424B5: Prospectus [Rule 424(b)(5)]
Published on September 27, 2001
PROSPECTUS SUPPLEMENT
(To Prospectus dated May 1, 2001)
$200,000,000
Kimco Realty Corporation
Series C Medium-Term Notes
Due Nine Months or More From Date of Issue
----------------
We may offer from time to time up to $200,000,000 aggregate initial offering
price, or its equivalent in one or more foreign currencies, of our Series C
Medium-Term Notes, Due Nine Months or More From Date of Issue. This aggregate
initial offering price is subject to reduction as a result of the sale by us
of other securities described in the accompanying prospectus. Each note will
mature on any day nine months or more from the date of issue, as specified in
the applicable pricing supplement to this prospectus supplement, and may be
subject to redemption at our option or repayment at the option of the holder
of that note, in each case, in whole or in part, prior to its stated maturity
date, if and as specified in the applicable pricing supplement. In addition,
each note will be denominated or payable, or both, in United States dollars or
a foreign currency, as specified in the applicable pricing supplement. The
notes, other than notes denominated or payable in a foreign currency, will be
issued in minimum denominations of $1,000 and integral multiples of $1,000,
unless otherwise specified in the applicable pricing supplement, while notes
that are denominated or payable in a foreign currency will be issued in the
minimum denominations specified in the applicable pricing supplement.
Unless otherwise specified in the applicable pricing supplement, notes will
bear interest at fixed rates or at floating rates. The applicable pricing
supplement will specify whether a floating rate note is a regular floating
rate note, a floating rate/fixed rate note or an inverse floating rate note
and whether the rate of interest on that note is determined by reference to
one or more of the CD rate, the CMT rate, the commercial paper rate, the
eleventh district cost of funds rate, the federal funds rate, LIBOR, the prime
rate or the treasury rate, or any other interest rate basis or formula, as
adjusted by any spread or spread multiplier or both. 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 on the maturity date or date of earlier redemption or
repayment. 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 April 1 and October 1 of each year
and on the maturity date or date of earlier redemption or repayment. Notes may
also be issued that do not bear any interest currently or that bear interest
at a below market rate.
The interest rate, or formula for the determination of the interest rate,
applicable to each note and the other variable terms of that note will be
established by us on the date of issue of that note and will be specified in
the applicable pricing supplement. We may change the interest rates or
formulas and other terms of notes, but no change will affect any note already
issued or as to which an offer to purchase has been accepted by us.
Each note will be issued in book-entry form or, if so specified in the
applicable pricing supplement, in fully registered certificated form. Each
book-entry note will be represented by one or more fully registered global
securities deposited with or on behalf of The Depository Trust Company and
registered in the name of The Depository Trust Company or its nominee.
Interests in the global securities will be shown on, and transfers of the
global securities will be effected only through, records maintained by The
Depository Trust Company (with respect to its participants) and its
participants (with respect to beneficial owners).
Investing in the notes involves risks. See "Certain Risk Factors" on page S-2
of this prospectus supplement.
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of the notes or passed upon the accuracy or
adequacy of the prospectus or this prospectus supplement. Any representation
to the contrary is a criminal offense.
(1) Or its equivalent in one or more foreign currencies.
We may sell notes to the agents referred to below as principal for resale at
varying or fixed offering prices or through the agents as agent using their
reasonable efforts on our behalf. We may also sell notes without the
assistance of any agent.
If we sell other securities referred to in the accompanying prospectus, we
may be limited in offering and selling the entire amount of notes referred to
in this prospectus supplement.
Merrill Lynch & Co.
Banc of America Securities LLC
Banc One Capital Markets, Inc.
Credit Suisse First Boston
Goldman, Sachs & Co.
JPMorgan
Morgan Stanley Dean Witter
The date of this prospectus supplement is September 26, 2001.
TABLE OF CONTENTS
Prospectus Supplement
Page
Certain Risk Factors ................................................... S-2
Description of Notes .................................................... S-3
Special Provisions Relating to Foreign Currency Notes ................... S-20
Ratios of Earnings to Fixed Charges...................................... S-22
Certain United States Federal Income Tax Considerations ................. S-22
Plan of Distribution .................................................... S-34
Prospectus
Where You Can Find More Information ..................................... 1
Incorporation of Certain Documents by Reference ......................... 1
The Company ............................................................. 2
Use of Proceeds ......................................................... 2
Description of Debt Securities .......................................... 2
Description of Common Stock ............................................. 15
Description of Common Stock Warrants .................................... 17
Description of Preferred Stock .......................................... 18
Description of Depositary Shares ........................................ 26
Ratios of Earnings to Fixed Charges ..................................... 29
Material Federal Income Tax Considerations to us of our REIT Election ... 29
Plan of Distribution .................................................... 37
Experts ................................................................. 38
Legal Matters ........................................................... 38
CERTAIN RISK FACTORS
This prospectus supplement does not describe all of the risks of an
investment in the notes, whether resulting from those notes being denominated
or payable in or determined by reference to a currency other than United
States dollars or to one or more interest rate, currency or other indices or
formulas or otherwise. We and the agents disclaim any responsibility to advise
you of those risks as they exist at the date of this prospectus supplement or
as they change from time to time. You should consult your own financial and
legal advisors as to the risks entailed by an investment in those notes and
the suitability of investing in those notes in light of your particular
circumstances. The notes are not an appropriate investment for investors who
are unsophisticated with respect to foreign currency transactions or
transactions involving the applicable interest rate index or currency index or
other indices or formulas. You should carefully consider, among other factors,
the matters discussed below.
Structure Risks
An investment in notes indexed, as to principal, premium, if any, and/or
interest, if any, to one or more currencies (including exchange rates and swap
indices between currencies), commodities, interest rates 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. Those risks include, without limitation, the possibility
that those indices or formulas may be subject to significant changes, that no
interest will be payable or that interest will be payable at a rate lower than
one applicable to a conventional fixed rate or floating rate debt security
issued by us at the same time, that the repayment of principal or premium, if
any, or both, may occur at times other than that expected by the holder or
beneficial owner of that note, and that the holder or beneficial owner of the
note could lose all or a substantial portion of principal or premium, if any,
or both, payable on the maturity date or date of earlier redemption or
repayment of that note. Those risks depend on a number of interrelated
factors, including economic, financial and political events, over which we
have 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
those 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 the notes might affect the market value
of those notes. Since we may be expected to redeem those notes when prevailing
interest rates are relatively low, holders and beneficial owners of those
notes 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 those notes.
The notes will not have an established trading market when issued, and there
can be no assurance of a secondary market for the notes or the liquidity of
that market if one develops.
The secondary market, if any, for the notes will be affected by a number of
factors independent of our creditworthiness 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 those
notes, the time remaining to the maturity of those notes, the outstanding
amount of those notes, any redemption features of those notes, the amount of
other debt securities linked to that index or formula and the level, direction
and volatility of market interest rates generally. These factors also will
affect the market value of those notes. In addition, 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 of those notes may not be able to sell
those notes readily or at prices that will enable them to realize their
anticipated yield. No investor should purchase the notes unless such investor
understands and is able to bear the risk that those notes may not be readily
saleable, that the value of those notes will fluctuate over time and that
these fluctuations may be significant.
S-2
Exchange Rates and Exchange Controls
An investment in foreign currency notes 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 currency in which the particular note is payable and the
possibility of the imposition or modification of exchange controls by the
applicable governments or monetary authorities. These risks generally depend
on factors over which we have no control, such as economic, financial and
political events and the supply and demand for the applicable currencies. In
addition, if the formula used to determine the amount of principal, premium,
if any, and/or interest, if any, payable with respect to foreign currency
notes contains a multiplier or leverage factor, the effect of any change in
the applicable currencies will be magnified. In recent years, rates of
exchange between the United States dollar and foreign currencies have been
highly volatile and volatility should be expected to continue in the future.
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 currency applicable to a foreign currency note
against the United States dollar would result in a decrease in the United
States dollar-equivalent yield of that foreign currency note, in the United
States dollar-equivalent value of the principal and premium, if any, payable
on the maturity date or date of earlier redemption or repayment of that
foreign currency note, and, generally, in the United States dollar-equivalent
market value of that foreign currency note.
Governments or monetary authorities have imposed from time to time, and may
in the future impose or revise, exchange controls at or prior to the date on
which any payment of principal of, or premium, if any, or interest, if any,
on, a foreign currency note is due, which could affect exchange rates as well
as the availability of the currency in which that foreign currency note is
payable on that date. Even if there are no exchange controls, it is possible
that the currency in which that foreign currency note is payable would not be
available on the applicable payment date due to other circumstances beyond our
control. In these cases, we will be entitled to satisfy our obligations in
respect of that foreign currency note in United States dollars.
Credit Ratings
Any credit ratings assigned to our 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, you should consult your own financial and
legal advisors as to the risks entailed by an investment in the notes and the
suitability of investing in those notes in light of your particular
circumstances.
DESCRIPTION OF NOTES
The notes will be issued as a series of debt securities under an Indenture,
dated September 1, 1993, as amended by the First Supplemental Indenture dated
August 4, 1994, the Second Supplemental Indenture dated April 7, 1995 and as
further amended or supplemented from time to time, between us and The Bank of
New York (as successor to IBJ Schroder Bank & Trust Company), as trustee. 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 in this prospectus supplement will 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 of our debt securities, including the
notes, issued and issuable from time to time under the indenture. The
following description of the notes will apply to each note offered in
connection with this prospectus supplement unless otherwise specified in the
applicable pricing supplement.
General
All debt securities, including the notes, issued and to be issued under the
indenture are or will be, as the case may be, our unsecured general
obligations and rank or will rank, as the case may be, pari passu with all our
other unsecured and unsubordinated indebtedness from time to time outstanding.
However, the notes are effectively subordinated to the mortgages and our other
secured indebtedness (approximately $295.5 million
S-3
at June 30, 2001), which encumber some of our assets. The indenture does not
limit the aggregate initial offering price of the debt securities that may be
issued under the indenture and debt securities may be issued under the
indenture from time to time in one or more series up to the aggregate initial
offering price from time to time authorized by us for each series.
The notes are currently limited to up to $200,000,000 aggregate initial
offering price, or its equivalent in one or more foreign currencies. We may,
from time to time, without the consent of the holders of the notes, provide
for the issuance of additional notes of the same series or other debt
securities under the indenture in addition to the $200,000,000 aggregate
initial offering price of notes offered by this prospectus supplement. The
notes will be offered on a continuous basis and will mature on any day nine
months or more from their dates of issue, as specified in the applicable
pricing supplement. Unless otherwise specified in the applicable pricing
supplement, interest-bearing notes will either be fixed rate notes or floating
rate notes, as specified in the applicable pricing supplement. Notes may also
be issued that do not bear any interest currently or that bear interest at a
below market rate.
Unless otherwise specified in the applicable pricing supplement, the notes
will be denominated in, and payments of principal, premium, if any, and/or
interest will be made in, United States dollars. The notes also may be
denominated in, or payments of principal, premium, if any, and/or interest may
be made in, or both, one or more foreign currencies. Those notes are referred
to in this prospectus supplement as foreign currency notes. Unless otherwise
specified in the applicable pricing supplement, payments in respect of foreign
currency notes will be made in the currency in which those foreign currency
notes are denominated. The currency in which a note is payable (or, if that
currency is no longer legal tender for the payment of public and private debts
in the relevant country, then the currency which is then legal tender in that
country for the payment of those debts) is referred to in this prospectus
supplement as the specified currency. References in this prospectus supplement
to "United States dollars," "U.S. dollars" and "U.S.$" are to the lawful
currency of the United States of America.
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 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 to enable the purchaser to pay for the related
foreign currency note, provided that a request is made to that agent on or
prior to the fifth Business Day (as defined below) preceding the date of
delivery of that foreign currency note, or by such other day determined by
that agent. Each conversion will be made by an agent on the terms and subject
to the conditions, limitations and charges as that 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 foreign currency note.
Interest rates offered by us with respect to the notes may differ depending
upon, among other things, 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
us from time to time, but those changes will not affect any note already
issued or as to which an offer to purchase has been accepted by us.
Each note will be issued as a book-entry note represented by one or more
fully registered global securities or, if so specified in the applicable
pricing supplement, as a fully registered certificated note. The authorized
denominations of each note other than a foreign currency note will be $1,000
and integral multiples of $1,000, while the authorized denominations of each
foreign currency note will be specified in the applicable pricing supplement.
Payments of principal of, and premium, if any, and interest on, book-entry
notes represented by global securities will be made by us through the trustee
to The Depository Trust Company. In the case of certificated notes, payment of
principal and premium, if any, due on the stated maturity date or any prior
date on which the principal, or an installment of principal, of each
certificated note becomes due and payable, whether by the declaration of
acceleration, notice of redemption at our option, notice of the holder's
option to elect repayment or otherwise (the stated maturity date or such prior
date, as the case may be, is referred to in
S-4
this prospectus supplement as the "maturity date" with respect to the
principal of the applicable note repayable on that date) will be made in
immediately available funds upon presentation and surrender of that note (and,
in the case of any repayment on an optional repayment date, upon delivery of a
duly completed election form in accordance with the provisions described
below) at the office or agency maintained by us for that purpose in the
Borough of Manhattan, The City of New York, currently the corporate trust
office of the trustee located at One State Street, New York, New York 10004.
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 by
check mailed to the address of the holder of the note entitled to that
interest payment as its address shall appear in our security register.
Notwithstanding the foregoing, a holder of $10,000,000 (or, if the applicable
specified currency is other than United States dollars, the equivalent of
$10,000,000 in the specified currency) or more in aggregate principal amount
of notes (whether having identical or different terms and provisions) will be
entitled to receive interest payments 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 that holder of notes. For special payment terms applicable to
foreign currency notes, see "Special Provisions Relating to Foreign Currency
Notes--Payment of Principal, Premium, if any, and Interest, if any."
As used in this prospectus supplement, "Business Day" means any day, other
than a Saturday or Sunday, that is neither a legal holiday nor a day on which
commercial banking institutions are authorized or required by law, regulation
or executive order to close in The City of New York; provided, however, that,
with respect to foreign currency notes, such day is also not a day on which
commercial 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 (or, if the specified
currency is the Euro, the day must also be a day on which the Trans-European
Automated Real-Time Gross Settlement Express Transfer (TARGET) System is
open); provided, further, that, with respect to notes as to which LIBOR is an
applicable interest rate basis, that day is also a London Business Day (as
defined below). "London Business Day" means any day on which commercial banks
are open for business, including dealings in the 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, or (ii) the capital city of the country in
which the LIBOR currency relates, as applicable, except, in the case of (i) or
(ii) above, that with respect to United States dollars, Australian dollars,
Canadian dollars, Deutsche marks, Dutch guilders, Italian lire, Portuguese
escudos, South African rand and Swiss francs, the "Principal Financial Center"
shall be The City of New York, Sydney and (solely in the case of the specified
currency) Melbourne, Toronto, Frankfurt, Amsterdam, Milan, London (solely in
the case of the LIBOR currency), Johannesburg, and Zurich, respectively.
Book-entry notes may be transferred or exchanged only through The Depository
Trust Company. Registration of transfer or exchange of certificated notes will
be made at the office or agency maintained by us for such purpose in the
Borough of Manhattan, The City of New York. No service charge will be made by
us or the trustee for any such registration of transfer or exchange of notes,
but we may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with that transfer or
exchange (other than exchanges pursuant to the indenture not involving any
transfer).
Redemption at Our Option
Unless otherwise specified in the applicable pricing supplement, the notes
will not be subject to any sinking fund. The notes will be redeemable at our
option prior to the stated maturity date only if agreed to by us and the
purchasers of those notes at the time of sale and an initial redemption date
is specified in the applicable pricing supplement. If so specified, the notes
will be subject to redemption at our option on any date on or after the
applicable initial redemption date in whole or from time to time in part in
increments of $1,000 other minimum denomination specified in that pricing
supplement (provided that any remaining principal amount of those notes shall
be at least $1,000 or the minimum denomination), at the applicable
S-5
Redemption Price (as defined below), together with unpaid interest accrued to
the date of redemption, on notice given not more than 60 nor less than 30
calendar days prior to the date of redemption and in accordance with the
provisions of the indenture. "Redemption Price", with respect to a note, means
an amount equal to the initial redemption percentage specified in the
applicable pricing supplement (as adjusted by the annual redemption percentage
reduction, if applicable) multiplied by the unpaid principal amount to be
redeemed. The initial redemption percentage, if any, applicable to a note
shall decline at each anniversary of the initial redemption date by an amount
equal to the applicable annual redemption percentage reduction, if any, until
the Redemption Price is equal to 100% of the unpaid principal amount to be
redeemed. See also "--Original Issue Discount Notes."
Repayment at the Holder of the Note's Option
The notes will be repayable by us at the option of the holders of those
notes prior to the stated maturity date only if agreed to by us and the
purchasers of those notes at the time of sale and 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
of those notes on any optional repayment date in whole or from time to time in
part in increments of $1,000 or other minimum denomination specified in the
applicable pricing supplement (provided that any remaining principal amount of
those notes will be at least $1,000 or that other minimum denomination), at a
repayment price equal to 100% of the unpaid principal amount to be repaid,
together with unpaid interest accrued to the date of repayment.
For any note to be repaid, the Trustee must receive, at its corporate trust
office in the Borough of Manhattan, The City of New York, (or any other
address of which we shall from time to time notify the holders of the notes)
not more than 60 nor less than 30 calendar days prior to the date of
repayment, the particular notes to be repaid and:
o in the case of a Certificated Note, the form entitled "Option to Elect
Repayment" duly completed, or
o in the case of a book-entry note, repayment instructions from the
applicable beneficial owner (as defined below) to The Depository Trust
Company and forward by The Depository Trust Company.
Only The Depository Trust Company 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 the global
securities repaid must instruct the participant (as defined below) through
which they own their interest to direct The Depository Trust Company to
exercise the repayment option on their behalf by forwarding the payment
instructions to the trustee as aforesaid. In order to ensure that these
instructions 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 that 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 their participants for the respective deadlines. 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
payment instructions are given, each beneficial owner shall cause the
participant through which it owns its interest to transfer that beneficial
owner's interest in the global security representing the related book-entry
notes, on The Depository Trust Company records, to the trustee. See "--Book-
Entry Notes."
If applicable, we will comply with the requirements of Section 14(e) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules promulgated thereunder and any other securities laws or regulations in
connection with any repayment of the notes at the option of the registered
holders thereof.
We may at any time purchase notes at any price or prices in the open market
or otherwise. Notes so purchased by us may, at our discretion, be held, resold
or surrendered to the trustee for cancellation.
S-6
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 is paid or duly made
available for payment. Unless otherwise specified in the applicable pricing
supplement, interest payments in respect of fixed rate notes and floating rate
notes will equal the amount of interest accrued from and including the
immediately preceding Interest Payment Date in respect of which interest has
been paid or duly made available for payment (or from and including the date
of issue, if no interest has been paid or duly made available for payment 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 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
registered holder of that note on the 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 April 1 and October 1 of each year (each,
an "Interest Payment Date") 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 that payment was
due, and no additional interest will accrue on that payment for the period
from and after that Interest Payment Date or the maturity date, as the case
may be, to the date of that 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 the 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, interest reset period and dates, interest payment period and
dates, index maturity, maximum interest rate and/or minimum interest rate, if
any, and spread and/or spread multiplier, if any, as such terms are defined
below. If one or more of the applicable interest rate bases is LIBOR or the
CMT rate, the applicable pricing supplement will specify the LIBOR Currency
and Designated LIBOR Page or the Designated CMT Maturity Index and Designated
CMT Telerate Page, respectively, as those terms are defined below.
The interest rate borne by the floating rate notes will be determined as
follows:
(i) Unless the 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 as having "Other/Additional Provisions"
apply, in each case relating to a different interest rate formula,
that 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 first
interest reset date, the rate at which
S-7
interest on such regular floating rate note will be payable will 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 first interest reset date will be the initial interest
rate.
(ii) If the floating rate note is designated as a "floating rate/fixed
rate note," then, except as described below or in the applicable
pricing supplement, that floating rate note will bear interest at
the rate determined by reference to the applicable interest rate
basis or bases (a) plus or minus the applicable special, if any,
and/or (b) multiplied by the applicable spread multiplier, if any.
Commencing on the first interest reset date, the rate at which
interest on such floating rate/fixed rate note will be payable will
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 first 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 that rate is specified in the applicable
pricing supplement or, if the fixed interest rate is not specified,
the interest rate in effect thereon on the day immediately preceding
the fixed rate commencement date.
(iii)If the floating rate note is designated as an "inverse floating rate
note," then, except as described below or in the applicable pricing
supplement, that 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 first interest
reset date, the rate at which interest on that inverse floating rate
note will be payable will 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 first 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 that floating rate
note. The "spread multiplier" is the percentage of the related interest rate
basis or bases applicable to that floating rate note by which the interest
rate basis or bases will be multiplied to determine the applicable interest
rate on that 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
will be (i) if that 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 that day is not an
interest reset date, the interest rate determined as of the interest
determination date immediately preceding the most recent interest reset date.
Interest on floating rate notes will be determined by reference to the
applicable interest rate basis or interest rate bases, which may, as described
below, include (i) the CD rate, (ii) the CMT rate, (iii) the commercial paper
rate, (iv) the eleventh district cost of funds rate, (v) the federal funds
rate, (vi) LIBOR, (vii) the prime rate, (viii) the treasury rate, or (ix) any
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 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 will be the fixed interest rate, if the fixed interest
rate is specified in the applicable pricing supplement or, if the fixed
interest rate is not so 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 another specified basis (each, an
"interest reset period") and the dates on which that 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
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each week (with the exception of weekly reset floating rate notes as to which
the treasury rate is an applicable interest rate basis, which will reset the
Tuesday of each week, except as described below); (iii) monthly, the third
Wednesday of each month (with the exception of monthly reset floating rate
notes as to which the eleventh district cost of funds rate is an applicable
interest rate basis, which will reset on the first calendar day of the month);
(iv) quarterly, the third Wednesday of March, June, September and December of
each year; (v) semiannually, the third Wednesday of the two months specified
in the applicable pricing supplement; and (vi) annually, the third Wednesday
of the month specified in the applicable pricing supplement; provided however,
that, with respect to floating rate/fixed rate notes, the rate of interest on
those notes 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, the particular 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
that Business Day falls in the next succeeding calendar month, the particular
interest reset date will be the immediately preceding Business Day. In
addition, in the case of a floating rate note as to which the treasury rate is
an applicable interest rate basis, if the interest determination date would
otherwise fall on an interest reset date, the particular interest reset date
will be postponed to the next succeeding Business Day.
The interest rate applicable to each Interest Reset Period commencing on the
related interest reset date will be the rate determined by reference to the
applicable interest determination date and calculated on or prior to the
Calculation Date (as defined below), except with respect to LIBOR and the
eleventh district cost of funds rate, which will be calculated on the
applicable interest determination date. The "interest determination date" with
respect to the CD rate, the CMT rate and the commercial paper rate will be the
second Business Day preceding the applicable interest reset date; the
"interest determination date" with respect to the eleventh district cost of
funds rate will be the last working day of the month immediately preceding the
applicable interest reset date on which the Federal Home Loan Bank of San
Francisco publishes the Index (as defined below); the "interest determination
date" with respect to the federal funds rate, and the prime rate will be the
Business Day preceding the related interest reset date; 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
"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 (i.e., 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 the auction may be held on the preceding Friday);
provided, however, that if an auction is held on the Friday of the week
preceding the related interest reset date, the interest determination date
will be the preceding Friday. The "interest determination date" pertaining to
a floating rate note the interest rate of which is determined by reference to
two or more interest rate bases will be the latest Business Day which is at
least two Business Days before the related interest reset date for the
applicable floating rate note on which each interest rate basis is
determinable. Each interest rate basis will be determined as of that date, and
the applicable interest rate will take effect on the applicable interest reset
date.
A floating rate note may also have either or both of the following: (i) a
maximum interest rate, or ceiling, that may accrue during any interest period
and (ii) a minimum interest rate, or floor, that may accrue during any
interest period. In addition to any maximum interest rate that may apply to
any floating rate note, the interest rate on floating rate notes will in no
event be higher than the maximum rate permitted by New York law, as the same
may be modified by United States law of general application.
Except as provided below or in the applicable pricing supplement, interest
will be payable, in the case of floating rate notes which reset: (i) daily,
weekly or monthly, on the third Wednesday of each month or on the third
Wednesday of March, June, September and December of each year, as specified in
the applicable pricing supplement; (ii) quarterly, on the third Wednesday of
March, June, September and December of each year; (iii) semiannually, on the
third Wednesday of the two months of each year specified in the applicable
pricing supplement; and (iv) annually, on the third Wednesday of the month of
each year specified in the
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applicable pricing supplement (each, an "interest payment date") and, in each
case, the maturity date will also be an interest payment 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, the particular
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 that Business Day falls in the next
succeeding calendar month, that 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 that payment was due, and no
additional interest will accrue on the payment for the period from and after
the maturity date to the date of the 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. For example,
9.876545% (or .09876545) would be rounded to 9.87655% (or .0987655), and all
dollar amounts used in or resulting from any 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 currency 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. The accrued
interest factor is computed by adding the interest factor calculated for each
day in the particular Interest Period. Unless otherwise specified in the
applicable pricing supplement, the interest factor for each of those days will
be computed by dividing the interest rate applicable to that day by 360, in
the case of floating rate notes for which an applicable interest rate basis is
the CD rate, the commercial paper rate, the eleventh district cost of funds
rate, the federal funds rate, LIBOR or the prime rate, or by the actual number
of days in the year in the case of floating rate notes for which an applicable
interest rate basis is the CMT rate or the treasury rate. Unless otherwise
specified in the applicable pricing supplement, the interest factor for
floating rate notes for which the interest rate is calculated with reference
to two or more interest rate bases will be calculated in each period in the
same manner as if only one of the applicable interest rate bases applied as
specified in the applicable pricing supplement.
Unless otherwise specified in the applicable pricing supplement, The Bank of
New York 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 that 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 that interest determination date, or, if that 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"), (1) the rate on the CD
rate interest determination date for negotiable United States dollar
certificates of deposit having the index maturity specified in the applicable
pricing supplement as published in H.15(519) (as defined below), under the
caption "CDs (Secondary Market)," or, (2) if the rate referred to in clause
(1) is not published by 3:00 P.M., New York City time, on the related
Calculation Date, the rate on that CD rate interest determination date for
negotiable United States dollar certificates of deposit of the particular
index maturity specified in the applicable pricing supplement as published in
H.15 Daily Update (as defined below), or such other recognized electronic
source used for the purpose displaying the applicable rate, under the caption
"CDs (Secondary Market)", or (3) if the rate referred to in clause (2) is not
so published by 3:00 P.M., New York City time, on the related Calculation
Date, the rate on the CD Rate interest determination date calculated by the
Calculation Agent as the arithmetic mean of the secondary market offered rates
as of 10:00 A.M., New York
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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 agents or their affiliates)
selected by the Calculation Agent for negotiable United States dollar
certificates of deposit of major United States money center banks for
negotiable United States certificates of deposit with a remaining maturity
closest to the particular index maturity specified in the applicable pricing
supplement in an amount that is representative for a single transaction in
that market at that time, or (4) if the dealers so selected by the Calculation
Agent are not quoting as mentioned in clause (3) the CD rate in effect on such
CD rate interest determination date.
"H.15(519)" means the weekly statistical release designated as H.15(519), or
any successor publication, published by the Board of Governors of the Federal
Reserve System.
"H.15 Daily Update" means the daily update of H.15(519), available through
the world-wide-web site of the Board of Governors of the Federal Reserve
System at http://www.bog.frb.fed.us/releases/h15/update, or any successor site
or publication.
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").
