt of an Extension Notice may
revoke such tender for repayment by written notice to the Trustee received prior
to 5:00 P.M., New York City time, on the tenth calendar day prior to the
Original Stated Maturity Date.
RENEWABLE NOTES
The applicable Pricing Supplement will indicate that a Note (other than an
Amortizing Note) will mature at its Original Stated Maturity Date unless the
term of all or any portion of any such Note is renewed by the Holder in
accordance with the procedures, if any, described in such Pricing Supplement.
COMBINATION OF PROVISIONS
If so specified in the applicable Pricing Supplement, any Note may be
subject to all of the provisions, or any combination of the provisions,
described above under "Reset Notes," "Extension of Maturity" and "Renewable
Notes."
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<PAGE> 24
CERTAIN COVENANTS
The Indenture contains the following covenants:
Limitations on Incurrence of Debt. The Company will not, and will not
permit any Subsidiary (as defined below) to, incur any Debt (as defined below),
other than Intercompany Debt (as defined below), that is subordinate in right of
payment to the Notes, if, immediately after giving effect to the incurrence of
such Debt and the application of the proceeds thereof, the aggregate principal
amount of all outstanding Debt of the Company and its Subsidiaries on a
consolidated basis determined in accordance with GAAP (as defined below) is
greater than 60% of the sum of (i) the Company's Adjusted Total Assets (as
defined below) as of the end of the most recent fiscal quarter prior to the
incurrence of such additional Debt; and (ii) the increase in Adjusted Total
Assets since the end of such quarter (including any increase resulting from the
incurrence of additional Debt) (Section 1004(a) of the Indenture).
In addition to the foregoing limitation on the incurrence of Debt, the
Company will not, and will not permit any Subsidiary to, incur any Debt if the
ratio of Consolidated Income Available for Debt Service (as defined below) to
the Annual Service Charge (as defined below) on the date on which such
additional Debt is to be incurred, on a pro forma basis, after giving effect to
the incurrence of such Debt and to the application of the proceeds thereof,
would have been less than 1.5 to 1 (Section 1004(b) of the Indenture).
Further, the Company will not, and will not permit any Subsidiary to, incur
any Debt secured by any mortgage, lien, charge, pledge, encumbrance or security
interest of any kind upon any of the properties of the Company or any Subsidiary
("Secured Debt"), whether owned at the date of the Indenture or thereafter
acquired, if, immediately after giving effect to the incurrence of such Secured
Debt and the application of the proceeds thereof, the aggregate principal amount
of all outstanding Secured Debt of the Company and its Subsidiaries on a
consolidated basis is greater than 40% of the sum of: (i) the Company's Adjusted
Total Assets as of the end of the most recent fiscal quarter prior to the
incurrence of such additional Debt; and (ii) the increase in Adjusted Total
Assets since the end of such quarter (including any increase resulting from the
incurrence of additional Debt) (Section 1004(c) of the Indenture).
Further, the Company will at all times maintain an Unencumbered Total Asset
Value (as defined below) in an amount not less than 150% of the aggregate
principal amount of all outstanding unsecured Debt of the Company and its
Subsidiaries on a consolidated basis (Section 1004(d) of the Indenture).
For purposes of the foregoing paragraphs regarding the limitation on the
incurrence of Debt, Debt shall be deemed to be "incurred" by the Company or a
Subsidiary whenever the Company or such Subsidiary shall create, assume,
guarantee or otherwise become liable in respect thereof.
Definitions. As used in the Indenture and the description thereof herein:
"Adjusted Total Assets" as of any date means the total of all assets
determined in accordance with generally accepted accounting principles ("GAAP")
plus accumulated depreciation.
"Annual Service Charge" as of any date means the aggregate amount of any
interest expensed for the four consecutive fiscal quarters most recently ended,
as determined in accordance with GAAP.
"Consolidated Income Available for Debt Service" as of any date means
Consolidated Net Income (as defined below) of the Company and its Subsidiaries
plus amounts that have been deducted for: (a) interest on Debt of the Company
and its Subsidiaries; (b) provision for taxes of the Company and its
Subsidiaries based on income; (c) amortization of debt discount; (d)
depreciation and amortization; (e) the effect of any noncash charge resulting
from a change in accounting principles in determining Consolidated Net Income;
and (f) amortization of deferred charges, for the four consecutive fiscal
quarters most recently ended, all as determined in accordance with GAAP, and
without taking into account any provision for gains and losses on properties.
"Consolidated Net Income" for any period means the amount of net income (or
loss) of the Company and its Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP.
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<PAGE> 25
"Debt" of the Company or any Subsidiary means any indebtedness of the
Company or any Subsidiary, whether or not contingent, in respect of: (i)
borrowed money evidenced by bonds, notes, debentures or similar instruments;
(ii) indebtedness secured by any mortgage, pledge, lien, charge, encumbrance or
any security interest existing on property owned by the Company or any
Subsidiary; (iii) reimbursement obligations in connection with any letters of
credit actually issued or amounts representing the balance deferred and unpaid
of the purchase price of any property except any such balance that constitutes
an accrued expense or trade payable; or (iv) any lease of property by the
Company or any Subsidiary as lessee which is reflected on the Company's
consolidated balance sheet as a capitalized lease in accordance with GAAP; but
in the case of items of indebtedness incurred under (i) through (iii) above only
to the extent that any such items (other than letters of credit) would appear as
a liability on the Company's consolidated balance sheet in accordance with GAAP;
and also includes, to the extent not otherwise included, any obligation of the
Company or any Subsidiary to be liable for, or to pay, as obligor, guarantor or
otherwise (other than for purposes of collection in the ordinary course of
business), indebtedness of another person (other than the Company or any
Subsidiary).
"Intercompany Debt" means Debt to which the only parties are the Trust, any
of its subsidiaries, the Company and any Subsidiary, or Debt owed to the Trust
arising from routine cash management practices, but only so long as such Debt is
held solely by any of the Trust, any of its subsidiaries, the Company and any
Subsidiary.
"Security Register" means a register maintained at a place of payment for
the registration and transfer of the Notes.
"Subsidiary" means a corporation, partnership or limited liability company,
a majority of the outstanding voting stock, partnership interests or membership
interests, as the case may be, of which is owned or controlled, directly or
indirectly, by the Company or by one or more Subsidiaries of the Company.
Liberty Property Development Corp. and Liberty Property Development Corp.-II are
Subsidiaries for purposes of this definition. For the purposes of this
definition, "voting stock" means stock having the voting power for the election
of directors, general partners, managers or trustees, as the case may be,
whether at all times or only so long as no senior class of stock has such voting
power by reason of any contingency.
"Undepreciated Real Estate Assets" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Company and its
Subsidiaries on such date, before depreciation and amortization, determined on a
consolidated basis in accordance with GAAP.
"Unencumbered Total Asset Value" as of any date means the sum of: (i) the
value of those Undepreciated Real Estate Assets not subject to an encumbrance;
and (ii) the value of all other assets of the Company and its Subsidiaries on a
consolidated basis not subject to an encumbrance determined in accordance with
GAAP (but excluding accounts receivable and intangibles).
Reference is made to the section entitled "Description of Debt
Securities -- 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,
Defeasance and Covenant Defeasance" in the accompanying Prospectus will apply to
the Notes, including with respect to the covenants described in this Prospectus
Supplement.
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<PAGE> 26
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 regarding Multi-Currency Notes
set forth in this Prospectus Supplement is directed to prospective purchasers
who are United States residents and, with respect to Multi-Currency Notes, is
only a summary, does not purport to be complete and is subject to, and is
qualified in its entirety by, reference to the. 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 -- Foreign Exchange Risks -- 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
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<PAGE> 27
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 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 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 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 New York, New York,
currently the corporate trust office of the Trustee located at 14 Wall Street,
8th Floor, New York, New York 10005, 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, 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
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<PAGE> 28
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.
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.
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<PAGE> 29
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 "United States 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-United States Holder" means a beneficial owner of a Note that is
not a United States Holder.
UNITED STATES 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 United States Holder as ordinary interest
income at the time such payments are accrued or are received, in accordance with
the United States Holder's regular method of tax accounting.
Original Issue Discount
The following summary is a general discussion of the United States federal
income tax consequences to United States 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 defined below) prior to maturity, multiplied by the weighted average
maturity of such Note). The issue price of each Note in an issue of Notes equals
the first price at which a substantial amount of such Notes has been sold
(ignoring sales to bond houses, brokers, or similar persons or organizations
acting in the capacity of underwriters, placement agents, or wholesalers). The
stated redemption price at maturity of a Note is the sum of all payments
provided by the Note other than qualified stated interest payments. The term
"qualified stated interest" generally means stated interest that is
unconditionally payable in cash or property (other than debt instruments of the
issuer) at least annually at a single fixed rate 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 so-called "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.
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Payments of qualified stated interest on a Note are taxable to a United
States Holder as ordinary interest income at the time such payments are accrued
or are received, in accordance with the United States Holder's regular method of
tax accounting. A United States 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 United States Holder's regular method of tax accounting. In
general, the amount of original issue discount included in income by the initial
United States 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 United States 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, United
States Holders generally will have to include in income increasingly greater
amounts of original issue discount in successive accrual periods.
Acquisition Premium
A United States 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 United States 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 United States 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.
Variable Rate Debt Instruments
Under the OID Regulations, Floating Rate Notes, Currency Indexed Notes and
Commodity 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, (b) it provides
for stated interest, paid or compounded at least annually, at current values of
(i) one or more qualified floating rates, (ii) a single fixed rate and one or
more qualified floating rates, (iii) a single objective rate, or (iv) a single
fixed rate and a single objective rate that is a qualified inverse floating rate
and (c) a qualified floating rate or objective rate in effect at any time during
the term of the Note is set at a current value of that rate (i.e., the value of
the rate on any day that is no earlier than three months prior to the first rate
day on which the value is in effect and no later that one year following that
first day).
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
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multiple that is greater than 0.65 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 0.65 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 (e.g., a cap) or a minimum
numerical limitation (e.g., 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
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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 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 United
States Holder of the Variable Note will account for such original issue discount
and qualified stated interest as if the United States 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.
Contingent Payment Debt Instruments
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. United States 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 United States 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
United States 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.
Notes Subject to Contingencies
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.
Election to Treat all Interest as Original Issue Discount
United States 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,
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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 United States Holder is not required to accrue such original issue
discount unless the United States Holder elects to do so. If such an election is
not made, any gain recognized by the United States 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 United
States Holder for interest on borrowings allocable to the Short-Term Note will
be deferred until a corresponding amount of income is realized. United States
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 United States 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 United
States 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 United States 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 United States Holder
elects to accrue market discount on the basis of semiannual compounding. Once
made, with respect to a Note, such election is irrevocable.
A United States 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 United States Holder may
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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 United States 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 United States 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 United States Holder will be
considered to have purchased the Note with "amortizable bond premium" equal in
amount to such excess. A United States 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 United States 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 United States
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.
On December 30, 1997, the Treasury Department issued new Regulations
concerning the proper tax treatment of amortizable bond premium. These
Regulations revise substantially the prior Regulations concerning the
amortization of bond premium. The new Regulations relating to amortizable bond
premium are effective for debt instruments acquired on or after March 2, 1998.
If a holder makes the election to amortize bond premium for a taxable year that
includes March 2, 1998, or for any subsequent year, the new Regulations apply to
all bonds held on or after the first day of the taxable year in which the
election is made. A holder is deemed to have made the election to amortize bond
premium for the taxable year that includes March 2, 1998 if the holder had
previously elected to amortize bond premium and that election is effective on
March 2, 1998. Holders are granted automatic consent to change their accounting
method for bond premium as required under the new Regulations. Holders of Notes
should consult their own tax advisors concerning the impact of the new
Regulations on their individual tax position.
Disposition of a Note
Except as discussed above, upon the sale, exchange or retirement of a Note,
a United States 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 United
States Holder's adjusted tax basis in the Note. A United States Holder's
adjusted tax basis in a Note generally will equal such United States Holder's
initial investment in the Note increased by any original issue discount included
in income (and accrued market discount, if any, if the United States 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 (subject to tax at a 20% rate)
if the Note were held for more than 18 months, and will be "mid-term" gain or
loss (subject to tax at a 28% rate) if the Note were held for more than one year
and less than 18 months.
MULTI-CURRENCY NOTES
As used herein, "Foreign Currency" means a currency or composite currency
other than United States dollars. The following summary relates to Notes that
are denominated in a currency or basket of currencies other than the U.S. dollar
("Multi-Currency Notes"). It does not apply to U.S. Holders whose functional
currency is not the U.S. dollar.
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Cash Method. A United States 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 United States 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 United States dollars at that time,
and such United States dollar value will be the United States Holder's tax basis
in such Foreign Currency.
Accrual Method. A United States 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 United States 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
United States 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 United States
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 United
States 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
United States Holder and may not be changed without the consent of the IRS. A
United States Holder should consult a tax advisor before making the above
election. A United States 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 United States
dollar value of the Foreign Currency payment received (determined on the date
such payment is received) in respect of such accrual period and the United
States dollar value of interest income that has accrued during such accrual
period (as determined above).
Purchase, Sale and Retirement of Notes
A United States 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 United States Holder's tax basis in the Foreign
Currency and the United States 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 United States Holder will recognize taxable
gain or loss equal to the difference between the amount realized on the sale,
exchange or retirement and such United States 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 United
States 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 United
States Holder for more than 18 months. 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 United States Holder
receives Foreign Currency on such a sale, exchange or retirement the amount
realized will be based on the United States 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 United States Holder (or, upon
election, an accrual basis United States Holder) will determine the United
States 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
United States 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
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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 United States
Holder's tax basis in a Note, and the amount of any subsequent adjustments to
such holder's tax basis, will be the United States dollar value of the Foreign
Currency amount paid for such Note, or of the Foreign Currency amount of the
adjustment, determined on the date of such purchase or adjustment.
Gain or loss realized upon the sale, exchange or retirement of a Note that
is attributable to fluctuations in currency exchange rates will be ordinary
income or loss which will not be treated as interest income or expense. Gain or
loss attributable to fluctuations in exchange rates will equal the difference
between the United States 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 United States dollar value of the Foreign Currency
principal amount of the Note, determined on the date the United States 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 United States 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 United States 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 United States 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 United
States 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 United States Holder
for any accrual period is translated into United States 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 United States Holder
should recognize exchange gain or loss equal to the difference between the
United States 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 United States dollar value of the bond premium determined on
the date of the acquisition of the Note.
Exchange of Foreign Currencies
A United States 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 United States 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 United States Holder on a sale or other disposition
of Foreign Currency (including its exchange for United States dollars or its use
to purchase Notes) will be ordinary income or loss.
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NON-UNITED STATES HOLDERS
A non-United States 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-United States 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-United States 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 United States Holder and (iii) provides the name and address of the
beneficial owner. The statement may be made on an IRS Form W-8 or a
substantially similar form, and the beneficial owner must inform the Withholding
Agent of any change in the information on the statement within 30 days of such
change. If a Note is held through a securities clearing organization or certain
other financial institutions, the organization or institution may provide a
signed statement to the Withholding Agent. However, in such case, the signed
statement must be accompanied by a copy of the IRS Form W-8 or the substitute
form provided by the beneficial owner to the organization or institution. The
Treasury Department is considering implementation of further certification
requirements aimed at determining whether the issuer of a debt obligation is
related to holders thereof.
Generally, a non-United States 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-United States
Holder. Certain other exceptions may be applicable, and a non-United States
Holder should consult its tax advisor in this regard.
The Notes will not be includable in the estate of a non-United States
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 United States Holder must be reported to the IRS,
unless the United States 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-United States 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-United States Holder, certifies that such seller is a
non-United States 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-United States status (and certain other conditions are met).
Certification of the registered owner's non-United States 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.
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PLAN OF DISTRIBUTION
The Notes are being and will in the future be offered from time to time for
sale by the Company to or through the Agents. The Agents, individually or in a
syndicate, may purchase Notes, as principal, from the Company from time to time
for resale to investors and other purchasers at varying prices relating to
prevailing market prices at the time of resale as determined by the applicable
Agent(s), or, if so specified in the applicable Pricing Supplement, for resale
at a fixed offering price. If agreed to by the Company and an Agent, such Agent
may also utilize its reasonable efforts on an agency basis to solicit offers to
purchase the Notes at 100% of the principal amount thereof, unless otherwise
specified in the applicable Pricing Supplement. The Company will pay a
commission to an Agent, ranging from 0.125% to 0.750% of the principal amount of
each Note, depending upon its stated maturity, sold through such Agent as an
agent of the Company. Commissions with respect to Notes with stated maturities
in excess of 30 years that are sold through an Agent as an agent of the Company
will be negotiated between the Company and such Agent at the time of such sale.
Unless otherwise specified in the applicable Pricing Supplement, any Note
sold to an Agent as principal will be purchased by such Agent at a price equal
to 100% of the principal amount thereof less a percentage of the principal
amount equal to the commission applicable to an agency sale of a Note of
identical maturity. An Agent may sell Notes it has purchased from the Company as
principal to certain dealers less a concession equal to all or any portion of
the discount received in connection with such purchase. Such Agent may allow,
and such dealers may reallow, a discount to certain other dealers. After the
initial offering of Notes, the offering price (in the case of Notes to be resold
on a fixed offering price basis), the concession and the reallowance may be
changed.
The 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 either of the Agents). Each of the Agents
will have the right, in its discretion reasonably exercised, to reject in whole
or in part any offer to purchase Notes received by it on an agency basis.
Unless otherwise specified in the applicable Pricing Supplement, payment of
the purchase price of the Notes will be required to be made in immediately
available funds in the Specified Currency in The City of New York on the date of
settlement. See "Description of Notes -- General."
Upon issuance, the Notes will not have an established trading market. The
Notes will not be listed on any securities exchange. The Agents may from time to
time purchase and sell Notes in the secondary market, but the Agents are not
obligated to do so, and there can be no assurance that there will be a secondary
market for the Notes or that there will be liquidity in the secondary market if
one develops. From time to time, the Agents may make a market in the Notes, but
the Agents are not obligated to do so and may discontinue any market-making
activity at any time.
The Agents may be deemed to be 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 Agents against, and to
provide contribution with respect to, certain liabilities (including liabilities
under the Securities Act). The Company has agreed to reimburse the Agents for
certain other expenses.
The Agents have, from time to time, provided, and may continue to provide
in the future, various investing banking, commercial banking and/or financial
advisory services to the Trust, the Company and certain of their affiliates, for
which certain customary compensation has been, and will be, received.
Lehman Brothers Holding Inc., an affiliate of Lehman Brothers Inc.,
provided to the Company a $75.0 million secured credit facility (the "Lehman
Loan"). The Lehman Loan bears interest at a rate of 150 basis points over LIBOR,
and matures on July 1, 1998. The proceeds of the Lehman Loan were used to repay
a portion of the balance of the Credit Facility outstanding at the closing of
such loan and for general corporate purposes. In connection with the Lehman
Loan, the Company paid Lehman Brothers Holding Inc. a fee of
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<PAGE> 39
approximately $281,000. As of the date of this Prospectus Supplement, no amounts
are outstanding under the Lehman Loan.
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 will be passed upon for the
Company by Wolf, Block, Schorr and Solis-Cohen LLP, Philadelphia, Pennsylvania.
Certain legal matters will be passed upon for the Agents by Rogers & Wells, New
York, New York. Wolf, Block, Schorr and Solis-Cohen LLP and Rogers & Wells will
rely on the opinions of Weinberg & Green LLC, Baltimore, Maryland, as to matters
of Maryland law.
S-39
<PAGE> 40
PROSPECTUS
[LIBERTY PROPERTY TRUST LOGO]
$999,795,000
LIBERTY PROPERTY TRUST
COMMON SHARES OF BENEFICIAL INTEREST
PREFERRED SHARES OF BENEFICIAL INTEREST
DEPOSITARY SHARES
WARRANTS
GUARANTIES
$650,208,000
LIBERTY PROPERTY LIMITED PARTNERSHIP
DEBT SECURITIES
Liberty Property Trust, a Maryland real estate investment trust (the
"Trust"), may offer from time to time in one or more series hereunder, together
or separately, at prices and on terms to be determined at the time of offering:
(a) its Common Shares of Beneficial Interest, $0.001 par value ("Common
Shares"); (b) its Preferred Shares of Beneficial Interest, $0.001 par value
("Preferred Shares"), which may be issued in the form of depositary shares
evidenced by depositary receipts ("Depositary Shares") and which may be
convertible into or exchangeable for Common Shares or other Securities (as
defined below); and (c) warrants to purchase Preferred Shares ("Preferred Shares
Warrants") or Common Shares ("Common Shares Warrants"). The Preferred Shares
Warrants and Common Shares Warrants are herein referred to collectively as
"Warrants" and, together with Common Shares, Preferred Shares, Depositary Shares
and Trust Guaranties (as defined below), as "Trust Securities."
