Prospectus Supplement to Prospectus dated October 30, 2001
$207,000,000
[LOGO]
WEINGARTEN REALTY INVESTORS
Medium-Term Notes, Series A, Due 9 Months
or More from Date of Issue
_______________
TERMS OF SALE
The following terms may apply to the Notes that we may sell at one or more
times. The final terms for each Note will be included in a pricing supplement.
We will receive between $205,447,500 and $206,741,250 of the proceeds from the
sale of the Notes, after paying the agents commissions of between $258,750 and
$1,552,500.
- Mature nine months or more from - Any other rate or any combination
the date of issue of rates specified in a Pricing
Supplement
- Fixed or floating interest rate - Any other rate or any combination
or indexed Notes or zero-coupon of rates specified in a Pricing
or other original issue discount Supplement
Notes. The floating rate may be
based on: - Interest paid on floating rate
Notes, monthly, quarterly,
- Commercial paper rate semi-annually or annually
- Prime rate - Interest paid on fixed rate Notes
semi-annually
- CD rate - Certificated or book-entry form
- Federal Funds effective rate - Minimum denominations of $1,000
increased in multiples of $1,000
- LIBOR
- May be foreign currency or
- Treasury rate composite currency denominated
- CMT rate - Subject to redemption and
repurchase at option of
- Eleventh District cost of Weingarten or the holder
funds rate
- Not convertible, amortized or
subject to a sinking fund
- Same day settlement and payment
in immediately available funds
_______________
INVESTMENT IN THE NOTES INVOLVES RISKS, WHICH ARE DESCRIBED IN THE "RISK
FACTORS" SECTION BEGINNING ON PAGE S-2.
_______________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT, THE ACCOMPANYING PROSPECTUS OR ANY
PRICING SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_______________
We may sell the Notes directly or through one or more agents or dealers,
including the agents listed below. The agents are not required to sell any
specific amount of the Notes. They will use their reasonable efforts to sell
the Notes offered. If we sell other securities referred to in the accompanying
prospectus, the amount of Notes that we may offer and sell under this prospectus
supplement may be reduced.
GOLDMAN, SACHS & CO.
BANC OF AMERICA SECURITIES LLC
BANC ONE CAPITAL MARKETS, INC.
COMMERZBANK SECURITIES
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANK SECURITIES
JPMORGAN
LEHMAN BROTHERS
MERRILL LYNCH & CO.
PNC CAPITAL MARKETS, INC.
WACHOVIA SECURITIES
UBS WARBURG
Prospectus Supplement dated February 7, 2003.
RISK FACTORS
Your investment in the Notes involves risks. Before deciding whether an
investment in the Notes is suitable for you, you should carefully consider,
among other matters, the following discussion of risks.
STRUCTURE RISKS
Risks Related to Indices or Formulas. Some of the Notes may be indexed to
one or more currencies, commodities, interest rates or other indices or
formulas. An investment in these Notes involves significant risks that are not
associated with similar investments in a conventional fixed rate or floating
rate debt security. These risks include the possibility that any applicable
index or formula may be subject to significant changes, that the resulting
interest rate will be less than that payable on a conventional fixed rate or
floating rate debt security issued by us at the same time, and that you could
lose all or a substantial portion of the principal payable upon maturity of the
Notes. These risks depend on a number of factors beyond our control, including
economic, financial and political events. In addition, if the formula used to
determine the amounts payable under the Notes contains a multiplier or leverage
factor, the effect of any change in any applicable index or formula will be
magnified. In recent years, values of various indices and formulas have been
highly volatile and this volatility may continue or increase in the future.
Redemption Risk. Any optional redemption feature of the Notes might affect
the market value of the Notes. You should expect that we will redeem these
Notes when prevailing interest rates are relatively low. In these cases, you
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
the Notes.
Uncertain Trading Markets. We cannot assure you that a trading market for
the Notes will ever develop or, if one develops, be maintained. The market
value for the Notes in any trading market will be affected by a number of
factors unrelated to our creditworthiness. These factors include:
the complexity and volatility of any index or formula applicable to the
Notes,
the method of calculating the amounts payable under the Notes,
the time remaining to the maturity of the Notes,
the outstanding amount of the Notes,
any redemption features of the Notes, and
the level, direction and volatility of market interest rates generally.
Therefore, you may not be able to sell the Notes readily or at prices that
will enable you to realize your anticipated yield. You should not purchase
Notes unless you understand and are able to bear the risk that the Notes may not
be readily saleable, that the market value of the Notes will fluctuate over time
and that these fluctuations may be significant.