(1) if CMT Telerate Page 7051 is specified in the applicable pricing
supplement, (a) the percentage equal to the yield for United States Treasury
securities at "constant maturity" having the index maturity specified in the
applicable pricing supplement as published in H.15(519) under the caption
"Treasury Constant Maturities", as the yield is displayed on Bridge Telerate,
Inc. (or any successor service) on page 7051 (or any other page as may replace
the specified page on that service) ("Telerate Page 7051"), for the particular
Interest determination date, or (b) if the rate referred to in clause (a) does
not so appear on Telerate Page 7051, the percentage equal to the yield for
United States Treasury securities at "constant maturity" having the particular
index maturity and for the CMT rate interest determination date as published
in H.15(519) under the caption "Treasury Constant Maturities", or (c) if the
rate referred to in clause (b) does not so appear in H.15(519), the rate on
the CMT rate interest determination date for the period of the particular
index maturity as may then be published by either the Federal Reserve System
Board of Governors or the United States Department of the Treasury that the
Calculation Agent determines to be comparable to the rate which would
otherwise have been published in H.15(519), or (d) if the rate referred to in
clause (c) is not so published, the rate on the CMT rate interest
determination date calculated by the Calculation Agent as a yield to maturity
based on the arithmetic mean of the secondary market bid prices at
approximately 3:30 P.M., New York City time, on that interest determination
date of three leading primary United States government securities dealers in
The City of New York (which may include the agents or their affiliates) (each,
a "Reference Dealer"), selected by the Calculation Agent from five Reference
Dealers selected by the Calculation Agent and eliminating the highest
quotation, or, in the event of equality, one of the highest, and the lowest
quotation or, in the event of equality, one of the lowest, for United States
Treasury securities with an original maturity equal to the particular index
maturity, a remaining term to maturity no more than 1 year shorter than that
index maturity and in a principal amount that is representative for a single
transaction in the securities in that market at that time, or (e) if fewer
than five but more than two of the prices referred to in clause (d) are
provided as requested, the rate on the particular Interest determination date
calculated by the Calculation Agent based on the arithmetic mean of the bid
prices obtained and neither the highest nor the lowest of the quotations shall
be eliminated, or (f) if fewer than three prices referred to in clause (d) are
provided as requested, the rate on the particular interest determination date
calculated by the Calculation Agent as a yield to maturity based on the
arithmetic mean of the secondary market bid prices as of approximately 3:30
P.M., New York City time, on that interest determination date of three
Reference Dealers selected by the Calculation Agent from five Reference
Dealers selected by the Calculation Agent and eliminating the highest
quotation or, in the event of equality, one of the highest and the lowest
quotation or, in the event of equality, one of the lowest, for United States
Treasury securities with an original maturity greater than the particular
index maturity, a remaining term to maturity closest to that index maturity
and in a principal amount that is representative for a single transaction in
the securities in that market at that time, or (g) if fewer than five but more
than two prices referred to in clause (f) are provided as requested, the rate
on the particular interest determination date calculated by the Calculation
Agent based on the arithmetic mean of
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the bid prices obtained and neither the highest nor the lowest of the
quotations will be eliminated, or (h) if fewer than three prices referred to
in clause (f) are provided as requested, the CMT rate in effect on the
particular interest determination date.
(2) if CMT Telerate Page 7052 is specified in the applicable pricing
supplement:
(a) the percentage equal to the one-week or one-month, as
specified in the applicable pricing supplement, average
yield for United States Treasury securities at "constant
maturity" having the index maturity specified in the
applicable pricing supplement as published in H.15(519)
opposite the caption "Treasury Constant Maturities", as
the yield is displayed on Bridge Telerate, Inc. (or any
successor service) (on page 7052 or any other page as may
replace the specified page on that service) ("Telerate
Page 7052"), for the week or month, as applicable, ended
immediately preceding the week or month, as applicable, in
which the CMT rate interest determination date falls, or
(b) if the rate referred to in clause (a) does not so
appear on Telerate Page 7052, the percentage equal to the
one-week or one-month, as specified in the applicable
pricing supplement, average yield for United States
Treasury securities at "constant maturity" having the
particular index maturity and for the week or month, as
applicable, preceding the CMT rate interest determination
date as published in H.15(519) opposite the caption
"Treasury Constant Maturities," or (c) if the rate
referred to in clause (b) does not so appear in H.15(519),
the one-week or one-month, as specified in the applicable
pricing supplement, average yield for United States
Treasury securities at "constant maturity" having the
particular index maturity as otherwise announced by the
Federal Reserve Bank of New York for the week or month, as
applicable, ended immediately preceding the week or month,
as applicable, in which the CMT rate interest
determination date falls, or (d) if the rate referred to
in clause (c) is not so published, the rate on the CMT
rate interest determination date calculated by the
Calculation Agent as a yield to maturity based on the
arithmetic mean of the secondary market bid prices at
approximately 3:30 P.M., New York City time, on that
interest determination date of three Reference Dealers
selected by the Calculation Agent from five Reference
Dealers selected by the Calculation Agent and eliminating
the highest quotation, or, in the event of equality, one
of the highest, and the lowest quotation or, in the event
of equality, one of the lowest, for United States Treasury
securities with an original maturity equal to the
particular index maturity, a remaining term to maturity no
more than 1 year shorter than that index maturity and in a
principal amount that is representative for a single
transaction in the securities in that market at that time,
or (d) if fewer than five but more than two of the prices
referred to in clause (d) are provided as requested, the
rate on the CMT rate interest determination date
calculated by the Calculation Agent based on the
arithmetic mean of the bid prices obtained and neither the
highest nor the lowest of the quotations shall be
eliminated, or (e) if fewer than three prices referred to
in clause (d) are provided as requested, the rate on the
CMT rate interest determination date calculated by the
Calculation Agent as a yield to maturity based on the
arithmetic mean of the secondary market bid prices as of
approximately 3:30 P.M., New York City time, on that
interest determination date of three Reference Dealers
selected by the Calculation Agent from five Reference
Dealers selected by the Calculation Agent and eliminating
the highest quotation or, in the event of equality, one of
the highest and the lowest quotation or, in the event of
equality, one of the lowest, for United States Treasury
securities with an original maturity greater than the
particular index maturity, a remaining term to maturity
closest to that index maturity and in a principal amount
that is representative for a single transaction in the
securities in that market at the time, or (f) if fewer
than five but more than two prices referred to in clause
(f) are provided as requested, the rate on the CMT rate
interest determination date calculated by the Calculation
Agent based on the arithmetic mean of the bid prices
obtained and neither the highest or the lowest of the
quotations will be eliminated, or (g) if fewer than three
prices referred to in clause (f) are provided as
requested, the CMT rate in effect on that CMT interest
determination date.
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If two United States Treasury securities with an original maturity greater
than the index maturity specified in the applicable pricing supplement have
remaining terms to maturity equally close to the particular index maturity,
the quotes for the United States Treasury security with the shorter original
remaining term to maturity will be used.
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"), (1) the Money Market Yield (as
defined below) on the commercial paper rate interest determination date of the
rate for commercial paper having the index maturity specified in the
applicable pricing supplement as published in H.15(519) under the caption
"Commercial Paper--Nonfinancial", (2) if the rate referred to in clause (1) is
not published by 3:00 P.M., New York City time, on the related Calculation
Date, then the commercial paper rate on that commercial paper rate interest
determination date will be the Money Market Yield of the rate for commercial
paper having the index maturity specified in the applicable pricing supplement
as published in H.15 Daily Update, or such other recognized electronic source
used for the purpose of displaying the applicable rate, under the caption
"Commercial Paper--Nonfinancial", or (3) if the rate referred to in clause (2)
is not published by 3:00 P.M., New York City time, on the related Calculation
Date, the commercial paper rate on that commercial paper rate interest
determination date calculated by the Calculation Agent as the Money Market
Yield of the arithmetic mean of the offered rates at approximately 11:00 A.M.,
New York City time, on that commercial paper rate interest determination date
of three leading dealers of United Stated dollar commercial paper in The City
of New York (which may include the agents or their affiliates) selected by the
Calculation Agent for commercial paper having the particular index maturity
specified in the applicable pricing supplement placed for industrial issuers
whose bond rating is "Aa", or the equivalent, from a nationally recognized
statistical rating organization, or (4) if the dealers so selected by the
Calculation Agent are not quoting as mentioned in clause (3), the commercial
paper rate determined as of that commercial paper rate interest determination
date will be the commercial paper rate in effect on that commercial paper rate
interest determination date.
"Money Market Yield" means a yield (expressed as a percentage) calculated
in accordance with the following formula:
Money Market Yield = D x 360 x 100
------------
360 - (D x M)
where "D" refers to the applicable per annum rate for commercial paper quoted
on a bank discount basis and expressed as a decimal, and "M" refers to the
actual number of days in the applicable Interest Reset Period.
Eleventh District Cost of Funds Rate. Unless otherwise specified in the
applicable pricing supplement, "eleventh district cost of funds rate" means,
with respect to any interest determination date relating to a floating rate
note for which the interest rate is determined with reference to the eleventh
district cost of funds rate (an "eleventh district cost of funds rate interest
determination date"), (1) the rate equal to the monthly weighted average cost
of funds for the calendar month immediately preceding the month in which that
eleventh district cost of funds rate interest determination date falls as set
forth under the caption "11th District" on the display on Bridge Telerate,
Inc. (or any successor service) on Telerate page 7058 (or any other page as
may replace the specified page on that service) ("Telerate Page 7058") as of
11:00 A.M., San Francisco time, on that eleventh district cost of funds rate
interest determination date, or (2) if the rate referred to in clause (1) does
not so appear on Telerate Page 7058, the monthly weighted average cost of
funds paid by member institutions of the eleventh district that was most
recently announced (the "Index") by the Federal Home Loan Bank of San
Francisco as that cost of funds for the calendar month immediately preceding
that eleventh district cost of funds rate interest determination date, or (3)
if the Federal Home Loan Bank of San Francisco fails to announce the index on
or prior to that eleventh district cost of funds rate interest determination
date for the calendar month immediately preceding that eleventh district cost
of funds rate interest determination date, the eleventh district cost of funds
rate in effect on that eleventh district cost of funds rate interest
determination date.
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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"), (1) the rate on such federal funds rate
interest determination date for United States dollar federal funds as
published in H.15(519) under the caption "Federal Funds (Effective)" and
displayed on Bridge Telerate, Inc. (or any successor service) on page 120 (or
any other page as may replace the specified page on that service) ("Telerate
Page 120"), or (2) if the rate referred to in clause (1) does not so appear on
Telerate Page 120 or is not so published by 3:00 P.M., New York City time, on
the related Calculation Date, the rate on that federal funds rate interest
determination date for United States dollar federal funds published in H.15
Daily Update, or such other recognized electronic source used for the purpose
of displaying the applicable rate, under the caption "Federal Funds
(Effective)", or (3) if the rate referred to in clause (2) is not so
published, or by 3:00 P.M., New York City time, on the related Calculation
Date, the rate on the federal funds rate interest determination date
calculated by the Calculation Agent as an arithmetic mean of the rates for the
last transaction in overnight United States dollar federal funds arranged by
three leading brokers of federal funds transactions in The City of New York
(which may include the agents or their affiliates) selected by the Calculation
Agent prior to 9:00 A.M., New York City time, on that federal funds rate
interest determination date, or (4) if the brokers so selected by the
Calculation Agent are not quoting as mentioned in clause (3), the federal
funds rate in effect on that federal funds rate interest determination date.
LIBOR. Unless otherwise specified in the applicable pricing supplement,
"LIBOR" means, 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"), (1) if "LIBOR Telerate" is
specified in the applicable pricing supplement or if neither "LIBOR Reuters"
nor "LIBOR Telerate" is specified in the applicable pricing supplement as the
method for calculating LIBOR, the rate for deposits in the LIBOR Currency
having the Index Maturity specified in the applicable pricing supplement,
commencing on the related interest reset date, that appears on the LIBOR Page
as of 11:00 A.M., London time, on the LIBOR interest determination date, or
(2) if "LIBOR Reuters" is specified in the applicable pricing supplement, the
arithmetic mean of the offered rates calculated by the Calculation Agent, or
the offered rate, if the LIBOR page by its terms provides only for a single
rate, for deposits in the LIBOR currency having the index maturity specified
in that pricing supplement, commencing on such interest reset date, that
appear (or, if only a single rate is required as aforesaid, appears) on the
LIBOR Page as of 11:00 A.M., London time, on such LIBOR interest determination
date, or (3) if fewer than two offered rates appear, or no rate appears, as
the case may be, on the LIBOR Page as specified in clause (1) or (2), as
applicable, the rate calculated by the Calculation Agent of at least two
offered quotations obtained by the Calculation Agent after requesting the
principal London offices of each of four major reference banks (which may
include affiliates of the agents) in the London interbank market to provide
the Calculation Agent with its offered quotation for deposits in the LIBOR
currency for the period of the index maturity specified in the applicable
pricing supplement, commencing on such interest reset date, to prime banks in
the London interbank market at approximately 11:00 A.M., London time, on that
LIBOR interest determination date and in a principal amount that is
representative for a single transaction in the LIBOR Currency in that market
at that time, or (4) if fewer than two offered quotations referred to in
clause (3) are provided as requested, the rate calculated by the Calculation
Agent as the arithmetic mean of the rates quoted at approximately 11:00 A.M.,
in the applicable Principal Financial Center, on that LIBOR interest
determination date by three major banks (which may include affiliates of the
Agents) in the Principal Financial Center selected by the Calculation Agent
for loans in the 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 that LIBOR currency
in that market at that time, or (5) if the banks so selected by the
Calculation Agent are not quoting as mentioned in clause (4), LIBOR in effect
on that LIBOR interest determination date.
"LIBOR currency" means the currency specified in the applicable pricing
supplement as to which LIBOR shall be calculated or, if no currency is
specified in the applicable pricing supplement, United States dollars.
"LIBOR page" means either (a) if "LIBOR Reuters" is specified in the
applicable pricing supplement, the display on the Reuter Monitor Money Rates
Service (or any successor service) on the page specified in
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that pricing supplement (or any other page as may replace that page on that
service) for the purpose of displaying the London interbank rates of major
banks for the LIBOR currency, or (b) if "LIBOR Telerate" is specified in the
applicable pricing supplement or neither "LIBOR Reuters" nor "LIBOR Telerate"
is specified in the applicable pricing supplement as the method for
calculating LIBOR, the display on the Bridge Telerate, Inc. (or any successor
service) on the page specified in that pricing supplement (or any other page
as may replace that page on that service) for the purpose of displaying the
London interbank rates of major banks for the LIBOR currency.
Prime Rate. Unless otherwise specified in the applicable pricing
supplement, "prime rate" means, with respect to any interest determination
date relating to a floating rate note for which the interest rate is
determined with reference to the prime rate (a "prime rate interest
determination date"), (1) the rate on such prime rate interest determination
date as published in H.15(519) under the caption "Bank Prime Loan", or
(2) if the rate referred to in clause (1) is not so published by 3:00 P.M.,
New York City time, on the related Calculation Date, the rate on the prime
rate interest determination date as published in H.15 Daily Update, or such
other recognized electronic source used for the purpose of displaying the
applicable rate, under the caption "Bank Prime Loan", or (3) if the rate
referred to in clause (2) is not so published by 3:00 P.M., New York City
time, on the related Calculation Date, the rate on the prime rate interest
determination date calculated by the Calculation Agent as the arithmetic mean
of the rates of interest publicly announced by each bank that appears on the
Reuters Screen US PRIME1 Page (as defined below) as the applicable bank's
prime rate or base lending rate as 11:00 A.M., New York City time, on that
interest determination date, or, (4) if fewer than four rates referred to in
clause (3) are so published by 3:00 p.m., New York City time, on the related
Calculation Date, the rate on the prime rate interest determination date
calculated by the Calculation Agent as 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 that prime rate
interest determination date by three major banks which may include affiliates
of the agents in The City of New York selected by the Calculation Agent, or
(5) the banks so selected by the Calculation Agent are not quoting as
mentioned in clause (4), the prime rate determined as of that prime rate
interest determination date will be the prime rate in effect on that prime
rate interest determination date.
"Reuters Screen US PRIME1 Page" means the display on the Reuter Monitor
Money Rates Service (or any successor service) on the "US PRIME1" page (or any
other page as may replace that page on that service) for the purpose of
displaying prime rates or base lending rates of major United States banks.
Treasury Rate. Unless otherwise specified in the applicable pricing
supplement, "treasury rate" means, with respect to any interest determination
date relating to a floating rate note for which the interest rate is
determined by reference to the treasury rate (a "treasury rate interest
determination date"), (1) the rate from the auction held on the 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 under the caption "INVESTMENT RATE" on the
display on Bridge Telerate, Inc. (or any successor service) on page 56 (or any
other page as may replace that page on that service) ("Telerate Page 56") or
page 57 (or any other page as may replace that page on that service)
("Telerate Page 57"), or (2) if the rate referred to in clause (1) is not so
published by 3:00 P.M., New York City time, on the related Calculation Date,
the Bond Equivalent Yield (as defined below) of the rate for the applicable
Treasury Bills as published in H.15 Daily Update, or another recognized
electronic source used for the purpose of displaying the applicable rate,
under the caption "U.S. Government Securities/Treasury Bills/Auction High", or
(3) if the rate referred to in clause (2) is not so published by 3:00 P.M.,
New York City time, on the related Calculation Date, the Bond Equivalent Yield
of the auction rate of the applicable Treasury Bills as announced by the
United States Department of the Treasury, or (4) if the rate referred to in
clause (3) is not so announced by the United States Department of the
Treasury, or if the Auction is not held, the Bond Equivalent Yield of the rate
on the treasury rate interest determination date of the applicable Treasury
Bills as published in H.15(519) under the caption "U.S. Government Securities/
Treasury Bills/Secondary Market", or (5) if the rate referred to in clause (4)
is not so published by 3:00 P.M., New York City time, on the related
Calculation Date, the rate on the treasury rate interest determination date of
the applicable Treasury Bills as published in H.15 Daily Update, or another
recognized electronic source used for the purpose of displaying the applicable
rate, under the caption "U.S. Government Securities/Treasury Bills/Secondary
Market", or (6) if the rate referred to in clause
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(5) is not so published by 3:00 P.M., New York City time, on the related
Calculation Date, the rate on the treasury rate interest determination date
calculated by the Calculation Agent as the Bond Equivalent Yield of the
arithmetic mean of the secondary market bid rates, as of approximately 3:30
P.M., New York City time, on that treasury rate interest determination date,
of three primary United States government securities dealers (which may
include the Agents or their affiliates) selected by the Calculation Agent for
the issue of Treasury Bills with a remaining maturity closest to the index
maturity specified in the applicable pricing supplement, or (7) if the dealers
so selected by the Calculation Agent are not quoting as mentioned in clause
(6), the treasury rate in effect on the treasury rate interest determination
date.
"Bond Equivalent Yield" means a yield (expressed as a percentage) calculated
in accordance with the following formula:
Bond Equivalent Yield = D x N x 100
------------
360 - (D x M)
where "D" refers to the applicable per annum rate for Treasury Bills quoted on
a bank discount basis and expressed as a decimal, "N" refers to 365 or 366, as
the case may be, and "M" refers to the actual number of days in the applicable
interest reset period.
Other Provisions; Addenda
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,
the stated maturity date, any redemption or repayment provisions or any other
term relating to the notes, may be modified or supplemented or both as
specified under "Other/Additional Provisions" on the face of the notes or in
an addendum relating to the notes, if so specified on the face of the
applicable notes and, in each case, as specified in the applicable pricing
supplement.
Amortizing Notes
We may from time to time offer amortizing notes with the amount of principal
thereof and interest thereon payable in installments over their terms. 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 of those amortizing notes. 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 those amortizing notes.
Original Issue Discount Notes
We may from time to time offer notes ("original issue discount notes" or
"OID notes") that have an issue price (as specified in the applicable pricing
supplement) that is less than 100% of the principal amount of those notes
(i.e., par). OID notes may not bear any interest currently or may bear
interest at a rate that is below market rates at the time of issuance. Unless
otherwise specified in the applicable pricing supplement, the difference
between the issue price of an OID note and par is referred to in this
prospectus supplement as the "discount" by more than a percentage equal to the
product of 0.25% and the number of full years to the stated maturity date. In
the event of redemption, repayment or acceleration of maturity of an OID note,
the amount payable to the holder of an OID 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 the applicable OID note (if applicable), multiplied by
the initial redemption percentage specified in the applicable pricing
supplement (as adjusted by the annual redemption percentage reduction, if
applicable); and (ii) any unpaid accrued interest on the OID note to the date
of redemption, repayment or acceleration of maturity, as the case may be.
Unless otherwise specified in the applicable pricing supplement, for
purposes of determining the amount of discount that has accrued as of any date
on which a redemption, repayment or acceleration of maturity occurs for an OID
note, a discount will be accrued using a constant yield method. The constant
yield will be
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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 OID note
(with ratable accruals within a compounding period), a coupon rate equal to
the initial coupon rate applicable to the OID note and an assumption that the
maturity of an OID note will not be accelerated. If the period from the date
of issue to the initial Interest Payment Date for an OID note (the "Initial
Period") is shorter than the compounding period for the OID 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 the
period will be divided into a regular compounding period and a short period
with the short period being treated as provided in the preceding sentence. The
accrual of the applicable discount may differ from the accrual of original
issue discount for purposes of the Internal Revenue Code of 1986, as amended
(the "Code"), certain OID notes may not be treated as having original issue
discount within the meaning of the Code, and notes other than OID notes may be
treated as issued with original issue discount for federal income tax
purposes. See "Certain United States Federal Income Tax Considerations."
Indexed Notes
We may from time to time offer notes ("index notes") with the amount of
principal, premium and/or interest payable in respect thereof to be determined
with reference to the price or prices of specified commodities or stocks, to
the exchange rate of one or more designated currencies relative to one or more
other currencies or to other items, in each case, as specified in the
applicable pricing supplement. In certain cases, holders of indexed notes may
receive a principal payment on the maturity date that is greater than or less
than the principal amount of those indexed notes depending upon the relative
value on the maturity date of the specified indexed item. Information as to
the method for determining the amount of principal, premium, if any, and/or
interest payable in respect of indexed notes, certain historical information
with respect to the specified indexed item and any material tax considerations
associated with an investment in indexed notes will be specified in the
applicable pricing supplement. See also "Certain Risk Factors."
Book-Entry Notes
We have established a depository arrangement with The Depository Trust
Company with respect to the book-entry notes, the terms of which are
summarized below. Any additional or differing terms of the depository
arrangement with respect to the book-entry notes will be described in the
applicable pricing supplement.
Upon issuance, all book-entry notes of like tenor and terms up to
$500,000,000 aggregate principal amount bearing interest (if any) at the same
rate or pursuant to the same formula and having the same date of issue,
specified currency Interest Payment Dates (if any), stated maturity date,
redemption provisions (if any), repayment provisions (if any) and other terms
will be represented by a single global security. Each global security
representing book-entry notes will be deposited with, or on behalf of, The
Depository Trust Company and will be registered in the name of The Depository
Trust Company or a nominee of The Depository Trust Company. No global security
may be transferred except as a whole by a nominee of The Depository Trust
Company to The Depository Trust Company or to another nominee of The
Depository Trust Company, or by The Depository Trust Company or that nominee
to a successor of The Depository Trust Company or a nominee of that successor.
So long as The Depository Trust Company or its nominee is the holder of a
global security, The Depository Trust Company or its nominee, as the case may
be, will be the sole owner of the book-entry notes represented thereby for all
purposes under the indenture. Except as otherwise provided below, the
beneficial owners of the global security or securities representing book-entry
notes will not be entitled to receive physical delivery of certificated notes
and will not be considered the holders of those notes for any purpose under
the indenture, and no global security representing book-entry notes shall be
exchangeable or transferable. Accordingly, each beneficial owner must rely on
the procedures of The Depository Trust Company and, if such beneficial owner
is not a participant in The Depository Trust Company's system, on the
procedures of the participant through which that beneficial owner owns its
interest in order to exercise any rights of a registered holder under such
global security or the indenture. The laws of some jurisdictions require that
some purchasers of securities take physical delivery of those securities in
certificated form. Those
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limits and those laws may impair the ability to transfer beneficial interests
in a global security representing book-entry notes.
Unless otherwise specified in the applicable pricing supplement, each global
security representing book-entry notes will be exchangeable for certificated
notes of like tenor and terms and of differing authorized denominations in a
like aggregate principal amount, only if (i) The Depository Trust Company
notifies us that it is unwilling or unable to continue as depositary for the
global securities or The Depository Trust Company ceases to be a clearing
agency registered under the Exchange Act (if so required by applicable law or
regulation) and, in each case, a successor depositary is not appointed by us
within 90 days after we receive that notice or become aware of that
unwillingness, inability or ineligibility, (ii) we in our sole discretion
determine that the global securities shall be exchangeable for certificated
notes or (iii) there shall have occurred and be continuing an Event of Default
under the indenture with respect to the notes and beneficial owners
representing a majority in aggregate principal amount of the book-entry notes
represented by global securities advise The Depository Trust Company to cease
acting as depositary. Upon the occurrence of any of these exchanges, the
certificated notes shall be registered in the names of the beneficial owners
of the global security or securities representing book-entry notes, which
names shall be provided by The Depository Trust Company's participants (as
identified by The Depository Trust Company) to the trustee.
The following is based on information furnished by The Depository Trust
Company:
The Depository Trust Company will act as securities depositary for the
book-entry notes. The book-entry notes will be issued as fully registered
securities registered in the name of Cede & Co. (The Depository Trust
Company's partnership nominee). One fully registered global security will be
issued for each issue of book-entry notes, each in the aggregate principal
amount of that issue, and will be deposited with The Depository Trust
Company. If, however, the aggregate principal amount of any issue exceeds
$500,000,000, one global security will be issued with respect to each
$200,000,000 of principal amount and an additional global security will be
issued with respect to any remaining principal amount of that issue.
The Depository Trust Company is a limited-purpose trust company organized
under the New York Banking Law, a "banking organization" within the meaning
of the New York Banking Law, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code, and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. The Depository Trust Company holds
securities that its participants deposit with it. The Depository Trust
Company also facilitates the settlement among its participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in its participants' accounts,
thereby eliminating the need for physical movement of securities
certificates. Direct participants of The Depository Trust Company include
securities brokers and dealers (including the agents), banks, trust
companies, clearing corporations and some other organizations. The
Depository Trust Company is owned by a number of its direct participants and
by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and
the National Association of Securities Dealers, Inc. Access to The
Depository Trust Company's system is also available to others such as
securities brokers and dealers, banks and trust companies that clear through
or maintain a custodial relationship with a direct participant, either
directly or indirectly. The rules applicable to The Depository Trust Company
and its participants are on file with the Securities and Exchange
Commission.
Purchases of book-entry notes under The Depository Trust Company's system
must be made by or through direct participants, which will receive a credit
for those book-entry notes on The Depository Trust Company's records. The
beneficial ownership interest of each actual purchaser of each book-entry
note represented by a global security is in turn to be recorded on the
records of the direct participants and indirect participants. Beneficial
owners will not receive written confirmation from The Depository Trust
Company of their purchase, but beneficial owners are expected to receive
written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the direct participants or
indirect participants through which that beneficial owner entered into the
transaction. Transfers of ownership interests in a global security
representing book-entry notes are to be accomplished by entries made on the
books of participants acting on behalf of beneficial owners.
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Beneficial owners of a global security representing book-entry notes will
not receive certificated notes representing their ownership interests in a
global security, except in the event that use of the book-entry system for
those book-entry notes is discontinued.
To facilitate subsequent transfers, all global securities representing
book-entry notes which are deposited with, or on behalf of, The Depository
Trust Company are registered in the name of The Depository Trust Company's
nominee, Cede & Co. The deposit of global securities with, or on behalf of,
The Depository Trust Company and their registration in the name of Cede &
Co. effect no change in beneficial ownership. The Depository Trust Company
has no knowledge of the actual beneficial owners of interests in the global
securities representing the book-entry notes; The Depository Trust Company's
records reflect only the identity of the direct participants to whose
accounts such book-entry notes are credited, which may or may not be the
beneficial owners. The participants will remain responsible for keeping
account of their holdings on behalf of their customers.
Conveyance of notices and other communications by The Depository Trust
Company to direct participants, by direct participants to indirect
participants, and by direct participants and indirect participants to
beneficial owners will be governed by arrangements among them, subject to
any statutory or regulatory requirements as may be in effect from time to
time.
Neither The Depository Trust Company nor Cede & Co. will consent or vote
with respect to the global securities representing the book-entry notes.
Under its usual procedures, The Depository Trust Company mails an omnibus
proxy to us as soon as possible after the applicable record date. The
omnibus proxy assigns Cede & Co.'s consenting or voting rights to those
direct participants to whose accounts the book-entry notes are credited on
the applicable record date (identified in a listing attached to the omnibus
proxy).