Liberty Property Limited Partnership, a Pennsylvania limited partnership
(the "Operating Partnership" and, together with the Trust, the "Company"), may
offer from time to time in one or more series hereunder, together or separately,
at prices and on terms to be determined at the time of offering, its debt
securities ("Debt Securities"), consisting of debentures, notes and/or other
evidences of indebtedness, representing secured or unsecured obligations of the
Operating Partnership, which may be either senior or subordinated, which may
have the benefit of conditional or unconditional guaranties of the Trust
("Guaranties") and which may be convertible into or exchangeable for Common
Shares, Preferred Shares, units of limited partnership interest of the Operating
Partnership ("Units") and other Securities. The Debt Securities and Units are
herein referred to as "Partnership Securities" and, together with Trust
Securities, as "Securities."
The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in an accompanying Prospectus Supplement (the
"Prospectus Supplement") which will describe, without limitation and to the
extent applicable, terms for such Securities, including: (a) in the case of
Common Shares, the aggregate number of shares offered, public offering price and
other terms thereof; (b) in the case of Preferred Shares, the specific
designation and stated value, number of shares or fractional interests therein,
any dividend, liquidation preference, redemption, sinking fund, voting or other
rights, the terms for conversion into or exchange for other Securities, if any,
including terms of any Securities into or for which they are convertible or
exchangeable, the initial public offering price and any securities exchange
listings; (c) in the case of Depositary Shares, the fraction of a Preferred
Share represented by one Depositary Share and terms of the Preferred Shares; (d)
in the case of Warrants, to the extent applicable, the duration, offering price,
(cover page continues)
<PAGE> 41
exercise price, terms of the Securities for which they are exercisable, any
securities exchange listings and detachability and other terms thereof; and (e)
in the case of Debt Securities, the specific title, aggregate principal amount,
currency, denomination, maturity, priority, rate of interest (which may be fixed
or variable), time and place of payment of interest, terms for optional
redemption or repayment by the issuer thereof or any holder thereof or for
sinking fund payments, terms for conversion into or exchange for other
Securities, if any, including terms of any Securities into or for which they are
convertible or exchangeable, the initial public offering price, any securities
exchange listings, any special provisions related to denomination in a foreign
currency or issuance as medium term notes, original issue discount or other
special terms, the designation of the Trustee (as defined below), Security
Registrar (as defined below) and Paying Agent (as defined below), and the terms
of any applicable Guaranty. The Prospectus Supplement will also contain
information, where applicable, with regard to certain U.S. federal income tax,
accounting or other considerations relating to the Securities offered thereby.
The offering price to the public of the Securities to be issued by the
Trust and the Operating Partnership will be limited to US $999,795,000 and US
$650,208,000, respectively (or the equivalent based on the applicable exchange
rate at the time of issue, if Securities offered are denominated in one or more
foreign currencies or currency units). The Debt Securities may be denominated in
United States dollars or, at the option of the Operating Partnership, if so
specified in the applicable Prospectus Supplement, in one or more foreign
currencies or currency units. Such Debt Securities may be issued in registered
form or bearer form, or both. If so specified in the applicable Prospectus
Supplement, Debt Securities of a series may be issued in whole or in part in the
form of one or more temporary or permanent global securities.
The Securities may be sold to or through dealers or underwriters, directly
to other purchasers or through agents. If an agent of the Trust or the Operating
Partnership or a dealer or an underwriter is involved in the sale of the
Securities with respect to which this Prospectus is being delivered, such
agent's commission or dealer's purchase price or underwriter's discount will be
set forth in, or may be calculated from, the Prospectus Supplement. Any
underwriters, dealers or agents participating in the offering of Securities may
be deemed "underwriters" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"). See "Plan of Distribution" for possible
indemnification arrangements for any agents, dealers or underwriters.
The Securities may be used as all or part of the consideration to be paid
by the Trust or the Operating Partnership for the acquisition of non-operating
assets, for which financial statements would not be required to be filed with
the Securities and Exchange Commission (the "Commission"), or in exchange for
units of limited partnership interest of the Operating Partnership. In addition,
Common Shares may be offered hereby in exchange for certain debt securities of
the Operating Partnership that are exchangeable for such Common Shares. This
Prospectus may not be used to consummate sales of Securities unless accompanied
by a Prospectus Supplement.
The Common Shares are traded on the New York Stock Exchange (the "NYSE")
under the symbol "LRY."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS OR ANY SUPPLEMENT HERETO. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 7, 1998.
<PAGE> 42
RISK FACTORS
Liberty Property Trust, a Maryland real estate investment trust (the
"Trust"), conducts substantially all of its operations through Liberty Property
Limited Partnership, a Pennsylvania limited partnership (the "Operating
Partnership"). Unless the context otherwise requires, as used in this
Prospectus, (i) the term "Operating Partnership" includes Liberty Property
Limited Partnership and its subsidiaries (and, where the context indicates, its
predecessor entities, Rouse & Associates, a Pennsylvania general partnership,
and certain affiliated entities (collectively, the "Predecessor")) and (ii) the
term "Company" includes the Trust and the Operating Partnership.
Except as otherwise indicated, the cross-references in this Prospectus are
to sections hereof. This Prospectus contains or incorporates by reference
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company's
actual results could differ materially from those set forth in the
forward-looking statements. For a discussion of certain factors that might cause
such a difference, in addition to general investment risks and those factors
incorporated by reference herein, prospective investors should consider, among
others, the following factors:
GENERAL REAL ESTATE INVESTMENT RISKS
Dependence on Tenants; Renewal of Leases and Reletting of Space. The
Company's cash flow from operations will depend upon its ability to lease space
in its portfolio of properties (the "Operating Properties") and in it properties
currently under development (together with the Operating Properties, the
"Properties") on economically favorable terms. Upon the expiration of leases,
such leases may not be renewed, the space may not be relet or the terms of
renewal or reletting (including rental rates, the cost of leasing commissions,
required renovations and concessions to tenants) may be less favorable than
current lease terms. If any or all of these events occur, the Company's cash
flow from operations and ability to make expected distributions to shareholders
could be adversely affected. The Company's cash flow from operations also would
be adversely affected if tenants leasing a significant amount of space fail to
pay rent, become bankrupt or, if for any other reason, such rents could not be
collected. Moreover, to the extent a tenant defaults on a lease, the Company may
experience delays and costs in enforcing its rights as lessor. Further, the
Company may be adversely affected by various facts and events over which the
Company will have no control, such as a change in the demand in the markets in
which the Properties are located, the possible unavailability of prospective
tenants and the possibility of economic or physical decline of the areas in
which the Properties are located or physical damage to the Properties that would
make them less attractive to tenants.
Risks of Acquisition, Development and Construction Activities. The Company
intends to continue acquisition and development of industrial and office
properties. Acquisitions of additional properties and development activities
entail risks that investments will fail to perform in accordance with
expectations. With respect to the Company's development activities, such
development opportunities may be abandoned, construction costs of any property
may exceed original or budgeted estimates (possibly making the property
uneconomical) and construction and lease-up may not be completed on schedule,
resulting in increased debt service expense and construction costs. Development
activities are also subject to risks relating to the inability to obtain, or
delays in obtaining, all necessary zoning, land-use, building, occupancy and
other required governmental permits and authorizations.
The Company anticipates that future acquisitions and developments will be
financed, in whole or in part, under the Company's $325 million credit facility
(the "Credit Facility"), through other forms of secured or unsecured financing
or through utilization of access to capital markets. Such financings may result
in the risk that, upon completion of construction, permanent financing for newly
developed commercial properties may not be available or may be available only on
disadvantageous terms. If financing is not available on acceptable terms for new
acquisitions or developments undertaken without permanent financing, further
acquisitions and development might be curtailed, cash available for distribution
might be adversely affected and foreclosures on newly developed or acquired
properties could occur. Further, if any particular property is not successful,
the Company's losses could exceed its investment in the property.
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<PAGE> 43
Competition. There are numerous developers and real estate companies that
compete with the Company in seeking land for development, properties for
acquisition and tenants for properties. The Company may be adversely affected by
the fact that the availability of land for development within the Company's
markets continues to diminish, as does the availability of high quality
properties for acquisition within the Company's markets and elsewhere.
Possible Environmental Liabilities. Under various federal, state and local
laws, ordinances and regulations relating to the protection of the environment
(collectively, "Environmental Laws"), a current or previous owner or operator of
real estate may be liable for the cost of removal or remediation of certain
hazardous or toxic substances disposed, stored, released, generated,
manufactured or discharged from, on, at, onto, under or in such property.
Environmental Laws often impose such liability without regard to whether the
owner or operator knew of, or was responsible for, the presence or release of
such hazardous or toxic substances. In addition, the presence of any such
substances, or the failure to properly remediate such substances when present,
released or discharged, may adversely affect the owner's ability to sell or rent
such property or to borrow using such property as collateral. The cost of any
required remediation and the liability of the owner or operator therefor as to
any property is generally not limited under such Environmental Laws and could
exceed the value of the property and/or the aggregate assets of the owner or
operator. In addition to any action required by federal, state or local
authorities, the presence of hazardous or toxic substances on any of the
Properties, or on any properties acquired hereafter, could result in private
plaintiffs bringing claims for personal injury or other causes of action. In
connection with the ownership and operation of the Properties, and of any
properties acquired hereafter, the Company may be potentially liable for
remediation, release or injury. Further, various Environmental Laws impose on
owners or operators the requirement of on-going compliance with rules and
regulations regarding business-related activities that may affect the
environment. Failure to comply with such requirements could result in difficulty
in the lease or sale of any affected Property or the imposition of monetary
penalties and fines in addition to the costs required to attain compliance.
INDEBTEDNESS
Required payments on mortgages and other indebtedness generally are not
reduced if the economic performance of any property declines. If such a decline
occurs, the Company's income, Funds from Operations and cash available for
distribution to shareholders will be adversely affected. If the payments under
such indebtedness cannot be made, the Company could sustain a loss, which may
include foreclosures by or judgments against the Company in favor of mortgagees.
Further, instruments evidencing certain of the Company's indebtedness, including
the Operating Partnership's Exchangeable Subordinated Debentures due 2001 (the
"Exchangeable Subordinated Debentures") and the Credit Facility, contain
cross-default and/or cross-acceleration provisions. Depending on the principal
amount of the Exchangeable Subordinated Debentures that are exchanged for Common
Shares, the Company may not have accumulated sufficient cash to repay the
principal due on the Exchangeable Subordinated Debentures upon their maturity
and may therefore be required to meet its obligations through refinancings.
Additionally, certain of the Company's indebtedness, including indebtedness
under the Credit Facility, bears interest at variable rates and, therefore,
exposes the Company to the risk of increasing interest rates. There can be no
assurance that the Company will be able to refinance this or any other
indebtedness.
RISK OF ENTRY INTO NEW MARKETS
The Company's business strategy contemplates expanding the Company's
operations into additional new markets. In determining whether to enter a new
market, management considers demographics, job growth, employment, real estate
fundamentals and competition. There can be no assurance that the Company will be
successful in its effort to identify new markets that will afford it the
opportunity for favorable results or that the Company will be able to achieve
such results in those markets.
DEPENDENCE ON PRIMARY MARKETS
The Properties are located principally in the Southeastern, Mid-Atlantic
and Mid-Western United States. The Company's performance is, therefore,
dependent upon economic conditions in these geographic
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<PAGE> 44
areas. Like much of the country, the Southeastern, Mid-Atlantic and Mid-Western
United States have been subject to periods of economic decline.
TAX RISKS
Adverse Consequences of the Failure to Qualify as a REIT. Although the
Company believes that the Company qualifies as a REIT, no assurance can be given
that the Company in fact has qualified, or will remain qualified, as a REIT.
Qualification as a REIT involves the application of highly technical and complex
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), for
which there are only limited judicial or administrative interpretations. The
complexity of these provisions and of the applicable income tax regulations that
have been promulgated under the Code (the "Treasury Regulations") is greater in
the case of a REIT that holds its assets in partnership form. Moreover, no
assurance can be given that new legislation, regulations, administrative
interpretations or court decisions will not significantly alter the tax laws
regarding qualification as a REIT or the federal income tax consequences of such
qualification, possibly with retroactive effect. At the present time however,
the Company has no reason to expect a change in such tax laws that would
significantly and adversely affect the Company's ability to qualify and operate
as a REIT.
If in any taxable year the Company were to fail to qualify as a REIT, the
Company would not be allowed a deduction for distributions to shareholders in
computing its taxable income and would be subject to federal income tax on its
taxable income at regular 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 in which such
qualification was lost, and if the Company subsequently requalified as a REIT,
it may be required to pay a full corporate-level tax on any unrealized gain in
its assets as of the date of requalification and to make distributions at that
time equal to any earnings accumulated during the period of non-REIT status. As
a result, such additional taxes would reduce the funds available for
distribution to shareholders for each of the years involved. In addition, during
the period in which the Company had lost its REIT status, the Company would no
longer be required by the Code to make any distributions to shareholders.
Although the Company intends to continue to operate in a manner designed to
qualify as a REIT, it is possible that future economic, market, legal, tax or
other considerations may cause the Company's trustees, with the consent of the
holders of a majority of the voting interest of all outstanding Common Shares,
to revoke the election for the Company to qualify as a REIT. For further federal
income tax considerations, including a discussion of the qualification of the
Operating Partnership as a partnership for federal income tax purposes, see
"Federal Income Tax Considerations with Respect to the Trust and the Operating
Partnership -- Classification as a Partnership."
Tax Consequences to Certain Officers and Trustees. Certain officers and
trustees of the Company own Units which may be exchanged for Common Shares.
Prior to the exchange of Units for Common Shares, officers and trustees of the
Company who own Units may suffer different and more adverse tax consequences
than holders of Common Shares upon the sale of certain of the Properties, the
refinancing of debt associated with those properties or in connection with a
proposed tender offer or merger involving the Company and, therefore, such
individuals and the Company, as partners in the Operating Partnership, may have
different objectives regarding the appropriate terms of any such transaction.
LIMITATIONS ON CHANGES IN CONTROL
Ownership Limit. In order to protect its status as a REIT, the Company
must satisfy certain conditions, including the condition that no more than 50%
in value of its outstanding shares of beneficial interest may be owned, directly
or indirectly, by five or fewer individuals. To this end, the Company's Amended
and Restated Declaration of Trust (the "Declaration of Trust"), among other
things, prohibits (with certain exceptions applicable to select senior
executives of the Company) any holder from owning more than 5.0% of its
outstanding shares of beneficial interest without the consent of the Board of
Trustees of the Company. This limitation may have the effect of precluding
acquisition of control of the Company by a third party without the consent of
the Board of Trustees of the Company.
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<PAGE> 45
Staggered Board and Nominating Procedures. The Company's Board of Trustees
has three classes of trustees. The term of office of one class expires each
year. Trustees for each class are elected for three-year terms upon the
expiration of the respective class' term. Any nominee for trustee must have been
selected pursuant to the nominating provisions contained in the Company's
Declaration of Trust and By-Laws. The staggered terms for trustees and such
nominating procedures may affect the shareholders' ability to take control of
the Company, even if a change in control were in the shareholders' interest.
Preferred Shares. The Company's Declaration of Trust authorizes the Board
of Trustees to issue preferred shares and to establish the preferences and
rights of any shares issued. The issuance of preferred shares could have the
effect of delaying or preventing a change of control of the Company, even if a
change in control were in the shareholders' interest.
ADVERSE IMPACT OF INCREASING MARKET INTEREST RATES ON MARKET PRICE
One of the factors that may influence the price of the Common Shares in
public markets is the annual yield on the Common Share price paid from dividend
distributions by the Company. Thus, an increase in market interest rates may
lead purchasers of Common Shares to demand a higher annual yield, which could
adversely affect the market price of the Common Shares.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain materials filed or to be filed
by the Company with the Commission and incorporated by reference herein contain
statements that are or will be forward-looking, such as statements relating to
acquisitions (including related pro forma financial information) and other
business development activities, future capital expenditures, financing sources
and availability and the effects of regulations (including environmental
regulation) and competition. Such forward-looking information involves important
risks and uncertainties that could significantly affect anticipated results in
the future and, accordingly, such results may differ from those expressed in any
forward-looking statements incorporated by reference herein. These risks and
uncertainties include, but are not limited to, uncertainties affecting real
estate businesses generally (such as entry into new leases, renewals of leases
and dependence on tenants' business operations), risks relating to acquisition,
construction and development activities, possible environmental liabilities,
risks relating to leverage and debt service (including availability of financing
terms acceptable to the Company and sensitivity of the Company's operations to
fluctuations in interest rates), the potential for the use of borrowings to make
distributions necessary to qualify as a REIT, dependence on the primary markets
in which the Properties are located, the existence of complex regulations
relating to status as a REIT and the adverse consequences of the failure to
qualify as a REIT and the potential adverse impact of market interest rates on
the market prices for the Company's securities.
6
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THE COMPANY
The Trust is a self-administered and self-managed Maryland real estate
investment trust ("REIT") that was formed to continue and expand the commercial
real estate business of Rouse & Associates, a developer and manager of
commercial real estate in the Southeastern, Mid-Atlantic and West Coast markets,
founded in 1972. The Trust provides leasing, property management, acquisition,
development, construction and design management and other related services to
its portfolio of industrial and office properties.
On a consolidated basis, substantially all of the Trust's assets are owned
directly or indirectly by, and all of the Trust's operations are conducted
directly or indirectly by, the Operating Partnership. The Trust is the sole
general partner and also is a limited partner of the Operating Partnership.
The Company's executive offices are located at 65 Valley Stream Parkway,
Malvern, Pennsylvania 19355. The telephone number is (610) 648-1700. The Company
maintains offices in each of its primary markets.
USE OF PROCEEDS
Unless otherwise provided in the Prospectus Supplement, the net proceeds,
if any, from the sale of the Securities offered hereby will be used for general
corporate purposes, including the acquisition of properties or other assets and
the repayment of indebtedness. Unless otherwise provided in the Prospectus
Supplement, at the date hereof, no specific material proposed purchases have
been identified as probable. The amount of Securities offered from time to time
pursuant to this Prospectus and any Prospectus Supplement, and the precise
amounts and timing of the application of net proceeds from the sale of such
Securities, will depend upon funding requirements of the Company. If the Company
elects at the time of an issuance of Securities to make different or more
specific use of proceeds than set forth herein, such use will be described in
the Prospectus Supplement.
CERTAIN RATIOS
The ratios of earnings to fixed charges of the Company for the nine months
ended September 30, 1997, for the years ended December 31, 1996 and 1995 and for
the period from June 23, 1994 to December 31, 1994 were 1.80, 1.66, 1.47 and
1.85, respectively. The ratios of earnings to combined fixed charges and
preferred share dividends of the Company for the nine months ended September 30,
1997, for the years ended December 31, 1996 and 1995 and for the period from
June 23, 1994 to December 31, 1994 were 1.75, 1.66, 1.47 and 1.85, respectively.
The ratios of earnings to fixed charges and the ratios of earnings to
combined fixed charges and preferred share dividends were computed by dividing
earnings by fixed charges and by combined fixed charges and preferred share
dividends, respectively. For the purpose of such computations, earnings have
been calculated by adding fixed charges (excluding capitalized interest) to
income before minority interest and extraordinary items. Fixed charges consist
of interest costs, whether expensed or capitalized, and amortization of deferred
financing costs. For all periods, other than the nine months ended September 30,
1997, the ratios of earnings to fixed charges of the Company are the same as the
ratios of earnings to combined fixed charges and preferred share dividends,
because no preferred shares were outstanding during such periods.
Prior to the completion of the initial public offering of its Common Shares
on June 23, 1994, the operations of the Company were conducted through its
predecessor, Rouse & Associates, and certain of its affiliates (collectively,
the "Rouse Group"). In connection with completion of the initial public
offering, the Company reorganized the Rouse Group and substantially deleveraged
such predecessor's asset base. As a result of these factors, the Company does
not consider information relating to the ratio of earnings to fixed charges, or
the ratio of earnings to combined fixed charges and preferred share dividends,
for the periods prior to the completion of the public offering to be meaningful.
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DESCRIPTION OF DEBT SECURITIES
The Debt Securities may be issued in one or more series under a senior
indenture (the "Senior Indenture") or a subordinated indenture (the
"Subordinated Indenture" and, together with the Senior Indenture, the
"Indentures"), by and between the Operating Partnership and a Trustee (a
"Trustee"), and in the forms that have been filed as exhibits to the
Registration Statement, subject to the terms of such amendments or supplements
thereto as may be entered into from time to time and filed with the Commission
as exhibits to or incorporated by reference in the Registration Statement. The
following summaries of certain provisions of the Indentures do not purport to be
complete and are subject to, and qualified in their entirety by reference to,
all provisions of the Indentures, including the definitions therein of certain
terms. Wherever particular sections or defined terms of the Indentures are
summarized herein or in a Prospectus Supplement, it is intended that such
sections or defined terms (including, unless otherwise indicated herein,
definitions of terms capitalized in such summaries) shall be incorporated herein
or therein by reference. References to sections contained herein are to the
applicable sections of the Indenture. The following sets forth certain general
terms and provisions of the Debt Securities to which any Prospectus Supplement
may relate. The particular terms of the Debt Securities offered by any
Prospectus Supplement and the extent, if any, to which such general provisions
may apply to the Debt Securities so offered, will be described in the Prospectus
Supplement relating to such Debt Securities. The Operating Partnership is
referred to as the "Issuer" for purposes of the following summary.