Principal, premium, if any, and/or interest payments on the global
securities representing the book-entry notes will be made in immediately
available funds to The Depository Trust Company. The Depository Trust
Company's practice is to credit direct participants' accounts on the
applicable payment date in accordance with their respective holdings shown
on The Depository Trust Company's records unless The Depository Trust
Company has reason to believe that it will not receive payment on that date.
Payments by participants to beneficial owners will be governed by standing
instructions and customary practices, as is the case with securities held
for the accounts of customers in bearer form or registered in "street name",
and will be the responsibility of such participant and not of The Depository
Trust Company, the trustee or us, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal,
premium, if any, and/or interest, if any, to The Depository Trust Company is
our responsibility or that of the trustee, disbursement of those payments to
direct participants will be the responsibility of The Depository Trust
Company, and disbursement of those payments to the beneficial owners will be
the responsibility of direct participants and indirect participants.
If applicable, redemption notices will be sent to Cede & Co. If less than
all of the book-entry notes of like tenor and terms within an issue are
being redeemed, The Depository Trust Company's practice is to determine by
lot the amount of the interest of each direct participant in that issue to
be redeemed.
A beneficial owner will give notice of any option to elect to have its
book-entry notes repaid by us, through its participant, to the trustee, and
will effect delivery of those book-entry notes by causing the direct
participant to transfer the participant's interest in the global security or
securities representing those book-entry notes, on The Depository Trust
Company's records, to the trustee. The requirement for physical delivery of
book-entry notes in connection with a demand for repayment will be deemed
satisfied when the ownership rights in the global security or securities
representing those book-entry notes are transferred by direct participants
on The Depository Trust Company's records.
The Depository Trust Company may discontinue providing its services as
securities depositary with respect to the book-entry notes at any time by
giving reasonable notice to us or the trustee. Under those circumstances, in
the event that a successor securities depositary is not obtained,
certificated notes are required to be printed and delivered.
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We may decide to discontinue use of the system of book-entry transfers
through The Depository Trust Company (or a successor securities depository).
In that event, certificated notes will be printed and delivered.
The information in this section concerning The Depository Trust Company and
its system has been obtained from sources that we believe to be reliable, but
neither we nor any agent take responsibility for the accuracy of that
information.
SPECIAL PROVISIONS RELATING TO FOREIGN CURRENCY NOTES
General
Unless otherwise specified in the applicable pricing supplement, foreign
currency notes will not be sold in, or to residents of, the country issuing
the specified currency. The information set forth in this prospectus
supplement is directed to prospective purchasers who are United States
residents and, with respect to foreign currency notes, is by necessity
incomplete. We and the agents 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, the foreign currency notes. These purchasers should consult their own
financial and legal advisors with regard to these risks. See "Risk Factors--
Exchange Rates and Exchange Controls."
Payment of Principal, Premium, if any, and Interest, if any
Unless otherwise specified in the applicable pricing supplement, we are
obligated to make payments of principal of, and premium, if any, and interest,
if any, on, foreign currency notes in the currency in which those notes are
denominated. Any of these amounts payable by us in the specified currency
will, unless otherwise specified in the applicable pricing supplement, be
converted by the exchange rate agent named in the applicable pricing
supplement into United States dollars for payment to registered holders of
those notes. However, the holder of a foreign currency note may elect to
receive those amounts in the specified currency as described below.
Any United States dollar amount to be received by a registered holder of a
foreign 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 us for the purchase by the quoting dealer of the specified currency for
United States dollars for settlement on that payment date in the aggregate
amount of that specified currency payable to all registered holders of foreign
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 registered holders of those foreign currency notes
by deductions from any payments. If three such bid quotations are not
available, payments will be made in the specified currency.
A registered holder of a foreign currency note may elect to receive all or a
specified portion of any payment of the principal of, and premium, if any,
and/or interest, if any, on, that foreign currency note in the specified
currency by submitting a written request for that 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. That written request may be mailed or hand delivered
or sent by cable, telex or other form of facsimile transmission. A holder of a
foreign currency note 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. That election will remain in effect until revoked
by written notice delivered 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 foreign currency notes whose notes are to be held
in the name of a broker or nominee should contact that broker or nominee to
determine whether and how an election to receive payments in the specified
currency may be made.
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Payments of the principal of, and premium, if any, and/or interest on,
foreign currency notes which are to be made in United States dollars will be
made in the manner specified in this prospectus supplement with respect to
notes denominated and payable in United States dollars. See "Description of
Notes--General." Payments of interest on foreign 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
those foreign currency notes as they appear in the security register, subject
to the right to receive those interest payments by wire transfer of
immediately available funds under specific circumstances described under
"Description of Notes--General." Payments of the principal of, and premium, if
any, and/or interest on, foreign 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 of foreign
currency notes, so long as that bank has appropriate facilities therefor and
that the applicable foreign currency note is presented and surrendered at the
principal corporate trust office of the trustee in time for the trustee to
make those payments in those funds in accordance with its normal procedures.
Unless otherwise specified in the applicable pricing supplement, if the
specified currency is other than United States dollars, a beneficial owner of
a global security or securities which elects to receive payments of principal,
premium, if any, and/or interest, if any, in such 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 its election. That participant must notify The
Depository Trust Company of that election on or prior to the third Business
Day after the applicable Record Date or at least twelve calendar days prior to
the maturity date, as the case may be, and The Depository Trust Company will
notify the trustee of that election on or prior to the fifth Business Day
after the applicable 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 Depository Trust Company, and by The Depository Trust Company to the
trustee, on or prior to those dates, then that beneficial owner will receive
payments in the specified currency.
Availability of Specified Currency
If the specified currency for a foreign currency note is not available for
the required payment of principal, premium, if any, and/or interest, if any,
due to the imposition of exchange controls or other circumstances beyond our
control, we will be entitled to satisfy our obligations to the holder of that
foreign currency note by making payment in United States dollars on the basis
of the Market Exchange Rate on the second Business Day prior to that payment
or, if that 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.
We will make payments of the principal of, and premium, if any, and/or
interest, if any, on, foreign currency notes which are to be made in United
States dollars in the manner specified herein with respect to notes
denominated in United States dollars. See "Description of Notes--General." We
will make payments of interest, if any, on foreign currency notes which are to
be made in the specified currency on an interest payment date other than the
maturity date by check mailed to the address of the registered holders of
their foreign currency notes as they appear in the Security Register, subject
to the right to receive these interest payments by wire transfer of
immediately available funds under the circumstances described under
"Description of Notes--General." We will make payments of principal of, and
premium, if any, and/or interest, if any, on, foreign currency notes which are
to be made in the specified currency on the maturity date 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 the applicable registered
holder, provided the particular bank has appropriate facilities to make these
payments and the particular foreign currency note is presented and surrendered
at the office or agency maintained by us for this purpose in the Borough of
Manhattan, The City of New York, in time for the Trustee to make these
payments in accordance with its normal procedures.
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 the specified currency as certified for customs purposes by (or
if not so certified, as otherwise determined by) the Federal Reserve Bank of
New
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York. Any payment made in United States dollars under those circumstances
where the required payment is in a 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 registered holders of the
foreign currency notes.
Governing Law; Judgments
The notes will be governed by and construed in accordance with the laws of
the State of New York. Under current New York law, a state court in the State
of New York rendering a judgment on a foreign currency note would be required
to render that judgment in the specified currency, and that judgment would be
converted into United States dollars at the exchange rate prevailing on the
date of entry of that judgment. Accordingly, registered holders of foreign
currency notes would be subject to exchange rate fluctuations between the date
of entry of a foreign currency judgment and the time when the amount of the
foreign currency judgment is paid in United States dollars and converted by
the applicable registered holder into the Specified Currency. It is not
certain, however, that a non-New York state court would follow the same rules
and procedures for conversions of foreign currency judgments.
RATIOS OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for the six-month period ended June
30, 2001 was 3.1. Our ratio of earnings to combined fixed charges and preferred
stock dividend requirements for the six-month period ended June 30, 2001 was
2.4.
For purposes of computing these ratios, earnings have been calculated by
adding fixed charges (excluding capitalized interest) to income before income
taxes and extraordinary items. Fixed charges consist of interest costs, whether
expensed or capitalized, the interest component of rental expense, and
amortization of debt discounts and issue costs, whether expensed or capitalized.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the principal United States Federal income
tax consequences to you of purchasing, owning and disposing of the notes. This
summary is based on the Internal Revenue Code, legislative history,
administrative pronouncements and practices of the Internal Revenue Service,
judicial decisions and final, temporary and proposed Treasury regulations.
Future changes, legislation, Treasury regulations, administrative
interpretations and practices and court decisions may adversely affect,
perhaps retroactively, the tax consequences contained in this discussion.
Thus, we can provide no assurance that the tax consequences contained in this
discussion will not be challenged by the Internal Revenue Service or will be
sustained by a court if challenged by the Internal Revenue Service.
This summary deals only with notes held as "capital assets" (generally,
property held for investment within the meaning of Section 1221 of the
Internal Revenue Code). It does not address all the tax consequences that may
be relevant to you in light of your particular circumstances. In addition, it
does not address the tax consequences relevant to persons who receive special
treatment under the federal income tax law, except to the extent discussed
under the heading "Non-United States Holders" or where specifically noted.
Holders receiving special treatment include, without limitation:
o financial institutions, banks, thrifts;
o insurance companies;
o tax-exempt organizations, "S" corporations;
o regulated investment companies, real estate investment trusts;
o foreign corporations or partnerships, persons who are not residents or
citizens of the United States;
o dealers in securities or currencies;
o persons holding notes as a hedge against currency risks or as a position
in a straddle; or
o persons whose functional currency is not the United States dollar.
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This discussion also does not deal with holders other than original
purchasers, except where otherwise specifically noted.
State, local and foreign income tax laws may differ substantially from the
corresponding federal income tax laws, and this discussion does not purport to
describe any aspect of the tax laws of any state, local or foreign jurisdiction.
Because the exact pricing and other terms of the notes will vary, no assurance
can be given that the considerations described below will apply to a particular
issuance of notes. Certain material United States Federal income tax
consequences relating to the ownership of particular notes, where applicable,
will be summarized in the pricing supplement relating to such notes. Persons
considering the purchase of notes should consult their 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 state, local or foreign
taxing jurisdiction.
As used in this section, the term "United States Holder" means a beneficial
owner of a note that is for United States Federal income tax purposes either:
o a citizen or resident of the United States;
o a corporation, or a partnership, including an entity treated as a
corporation or partnership for United States Federal income tax purposes,
created or organized in or under the laws of the United States or any
State thereof or the District of Columbia, unless, in the case of a
partnership, Treasury regulations are adopted that provide otherwise;
o an estate the income of which is subject to United States Federal income
taxation regardless of its source;
o a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who
have the authority to control all substantial decisions of such trust; or
o 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.
Notwithstanding the preceding sentence, to the extent provided in Treasury
regulations, certain trusts in existence on August 20, 1996, and treated as
United States persons prior to such date that elect to be treated as United
States persons, shall also be considered United States Holders. If you hold a
note and are not a United States holder, you are a "non-United States holder."
United States Holders
Taxation of Interest
The taxation of interest on a note depends on whether it constitutes
"qualified stated interest" (as defined below). Interest on a note that
constitutes qualified stated interest is includible in a United States
Holder's income as ordinary interest income when actually or constructively
received, if such holder uses the cash method of accounting for federal income
tax purposes, or when accrued, if such holder uses an accrual method of
accounting for federal income tax purposes. Interest that does not constitute
qualified stated interest is included in a United States Holder's income under
the rules described below under "Original Issue Discount," regardless of such
holder's method of accounting. Notwithstanding the foregoing, interest that is
payable on a note with a maturity of one year or less from its issue date (a
"Short-Term Note") is included in a United States Holder's income under the
rules described below under "Short-Term Notes."
Fixed Rate Notes
Interest on a fixed rate note will generally constitute "qualified stated
interest" if the interest is unconditionally payable, or will be
constructively received under Section 451 of the Internal Revenue Code, in
cash or in property (other than debt instruments issued by us) at least
annually at a single fixed rate. If a note bears interest for one or more
accrual periods at a rate below the rate applicable for the remaining term of
such note (e.g., notes with teaser rates or interest holidays), and if the
greater of either the resulting foregone interest on such note or any "true"
discount on such note (i.e., the excess of the note's stated principal amount
over its issue price) equals or exceeds a specified de minimis amount, then
the stated interest on the note would be treated as original issue discount
rather than qualified stated interest.
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Floating Rate Notes
Interest on a floating rate note that is unconditionally payable, or will be
constructively received under Section 451 of the Internal Revenue Code, in
cash or in property (other than debt instruments issued by us) at least
annually will constitute "qualified stated interest" if the note is a
"variable rate debt instrument" ("VRDI") under the rules described below and
the interest is payable at a single "qualified floating rate" or single
"objective rate" (each as defined below). If the note is a VRDI but the
interest is payable other than at a single qualified floating rate or at a
single objective rate, special rules apply to determine the portion of such
interest that constitutes "qualified stated interest." See "Original Issue
Discount--Floating Rate Notes that are VRDIs," below.
Definition of Variable Rate Debt Instrument (VRDI), Qualified Floating Rate
and Objective Rate
A note is a VRDI if all of the four following conditions are met. First, the
"issue price" of the note (as described below) must not exceed the total
noncontingent principal payments by more than an amount equal to the lesser of
(i) .015 multiplied by the product of the total noncontingent principal
payments and the number of complete years to maturity from the issue date (or,
in the case of a note that provides for payment of any amount other than
qualified stated interest before maturity, its weighted average maturity) and
(ii) 15% of the total noncontingent principal payments.
Second, the note must provide for stated interest (compounded or paid at
least annually) at (a) one or more qualified floating rates, (b) a single
fixed rate and one or more qualified floating rates, (c) a single objective
rate or (d) a single fixed rate and a single objective rate that is a
"qualified inverse floating rate" (as defined below).
Third, the note must provide that a qualified floating rate or objective
rate in effect at any time during the term of the note is set at the value of
the rate on any day that is no earlier than three months prior to the first
day on which that value is in effect and no later than one year following that
first day.
Fourth, the note may not provide for any principal payments that are
contingent except as provided in the first requirement set forth above.
Subject to certain exceptions, a variable rate of interest on a note is a
"qualified floating rate" if variations in the value of the rate can
reasonably be expected to measure contemporaneous fluctuations in the cost of
newly borrowed funds in the currency in which the debt instrument is
denominated. A variable rate will be considered a qualified floating rate if
the variable rate equals (i) the product of a qualified floating rate and a
fixed multiple that is greater than 0.65, but not more than 1.35 or (ii) 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. In
addition, two or more qualified floating rates that can reasonably be expected
to have approximately the same values throughout the term of the note (e.g.,
two or more qualified floating rates with values within 25 basis points of
each other as determined on the note's issue date) will be treated as a
qualified floating rate. Despite the foregoing, a variable rate will not be
considered a qualified floating rate if the variable rate is subject to a cap,
floor, governor (i.e., a restriction on the amount of increase or decrease in
the stated interest rate) or similar restriction that is reasonably expected
as of the issue date to cause the yield on the note to be significantly more
or less than the expected yield determined without the restriction (other than
a cap, floor or governor that is fixed throughout the term of the note).
Subject to certain exceptions, an "objective rate" is a rate (other than a
qualified floating rate) that is determined using a single fixed formula and
that is based on objective financial or economic information that is neither
within our control (or the control of a related party) nor unique to our
circumstances (or the circumstances of a related party). For example, an
objective rate generally includes a rate that is based on one or more
qualified floating rates or on the yield of actively traded personal property
(within the meaning of Section 1092(d)(1) of the Internal Revenue Code).
Notwithstanding the first sentence of this paragraph, a rate on a note is not
an objective rate if it is reasonably expected that the average value of the
rate during the first half of the note's term will be either significantly
less than or significantly greater than the average value of the rate during
the final half of the note's term. An objective rate is a "qualified inverse
floating rate" if (a) the rate is equal to a fixed rate minus a qualified
floating rate and (b) the variations in the rate can reasonably
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be expected to reflect inversely contemporaneous variations in the cost of
newly borrowed funds (disregarding any caps, floors, governors or similar
restrictions that would not, as described above, cause a rate to fail to be a
qualified floating rate).
If interest on a note is stated at a fixed rate for an initial period of
less than one year, followed by a variable rate that is either a qualified
floating rate or an objective rate for a subsequent period, and the value of
the variable rate on the issue date is intended to approximate the fixed rate,
the fixed rate and the variable rate together constitute a single qualified
floating rate or objective rate.
Original Issue Discount
Original issue discount ("OID") with respect to a note is the excess, if
any, of the note's "stated redemption price at maturity" over the note's
"issue price." A note's "stated redemption price at maturity" is the sum of
all payments provided by the note (whether designated as interest or as
principal) other than payments of qualified stated interest. The "issue price"
of note is the first price at which a substantial amount of the notes in the
issuance that includes such note is sold for money (excluding sales to bond
houses, brokers or similar persons or organizations acting in the capacity of
underwriters, placement agents or wholesalers).
As described more fully below, United States Holders of notes with OID that
mature more than one year from their issue date generally will be required to
include such OID in income as it accrues in accordance with the constant yield
method described below, irrespective of the receipt of the related cash
payments. A United States Holder's tax basis in a note is increased by each
accrual of OID and decreased by each payment other than a payment of qualified
stated interest.
The amount of OID with respect to a note will be treated as zero if the OID
is less than an amount equal to .0025 multiplied by the product of the stated
redemption price at maturity and the number of complete years to maturity (or,
in the case of a note that provides for payment of any amount other than
qualified stated interest prior to maturity, the weighted average maturity of
the note). If the amount of OID with respect to a note is less than that
amount, the OID that is not included in payments of stated interest is
generally included in income as capital gain as principal payments are made.
The amount includible with respect to a principal payment equals the product
of the total amount of OID and a fraction, the numerator of which is the
amount of such principal payment and the denominator of which is the stated
principal amount of the note.
Fixed Rate Notes
In the case of OID with respect to a fixed rate note, the amount of OID
includible in the income of a United States Holder for any taxable year is
determined under the constant yield method, as follows. First, the "yield to
maturity" of the note is computed. The yield to maturity is the discount rate
that, when used in computing the present value of all interest and principal
payments to be made under the note (including payments of qualified stated
interest), produces an amount equal to the issue price of the note. The yield
to maturity is constant over the term of the note and, when expressed as a
percentage, must be calculated to at least two decimal places.
Second, the term of the note is divided into "accrual periods." Accrual
periods may be of any length and may vary in length over the term of the note,
provided that each accrual period is no longer than one year and that 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.
Third, the total amount of OID on the note is allocated among accrual
periods. In general, the OID allocable to an accrual period equals the product
of the "adjusted issue price" of the note at the beginning of the accrual
period and the yield to maturity of the note, less the amount of any qualified
stated interest allocable to the accrual period. The adjusted issue price of a
note at the beginning of the first accrual period is its issue price.
Thereafter, the adjusted issue price of the note is its issue price, increased
by the amount of OID previously includible in the gross income of any holder
and decreased by the amount of any payment previously made on the note other
than a payment of qualified stated interest. For purposes of computing the
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adjusted issue price of a note, the amount of OID previously includible in the
gross income of any holder is determined without regard to "premium" and
"acquisition premium," as those terms are defined below under "Premium and
Acquisition Premium."
Fourth, the "daily portions" of OID are determined by allocating to each day
in an accrual period its ratable portion of the OID allocable to the accrual
period.
A United States Holder includes in income in any taxable year the daily
portions of OID for each day during the taxable year that such holder held
notes. In general, under the constant yield method described above, United
States Holders will be required to include in income increasingly greater
amounts of OID in successive accrual periods.
Floating Rate Notes that are VRDIs
The taxation of OID (including interest that does not constitute qualified
stated interest) on a floating rate note will depend on whether the note is a
"VRDI," as that term is defined above under "Taxation of Interest--Definition
of Variable Rate Debt Instrument (VRDI), Qualified Floating Rate and Objective
Rate."
If a VRDI provides for stated interest at either a single qualified floating
rate or a single objective rate throughout the term thereof, any stated
interest on the note which is unconditionally payable in cash or property
(other than debt instruments of the issuer) at least annually will constitute
"qualified stated interest" and will be taxed accordingly. Thus, this type of
VRDI will generally not be treated as having been issued with OID unless the
VRDI is issued at a "true" discount (i.e., at a price below the VRDI's stated
principal amount) in excess of a specified de minimis amount. OID on such a
VRDI arising from "true discount" is allocated to an accrual period using the
constant yield method described above by assuming that the variable rate is a
fixed rate equal to (i) in the case of a qualified floating rate or a
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), the
rate that reflects the yield that is reasonably expected for the note.
Qualified stated interest allocable to an accrual period is increased (or
decreased) if the interest actually paid during an accrual period exceeds (or
is less than) the interest assumed to be paid during the accrual period.
If a note that is a VRDI does not provide for interest at a single variable
rate as described above, the amount of interest and OID accruals are
determined by constructing an equivalent fixed rate debt instrument, as
follows.
First, in the case of an instrument that provides for interest at one or
more qualified floating rates or at a qualified inverse floating rate and, in
addition, at a fixed rate, replace the fixed rate with a qualified floating
rate (or qualified inverse floating rate) such that the fair market value of
the instrument, so modified, as of the issue date would be approximately the
same as the fair market value of the unmodified instrument.
Second, determine the fixed rate substitute for each variable rate provided
by the note (or determined to be provided by the note under the first step
above). The fixed rate substitute for each qualified floating rate provided by
the note is the value of that qualified floating rate on the issue date. If
the note provides for two or more qualified floating rates with different
intervals between interest adjustment dates (for example, the 30-day
commercial paper rate and quarterly LIBOR), the fixed rate substitutes are
based on intervals that are equal in length (for example, the 90-day
commercial paper rate and quarterly LIBOR, or the 30-day commercial paper rate
and monthly LIBOR). The fixed rate substitute for a qualified inverse floating
rate is the value of the qualified inverse floating rate on the issue date.
The fixed rate substitute for an objective rate (other than a qualified
inverse floating rate) is a fixed rate that reflects the yield that is
reasonably expected for the note.
Third, construct an equivalent fixed rate debt instrument that has terms
that are identical to those provided under the note, except that the
equivalent fixed rate debt instrument provides for the fixed rate substitutes
determined in the second step, in lieu of the qualified floating rates or
objective rate provided by the note.
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Fourth, determine the amount of qualified stated interest and OID for the
equivalent fixed rate debt instrument under the rules (described above) for
fixed rate notes. These amounts are taken into account as if the United States
Holder held the equivalent fixed rate debt instrument. See "Taxation of
Interest" and "Original Issue Discount--Fixed Rate Notes," above.
Fifth, make appropriate adjustments for the actual values of the variable
rates. In this step, qualified stated interest or OID allocable to an accrual
period is increased (or decreased) if the interest actually accrued or paid
during the accrual period exceeds (or is less than) the interest assumed to be
accrued or paid during the accrual period under the equivalent fixed rate debt
instrument.
Floating Rate Notes that are not VRDIs
Floating rate notes that are not VRDIs ("Contingent Notes") will be taxable
under the rules applicable to contingent payment debt instruments (the
"Contingent Debt Regulations"). Under these Treasury regulations, any
contingent and noncontingent interest payments would be includible in income
in a taxable year whether or not the amount of any payment is fixed or
determinable in that year. To determine the amount of interest includible in
the holder's income, we are required to determine, as of the issue date, the
comparable yield for the Contingent Note. The comparable yield is generally
the yield at which we would issue a fixed rate debt instrument with terms and
conditions similar to those of the Contingent Note (including the level of
subordination, term, timing of payments and general market conditions, but not
taking into consideration the riskiness of the contingencies or the liquidity
of the Contingent Note). In certain cases where Contingent Notes are marketed
or sold in substantial part to tax-exempt investors or other investors for
whom the prescribed inclusion of interest is not expected to have a
substantial effect on their U.S. income tax liability, the comparable yield
for the Contingent Note, without proper evidence to the contrary, is presumed
to be the applicable federal rate.
Second, solely for tax purposes, we construct a projected schedule of
payments determined under the Contingent Debt Regulations for the Contingent
Note (the "Schedule"). The Schedule is determined as of the issue date and
generally remains in place throughout the term of the Contingent Note. If a
right to a contingent payment is based on market information, the amount of
the projected payment is the forward price of the contingent payment. If a
contingent payment is not based on market information, the amount of the
projected payment is the expected value of the contingent payment as of the
issue date. The Schedule must produce the comparable yield determined as set
forth above. Otherwise, the Schedule must be adjusted under the rules set
forth in the Contingent Debt Regulations.
Third, under the usual rules applicable to OID and based on the Schedule,
the interest income on the Contingent Note for each accrual period is
determined by multiplying the comparable yield of the Contingent Note
(adjusted for the length of the accrual period) by the Contingent Note's
adjusted issue price at the beginning of the accrual period (determined under
rules set forth in the Contingent Debt Regulations). The amount so determined
is then allocated on a ratable basis to each day in the accrual period that
the United States Holder held the Contingent Note.
Fourth, appropriate adjustments are made to the interest income determined
under the foregoing rules to account for any differences between the Schedule
and actual contingent payments. Under the rules set forth in the Contingent
Debt Regulations, differences between the actual amounts of any contingent
payments made in a calendar year and the projected amounts of such payments
are generally aggregated and taken into account, in the case of a positive
difference, as additional interest income, or, in the case of a negative
difference, first as a reduction in interest income for such year and
thereafter, as ordinary loss to the extent of the amount by which the United
States Holder's total interest inclusions on the Contingent Notes exceeds the
total amount of net negative adjustments treated as ordinary loss in prior
taxable years. Any remaining excess will be a negative adjustment carryforward
and treated as a negative adjustment in the succeeding year. If a Contingent
Note is sold, exchanged, or retired, any negative adjustment carryforward from
the prior year will reduce the United States Holder's amount realized on the
sale, exchange or retirement.
We are required to provide each holder of a Contingent Note with the
Schedule described above. If we do not create a Schedule or the Schedule is
unreasonable, a United States Holder must set its own projected payment
schedule and explicitly disclose the use of such schedule and the reason
therefor. Unless otherwise
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prescribed by the Internal Revenue Service, the United States Holder must make
such disclosure on a statement attached to the United States Holder's timely
filed federal income tax return for the taxable year in which the Contingent
Note was acquired.
In general, any gain realized by a United States Holder on the sale,
exchange or retirement of a Contingent Note is interest income. In general,
any loss on a Contingent Note accounted for under the method described above
is ordinary loss to the extent it does not exceed such holder's prior interest
inclusions on the Contingent Note (net of negative adjustments treated as
ordinary loss in price taxable years). Special rules apply in determining the
tax basis of a Contingent Note and the amount realized on the retirement of a
Contingent Note.
Other Rules
Certain notes having OID may be redeemed prior to maturity or may be
repayable at the option of the holder. Such notes may be subject to rules that
differ from the general rules discussed above relating to the tax treatment of
OID. Purchasers of such notes with a redemption feature should consult their
tax advisors with respect to such feature since the tax consequences with
respect to OID will depend, in part, on the particular terms and the
particular features of the purchased note.
The Treasury Regulations relating to the tax treatment of OID contain
certain language ("aggregation rules") stating in general that, with some
exceptions, if more than one type of note is issued in connection with the
same transaction or related transactions, such notes may be treated as a
single debt instrument with a single issue price, maturity date, yield to
maturity and stated redemption price at maturity for purposes of calculating
and accruing any OID. Unless otherwise provided in the applicable prospectus
supplement, we do not expect to treat different types of notes as being
subject to the aggregation rules for purposes of computing OID.
Market Discount
If a United States Holder acquires a note having a maturity date of more
than one year from the date of its issuance and has a tax basis in the note
that is, in the case of a note that does not have OID, less than its issue
price (or, in the case of a subsequent purchase, its stated redemption price
at maturity), or, in the case of a note that has OID, less than its adjusted
issue price as of the date of acquisition (as defined above), the amount of
such difference is treated as "market discount" for federal income tax
purposes, unless such difference is less than .0025 multiplied by the stated
redemption price at maturity of the note multiplied by the number of complete
years to maturity (from the date of acquisition).