The Issuer's rights and the rights of its creditors, including the holders
of the Debt Securities offered hereby, to participate in the assets of any
subsidiary upon the latter's liquidation or recapitalization will be subject to
the prior claims of the subsidiary's creditors except, subject to certain
limitations, to the extent that the Issuer may itself be a creditor with
recognized claims against the subsidiary.
GENERAL
The Indentures do not limit the aggregate principal amount of Debt
Securities that may be issued thereunder and provide that Debt Securities may be
issued from time to time in one or more series. The Debt Securities will be
direct obligations, secured or unsecured, of the Issuer. The Debt Securities
issued under the Senior Indenture ("Senior Debt Securities") will rank on a
parity with all other unsubordinated indebtedness of the Issuer. The Debt
Securities issued under the Subordinated Indenture ("Subordinated Debt
Securities") will be subordinated and junior in right of payment to all Senior
Indebtedness of the Issuer, to the extent and in the manner set forth in the
Subordinated Indenture. To the extent applicable to any particular series of
Debt Securities, the terms that are capitalized herein, but are not defined
herein, shall have the respective meanings ascribed to them in the Indentures
applicable to such Debt Securities. Whenever defined terms of the Indentures are
summarized herein or in a Prospectus Supplement, it is intended that such
defined terms shall be incorporated herein or therein by reference. See "Special
Terms Relating to Subordinated Debt Securities."
Reference is made to the Prospectus Supplement relating to the particular
series of Debt Securities offered thereby for the following terms, to the extent
applicable: (a) the title and series of such Debt Securities; (b) any limit on
the aggregate principal amount of such Debt Securities; (c) the price or prices
(expressed as a percentage of the aggregate principal amount thereof) at which
such Debt Securities will be issued; (d) the date or dates on which such Debt
Securities will mature, or the method or methods, if any, by which such date or
dates shall be determined; (e) the rate or rates (which may be fixed or
variable) per annum at which such Debt Securities will bear interest, if any, or
the method or methods, if any, by which such rate or rates are to be determined;
(f) the date or dates from which such interest, if any, on such Debt Securities
will accrue or the method or methods, if any, by which such date or dates are to
be determined, the dates on which such interest, if any, will be payable, the
date on which payment of such interest, if any, will commence and the Regular
Record Dates for such Interest Payment Dates, if any; (g) the dates, if any, on
which, and the price or prices at which the Debt Securities will, pursuant to
any mandatory sinking fund provisions, or may, pursuant to any optional sinking
fund or purchase fund provisions, be redeemed by the Issuer or otherwise, and
the other detailed terms and provisions of any such sinking fund or purchase
fund; (h) the period or periods within which, the price or prices at which, the
currency or currencies, currency unit
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<PAGE> 48
or units or composite currency or currencies in which, and other terms and
conditions upon which, the Debt Securities may, pursuant to any optional
redemption provisions, be redeemed at the option of the Issuer, the holder
thereof or otherwise and the other detailed terms and provisions of such
optional redemption; (i) the extent to which any of the Debt Securities will be
issuable in temporary or permanent global form with or without coupons and, if
so, the identity of the depositary for such global Debt Security, and the manner
in which any interest payable on a temporary or permanent global Debt Security
will be paid; (j) the denomination or denominations in which such Debt
Securities are authorized to be issued; (k) whether any of the Debt Securities
will be issued in bearer form and, if so, any limitations on the issuance or
conversion of such bearer Debt Securities (including exchange for registered
Debt Securities of the same series); (l) information with respect to book-entry
procedures; (m) whether any of the Debt Securities will be issued as Original
Issue Discount Securities (as defined below); (n) the place or places where,
subject to the terms of the related Indenture, the principal of and interest on,
and any other applicable amounts, payable in respect of such Debt Securities
shall be payable, and where such Debt Securities may be presented for
registration of transfer, exchange or conversion and where notices or demands to
or upon the Issuer in respect of such Debt Securities may be served; (o) the
currencies or currency units in which such Debt Securities are issued and in
which the principal of, interest on and additional amounts, if any, in respect
of such Debt Securities will be payable; (p) whether the amount of payments of
principal of, and interest and additional amounts, if any, on such Debt
Securities may be determined with reference to an index, formula or other method
(which index, formula or method may, but need not be, based on one or more
currencies, currency units or composite currencies, commodities, equity indices
or other indices) and the manner in which such amounts shall be determined; (q)
whether the Issuer or a holder may elect payment of the principal of or interest
on such Debt Securities in a currency or currencies, currency unit or units or
composite currency or currencies other than that in which such Debt Securities
are denominated or stated to be payable, the period or periods within which, and
the terms and conditions upon which, such election may be made, and the time and
manner of determining the exchange rate between the currency or currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are denominated or stated to be payable and the currency, currencies,
currency unit or units or composite currency or currencies in which such Debt
Securities are to be so payable; (r) the identity of the Trustee, and if other
than the applicable Trustee, the identity of each Security Registrar, Paying
Agent and Authenticating Agent and the designation of the initial Exchange Rate
Agent, if any; (s) if applicable, the defeasance of certain obligations by the
Issuer pertaining to Debt Securities of the series; (t) the person to whom any
interest on any registered Debt Security of the series shall be payable, if
other than the person in whose name that Debt Security (or one or more
predecessor Debt Securities) is registered at the close of business on the
Regular Record Date for such interest, the manner in which, or the person to
whom, any interest on any bearer Debt Security of the series shall be payable,
if otherwise than upon presentation and surrender of the coupons appertaining
thereto as they severally mature, and the extent to which, or the manner in
which, any interest payable on a temporary global Debt Security on an Interest
Payment Date will be paid if other than in the manner provided in the related
Indenture; (u) whether and under what circumstances the Issuer will pay
additional amounts (the term "interest," as used in this Prospectus, shall
include such additional amounts) on such Debt Securities to any holder who is
not a United States person (including any modification to the definition of such
term as contained in the related Indenture as originally executed) in respect of
any tax, assessment or governmental charge and, if so, whether the Issuer will
have the option to redeem such Debt Securities rather than pay such additional
amounts (and the terms of any such option); (v) any deletions from,
modifications of or additions to the Events of Default or covenants of the
Issuer with respect to any of such Debt Securities, whether or not such Events
of Default or Covenants are consistent with Events of Default or Covenants set
forth in the Indenture; (w) whether such Debt Securities shall be convertible
into or exchangeable for other Securities and, if so, the terms of any such
conversion or exchange and the terms of such other Securities; (x) any other
terms of the series (which will not be inconsistent with the provisions of the
applicable Indenture); and (y) the terms of any guaranties, which may be
conditional. The Prospectus Supplement relating to any particular guaranty
offered thereby will include any additional terms of such guaranty, including
the rank in priority and any covenants applicable to such guaranty.
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<PAGE> 49
Debt Securities may be issued as "Original Issue Discount Securities" to be
sold at a discount below their principal amount, which discount may be
substantial. In the event of an acceleration of the maturity of any Original
Issue Discount Security, the amount payable to the holder of such Original Issue
Discount Security upon such acceleration will be determined in accordance with
the applicable Prospectus Supplement, the terms of such Debt Security and the
applicable Indenture, but will be an amount less than the amount payable at the
maturity of such Original Issue Discount Security. All material federal income
tax, accounting and other considerations applicable thereto will be described in
the Prospectus Supplement relating thereto.
Except as described below under "Merger, Consolidation or Sale" or as
indicated in the applicable Prospectus Supplement, the Indentures do 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: (i)
a highly leveraged or similar transaction involving the Issuer, the Trust as the
sole general partner of the Issuer or any affiliate of either such party; (ii) a
change of control; or (iii) a reorganization, restructuring, merger or similar
transaction involving the Company that may adversely affect the holders of Debt
Securities. However, certain restrictions on the ownership and transfer of the
Common Shares and the Preferred Shares designed to preserve the Trust's status
as a REIT may act to prevent or hinder a change of control. The Issuer and its
management have no present intention of engaging in a transaction which would
result in the Issuer being highly leveraged or that would result in a change of
control.
REGISTRATION, TRANSFER, PAYMENT AND PAYING AGENT
Unless otherwise indicated in the applicable Prospectus Supplement, each
series of Debt Securities will be issued in registered form only, without
coupons. The Indentures, however, provide that the Issuer may also issue Debt
Securities in bearer form only, or in both registered and bearer form. Debt
Securities issued in bearer form shall have interest coupons attached, unless
issued as Original Issue Discount Securities. Debt Securities in bearer form
shall not be offered, sold, resold or delivered in connection with their
original issuance in the United States or to any United States person (as
defined below) other than through offices located outside the United States of
certain United States financial institutions. As used herein, "United States
person" means any citizen or resident of the United States, any corporation,
partnership or other entity created or organized in or under the laws of the
United States, or any estate or trust, the income of which is subject to United
States federal income taxation regardless of its source, and "United States"
means the United States of America (including the States and the District of
Columbia), its territories, its possessions and other areas subject to its
jurisdiction. Purchasers of Debt Securities in bearer form will be subject to
certification procedures and may be affected by certain limitations under United
States tax laws. Such procedures and limitations will be described in the
Prospectus Supplement relating to the offering of the Debt Securities in bearer
form.
Unless otherwise indicated in the applicable Prospectus Supplement, Debt
Securities will be issued in denominations of $1,000 or any integral multiple
thereof. No service charge will be made for any transfer, exchange or conversion
of the Debt Securities but the Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Unless otherwise described in the Prospectus Supplement relating thereto,
the principal, premium, if any, and interest, if any, of or on the Debt
Securities will be payable, transfer of the Debt Securities will be
registerable, and, if applicable, any Convertible Debt Securities (as defined
below) will be convertible, at the office or agency of the Issuer maintained for
that purpose, as the Issuer may designate from time to time, provided that
payments of interest may be made at the option of the Issuer by check mailed to
the address appearing in the Security Register (as defined below) of the person
in whose name such registered Debt Security is registered at the close of
business on the applicable Regular Record Date(s).
Unless otherwise indicated in the applicable Prospectus Supplement, payment
of principal of, premium, if any, and interest, if any, on, Debt Securities in
bearer form will be made payable, subject to any applicable laws and
regulations, at such office outside the United States as specified in the
Prospectus Supplement and as the Issuer may designate from time to time, at the
option of the holder, by check or by transfer to an account maintained by the
payee with a bank located outside the United States. Unless otherwise indicated
in the
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<PAGE> 50
applicable Prospectus Supplement, payment of interest and certain additional
amounts on Debt Securities in bearer form will be made only against surrender of
the coupon relating to the applicable Interest Payment Date. No payment with
respect to any Debt Security in bearer form will be made at any office or agency
of the Issuer in the United States or by check mailed to any address in the
United States or by transfer to an account maintained with a bank located in the
United States.
MERGER, CONSOLIDATION OR SALE
The Issuer may consolidate with, or sell, lease or convey all or
substantially all of its assets to, or merge with or into any other entity,
provided that in any such case: (i) either the Issuer shall be the continuing
entity, or the successor entity shall be an entity organized and existing under
the laws of the United States or a State thereof and such successor entity shall
expressly assume the due and punctual payment of the principal of (and premium
or Make-Whole Amount, if any) and any interest on all of any series of Debt
Securities, according to their tenor, and the due and punctual performance and
observance of all of the covenants and conditions of the Indentures to be
performed by the Issuer by supplemental indenture, complying with the provisions
of the Indentures relating to supplemental indentures, satisfactory to the
Trustee, executed and delivered to the Trustee by such entity; (ii) immediately
after giving effect to such transaction and treating any indebtedness which
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, and no event which, after notice or the lapse
of time, or both, would become an Event of Default, shall have occurred and be
continuing; and (iii) an officer's certificate and legal opinion covering such
conditions shall be delivered to the Trustee (Sections 801 and 803).
CERTAIN COVENANTS
The Indentures contain various covenants including the following:
Existence. Except as described under "Merger, Consolidation or Sale,"
above, the Issuer will do or cause to be done all things necessary to preserve
and keep in full force and effect its existence, rights (by partnership
agreement and statute) 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 Debt Securities (Section 1005).
Maintenance of Properties. The Issuer will cause all of its material
properties used or useful in the conduct of its business or the business of any
Subsidiary (as defined below) 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 shall not be prevented from selling or otherwise disposing of
for value their respective properties in the ordinary course of business
(Section 1006).
Insurance. The Issuer will, and will cause each of its Subsidiaries to,
keep all of its insurable properties insured against loss or damage at least
equal to their then full insurable value with insurers of recognized
responsibility and having an A.M. Best policy holder's rating of not less than
A-V (Section 1007).
Payment of Taxes and Other Claims. The Issuer will pay or discharge or
cause to be paid or discharged, before the same shall become delinquent: (i) all
taxes, assessments and governmental charges levied or imposed upon it or any
Subsidiary or upon the income, profits or property of the 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 or for which the Issuer has set apart and maintains
an adequate reserve (Section 1008).
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Provision of Financial Information. Whether or not the Issuer is subject
to Section 13 or 15(d) of the Exchange Act, the Issuer will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Issuer would have been required
to file with the Commission pursuant to such Sections 13 or 15(d) if the Issuer
were so subject (the "Financial Information"), such documents to be filed with
the Commission on or prior to the respective dates (the "Required Filing Dates")
by which the Issuer would have been required so to file such documents if the
Issuer were so subject. The Issuer also will in any event (x) within 15 days of
each Required Filing Date: (i) transmit by mail to all Holders of Debt
Securities, as their names and addresses appear in the Security Register,
without cost to such Holders, copies of the Financial Information; and (ii) file
with the Trustee copies of the Financial Information, and (y) if filing such
documents by the Issuer with the Commission is not permitted under the Exchange
Act, promptly upon written request and payment of the reasonable cost of
duplication and delivery, supply copies of such documents to any prospective
Holder (Section 1009).
As used in the Indentures and the description thereof herein:
"Security Register" means a register maintained at a place of payment for
the registration and transfer of the Debt Securities.
"Subsidiary" means a corporation, partnership or limited liability company,
a majority of the outstanding voting stock, partnership interests or membership
interests, as the case may be, of which is owned or controlled, directly or
indirectly, by the Company or by one or more Subsidiaries of the Company.
Liberty Property Development Corp. and Liberty Property Development Corp.-II are
Subsidiaries for purposes of this definition. For the purposes of this
definition, "voting stock" means stock having the voting power for the election
of directors, general partners, managers or trustees, as the case may be,
whether at all times or only so long as no senior class of stock has such voting
power by reason of any contingency.
ADDITIONAL COVENANTS AND/OR MODIFICATION 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
The term "Event of Default," when used in the Indenture, means any one of
the following events (whatever the reason for such Event of Default and whether
or not it shall be voluntary or involuntary or be effected by operation of law
or pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body): (i) default in the
payment of any interest upon any ser Debt Securities issued thereunder when such
interest becomes due and payable, and continuance of such default for a period
of 30 days; (ii) default in the payment of the principal of (or premium or
Make-Whole Amount, if any, on) any Debt Security when it becomes due and payable
at its Maturity Date or by declaration of acceleration, notice of redemption or
otherwise; (iii) default in the performance, or breach, of any covenant or
warranty of the Issuer in the Indentures with respect to any Debt Security
(other than a covenant or warranty a default in whose performance or whose
breach is elsewhere in the relevant section of the Indentures specifically dealt
with), and continuance of such default or breach for a period of 60 days after
there has been given, by registered or certified mail, to the Issuer by the
Trustee, or to the Issuer and the Trustee by the Holders of at least 25% in
principal amount of the Debt Securities of such series, a written notice
specifying such default or breach and requiring it to be remedied and stating
that such notice is a "Notice of Default" under the Indenture; (iv) a default
under any bond, debenture, note or other evidence of indebtedness of the Issuer,
or under any mortgage, indenture or other instrument of the Issuer under which
there may be issued or by which there may be secured any indebtedness of the
Issuer (or by any Subsidiary of the Issuer, the repayment of which the Issuer
has guaranteed or for which the Issuer is directly responsible or liable as
obligor or guarantor on a full recourse basis), whether such indebtedness now
exists or shall hereafter be created, which default shall constitute a failure
to pay an aggregate principal amount exceeding
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$10,000,000 of such indebtedness when due and payable after the expiration of
any applicable grace period with respect thereto and shall have resulted in such
indebtedness in an aggregate principal amount exceeding $10,000,000 becoming or
being declared due and payable prior to the date on which it would otherwise
have become due and payable, without such indebtedness having been discharged,
or such acceleration having been rescinded or annulled, within a period of 10
days after there shall have been given, by registered or certified mail, to the
Issuer by the Trustee, or to the Issuer and the Trustee by the Holders of at
least 10% in principal amount of the outstanding Debt Securities, a written
notice specifying such default and requiring the Issuer to cause such
indebtedness to be discharged or cause such acceleration to be rescinded or
annulled and stating that such notice is a "Notice of Default" under the
Indenture; or (v) certain events of bankruptcy, insolvency or reorganization
(Section 501).
If an Event of Default under the Indentures with respect to any series of
Debt Securities at the time outstanding occurs and is continuing (other than
Events of Default arising in connection with certain events of bankruptcy,
insolvency or reorganization), then in every such case the Trustee or the
Holders of not less than 25% of the principal amount of the outstanding Debt
Securities of such series may declare the principal amount and premium (if any)
and accrued interest on all the Debt Securities of such series to be due and
payable immediately by written notice thereof to the Issuer (and to the Trustee
if given by the Holders). However, at any time after such a declaration of
acceleration with respect to the Debt Securities has been made, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of not less than a majority in principal amount of the
outstanding Debt Securities of such series may rescind and annul such
declaration and its consequences if (a) the Issuer shall have deposited with the
Trustee all required payments of the principal of (and premium or Make-Whole
Amount, if any) and interest on the Debt Securities of such series, plus certain
fees, expenses, disbursements and advances of the Trustee and (b) all Events of
Default with respect to the Debt Securities of such series, other than the
non-payment of principal of (or premium or Make-Whole Amount, if any) or
interest on the Debt Securities of such series which has become due solely by
such declaration of acceleration, have been cured or waived as provided in the
Indenture. In the event of a declaration of acceleration because an Event of
Default as described in clause (iv) of the preceding paragraph has occurred and
is continuing, such declaration shall be automatically rescinded and annulled if
the default triggering such Event of Default (along with any other defaults
caused thereby) shall be remedied or cured by the Issuer or its relevant
Subsidiary or waived by the holders of such indebtedness within 60 days after
such declaration of acceleration. Upon the occurrence of an Event of Default
arising in connection with certain events of bankruptcy, insolvency or
reorganization, the principal of, premium, if any, and accrued interest on all
Debt Securities of such series then outstanding shall immediately become due and
payable without any declaration or other act on the part of the Trustee or any
Holder (Section 502).
The Trustee will be required to give notice to the Holders of the Debt
Securities of such series within 90 days of the occurrence of a default under
the Indentures unless such default shall have been cured or waived; provided,
however, that the Trustee may withhold notice to the Holders of the Debt
Securities of such series of any default (except a default in the payment of the
principal of (or premium or Make-Whole Amount, if any) or interest on the Debt
Securities of such series) if and so long as specified responsible officers of
the Trustee determine in good faith that the withholding of such notice is in
the interest of such Holders; provided, that in the case of any default or
breach of a covenant or warranty under the Indentures as described in clause
(iii) of the first paragraph of this section "Events of Default, Notice and
Waiver," no such notice to Holders shall be given until at least 60 days after
the occurrence thereof. For purposes of this paragraph, the term "default" means
any event which is, or after notice or lapse of time or both would become, an
Event of Default under the Indentures with respect to the Debt Securities of
such series (Section 601).
The Indentures provide that no Holder of Debt Securities may institute any
proceedings, judicial or otherwise, with respect to the Indentures or for any
remedy thereunder, except in the case of failure of the Trustee, for 60 days, to
act after it has received a written request to institute proceedings in respect
of an Event of Default from the Holders of not less than 25% in principal amount
of the outstanding Debt Securities of any series, as well as an offer of
indemnity reasonably satisfactory to it (Section 507). Such provision will not
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prevent, however, any Holder of Debt Securities from instituting suit for the
payment of the principal of (and premium or Make-Whole Amount, if any) and
interest on the Debt Securities of such series on the respective due dates
thereof (Section 508).
Defaults (except a default in the payment of principal of (or premium or
Make-Whole Amount, if any) or interest on the Debt Securities of any series or
default with respect to a covenant or provision which cannot be modified under
the terms of the Indentures without the consent of each Holder affected) may be
waived by the Holders of not less than a majority of principal amount of the
then outstanding Debt Securities of such series, upon the conditions provided in
the Indentures (Section 513).
Subject to provisions in the Indentures relating to its duties in case of
default, the Trustee is under no obligation to exercise any of its rights or
powers under the Indentures at the request or direction of any Holders of any
series of Debt Securities then outstanding under the Indenture, unless such
Holders shall have offered to the Trustee reasonable security or indemnity
(Section 602). The Holders of not less than a majority in principal amount of
the outstanding Debt Securities of any series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred upon such Trustee.
However, the Trustee may refuse to follow any direction which is in conflict
with any law or the Indenture, which may involve the Trustee in personal
liability or which may be unduly prejudicial to the Holders of the Debt
Securities of such series not joining therein and the Trustee may take any other
action it deems proper not inconsistent with such direction (Section 512).
Within 120 days after the close of each fiscal year, the Issuer will be
required to deliver to the Trustee a certificate, signed by one of several
specified officers of the Issuer, stating whether or not such officer has
knowledge of any default under the Indentures and, if so, specifying each such
default and the nature and status thereof (Section 1010).
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indentures may be made only with the
consent of the Holders of not less than a majority in principal amount of all of
the Debt Securities issued under the Indenture; provided, however, that no such
modification or amendment may, without the consent of the Holder of each Debt
Security affected thereby, (a) change the stated maturity of the principal of
(or premium or Make-Whole Amount, if any, on), or any installment of interest
on, any such Debt Security; (b) reduce the principal amount of, or the rate or
amount of interest on, or any premium payable on redemption of Debt Securities,
or adversely affect any right of repayment of the Holder of any Debt Securities;
(c) change the place of payment, or the coin or currency, for payment of
principal or premium, if any, or interest on the Debt Securities; (d) impair the
right to institute suit for the enforcement of any payment on or with respect to
the Debt Securities on or after the stated maturity of any such Debt Security;
(e) reduce the above-stated percentage in principal amount of outstanding Debt
Securities the consent of whose Holders is necessary to modify or amend the
Indenture, for any waiver with respect to the Debt Securities, or to waive
compliance with certain provisions of the Indentures or certain defaults and
consequences thereunder or to reduce the quorum or voting requirements set forth
in the Indenture; or (f) modify any of the foregoing provisions or any of the
provisions relating to the waiver of certain past defaults or certain covenants,
except to increase the required percentage to effect such action or to provide
that certain other provisions of the Indentures may not be modified or waived
without the consent of the Holder of each Debt Security (Section 902).
The Holders of not less than a majority in principal amount of the Debt
Security have the right to waive compliance by the Issuer with certain covenants
in the Indentures (Section 1012).
Modifications and amendments of the Indentures may be permitted to be made
by the Issuer and the Trustee without the consent of any Holder for any of the
following purposes: (i) to evidence the succession of another person to the
Issuer as obligor under the Indenture; (ii) to add to the covenants of the
Issuer for the benefit of the Holders 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 Debt Securities; (iv) to add or
change any provisions of the Indentures 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,
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provided that such action shall not adversely affect the interests of the
Holders of Debt Securities in any material respect; (v) to change or eliminate
any provisions of the Indenture, provided that any such change or elimination
shall become effective only when the outstanding Debt Securities are not
entitled to the benefit of such provision; (vi) to secure the Debt Securities;
(vii) to establish the form or terms of the Debt Securities and any related
coupons as permitted by the Indenture; (viii) to evidence and provide for the
acceptance of appointment under the Indentures by a successor Trustee with
respect to the Debt Securities or facilitate the administration of the trust
under the Indentures by more than one Trustee; (ix) to cure any ambiguity,
defect or inconsistency in the Indenture, provided that such action is not
inconsistent with the provisions of the Indentures and shall not adversely
affect the interests of Holders of Debt Securities in any material respect; or
(x) to supplement any of the provisions of the Indentures to the extent
necessary to permit or facilitate defeasance and discharge of Debt Securities,
provided that such action shall not adversely affect the interests of the
Holders of Debt Securities in any material respect (Section 901).
The Indentures contain provisions for convening meetings of the Holders of
the Debt Securities of any series (Section 1501). A meeting will be permitted to
be called at any time by the 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 of such series affected by certain modifications and amendments of the
Indenture, any resolution presented at a meeting or adjourned meeting duly
reconvened at which a quorum is present may be adopted by the affirmative vote
of the Holders of a majority in principal amount of the outstanding Debt
Securities of such 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 specific percentage, which is less than a majority, in principal
amount of the outstanding Debt Securities of a series may be adopted at a
meeting or adjourned meeting duly reconvened and 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 the Debt Securities of any series
duly held in accordance with the Indentures 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 entitled to vote 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 entitled to vote such specified percentage
in principal amount of the outstanding Debt Securities of such series will
constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, the Indentures 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 the Indentures expressly provide 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 the other series: (i) there shall be no minimum quorum
requirement for such meeting; and (ii) the principal amount of the outstanding
Debt Securities of such series that vote in favor of such request, demand,
authorization, direction, notice, consent, waiver or other action shall be taken
into account in determining whether such request, demand, authorization,
direction, notice, consent, waiver or other action has been made, given or taken
under the Indenture.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Issuer will be permitted under the Indentures to discharge certain
obligations to the Holders of any series of Debt Securities that have not
already been delivered to the Trustee for cancellation by irrevocably depositing
with the Trustee, in trust, funds in the currency in which the Debt Securities
of such series are payable in an amount sufficient to pay the entire
indebtedness on such Debt Securities in respect of principal (and premium or
Make-Whole Amount, if any) and interest to the date of such deposit (if such
Debt Securities have become due and payable) or to the stated Maturity Date or
redemption date, as the case may be.
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The Indentures will also provide that the Issuer may elect either (a) to
defease and be discharged from any and all obligations with respect to such Debt
Securities other than 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 sections of Article Ten of the Indentures relating to limitations
on the incurrence of Debt, maintenance of Unencumbered Total Asset Value,
existence of the Issuer, maintenance of the Issuer's properties, insurance,
payment of taxes and other claims and provision of financial information 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
Trustee, in trust, of an amount, in the currency 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 or
Make-Whole Amount, if any) and interest on such Debt Securities or analogous
payments thereon, on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the Issuer has
delivered to the Trustee an opinion of counsel (as specified in the 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
federal income tax law occurring after the date of the Indentures (Section
1404).
"Government Obligations" means securities which are: (i) direct obligations
of the United States of America 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, the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, 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 Issuer 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.
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 (iii) under "Events of Default, Notice and Waiver" with respect to
certain specified sections of Article Ten of the Indentures (which sections
would no longer be applicable to such Debt Securities as a result of such
covenant defeasance) the amount in such currency in which such Debt Securities
are payable, and Government Obligations on deposit with the 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.
OUTSTANDING DEBT SECURITIES
Unless otherwise indicated in the applicable Prospectus Supplement, in
determining whether the holders of the requisite principal amount of Outstanding
Debt Securities have given any request, demand, authorization, direction,
notice, consent or waiver under the Indentures: (a) the portion of the principal
amount of an Original Issue Discount Security that shall be deemed to be
Outstanding for such purposes shall be that portion of the principal amount
thereof that could be declared to be due and payable pursuant to the terms of
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such Original Issue Discount Security as of the date of such determination; (b)
the principal amount of any Indexed Security shall be the principal face amount
of such Indexed Security determined on the date of its original issuance; and
(c) any Debt Security owned by the Issuer or any obligor on such Debt Security,
or any Affiliate of the Issuer or such other obligor, shall be deemed not to be
outstanding.
MODIFICATION AND WAIVER
The Issuer may amend the Indentures with the written consent of the holders
of a majority in principal amount of the respective Debt Securities outstanding
thereunder. However, without the consent of each Holder affected, an amendment
may not: (a) reduce the amount of Debt Securities whose holders must consent to
an amendment; (b) reduce the rate or change the time of payment of interest on
any Debt Securities; (c) reduce the principal of or change the fixed maturity of
Debt Securities; (d) make any Debt Securities payable in money other than that
stated in the definitive notes representing such Debt Securities; (e) change the
provisions of the respective Indenture regarding the right of a majority of the
Holders to waive defaults under such Indenture or impair the right of any Holder
to institute suit for the enforcement of any payment of principal and interest
on the Debt Securities on and after their respective due dates; (f) make any
change that adversely affects the right to convert or exchange any Convertible
Debt Securities; or (g) make any change to the provisions of the respective
Indenture regarding subordination and seniority of the Debt Securities that
adversely affects the rights of any Holders.
SPECIAL TERMS RELATING TO SUBORDINATED DEBT SECURITIES
Upon any distribution of assets of the Issuer resulting from any
dissolution, winding up, liquidation or reorganization, payments on Subordinated
Debt Securities are to be subordinated, to the extent provided in the
Subordinated Indenture, in right of payment to the prior payment in full of all
Senior Indebtedness, but the obligation of the Issuer to make payments on the
Subordinated Debt Securities will not otherwise be affected. No payment on
Subordinated Debt Securities may be made at any time when there is a default in
the payment of any principal, premium, interest, Additional Amounts or sinking
fund of or on any Senior Indebtedness. Holders of Subordinated Debt Securities
will be subrogated to the rights of holders of Senior Indebtedness to the extent
of payments made on Senior Indebtedness upon any distribution of assets in any
such proceedings out of the distributive shares of Subordinated Debt Securities.
By reason of such subordination, in the event of a distribution of assets upon
insolvency, certain creditors of the Issuer may recover more, ratably, than
holders of Subordinated Debt Securities.
The Prospectus Supplement relating to any Subordinated Debt Securities will
set forth the aggregate amount of Senior Indebtedness outstanding as of the most
recent date practicable and any limitations on the issuance of additional Senior
Indebtedness. As of the date of this Prospectus, there is no limitation on the
amount of Senior Indebtedness that may be issued by the Trust or the Operating
Partnership.
CONVERSION OR EXCHANGE
The holders of Debt Securities of a specified series that are convertible
into or exchangeable for other Securities ("Convertible Debt Securities") will
be entitled at certain times specified in the Prospectus Supplement relating to
such Convertible Debt Securities, subject to prior redemption, exchange,
repayment or repurchase, to convert or exchange any Convertible Debt Securities
of such series into such other Securities, at the conversion price set forth in
such Prospectus Supplement, subject to adjustment and to such other terms as are
set forth in such Prospectus Supplement. Any such conversion or exchange of
Convertible Debt Securities will be further subject to the applicable terms and
conditions set forth in the Indentures, as supplemented or amended from time to
time.
OPTIONAL REDEMPTION
The Debt Securities of any series may be redeemed at any time at the option
of the Issuer, in whole or from time to time in part, at a redemption price
equal to the sum of: (i) the principal amount of the Debt
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Securities being redeemed plus accrued interest thereon to the redemption date;
and (ii) the Make-Whole Amount (as defined below), if any, with respect to such
Debt Securities (the "Redemption Price").
If notice of redemption has been given as provided in the Indentures and
funds for the redemption of any Debt Securities called for redemption shall have
been made available on the redemption date referred to in such notice, 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 from and after the redemption date will be to receive payment of the
Redemption Price upon surrender of such Debt Securities in accordance with such
notice.
Notice of any optional redemption of any Debt Securities will be given to
Holders at their addresses, as shown in the security register for the Debt
Securities, 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 principal amount of the Debt Securities held by such Holder
to be redeemed.
If all or less than all of the Debt Securities of any series are to be
redeemed at the option of the Issuer, the Issuer will notify the Trustee at
least 45 days prior to giving notice of redemption (or such shorter period as
may be satisfactory to the Trustee) of the aggregate principal amount of Debt
Securities to be redeemed, if less than all of the Debt Securities of any series
are to be redeemed, and their redemption date. The Trustee shall select, in such
manner as it shall deem fair and appropriate, no less than 60 days prior to the
date of redemption, the Debt Securities to be redeemed in whole or in part.
Neither the Issuer nor the Trustee shall be required to: (i) issue,
register the transfer of or exchange Debt Securities during a period beginning
at the opening of business 15 days before any selection of Debt Securities 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 Securities, or portion thereof, called for redemption, except the
unredeemed portion of any Debt Securities being redeemed in part; or (iii)
issue, register the transfer of or exchange any Debt Securities that has been
surrendered for repayment at the option of the Holder, except the portion, if
any, of such Debt Securities not to be so repaid (Section 305).
As used herein:
"Make-Whole Amount" means, in connection with any optional redemption of
any Debt Securities, the excess, if any, of: (i) the aggregate present value as
of the date of such redemption of each dollar of principal being redeemed and
the amount of interest (exclusive of interest accrued to the date of redemption)
that would have been payable in respect of each such dollar if such redemption
had not been made, determined by discounting, on a semi-annual basis, such
principal and interest at the Reinvestment Rate (as defined below) (determined
on the third Business Day preceding the date notice of such redemption is given)
from the respective dates on which such principal and interest would have been
payable if such redemption had not been made, to the date of redemption, over
(ii) the aggregate principal amount of the Debt Securities being redeemed.
"Reinvestment Rate" means the yield on Treasury securities at a constant
maturity corresponding to the remaining life (as of the date of redemption, and
rounded to the nearest month) to stated maturity of the principal being redeemed
(the "Treasury Yield"), plus 0.25%, unless such percentage is otherwise provided
in the applicable Pricing Supplement. For purposes hereof, the Treasury Yield
shall be equal to the arithmetic mean of the yields published in the Statistical
Release (as defined below) under the heading "Week Ending" for "U.S. Government
Securities -- Treasury Constant Maturities" with a maturity equal to such
remaining life; provided, that if no published maturity exactly corresponds to
such remaining life, then the Treasury Yield shall be interpolated or
extrapolated on a straight-line basis from the arithmetic means of the yields
for the next shortest and next longest published maturities. For purposes of
calculating the Reinvestment Rate, the most recent Statistical Release published
prior to the date of determination of the Make-Whole Amount shall be used. If
the format or content of the Statistical Release changes in a manner that
precludes determination of the Treasury Yield in the above manner, then the
Treasury Yield shall be determined in the manner that most closely approximates
the above manner, as reasonably determined by the Issuer.
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"Statistical Release" means the statistical release designated "H.15(519)"
or any successor publication which is published weekly by the Federal Reserve
System and which reports yields on actively traded United States government
securities adjusted to constant maturities, or, if such statistical release is
not published at the time of any determination under the Indenture, then such
other reasonably comparable index which shall be designated by the Issuer.
GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities ("Global Debt Securities") that will be
deposited with, or on behalf of, a depositary (the "Depositary") identified in
the Prospectus Supplement relating to such series. Global Debt Securities may be
issued in either registered or bearer form and in either temporary or permanent
form. Unless and until it is exchanged in whole or in part for individual
certificates evidencing Debt Securities in definitive form represented thereby,
a Global Debt Security may not be transferred except as a whole by the
Depositary for such Global Debt Security to a nominee of such Depositary or by a
nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a successor of such
Depositary or a nominee of such successor.
The specific terms of the depositary arrangement with respect to a series
of Global Debt Securities, and certain limitations and restrictions relating to
a series of bearer Global Debt Securities, will be described in the Prospectus
Supplement relating to such series.
BOOK-ENTRY SYSTEM
Certain series of Debt Securities may be represented by a single fully
registered note in book-entry form (each, a "Global Note") registered in the
name of a nominee of The Depository Trust Company ("DTC"). The following are
summaries of certain rules and operating procedures of DTC that affect the
payment of principal and interest and transfers in the Global Notes. Upon
issuance, each series of Debt Securities that is represented by a Global Note
will be issued only in the form of a Global Note which will be deposited with,
or on behalf of, DTC and registered in the name of Cede & Co., as nominee of
DTC. Unless and until it is exchanged in whole or in part for Debt Securities of
such series in definitive form under the limited circumstances described below,
a Global Note may not be transferred except as a whole: (i) by DTC to a nominee
of DTC; (ii) by a nominee of DTC to DTC or another nominee of DTC; or (iii) by
DTC or any such nominee to a successor or a nominee of such successor.
Ownership of beneficial interests in a Global Note will be limited to
persons that have accounts with DTC for such Global Note ("participants") or
persons that may hold interests through participants. Upon the issuance of a
Global Note, DTC will credit, on its book-entry registration and transfer
system, the participants' accounts with the respective principal amounts of the
Debt Securities represented by such Global Note beneficially owned by such
participants. Ownership of beneficial interests in such Global Notes will be
shown on, and the transfer of such ownership interests will be effected only
through, records maintained by DTC (with respect to interests of participants)
and on the records of participants (with respect to interests of persons holding
through participants). The laws of some states may require that certain
purchasers of securities take physical delivery of such securities in definitive
form. Such laws may limit or impair the ability to own, transfer or pledge
beneficial interests in the Global Notes.
So long as DTC or its nominee is the registered owner of a Global Note, DTC
or its nominee, as the case may be, will be considered the sole owner or Holder
of the Debt Securities represented by such Global Note for all purposes under
the Indenture. Except as set forth below, owners of beneficial interests in a
Global Note will not be entitled to have Debt Securities represented by such
Global Note registered in their names, will not receive or be entitled to
receive physical delivery of such Debt Securities in certified form and will not
be considered the registered owners or Holders thereof under the Indenture.
Accordingly, each person owning a beneficial interest in a Global Note must rely
on the procedures of DTC and, if such person is not a participant, on the
procedures of the participant through which such person owns its interest, to
exercise any rights of a Holder under the Indenture. The Issuer understands that
under existing industry practices, if the
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Issuer requests any action of Holders or if an owner of a beneficial interest in
a Global Note desires to give or take any action that a Holder is entitled to
give or take under the Indenture, DTC would authorize the participants holding
the relevant beneficial interests to give or take such action, and such
participants would authorize beneficial owners owning through such participants
to give or take such action or would otherwise act upon the instructions of
beneficial owners holding through them.
Principal and interest payments on interests represented by a Global Note
will be made to DTC or its nominee, as the case may be, as the registered owner
of such Global Note. None of the Issuer, the Trustee or any agent of the Trustee
will have any responsibility or liability for any aspect of the records relating
to or payment made on account of beneficial ownership interests in the Global
Notes or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Issuer expects that DTC, upon receipt of any payment of principal or
interest in respect of a Global Note, will immediately credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in such Global Note as shown on the records of DTC. The Issuer also
expects that payments by participants to owners of beneficial interests in the
Global Notes held through such participants will be governed by standing
customer instructions and customary practice, as is now 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 participants.
If DTC is at any time unwilling or unable to continue as depository for
Debt Securities represented by a Global Note and the Issuer fails to appoint a
successor depository registered as a clearing agency under the Exchange Act
within 90 days, the Issuer will issue such Debt Securities in definitive from in
exchange for the Global Notes. Any Debt Securities issued in definitive form in
exchange for the Global Notes will be registered in such name or names, and will
be issued in denominations of $1,000 and such integral multiples thereof, as DTC
shall instruct the Trustee. It is expected that such instructions will be based
upon directions received by DTC from participants with respect to ownership of
beneficial interests in the Global Notes.
DTC has advised the Issuer of the following information regarding DTC. DTC
is a limited-purpose trust company organized under the Banking Law of the State
of New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. DTC was created to hold securities of its participants and to facilitate
the clearance and settlement of transactions among its participants in such
securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations, some of
which (and/or their representatives) own DTC. Access to the DTC book-entry
system is also available to others, such as banks, brokers and dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly.
DESCRIPTION OF PREFERRED SHARES
GENERAL
The rights, preferences, privileges and restrictions of the Preferred
Shares in respect of which this Prospectus is delivered shall be described in
the Prospectus Supplement relating to such Preferred Shares. Among the terms of
the Preferred Shares which may be specified in the related Prospectus Supplement
are the following: (a) the annual dividend rate, if any, or the means by which
such dividend rate may be calculated (including without limitation the
possibility that the rate of such dividends may bear an inverse relationship to
some index or standard) and the date or dates from which such dividends shall
accrue and the date or dates on which such dividends shall be paid and whether
such dividends shall be cumulative; (b) the price at which and the terms and
conditions on which the shares of such series of Preferred Shares may be
redeemed, including the period of time during which such shares may be redeemed,
any premium to be paid over and above the par value of such Preferred Shares,
whether and to what extent accumulated dividends on such Preferred Shares will
be paid upon the redemption of such shares; (c) the liquidation preference, if
any,
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over and above the par value of such Preferred Shares and whether and to what
extent the holders of such shares shall be entitled to accumulated dividends in
the event of the voluntary or involuntary liquidation, dissolution or winding-up
of the affairs of the Company; (d) whether the Preferred Shares shall be subject
to the operation of a retirement or sinking fund and, if so, a description of
the operation of such retirement or sinking fund; (e) the terms and conditions,
if any, on which the Preferred Shares may be convertible into, or exchangeable
for, shares of any other class or classes of equity interests in the Trust,
including the price or rate of conversion or exchange and the method for
effecting such conversion or exchange, provided that no Preferred Shares will be
convertible into shares of a class that has superior rights or preferences as to
dividends or distribution of assets of the Company upon the voluntary or
involuntary dissolution or liquidation of the Company; (f) a description of the
voting rights, if any, of the Preferred Shares; and (g) other preferences,
rights, qualifications or restrictions or material terms of such Preferred
Shares.