Under the market discount rules of the Internal Revenue Code, a United
States Holder is required to treat any principal payment (or, in the case of a
note that has OID, any payment that does not constitute a payment of qualified
stated interest) on, or any gain on the sale, exchange, retirement or other
disposition of, a note as ordinary income to the extent of the accrued market
discount that has not previously been included in income. Thus, partial
principal payments are treated as ordinary income to the extent of accrued
market discount that has not previously been included in income.
In general, the amount of market discount that has accrued is determined on
a ratable basis. A United States Holder may, however, elect to determine the
amount of accrued market discount on a constant yield to maturity basis. This
election is made on a note-by-note basis and is irrevocable.
With respect to notes with market discount, a United States Holder may not
be allowed to deduct immediately a portion of the interest expense on any
indebtedness incurred or continued to purchase or to carry such notes. A
United States Holder may elect to include market discount in income currently
as it accrues, in which case the interest deferral rule set forth in the
preceding sentence will not apply. This 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 the election applies and is irrevocable
without the consent of the Internal Revenue Service. A United States Holder's
tax basis in a note will be increased by the amount of market discount
included in the holder's income under the election.
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In lieu of the foregoing rules, different rules apply in the case of
Contingent Notes where a holder's tax basis in a Contingent Note is less than
the Contingent Note's adjusted issue price (determined under special rules set
out in the Contingent Debt Regulations). Accordingly, prospective purchasers
of Contingent Notes should consult with their tax advisors with respect to the
application of these rules to Contingent Notes.
Premium and Acquisition Premium
If a United States Holder purchases a note for an amount in excess of the
sum of all amounts payable on the note after the date of acquisition (other
than payments of qualified stated interest), the holder will be considered to
have purchased the note with "amortizable bond premium" equal in amount to the
excess, and generally will not be required to include any OID in income.
Generally, a United States Holder may elect to amortize the premium as an
offset to qualified stated interest income, using a constant yield method
similar to that described above (see "Original Issue Discount"), over the
remaining term of the note (where the note is not redeemable prior to its
maturity date). In the case of notes that may be redeemed prior to maturity,
the premium is calculated assuming that we or the United States Holder will
exercise or not exercise its redemption rights in a manner that maximizes the
United States Holder's yield. A United States Holder who elects to amortize
bond premium must reduce such holder's tax basis in the note by the amount of
the premium used to offset qualified stated interest income as set forth
above. An election to amortize bond premium applies to all taxable debt
obligations then owned and thereafter acquired by the holder and may be
revoked only with the consent of the Internal Revenue Service.
If a United States Holder purchases a note issued with OID at an
"acquisition premium," the amount of OID that the United States Holder
includes in gross income is reduced to reflect the acquisition premium. A note
is purchased at an acquisition premium if its adjusted basis, immediately
after its purchase, is (a) less than or equal to the sum of all amounts
payable on the note after the purchase date other than payments of qualified
stated interest and (b) greater than the note's "adjusted issue price" (as
described above under "Original Issue Discount--Fixed Rate Notes").
If a note is purchased at an acquisition premium, the United States Holder
reduces the amount of OID otherwise includible in income during an accrual
period by an amount equal to (i) the amount of OID otherwise includible in
income multiplied by (ii) a fraction, the numerator of which is the excess of
the adjusted basis of the note immediately after its acquisition by the
purchaser over the adjusted issue price of the note and the denominator of
which is the excess of the sum of all amounts payable on the note after the
purchase date, other than payments of qualified stated interest, over the
note's adjusted issue price.
As an alternative to reducing the amount of OID otherwise includible in
income by this fraction, the United States Holder may elect to compute OID
accruals by treating the purchase as a purchase at original issuance and
applying the constant yield method described above.
In lieu of the foregoing rules, different rules apply in the case of
Contingent Notes where a holder's tax basis in a Contingent Note is greater
than the Contingent Note's adjusted issue price (determined under special
rules set out in the Contingent Debt Regulations). Accordingly, prospective
purchasers of Contingent Notes should consult with their tax advisors with
respect to the application of these rules to Contingent Notes.
Short-Term Notes
A Short-Term Note will be treated as having been issued with OID if the
stated redemption price at maturity exceeds the issue price of the note.
United States Holders that report income for federal income tax purposes on an
accrual method and certain other United States Holders, including banks and
dealers in securities, are required to include OID in income on such Short-
Term Notes on a straight-line basis, unless an election is made to accrue the
OID according to a constant yield method based on daily compounding. Any
interest payable on the obligation (other than OID) is included in gross
income as it accrues.
United States Holders of a Short-Term Note who use the cash method of
accounting and certain other United States Holders are not required to accrue
OID for federal income tax purposes, unless the holder elects to do so, with
the consequence that the reporting of such income is deferred until it is
received. In the case of a United States Holder that is not required, and does
not elect, to include OID in income currently, any gain
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realized on the sale, exchange or retirement of a Short-Term Note is ordinary
income to the extent of the OID accrued on a straight-line basis (or, if
elected, according to a constant yield method based on daily compounding)
through the date of sale, exchange or retirement. In addition, United States
Holders that are not required, and do not elect, to include OID in income
currently are required to defer deductions for any interest paid on
indebtedness incurred or continued to purchase or carry a Short-Term Note in
an amount not exceeding the deferred interest income with respect to such
Short-Term Note (which includes both the accrued OID and accrued interest that
is payable but that have not been included in gross income), until such
deferred interest income is realized. A United States Holder of a Short-Term
Note may elect to apply the foregoing rules (except for the rule
characterizing gain on sale, exchange or retirement as ordinary) with respect
to "acquisition discount" rather than OID. Acquisition discount is the excess
of the stated redemption price at maturity of the Short-Term Note over the
United States Holder's basis in the Short-Term Note. This election applies to
all obligations acquired by the taxpayer on or after the first day of the
first taxable year to which such election applies, unless revoked with the
consent of the Internal Revenue Service. A United States Holder's tax basis in
a Short-Term Note is increased by the amount included in such holder's income
on such a note.
Election to Treat All Interest as OID
United States Holders may elect to include in gross income all interest that
accrues on a note, including any stated interest, acquisition discount, OID,
market discount, de minimis OID, de minimis market discount and unstated
interest (as adjusted by amortizable bond premium and acquisition premium), by
using the constant yield method described above under "Original Issue
Discount." Such an election for a note with amortizable bond premium will
result in a deemed election to amortize bond premium for all debt instruments
owned and later acquired by the United States Holder with amortizable bond
premium and may be revoked only with the permission of the Internal Revenue
Service. Similarly, such an election for a note with market discount will
result in a deemed election to accrue market discount in income currently for
such note and for all other debt instruments acquired by the United States
Holder with market discount on or after the first day of the taxable year to
which such election first applies, and may be revoked only with the permission
of the Internal Revenue Service. A United States Holder's tax basis in a note
will be increased by each accrual of the amounts treated as OID under the
constant yield election described in this paragraph.
Integration of Notes with Other Financial Instruments
Any United States Holder of notes that also acquires or has acquired any
financial instrument which, in combination with such notes, would permit the
calculation of a single yield to maturity or could generally constitute a VRDI
of an equivalent term, may in certain circumstances treat such notes and such
financial instrument as an integrated debt instrument for purposes of the
Internal Revenue Code, with a single determination of issue price and the
character and timing of income, deductions, gains and losses. (For purposes of
determining OID, none of the payments under the integrated debt instrument
will be treated as qualified stated interest.) Moreover, under the Contingent
Debt Regulations, the Internal Revenue Service may require in certain
circumstances that a United States Holder who owns notes integrate such notes
with a financial instrument held or acquired by such holder or a related
party. United States Holders should consult their tax advisors as to such
possible integration.
Sale or Exchange of Notes
A United States Holder generally will recognize gain or loss upon the sale
or exchange of a note equal to the difference between the amount realized upon
such sale or exchange and the United States Holder's adjusted basis in the
note. The adjusted basis in the note generally will equal the cost of the
note, increased by OID, acquisition discount or market discount previously
included in respect thereof, and reduced (but not below zero) by any payments
on the note other than payments of qualified stated interest and by any
premium that the United States Holder has taken into account. To the extent
attributable to accrued but unpaid qualified stated interest, the amount
realized by the United States Holder will be treated as a payment of interest.
Generally, any gain or loss will be capital gain or loss if the note was held
as a capital asset, except as provided under "Market Discount," "Short-Term
Notes" and "Original Issue Discount--Floating
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Rate Notes that are not VRDIs," above. Special rules apply in determining the
tax basis of a Contingent Note and the amount realized on the retirement of a
Contingent Note.
Notes Denominated, or in Respect of Which Interest Is Payable, in a Foreign
Currency
As used in this prospectus supplement, "Foreign Currency" means a currency
or currency unit other than U.S. dollars.
Payments of Interest in a Foreign Currency
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 on a
note (other than original issue discount or market discount) will be required
to include in income the U.S. dollar value of the Foreign Currency payment
(determined on the date such payment is received) regardless of whether the
payment is in fact converted to U.S. dollars at that time, and such U.S.
dollar value will be the United States Holder's tax basis in such Foreign
Currency.
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 U.S.
dollar value of the amount of interest income (including original issue
discount or market discount and reduced by amortizable bond premium to the
extent applicable) that has accrued and is otherwise required to be taken into
account with respect to a note during an accrual period. The U.S. dollar value
of such accrued income will be determined by translating such income at the
average rate of exchange for the accrual period or, with respect to an accrual
period that spans two taxable years, at the average rate for the partial
period within the taxable year. A 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 accrual 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 Internal Revenue Service. 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 U.S. dollar value of
the Foreign Currency payment received (determined on the date such payment is
received) in respect of such accrual period and the U.S. dollar value of
interest income that has accrued during such accrual period (as determined
above).
Purchase, Sale and Retirement of Notes
A 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 State Holder's tax basis in the
Foreign Currency and the U.S. dollar fair market value of the Foreign Currency
used to purchase the note, determined on the date of purchase. Except as
discussed above with respect to Short-Term Notes, upon the sale, exchange or
retirement of a note, a 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 would be long-term capital gain or loss if the holding
period for the notes is more than one year. To the extent the amount realized
represents accrued but unpaid interest, however, such amounts must be taken
into account as interest income, with exchange gain or loss computed as
described in "Payments of Interest in a Foreign Currency" above. If a United
States Holder receives Foreign Currency on such a sale, exchange or retirement
the amount realized will be based on the U.S. dollar value of the Foreign
Currency on the date the payment is received or the note is disposed of (or
deemed disposed of in the case of a taxable exchange of the note for a new
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
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States Holder) will determine the U.S. dollar value of the amount realized by
translating the Foreign Currency payment at the spot rate of exchange on the
settlement date of the sale. A U.S. Holder's adjusted tax basis in a note will
equal the cost of the note to such holder, increased by the amounts of any
market discount or original issue discount previously included in income by
the holder with respect to such note and reduced by any amortized acquisition
or other premium and any principal payments received by the holder. A 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 U.S. dollar value of the
Foreign Currency amount paid for such note, or of the Foreign Currency amount
of the adjustment, determined on the date of such purchase or adjustment.
Gain or loss realized upon the sale, exchange or retirement of a note that
is attributable to fluctuations in currency exchange rates will be ordinary
income or loss which will not be treated as interest income or expense. Gain
or loss attributable to fluctuations in exchange rates will equal the
difference between the U.S. dollar value of the Foreign Currency principal
amount of the note, determined on the date such payment is received or the
note is disposed of, and the U.S. dollar value of the Foreign Currency
principal amount of the note, determined on the date the 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 a note issued with OID or Short-Term Note, (i) OID is
determined in units of the Foreign Currency, (ii) accrued OID is translated
into U.S. dollars as described in "Payments of Interest in a Foreign
Currency--Accrual Method" above and (iii) the amount of Foreign Currency gain
or loss on the accrued OID is determined by comparing the amount of income
received attributable to the discount (either upon payment, maturity or an
earlier disposition), as translated into U.S. dollars at the rate of exchange
on the date of such receipt, with the amount of OID accrued, as translated
above.
Premium and Market Discount
In the case of a note with market discount, (i) market discount is
determined in units of the Foreign Currency, (ii) accrued market discount
taken into account upon the receipt of any partial principal payment or upon
the sale, exchange, retirement or other disposition of the note (other than
accrued market discount required to be taken into account currently) is
translated into U.S. dollars at the exchange rate on such disposition date
(and no part of such accrued market discount is treated as exchange gain or
loss) and (iii) accrued market discount currently includible in income by a
United State Holder for any accrual period is translated into U.S. dollars on
the basis of the average exchange rate in effect during such accrual period,
and the exchange gain or loss is determined upon the receipt of any partial
principal payment or upon the sale, exchange, retirement or other disposition
of the note in the manner described in "Payments of Interest in a Foreign
Currency--Accrual Method" above with respect to computation of exchange gain
or loss on accrued interest.
With respect to a note 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 U.S. dollar value of the bond premium amortized with respect to a period,
determined on the date the interest attributable to such period is received,
and the U.S. dollar value of the bond premium determined on the date of the
acquisition of the note.
Exchange of Foreign Currencies
A 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 U.S. dollar value of such Foreign Currency, determined at the time the
interest is received or at the time of the sale, exchange or retirement. Any
gain or loss realized by a United States Holder on a sale or other disposition
of Foreign Currency (including its exchange for U.S. dollars or its use to
purchase notes) will be ordinary income or loss.
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Non-United States Holders
Payments of Interest
Interest paid by the Company to a non-United States Holder will not be
subject to United States Federal income taxes or withholding tax if such
interest (including OID, if any) in not effectively connected with the conduct
of a trade or business within the United States by such non-United States
Holder and such non-United States Holder:
o does not actually or constructively own 10% or more of the total combined
voting power of all classes of stock of the Company entitled to vote;
o is not a controlled foreign corporation related to the Company;
o is not a bank receiving interest described in section 881(c)(3)(A) of the
Internal Revenue Code; and
o the non-United States Holder appropriately certifies as to its foreign
status. A non-United States Holder can generally meet this certification
requirement by providing a properly executed Form W-8BEN or appropriate
substitute form to us, or our paying agent. If the non-United States
Holder holds the notes through a financial institution or other agent
acting on the holder's behalf, the holder may be required to provide
appropriate documentation to the agent. The holder's agent will then
generally be required to provide appropriate certifications to us or our
paying agent, either directly or through other intermediaries. Special
certification rules apply to foreign partnerships, estates and trusts,
and in certain circumstances certifications as to foreign status of
partners, trust owners or beneficiaries may have to be provided to us or
our paying agent.
If a non-United States Holder does not qualify for an exemption under these
rules, interest income (including OID) may be subject to withholding tax at
the rate of 30% (or lower applicable treaty rate) at the time such amount is
paid. The payment of interest effectively connected with your United States
trade or business, however, would not be subject to a 30% withholding tax so
long as you provide the Company or its agent an adequate certification
(currently on Form W-8ECI), but such interest would be subject to United
States Federal income tax on a net basis at the rates applicable to United
States persons generally. In addition, if you are a foreign corporation and
the payment of interest is effectively connected with your United States trade
or business, you may also be subject to a 30% branch profits tax.
Sales or Exchanges of Notes
If you are a non-United States Holder, you generally will not be subject to
United States Federal income tax on any amount which constitutes capital gain
upon retirement or disposition of a note, unless any of the following is true:
o your investment in the notes is effectively connected with a United
States trade or business;
o if you are a non-United States Holder who is a nonresident alien
individual holding the note as a capital asset, you are present in the
United States for 183 or more days in the taxable year within which sale,
redemption or other disposition takes place and certain other
requirements are met; or
o you are subject to provisions of United States tax laws applicable to
certain United States expatriates.
If you have a United States trade or business and the investment in the
notes is effectively connected with such United States trade or business, the
payment of the sales proceeds with respect to the notes would be subject to
United States Federal income tax on a net basis at the rate applicable to
United States person generally. In addition, foreign corporations may be
subject to a 30% branch profits tax if the investment in the note is
effectively connected with the foreign corporation's United States trade or
business.
Backup Withholding and Information Reporting
United States Holders
The Company will, where required, report to the United States holders of
notes and the Internal Revenue Service the amount of any interest paid on the
notes in each calendar year and the amounts of tax withheld, if
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any, from those payments. Under section 3406 of the Internal Revenue Code and
applicable Treasury regulations, a United States holder of a note may be
subject to backup withholding tax at the rate of up to 31% with respect to
payments made on the notes as well as proceeds from the disposition of notes
unless the holder:
o is a corporation or comes within other exempt categories and, when
required, demonstrates this fact; or
o 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.
Amounts paid as backup withholding do not constitute an additional tax and
will be credited against the United States Holder's United States Federal
income tax liabilities, so long as the required information is provided to the
Internal Revenue Service. A United States holder of notes who does not provide
the payor with his or her correct taxpayer identification number may be
subject to penalties imposed by the Internal Revenue Service.
Non-United States Holders
No backup withholding or information reporting will generally be required
with respect to interest on notes paid to non-United States Holders if the
beneficial owner of the note provides a statement described above in "Non-
United States Holders--Payment of Interest" or the non-United States Holder is
an exempt recipient and, in each case, the payor does not have actual
knowledge that the beneficial owner is a United States person.
Information reporting requirements and backup withholding tax will not apply
to any payment of the proceeds of the sale of a note effected outside of the
United States by a foreign office of a "broker" (as defined in applicable
Treasury regulations), provided that such broker is not:
o a United States person, as defined in the Internal Revenue Code;
o a controlled foreign corporation for United States federal income tax
purposes;
o a foreign partnership engaged in the conduct of a U.S. trade or business;
o a foreign partnership that, at any time during its taxable year, has 50%
or more of its income or capital interests owned by U.S persons; or
o 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.
Payment of the proceeds of any sale effected outside the United States by a
foreign office of any other broker will not be subject to backup withholding
tax or information reporting if such broker has documentary evidence in its
records that the beneficial owner is a non-United States Holder and certain
other conditions are met, or the beneficial owner otherwise establishes an
exemption. Payment of the proceeds of any sale of a note effected by the
United States office of a broker will be subject to information reporting and
backup withholding requirements, unless the beneficial owner of the note
provides the statement described above in "Non-United States Holders--Payment
of Interest" or otherwise establishes an exemption from back-up withholding.
If you are a non-United States holder of notes, you should consult your tax
advisor regarding the application of information reporting and backup
withholding in your particular situation, the availability of an exemption
therefrom, and the procedure for obtaining the exemption, if available. Any
amounts withheld from payments to you under the backup withholding rules will
be allowed as a refund or a credit against your United States Federal income
tax liability, provided that the required information is furnished to the
Internal Revenue Service.
PLAN OF DISTRIBUTION
The notes are being offered on a continuous basis for sale by us to or
through Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Banc of America Securities LLC, Banc One Capital
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Markets, Inc., Credit Suisse First Boston Corporation, Goldman, Sachs & Co.,
J.P. Morgan Securities Inc. and Morgan Stanley & Co. Incorporated, as agents.
The agents, individually or in a syndicate, may purchase notes, as principal,
from us 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, or, if so specified in the applicable
pricing supplement, for resale at a fixed offering price. If agreed to by us
and an agent, that agent may also utilize its reasonable efforts on an agency
basis to solicit offers to purchase the notes at 100% of the principal amount
of the notes, unless otherwise specified in the applicable pricing supplement.
We will pay a commission to an agent, ranging from .125% to .750% of the
principal amount of each note, depending upon its stated maturity, sold
through that agent as our agent. Commissions with respect to notes with stated
maturities in excess of 30 years that are sold through an agent as our agent
will be negotiated between us and that agent at the time of that sale. In
addition, we estimate our expenses incurred in connection with the offering
and sale of the notes, including reimbursement of certain of the agent's
expenses, total approximately $325,000.
Unless otherwise specified in the applicable pricing supplement, any note
sold to an agent as principal will be purchased by that agent at a price equal
to 100% of the principal amount of that note 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 us
as principal to other dealers for resale to investors and other purchasers,
and may reallow all or any portion of the discount received in connection with
that purchase from us to those dealers. After the initial offering of notes,
the offering price (in the case of notes to be resold on a fixed offering
price basis), the concession and the discount may be changed.
We reserve the right to withdraw, cancel or modify the offer made in this
prospectus supplement without notice and may reject offers in whole or in part
(whether placed directly with us or through the agents). Each agent will have
the right, in its discretion reasonably exercised, to reject in whole or in
part any offer to purchase notes received by it on an agency basis.
Unless otherwise specified in the applicable pricing supplement, payment of
the purchase price of the notes will be required to be made in immediately
available funds in the specified currency in The City of New York on the date
of settlement. See "Description of 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.
In connection with an offering of notes purchased by one or more agents as
principal on a fixed offering price basis, the applicable agents will be
permitted to engage in certain transactions that stabilize the price of notes.
Those transactions may consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of notes. If the agents create a
short position in notes, i.e., if they sell notes in an amount exceeding the
amount referred to in the applicable pricing supplement, they may reduce that
short position by purchasing notes in the open market. In general, purchases
of notes for the purpose of stabilization or to reduce a short position could
cause the price of notes to be higher than it might be in the absence of these
types of purchases.
Neither we nor any of the agents makes any representation or prediction as
to the direction or magnitude of any effect that the transactions described in
the immediately preceding paragraph may have on the price of notes. In
addition, neither we nor any of the agents makes any representation that the
agents will engage in any of those transactions or that those transactions,
once commenced, will not be discontinued without notice.
The agents may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). We have agreed to
indemnify the agents against various liabilities, including liabilities under
the Securities Act, or to contribute to payments the agents may be required to
make in respect of those liabilities.
S-35
In the ordinary course of its businesses, the agents and their affiliates
have engaged, and may in the future engage, in investment and commercial
banking transactions with us and certain of our affiliates. In particular,
affiliates of some of the agents participate in our revolving credit facility
and, accordingly, if any proceeds from the sale of notes are applied by us to
amounts borrowed under that facility, those affiliates will receive a
proportionate share of repaid amounts. In addition, a senior officer of J.P.
Morgan Chase & Co., an affiliate of J.P. Morgan Securities Inc., is one of our
directors.
From time to time, we may issue and sell other securities described in the
accompanying prospectus, and those sales may reduce the aggregate initial
offering price of the notes offered by this prospectus supplement.
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PROSPECTUS
KIMCO REALTY CORPORATION
$750,000,000
Debt Securities, Preferred Stock,
Depositary Shares, Common Stock and Common Stock Warrants
We may from time to time offer an aggregate public offering price of up to
$750,000,000 of the following securities on terms to be determined at the time
of the offering:
1. our unsecured senior debt securities;
2. shares or fractional shares of our preferred stock, par value $1.00
per share;
3. shares of our preferred stock represented by depositary shares;
4. shares of our common stock, par value $.01 per share; or
5. warrants to purchase our common stock.
Our debt securities, preferred stock, depositary shares, common stock and
common stock warrants may be offered separately, together or as units, in
separate classes or series, in amounts, at prices and on terms to be set forth
in a supplement to this prospectus.
The specific terms of the securities offered by this prospectus will be set
forth in each prospectus supplement and will include, where applicable:
o in the case of our debt securities, the specific title, aggregate
principal amount, currency of denomination and payment, form (which may
be registered or bearer, or certificated or global), authorized
denominations, maturity, rate (or manner of calculation thereof) and time
of payment of interest, terms for redemption at our option or repayment
at the option of the holder of the debt securities, terms for sinking
fund payments, terms for conversion into preferred stock or common stock,
and any initial public offering price;
o in the case of our preferred stock, the specific title and stated value,
any dividend, liquidation, redemption, conversion, voting and other
rights, and any initial public offering price;
o in the case of our depositary shares, the fractional share of our
preferred stock represented by each depositary share;
o in the case of our common stock, any initial public offering price; and
o in the case of our warrants to purchase our common stock, the duration,
offering price, exercise price and detachability.
In addition, the specific terms may include limitations on direct or
beneficial ownership and restrictions on transfer of the securities offered by
this prospectus, in each case as may be appropriate to preserve our status as
a real estate investment trust, or REIT, for federal income tax purposes.
Each prospectus supplement will also contain information, where applicable,
about United States federal income tax considerations, and any exchange
listing of, the securities covered by the prospectus supplement.
The securities offered by this prospectus may be offered directly, through
agents designated from time to time by us, or to or through underwriters or
dealers. If any agents or underwriters are involved in the sale of any of the
securities offered by this prospectus, their names, and any applicable
purchase price, fee, commission or discount arrangement between or among them,
will be set forth, or will be calculable from the information set forth, in
the applicable prospectus supplement. None of the securities offered by this
prospectus may be sold without delivery of the applicable prospectus
supplement describing the method and terms of the offering of those
securities.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE AND ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this prospectus is May 1, 2001.
WHERE CAN YOU FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, or the SEC. Our SEC
filings are available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file with the
SEC at the SEC's following public reference facilities:
Public Reference Room New York, New York 10048 Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
Chicago, Illinois 60661-2511
You may also obtain copies of the documents at prescribed rates by writing
to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549. Please call 1-800-SEC-0330 for further
information on the operations at the public reference facilities. Our SEC
filings are also available at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
This prospectus constitutes part of a registration statement on Form S-3
filed by us under the Securities Act. As allowed by SEC rules, this prospectus
does not contain all the information you can find in the registration
statement or the exhibits to the registration statement.
Statements contained in this prospectus as to the contents of any contract
or other document are not necessarily complete, and in each instance reference
is made to the copy of that contract or other document filed as an exhibit to
the registration statement, each such statement being qualified in all
respects by that reference and the exhibits and schedules thereto. For further
information about us and the securities offered by this prospectus, you should
refer to the registration statement and such exhibits and schedules which may
be obtained from the SEC at its principal office in Washington, D.C. upon
payment of the fees prescribed by the SEC.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by us under the Securities
Exchange Act of 1934, as amended, with the SEC and are incorporated by
reference in this prospectus:
o Annual Report on Form 10-K for the year ended December 31, 2000; and
o Definitive proxy statement filed on April 5, 2001.
We are also incorporating by reference into this prospectus all documents
that we have filed or will file with the SEC as prescribed by Sections 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act since the date of this
prospectus and prior to the termination of the sale of the securities offered
by this prospectus.
This means that important information about us appears or will appear in
these documents and will be regarded as appearing in this prospectus. To the
extent that information appearing in a document filed later is inconsistent
with prior information, the later statement will control and the prior
information, except as modified or superseded, will no longer be a part of
this prospectus.
Copies of all documents which are incorporated by reference in this
prospectus and the applicable prospectus supplement (not including the
exhibits to such information, unless such exhibits are specifically
incorporated by reference) will be provided without charge to each person,
including any beneficial owner of the securities offered by this prospectus,
to whom this prospectus or the applicable prospectus supplement is delivered,
upon written or oral request. Requests should be directed to our secretary,
3333 New Hyde Park Road, New Hyde Park, New York 11042-0020 (telephone number:
(516) 869-9000).
THE COMPANY
We began operations through a predecessor in 1966, and today are one of the
nation's largest publicly-traded owners and operators of neighborhood and
community shopping centers (measured by gross leasable area, which we refer to
as "GLA"). As of February 8, 2001, we owned interests in 496 properties,
including:
o 433 neighborhood and community shopping centers;
o two regional malls;
o 50 retail store leases;
o 10 ground up development projects; and
o one distribution center.
These properties have a total of approximately 66.0 million square feet of
GLA and are located in 41 states.
Fifty-three shopping center properties approximately comprising 9.2 million
square feet are part of the Kimco Income REIT, a joint venture arrangement
with institutional investors geared towards investing in retail properties
financed primarily through non-recourse mortgages.
We believe that we have operated, and we intend to continue to operate, in
such a manner to qualify as a REIT under the Internal Revenue Code of 1986, as
amended (the "Code"). We are self-administered and self-managed through
present management, which has owned and managed neighborhood and community
shopping centers for more than 35 years. Our executive officers are engaged in
the day-to-day management and operation of our real estate exclusively, and we
administer nearly all operating functions for our properties, including
leasing, legal, construction, data processing, maintenance, finance and
accounting. Our executive offices are located at 3333 New Hyde Park Road, New
Hyde Park, New York 11042-0020 and our telephone number is (516) 869-9000.
In order to maintain our qualification as a REIT for federal income tax
purposes, we are required to distribute at least 90% of our net taxable
income, excluding capital gains, each year. Dividends on any preferred stock
issued by us are included as distributions for this purpose. Historically, our
distributions have exceeded, and we expect that our distributions will
continue to exceed, our net taxable income each year. A portion of such
distributions may constitute a return of capital. As a result of the
foregoing, our consolidated net worth may decline. We, however, do not believe
that consolidated stockholders' equity is a meaningful reflection of net real
estate values.