The Maryland Real Estate Investment Trust Law and the Company's Declaration
of Trust provide that no shareholder shall be personally liable for any
obligation of the Company. The Company's Declaration of Trust and By-laws
further provide that the Company shall indemnify each shareholder against any
claim or liability to which such holder may become subject by reason of such
person being or having been a shareholder, and that the Company shall reimburse
each shareholder for all legal or other expenses reasonably incurred by such
person in connection with any such claim or liability. It should be noted,
however, that with respect to tort claims, claims for taxes and certain
statutory liabilities, shareholders may, in some jurisdictions, be personally
liable to the extent that such claims are not satisfied by the Company. Because
the Company will carry public liability insurance in amounts that it considers
adequate, any risk of personal liability to shareholders will be limited to
situations in which the Company's assets, together with its insurance coverage,
would be insufficient to satisfy the claims against the Company and the
shareholders, or in which the claim is not covered by the Company's liability
insurance policies.
The description of the foregoing provisions of the Preferred Shares as set
forth in the related Prospectus Supplement is only a summary, does not purport
to be complete and is subject to, and is qualified in its entirety by, reference
to the definitive Certificate of Amendment to the Company's Declaration of Trust
relating to such series of Preferred Shares. In connection with any offering of
Preferred Shares, such Certificate of Amendment will be filed with the
Commission as an exhibit to or incorporated by reference in the Registration
Statement.
RANK
Unless otherwise specified in the Prospectus Supplement, the Preferred
Shares will, with respect to dividend rights and rights upon liquidation,
dissolution or winding up of the Company, rank (i) senior to all classes or
series of Common Shares of the Company, and to all equity securities ranking
junior to such Preferred Shares; (ii) on a parity with all equity securities
issued by the Company the terms of which specifically provide that such equity
securities rank on a parity with the Preferred Shares; and (iii) junior to all
equity securities issued by the Company the terms of which specifically provide
that such equity securities rank senior to the Preferred Shares. The term
"equity securities" does not include convertible debt securities for this
purpose.
DIVIDENDS
Holders of the Preferred Shares of each series will be entitled to receive,
when, as and if declared by the Board of Trustees of the Company, out of assets
of the Company legally available for payment, cash dividends (or dividends in
kind or in other property if expressly permitted and described in the applicable
Prospectus Supplement) at such rates and on such dates as will be set forth in
the applicable Prospectus Supplement. Each such dividend shall be payable to
holders of record as they appear in the shareholder records of the Company at
the close of business on such record dates as shall be fixed by the Board of
Trustees of the Company.
Dividends on any series of Preferred Shares may be cumulative or
non-cumulative, as provided in the applicable Prospectus Supplement. Dividends,
if cumulative, will be cumulative from and after the date set
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forth in the applicable Prospectus Supplement. If the Board of Trustees of the
Company fails to declare a dividend payable on a dividend payment date on any
series of the Preferred Shares for which dividends are non-cumulative, then the
holders of such series of the Preferred Shares will have no right to receive a
dividend in respect of the dividend period ending on such dividend payment date,
and the Company will have no obligation to pay the dividend accrued for such
period, whether or not dividends on such series are declared payable on any
future dividend payment date.
Unless otherwise specified in the Prospectus Supplement, if any Preferred
Shares of any series are outstanding, no full dividends shall be declared or
paid or set apart for payment on any capital shares of the Company of any other
series ranking, as to dividends, on a parity with or junior to the Preferred
Shares of such series for any period unless (i) if such series of Preferred
Shares has a cumulative dividend, full cumulative dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Preferred Shares of such
series for all past dividend periods and the then current dividend period or
(ii) if such series of Preferred Shares does not have a cumulative dividend,
full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Preferred Shares of such
series. When dividends are not paid in full (or a sum sufficient for such full
payment is not so set apart) upon Preferred Shares of any series and the shares
of any other series of Preferred Shares ranking on a parity as to dividends with
the Preferred Shares of such series, all dividends declared upon Preferred
Shares of such series and any other series of Preferred Shares ranking on a
parity as to dividends with such Preferred Shares shall be declared pro rata so
that the amount of dividends declared per share of Preferred Shares of such
series and such other series of Preferred Shares shall in all cases bear to each
other the same ratio that accrued dividends per share on the Preferred Shares of
such series (which shall not include any accumulation in respect of unpaid
dividends for prior dividend periods if such Preferred Shares do not have a
cumulative dividend) and such other series of Preferred Shares bear to each
other. No interest, or sum of money in lieu of interest, shall be payable in
respect of any dividend payment or payments on Preferred Shares of such series
which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such series of Preferred Shares has a cumulative dividend, full cumulative
dividends on the Preferred Shares of such series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, and (ii) if such series of Preferred Shares does not have a
cumulative dividend, full dividends on the Preferred Shares of such series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for payment for the then current dividend
period, no dividends (other than in Common Shares or other capital shares
ranking junior to the Preferred Shares of such series as to dividends and upon
liquidation) shall be declared or paid or set aside for payment or other
distribution upon the Common Shares, or any other capital shares of the Company
ranking junior to or on a parity with the Preferred Shares of such series as to
dividends or upon liquidation, nor shall any Common Shares, or any other capital
shares of the Company ranking junior to or on a parity with the Preferred Shares
of such series as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid to or made
available for a sinking fund for the redemption of any such shares) by the
Company (except by conversion into or exchange for other capital shares of the
Company ranking junior to the Preferred Shares of such series as to dividends
and upon liquidation).
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred
Shares will be subject to mandatory redemption or redemption at the option of
the Company, in whole or in part, in each case upon the terms, at the times and
at the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a series of Preferred Shares that is
subject to mandatory redemption will specify the number of such Preferred Shares
that shall be redeemed by the Company in each year commencing after a date to be
specified, at a redemption price per share to be specified, together with an
amount equal to all accrued and unpaid dividends thereon (which shall not, if
such Preferred Shares do not
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have a cumulative dividend, include any accumulation in respect of unpaid
dividends for prior dividend periods) to the date of redemption. The redemption
price may be payable in cash or other property, as specified in the applicable
Prospectus Supplement. If the redemption price for Preferred Shares of any
series is payable only from the net proceeds of the issuance of capital shares
of the Company, the terms of such Preferred Shares may provide that, if no such
capital shares shall have been issued or to the extent the net proceeds from any
issuance are insufficient to pay in full the aggregate redemption price then
due, such Preferred Shares shall automatically and mandatorily be converted into
the applicable capital shares of the Company pursuant to conversion provisions
specified in the applicable Prospectus Supplement.
Notwithstanding the foregoing, unless (i) if such series of Preferred
Shares has a cumulative dividend, full cumulative dividends on all Preferred
Shares of any series shall have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividend periods and the current dividend period and (ii) if such
series of Preferred Shares does not have a cumulative dividend, full dividends
of the Preferred Shares of any series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period, no Preferred Shares of
any series shall be redeemed unless all outstanding Preferred Shares of such
series are simultaneously redeemed; provided, however, that the foregoing shall
not prevent the purchase or acquisition of Preferred Shares of such series to
preserve the REIT status of the Company or pursuant to a purchase or exchange
offer made on the same terms to holders of all outstanding Preferred Shares of
such series. In addition, unless (i) if such series of Preferred Shares has a
cumulative dividend, full cumulative dividends on all outstanding shares of any
series of Preferred Shares have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for payment
for all past dividends periods and the then current dividend period, and (ii) if
such series of Preferred Shares does not have a cumulative dividend, full
dividends on the Preferred Shares of any series have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for the then current dividend period, the Company shall
not purchase or otherwise acquire directly or indirectly any Preferred Shares of
such series (except by conversion into or exchange for capital shares of the
Company ranking junior to the Preferred Shares of such series as to dividends
and upon liquidation); provided, however, that the foregoing shall not prevent
the purchase or acquisition of Preferred Shares of such series to preserve the
REIT status of the Company or pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding Preferred Shares of such series.
If fewer than all of the outstanding Preferred Shares of any series are to
be redeemed, the number of shares to be redeemed will be determined by the
Company and such shares may be redeemed pro rata from the holders of record of
such shares in proportion to the number of such shares held or for which
redemption is requested by such holder (with adjustments to avoid redemption of
fractional shares) or by lot in a manner determined by the Company.
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of Preferred Shares of
any series to be redeemed at the address shown on the share transfer books of
the Company. Each notice shall state: (i) the redemption date; (ii) the number
and series of Preferred Shares to be redeemed; (iii) the redemption to be
surrendered for payment of the redemption price; (iv) that dividends on the
shares to be redeemed will cease to accrue on such redemption date; and (v) the
date upon which the holder's conversion rights, if any, as to such shares shall
terminate. If fewer than all of the Preferred Shares of any series are to be
redeemed, the notice mailed to each such holder thereof shall also specify the
number of Preferred Shares to be redeemed from each such holder. If notice of
redemption of any Preferred Shares has been given and if the funds necessary for
such redemption have been set aside by the Company in trust for the benefit of
the holders of any Preferred Shares so called for redemption, then from and
after the redemption date dividends will cease to accrue on such Preferred
Shares, and all rights of the holders of such shares will terminate, except the
right to receive the redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any Common Shares or any other
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class or series of capital shares of the Company ranking junior to the Preferred
Shares in the distribution of assets upon any liquidation, dissolution or
winding up of the Company, the holders of each series of Preferred Shares shall
be entitled to receive out of assets of the Company legally available for
distribution to shareholders liquidating distributions in the amount of the
liquidation preference per share (set forth in the applicable Prospectus
Supplement), plus an amount equal to all dividends accrued and unpaid thereon
(which shall not include any accumulation in respect of unpaid dividends for
prior dividend periods if such Preferred Shares do not have a cumulative
dividend). After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of Preferred Shares will have no right or
claim to any of the remaining assets of the Company. In the event that, upon any
such voluntary or involuntary liquidation, dissolution or winding up, the
available assets of the Company are insufficient to pay the amount of the
liquidating distributions on all outstanding Preferred Shares and the
corresponding amounts payable on all shares of other classes or series of
capital shares of the Company ranking on a parity with the Preferred Shares in
the distribution of assets, then the holders of the Preferred Shares and all
other such classes or series of capital shares 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
Preferred Shares, the remaining assets of the Company shall be distributed among
the holders of any other classes or series of capital shares ranking junior to
the Preferred Shares upon liquidation, dissolution or winding up, according to
their respective rights and preferences and in each case according to their
respective number of shares. For such purposes, the consolidation or merger of
the Company with or into any other corporation, trust or entity, 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
Holders of Preferred Shares will not have any voting rights except as
indicated in the applicable Prospectus Supplement.
CONVERSION RIGHTS
The terms and conditions, if any, upon which any series of Preferred Shares
is convertible into Common Shares will be set forth in the applicable Prospectus
Supplement relating thereto. Such terms will include the number of Common Shares
into which the Preferred Shares are convertible, the conversion price (or manner
of calculation thereof), the conversion period, provisions as to whether
conversion will be at the option of the holders of the Preferred Shares or the
Company, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of such series of
Preferred Shares.
SHAREHOLDER LIABILITY
As discussed above under "Description of Preferred Shares -- General,"
applicable Maryland law provides that no shareholder, including holders of
Preferred Shares, shall be personally liable for the acts and obligations of the
Company and that the funds and property of the Company shall be the only
recourse for such acts or obligations.
RESTRICTIONS ON OWNERSHIP
For the Company to qualify as a REIT under the Code, the issued and
outstanding Common Shares and Preferred Shares (together, the "Shares"), taken
as a whole, 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. In addition, not more than 50% of
the value of the issued and outstanding Shares may be owned, directly or
indirectly, by five or fewer individuals (defined in the Code to include as one
individual certain entities) during the last half of a taxable year (other than
the first year) or during a proportionate part of a shorter taxable year.
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Because the Board of Trustees believes it is essential for the Company to
continue to qualify as a REIT, the Company's Declaration of Trust, 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 5.0% (the "Ownership
Limit") of the number or value of the issued and outstanding Shares. The
Company's Board of Trustees, upon receipt of a ruling from the Internal Revenue
Service (the "IRS"), an opinion of counsel, or other evidence satisfactory to
the Board of Trustees, and upon such other conditions as the Board of Trustees
may direct, may also exempt a proposed transferee from the Ownership Limit. As a
condition of such exemption, the intended transferee must give written notice to
the Company of the proposed transfer 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 Board of Trustees of the
Company may require such opinions of counsel, affidavits, undertakings or
agreements as it may deem necessary or advisable in order to determine or ensure
the Company's status as a REIT. Any transfer of Shares that would (i) create a
direct or indirect ownership of Shares in excess of the Ownership Limit, (ii)
result in the Shares being owned by fewer than 100 persons or (iii) result in
the Company being "closely held" within the meaning of Section 856(h) of the
Code, shall be null and void, and the intended transferee will acquire no rights
to the Shares. The foregoing restrictions on transferability and ownership will
not apply if the Board of Trustees 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 purported transfer of Shares that would (i) result in a person owning
Shares in excess of the Ownership Limit, (ii) cause the Company to become
"closely held" under Section 856(h) of the Code or (iii) cause the Shares to be
owned by fewer than 100 persons and is not otherwise permitted as provided above
will result in those of the transferred Shares which cause any of the events in
clauses (i) through (iii) above to occur to become excess shares ("Excess
Shares"), which will be transferred by operation of law to the Company as
trustee for the exclusive benefit of one or more organizations described in
Sections 170(b)(1)(A) and 170(c) of the Code ("Charitable Beneficiary"). While
these Excess Shares are held in trust, the trustee of the trust will be deemed
to have an irrevocable proxy to vote the Excess Shares for the benefit of the
Charitable Beneficiary and will hold any dividends payable with respect to the
Excess Shares in trust for the Charitable Beneficiary. Subject to the Ownership
Limit, the Excess Shares may be retransferred by the trustee of the trust to any
person (if the Excess Shares would not be Excess Shares in the hands of such
person). If such a transfer is made, the interest of the Charitable Beneficiary
would terminate and proceeds of the sale would be payable to the intended
transferee and to the Charitable Beneficiary. The intended transferee would
receive the lesser of (1) the price paid by the intended transferee or, if the
intended transferee did not give value for such Excess Shares (e.g., a transfer
by gift or devise), the fair market value (as described below) at the time of
the purported transfer that resulted in the Excess Shares and (2) the price per
share received by the trustee from the sale or other disposition of the Excess
Shares held in trust. Any proceeds in excess of the amount payable to the
intended transferee will be payable to the Charitable Beneficiary. In addition,
such Excess Shares held in trust are subject to purchase by the Company at a
purchase price equal to the lesser of the price paid for the Shares by the
intended transferee (or, in the case of a devise or gift, the fair market value
at the time of such devise or gift) and the fair market value of the Shares on
the date the Company exercises its right to purchase. Fair market value shall be
the last reported sales price reported on the NYSE on the trading day
immediately preceding the relevant date, or if not then traded on the NYSE, the
last reported sales price of such Shares on the trading day immediately
preceding the relevant date as reported on any exchange or quotation system over
which such Shares may be traded, or if not then traded over any exchange or
quotation system, then the fair market value of such Shares on the relevant date
as determined in good faith by the Board of Trustees of the Company. The
Company's right to purchase may be exercised during the 90 day period beginning
immediately after the later of the date of the purported transfer which resulted
in the Excess Shares and the date the Board of Trustees determines in good faith
that such a transfer has occurred. 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 except the right to payment of the purchase price for the Shares on
the retransfer of Shares as provided above and except for certain distributions
upon liquidation. Any dividends or distribution paid to a proposed transferee on
Excess Shares prior to the discovery by the Company that such Shares have been
transferred in violation of the provisions of the Company's Declaration of Trust
shall be repaid to the
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Company upon demand. Any dividends so disgorged will then be paid over to the
trustee and held in trust for the Charitable Beneficiary. If the foregoing
transfer restrictions are determined to be void or invalid by virtue of any
legal decision, statute, rule or regulation, then the intended transferee of any
Excess Shares may be deemed, at the option of the Company, to have acted as an
agent on behalf of the Company in acquiring such Excess Shares and to hold such
Excess Shares on behalf of the Company.
All certificates representing Shares 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 5.0% (or such other percentage between 0.5% and 5.0%, as
provided in the rules and regulations promulgated under the Code) of the number
or value of the outstanding Shares must give a written notice to the Company by
January 31 of each year. In addition, each shareholder shall be required upon
demand to disclose to the Company in writing such information with respect to
the direct, indirect and constructive ownership of Shares as the Board of
Trustees deems reasonably 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.
REGISTRAR AND TRANSFER AGENT
The Registrar and Transfer Agent for the Preferred Shares will be set forth
in the applicable Prospectus Supplement.
DEPOSITARY SHARES
The Trust may, at its option, elect to offer fractional Preferred Shares,
rather than full Preferred Shares. In the event such option is exercised, the
Trust will issue receipts for Depositary Shares, each of which will represent a
fraction (to be set forth in the Prospectus Supplement relating to the Preferred
Shares) of a share of such Preferred Shares.
The Preferred Shares represented by Depositary Shares will be deposited
under a Deposit Agreement (the "Deposit Agreement") between the Trust and a bank
or trust company selected by the Trust having its principal office in the United
States and having a combined capital and surplus of at least $50,000,000 (the
"Depositary Shares Depositary"). Subject to the terms of the Deposit Agreement,
each owner of a Depositary Share will be entitled, in proportion to the
applicable fraction of a Preferred Share represented by such Depositary Share,
to all the rights and preferences of the Preferred Share, represented thereby
(including dividend, voting, redemption, conversion and liquidation rights).
The above description of the Depositary Shares is only a summary, is not
complete and is subject to, and is qualified in its entirety by, the description
in the related Prospectus Supplement and the provisions of the Deposit Agreement
(which will contain the form of Depositary Receipt), a copy of which will be
filed with the Commission as an exhibit to or incorporated by reference in the
Registration Statement.
DESCRIPTION OF WARRANTS
The Trust may issue separately, or together with any Preferred Shares or
Common Shares offered by any Prospectus Supplement, Warrants for the purchase of
other Preferred Shares or Common Shares (collectively, "Warrants"). The Warrants
may be issued under warrant agreements (each, a "Warrant Agreement") to be
entered into between the Trust and a bank or trust company, as warrant agent
(the "Warrant Agent"), or may be represented by certificates evidencing the
Warrants (the "Warrant Certificates"), all as set forth in the Prospectus
Supplement relating to the particular series of Warrants. The following
summaries of certain provisions of the Warrants do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all the
provisions of any related Warrant Agreement and Warrant Certificate,
respectively, including the definitions therein of certain terms. Wherever
defined terms of the Warrant Agreement are summarized herein or in a Prospectus
Supplement, it is intended that such defined terms shall be incorporated herein
or therein by reference. In connection with any offering of Warrants, any such
Warrant Agreement or a
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form of any such Warrant Certificate will be filed with the Commission as an
exhibit to or incorporated by reference in the Registration Statement.
GENERAL
The Prospectus Supplement relating to the particular series of Warrants
offered thereby will describe the terms of the offered Warrants, any related
Warrant Agreement and Warrant Certificate, including the following, to the
extent applicable: (a) if the Warrants are offered for separate consideration,
the offering price and the currency for which Warrants may be purchased; (b) if
applicable, the designation, number, stated value and terms (including, without
limitation, liquidation, dividend, conversion and voting rights) of the
Preferred Shares purchasable upon exercise of Preferred Shares Warrants and the
price at which such number of Preferred Shares may be purchased upon such
exercise; (c) if applicable, the number of shares of Common Shares purchasable
upon exercise of Common Shares Warrants and the price at which such number of
Common Shares may be purchased upon such exercise; (d) the date, if any, on and
after which the offered Warrants and the related Preferred Shares and/or Common
Shares will be separately transferable; (e) the date on which the right to
exercise the offered Warrants shall commence and the date on which such right
shall expire ("Expiration Date"); (f) a discussion of the specific U.S. federal
income tax, accounting and other considerations applicable to the Warrants or to
any Securities purchasable upon the exercise of such Warrants; (g) whether the
offered Warrants represented by Warrant Certificates will be issued in
registered or bearer form, and if registered, where they may be transferred and
registered; (h) any applicable anti-dilution provisions; (i) any applicable
redemption or call provisions; (j) any applicable book-entry provisions; and (k)
any other terms of the offered Warrants.
Warrant Certificates will be exchangeable on the terms specified in the
related Prospectus Supplement for new Warrant Certificates of different
denominations and Warrants may be exercised at the corporate trust office of the
Warrant Agent or any other office indicated in the Prospectus Supplement
relating thereto. Prior to the exercise of their Warrants, holders of Warrants
will not have any of the rights of holders of the Preferred Shares or Common
Shares purchasable upon such exercise, including the right to receive payments
of dividends or distributions of any kind, if any, on the Preferred Shares or
Common Shares, respectively, purchasable upon exercise or to exercise any
applicable right to vote.
EXERCISE OF WARRANTS
Each Warrant will entitle the holder thereof to purchase such number of
Preferred Shares or Common Shares, as the case may be, at such exercise price as
shall in each case be set forth in, or be determinable from, the Prospectus
Supplement relating to such Warrant, by payment of such exercise price in full
in the currency and in the manner specified in such Prospectus Supplement.