USE OF PROCEEDS
Unless otherwise described in the applicable prospectus supplement, we
intend to use the net proceeds from the sale of the securities offered by this
prospectus for general corporate purposes, which may include the acquisition
of neighborhood and community shopping centers as suitable opportunities
arise, the expansion and improvement of certain properties in our portfolio,
and the repayment of indebtedness outstanding at that time.
DESCRIPTION OF DEBT SECURITIES
Our unsecured senior debt securities are to be issued under an indenture,
dated as of September 1, 1993, as amended by the first supplemental indenture,
dated as of August 4, 1994, the second supplemental indenture, dated as of
April 7, 1995, and as further amended or supplemented from time to time,
between us and Bank of New York (successor by merger to IBJ Schroder Bank &
Trust Company), as trustee. The indenture has been filed as an exhibit to the
registration statement of which this prospectus is a part and is available for
inspection at the corporate trust office of the trustee at 101 Barclay Street,
21st Floor, New York, New York 10286 or as described above under "Where You
Can Find More Information." The indenture is subject to, and governed by, the
Trust indenture Act of 1939, as amended. The statements made hereunder
relating to the indenture and the debt securities to be issued thereunder are
summaries of some of
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the provisions thereof and do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all provisions of the
indenture and the debt securities. All section references appearing herein are
to sections of the indenture.
General
The debt securities will be our direct, unsecured obligations and will rank
equally with all of our other unsecured and unsubordinated indebtedness. The
indenture provides that the debt securities may be issued without limit as to
aggregate principal amount, in one or more series, in each case as established
from time to time in or pursuant to authority granted by a resolution of our
board of directors or as established in one or more indentures supplemental to
the indenture. All debt securities of one series need not be issued at the
same time and, unless otherwise provided, a series may be reopened, without
the consent of the holders of the debt securities of such series, for
issuances of additional debt securities of that series (Section 301).
The indenture provides that there may be more than one trustee thereunder,
each with respect to one or more series of debt securities. Any trustee under
the indenture may resign or be removed with respect to one or more series of
debt securities, and a successor trustee may be appointed to act with respect
to that series (Section 608). In the event that two or more persons are acting
as trustee with respect to different series of debt securities, each trustee
shall be a trustee of a trust under the indenture separate and apart from the
trust administered by any other trustee (Section 609), and, except as
otherwise indicated herein, any action described herein to be taken by the
trustee may be taken by each trustee with respect to, and only with respect
to, the one or more series of debt securities for which it is trustee under
the indenture.
For a detailed description of a specific series of debt securities, you
should consult the prospectus supplement for that series. The prospectus
supplement may contain any of the following information, where applicable:
(1) the title of those debt securities;
(2) the aggregate principal amount of those debt securities and any
limit on the aggregate principal amount;
(3) if other than the principal amount thereof, the portion of the
principal amount thereof payable upon declaration of acceleration of
the maturity thereof, or (if applicable) the portion of the
principal amount of those debt securities which is convertible into
our common stock or our preferred stock, or the method by which any
portion shall be determined;
(4) if convertible, any applicable limitations on the ownership or
transferability of our common stock or our preferred stock into
which those debt securities are convertible which exist to preserve
our status as a REIT;
(5) the date or dates, or the method for determining the date or dates,
on which the principal of those debt securities will be payable;
(6) the rate or rates (which may be fixed or variable), or the method by
which the rate or rates shall be determined, at which those debt
securities will bear interest, if any;
(7) the date or dates, or the method for determining the date or dates,
from which any interest will accrue, the interest payment dates on
which that interest will be payable, the regular record dates for
the interest payment dates, or the method by which that date shall
be determined, the person to whom that interest shall be payable,
and the basis upon which interest shall be calculated if other than
that of a 360-day year of twelve 30-day months;
(8) the place or places where (a) the principal of (and premium, if any)
and interest, if any, on those debt securities will be payable, (b)
those debt securities may be surrendered for conversion or
registration of transfer or exchange and (c) notices or demands to
or upon us in respect of those debt securities and the indenture may
be served;
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(9) the period or periods within which, the price or prices at which,
and the terms and conditions upon which those debt securities may be
redeemed, as a whole or in part, at our option, if we are to have
that option;
(10) our obligation, if any, to redeem, repay or purchase those debt
securities pursuant to any sinking fund or analogous provision or at
the option of a holder of those debt securities and the period or
periods within which, the price or prices at which and the terms and
conditions upon which those debt securities will be redeemed, repaid
or purchased, as a whole or in part, pursuant to that obligation;
(11) if other than U.S. Dollars, the currency or currencies in which
those debt securities are denominated and payable, which may be
units of two or more foreign currencies or a composite currency or
currencies, and the terms and conditions relating thereto;
(12) whether the amount of payments of principal of (and premium, if any)
or interest, if any, on those debt securities may be determined with
reference to an index, formula or other method (which index, formula
or method may, but need not be, based on a currency, currencies,
currency unit or units or composite currency or currencies) and the
manner in which those amounts shall be determined;
(13) any additions to, modifications of or deletions from the terms of
those debt securities with respect to the events of default or
covenants set forth in the indenture;
(14) whether those debt securities will be issued in certificated or
book-entry form or both;
(15) whether those debt securities will be in registered or bearer form
and, if in registered form, their denominations if other than $1,000
and any integral multiple of $1,000 and, if in bearer form, their
denominations and the terms and conditions relating thereto;
(16) the applicability, if any, of the defeasance and covenant defeasance
provisions of article fourteen of the indenture;
(17) if those debt securities are to be issued upon the exercise of debt
warrants, the time, manner and place for those debt securities to be
authenticated and delivered;
(18) the terms, if any, upon which those debt securities may be
convertible into our common stock or our preferred stock and the
terms and conditions upon which that conversion will be effected,
including, without limitation, the initial conversion price or rate
and the conversion period;
(19) whether and under what circumstances we will pay additional amounts
as contemplated in the indenture on those debt securities in respect
of any tax, assessment or governmental charge and, if so, whether we
will have the option to redeem those debt securities in lieu of
making such payment; and
(20) any other terms of those debt securities not inconsistent with the
provisions of the indenture (Section 301).
The debt securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of their maturity. We
refer to this type of debt securities as original issue discount securities.
Any material or applicable, special U.S. federal income tax, accounting and
other considerations applicable to original issue discount securities will be
described in the applicable prospectus supplement.
Except as described under "Certain Covenants--Limitations on Incurrence of
Debt" and under "Merger, Consolidation or Sale," the indenture does not
contain any other provisions that would limit our ability to incur
indebtedness or to substantially reduce or eliminate our assets, which may
have an adverse effect on our ability to service our indebtedness (including
the debt securities) or that would afford holders of the debt securities
protection in the event of:
(1) a highly leveraged or similar transaction involving us, our
management, or any affiliate of any of those parties,
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(2) a change of control, or
(3) a reorganization, restructuring, merger or similar transaction
involving us that may adversely affect the holders of our debt
securities.
Furthermore, subject to the limitations set forth under "Merger,
Consolidation or Sale," we may, in the future, enter into certain
transactions, such as the sale of all or substantially all of our assets or a
merger or consolidation involving us, that would increase the amount of our
indebtedness or substantially reduce or eliminate our assets, which may have
an adverse effect on our ability to service our indebtedness, including the
debt securities. In addition, restrictions on ownership and transfers of our
common stock and our preferred stock are designed to preserve our status as a
REIT and, therefore, may act to prevent or hinder a change of control. You
should refer to the applicable prospectus supplement for information with
respect to any deletions from, modifications of or additions to the events of
default or our covenants that are described below, including any addition of a
covenant or other provision providing event risk or similar protection.
A significant number of our properties are owned through our subsidiaries.
Therefore, our rights and those of our creditors, including holders of debt
securities, to participate in the assets of those subsidiaries upon the
liquidation or recapitalization of those subsidiaries or otherwise will be
subject to the prior claims of those subsidiaries' respective creditors
(except to the extent that our claims as a creditor may be recognized).
Denominations, Interest, Registration and Transfer
Unless otherwise described in the applicable prospectus supplement, the debt
securities of any series will be issuable in denominations of $1,000 and
integral multiples of $1,000 (Section 302).
Unless otherwise specified in the applicable prospectus supplement, the
principal of (and premium, if any) and interest on any series of debt
securities will be payable at the corporate trust office of the trustee,
initially located at 101 Barclay Street, 21st Floor, New York, New York 10286,
provided that, at our option, payment of interest may be made by check mailed
to the address of the person entitled thereto as it appears in the security
register or by wire transfer of funds to that person at an account maintained
within the United States (Sections 301, 305, 306, 307 and 1002).
Any interest not punctually paid or duly provided for on any interest
payment date with respect to a debt security will forthwith cease to be
payable to the holder of that debt security on the applicable regular record
date and may either be paid to the person in whose name that debt security is
registered at the close of business on a special record date for the payment
of the interest not punctually paid or duly provided for to be fixed by the
trustee, notice whereof shall be given to the holder of that debt security not
less than 10 days prior to the special record date, or may be paid at any time
in any other lawful manner, all as more completely described in the indenture.
Subject to certain limitations imposed upon debt securities issued in book-
entry form, the debt securities of any series will be exchangeable for other
debt securities of the same series and of a like aggregate principal amount
and tenor of different authorized denominations upon surrender of those debt
securities at the corporate trust office of the trustee. In addition, subject
to certain limitations imposed upon debt securities issued in book-entry form,
the debt securities of any series may be surrendered for conversion or
registration of transfer or exchange thereof at the corporate trust office of
the trustee. Every debt security surrendered for conversion, registration of
transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer. No service charge will be imposed for any registration
of transfer or exchange of any debt securities, but we may require payment of
a sum sufficient to cover any tax or other governmental charge payable in
connection with the registration of transfer or exchange of debt securities
(Section 305). If the applicable prospectus supplement refers to any transfer
agent (in addition to the trustee) initially designated by us with respect to
any series of debt securities, we may at any time rescind the designation of
that transfer agent or approve a change in the location through which that
transfer agent acts, except that we will be required to maintain a transfer
agent in each place of payment for that series. We may at any time designate
additional transfer agents with respect to any series of debt securities
(Section 1002).
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Neither we nor any trustee shall be required to:
(1) issue, register the transfer of or exchange debt securities of any
series during a period beginning at the opening of business 15 days
before any selection of debt securities of that series to be
redeemed and ending at the close of business on the day of mailing
of the relevant notice of redemption;
(2) register the transfer of or exchange any debt security, or portion
thereof, called for redemption, except the unredeemed portion of any
debt security being redeemed in part; or
(3) issue, register the transfer of or exchange any debt security which
has been surrendered for repayment at the option of the holder of
that debt security, except the portion, if any, of that debt
security not to be so repaid (Section 305).
Merger, Consolidation or Sale
We may consolidate with, or sell, lease or convey all or substantially all
of our assets to, or merge with or into, any other corporation, provided that:
(1) either we shall be the continuing corporation, or the successor
corporation (if other than us) formed by or resulting from that
consolidation or merger or which shall have received the transfer of
our assets, shall expressly assume payment of the principal of (and
premium, if any) and interest on all of the debt securities and the
due and punctual performance and observance of all of the covenants
and conditions contained in the indenture;
(2) immediately after giving effect to that transaction and treating any
indebtedness which becomes an obligation of ours or of any of our
subsidiaries as a result thereof as having been incurred by us or
that subsidiary at the time of that transaction, no event of default
under the indenture, 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
(3) an officer's certificate and legal opinion covering the above
conditions shall be delivered to the trustee (Sections 801 and 803).
Certain Covenants
Limitations on Incurrence of Debt. We will not, and will not permit any of
our subsidiaries to, incur any Debt (as defined below) if, immediately after
giving effect to the incurrence of that additional Debt, the aggregate
principal amount of all outstanding Debt of ours and of our subsidiaries on a
consolidated basis determined in accordance with generally accepted accounting
principles is greater than 65% of the sum of:
(1) our Undepreciated Real Estate Assets (as defined below) as of the
end of the calendar quarter covered in our annual report on Form 10-
K or quarterly report on Form 10-Q, as the case may be, most
recently filed with the SEC (or, if that filing is not permitted
under the Securities Exchange Act, with the trustee) prior to the
incurrence of that additional Debt; and
(2) the purchase price of any real estate assets acquired by us or any
of our subsidiaries since the end of that calendar quarter,
including those obtained in connection with the incurrence of that
additional Debt (Section 1004).
In addition to the foregoing limitation on the incurrence of Debt, we will
not, and will not permit any of our subsidiaries to, incur any Debt secured by
any mortgage, lien, charge, pledge, encumbrance or security interest of any
kind upon any of our property or the property of any of our subsidiaries if,
immediately after giving effect to the incurrence of that additional Debt, the
aggregate principal amount of all of our outstanding Debt and the outstanding
Debt of our subsidiaries on a consolidated basis which is secured by any
mortgage, lien, charge, pledge, encumbrance or security interest on our
property or the property of any of our subsidiaries is greater than 40% of the
sum of:
(1) our Undepreciated Real Estate Assets as of the end of the calendar
quarter covered in our annual report on Form 10-K or quarterly
report on Form 10-Q, as the case may be, most recently filed with
6
the SEC (or, if such filing is not permitted under the Securities
Exchange Act, with the trustee) prior to the incurrence of that
additional Debt; and
(2) the purchase price of any real estate assets acquired by us or any
of our subsidiaries since the end of that calendar quarter,
including those obtained in connection with the incurrence of that
additional Debt (Section 1004).
In addition to the foregoing limitations on the incurrence of Debt, we will
not, and will not permit any of our subsidiaries to, incur any Debt if
Consolidated Income Available for Debt Service (as defined below) for any 12
consecutive calendar months within the 15 calendar months immediately
preceding the date on which that additional Debt is to be incurred shall have
been less than 1.5 times the Maximum Annual Service Charge (as defined below)
on our Debt and the Debt of all of our subsidiaries to be outstanding
immediately after the incurring of that additional Debt (Section 1004).
Restrictions on Dividends and Other Distributions. We will not, in respect
of any shares of any class of our stock:
(1) declare or pay any dividends (other than dividends payable in the
form of our stock) on our stock;
(2) apply any of our property or assets to the purchase, redemption or
other acquisition or retirement of our stock;
(3) set apart any sum for the purchase, redemption or other acquisition
or retirement of our stock; or
(4) make any other distribution, by reduction of capital or otherwise
if, immediately after that declaration or other action referred to
above, the aggregate of all those declarations and other actions
since the date on which the indenture was originally executed shall
exceed the sum of:
(a) Funds from Operations (as defined below) from June 30, 1993
until the end of the calendar quarter covered in our annual
report on Form 10-K or quarterly report on Form 10-Q, as the
case may be, most recently filed with the SEC (or, if that
filing is not permitted under the Securities Exchange Act, with
the trustee) prior to that declaration or other action; and
(b) $26,000,000; provided, however, that the foregoing limitation
shall not apply to any declaration or other action referred to
above which is necessary to maintain our status as a REIT under
the Code if the aggregate principal amount of all our
outstanding Debt and the outstanding Debt of our subsidiaries
at that time is less than 65% of our Undepreciated Real Estate
Assets as of the end of the calendar quarter covered in our
annual report on Form 10-K or quarterly report on Form 10-Q, as
the case may be, most recently filed with the SEC (or, if that
filing is not permitted under the Securities Exchange Act, with
the trustee) prior to that declaration or other action (Section
1005).
Notwithstanding the foregoing, we will not be prohibited from making the
payment of any dividend within 30 days of the declaration of that dividend if
at the date of declaration that payment would have complied with the
provisions of the immediately preceding paragraph (Section 1005).
Existence. Except as permitted under "Merger, Consolidation or Sale," we
will do or cause to be done all things necessary to preserve and keep in full
force and effect our corporate existence, rights (charter and statutory) and
franchises; provided, however, that we will not be required to preserve any
right or franchise if we determine that the preservation of that right or
franchise is no longer desirable in the conduct of our business and that the
loss of that right or franchise is not disadvantageous in any material respect
to the holders of the debt securities (Section 1006).
Maintenance of Properties. We will cause all of our properties used or
useful in the conduct of our business or the business of any of our
subsidiaries 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 to
those properties, all as in our judgment may be necessary so that the business
carried on in connection with those properties may be properly and
advantageously conducted at all times; provided, however, that we and our
subsidiaries will not be prevented
7
from selling or otherwise disposing for value our respective properties in the
ordinary course of business (Section 1007).
Insurance. We will, and will cause each of our subsidiaries to, keep all of
our insurable properties insured against loss or damage at least in an amount
equal to their then full insurable value with insurers of recognized
responsibility and having a rating of at least A:VIII in Best's Key Rating
Guide (Section 1008).
Payment of Taxes and Other Claims. We will pay or discharge or cause to be
paid or discharged, before the same shall become delinquent,
(1) all taxes, assessments and governmental charges levied or imposed
upon us or any of our subsidiaries or upon our income, profits or
property or the income, profits or property of any of our
subsidiaries, and
(2) all lawful claims for labor, materials and supplies which, if
unpaid, might by law become a lien upon our property or the property
of any of our subsidiaries; provided, however, that we will not be
required to pay or discharge or cause to be paid or discharged any
tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings
(Section 1009).
Provision of Financial Information. Whether or not we are subject to
Section 13 or 15(d) of the Securities Exchange Act, we will, to the extent
permitted under the Securities Exchange Act, file with the SEC the annual
reports, quarterly reports and other documents which we would have been
required to file with the SEC pursuant to Section 13 or 15(d) of the
Securities Exchange Act if we were so subject, those documents to be filed
with the SEC on or prior to the respective dates by which we would have been
required so to file those documents if we were so subject. We will also in any
event:
(1) within 15 days of each date by which we would have been required to
file those documents with the SEC pursuant to Section 13 or 15(d) of
the Securities Exchange Act:
(a) transmit by mail to all holders of debt securities, as their
names and addresses appear in the security register, without
cost to the holders of debt securities, copies of the annual
reports and quarterly reports which we would have been required
to file with the SEC pursuant to Section 13 or 15(d) of the
Securities Exchange Act if we were subject to those Sections,
and
(b) file with the trustee copies of the annual reports, quarterly
reports and other documents which we would have been required
to file with the SEC pursuant to Section 13 or 15(d) of the
Securities Exchange Act if we were subject to those Sections,
and
(2) if filing those documents by us with the SEC is not permitted under
the Securities Exchange Act, promptly upon written request and
payment of the reasonable cost of duplication and delivery, supply
copies of those documents to any prospective holder of debt
securities (Section 1010).
Maintenance of Unencumbered Total Asset Value. We will at all times
maintain an Unencumbered Total Asset Value in an amount of not less than one
hundred percent (100%) of the aggregate principal amount of all our
outstanding Debt and the outstanding Debt of our subsidiaries that is
unsecured (Section 1014).
Definitions Used for the Debt Securities
As used herein,
"Consolidated Income Available for Debt Service" for any period means our
Consolidated Net Income (as defined below) and the Consolidated Net Income of
our subsidiaries plus amounts which have been deducted for:
(1) interest on our Debt and interest on the Debt of our subsidiaries,
(2) provision for our taxes and the taxes of our subsidiaries based on
income,
(3) amortization of debt discount,
8
(4) property depreciation and amortization, and
(5) the effect of any noncash charge resulting from a change in
accounting principles in determining Consolidated Net Income for
that period.
"Consolidated Net Income" for any period means the amount of our
consolidated net income (or loss) and the consolidated net income (or loss) of
our subsidiaries for that period determined on a consolidated basis in
accordance with generally accepted accounting principles.
"Debt" of ours or any of our subsidiaries means any indebtedness of ours or
any of our subsidiaries, whether or not contingent, in respect of:
(1) borrowed money or evidenced by bonds, notes, debentures or similar
instruments,
(2) indebtedness secured by any mortgage, pledge, lien, charge,
encumbrance or any security interest existing on property owned by
us or any of our subsidiaries,
(3) letters of credit or amounts representing the balance deferred and
unpaid of the purchase price of any property except any balance that
constitutes an accrued expense or trade payable, or
(4) any lease of property by us or any of our subsidiaries as lessee
which is reflected on our consolidated balance sheet as a
capitalized lease in accordance with generally accepted accounting
principles,
in the case of items of indebtedness under (1) through (3) above to the extent
that those items (other than letters of credit) would appear as a liability on
our consolidated balance sheet in accordance with generally accepted
accounting principles, and also includes, to the extent not otherwise
included, any obligation by us or any of our subsidiaries 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 us or any of our subsidiaries) (it being understood that Debt
shall be deemed to be incurred by us or any of our subsidiaries whenever we or
that subsidiary shall create, assume, guarantee or otherwise become liable in
respect thereof).
"Funds from Operations" for any period means our Consolidated Net Income and
the Consolidated Net Income of our subsidiaries for that period without giving
effect to depreciation and amortization, gains or losses from extraordinary
items, gains or losses on sales of real estate, gains or losses on investments
in marketable securities and any provision/benefit for income taxes for that
period, plus funds from operations of unconsolidated joint ventures, all
determined on a consistent basis for that period.
"Maximum Annual Service Charge" as of any date means the maximum amount
which may become payable in any period of 12 consecutive calendar months from
that date for interest on, and required amortization of, Debt. The amount
payable for amortization shall include the amount of any sinking fund or other
analogous fund for the retirement of Debt and the amount payable on account of
principal on any Debt which matures serially other than at the final maturity
date of that Debt.
"Total Assets" as of any date means the sum of (1) our Undepreciated Real
Estate Assets and (2) all our other assets determined in accordance with
generally accepted accounting principles (but excluding goodwill and amortized
debt costs).
"Undepreciated Real Estate Assets" as of any date means the amount of our
real estate assets and the real estate assets of our subsidiaries on that
date, before depreciation and amortization determined on a consolidated basis
in accordance with generally accepted accounting principles.
"Unencumbered Total Asset Value" as of any date means the sum of our Total
Assets which are unencumbered by any mortgage, lien, charge, pledge or
security interest that secures the payment of any obligations under any Debt.
Events of Default, Notice and Waiver
The indenture provides that the following events are events of default with
respect to any series of debt securities issued thereunder:
9
(1) default for 30 days in the payment of any installment of interest on
any debt security of that series;
(2) default in the payment of the principal of (or premium, if any, on)
any debt security of that series at its maturity;
(3) default in making any sinking fund payment as required for any debt
security of that series;
(4) default in the performance of any of our other covenants contained
in the indenture (other than a covenant added to the indenture
solely for the benefit of a series of debt securities issued
thereunder other than that series), continued for 60 days after
written notice as provided in the indenture;
(5) default in the payment of an aggregate principal amount exceeding
$10,000,000 of any evidence of our indebtedness or any mortgage,
indenture or other instrument under which indebtedness is issued or
by which that indebtedness is secured, that default having occurred
after the expiration of any applicable grace period and having
resulted in the acceleration of the maturity of that indebtedness,
but only if that indebtedness is not discharged or that acceleration
is not rescinded or annulled;
(6) certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of ours or any of
our significant subsidiaries (as defined in Regulation S-X
promulgated under the Securities Act) or either of our properties;
and
(7) any other event of default provided with respect to a particular
series of debt securities (Section 501).
If an event of default under the indenture with respect to debt securities
of any series at the time outstanding occurs and is continuing, then in all of
those cases the trustee or the holders of not less than 25% in principal
amount of the outstanding debt securities of that series may declare the
principal amount (or, if the debt securities of that series are original issue
discount securities or indexed securities, that portion of the principal
amount as may be specified in the terms thereof) of all of the debt securities
of that series to be due and payable immediately by written notice thereof to
us (and to the trustee if given by the holders of debt securities). However,
at any time after a declaration of acceleration with respect to debt
securities of that series (or of all debt securities then outstanding under
the indenture, as the case may be) has been made, but before a judgment or
decree for payment of the money due has been obtained by the trustee, the
holders of not less than a majority in principal amount of outstanding debt
securities of that series (or of all debt securities then outstanding under
the indenture, as the case may be) may rescind and annul that declaration and
its consequences if:
(1) we shall have deposited with the trustee all required payments of
the principal of (and premium, if any) and interest on the debt
securities of that series (or of all debt securities then
outstanding under the indenture, as the case may be), plus certain
fees, expenses, disbursements and advances of the trustee, and
(2) all events of default, other than the non-payment of accelerated
principal (or specified portion thereof), with respect to debt
securities of that series (or of all debt securities then
outstanding under the indenture, as the case may be) have been cured
or waived as provided in the indenture (Section 502). The indenture
also provides that the holders of not less than a majority in
principal amount of the outstanding debt securities of any series
(or of all debt securities then outstanding under the indenture, as
the case may be) may waive any past default with respect to that
series and its consequences, except a default:
(a) in the payment of the principal of (or premium, if any) or
interest on any debt security of that series, or
(b) in respect of a covenant or provision contained in the
indenture that cannot be modified or amended without the
consent of the holder of each outstanding debt security
affected thereby (Section 513).
The trustee is required to give notice to the holders of debt securities
within 90 days of a default under the indenture; provided, however, that the
trustee may withhold notice to the holders of any series of debt securities of
any default with respect to that series (except a default in the payment of
the principal of (or
10
premium, if any) or interest on any debt security of that series or in the
payment of any sinking fund installment in respect of any debt security of
that series) if the responsible officers of the trustee consider that
withholding to be in the interest of those holders of debt securities (Section
601).
The indenture provides that no holders of debt securities of any series may
institute any proceedings, judicial or otherwise, with respect to the
indenture or for any remedy thereunder, except in the case of failure of the
trustee, for 60 days, to act after it has received a written request to
institute proceedings in respect of an event of default from the holders of
not less than 25% in principal amount of the outstanding debt securities of
that series, as well as an offer of indemnity reasonably satisfactory to it
(Section 507). This provision will not prevent, however, any holder of debt
securities from instituting suit for the enforcement of payment of the
principal of (and premium, if any) and interest on those debt securities at
the respective due dates thereof (Section 508).
Subject to provisions in the indenture relating to its duties in case of
default, the trustee is under no obligation to exercise any of its rights or
powers under the indenture at the request or direction of any holders of any
series of debt securities then outstanding under the indenture, unless those
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 (or of all debt securities then
outstanding under the indenture, as the case may be) shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the trustee, or of exercising any trust or power conferred upon
the 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 debt
securities of those series not joining therein (Section 512).
Within 120 days after the close of each fiscal year, we must deliver to the
trustee a certificate, signed by one of several specified officers, stating
whether or not that officer has knowledge of any default under the indenture
and, if so, specifying each of those defaults and the nature and status
thereof (Section 1011).
Modification
Modifications and amendments of the indenture and debt securities may be
made only with the consent of the holders of not less than a majority in
principal amount of all outstanding debt securities which are affected by such
modification or amendment; provided, however, that no modification or
amendment may, without the consent of the holder of each of the debt
securities affected thereby,
(1) change the stated maturity of the principal of, or any installment
of interest (or premium, if any) on, any debt security;
(2) reduce the principal amount of, or the rate or amount of interest
on, or any premium payable on redemption of, any debt security, or
reduce the amount of principal of an original issue discount
security that would be due and payable upon declaration of
acceleration of the maturity thereof or would be provable in
bankruptcy, or adversely affect any right of repayment of the holder
of any debt security;
(3) change the place of payment, or the coin or currency, for payment of
principal of (or premium, if any) or interest on any debt security;
(4) impair the right to institute suit for the enforcement of any
payment on or with respect to any debt security;
(5) reduce the above-stated percentage of outstanding debt securities of
any series necessary to modify or amend the indenture, to waive
compliance with certain provisions thereof or certain defaults and
consequences thereunder or to reduce the quorum or voting
requirements set forth in the indenture; or
(6) 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 that
action or to provide that certain other provisions may not be
modified or waived without the consent of the holder of that debt
security (Section 902).
11
The holders of not less than a majority in principal amount of outstanding
debt securities have the right to waive compliance by us with some of the
covenants in the indenture (Section 1013).