Warrants may be exercised at any time up to the close of business on the
Expiration Date (or such later date to which such Expiration Date may be
extended by the Trust); unexercised Warrants will become null and void.
Upon receipt at the corporate trust office of the Warrant Agent or any
other office indicated in the related Prospectus Supplement of (a) payment of
the exercise price and (b) the Warrant Certificate properly completed and duly
executed, the Trust will, as soon as practicable, forward the Preferred Shares
or Common Shares purchasable upon such exercise to the holder of such Warrant.
If less than all of the Warrants represented by such Warrant Certificate are
exercised, a new Warrant Certificate will be issued for the remaining number of
Warrants.
SHAREHOLDER RIGHTS PLAN
On December 17, 1997, the Board of Trustees adopted a shareholder rights
plan (the "Shareholder Rights Plan"). Under the Shareholder Rights Plan, one
Right (as defined in the Shareholder Rights Plan) will be attached to each
outstanding Common Share at the close of business on December 31, 1997, and one
Right will be attached to each Common Share issued thereafter. Each Right
entitles the holder thereof to purchase from the Trust, under certain
conditions, a unit (a "Unit") consisting of one one-thousandth of a Series A
Junior Participating Preferred Share, $0.0001 par value, of the Trust for $100
per Unit, subject to
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adjustment. The Rights may also, under certain conditions, entitle the holders
thereof to receive Common Shares, or common shares of an entity acquiring the
Company, or other consideration, each having a value equal to twice the exercise
price of each Right ($200). The Trust has designated 200,000 Series A Junior
Participating Preferred Shares and has reserved such shares for issuance under
the Shareholder Rights Plan. The Rights are redeemable by the Trust at a price
of $0.0001 per Right. If not exercised or redeemed, all Rights expire on
December 31, 2007. The description and terms of the Rights are set forth in the
Rights Agreement, dated as of December 17, 1997, between the Trust and Bank
Boston, N.A., as Rights Agent.
FEDERAL INCOME TAX CONSIDERATIONS
WITH RESPECT TO THE TRUST AND THE OPERATING PARTNERSHIP
The following summary of the material federal income tax considerations
with respect to the Trust and the Operating Partnership regarding the offering
of Securities is based on current law, is for general information only and is
not intended as tax advice. The tax treatment of a holder of any of the
Securities will vary depending on the terms of the specific Securities acquired
or held by such holder as well as such holder's particular situation, and this
summary is addressed only to holders that hold Securities as capital assets and
does not attempt to address all aspects of federal income taxation relating to
holders of the Securities. Nor does it discuss all of the aspects of federal
income taxation that may be relevant to certain types of holders (including
insurance companies, tax-exempt entities, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) who are subject to special treatment under the
federal income tax laws.
EACH PROSPECTIVE PURCHASER OF SECURITIES IS ADVISED TO CONSULT HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF THE SECURITIES AND OF THE TRUST'S ELECTION TO BE
TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND
ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE TRUST
Management of the Trust believes that, commencing with the Trust's taxable
year ended December 31, 1994, the Trust has been organized and operated in such
a manner as to qualify as a REIT under Sections 856 through 860 of the Code. The
Trust intends to continue to operate in such a manner as to qualify for taxation
as a REIT in the future, but no assurance can be given that it has or will
remain qualified.
The sections of the Code relating to qualification and operation as a REIT
are highly technical and complex. The following sets forth the material aspects
of the Code sections that govern the federal income taxation 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.
Wolf, Block, Schorr and Solis-Cohen LLP has opined that, commencing with
the Trust's taxable year ended December 31, 1994, the Trust has been organized
and operated in conformity with the requirements for qualification and taxation
as a REIT under the Code, and its proposed method of operation will enable it to
continue to meet the requirements for qualification and taxation as a REIT under
the Code for future taxable periods. It must be emphasized that the opinion of
Wolf, Block, Schorr and Solis-Cohen LLP is based on certain assumptions and
representations made by the Trust and the Operating Partnership as to factual
matters. Moreover, such qualification and taxation as a REIT depend upon the
Trust's future ability to meet, through actual annual operating results, certain
distribution levels, the diversity of stock ownership requirements and the
various other qualification tests imposed under the Code discussed below, the
results of which may not be reviewed by Wolf, Block, Schorr and Solis-Cohen LLP.
Accordingly, no assurance can be given that the actual results of the Trust's
operation for any particular taxable year will satisfy such requirements. For a
discussion of the tax consequences of failure to qualify as a REIT, see
"-- Failure to Qualify."
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As a REIT, the Trust generally is not subject to federal corporate income
taxes on its net income that it currently distributes to shareholders. This
treatment substantially eliminates the "double taxation" (at the corporate and
shareholder levels) that generally results from investment in a corporation.
However, the Trust will be subject to federal income or excise tax as follows.
First, the Trust will be taxed at regular corporate rates on any undistributed
real estate investment trust taxable income, including undistributed net capital
gains. Second, under certain circumstances, the Trust may be subject to the
"alternative minimum tax" on its items of tax preference. Third, if the Trust
has (i) net income from the sale or other disposition of "foreclosure property"
(generally property acquired by a REIT upon the default by a debtor with respect
to indebtedness secured by the property or upon the default by a lessee where
the REIT was the lessor) which is held primarily for sale to customers in the
ordinary course of business or (ii) other nonqualifying income from foreclosure
property, it will be subject to tax at the highest corporate tax rate on such
income. Fourth, if the Trust has net income from "prohibited transactions"
(which are, in general, certain sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business, other than
foreclosure property and, effective for the Trust's taxable year ending December
31, 1998, dispositions of property that occur due to involuntary conversion),
such income will be subject to a 100% tax. Fifth, if the Trust should fail to
satisfy the 75% gross income test or the 95% gross income test (discussed
below), but has nonetheless maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a 100% tax on an
amount equal to (i) the gross income attributable to the greater of the amount
by which the Trust fails the 75% test or the 95% test in the taxable year,
multiplied by (ii) a fraction generally intended to reflect the Trust's
profitability. Sixth, if the Trust 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 periods, the Trust would be subject to a
4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, if the Trust acquires any asset from a C
corporation (i.e., generally a corporation subject to full corporate-level tax)
in a transaction in which the basis of the asset in the Trust's hands is
determined by reference to the basis of the asset (or any other property) in the
hands of such C corporation, and the Trust recognizes gain on the disposition of
such asset during the 10-year period following acquisition of the asset, then,
pursuant to guidelines issued by the Internal Revenue Service (the "IRS"), to
the extent of the "built-in gain" (the excess of the fair market value of the
asset on the date acquired over its adjusted tax basis at that date), such gain
will be subject to tax at the highest regular corporate rate. The result
described above with respect to the recognition of built-in gain assumes the
Trust is eligible to make, and makes, an election pursuant to IRS Notice 88-19.
REQUIREMENTS FOR QUALIFICATION
The Code defines a REIT as a corporation, trust or association (1) that is
managed by one or more trustees or directors; (2) the beneficial ownership of
which is evidenced by transferable shares, or by transferable certificates of
beneficial interest; (3) that would be taxable as a domestic corporation, but
for Sections 856 through 860 of the Code; (4) that is neither a financial
institution nor an insurance Trust subject to certain provisions of the Code;
(5) the beneficial ownership of which is held by 100 or more persons; (6) during
the last half of each taxable year not more than 50% in value of the outstanding
stock of which is owned, directly or indirectly, by five or fewer individuals
(as defined in the Code to include certain entities as "individuals" for these
purposes); and (7) which meets certain other tests, described below, regarding
the nature of its income and assets. The Code provides that conditions (1) to
(4), inclusive, must be met during the entire taxable year and that condition
(5) must be met during at least 335 days of a taxable year of 12 months, or
during a proportionate part of a taxable year of less than 12 months. For
purposes of determining stock ownership under the rule limiting ownership by
five or fewer individuals, REIT shares held by a pension fund generally are
treated as held proportionately by its beneficiaries and certain other
attribution rules will apply.
The Trust has satisfied and will continue to satisfy conditions (1) through
(6) above. In making the "five or fewer individuals" determination, if treating
interests in the Operating Partnership that can be converted into shares of the
Trust as converted into outstanding shares would cause the Trust to fail that
test, the interests are deemed to have been converted. In addition, the Trust's
Declaration of Trust provides for restrictions regarding transfer of its shares,
in order to assist the Trust in continuing to satisfy the share
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ownership requirements described in (5) and (6) above. Such transfer
restrictions are included in the Trust's Declaration of Trust, filed as an
exhibit to a report incorporated by reference herein. See "Incorporation of
Certain Documents by Reference."
Code Section 856(i) provides that a corporation which is a "qualified REIT
subsidiary" is not to be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction, and credit of a "qualified REIT
subsidiary" are treated as assets, liabilities, and such items (as the case may
be) of the REIT. A qualified REIT subsidiary is defined as a corporation 100% of
the stock of which is held by the REIT at all times during the existence of the
corporation. Effective for the Trust's taxable year ending December 31, 1998, a
qualified REIT subsidiary will be defined as any corporation 100% of the stock
of which is held by the REIT, regardless of whether the REIT has held such
corporation's stock at all times during its existence. Thus, in applying the
requirements described herein, the Trust's "qualified REIT subsidiaries" are
ignored, and all assets, liabilities, and items of income, deduction, and credit
of such subsidiaries will be treated as assets, liabilities and items of the
Trust.
In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership retain the same character in the
hands of the REIT for purposes of Section 856 of the Code, including satisfying
the gross income tests and the asset tests described below. Thus, the Trust's
proportionate share of the assets, liabilities and items of income of the
Operating Partnership and the other partnerships through which the Trust's
properties are owned (the "Property Partnerships") will be treated as assets,
liabilities and items of income of the Trust for purposes of applying the
requirements described herein. The references to the gross income or assets of
the Trust, as discussed immediately below in "Income Tests" and "Assets Tests,"
include the Trust's proportionate share of the gross income or assets, as the
case may be, of the Operating Partnership and the Property Partnerships.
INCOME TESTS
For the Trust to maintain its qualification as a REIT, the Trust must
satisfy three separate tests based on the nature of the underlying gross income.
These requirements must be satisfied annually. First, at least 75% of the
Trust's gross income (excluding gross income from prohibited transactions) for
each taxable year must consist of income derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or certain
types of "qualified temporary investment income." Second, at least 95% of the
Trust's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived from such real property investments, and from
dividends, other types of interest, and gain from the sale or disposition of
stock or securities or from any combination of the foregoing. Third, for its
taxable years ending on or before December 31, 1997, short-term gain from the
sale or other disposition of stock or securities, gain from prohibited
transactions and gain on the sale or other disposition of real property held for
less than four years (apart from involuntary conversions and sales of
foreclosure property) must represent less than 30% of the Trust's gross income
(including gross income from prohibited transactions) for each taxable year.
Rents received by the Trust will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above provided
that several conditions are met. First, the amount of rent must not be based in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally is not excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Special rules apply where the tenant is a sublessor with
respect to property which permits a REIT to receive rent determined by reference
to the income or profits of the tenant in some cases. Second, the Code provides
that rents received from a tenant do not qualify as "rents from real property"
in satisfying the gross income tests if the REIT, directly or through the
applicable ownership attribution rules, owns 10% or more of such tenant (a
"Related Party Tenant"). Although the Trust may lease portions of its properties
to tenants that may constitute Related Party Tenants, the Trust does not believe
that the rents attributable to such leases would cause the Trust to fail to
satisfy the 75% or 95% gross income tests. Third, if rent attributable to
personal property leased in connection with a lease of real property
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is greater than 15% of the total rent received under the lease, the portion of
rent attributable to such personal property will not qualify as "rents from real
property." The Trust does not anticipate that the rent attributable to the
personal property leased in connection with the real property will be greater
than 15% of the total rent received under the lease or, if it was as to any
particular lease or group of leases, that the rent attributable to the personal
property would cause the Trust to fail to satisfy the 75% or 95% gross income
tests. Finally, in order for rents received to qualify as "rents from real
property," the REIT generally must not operate or manage the property or furnish
or render services to the tenants of such property, other than through an
independent contractor that is adequately compensated and from whom the REIT
derives no revenue; provided, however, that the Trust may directly perform
services "usually and customarily" rendered in connection with the rental of
space for occupancy only and that are not otherwise considered "rendered to the
occupant" of the property. The Trust has represented that it does not and will
not knowingly (i) charge rent for any property that is based in whole or in part
on the income or profits of any person or (ii) directly perform services
considered to be rendered to the occupant of property, other than services
usually and customarily rendered in connection with the rental of space for
occupancy only.
The Trust is a self-managed REIT; i.e., the Operating Partnership performs
all of the management and leasing functions with respect to the properties it
owns, provided that the services called for do not cause the rents received with
respect to those leases to fail to qualify as "rents from real property." To the
extent that the services provided are not "usual and customary" under the
foregoing rules, the Trust will employ a qualifying independent contractor to
render the services. The Trust may provide property management and leasing
services to third parties and will provide services to an affiliated entity for
a fee.
Effective for the Trust's taxable years beginning on or after January 1,
1998, the Trust may render a de minimis amount of impermissible services to
tenants, or in connection with the management of a property (together,
"Impermissible Services"), without having otherwise qualifying rents from the
property being disqualified as "rents from real property." In order to qualify
for this de minimis exception, the amount received by the Trust for
Impermissible Services with respect to any property for any taxable year may not
exceed 1% of all amounts received or accrued by the Trust during such taxable
year with respect to such property. For purposes of the foregoing, the amount
treated as "received" by the Trust for Impermissible Services will not be less
than 150% of the Trust's direct cost in rendering such service. However, the
amount of any income that the Trust receives for Impermissible Services will not
be treated as "rents from real property" for purposes of the gross income tests.
The Operating Partnership may receive fees in consideration of the performance
of management and administrative services with respect to any properties that
are not owned entirely by the Operating Partnership. Although a portion of such
management and administrative fees generally will not constitute "qualifying
income" for purposes of the 75% and 95% gross income tests, the Trust Management
believes that the aggregate amount of such fees, if any (plus any income from
Impermissible Services and other nonqualifying income), in any taxable year will
not cause the Trust to fail the 75% and 95% gross income tests.
For purposes of the gross income test, the term "interest" generally does
not include any amount received or accrued (directly or indirectly) if the
determination of such amount depends in whole or in part on the net income or
profits of any person. However, an amount received or accrued generally will not
be excluded from the term "interest" solely by reason of being based on a fixed
percentage or percentages of receipts or sales.
Generally, the failure to satisfy either or both of the 75% and 95% gross
income tests will cause the REIT status of the Trust to terminate with the
taxable year in which the failure occurs. Relief from the adverse consequences
of such failure is available if the Trust's failure to meet such tests was due
to reasonable cause and not willful neglect, the Trust attaches a schedule of
the nature and the sources of its gross income to its income tax return, and any
incorrect information set forth on the schedule is not due to fraud with intent
to evade tax. It is not possible to state whether, in all circumstances, the
Trust would be entitled to the benefit of these relief provisions. As discussed
above in "Taxation of the Trust," even if these relief provisions apply, a tax
would be imposed with respect to the excess of 75% or 95% of the Trust's gross
income over the Trust's qualifying income in the relevant category, whichever is
greater.
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ASSET TESTS
The Trust, at the close of each quarter of its taxable year, must also
satisfy three tests relating to the nature of its assets. First, at least 75% of
the value of the Trust's total assets must be represented by real estate assets
(including (i) its allocable share of real estate assets held by partnerships in
which the Trust owns an interest or held by "qualified REIT subsidiaries" of the
Trust and (ii) stock or debt instruments held for not more than one year
purchased with the proceeds of a stock offering or long-term (at least five
years) debt offering of the Trust), cash, cash items and governmental
securities. Second, not more than 25% of the Trust's total assets may be
represented by securities other than those in the 75% asset class. Third, of the
investments included in the 25% asset class, the value of any one issuer's
securities owned by the Trust may not exceed 5% of the value of the Trust's
total assets and the Trust may not own more than 10% of any one issuer's
outstanding voting securities (other than the stock of a qualified REIT
subsidiary, of which the REIT is required to own all of the stock, or of another
real estate investment trust).
The Operating Partnership owns 8.0% of the voting common stock and 100% of
the non-voting common stock of Liberty Property Development Corp. ("Liberty
Development") and none of the voting common stock and 100% of the non-voting
common stock of Liberty Property Development Corp.-II ("Development-II" and,
together with Liberty Development, the "Development Companies"). By virtue of
its ownership of partnership interests in the Operating Partnership, the Trust
owns its pro rata shares of the common stock of the Development Companies. The
Operating Partnership does not own more than 10% of the voting securities of
either of the Development Companies and, therefore, the Trust will not own more
than 10% of the voting securities of either of the Development Companies. The
IRS could contend that the Trust, through its interest in the Operating
Partnership, should be viewed as owning more than 10% of the voting securities
of either of the Development Companies because of its substantial economic
positions in the Development Companies and because of the close business
relationships between it and each of the two Development Companies. If such
contention were sustained, the Trust would not qualify as a REIT. The Operating
Partnership does not possess the requisite power to elect or designate a member
of the respective Boards of Directors of the Development Companies, and there is
no understanding or arrangement permitting the Trust to exercise voting power or
control over the voting common stock of either of the Development Companies not
owned by it. Accordingly, Wolf, Block, Schorr and Solis-Cohen LLP and the Trust
do not believe that the Trust will be viewed as owning in excess of 10% of the
voting securities of either of the Development Companies. Based on its analysis
of the estimated value of the securities of the subsidiaries to be owned by the
Operating Partnership relative to the estimated value of the other assets to be
owned by the Operating Partnership, the Trust has determined that its respective
pro rata shares of the securities of the Development Companies held by the
Operating Partnership do not exceed 5% of the total value of the Trust's assets.
No independent appraisals will be obtained to support this conclusion and Wolf,
Block, Schorr and Solis-Cohen LLP, in rendering its opinion as to the
qualification of the Trust as a REIT, is relying solely on the representations
of the Trust regarding the values of the Development Companies. The 5%-of-value
requirement must be satisfied each time the Trust increases its ownership of
securities of either of the Development Companies (including as a result of
increasing its interest in the Operating Partnership as its limited partners
exercise their conversion rights). Although the Trust plans to take steps to
insure that it satisfies the 5% value test for any quarter with respect to which
retesting is to occur, there can be no assurance that such steps will always be
successful or will not require a reduction in the Operating Partnership's
overall interest in either of the Development Companies.
After initially meeting the asset tests at the close of any quarter, the
Trust will not lose its status as a REIT for failure to satisfy the asset tests
at the end of a later quarter solely by reason of changes in asset values. If
the failure to satisfy the asset tests results from an acquisition of securities
or other property during a quarter, the failure can be cured by disposition of
sufficient non-qualifying assets within 30 days after the close of any quarter
as may be required to cure any non-compliance.
ANNUAL DISTRIBUTION REQUIREMENTS
To qualify as a REIT, the Trust is required to distribute dividends (other
than capital gain dividends) to its stockholders in an amount at least equal to
(A) the sum of (i) 95% of the "REIT taxable income" of the
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Trust (computed without regard to the dividends paid deduction and the Trust's
net capital gain) and (ii) 95% of the net taxable income (after tax), if any,
from foreclosure property, minus (B) the sum of certain items of noncash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before the Trust 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 the Trust does not distribute all of the
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 the regular corporate tax rates applicable to such income.
Furthermore, if the Trust 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 income for such year, and (iii) any undistributed taxable
income from prior periods, the Trust would be subject to a 4% excise tax on the
excess of such required distribution over the amounts actually distributed.
The Trust has made, and intends to make, timely distributions to its
shareholders in amounts sufficient to satisfy the annual distribution
requirements. The Operating Partnership, as the general partner of each Property
Partnership, is authorized under the various partnership agreements to cause
distributions to be made to their respective partners of all available cash to
permit the Trust to meet the annual distribution requirement. It is possible
that, from time to time, the Trust may experience timing differences between (i)
the actual receipt of income and actual payment of deductible expenses and (ii)
the inclusion of such income and deduction of such expenses in arriving at REIT
taxable income. Further, it is possible that, from time to time, the Trust may
be allocated a share of net capital gain attributable to the sale of depreciable
property which exceeds its allocable share of cash attributable to that sale. In
such cases, the Trust may have less cash available for distribution than is
necessary to meet the annual 95% distribution requirement or to avoid tax with
respect to the capital gain or the excise tax imposed on certain undistributed
income. To meet the 95% distribution requirement necessary to qualify as a real
estate investment trust or to avoid tax with respect to capital gain or the
excise tax imposed on certain undistributed income, the Trust may find it
appropriate to arrange for short-term (or possibly long-term) borrowings or to
pay distributions in the form of taxable stock dividends. Any such borrowings
for the purpose of making distributions to shareholders of the Trust are
required to be arranged through the Operating Partnership.
Under certain circumstances, the Trust may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
shareholders in a later year, which may be included in the Trust's deduction for
dividends paid for the earlier year. Thus, the Trust may be able to avoid being
taxed on amounts distributed as deficiency dividends; however, the Trust will be
required to pay interest based upon the amount of any deduction taken for
deficiency dividends.
FAILURE TO QUALIFY
If the Trust fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Trust would be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders of the Trust in any year
in which the Trust failed to qualify would not be deductible by the Trust nor
would there be a requirement to make distributions. In such event, to the extent
of current and accumulated earnings and profits, all distributions to
shareholders of the Trust would be taxable as ordinary income, and, subject to
certain limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Trust would also be disqualified from taxation as a REIT for the
four taxable years following the year in which qualification was lost. It is not
possible to state whether in all circumstances the Trust would be entitled to
such statutory relief.
OTHER TAX CONSIDERATIONS
The Trust may be subject to state or local taxation in various state or
local jurisdictions, including those in which it transacts business. The state
and local tax treatment of the Trust may not conform to the federal income tax
consequences discussed above. Consequently, prospective investors should consult
their own tax advisors regarding the effect of state and local tax laws on an
investment in the Trust.
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To the extent that the Trust engages in real estate development activities
in foreign countries or invests in real estate located in foreign countries, the
Trust's profits from such activities or investments will generally be subject to
tax in the countries where such activities are conducted or such properties are
located. The precise nature and amount of such taxation will depend on the laws
of the countries where the activities are conducted or the properties are
located. Although the Trust will attempt to minimize the amount of such foreign
taxation, there can be no assurance as to whether or the extent to which
measures taken to minimize such taxes will be successful. If the Trust satisfies
the annual distribution requirements for qualification as a REIT and is,
therefore, not subject to federal corporate income tax on that portion of its
ordinary income and capital gain that is currently distributed to its
shareholders, the Trust will generally not be able to recover the cost of any
foreign tax imposed on such profits from its foreign activities or investments
by claiming foreign tax credits against its federal income tax liability on such
profits. Moreover, the Trust will not be able to pass foreign tax credits
through to its shareholders. As a result, to the extent that the Trust is
required to pay taxes in foreign countries, the cash available for distribution
to its shareholders will be reduced accordingly.
The Operating Partnership will receive fees from an affiliated entity as
consideration for services that the Operating Partnership will provide to such
entity in connection with the development and management of the Kings Hill
project in the United Kingdom ("U.K."). The amount of this fee income will not
be qualifying income for purposes of the 75% or 95% gross income tests, although
the Trust does not expect that the revenue derived from such services would
cause it to fail the 75% or 95% gross income tests. The Trust may be subject to
Corporation Tax in the U.K. at the rate of 33% on its share of such fee income
if the Trust is deemed to have a branch or agency in the U.K. as a result of
services that may be performed for such entity in the U.K. In addition, rental
income received by the Trust with respect to leases of real property in the U.K.
would be subject to U.K. withholding tax at the rate of 25%. It is possible that
such rental income (together with any gain arising from the sale or other
disposition of such properties) could instead be subject to Corporation Tax in
the U.K. at the rate of 33% if the U.K. Inland Revenue did not regard the Trust
as holding the properties for purposes of long term investment or if such income
or gain were deemed attributable to a branch or agency of the Trust in the U.K.
Such U.K. taxes will reduce the amount of cash available for distribution by the
Trust to its shareholders out of such income.
TAX ASPECTS OF THE TRUST'S INVESTMENTS IN PARTNERSHIPS
The following discussion summarizes certain federal income tax
considerations applicable solely to the Trust's investment in the Operating
Partnership and the Property Partnerships (collectively, the "Partnerships").
CLASSIFICATION AS A PARTNERSHIP
The Trust will be required to include in its income its distributive share
of the Operating Partnership's income and to deduct its distributive share of
the Operating Partnership's losses, and the Trust and the Operating Partnership
will be required to include in computing their income their respective
distributive shares of the income and losses of the Property Partnerships only
if the Operating Partnership and each of the Property Partnerships is
classified, for federal income tax purposes, as a partnership rather than as an
association taxable as a corporation.
For taxable periods prior to January 1, 1997, an organization formed as a
partnership was treated as a partnership rather than as a corporation for
federal income tax purposes only if it possessed no more than two of the four
corporate characteristics that the Treasury Regulations used to distinguish a
partnership from a corporation. These four characteristics were continuity of
life, centralization of management, limited liability, and free transferability
of interests. Although neither the Operating Partnership nor the Property
Partnerships requested a ruling from the IRS that they would be classified as
partnerships for Federal income tax purposes, rather than as associations
taxable as corporations, Wolf, Block, Schorr and Solis-Cohen LLP had opined
that, based on the provisions of the respective Partnership Agreements of the
Operating Partnership and each Property Partnership, and certain factual
assumptions and representations as to each of them, the Operating Partnership
and each Property Partnership will be treated as partnerships for federal income
tax purposes and not as associations taxable as corporations. Effective January
1, 1997, newly promulgated Treasury Regula-
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tions eliminated the four-factor test described above and, instead, permit
partnerships and other non-corporate entities to be taxed as partnerships for
federal income tax purposes without regard to the number of corporate
characteristics possessed by such entity. Under those Regulations, both the
Operating Partnership and each of the Property Partnerships will be classified
as partnerships for federal income tax purposes unless an affirmative election
is made by the entity to be taxed as a corporation. The Trust has represented
that no such election has been made, or is anticipated to be made, on behalf of
the Operating Partnership or any of the Property Partnerships. Under a special
transitional rule in the Regulations, the IRS will not challenge the
classification of an existing entity such as the Operating Partnership or a
Property Partnership for periods prior to January 1, 1997 if: (i) the entity has
a "reasonable basis" for its classification; (ii) the entity and each of its
members recognized the federal income tax consequences of any change in
classification of the entity made within the 60 months prior to January 1, 1997;
and (iii) neither the entity nor any of its members had been notified in writing
on or before May 8, 1996 that its classification was under examination by the
IRS. Neither the Partnership nor any of the Property Partnerships changed their
classification within the 60 month period preceding May 8, 1996, nor was any one
of them notified that their classification as a partnership for federal income
tax purposes was under examination by the IRS. Therefore, in reliance on the
opinion previously rendered by Wolf, Block, Schorr and Solis-Cohen LLP, the
Operating Partnership and each of the Property Partnerships should continue to
be taxed as partnerships for federal tax purposes.
If for any reason the Operating Partnership or a Property Partnership were
taxable as a corporation rather than as a partnership for federal income tax
purposes, the Trust would not be able to satisfy the income and asset
requirements for status as a REIT. In addition, any change in the Operating
Partnership's status or that of a Property Partnership for tax purposes might be
treated as a taxable event, in which case the Trust might incur a tax liability
without any related cash distribution. See "-- Taxation of the Trust," above.
Further, items of income and deduction for the Operating Partnership or a
Property Partnership would not pass through to the respective partners, and the
partners would be treated as stockholders for tax purposes. Each Partnership
would be required to pay income tax at regular corporate tax rates on its net
income and distributions to partners would constitute dividends that would not
be deductible in computing the Partnership's taxable income.
INCOME TAXATION OF THE PARTNERSHIPS
Partners, Not the Operating Partnership or Property Partnerships, Subject to
Tax
A partnership is not a taxable entity for federal income tax purposes.
Rather, the Trust will be required to take into account its allocable share of
the income, gains, losses, deductions and credits of each of the Operating
Partnership and the Property Partnerships for any taxable year of such
Partnerships ending within or with the taxable year of the Trust, without regard
to whether the Trust has received or will receive any cash distributions. The
same will be true for the Operating Partnership with respect to its allocable
share of the income, gains, losses, deductions and credits of each of the
Property Partnerships.
Partnership Allocations
Although a partnership agreement generally will determine the allocation of
income and losses among partners, the allocations provided in the partnership
agreement will be disregarded for tax purposes if they do not comply with the
provisions of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder.
If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The allocations of taxable income and
loss of each of the Operating Partnership and the Property Partnerships are
intended to comply with the requirements of Section 704(b) of the Code and the
Treasury Regulations promulgated thereunder.
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Tax Allocations With Respect to Pre-Contribution Gain
Pursuant to Section 704(c) of the Code, income, gain, loss, and deduction
attributable to appreciated property that is contributed to a partnership in
exchange for an interest in the partnership must be allocated for federal income
tax purposes in a manner such that the contributor is charged with the
unrealized gain associated with the property at the time of the contribution.
The amount of such unrealized gain is generally equal to the difference between
the fair market value of the contributed property at the time of contribution
and the adjusted tax basis of such property at the time of contribution (the
"Book-Tax Difference"). In general, the fair market value of the properties
owned (directly or indirectly) by the Trust and interests in Property
Partnerships contributed to the Operating Partnership has been substantially in
excess of their respective adjusted tax bases. The Partnership Agreements of
each of the Operating Partnership and the Property Partnerships require that
allocations attributable to each item of contributed property be made so as to
allocate the tax depreciation available with respect to such property first to
the partners other than the partner that contributed the property, to the extent
of, and in proportion to, their book depreciation, and then, if any tax
depreciation remains, to the partner that contributed the property. Upon the
disposition of any item of contributed property, any gain attributable to the
"built-in" gain of the property at the time of contribution would be allocated
for tax purposes to the contributing partner. These allocations are intended to
be consistent with the Treasury Regulations under Section 704(c) of the Code.
In general, participants in the formation of the Trust (and the
Partnerships) have been allocated disproportionately lower amounts of
depreciation deductions for tax purposes relative to their percentage interests
in the Operating Partnership, and disproportionately greater shares relative to
their percentage interests in the Operating Partnership of the gain on the sale
by the Partnerships of one or more of the contributed properties. These tax
allocations will tend to reduce or eliminate the Book-Tax Difference over the
life of the Partnerships. Because the Partnership Agreements of the Partnerships
adopt the "traditional method" in obtaining items allocable under Section 704(c)
of the Code, the amounts of the special allocations of depreciation and gain
under the special allocation rules of Section 704(c) of the Code may be limited
by the so-called "ceiling rule" and may not always eliminate the Book-Tax
Difference on an annual basis or with respect to a specific transaction such as
a sale. Thus, the carryover basis of the contributed assets in the hands of the
Partnerships may cause the Trust to be allocated less depreciation than would be
available for newly purchased properties.
The foregoing principles also apply in determining the earnings and profits
of the Trust. The application of these rules may result in a larger share of the
distributions from the Trust being taxable to shareholders as dividends.
Basis in Operating Partnership Interest
The Trust's adjusted tax basis in its partnership interest in the Operating
Partnership generally (i) will be equal to the amount of cash and the basis of
any other property contributed to the Operating Partnership by the Trust plus
the fair market value of the Shares it issues or cash it pays upon conversion of
interests in the Operating Partnership, (ii) has been, and will be, increased by
(a) its allocable share of the Operating Partnership's income and (b) its
allocable share of indebtedness of the Operating Partnership and of the Property
Partnerships and (iii) has been, and will be, reduced (but not below zero) by
the Trust's allocable share of (a) the Operating Partnership's loss and (b) the
amount of cash distributed to the Trust, and by constructive distributions
resulting from a reduction in the Trust's share of indebtedness of the Operating
Partnership and the Property Partnerships.
If the allocation of the Trust's distributive share of the Operating
Partnership's loss would reduce the adjusted tax basis of the Trust's
partnership interest in the Operating Partnership below zero, the loss is
deferred until such time as the recognition of such loss would not reduce the
Trust's adjusted tax basis below zero. To the extent that the Operating
Partnership's distributions, or any decrease in the Trust's share of the
indebtedness of the Operating Partnership or a Property Partnership (each such
decrease being considered a constructive cash distribution to the partners),
would reduce the Trust's adjusted tax basis below zero, such distributions
(including such constructive distributions) would be includible as taxable
income to the Trust in
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the amount of such excess. Such distributions and constructive distributions
would normally be characterized as capital gain, and if the Trust's partnership
interest in the Operating Partnership has been held for longer than the
long-term capital gain holding period (currently, one year), the distributions
and constructive distributions would constitute long-term capital gain. Based on
Treasury Regulations to be issued, the tax rates applicable to such capital gain
will likely vary depending on the precise amount of time such interest has been
held by the Trust and the nature of the Operating Partnership's property. Based
on certain undertakings by limited partners of the Operating Partnership, the
Exchangeable Subordinated Debentures issued by the Operating Partnership are
allocated for purposes of Section 752 of the Code disproportionately in favor of
certain limited partners.
SALE OF THE PARTNERSHIPS' PROPERTY
Generally, any gain realized by the Operating Partnership or a Property
Partnership on the sale of property held by the Operating Partnership or a
Property Partnership, or on the sale of partnership interests in the Property
Partnerships, if the property or partnership interests are held for more than
one year, will be long-term capital gain (except for any portion of such gain
that is treated as depreciation or cost recovery recapture), and may result in
capital gain distributions to the shareholders. See "-- Taxation of Taxable
Domestic Shareholders," below.
The Trust's share of any gain realized on the sale of any property held by
the Operating Partnership or a Property Partnership as inventory or other
property held primarily for sale to customers in the ordinary course of the
trade or business of any of the Operating Partnership or the Property
Partnerships will, however, be treated as income from a prohibited transaction
that is subject to a 100% penalty tax. Under existing law, whether property is
held as inventory or primarily for sale to customers in the ordinary course of a
trade or business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. The Operating
Partnership and the Property Partnerships intend to hold their properties for
investment with a view to long-term appreciation, to engage in the business of
acquiring, developing, owning and operating their properties and to make such
occasional sales of such properties, including peripheral land, as are
consistent with the investment objectives of the Trust and the Operating
Partnership. Complete assurance cannot be given, however, that the Trust will be
able to avoid owning property that may be characterized as property held
"primarily for sale to customers in the ordinary course of business."
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as the Trust qualifies as a REIT, distributions made to the Trust's
taxable U.S. shareholders out of current or accumulated earnings and profits
(and not designated as capital gain dividends) will be taken into account by
such U.S. shareholders as ordinary income and will not be eligible for the
dividends received deduction for corporations. Distributions that are designated
as capital gain dividends will be taxed as gain from the sale or exchange of a
capital asset held for more than one year (to the extent they do not exceed the
Trust's actual net capital gain for the taxable year) without regard to the
period for which the shareholder has held its stock. Subject to certain
limitations, the Trust may further designate capital gain dividends as a "20%
rate gain distribution," an "unrecaptured section 1250 gain distribution," or a
"28% rate gain distribution," in which case such dividends will be taxable to
recipient individual shareholders when received at tax rates of 20%, 25% and
28%, respectively. If no additional designation is made regarding a capital gain
distribution, it will be treated as a 28% rate gain distribution. Corporate
shareholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income.
Distributions in excess of current and accumulated earnings and profits
will not be taxable to a shareholder to the extent that they do not exceed the
adjusted basis of the shareholder's shares, but rather will reduce the adjusted
basis of such shares. To the extent that such distributions exceed the adjusted
basis of a shareholder's shares, they will be included in income as short-term,
mid-term or long-term capital gain (depending on the length of time the shares
have been held) assuming the shares are a capital asset in the hands of the
shareholder. In addition, any dividend declared by the Trust in October,
November or December of any year payable to a shareholder of record on a
specified date in any such month shall be treated as both paid by the Trust and
received by the shareholder on December 31 of such year, provided that the
dividend is
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actually paid by the Trust during January of the following calendar year.
Shareholders may not include in their individual income tax returns any net
operating losses or capital losses of the Trust.
In general, a domestic shareholder will realize capital gain or loss on the
disposition of Common Shares equal to the difference between (i) the amount of
cash and the fair market value of any property received on such disposition, and
(ii) the shareholder's adjusted basis of such Common Shares. Subject to certain
exceptions, the maximum rate of tax on net capital gains of individuals, trusts
and estates from the sale or exchange of capital assets is 28% in respect of
capital assets held for more than one year but not more than 18 months and is
20% in respect of capital assets held for more than 18 months. Any loss upon a
sale or exchange of shares by a shareholder who has held such shares for six
months or less (after applying certain holding-period rules) will be treated as
a long-term capital loss to the extent of distributions from the Trust required
to be treated by such shareholder as long-term capital gain.
Effective for its taxable years beginning on or after January 1, 1998, the
Trust may elect to retain its net long-term capital gains recognized during a
taxable year ("Retained Gains") and pay a corporate-level tax on such Retained
Gains. Corporations are currently subject to a maximum 35 percent tax on
recognized capital gains. A shareholder owning the Trust's shares of beneficial
interest on December 31 of any taxable year in which the Trust has Retained
Gains would be required to include in gross income such shareholder's
proportionate share of the Retained Gains (as designated by the Trust in a
notice mailed to shareholders within 60 days following the end of the taxable
year). The amount of any corporate-level tax paid by the Trust in respect of the
Retained Gains (the "Trust Tax") would be treated as having been paid by the
shareholders of the Trust and each shareholder would receive a credit for such
shareholder's share of the Trust Tax. A shareholder's basis in his shares of
beneficial interest would increase by the excess of such shareholder's
proportionate share of the Retained Gains over the shareholder's share of the
Trust Tax. Unless the Retained Gains were treated as actually distributed, it is
possible that the Retained Gains might be subject to the Excise Tax.
BACKUP WITHHOLDING
The Trust will report to its U.S. shareholders and the IRS the amount of
distributions paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to distributions paid unless such
shareholder (a) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or (b) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A shareholder that does not provide the Trust with his
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
shareholder's income tax liability. In addition, the Trust may be required to
withhold a portion of capital gain distributions to shareholders who fail to
certify their non-foreign status to the Trust. The United States Treasury has
recently issued final regulations (the "Final Regulations") which affect the
procedures regarding the withholding and information reporting rules discussed
above. In general, the Final Regulations do not alter the substantive
withholding and information reporting requirements but unify current
certification procedures and forms and clarify and modify reliance standards.
The Final Regulations are generally effective for payments made on or after
January 1, 1999, subject to certain transition rules. Prospective investors
should consult their own tax advisors concerning the adoption of the Final
Regulations and the potential effect on their ownership of Common Shares. See
"-- Taxation of Foreign Shareholders."
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Generally, distributions to a tax-exempt entity from a real estate
investment trust do not constitute unrelated business taxable income, as defined
in Section 512(a) of the Code ("UBTI"), provided that the tax-exempt entity has
not financed its acquisition of its shares with "acquisition indebtedness"
within the meaning of the Code and the shares are not otherwise used in an
unrelated trade or business of the tax-exempt entity. Thus, distributions by the
Trust to shareholders that are tax-exempt should not be taxable as UBTI,
provided that no acquisition indebtedness was incurred with respect to such
shares.
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Some or all of the distributions by a real estate investment trust to a
tax-exempt employee's pension fund that owns more than 10% in value of the real
estate investment trust are treated as UBTI if the real estate investment trust
constitutes a "pension-held REIT" and if other conditions are met. In order to
constitute a "pension-held REIT" the real estate investment trust must meet the
test for classification as a real estate investment trust only because
tax-exempt pension funds are not treated as a single individual for purposes of
the "five-or-fewer" rule (see "Risk Factors -- Limitations on Changes in
Control -- Ownership Limit") and either (A) one pension fund owns more than 25%
in value of the real estate investment trust or (B) one or more pension funds
(holding at least 10% in value of the real estate investment trust each) own, in
the aggregate, more than 50% of the value of the real estate investment trust.
In addition, the gross income of the real estate investment trust derived from
activities that would constitute unrelated trades or businesses, computed as if
the REIT was a "qualified trust," must be at least five percent of the gross
income of the real estate investment trust in the taxable year in which the
distributions are made. The ownership limitations in the Trust's Declaration of
Trust (assuming no waiver by the Board of Trustees) would prevent the Trust from
being classified as a "pension-held REIT."
TAXATION OF FOREIGN SHAREHOLDERS
The rules governing United States federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
shareholders (collectively, "Non-U.S. Shareholders") are complex, and no attempt
will be made herein to provide more than a summary of the rules. Prospective
Non-U.S. Shareholders should consult with their own tax advisors to determine
the impact of federal, state and local income tax laws with regard to an
investment in the Common Shares offered hereby, including any reporting
requirements, as well as the tax treatment of such an investment under their
home country laws. If income from the investment in the Common Shares offered
hereby is treated as "effectively connected" with the Non-U.S. Shareholder's
conduct of a United States trade or business, the Non-U.S. Shareholder generally
will be subject to a tax at graduated rates, in the same manner as U.S.
shareholders are taxed with respect to the dividends (and may also be subject to
the 30% "branch profits" tax in the case of a shareholder that is a foreign
corporation). The remainder of this discussion assumes that the distributions do
not constitute "effectively connected" income. Prospective investors whose
investment in Common Shares may be "effectively connected" with the conduct of a
United States trade or business should consult their own tax advisors as to the
tax consequences thereof.
Distributions by the Trust that are not attributable to gain from sales or
exchanges by the Trust of United States real property interests and not
designated by the Trust as capital gains dividends will be treated as dividends
of ordinary income to the extent that they are made out of current or
accumulated earnings and profits of the Trust. Such distributions, ordinarily,
will be subject to a withholding tax equal to 30% of the gross amount of the
distribution unless an applicable tax treaty reduces or eliminates that tax.