Modifications and amendments of the indenture may be made by us and the
trustee without the consent of any holder of debt securities for any of the
following purposes:
(1) to evidence the succession of another person to us as obligor under
the indenture;
(2) to add to our covenants for the benefit of the holders of all or any
series of debt securities or to surrender any right or power
conferred upon us in the indenture;
(3) to add events of default for the benefit of the holders of all or
any series of debt securities;
(4) to add or change any provisions of the indenture to facilitate the
issuance of, or to liberalize some of the terms of, debt securities
in bearer form, or to permit or facilitate the issuance of debt
securities in uncertificated form, provided that such action shall
not adversely affect the interests of the holders of the debt
securities of any series in any material respect;
(5) to change or eliminate any provisions of the indenture, provided
that any of those changes or elimination shall become effective only
when there are no debt securities outstanding of any series created
prior thereto which are entitled to the benefit of that provision;
(6) to secure the debt securities;
(7) to establish the form or terms of debt securities of any series,
including the provisions and procedures, if applicable, for the
conversion of those debt securities into our common stock or our
preferred stock;
(8) to provide for the acceptance of appointment by a successor trustee
or facilitate the administration of the trusts under the indenture
by more than one trustee;
(9) to cure any ambiguity, defect or inconsistency in the indenture,
provided that such action shall not adversely affect the interests
of the holders of debt securities of any series in any material
respect; or
(10) to supplement any of the provisions of the indenture to the extent
necessary to permit or facilitate defeasance and discharge of any
series of those debt securities, provided that such action shall not
adversely affect the interests of the holders of the debt securities
of any series in any material respect (Section 901).
The indenture provides that in determining whether the holders of the
requisite principal amount of outstanding debt securities of a series have
given any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of holders of debt
securities,
(1) the principal amount of an original issue discount security that
shall be deemed to be outstanding shall be the amount of the
principal thereof that would be due and payable as of the date of
that determination upon declaration of acceleration of the maturity
thereof,
(2) the principal amount of a debt security denominated in a foreign
currency that shall be deemed outstanding shall be the U.S. Dollar
equivalent, determined on the issue date for that debt security, of
the principal amount (or, in the case of an original issue discount
security, the U.S. Dollar equivalent on the issue date of that debt
security of the amount determined as provided in (1) above),
(3) the principal amount of an indexed security that shall be deemed
outstanding shall be the principal face amount of that indexed
security at original issuance, unless otherwise provided with
respect to that indexed security pursuant to Section 301 of the
indenture, and
(4) debt securities owned by us or any other obligor upon the debt
securities or any of our affiliates or of that other obligor shall
be disregarded (Section 101).
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The indenture contains provisions for convening meetings of the holders of
debt securities of a series (Section 1501). A meeting may be called at any
time by the trustee, and also, upon request, by us or the holders of at least
10% in principal amount of the outstanding debt securities of that series, in
any of those cases upon notice given as provided in the indenture (Section
1502). Except for any consent that must be given by the holder of each debt
security affected by certain modifications and amendments of the indenture,
any resolution presented at a meeting or adjourned meeting duly reconvened at
which a quorum is present may be adopted by the affirmative vote of the
holders of a majority in principal amount of the outstanding debt securities
of that series; provided, however, that, except as referred to above, any
resolution with respect to any request, demand, authorization, direction,
notice, consent, waiver or other action that may be made, given or taken by
the holders of a specified percentage, which is less than a majority, in
principal amount of the outstanding debt securities of a series may be adopted
at a meeting or adjourned meeting duly reconvened at which a quorum is present
by the affirmative vote of the holders of that specified percentage in
principal amount of the outstanding debt securities of that series. Any
resolution passed or decision taken at any meeting of holders of debt
securities of any series duly held in accordance with the indenture will be
binding on all holders of debt securities of that series. The quorum at any
meeting called to adopt a resolution, and at any reconvened meeting, will be
persons holding or representing a majority in principal amount of the
outstanding debt securities of a series; provided, however, that if any action
is to be taken at that meeting with respect to a consent or waiver which may
be given by the holders of not less than a specified percentage in principal
amount of the outstanding debt securities of a series, the persons holding or
representing that specified percentage in principal amount of the outstanding
debt securities of that series will constitute a quorum (Section 1504).
Notwithstanding the foregoing provisions, if any action is to be taken at a
meeting of holders of debt securities of any series with respect to any
request, demand, authorization, direction, notice, consent, waiver or other
action that the indenture expressly provides may be made, given or taken by
the holders of a specified percentage in principal amount of all outstanding
debt securities affected thereby, or of the holders of that series and one or
more additional series:
(1) there shall be no minimum quorum requirement for that meeting, and
(2) the principal amount of the outstanding debt securities of that
series that vote in favor of that request, demand, authorization,
direction, notice, consent, waiver or other action shall be taken
into account in determining whether that request, demand,
authorization, direction, notice, consent, waiver or other action
has been made, given or taken under the indenture (Section 1504).
Discharge, Defeasance and Covenant Defeasance
We may discharge certain obligations to holders of any series of debt
securities that have not already been delivered to the trustee for
cancellation and that either have become due and payable or will become due
and payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the trustee, in trust, funds in the currency or
currencies, currency unit or units or composite currency or currencies in
which those debt securities are payable in an amount sufficient to pay the
entire indebtedness on those debt securities in respect of principal (and
premium, if any) and interest to the date of that deposit (if those debt
securities have become due and payable) or to the stated maturity or
redemption date, as the case may be (Section 401).
The indenture provides that, if the provisions of article fourteen of the
indenture are made applicable to the debt securities of or within any series
pursuant to Section 301 of the indenture, we may elect either:
(1) to defease and be discharged from any and all obligations with
respect to those debt securities (except for the obligation to pay
additional amounts, if any, upon the occurrence of certain events of
tax, assessment or governmental charge with respect to payments on
those debt securities and the obligations to register the transfer
or exchange of those debt securities, to replace temporary or
mutilated, destroyed, lost or stolen debt securities, to maintain an
office or agency in respect of those debt securities and to hold
moneys for payment in trust) ("defeasance") (Section 1402); or
13
(2) to be released from its obligations with respect to those debt
securities under Sections 1004 to 1010, inclusive, and Section 1014
of the indenture (being the restrictions described under "Certain
Covenants") or, if provided pursuant to Section 301 of the
indenture, its obligations with respect to any other covenant, and
any omission to comply with those obligations shall not constitute a
default or an event of default with respect to those debt securities
("covenant defeasance") (Section 1403),
in either case upon the irrevocable deposit by us with the trustee, in trust,
of an amount, in the currency or currencies, currency unit or units or
composite currency or currencies in which those debt securities are payable at
stated maturity, or Government Obligations (as defined below), or both,
applicable to those debt securities which through the scheduled payment of
principal and interest in accordance with their terms will provide money in an
amount sufficient to pay the principal of (and premium, if any) and interest
on those debt securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor.
That type of trust may only be established if, among other things, we have
delivered to the trustee an opinion of counsel to the effect that the holders
of those debt securities will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of that defeasance or covenant
defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if that
defeasance or covenant defeasance had not occurred, and that opinion of
counsel, in the case of defeasance, must refer to and be based upon a ruling
of the Internal Revenue Service or a change in applicable U.S. federal income
tax law occurring after the date of the indenture (Section 1404).
"Government Obligations" means securities which are:
(1) direct obligations of the United States of America or the government
which issued the foreign currency in which the debt securities of a
particular series are payable, for the payment of which its full
faith and credit is pledged; or
(2) obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States of America or that
government which issued the foreign currency in which the debt
securities of that series are payable, the payment of which is
unconditionally guaranteed as a full faith and credit obligation by
the United States of America or that other government,
which, in either case, are not callable or redeemable at the option of the
issuer thereof, and shall also include a depository receipt issued by a bank
or trust company as custodian with respect to that Government Obligation or a
specific payment of interest on or principal of that Government Obligation
held by the custodian for the account of the holder of a depository receipt,
provided that (except as required by law) the custodian is not authorized to
make any deduction from the amount payable to the holder of the 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 the depository receipt (Section 101).
Unless otherwise provided in the applicable prospectus supplement, if after
we have deposited funds or Government Obligations or both to effect defeasance
or covenant defeasance with respect to debt securities of any series,
(1) the holder of a debt security of that series is entitled to, and
does, elect pursuant to Section 301 of the indenture or the terms of
that debt security to receive payment in a currency, currency unit
or composite currency other than that in which the deposit has been
made in respect of that debt security, or
(2) a Conversion Event (as defined below) occurs in respect of the
currency, currency unit or composite currency in which the deposit
has been made,
then, the indebtedness represented by that debt security shall be deemed to
have been, and will be, fully discharged and satisfied through the payment of
the principal of (and premium, if any) and interest on that debt security as
they become due out of the proceeds yielded by converting the amount so
deposited in respect of that debt security into the currency, currency unit or
composite currency in which that debt security
14
becomes payable as a result of that election or cessation of usage based on
the applicable market exchange rate (Section 1405). "Conversion Event" means
the cessation of use of:
(1) a currency, currency unit or composite currency both by the
government of the country which issued that currency and for the
settlement of transactions by a central bank or other public
institutions of or within the international banking community,
(2) the European Currency Unit, or ECU, both within the European
Monetary System and for the settlement of transactions by public
institutions of or within the European Communities, or
(3) any currency unit or composite currency other than the ECU for the
purposes for which it was established.
Unless otherwise provided in the applicable prospectus supplement, all
payments of principal of (and premium, if any) and interest on any debt
security that is payable in a foreign currency that ceases to be used by its
government of issuance shall be made in U.S. Dollars (Section 101).
In the event we effect covenant defeasance with respect to any debt
securities and those 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 (4) under "Events of Default, Notice and Waiver" with
respect to Sections 1004 to 1010, inclusive, and Section 1014 of the indenture
(which Sections would no longer be applicable to those debt securities) or
described in clause (7) under "Events of Default, Notice and Waiver" with
respect to any other covenant as to which there has been covenant defeasance,
the amount in such currency, currency unit or composite currency in which
those debt securities are payable, and Government Obligations on deposit with
the trustee, will be sufficient to pay amounts due on those debt securities at
the time of their stated maturity but may not be sufficient to pay amounts due
on those debt securities at the time of the acceleration resulting from that
event of default. However, we would remain liable to make payment of those
amounts due at the time of acceleration.
The applicable prospectus supplement may further describe the provisions, if
any, permitting that defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the debt
securities of or within a particular series.
Conversion Rights
The terms and conditions, if any, upon which the debt securities are
convertible into other debt securities, our common stock or our preferred
stock will be set forth in the applicable prospectus supplement relating
thereto. Those terms will include whether those debt securities are
convertible into other debt securities, our common stock or our preferred
stock, the conversion price (or manner of calculation thereof), the conversion
period, provisions as to whether conversion will be at our option or the
option of the holders of debt securities, the events requiring an adjustment
of the conversion price and provisions affecting conversion in the event of
the redemption of those debt securities.
Global Securities
The debt securities of a series may be issued in whole or in part in the
form of one or more global securities that will be deposited with, or on
behalf of, a depositary identified in the applicable prospectus supplement
relating to that series. Global securities may be issued in either registered
or bearer form and in either temporary or permanent form. The specific terms
of the depositary arrangement with respect to a series of debt securities will
be described in the applicable prospectus supplement relating to that series.
DESCRIPTION OF COMMON STOCK
We have the authority to issue 200,000,000 shares of common stock, par value
$.01 per share, and 102,000,000 shares of excess stock, par value $.01 per
share. At December 31, 2000, we had outstanding 63,144,589 shares of common
stock and no shares of excess stock. Prior to August 4, 1994, we were
15
incorporated as a Delaware corporation. On August 4, 1994, we reincorporated
as a Maryland corporation pursuant to an Agreement and Plan of Merger approved
by our stockholders.
The following description of our common stock sets forth certain general
terms and provisions of the common stock to which any prospectus supplement
may relate, including a prospectus supplement providing that common stock will
be issuable upon conversion of our debt securities or our preferred stock or
upon the exercise of common stock warrants issued by us. The statements below
describing the common stock are in all respects subject to and qualified in
their entirety by reference to the applicable provisions of our charter and
bylaws.
Holders of our common stock will be entitled to receive dividends when, as
and if declared by our board of directors, out of assets legally available
therefor. Payment and declaration of dividends on the common stock and
purchases of shares thereof by us will be subject to certain restrictions if
we fail to pay dividends on our preferred stock. Upon our liquidation,
dissolution or winding up, holders of common stock will be entitled to share
equally and ratably in any assets available for distribution to them, after
payment or provision for payment of our debts and other liabilities and the
preferential amounts owing with respect to any of our outstanding preferred
stock. The common stock will possess ordinary voting rights for the election
of directors and in respect of other corporate matters, with each share
entitling the holder thereof to one vote. Holders of common stock will not
have cumulative voting rights in the election of directors, which means that
holders of more than 50% of all of the shares of our common stock voting for
the election of directors will be able to elect all of the directors if they
choose to do so and, accordingly, the holders of the remaining shares will be
unable to elect any directors. Holders of shares of common stock will not have
preemptive rights, which means they have no right to acquire any additional
shares of common stock that may be issued by us at a subsequent date. The
common stock will, when issued, be fully paid and nonassessable and will not
be subject to preemptive or similar rights.
Under Maryland law and our charter, a distribution (whether by dividend,
redemption or other acquisition of shares) to holders of shares of common
stock may be made only if, after giving effect to the distribution, our total
assets are greater than our total liabilities plus the amount necessary to
satisfy the preferential rights upon dissolution of stockholders whose
preferential rights on dissolution are superior to the holders of common
stock. We have complied with this requirement in all of our prior
distributions to holders of common stock.
Restrictions on Ownership
For us to qualify as a REIT under the Code, not more than 50% in value of
our outstanding stock may be owned, actually or constructively, by five or
fewer individuals (as defined in the Code to include certain entities) during
the last half of a taxable year. Our stock also must be beneficially owned by
100 or more persons during at least 335 days of a taxable year of 12 months or
during a proportionate part of a shorter taxable year. In addition, rent from
related party tenants (generally, a tenant of a REIT owned, actually or
constructively, 10% or more by the REIT, or a 10% owner of the REIT) is not
qualifying income for purposes of the income tests under the Code.
Subject to the exceptions specified in our charter, no holder may own, or be
deemed to own by virtue of the constructive ownership provisions of the Code,
more than 2% in value of the outstanding shares of our common stock. The
constructive ownership rules are complex and may cause common stock owned
actually or constructively by a group of related individuals or entities or
both to be deemed constructively owned by one individual or entity. As a
result, the acquisition of less than 2% in value of the common stock (or the
acquisition of an interest in an entity which owns common stock) by an
individual or entity could cause that individual or entity (or another
individual or entity) to own constructively in excess of 2% in value of the
common stock, and thus subject such common stock to the ownership limit.
Existing stockholders who exceeded the ownership limit immediately after the
completion of our initial public offering of our common stock in November
1991, may continue to do so and may acquire additional shares through the
stock option plan, or from other existing stockholders who exceed the
ownership limit, but may not acquire additional shares from such sources such
that the five largest beneficial owners of common stock could own, actually or
constructively, more than 49.6% of the outstanding common stock, and in any
16
event may not acquire additional shares from any other sources. In addition,
because rent from related party tenants is not qualifying rent for purposes of
the gross income tests under the Code, our charter provides that no individual
or entity may own, or be deemed to own by virtue of the attribution provisions
of the Code (which differ from the attribution provisions applied to the
ownership limit), in excess of 9.8% in value of our outstanding common stock.
We refer to this ownership limitation as the related party limit. Our board of
directors may waive the ownership limit and the related party limit with
respect to a particular stockholder (such related party limit has been waived
with respect to the existing stockholders who exceeded the related party limit
immediately after the initial public offering of our common stock) if evidence
satisfactory to our board of directors and our tax counsel is presented that
such ownership will not then or in the future jeopardize our status as a REIT.
As a condition of that waiver, our board of directors may require opinions of
counsel satisfactory to it or an undertaking or both from the applicant with
respect to preserving our REIT status. The foregoing restrictions on
transferability and ownership will not apply if our board of directors
determines that it is no longer in our best interests to attempt to qualify,
or to continue to qualify, as a REIT. If shares of common stock in excess of
the ownership limit or the related party limit, or shares which would
otherwise cause the REIT to be beneficially owned by less than 100 persons or
which would otherwise cause us to be "closely held" within the meaning of the
Code or would otherwise result in our failure to qualify as a REIT, are issued
or transferred to any person, that issuance or transfer shall be null and void
to the intended transferee, and the intended transferee would acquire no
rights to the stock. Shares transferred in excess of the ownership limit or
the related party limit, or shares which would otherwise cause us to be
"closely held" within the meaning of the Code or would otherwise result in our
failure to qualify as a REIT, will automatically be exchanged for shares of a
separate class of stock, which we refer to as excess stock, that will be
transferred by operation of law to us as trustee for the exclusive benefit of
the person or persons to whom the shares are ultimately transferred, until
that time as the intended transferee retransfers the shares. While these
shares are held in trust, they will not be entitled to vote or to share in any
dividends or other distributions (except upon liquidation). The shares may be
retransferred by the intended transferee to any person who may hold those
shares at a price not to exceed either:
(1) the price paid by the intended transferee, or
(2) if the intended transferee did not give value for such shares, a
price per share equal to the market value of the shares on the date
of the purported transfer to the intended transferee,
at which point the shares will automatically be exchanged for ordinary common
stock. In addition, such shares of excess stock held in trust are purchasable
by us for a 90-day period at a price equal to the lesser of the price paid for
the stock by the intended transferee and the market price for the stock on the
date we determine to purchase the stock. This period commences on the date of
the violative transfer if the intended transferee gives us notice of the
transfer, or the date our board of directors determines that a violative
transfer has occurred if no notice is provided.
All certificates representing shares of common stock will bear a legend
referring to the restrictions described above.
All persons who own, directly or by virtue of the attribution provisions of
the Code, more than a specified percentage of the outstanding shares of common
stock must file an affidavit with us containing the information specified in
our charter within 30 days after January 1 of each year. In addition, each
common stockholder shall upon demand be required to disclose to us in writing
such information with respect to the actual and constructive ownership of
shares as our board of directors deems necessary to comply with the provisions
of the Code applicable to a REIT or to comply with the requirements of any
taxing authority or governmental agency.
The registrar and transfer agent for our common stock is Fleet National
Bank, N.A.
DESCRIPTION OF COMMON STOCK WARRANTS
We may issue common stock warrants for the purchase of our common stock.
Common stock warrants may be issued independently or together with any of the
other securities offered by this prospectus that are
17
offered by any prospectus supplement and may be attached to or separate from
the securities offered by this prospectus. Each series of common stock
warrants will be issued under a separate warrant agreement to be entered into
between us and a warrant agent specified in the applicable prospectus
supplement. The warrant agent will act solely as our agent in connection with
the common stock warrants of such series and will not assume any obligation or
relationship of agency or trust for or with any holders or beneficial owners
of common stock warrants.
The applicable prospectus supplement will describe the terms of the common
stock warrants in respect of which this prospectus is being delivered,
including, where applicable, the following:
(1) the title of those common stock warrants;
(2) the aggregate number of those common stock warrants;
(3) the price or prices at which those common stock warrants will be
issued;
(4) the designation, number and terms of the shares of common stock
purchasable upon exercise of those common stock warrants;
(5) the designation and terms of the other securities offered by this
prospectus with which the common stock warrants are issued and the
number of those common stock warrants issued with each security
offered by this prospectus;
(6) the date, if any, on and after which those common stock warrants and
the related common stock will be separately transferable;
(7) the price at which each share of common stock purchasable upon
exercise of those common stock warrants may be purchased;
(8) the date on which the right to exercise those common stock warrants
shall commence and the date on which that right shall expire;
(9) the minimum or maximum amount of those common stock warrants which
may be exercised at any one time;
(10) information with respect to book-entry procedures, if any;
(11) a discussion of federal income tax considerations; and
(12) any other material terms of those common stock warrants, including
terms, procedures and limitations relating to the exchange and
exercise of those common stock warrants.
DESCRIPTION OF PREFERRED STOCK
We are authorized to issue 5,000,000 shares of preferred stock, par value
$1.00 per share, 345,000 shares of 7 3/4% Class A Cumulative Redeemable
Preferred Stock, $1.00 par value per share, 230,000 shares of 8 1/2% Class B
Cumulative Redeemable Preferred Stock, $1.00 par value per share, 460,000
shares of 8 3/8% Class C Cumulative Redeemable Preferred Stock, $1.00 par value
per share, 700,000 shares of 7 1/2% Class D Cumulative Convertible Preferred
Stock, $1.00 par value per share, and 65,000 shares of Class E Floating Rate
Cumulative Redeemable Preferred Stock. We are also authorized to issue 345,000
shares of Class A Excess Preferred Stock, $1.00 par value per share, 230,000
shares of Class B Excess Preferred Stock, $1.00 par value per share, 460,000
shares of Class C Excess Preferred Stock, $1.00 par value per share, 700,000
shares of Class D Excess Preferred Stock, $1.00 par value per share and 65,000
shares of Class E Excess Preferred Stock, par value $1.00 per share, which are
reserved for issuance upon conversion of certain outstanding Class A preferred
stock, Class B preferred stock, Class C preferred stock, Class D preferred
stock or Class E preferred stock, as the case may be, as necessary to preserve
our status as a REIT. At December 31, 2000, 300,000 shares of Class A
preferred stock, represented by 3,000,000 depositary shares, 200,000 shares of
Class B preferred stock, represented by 2,000,000 depositary shares, 400,000
shares of Class C preferred stock, represented by 4,000,000 depositary shares,
and 418,254.2 shares of Class D preferred stock, represented by 4,182,542
depositary shares, were outstanding.
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Under our charter, our board of directors may from time to time establish
and issue one or more classes or series of preferred stock and fix the
designations, powers, preferences and rights of the shares of such classes or
series and the qualifications, limitations or restrictions thereon, including,
but not limited to, the fixing of the dividend rights, dividend rate or rates,
conversion rights, voting rights, rights and terms of redemption (including
sinking fund provisions) and the liquidation preferences.
The following description of our preferred stock sets forth certain general
terms and provisions of our preferred stock to which any prospectus supplement
may relate. The statements below describing the preferred stock are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of our charter (including the applicable articles
supplementary) and bylaws.
General
Subject to limitations prescribed by Maryland law and our charter, our board
of directors is authorized to fix the number of shares constituting each class
or series of preferred stock and the designations and powers, preferences and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including those provisions as may be
desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion or exchange, and those other subjects or
matters as may be fixed by resolution of our board of directors or duly
authorized committee thereof. The preferred stock will, when issued, be fully
paid and nonassessable and will not have, or be subject to, any preemptive or
similar rights.
You should refer to the prospectus supplement relating to the class or
series of preferred stock offered thereby for specific terms, including:
(1) The class or series, title and stated value of that preferred stock;
(2) The number of shares of that preferred stock offered, the
liquidation preference per share and the offering price of that
preferred stock;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to that preferred stock;
(4) Whether dividends on that preferred stock shall be cumulative or not
and, if cumulative, the date from which dividends on that preferred
stock shall accumulate;
(5) The procedures for any auction and remarketing, if any, for that
preferred stock;
(6) Provisions for a sinking fund, if any, for that preferred stock;
(7) Provisions for redemption, if applicable, of that preferred stock;
(8) Any listing of that preferred stock on any securities exchange;
(9) The terms and conditions, if applicable, upon which that preferred
stock will be convertible into our common stock, including the
conversion price (or manner of calculation thereof);
(10) Whether interests in that preferred stock will be represented by our
depositary shares;
(11) A discussion of certain federal income tax considerations applicable
to that preferred stock;
(12) Any limitations on actual, beneficial or constructive ownership and
restrictions on transfer of that preferred stock and, if
convertible, the related common stock, in each case as may be
appropriate to preserve our status as a REIT; and
(13) Any other material terms, preferences, rights, limitations or
restrictions of that preferred stock.
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Rank
Unless otherwise specified in the applicable prospectus supplement, the
preferred stock will, with respect to rights to the payment of dividends and
distribution of our assets and rights upon our liquidation, dissolution or
winding up, rank:
(1) senior to all classes or series of our common stock and excess stock
and to all of our equity securities the terms of which provide that
those equity securities are subordinated to the preferred stock;
(2) on a parity with all of our equity securities other than those
referred to in clauses (1) and (3); and
(3) junior to all of our equity securities which the terms of that
preferred stock provide will rank senior to it.
For these purposes, the term "equity securities" does not include
convertible debt securities.
Dividends
Holders of shares of our preferred stock of each class or series shall be
entitled to receive, when, as and if declared by our board of directors, out
of our assets legally available for payment, cash dividends at rates and on
dates as will be set forth in the applicable prospectus supplement. Each
dividend shall be payable to holders of record as they appear on our stock
transfer books on the record dates as shall be fixed by our board of
directors.
Dividends on any class or series of our preferred stock may be cumulative or
non-cumulative, as provided in the applicable prospectus supplement.
Dividends, if cumulative, will accumulate from and after the date set forth in
the applicable prospectus supplement. If our board of directors fails to
authorize a dividend payable on a dividend payment date on any class or series
of our preferred stock for which dividends are noncumulative, then the holders
of that class or series of our preferred stock will have no right to receive a
dividend in respect of the dividend period ending on that dividend payment
date, and we will have no obligation to pay the dividend accrued for that
period, whether or not dividends on that class or series are declared payable
on any future dividend payment date.
If any shares of our preferred stock of any class or series are outstanding,
no full dividends shall be authorized or paid or set apart for payment on our
preferred stock of any other class or series ranking, as to dividends, on a
parity with or junior to the preferred stock of that class or series for any
period unless:
(1) if that class or series of preferred stock has a cumulative
dividend, full cumulative dividends have been or contemporaneously
are authorized and paid or authorized and a sum sufficient for the
payment thereof set part for that payment on the preferred stock of
that class or series for all past dividend periods and the then
current dividend period, or
(2) if that class or series of preferred stock does not have a
cumulative dividend, full dividends for the then current dividend
period have been or contemporaneously are authorized and paid or
authorized and a sum sufficient for the payment thereof set apart
for that payment on the preferred stock of that class or series.
When dividends are not paid in full (or a sum sufficient for their full
payment is not so set apart) upon the shares of preferred stock of any class
or series and the shares of any other class or series of preferred stock
ranking on a parity as to dividends with the preferred stock of that class or
series, all dividends declared upon shares of preferred stock of that class or
series and any other class or series of preferred stock ranking on a parity as
to dividends with that preferred stock shall be authorized pro rata so that
the amount of dividends authorized per share on the preferred stock of that
class or series and that other class or series of preferred stock shall in all
cases bear to each other the same ratio that accrued and unpaid dividends per
share on the shares of preferred stock of that class or series (which shall
not include any accumulation in respect of unpaid dividends for prior dividend
periods if that preferred stock does not have a cumulative dividend) and that
other class or series of preferred stock bear to each other. No interest, or
sum of money in
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lieu of interest, shall be payable in respect of any dividend payment or
payments on preferred stock of that series that may be in arrears.
Except as provided in the immediately preceding paragraph, unless: (1) if
that class or series of preferred stock has a cumulative dividend, full
cumulative dividends on the preferred stock of that class or series have been
or contemporaneously are authorized and paid or authorized and a sum
sufficient for the payment thereof set apart for payment for all past dividend
periods and the then current dividend period; and (2) if that class or series
of preferred stock does not have a cumulative dividend, full dividends on the
preferred stock of that class or series have been or contemporaneously are
authorized and paid or authorized and a sum sufficient for the payment thereof
set aside for payment for the then current dividend period, then no dividends
(other than in our common stock or other stock ranking junior to the preferred
stock of that class or series as to dividends and upon our liquidation,
dissolution or winding up) shall be authorized or paid or set aside for
payment or other distribution shall be authorized or made upon our common
stock, excess stock or any of our other stock ranking junior to or on a parity
with the preferred stock of that class or series as to dividends or upon
liquidation, nor shall any common stock, excess stock or any of our other
stock ranking junior to or on a parity with the preferred stock of such class
or series as to dividends or upon our liquidation, dissolution or winding up
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 shares of that stock) by us (except by conversion into or exchange for
other of our stock ranking junior to the preferred stock of that class or
series as to dividends and upon our liquidation, dissolution or winding up).
Any dividend payment made on shares of a class or series of preferred stock
shall first be credited against the earliest accrued but unpaid dividend due
with respect to shares of that class or series which remains payable.