Distributions in excess of current and accumulated earnings and profits of the
Trust will not be taxable to a shareholder to the extent that such distributions
do not exceed the adjusted basis of the shareholder's shares, but rather will
reduce the adjusted basis of such shares. To the extent that distributions in
excess of current accumulated earnings and profits exceed the adjusted basis of
a Non-U.S. Shareholder's shares, such distributions will give rise to tax
liability if the Non-U.S. Shareholder would otherwise be subject to tax on any
gain from the sale or disposition of his shares in the Trust, as described
below. The Trust expects to withhold United States income tax at the rate of 30%
on the gross amount of any distributions made to a Non-U.S. Shareholder unless
(i) a lower treaty rate applies and the Non-U.S. Shareholder files all necessary
forms required to establish eligibility for the lower rate and provides
certification as to such eligibility, if necessary, or (ii) the Non-U.S.
Shareholder files an IRS Form 4224 with the Trust certifying that the investment
to which the distribution relates is "effectively connected" to a United States
trade or business of such Non-U.S. Shareholder. Lower treaty rates generally
applicable to dividend income may not necessarily apply to distributions from a
REIT, such as the Trust. If it cannot be determined at the time a distribution
is made whether or not such distribution will be in excess of current and
accumulated earnings and profits, the distributions will be subject to
withholding at the same rate as dividends. Pursuant to recently enacted
legislation, effective for distributions made after August 20, 1996, the Trust
is obligated to withhold 10% of the amount of any distribution in excess of the
Trust's current and accumulated earnings and profits. However, amounts withheld
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are refundable if it is subsequently determined that the distribution was in
excess of current and accumulated earnings and profits of the Trust and the
amount withheld exceeded the Non-U.S. Shareholders' United States tax liability,
if any.
For any year in which the Trust qualifies as a REIT, distributions that are
attributable to gain from sales or exchanges by the Trust of United States real
property interests will be taxed to a Non-U.S. Shareholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under
FIRPTA, these distributions are taxed to a Non-U.S. Shareholder as if the gain
were "effectively connected" with a United States business. Non-U.S.
Shareholders would be taxed at the normal capital gain rates applicable to
domestic shareholders (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals),
without regard to whether such distributions are designated by the Trust as
capital gain dividends. Also, distributions subject to FIRPTA may be subject to
a 30% "branch profits" tax in the hands of a foreign corporate shareholder not
entitled to treaty exemption. The Trust is required by applicable income tax
regulations that have been promulgated under the Code (the "Treasury
Regulations") to withhold 35% of any distribution that could be designated by
the Trust as a capital gains dividend. This amount is creditable against the
Non-U.S. Shareholder's FIRPTA tax liability.
Gain recognized by a Non-U.S. Shareholder upon a sale of shares generally
will not be taxed under FIRPTA if the Trust is a "domestically controlled REIT,"
defined generally as a REIT in which at all times during a specified testing
period less than 50% in value of the stock was held directly or indirectly by
foreign persons. The Trust currently is a "domestically controlled REIT," and
anticipates continuing to be so classified, and therefore the sale of the Common
Shares offered hereby should not be subject to taxation under FIRPTA. However,
because the Common Shares will be publicly traded, no assurance can be given
that the Trust will continue to so qualify. Notwithstanding the foregoing, any
gain not otherwise subject to FIRPTA will be taxable to a Non-U.S. Shareholder
if (i) investment in the shares is effectively connected with the Non-U.S.
Shareholder's United States trade or business, in which case the Non-U.S.
Shareholder will be subject to the same treatment as U.S. shareholders with
respect to the gain (a shareholder that is a foreign corporation may also be
subject to the 30% "branch profits" tax), or (ii) the Non-U.S. Shareholder is a
nonresident alien individual who was present in the United States for 183 days
or more during the taxable year and has a "tax home" in the United States, in
which case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains. If the gain on the sale of shares were to be subject
to taxation under FIRPTA, the Non-U.S. Shareholder will be subject to the same
treatment as U.S. shareholders with respect to the gain (subject to applicable
alternative minimum tax and a special alternative minimum tax in the case of
nonresident alien individuals and, in the case of foreign corporations, subject
to the possible application of the 30% "branch profits" tax).
If the proceeds of a disposition of Common Shares are paid by or through a
United States office of a broker, the payment is subject to information
reporting requirements and to backup withholding unless the disposing Non-U.S.
Shareholder certifies as to his name, address, and non-United States status or
otherwise establishes an exemption. Generally, United States information
reporting and backup withholding will not apply to the payment of disposition
proceeds if the payment is made outside the United States through a non-United
States broker. United States information reporting (but not backup withholding)
will apply, however, to a payment of disposition proceeds outside the United
States if (i) the payment is made through an office outside the United States
that is either (a) a United States person, (b) a foreign person that derives 50%
or more of its gross income for certain periods from the conduct of a trade or
business in the United States or (c) a "controlled foreign corporation" for
United States federal income tax purposes, and (ii) the broker fails to obtain
documentary evidence that the Shareholder is a Non-U.S. Shareholder and that
certain conditions are met or that the Non-U.S. Shareholder is otherwise
entitled to an exemption. The Final Regulations, issued by the United States
Treasury on October 6, 1997, affect the rules applicable to payments to foreign
persons. In general, the Final Regulations do not alter the substantive
withholding and information reporting requirements but unify current
certification procedures and forms and clarify and modify reliance standards.
The Final Regulations also address certain issues relating to intermediary
certification procedures designed to simplify compliance by withholding agents.
The Final Regulations are generally effective for payments made on or after
January 1, 1999, subject to certain transition rules. Prospective investors
should consult their own
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tax advisors concerning the adoption of the Final Regulations and the potential
effect on their ownership of Common Shares.
TAXATION OF HOLDERS OF DEBT SECURITIES
As used herein, the term "U.S. Holder" means a holder of a Debt Security
who (for United States Federal income tax purposes) is (i) a citizen or resident
of the United States, (ii) a domestic corporation, (iii) an estate, the income
of which is subject to United States federal income tax without regard to its
source, (iv) a Trust if a court within the United States is able to exercise
primary supervision over the administration of the Trust and one or more United
States persons have the authority to control all substantial decisions of the
Trust, or (v) any other person who is subject to United States Federal income
taxation on a net income basis with respect to a Debt Security and "U.S. Alien
Holder" means a holder of a Debt Security who is not a U.S. Holder. In the case
of a holder of a Debt Security that is a partnership for United States tax
purposes, and each partner will take into account its allocable share of income
or loss from the Debt Security, and will take such income or loss into account
under the rules of taxation applicable to such partner, taking into account the
partnership and the partner.
U.S. HOLDERS
Payments of Interest
Interest on a Debt Security will be taxable to a U.S. Holder as ordinary
income at the time it is received or accrued, depending on the U.S. Holder's
method of accounting for tax purposes.
Purchase, Sale and Retirement of the Debt Securities
A U.S. Holder's tax basis in a Debt Security will generally be its U.S.
dollar cost.
A U.S. Holder will generally recognize gain or loss on the sale or
retirement of a Debt Security equal to the difference between the amount
realized on the sale or retirement and the U.S. Holder's tax basis in the Debt
Security. Except to the extent attributable to accrued but unpaid interest, gain
or loss recognized on the sale or retirement of a Debt Security will be capital
gain or loss, will be a long-term capital gain or loss if the Debt Security was
held for more than one year and may be eligible for a reduced rate of tax if the
Debt Security was held for more than 18 months and in certain other
circumstances.
U.S. ALIEN HOLDERS
This discussion assumes that the Debt Security is not subject to the rules
of Section 871(h)(4)(A) of the Code (relating to interest payments that are
determined by reference to the income, profits, changes in the value of property
or other attributes of the debtor or a related party).
Under present United States Federal income and estate tax law, and subject
to the discussion of backup withholding above:
(i) payments of principal, premium (if any) and interest by the
Operating Partnership or any of its paying agents to any holder of a Debt
Security that is a U.S. Alien Holder will not be subject to United States
Federal withholding tax if, in the case of interest (a) the beneficial
owner of the Debt Security does not actually or constructively own 10% or
more of the capital or profits interest in the Operating Partnership, (b)
the beneficial owner of the Debt Security is not a controlled foreign
corporation that is related to the Operating Partnership through stock
ownership, and (c) either (A) the beneficial owner of the Debt Security
certifies to the Operating Partnership or its agent, under penalties of
perjury, that it is not a U.S. person and provides its name and address or
(B) a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or
business (a "financial institution") and holds the Debt Security certifies
to the Operating Partnership or its agent under penalties of perjury that
such statement has been received from the beneficial owner by it or by a
financial institution between it and the beneficial owner and furnishes the
payor with a copy thereof;
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(ii) a U.S. Alien Holder of a Debt Security will not be subject to
United States Federal withholding tax on any gain realized on the sale or
exchange of a Debt Security; and
(iii) a Debt Security held by an individual who at death is not a
citizen or resident of the United States will not be includible in the
individual's gross estate for purposes of the United States Federal estate
tax as a result of the individual's death if (a) the individual did not
actually or constructively own 10% or more of the capital or profits
interest in the Operating Partnership, and (b) the income on the Debt
Security would not have been effectively connected with a United States
trade or business of the individual at the time of the individual's death.
Special rules may apply in the case of U.S. Alien Holders (i) that are
engaged in a United States trade or business, (ii) that are former citizens or
long term residents of the United States, "controlled foreign corporations,"
"foreign personal holding companies," corporations which accumulate earnings to
avoid United States Federal income tax, and certain foreign charitable
organizations, each within the meaning of the Code, or (iii) certain
non-resident alien individuals who are present in the United States for 183 days
of more during a taxable year. Such persons are urged to consult their own tax
advisors before purchasing a Debt Security.
PLAN OF DISTRIBUTION
The Trust and/or the Operating Partnership, as the case may be, may sell
the Securities being offered hereby: (a) directly to purchasers; (b) through
agents; (c) through underwriters; (d) through dealers; or (e) through a
combination of any such methods of sale. The Securities may also be used as all
or part of the consideration to be paid by the Trust or the Operating
Partnership for the acquisition of non-operating assets for which financial
statements would not be required to be filed with the Commission, or in exchange
for units of limited partnership interest of the Operating Partnership. In
addition, Common Shares may be offered hereby in exchange for certain debt
securities of the Operating Partnership that are exchangeable for such Common
Shares.
The distribution of the Securities may be effected from time to time in one
or more transactions: (a) at a fixed price or at final prices, which may be
changed; (b) at market prices prevailing at the time of sale; (c) at prices
related to such prevailing market prices; or (d) at negotiated prices. Offers to
purchase Securities may be solicited directly by the Trust or the Operating
Partnership, as the case may be, or by agents designated by the Trust or the
Operating Partnership, as the case may be, from time to time. Any such agent,
which may be deemed to be an underwriter as that term is defined in the
Securities Act, involved in the offer or sale of the Securities in respect of
which this Prospectus is delivered will be named, and any commissions payable by
the Trust or the Operating Partnership, as the case may be, to such agent will
be set forth, in the applicable Prospectus Supplement.
If an underwriter is, or underwriters are, utilized in the offer and sale
of Securities in respect of which this Prospectus and the accompanying
Prospectus Supplement are delivered, the Trust and/or the Operating Partnership
will execute an underwriting agreement with such underwriter(s) for the sale to
it or them and the name(s) of the underwriter(s) and the terms of the
transaction will be set forth in such Prospectus Supplement, which will be used
by the underwriter(s) to make resales of the Securities in respect of which this
Prospectus and such Prospectus Supplement are delivered to the public.
If a dealer is utilized in the sale of the Securities in respect of which
this Prospectus is delivered, the Trust and/or the Operating Partnership will
sell such Securities to the dealer, as principal. The dealer may then resell
such Securities to the public at varying prices to be determined by such dealer
at the time of resale.
Certain of the underwriters, dealers or agents utilized by the Trust and/or
the Operating Partnership in any offering hereby may be customers of, including
borrowers from, engage in transactions with, and perform services for, the Trust
and/or the Operating Partnership or one or more of their respective affiliates
in the ordinary course of business. Underwriters, dealers, agents and other
persons may be entitled, under agreements which may be entered into with the
Trust or the Operating Partnership, as the case may be, to indemnification
against certain civil liabilities, including liabilities under the Securities
Act.
Until the distribution of the Securities is completed, rules of the
Commission may limit the ability of the underwriters and certain selling group
members, if any, to bid for and purchase the Securities. As an exception
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to these rules, the representatives of the underwriters, if any, are permitted
to engage in certain transactions that stabilize the price of the Securities.
Such transactions may consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Securities.
If underwriters create a short position in the Securities in connection
with the offering thereof, (i.e., if they sell more Securities than are set
forth on the cover page of the applicable Prospectus Supplement), the
representatives of such underwriters may reduce that short position by
purchasing Securities in the open market. Any such representatives also may
elect to reduce any short position by exercising all or part of the
over-allotment option described in the applicable Prospectus Supplement.
Any such representatives also may impose a penalty bid on certain
underwriters and selling group members. This means that if the representatives
purchase Securities in the open market to reduce the underwriters' short
position or to stabilize the price of the Securities, they may reclaim the
amount of the selling concession from the underwriters and selling group members
who sold those shares as part of the offering thereof.
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.
Neither the Company nor any of the underwriters, if any, makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Securities. In
addition, neither the Company nor any of the underwriters, if any, makes any
representation that the representatives of the underwriters, if any, will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without notice.
LEGAL OPINIONS
Wolf, Block, Schorr and Solis-Cohen LLP, Philadelphia, Pennsylvania, has
rendered an opinion with respect to the legality of the Securities to be issued
by the Operating Partnership. Weinberg & Green LLC, Baltimore, Maryland, has
rendered an opinion with respect to the legality of the Securities to be issued
by the Trust. The statements in this Prospectus under the caption "Federal
Income Tax Considerations with Respect to the Trust and the Operating
Partnership" and the other statements herein relating to the Trust's
qualification as a real estate investment trust will be passed upon for the
Trust by Wolf, Block, Schorr and Solis-Cohen LLP, although such firm has
rendered no opinion as to matters involving the imposition of non-U.S. taxes on
the operations of, and distributions of payments from, its United Kingdom
affiliate. Michael M. Dean, a partner of Wolf, Block, Schorr and Solis-Cohen
LLP, is the sole trustee of irrevocable trusts established by three of the
Trust's senior executives for the benefit of their respective children. Each of
such trusts received limited partnership interests in the Operating Partnership
in connection with the Company's formation in exchange for interests in the
Rouse Group owned by such trusts.
EXPERTS
The consolidated financial statements of the Trust and the Operating
Partnership for the years ended December 31, 1996 and 1995 and the period from
June 23, 1994 through December 31, 1994 and the combined financial statements of
the Rouse Group for the period January 1, 1994 through June 22, 1994, appearing
in the Annual Reports (Form 10-K) of the Trust and the Operating Partnership for
the year ended December 31, 1996, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
The statements of operating revenues and certain operating expenses of (i)
650-660 E. Swedesford Road, (ii) the Minnesota Properties, (iii) the South
Carolina Properties, (iv) the Detroit Properties, (v) 4198 Cox Road, (vi) 4510
Cox Road, (vii) the Patuxent Woods Properties, (viii) the Horsham Properties and
(ix) the Greenville Properties, each of such capitalized terms as defined in the
respective Current Reports (Form 8-K)
43
<PAGE> 83
of the Company and the Operating Partnership relating thereto, all of such
statements for the year ended December 31, 1996 and appearing in the respective
Current Reports (Form 8-K) of the Company and the Operating Partnership, filed
on February 13, 1997, March 5, 1997, March 5, 1997, June 25, 1997, November 4,
1997, November 4, 1997, November 13, 1997, November 19, 1997 and December 11,
1997, respectively, have been audited by Fegley & Associates, independent
auditors, as set forth in their reports thereon included in the respective
Current Reports (Form 8-K) and incorporated herein by reference. Such statements
of operating revenues and certain operating expenses are incorporated herein by
reference in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Trust and the Operating Partnership are subject to the informational
requirements of the Exchange Act, and, in accordance therewith, file reports and
other information with the Commission, including proxy statements in the case of
the Trust. Such reports and other information can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at the Commission's regional
offices at Seven World Trade Center, Suite 1300, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material also may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, at
prescribed rates. Electronic filings made through the Commission's Electronic
Data Gathering, Analysis and Retrieval System ("EDGAR") are publicly available
through the Commission's Web site (http://www.sec.gov). The Common Shares are
listed on the NYSE, and reports, proxy statements and other information
regarding the Trust and the Operating Partnership may also be inspected at the
offices of the NYSE at 20 Broad Street, New York, New York 10005.
The Trust and the Operating Partnership have filed with the Commission a
Registration Statement on Form S-3 (together with any amendments thereto, the
"Registration Statement") under the Securities Act with respect to the
Securities offered hereby. This Prospectus constitutes a part of the
Registration Statement. As permitted by the rules and regulations of the
Commission, this Prospectus and the applicable Prospectus Supplement do not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. Statements contained in this Prospectus, the
applicable Prospectus Supplement or in any document incorporated by reference in
this Prospectus as to the contents of any contract or other document referred to
in this Prospectus or the applicable Prospectus Supplement are not necessarily
complete and, in each instance where such contract or document has been filed as
an exhibit to the Registration Statement or other document incorporated by
reference, reference is made to the copy of such contract or other document,
each such statement being qualified in all respects by such reference. The
Registration Statement, together with exhibits thereto, may be inspected at the
Commission's public reference facilities in Washington, D.C., and copies of all
or any part thereof may be obtained from the Commission upon the payment of
prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission under the Exchange Act
are hereby incorporated by reference herein as of their respective dates:
(a) The Annual Report on Form 10-K of the Trust and the Operating
Partnership for the fiscal year ended December 31, 1996;
(b) The Quarterly Reports on Form 10-Q of the Trust and the Operating
Partnership for the fiscal quarters ended March 31, 1997, June 30,
1997 and September 30, 1997;
(c) The Current Reports on Form 8-K of the Trust and the Operating
Partnership filed February 13, 1997, March 5, 1997, March 21, 1997,
June 25, 1997, July 7, 1997, August 6, 1997, August 11, 1997, August
16, 1997, November 4, 1997, November 13, 1997, November 19, 1997,
November 20, 1997, December 11, 1997, December 15, 1997 and December
18, 1997 (as amended on December 23, 1997); and
44
<PAGE> 84
(d) The description of the Common Shares contained in the Registration
Statement on Form 8-A of the Trust registering such securities under
Section 12 of the Exchange Act.
All documents and reports filed by the Trust or the Operating Partnership
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Prospectus and prior to termination of the offering described
herein shall be deemed to be incorporated by reference in this Prospectus and to
be a part hereof from the respective dates of filing of such documents or
reports, except as to any portion of any future annual or quarterly report to
the holders of securities of the Trust or the Operating Partnership or any proxy
or information statement which is not deemed to be filed under such provisions.
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 the Registration Statement, this Prospectus and the applicable
Prospectus Supplement to the extent that a statement contained herein, in the
applicable Prospectus Supplement or in any other subsequently filed document
which also is or is deemed to be incorporated by reference in the Registration
Statement or this Prospectus modifies or supersedes such statement. Any such
statement so modified or superseded, except as so modified or superseded, shall
not be deemed to constitute a part of this Prospectus or the applicable
Prospectus Supplement.
The Company will provide without charge to each person to whom a copy of
this Prospectus or the applicable Prospectus Supplement has been delivered, upon
written or oral request of such person, 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 into such documents.
Requests for such copies should be directed to the Company at 65 Valley Stream
Parkway, Malvern, Pennsylvania 19355, Attention: Investor Relations; telephone
(610) 648-1700.
45
<PAGE> 85
======================================================
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 an 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
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Risk Factors.......................... S-3
Description of Notes.................. S-6
Special Provisions Relating to Multi-
Currency Notes...................... S-26
Certain United States Federal Income
Tax Considerations.................. S-29
Plan of Distribution.................. S-38
Legal Matters......................... S-39
PROSPECTUS
Risk Factors.......................... 3
The Company........................... 7
Use of Proceeds....................... 7
Certain Ratios........................ 7
Description of Debt Securities........ 8
Description of Preferred Shares....... 20
Description of Warrants............... 26
Shareholder Rights Plan............... 27
Federal Income Tax Considerations With
Respect to the Trust and the
Operating Partnership............... 28
Plan of Distribution.................. 42
Legal Opinions........................ 43
Experts............................... 43
Available Information................. 44
Incorporation of Certain Documents by
Reference........................... 44
</TABLE>
======================================================
======================================================
$450,000,000
LIBERTY PROPERTY
LIMITED PARTNERSHIP
Medium-Term Notes
Due Nine Months or More
From Date of Issue
---------------------------
PROSPECTUS SUPPLEMENT
January 12, 1998
---------------------------
LEHMAN BROTHERS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
FIRST CHICAGO CAPITAL MARKETS, INC.
J.P. MORGAN & CO.
UBS SECURITIES
======================================================