Redemption
If the applicable prospectus supplement so states, the shares of preferred
stock will be subject to mandatory redemption or redemption at our option, in
whole or in part, in each case on the terms, at the times and at the
redemption prices set forth in that prospectus supplement.
The prospectus supplement relating to a class or series of preferred stock
that is subject to mandatory redemption will specify the number of shares of
that preferred stock that shall be redeemed by us 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 that preferred stock does not have a cumulative dividend,
include any accumulation in respect of unpaid dividends for prior dividend
periods) to the date of redemption. The redemption price may be payable in
cash or other property, as specified in the applicable prospectus supplement.
If the redemption price for preferred stock of any series is payable only from
the net proceeds of the issuance of our stock, the terms of that preferred
stock may provide that, if no such stock shall have been issued or to the
extent the net proceeds from any issuance are insufficient to pay in full the
aggregate redemption price then due, that preferred stock shall automatically
and mandatorily be converted into shares of our applicable stock pursuant to
conversion provisions specified in the applicable prospectus supplement.
Notwithstanding the foregoing, unless:
(1) if that class or series of preferred stock has a cumulative
dividend, full cumulative dividends on all shares of any class or
series of preferred stock shall have been or contemporaneously are
authorized and paid or authorized and a sum sufficient for the
payment thereof set apart for payment for all past dividend periods
and the then current dividend period; and
(2) if that class or series of preferred stock does not have a
cumulative dividend, full dividends on the preferred stock of any
class or series have been or contemporaneously are authorized and
paid or authorized and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period, no shares of
any class or series of preferred stock shall be redeemed unless all
outstanding shares of preferred stock of that class or series are
simultaneously redeemed; provided, however, that the foregoing shall
not prevent the purchase or acquisition of shares of preferred stock
of that class or series pursuant to a purchase or exchange offer
made on the same terms to holders of all outstanding shares of
preferred stock of that class or series; or
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(3) if that class or series of preferred stock has a cumulative
dividend, full cumulative dividends on all outstanding shares of any
class or series of preferred stock have been or contemporaneously
are authorized and paid or authorized and a sum sufficient for the
payment thereof set apart for payment for all past dividend periods
and the then current dividend period; and
(4) if that class or series of preferred stock does not have a
cumulative dividend, full dividends on the preferred stock of any
class or series have been or contemporaneously are authorized and
paid or authorized and a sum sufficient for the payment thereof set
apart for payment for the then current dividend period, we shall not
purchase or otherwise acquire directly or indirectly any shares of
preferred stock of that class or series (except by conversion into
or exchange for our stock ranking junior to the preferred stock of
that class or series as to dividends and upon our liquidation,
dissolution or winding up).
If fewer than all of the outstanding shares of preferred stock of any class
or series are to be redeemed, the number of shares to be redeemed will be
determined by us and those shares may be redeemed pro rata from the holders of
record of those shares in proportion to the number of those shares held by
those holders (with adjustments to avoid redemption of fractional shares) or
any other equitable method determined by us that will not result in the
issuance of any excess preferred stock.
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 a share of
preferred stock of any class or series to be redeemed at the address shown on
our stock transfer books. Each notice shall state:
(1) the redemption date;
(2) the number of shares and class or series of the preferred stock to
be redeemed;
(3) the redemption price;
(4) the place or places where certificates for that preferred stock are
to be surrendered for payment of the redemption price;
(5) that dividends on the shares to be redeemed will cease to accrue on
that redemption date; and
(6) the date upon which the holder's conversion rights, if any, as to
those shares shall terminate.
If fewer than all the shares of preferred stock of any class or series are
to be redeemed, the notice mailed to each holder thereof shall also specify
the number of shares of preferred stock to be redeemed from each holder. If
notice of redemption of any shares of preferred stock has been given and if
the funds necessary for that redemption have been set apart by us in trust for
the benefit of the holders of any shares of preferred stock so called for
redemption, then from and after the redemption date dividends will cease to
accrue on those shares of preferred stock, those shares of preferred stock
shall no longer be deemed outstanding and all rights of the holders of those
shares will terminate, except the right to receive the redemption price.
Liquidation Preference
Upon our voluntary or involuntary liquidation, dissolution or winding up,
then, before any distribution or payment shall be made to the holders of any
common stock, excess stock or any other class or series of our stock ranking
junior to that class or series of preferred stock in the distribution of
assets upon our liquidation, dissolution or winding up, the holders of each
class or series of preferred stock shall be entitled to receive out of our
assets legally available for distribution to stockholders liquidating
distributions in the amount of the liquidation preference per share (set forth
in the applicable prospectus supplement), plus an amount equal to all
dividends accrued and unpaid thereon (which shall not include any accumulation
in respect of unpaid dividends for prior dividend periods if that class or
series of preferred stock does not have a cumulative dividend). After payment
of the full amount of the liquidating distributions to which they are
entitled, the holders of that class or series of preferred stock will have no
right or claim to any of our remaining assets. If, upon our voluntary or
involuntary liquidation, dissolution or winding up, our legally available
assets are insufficient to pay the amount of the liquidating distributions on
all outstanding shares of that class or series
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of preferred stock and the corresponding amounts payable on all shares of
other classes or series of our stock ranking on a parity with that class or
series of preferred stock in the distribution of assets upon our liquidation,
dissolution or winding up, then the holders of that class or series of
preferred stock and all other classes or series of stock shall share ratably
in that distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
shares of that class or series of preferred stock, our remaining assets shall
be distributed among the holders of any other classes or series of stock
ranking junior to that class or series of preferred stock upon our
liquidation, dissolution or winding up, according to their respective rights
and preferences and in each case according to their respective number of
shares. For those purposes, neither our consolidation or merger with or into
any other corporation nor the sale, lease, transfer or conveyance of all or
substantially all of our property or business shall be deemed to constitute
our liquidation, dissolution or winding up.
Voting Rights
Except as set forth below or as otherwise from time to time required by law
or as indicated in the applicable prospectus supplement, holders of preferred
stock will not have any voting rights.
Whenever dividends on any shares of that class or series of preferred stock
shall be in arrears for six or more quarterly periods, regardless of whether
those quarterly periods are consecutive, the holders of those shares of that
class or series of preferred stock (voting separately as a class with all
other classes or series of preferred stock upon which like voting rights have
been conferred and are exercisable) will be entitled to vote for the election
of two additional directors to our board of directors (and our entire board of
directors will be increased by two directors) at a special meeting called by
one of our officers at the request of a holder of that class or series of
preferred stock or, if that special meeting is not called by that officer
within 30 days, at a special meeting called by a holder of that class or
series of preferred stock designated by the holders of record of at least 10%
of the shares of any of those classes or series of preferred stock (unless
that request is received less than 90 days before the date fixed for the next
annual or special meeting of the stockholders), or at the next annual meeting
of stockholders, and at each subsequent annual meeting until:
(1) if that class or series of preferred stock has a cumulative
dividend, then all dividends accumulated on those shares of
preferred stock for the past dividend periods and the then current
dividend period shall have been fully paid or declared and a sum
sufficient for the payment thereof set apart for payment, or
(2) if that class or series of preferred stock does not have a
cumulative dividend, then four consecutive quarterly dividends shall
have been fully paid or declared and a sum sufficient for the
payment thereof set apart for payment.
Unless provided otherwise for any series of preferred stock, so long as any
shares of preferred stock remain outstanding, we shall not, without the
affirmative vote or consent of the holders of at least two-thirds of the
shares of each class or series of preferred stock outstanding at the time,
given in person or by proxy, either in writing or at a meeting (that class or
series voting separately as a class),
(1) authorize or create, or increase the authorized or issued amount of,
any class or series of stock ranking senior to that class or series
of preferred stock with respect to payment of dividends or the
distribution of assets upon our liquidation, dissolution or winding
up or reclassify any of our authorized stock into those shares, or
create, authorize or issue any obligation or security convertible
into or evidencing the right to purchase those shares; or
(2) amend, alter or repeal the provisions of the charter in respect of
that class or series of preferred stock, whether by merger,
consolidation or otherwise, so as to materially and adversely affect
any right, preference, privilege or voting power of that class or
series of preferred stock or the holders thereof; provided, however,
that any increase in the amount of the authorized preferred stock or
the creation or issuance of any other class or series of preferred
stock, or any increase in the amount of authorized shares of that
class or series, in each case ranking on a parity with or junior to
the preferred stock of that class or series with respect to payment
of dividends and the distribution of
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assets upon liquidation, dissolution or winding up, shall not be
deemed to materially and adversely affect those rights, preferences,
privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which that vote would otherwise be required shall
be effected, all outstanding shares of that class or series of preferred stock
shall have been redeemed or called for redemption upon proper notice and
sufficient funds shall have been irrevocably deposited in trust to effect that
redemption.
Conversion Rights
The terms and conditions, if any, upon which shares of any class or series
of preferred stock are convertible into common stock, debt securities or
another series of preferred stock will be set forth in the applicable
prospectus supplement relating thereto. Such terms will include the number of
shares of common stock or those other series of preferred stock or the
principal amount of debt securities into which the preferred stock is
convertible, the conversion price (or manner of calculation thereof), the
conversion period, provisions as to whether conversion will be at our option
or at the option of the holders of that class or series of preferred stock,
the events requiring an adjustment of the conversion price and provisions
affecting conversion in the event of the redemption of that class or series of
preferred stock.
Restrictions on Ownership
As discussed above under "Description of Common Stock--Restrictions on
Ownership," for us to qualify as a REIT under the Code, not more than 50% in
value of our outstanding stock may be owned, actually or constructively, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year. Our stock also must be beneficially
owned by 100 or more persons during at least 335 days of a taxable year of 12
months (or during a proportionate part of a shorter taxable year). In
addition, rent from related party tenants (generally, a tenant of a REIT
owned, actually or constructively 10% or more by the REIT, or a 10% owner of
the REIT) is not qualifying income for purposes of the gross income tests
under the Code. Therefore, the applicable articles supplementary for each
class or series of preferred stock will contain certain provisions restricting
the ownership and transfer of that class or series of preferred stock. Except
as otherwise described in the applicable prospectus supplement relating
thereto, the provisions of each applicable articles supplementary relating to
the ownership limit for any class or series of preferred stock will provide as
follows:
Our preferred stock ownership limit provision will provide that, subject to
some exceptions, no holder of that class or series of preferred stock may own,
or be deemed to own by virtue of the constructive ownership provisions of the
Code, preferred stock in excess of the preferred stock ownership limit, which
will be equal to 9.8% of the outstanding preferred stock of any class or
series. The constructive ownership rules are complex and may cause preferred
stock owned actually or constructively by a group of related individuals and/
or entities to be deemed to be constructively owned by one individual or
entity. As a result, the acquisition of less than 9.8% of any class or series
of preferred stock (or the acquisition of an interest in an entity which owns
preferred stock) by an individual or entity could cause that individual or
entity (or another individual or entity) to own constructively in excess of
9.8% of that class or series of preferred stock, and thus subject that
preferred stock to the preferred stock ownership limit.
Our board of directors will be entitled to waive the preferred stock
ownership limit with respect to a particular stockholder if evidence
satisfactory to our board of directors, with advice of our tax counsel, is
presented that the ownership will not then or in the future jeopardize our
status as a REIT. As a condition of that waiver, our board of directors may
require opinions of counsel satisfactory to it or an undertaking or both from
the applicant with respect to preserving our REIT status.
Such articles supplementary will provide that a transfer of the class or
series of preferred stock that results in a person actually or constructively
owning shares of preferred stock in excess of the preferred stock ownership
limit, or which would cause us to be "closely held" within the meaning of the
Code or would otherwise result in our failure to qualify as a REIT, will be
null and void as to the intended transferee, and the intended transferee will
acquire no rights or economic interest in those shares. In addition, shares
actually or constructively owned by a person in excess of the preferred stock
ownership limit, or which would
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otherwise cause us to be "closely held" within the meaning of the Code or
would otherwise result in our failure to qualify as a REIT, will be
automatically exchanged for excess preferred stock, a separate class of
preferred stock that will be transferred, by operation of law to us as trustee
of a trust for the exclusive benefit of the transferee or transferees to whom
the shares are ultimately transferred (without violating the preferred stock
ownership limit). While held in trust, a class of excess preferred stock will
not be entitled to vote, it will not be considered for purposes of any
stockholder vote or the determination of a quorum for that vote, and it will
not be entitled to participate in any distributions made by us (except upon
liquidation). The intended transferee or owner may, at any time a class of
excess preferred stock is held by us in trust, transfer the class of excess
preferred stock to any person whose ownership of that class or series of
excess preferred stock would be permitted under the preferred stock ownership
limit, at a price not to exceed either:
(1) the price paid by the intended transferee or owner in the purported
transfer which resulted in the issuance of that class of excess
preferred stock; or
(2) if the intended transferee did not give full value for that class of
excess preferred stock, a price equal to the market price on the
date of the purported transfer or the other event that resulted in
the issuance of that class of excess preferred stock, at which time
that class of excess preferred stock would automatically be
exchanged for the corresponding class or series of preferred stock.
In addition, we have the right, for a period of 90 days during the time a
class of excess preferred stock is held by us in trust, to purchase all or any
portion of that class of excess preferred stock from the intended transferee
or owner at a price equal to the lesser of:
(1) the price paid for the stock by the intended transferee or owner
(or, if the intended transferee did not give full value for that
class of excess preferred stock, a price equal to the market price
on the date of the purported transfer or other event that resulted
in the issuance of that class of excess preferred stock), and
(2) the closing market price for the corresponding class of preferred
stock on the date we exercise our option to purchase the stock.
This period commences on the date of the violative transfer of ownership if
the intended transferee or owner gives notice of the transfer to us, or the
date our board of directors determines that a violative transfer or ownership
has occurred if no notice is provided.
All certificates representing shares of a class or series of preferred stock
will bear a legend referring to the restrictions described above.
The preferred stock ownership limit provision is set as a percentage of the
number of outstanding shares of any class or series of preferred stock. As a
result, if the number of shares of any class or series of preferred stock is
reduced on a non-pro rata basis among all holders of that class or series,
excess preferred stock may be created as a result of that reduction. In the
event that our action causes that reduction of shares, we have agreed to
exercise our option to repurchase those shares of that class or series of
excess preferred stock if the intended owner notifies us that it is unable to
sell its rights to that class or series of excess preferred stock.
All persons who own a specified percentage (or more) of our outstanding
stock must file an affidavit with us containing information regarding their
ownership of stock as set forth in the Treasury Regulations. Under current
Treasury Regulations, the percentage is set between one-half of one percent
and five percent, depending on the number of record holders of our stock. In
addition, each stockholder shall upon demand be required to disclose to us in
writing that information with respect to the actual and constructive ownership
of shares of our stock as our board of directors deems necessary to comply
with the provisions of the Code applicable to a REIT or to comply with the
requirements of any taxing authority or governmental agency.
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DESCRIPTION OF DEPOSITARY SHARES
General
We may issue depositary shares, each of which will represent a fractional
interest of a share of a particular class or series of our preferred stock, as
specified in the applicable prospectus supplement. Shares of a class or series
of preferred stock represented by depositary shares will be deposited under a
separate deposit agreement among us, the depositary named therein and the
holders from time to time of the depositary receipts issued by the preferred
stock depositary which will evidence the depositary shares. Subject to the
terms of the deposit agreement, each owner of a depositary receipt will be
entitled, in proportion to the fractional interest of a share of a particular
class or series of preferred stock represented by the depositary shares
evidenced by that depositary receipt, to all the rights and preferences of the
class or series of preferred stock represented by those depositary shares
(including dividend, voting, conversion, redemption and liquidation rights).
The depositary shares will be evidenced by depositary receipts issued
pursuant to the applicable deposit agreement. Immediately following the
issuance and delivery of a class or series of preferred stock by us to the
preferred stock depositary, we will cause the preferred stock depositary to
issue, on our behalf, the depositary receipts. Copies of the applicable form
of deposit agreement and depositary receipt may be obtained from us upon
request, and the statements made hereunder relating to the deposit agreement
and the depositary receipts to be issued thereunder are summaries of certain
provisions thereof and do not purport to be complete and are subject to, and
qualified in their entirety by reference to, all of the provisions of the
applicable deposit agreement and related depositary receipts.
Dividends and Other Distributions
The preferred stock depositary will distribute all cash dividends or other
cash distributions received in respect of a class or series of preferred stock
to the record holders of depositary receipts evidencing the related depositary
shares in proportion to the number of those depositary receipts owned by those
holders, subject to certain obligations of holders to file proofs,
certificates and other information and to pay certain charges and expenses to
the preferred stock depositary.
In the event of a distribution other than in cash, the preferred stock
depositary will distribute property received by it to the record holders of
depositary receipts entitled thereto, subject to certain obligations of
holders to file proofs, certificates and other information and to pay certain
charges and expenses to the preferred stock depositary, unless the preferred
stock depositary determines that it is not feasible to make that distribution,
in which case the preferred stock depositary may, with our approval, sell that
property and distribute the net proceeds from that sale to those holders.
No distribution will be made in respect of any depositary share to the
extent that it represents any class or series of preferred stock converted
into excess preferred stock or otherwise converted or exchanged.
Withdrawal of preferred stock
Upon surrender of the depositary receipts at the corporate trust office of
the preferred stock depositary (unless the related depositary shares have
previously been called for redemption or converted into excess preferred stock
or otherwise), the holders thereof will be entitled to delivery at that
office, to or upon that holder's order, of the number of whole or fractional
shares of the class or series of preferred stock and any money or other
property represented by the depositary shares evidenced by those depositary
receipts. Holders of depositary receipts will be entitled to receive whole or
fractional shares of the related class or series of preferred stock on the
basis of the proportion of preferred stock represented by each depositary
share as specified in the applicable prospectus supplement, but holders of
those shares of preferred stock will not thereafter be entitled to receive
depositary shares therefor. If the depositary receipts delivered by the holder
evidence a number of depositary shares in excess of the number of depositary
shares representing the number of shares of preferred stock to be withdrawn,
the preferred stock depositary will deliver to that holder at the same time a
new depositary receipt evidencing the excess number of depositary shares.
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Redemption
Whenever we redeem shares of a class or series of preferred stock held by
the preferred stock depositary, the preferred stock depositary will redeem as
of the same redemption date the number of depositary shares representing
shares of the class or series of preferred stock so redeemed, provided we
shall have paid in full to the preferred stock depositary the redemption price
of the preferred stock to be redeemed plus an amount equal to any accrued and
unpaid dividends thereon to the date fixed for redemption. The redemption
price per depositary share will be equal to the corresponding proportion of
the redemption price and any other amounts per share payable with respect to
that class or series of preferred stock. If fewer than all the depositary
shares are to be redeemed, the depositary shares to be redeemed will be
selected pro rata (as nearly as may be practicable without creating fractional
depositary shares) or by any other equitable method determined by us that will
not result in the issuance of any excess preferred stock.
From and after the date fixed for redemption, all dividends in respect of
the shares of a class or series of preferred stock so called for redemption
will cease to accrue, the depositary shares so called for redemption will no
longer be deemed to be outstanding and all rights of the holders of the
depositary receipts evidencing the depositary shares so called for redemption
will cease, except the right to receive any moneys payable upon their
redemption and any money or other property to which the holders of those
depositary receipts were entitled upon their redemption and surrender thereof
to the preferred stock depositary.
Voting
Upon receipt of notice of any meeting at which the holders of a class or
series of preferred stock deposited with the preferred stock depositary are
entitled to vote, the preferred stock depositary will mail the information
contained in that notice of meeting to the record holders of the depositary
receipts evidencing the depositary shares which represent that class or series
of preferred stock. Each record holder of depositary receipts evidencing
depositary shares on the record date (which will be the same date as the
record date for that class or series of preferred stock) will be entitled to
instruct the preferred stock depositary as to the exercise of the voting
rights pertaining to the amount of preferred stock represented by that
holder's depositary shares. The preferred stock depositary will vote the
amount of that class or series of preferred stock represented by those
depositary shares in accordance with those instructions, and we will agree to
take all reasonable action which may be deemed necessary by the preferred
stock depositary in order to enable the preferred stock depositary to do so.
The preferred stock depositary will abstain from voting the amount of that
class or series of preferred stock represented by those depositary shares to
the extent it does not receive specific instructions from the holders of
depositary receipts evidencing those depositary shares. The preferred stock
depositary shall not be responsible for any failure to carry out any
instruction to vote, or for the manner or effect of any vote made, as long as
that action or non-action is in good faith and does not result from negligence
or willful misconduct of the preferred stock depositary.
Liquidation Preference
In the event of our liquidation, dissolution or winding up, whether
voluntary or involuntary, the holders of each depositary receipt will be
entitled to the fraction of the liquidation preference accorded each share of
preferred stock represented by the depositary shares evidenced by that
depositary receipt, as set forth in the applicable prospectus supplement.
Conversion
The depositary shares, as such, are not convertible into our common stock
(except as set forth in the proviso below) or any of our other securities or
property, except in connection with certain conversions in connection with the
preservation of our status as a REIT; provided that the depositary shares
representing our Class D preferred stock are convertible into our common
stock. Nevertheless, if so specified in the applicable prospectus supplement
relating to an offering of depositary shares, the depositary receipts may be
surrendered by holders thereof to the preferred stock depositary with written
instructions to the preferred stock depositary to instruct us to cause
conversion of a class or series of preferred stock represented by the
depositary shares evidenced by those depositary receipts into whole shares of
our common stock, other shares of a class or
27
series of preferred stock (including excess preferred stock) or other shares
of stock, and we have agreed that upon receipt of those instructions and any
amounts payable in respect thereof, we will cause the conversion thereof
utilizing the same procedures as those provided for delivery of preferred
stock to effect that conversion. If the depositary shares evidenced by a
depositary receipt are to be converted in part only, a new depositary receipt
or receipts will be issued for any depositary shares not to be converted. No
fractional shares of common stock will be issued upon conversion, and if that
conversion would result in a fractional share being issued, an amount will be
paid in cash by us equal to the value of the fractional interest based upon
the closing price of the common stock on the last business day prior to the
conversion.
Amendment and Termination of the Deposit Agreement
The form of depositary receipt evidencing the depositary shares which
represent the preferred stock and any provision of the deposit agreement may
at any time be amended by agreement between us and the preferred stock
depositary. However, any amendment that materially and adversely alters the
rights of the holders of depositary receipts or that would be materially and
adversely inconsistent with the rights granted to the holders of the related
class or series of preferred stock will not be effective unless that amendment
has been approved by the existing holders of at least two thirds of the
depositary shares evidenced by the depositary receipts then outstanding. No
amendment shall impair the right, subject to certain exceptions in the deposit
agreement, of any holder of depositary receipts to surrender any depositary
receipt with instructions to deliver to the holder the related class or series
of preferred stock and all money and other property, if any, represented
thereby, except in order to comply with law. Every holder of an outstanding
depositary receipt at the time any of those types of amendments becomes
effective shall be deemed, by continuing to hold that depositary receipt, to
consent and agree to that amendment and to be bound by the deposit agreement
as amended thereby.
We may terminate the deposit agreement upon not less than 30 days' prior
written notice to the preferred stock depositary if:
(1) such termination is necessary to preserve our status as a REIT, or
(2) a majority of each class or series of preferred stock subject to
that deposit agreement consents to that termination, whereupon the
preferred stock depositary shall deliver or make available to each
holder of depositary receipts, upon surrender of the depositary
receipts held by that holder, that number of whole or fractional
shares of each class or series of preferred stock as are represented
by the depositary shares evidenced by those depositary receipts
together with any other property held by the preferred stock
depositary with respect to those depositary receipts.
We have agreed that if the deposit agreement is terminated to preserve our
status as a REIT, then we will use our best efforts to list each class or
series of preferred stock issued upon surrender of the related depositary
shares on a national securities exchange. In addition, the deposit agreement
will automatically terminate if:
(1) all outstanding depositary shares issued thereunder shall have been
redeemed,
(2) there shall have been a final distribution in respect of each class
or series of preferred stock subject to that deposit agreement in
connection with our liquidation, dissolution or winding up and that
distribution shall have been distributed to the holders of
depositary receipts evidencing the depositary shares representing
that class or series of preferred stock, or
(3) each share of preferred stock subject to that deposit agreement
shall have been converted into our stock not so represented by
depositary shares.
Charges of Preferred Stock Depositary
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of the deposit agreement. In addition, we will pay
the fees and expenses of the preferred stock depositary in connection with the
performance of its duties under the deposit agreement. However, holders of
depositary
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receipts will pay the fees and expenses of the preferred stock depositary for
any duties requested by those holders to be performed which are outside of
those expressly provided for in the deposit agreement.
Resignation and Removal of Preferred Stock Depositary
The preferred stock depositary may resign at any time by delivering notice
to us of its election to do so, and we may at any time remove the preferred
stock depositary, that resignation or removal to take effect upon the
appointment of a successor preferred stock depositary. A successor preferred
stock depositary must be appointed within 60 days after delivery of the notice
of resignation or removal and must be a bank or trust company having its
principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
Miscellaneous
The preferred stock depositary will forward to holders of depositary
receipts any reports and communications from us which are received by it with
respect to the related preferred stock.
Neither we nor the preferred stock depositary will be liable if it is
prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under the deposit agreement. Our obligations and
those of the preferred stock depositary under the deposit agreement will be
limited to performing our respective duties thereunder in good faith and
without negligence (in the case of any action or inaction in the voting of a
class or series of preferred stock represented by the depositary shares),
gross negligence or willful misconduct, and neither we nor the preferred stock
depositary will be obligated to prosecute or defend any legal proceeding in
respect of any depositary receipts, depositary shares or shares of a class or
series of preferred stock represented thereby unless satisfactory indemnity is
furnished. We and the preferred stock depositary may rely on written advice of
counsel or accountants, or information provided by persons presenting shares
of a class or series of preferred stock represented thereby for deposit,
holders of depositary receipts or other persons believed in good faith to be
competent to give that information, and on documents believed in good faith to
be genuine and signed by a proper party.
In the event the preferred stock depositary shall receive conflicting
claims, requests or instructions from any holders of depositary receipts, on
the one hand, and us, on the other hand, the preferred stock depositary shall
be entitled to act on those claims, requests or instructions received from us.
RATIOS OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for the years ended December 31,
2000, 1999, 1998, 1997 and 1996 was 2.8, 2.7, 2.7, 3.5 and 3.5, respectively.
Our ratio of earnings to combined fixed charges and preferred stock dividend
requirements for the years ended December 31, 2000, 1999, 1998, 1997 and 1996
was 2.3, 2.1, 2.0, 2.3 and 2.3, respectively.
For purposes of computing these ratios, earnings have been calculated by
adding fixed charges (excluding capitalized interest) to income before income
taxes and extraordinary items. Fixed charges consist of interest costs,
whether expensed or capitalized, the interest component of rental expense, and
amortization of debt discounts and issue costs, whether expensed or
capitalized.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
TO US OF OUR REIT ELECTION
The following is a summary of the federal income tax considerations to us
which are anticipated to be material to purchasers of the securities offered
by this prospectus. This summary is based on current law, is for general
information only and is not tax advice. Your tax treatment will vary depending
upon the terms of the specific securities that you acquire, as well as your
particular situation. This discussion does not attempt to address any aspects
of federal income taxation relevant to your ownership of the securities
offered by this
29
prospectus. Instead, the material federal income tax considerations relevant
to your ownership of the securities offered by this prospectus may be provided
in the applicable prospectus supplement relating thereto.
The information in this section is based on:
o the Internal Revenue Code;
o current, temporary and proposed Treasury regulations promulgated under
the Internal Revenue Code;
o the legislative history of the Internal Revenue Code;
o current administrative interpretations and practices of the Internal
Revenue Service; and
o court decisions
in each case, as of the date of this prospectus. In addition, the
administrative interpretations and practices of the Internal Revenue Service
include its practices and policies as expressed in private letter rulings
which are not binding on the Internal Revenue Service, except with respect to
the particular taxpayers who requested and received these rulings. Future
legislation, Treasury regulations, administrative interpretations and
practices and/or court decisions may adversely affect the tax considerations
contained in this discussion. Any change could apply retroactively to
transactions preceding the date of the change. Except as described below, we
have not requested, and do not plan to request, any rulings from the Internal
Revenue Service concerning our tax treatment, and the statements in this
prospectus are not binding on the Internal Revenue Service or any court. Thus,
we can provide no assurance that the tax considerations contained in this
discussion will not be challenged by the Internal Revenue Service or if
challenged, will not be sustained by a court.
You are advised to consult the applicable prospectus supplement, as well as
your own tax advisor, regarding the tax consequences to you of the
acquisition, ownership and sale of the securities offered by this prospectus,
including the federal, state, local, foreign and other tax consequences; our
election to be taxed as a REIT for federal income purposes; and potential
changes in the tax laws.
Taxation of the Company as a REIT
General. We elected to be taxed as a REIT under Sections 856 through 860 of
the Code, commencing with our taxable year beginning January 1, 1992. We
believe we have been organized and have operated in a manner which allows us
to qualify for taxation as a REIT under the Internal Revenue Code commencing
with our taxable year beginning January 1, 1992. We intend to continue to
operate in this manner, but there is no assurance that we have operated or
will continue to operate in a manner so as to qualify or remain qualified as a
REIT.
The sections of the Internal Revenue Code and the corresponding Treasury
regulations that relate to the qualification and operation of a REIT are
highly technical and complex. This summary is qualified in its entirety by the
applicable Internal Revenue Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretations thereof.
As a condition to the closing of each offering of the securities offered by
this prospectus, other than offerings of medium term notes and as otherwise
specified in the applicable prospectus supplement, our tax counsel will render
an opinion to the underwriters of that offering to the effect that, commencing
with our taxable year which began January 1, 1992, we have been organized in
conformity with the requirements for qualification as a REIT, and our proposed
method of operation will enable us to continue to meet the requirements for
qualification and taxation as a REIT under the Internal Revenue Code. It must
be emphasized that this opinion will be based on various assumptions and
representations to be made by us as to factual matters, including
representations to be made in a factual certificate to be provided by one of
our officers. Our tax counsel will have no obligation to update its opinion
subsequent to its date. In addition, this opinion will be based upon our
factual representations set forth in this prospectus and set forth in the
applicable prospectus supplement. Moreover, our qualification and taxation as
a REIT depends upon our ability to meet, through actual annual operating
results, asset diversification, distribution levels and diversity of stock
ownership, the various qualification tests imposed under the Internal Revenue
Code discussed below, the results of which have not been and will not be
reviewed by our tax counsel. Accordingly, no assurance
30
can be given that our actual results of operation of any particular taxable
year will satisfy those requirements. Further, the anticipated income tax
treatment described in this prospectus may be changed, perhaps retroactively,
by legislative, administrative or judicial action at any time.
If we qualify for taxation as a REIT, we generally will not be required to
pay federal corporate income taxes on our net income that is currently
distributed to stockholders. This treatment substantially eliminates the
"double taxation" that generally results from investment in a regular
corporation. Double taxation means taxation once at the corporate level when
income is earned and once again at the stockholder level when this income is
distributed. We will be required to pay federal income tax, however, as
follows:
o We will be required to pay tax at regular corporate rates on any
undistributed real estate investment trust taxable income, including
undistributed net capital gains.
o We may be required to pay the "alternative minimum tax" on our items of
tax preference.
o If we have (1) net income from the sale or other disposition of
foreclosure property which is held primarily for sale to customers in the
ordinary course of business or (2) other non-qualifying income from
foreclosure property, we will be required to pay tax at the highest
corporate rates on this income. Foreclosure property is generally defined
as property acquired by foreclosure or after a default on a loan secured
by the property or a lease of the property.
o We will be required to pay a 100% tax on any net income from prohibited
transactions. Prohibited transactions are, in general, sales or other
dispositions of property, other than foreclosure property, held primarily
for sale to customers in the ordinary course of business.
o If we fail to satisfy the 75% gross income test or the 95% gross income
test, as described below, but have otherwise maintained our qualification
as a REIT, we will be required to pay a 100% tax on an amount equal to
(1) the gross income attributable to the greater of (a) the amount by
which 75% of our gross income exceeds the amount qualifying under the 75%
gross income test described below and (b) the amount by which 90% of our
gross income exceeds the amount qualifying under the 95% gross income
test described below, multiplied by (2) a fraction intended to reflect
our profitability.
o If we fail to distribute during each calendar year at least the sum of
(1) 85% of our real estate investment trust ordinary income for such
taxable year, (2) 95% of our real estate investment trust capital gain
net income for such year, and (3) any undistributed taxable income from
prior periods, we will be required to pay a 4% excise tax on the excess
of that required distribution over the amounts actually distributed.
o If we acquire any asset from a corporation which is or has been a C
corporation in a transaction in which the basis of the asset in our hands
is determined by reference to the basis of the asset in the hands of the
C corporation, and we subsequently recognize gain on the disposition of
the asset during the ten-year period beginning on the date we acquired
the asset, then we will be required to pay tax at the highest regular
corporate tax rate on this gain to the extent of the excess of (a) the
fair market value of the asset over (b) our adjusted basis in the asset,
in each case determined as of the date we acquired the asset. A C
corporation is generally defined as a corporation required to pay full
corporate-level tax. In addition, if we recognize gain on the disposition
of any asset during the 10-year period beginning on the first day of the
first taxable year for which we qualified as a REIT and we held the asset
on the first day of this period, then we will be required to pay tax at
the highest regular corporate tax rate on this gain to the extent of the
excess of (a) the fair market value of the asset over (b) our adjusted
basis in the asset, in each case determined as of the first day of the
first taxable year for which we qualified as a REIT. The rules described
in this paragraph with respect to the recognition of gain assume that we
have made and will make a timely election under the relevant Treasury
regulations with respect to assets acquired from a C corporation that
have a carryover basis and assets that we owned on the first day of the
first taxable year for which we qualified as a REIT. We have timely filed
the election provided by the relevant Treasury regulations and we intend
to timely file all other similar elections.
31
Requirements for Qualification. The Internal Revenue Code defines a REIT as a
corporation, trust or association:
(1) that is managed by one or more trustees or directors,
(2) that issues transferable shares or transferable certificates to
evidence beneficial ownership,
(3) that would be taxable as a domestic corporation, but for Sections
856 through 860 of the Internal Revenue Code,
(4) that is not a financial institution or an insurance company within
the meaning of the Internal Revenue Code,
(5) that is beneficially owned by 100 or more persons,
(6) not more than 50% in value of the outstanding stock of which is
owned, directly or constructively, by five or fewer individuals,
including specified entities, during the last half of each taxable
year, and
(7) that meets other tests, described below, regarding the nature of its
income, assets and the amount of its distribution.
The Internal Revenue Code provides that conditions (1) to (4) 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. Conditions (5) and (6) do not apply
until after the first taxable year for which an election is made to be taxed
as a real estate investment trust. For purposes of condition (6), pension
funds and other specified tax-exempt entities are generally treated as
individuals, except that a "look-through" exception applies to pension funds.
We have satisfied condition (5) and believe that we have issued sufficient
shares to allow us to satisfy condition (6). In addition, our charter
provides, and the articles supplementary for any series of preferred stock
will provide, for restrictions regarding ownership and transfer of our stock,
which restrictions are intended to assist us in continuing to satisfy the
share ownership requirements described in (5) and (6) above. The ownership and
transfer restrictions pertaining generally to our common stock and preferred
stock are described in "Description of Common Stock--Restrictions on Ownership
and Transfer" and "Description of Preferred Stock--Restrictions on Ownership
and Transfer" or, to the extent those restrictions differ from those described
in this prospectus, those restrictions will be described in the applicable
prospectus supplement. There can be no assurance, however, that those transfer
restrictions will in all cases prevent a violation of the stock ownership
provisions described in (5) and (6) above. If we fail to satisfy these share
ownership requirements, except as provided in the next sentence, our status as
a REIT will terminate. If, however, we comply with the rules contained in the
applicable Treasury regulations requiring us to attempt to ascertain the
actual ownership of our shares, and we do not know, and would not have known
through the exercise of reasonable diligence, that we failed to meet the
requirement set forth in condition (6) above, we will be treated as having met
this requirement. In addition, a corporation may not elect to become a REIT
unless its taxable year is the calendar year. We have a calendar year.
Ownership of Qualified REIT Subsidiaries and Interests in Partnerships. We
own and operate a number of properties through subsidiaries. Internal Revenue
Code Section 856(i) provides that a corporation which is a "qualified REIT
subsidiary" shall not be treated as a separate corporation, and all assets,
liabilities, and items of income, deduction, and credit of a "qualified REIT
subsidiary" shall be treated as assets, liabilities and items of the REIT.
Thus, in applying the requirements described herein, our "qualified REIT
subsidiaries" will be ignored, and all assets, liabilities and items of
income, deduction, and credit of those subsidiaries will be treated as our
assets, liabilities and items. We have received a ruling from the IRS to the
effect that all of the subsidiaries that were held by us prior to January 1,
1992, the effective date of our election to be taxed as a REIT, will be
"qualified REIT subsidiaries" upon the effective date of our REIT election.
Moreover, with respect to each subsidiary of ours formed subsequent to January
1, 1992 and prior to January 1, 1998, we have owned 100% of the stock of that
subsidiary at all times during the period that subsidiary has been in
existence. For tax years beginning on or after January 1, 1998, any
corporation wholly owned by a REIT is permitted to be treated as a "qualified
REIT subsidiary" regardless of whether that
32
subsidiary has always been owned by the REIT. Therefore, all of our
subsidiaries are "qualified REIT subsidiaries" within the meaning of the
Internal Revenue Code.
Treasury Regulations provide that if we are a partner in a partnership, we
will be deemed to own our proportionate share of the assets of the
partnership. Also, we will be deemed to be entitled to the income of the
partnership attributable to our proportionate share of the income of the
partnership. The character of the assets and gross income of the partnership
will retain the same character in our hands for purposes of Section 856 of the
Internal Revenue Code, including satisfying the gross income tests and the
asset tests described below. The treatment described above also applies with
respect to the ownership of interests in limited liability companies that are
treated as partnerships. Thus, our proportionate share of the assets,
liabilities and items of income of the partnerships and limited liability
companies that are treated as partnerships in which we are a partner or a
member, respectively, will be treated as our assets, liabilities and items of
income for purposes of applying the requirements described in this prospectus.
Income Tests. We must satisfy two gross income requirements annually to
maintain our qualification as a REIT:
o First, each taxable year we must derive directly or indirectly at least
75% of our gross income, excluding gross income from prohibited
transactions, from (a) investments relating to real property or mortgages
on real property, including rents from real property and, in some
circumstances, interest or (b) some type of temporary investments.
o Second, each taxable year we must derive at least 95% of our gross
income, excluding gross income from prohibited transactions, from (a) the
real property investments described above, (b) dividends, interest and
gain from the sale or disposition of stock or securities or (c) from any
combination of the foregoing.
For these purposes, the term "interest" generally does not include any
amount received or accrued, directly or indirectly, if the determination of
that amount depends in whole or in part on the income or profits of any
person. However, an amount received or accrued generally will not be excluded
from the term "interest" solely by reason of being based on a fixed percentage
or percentages of receipts or sales.
Rents we receive will qualify as "rents from real property" in satisfying
the gross income requirements for a REIT described above only if the following
conditions are met:
o First, the amount of rent must not be based in whole or in part on the
income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of
receipts or sales.
o Second, we, or an actual or constructive owner of 10% or more of our
stock, do not actually or constructively own 10% or more of the interests
in the tenant.
o Third, rent attributable to personal property, leased in connection with
a lease of real property, is not greater than 15% of the total rent
received under the lease. If this condition is not met, then the portion
of the rent attributable to personal property will not qualify as "rents
from real property."
o Finally, we generally must not operate or manage our property or furnish
or render services to our tenants, subject to a 1% de minimis exception,
other than through an independent contractor from whom the real estate
investment trust derives no revenue. We may, however, directly perform
services that are "usually or customarily rendered" in connection with
the rental of space for occupancy only and are not otherwise considered
"rendered to the occupant" of the property. In addition, we may employ a
taxable REIT subsidiary which may be wholly or partially owned by us to
provide both customary and noncustomary services to our tenants without
causing the rent we receive from those tenants to fail to qualify as
"rents from real property."
We have received a ruling from the Internal Revenue Service providing that
the performance of the types of services provided by us will not cause the
rents received with respect to those leases to fail to qualify as "rents from
real property." In addition, we generally do not intend to receive rent which
fails to
33
satisfy any of the above conditions. Notwithstanding the foregoing, we may
have taken and may continue to take some of the actions set forth above to the
extent those actions will not, based on the advice of our tax counsel,
jeopardize our status as a REIT.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a REIT if we are entitled to
relief under the Internal Revenue Code. Generally, we may avail ourselves of
the relief provisions if:
o our failure to meet these tests was due to reasonable cause and not due
to willful neglect,
o we attach a schedule of the sources of our income to our Federal income
tax return, and
o any incorrect information on the schedule was not due to fraud with
intent to evade tax.
It is not possible, however, to state whether in all circumstances we would be
entitled to the benefit of these relief provisions. As discussed above under
"--General," even if these relief provisions apply, a tax would be imposed
with respect to our non-qualifying income.
Prohibited Transaction Income. Any gain that we realize on the sale of any
property held as inventory or other property held primarily for sale to
customers in the ordinary course of business will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. That prohibited
transaction income may also have an adverse effect upon our ability to satisfy
the income tests for qualification as a REIT. Under existing law, whether
property is held as inventory or primarily for sale to customers in the
ordinary course of business is a question of fact that depends on all the
facts and circumstances with respect to the particular transaction. We hold
our properties for investment with a view to long-term appreciation, we are
engaged in the business of acquiring, developing, owning and operating our
properties and we make such occasional sales of the properties as are
consistent with our investment objectives. There can be no assurance, however,
that the Internal Revenue Service might not contend that one or more of those
sales is subject to the 100% penalty tax.
Asset Tests. At the close of each quarter of our taxable year, we also must
satisfy the following tests relating to the nature and diversification of our
assets.
o First, at least 75% of the value of our total assets must be represented
by real estate assets, cash, cash items and government securities. For
purposes of this test, real estate assets include stock or debt
instruments that are purchased with the proceeds of a stock offering or a
long-term public debt offering with a term of at least five year, but
only for the one-year period beginning on the date we receive these
proceeds.
o Second, not more than 25% of our total assets may be represented by
securities other than those includible in the 75% asset test.
o Third, for taxable years ending on or prior to December 31, 2000, of the
investments included in the 25% asset class, the value of any one
issuer's securities owned by us may not exceed 5% of the value of our
total assets and we may not own more than 10% of any one issuer's
outstanding voting securities.
o Finally, for taxable years beginning after December 31, 2000, (a) not
more than 20% of the value of our total assets may be represented by
securities of one or more taxable REIT subsidiaries and (b) except for
the securities of a taxable REIT subsidiary and securities included in
the 75% asset test, (i) not more than 5% of the value of our assets may
be represented by securities of any one issuer, (ii) we may not own more
than 10% of any one issuer's outstanding voting securities and (iii) we
may not own more than 10% of the value of any one issuer's securities.
For purposes of the 10% value test, securities do not include straight
debt that we own if (a) the issuer is an individual, (b) neither we nor
any of our taxable REIT subsidiaries owns any security of the issuer
other than straight debt or (iii) the issuer is a partnership, and we own
at least 20% of a profits interest in the partnership. Straight debt is
any written unconditional promise to pay on demand or on a specified date
a fixed amount of money if the interest rate and interest payment dates
are not contingent on profits, the borrower's discretion or similar
factors and the debt is not convertible, directly or indirectly, into
stock.
34
We currently have numerous direct and indirect wholly-owned subsidiaries. As
set forth above, the ownership of more than 10% of the voting securities of
any one issuer by a REIT is prohibited unless such subsidiary is a taxable
REIT subsidiary. However, if our subsidiaries are "qualified REIT
subsidiaries" as defined in the Internal Revenue Code, those subsidiaries will
not be treated as separate corporations for federal income tax purposes. Thus,
our ownership of stock of a "qualified REIT subsidiary" will not cause us to
fail the asset tests.
Prior to January 1, 2001, we owned 100% of the nonvoting preferred stock of
Kimco Realty Services, Inc. and did not own any of the voting securities of
Kimco Realty Services, Inc. We refer to Kimco Realty Services, Inc. as the
Service Company. Effective January 1, 2001, we made a joint election with the
Service Company to treat the Service Company as a taxable REIT subsidiary. In
addition, effective January 1, 2001, we acquired 100% of the voting stock of
the Service Company and currently own 100% of the stock of the Service
Company. We believe, and will represent to our counsel for purposes of its
opinion, that (i) the value of the securities of the Service Company held by
us did not exceed at the close of any quarter during a taxable year that ended
on or prior to December 31, 2000 5% of the total value of our assets and (ii)
the value of the securities of all our taxable REIT subsidiaries does not and
will not exceed more than 20% of the value of our total assets at the close of
each quarter during a taxable year that begins after December 31, 2000. Our
tax counsel, in rendering its opinion as to our qualification as a REIT, will
be relying on our representations to that effect with respect to the value of
those securities and assets. No independent appraisals will be obtained to
support this conclusion. There can be no assurance that the Internal Revenue
Service will not contend that the value of the securities of the Service
Company held by us exceeds the applicable value limitation.
After initially meeting the asset tests at the close of any quarter, we will
not lose our 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 the
disposition of sufficient nonqualifying assets within 30 days after the close
of the quarter. We intend to maintain adequate records of the value of our
assets to ensure compliance with the asset tests and to take such other
actions within 30 days after the close of any quarter as may be required to
cure any noncompliance. If we fail to cure noncompliance with the asset tests
within that time period, we would cease to qualify as a REIT.
Taxable REIT Subsidiary. As discussed above, for taxable years beginning
after December 31, 2000, a REIT may own more than 10% of the voting securities
of an issuer or 10% or more of the value of the securities of an issuer if the
issuer is a taxable REIT subsidiary of the REIT. A corporation qualifies as a
taxable REIT subsidiary of a REIT if the corporation jointly elects with the
REIT to be treated as a taxable REIT subsidiary of the REIT. Dividends from a
taxable REIT subsidiary will be nonqualifying income for purposes of the 75%,
but not the 95% gross income test. Other than certain activities relating to
lodging and health care facilities, a taxable REIT subsidiary may generally
engage in any business, including, the provision of customary or noncustomary
services to tenants of its parent REIT.
Sections of the Internal Revenue Code which apply to tax years beginning
after December 31, 2000 generally intended to insure that transactions between
a REIT and its taxable REIT subsidiary occur at arm's length and on
commercially reasonable terms, include a provision that prevents a taxable
REIT subsidiary from deducting interest on direct or indirect indebtedness to
its parent REIT if, under specified series of tests, the taxable REIT
subsidiary is considered to have an excessive interest expense level and debt
to equity ratio. In some case, these sections of the Internal Revenue Code
impose a 100% tax on a REIT if its rental, service and/or other agreements
with its taxable REIT subsidiaries are not on arm's length terms.
As a result of the modifications to the sections of the Internal Revenue
Code which are described above and which are effective for taxable years
beginning after December 31, 2000, we modified our ownership of the Service
Company. As described above, effective January 1, 2001, we made a joint
election with the Service Company to treat the Service Company as a taxable
REIT subsidiary. In addition, effective January 1, 2001, we contributed the
note that was issued to us from the Service Company to the capital of the
Service Company and acquired 100% of the voting stock of the Service Company.
Thus, we currently own 100% of the stock of the Service Company and there is
no debt outstanding between the Service Company and us.
35
Annual Distribution Requirements. To maintain our qualification as a REIT,
we are required to distribute dividends, other than capital gain dividends, to
our stockholders in an amount at least equal to the sum of:
o 90% of our REIT taxable income, and
o 90% of the our after tax net income, if any, from foreclosure property;
minus
o the excess of the sum of specified items of non-cash income items over 5%
of our REIT taxable income.
Our REIT taxable income is computed without regard to the dividends paid
deduction and our net capital gain. In addition, for purposes of this test,
non-cash income items includes income attributable to leveled stepped rents,
original issue discount or purchase money discount debt, or a like-kind
exchange that is later determined to be taxable.
We must pay these distributions in the taxable year to which they relate, or
in the following taxable year if declared before we timely file our tax return
for that year and if paid on or before the first regular dividend payment
after that declaration. The amount distributed must not be preferential-i.e.,
each holder of shares of common stock and each holder of shares of each class
of preferred stock must receive the same distribution per share. To the extent
that we do not distribute all of our net capital gain or distribute at least
90%, but less than 100%, of our REIT taxable income, as adjusted, we will be
subject to tax thereon at regular ordinary and capital gain corporate tax
rates. We believe we have made, and intend to continue to make, timely
distributions sufficient to satisfy these annual distribution requirements.
We expect that our REIT taxable income will be less than our cash flow
because of depreciation and other non-cash charges included in computing our
REIT taxable income. Accordingly, we anticipate that we will generally have
sufficient cash or liquid assets to enable us to satisfy our distribution
requirement. However, it is possible that, from time to time, we may not have
sufficient cash or other liquid assets to meet the distribution requirement
due to timing differences between the actual receipt of income and actual
payment of deductible expenses and the inclusion of that income and deduction
of those expenses in arriving at our taxable income. In the event that those
timing differences occur, in order to meet the distribution requirement, we
may find it necessary to arrange for short-term, or possibly long-term,
borrowings or to pay dividends in the form of taxable stock dividends.
We may be able to rectify a failure to meet the distribution requirement for
a year by paying "deficiency dividends" to stockholders in a later year, which
may be included in our deduction for dividends paid for the earlier year.
Thus, we may be able to avoid being taxed on amounts distributed as deficiency
dividends. We will be required, however, to pay interest based upon the amount
of any deduction claimed for deficiency dividends and would be subject to any
applicable penalty provisions.
In addition, we will be required to pay a 4% excise tax on the excess of the
required distribution over the amounts actually distributed if we fail to
distribute during each calendar year, or in the case of distributions with
declaration and record dates falling the last three months of the calendar
year, by the end of January immediately following that year, at least the sum
of 85% of our ordinary income for that year, 95% of our capital gain net
income for the year, plus, in each case, any undistributed ordinary income or
capital gain net income, as the case may be, from prior periods. Any ordinary
income or capital gain net income on which this excise tax is imposed for any
year is treated as an amount distributed that year for purposes of calculating
the tax.
Failure to Qualify
If we fail to qualify for taxation as a REIT in any taxable year, and the
relief provisions do not apply, we will be subject to tax, including any
applicable alternative minimum tax, on our taxable income at regular corporate
rates. That failure to qualify for taxation as a REIT could have an adverse
effect on the market value and marketability of the securities offered by this
prospectus. Distributions to stockholders in any year in which we fail to
qualify will not be deductible by us nor will they be required to be made. As
a result, our failure to qualify as a REIT would substantially reduce the cash
available for distribution by us to our
36
stockholders. In that event, to the extent of current and accumulated earnings
and profits, all distributions to stockholders will be taxable as ordinary
income and, subject to specified limitations in the Internal Revenue Code,
corporate distributees may be eligible for the dividends received deduction.
Unless entitled to relief under specific statutory provisions, we will also be
disqualified from taxation as a REIT for the four taxable years following the
year during which qualification was lost. It is not possible to state whether
in all circumstances we would be entitled to that statutory relief.
Other Tax Matters
Some of our investments are through partnerships which may involve special
tax risks. These risks include possible challenge by the IRS of (a)
allocations of income and expense items, which could affect the computation of
our income and (b) the status of the partnerships as partnerships, as opposed
to associations taxable as corporations, for income tax purposes. Treasury
Regulations that are effective as of January 1, 1997 provide that a domestic
partnership is generally taxed as a partnership unless it elects to be taxed
as an association taxable as a corporation. None of the partnerships in which
we are a partner has made or intends to make that election. These Treasury
Regulations provide that a partnership's claimed classification will be
respected for periods prior January 1, 1997 date if the entity had a
reasonable basis for its claimed classification, and that partnership had not
been notified in writing on or before May 8, 1996 that the classification of
that entity was under examination. If any of the partnerships were treated as
an association for a prior period, and (i) if our ownership in any of those
partnerships exceeded 10% of the partnership's voting interest or (ii) the
value of that interest exceeded 5% of the value of our assets, we would cease
to qualify as a REIT for that period and possibly future periods. Moreover,
the deemed change in classification of that partnership from an association to
a partnership effective as of January 1, 1997 would be a taxable event. We
believe that each of the partnerships has been properly treated for tax
purposes as a partnership, and not as an association taxable as a corporation.
However, no assurance can be given that the Internal Revenue Service may not
successfully challenge the status of any of the partnerships.
We may be subject to state or local taxation in various state or local
jurisdictions, including those in which we transact business. Our state or
local tax treatment may not conform to the federal income tax consequences
described above. Consequently, prospective investors should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in us.
PLAN OF DISTRIBUTION
We may sell the securities offered by this prospectus to one or more
underwriters for public offering and sale by them or may sell the securities
offered by this prospectus to investors directly or through agents. Any
underwriter or agent involved in the offer and sale of the securities offered
by this prospectus will be named in the applicable prospectus supplement.
Underwriters may offer and sell the securities offered by this prospectus at
a fixed price or prices, which may be changed, at prices related to the
prevailing market prices at the time of sale or at negotiated prices. We also
may, from time to time, authorize underwriters acting as our agents to offer
and sell the securities offered by this prospectus upon the terms and
conditions as are set forth in the applicable prospectus supplement. In
connection with the sale of securities offered by this prospectus,
underwriters may be deemed to have received compensation from us in the form
of underwriting discounts or commissions and may also receive commissions from
purchasers of securities offered by this prospectus for whom they may act as
agent. Underwriters may sell the securities offered by this prospectus to or
through dealers, and those dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and/or commissions
from the purchasers for whom they may act as agent.
Any underwriting compensation paid by us to underwriters or agents in
connection with the offering of the securities offered by this prospectus, and
any discounts, concessions or commissions allowed by underwriters to
participating dealers, will be set forth in the applicable prospectus
supplement. Underwriters, dealers and agents participating in the distribution
of the securities offered by this prospectus may be deemed to be underwriters,
and any discounts and commissions received by them and any profit realized by
them on
37
resale of the securities offered by this prospectus may be deemed to be
underwriting discounts and commissions, under the Securities Act.
Underwriters, dealers and agents may be entitled, under agreements entered
into with us, to indemnification against and contribution toward certain civil
liabilities, including liabilities under the Securities Act.
If so indicated in the applicable prospectus supplement, we will authorize
dealers acting as our agents to solicit offers by certain institutions to
purchase the securities offered by this prospectus from us at the public
offering price set forth in that prospectus supplement pursuant to delayed
delivery contracts providing for payment and delivery on the date or dates
stated in that prospectus supplement.
Each delayed delivery contract will be for an amount not less than, and the
aggregate principal amount of the securities offered by this prospectus sold
pursuant to delayed delivery contracts shall be not less nor more than, the
respective amounts stated in the applicable prospectus supplement.
Institutions with whom delayed delivery contracts, when authorized, may be
made include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions, and other
institutions but will in all cases be subject to our approval. Delayed
delivery contracts will not be subject to any conditions except:
(1) the purchase by an institution of the securities offered by this
prospectus covered by its delayed delivery contracts shall not at
the time of delivery be prohibited under the laws of any
jurisdiction in the United States to which that institution is
subject, and
(2) if the securities offered by this prospectus are being sold to
underwriters, we shall have sold to those underwriters the total
principal amount of the securities offered by this prospectus less
the principal amount thereof covered by delayed delivery contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with, and perform services for us and our subsidiaries in the
ordinary course of business.
EXPERTS
The financial statements incorporated in this prospectus by reference to the
Kimco Realty Corporation and Subsidiaries' Annual Report on Form 10-K for the
year ended December 31, 2000, have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the securities offered by this prospectus will be passed
upon for us by Latham & Watkins, New York, New York. Latham & Watkins and any
counsel for any underwriters, dealers or agents will rely on Ballard Spahr
Andrews & Ingersoll, Baltimore, Maryland, as to certain matters of Maryland
law. Certain members of Latham & Watkins and their families own beneficial
interests in less than 1% of our common stock.
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$200,000,000
[LOGO]
Kimco
Realty
Corporation
Series C Medium-Term Notes
Due Nine Months or More
From Date of Issue
PROSPECTUS SUPPLEMENT
Merrill Lynch & Co.
Banc of America Securities LLC
Banc One Capital Markets, Inc.
Credit Suisse First Boston
Goldman, Sachs & Co.
JPMorgan
Morgan Stanley Dean Witter
September 26, 2001
===============================================================================