EXCHANGE RATE RISKS AND EXCHANGE CONTROL RISKS
If you invest in Notes that are payable in one or more foreign currencies,
there will be significant risks that are not associated with a similar
investment in a debt security payable in U.S. dollars. These risks include the
possibility of significant changes in the rate of exchange between the U.S.
dollar and the applicable foreign currency, as well as the possibility of the
imposition or modification of exchange controls by the applicable governments or
monetary authorities. These risks generally depend on factors beyond our
control, including economic, financial and political events and the supply and
demand for the applicable currencies. In addition, if the formula used to
determine the amounts payable under those 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 U.S. dollar and
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foreign currencies have been highly volatile and this volatility may continue or
increase in the future. Depreciation of the foreign currency in which those
Notes is payable against the U.S. dollar would result in a decrease in the yield
and market value of those Notes on a U.S. dollar-equivalent basis.
Governments or monetary authorities may impose exchange controls at or
prior to the date on which any amount payable under one of those Notes is due.
Any of these actions could affect exchange rates as well as the availability of
the foreign currency in which that payment is to be made on that date. Even if
there are no exchange controls, it is possible that the applicable foreign
currency 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 payment obligations under those Notes in U.S. dollars. See
"Description of Notes - Payment of Principal and Interest."
EFFECTIVE SUBORDINATION
The Notes are unsecured and will rank equally with all of our unsecured and
unsubordinated debt, but will be effectively subordinated to all of our secured
debt. The Notes also will be effectively subordinated to all unsecured and
secured debt of our subsidiaries. See "Description of Notes - General." Due to
our structure, our subsidiaries own a significant percentage of our assets.
CREDIT RATING RISK
The 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
market 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 the Notes in light of your particular
circumstances.
DESCRIPTION OF NOTES
GENERAL
The following description of the particular terms of the Notes offered
hereby (which are referred to in the accompanying Prospectus as "Debt
Securities") supplements and, to the extent inconsistent therewith, replaces the
description of the general terms and provisions of Debt Securities set forth in
the accompanying Prospectus, to which description reference is hereby made. The
Notes will be issued as a series of Senior Debt Securities under the Senior
Indenture, dated as of May 1, 1995 (the "Indenture") between JPMorgan Chase Bank
(formerly Chase Bank of Texas, National Association), as Trustee, and us. The
Indenture is filed as an exhibit to the Registration Statement of which the
accompanying Prospectus constitutes a part. Capitalized terms not defined in
this Prospectus Supplement have the meanings assigned to those terms in the
accompanying Prospectus. Terms of the Notes may be varied in the related
supplement to this Prospectus Supplement (a "Pricing Supplement"). References to
interest payments and interest-related information do not apply to zero coupon
notes.
The Notes will be issued as Senior Notes. The Notes will constitute an
additional issuance of our Medium Term Notes, Series A, all of which comprise a
separate series under the Indenture and aggregated $784.0 million at December
31, 2002. The issuance of Notes by means of this Prospectus Supplement is
limited to $207,000,000. For a description of the rights attaching to different
series of Debt Securities under the Indenture, see "Events of Default, Notice
and Waiver," "Modification of the Indenture" and "Discharge, Defeasance and
Covenant Defeasance" below.
The Notes will be our unsecured obligations. The Notes will rank equally
with all of our other unsecured and unsubordinated indebtedness. At December
31, 2002, our Senior Debt aggregated approximately $1.3 billion. We had no
subordinated debt outstanding as of that date.
We will at all times have appointed and maintain a Paying Agent (which may
be the Trustee) authorized to pay the principal of (and premium, if any) or
interest on any Notes on our behalf and having an office or agency (the "Paying
Agent Office") in the Borough of Manhattan, The City of New York, where the
Notes may be presented or surrendered for payment and notices, designations, or
requests regarding payments on Notes may be served. We have initially appointed
JPMorgan Chase Bank as the Paying Agent.
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Unless previously redeemed or repaid, a Note will mature on the date
("Stated Maturity") nine months or longer from the date of issue specified on
its face and in the applicable Pricing Supplement. The "maturity" of any Note
refers herein to the date on which its principal becomes due and payable,
whether at Stated Maturity, upon redemption, repayment or otherwise.
Each Note will be denominated in a currency, composite currency or basket
of currencies (each a "Specified Currency") as specified on its face and in the
applicable Pricing Supplement, which may include U.S. dollars or any other
currency, composite currency or basket of currencies set forth in the applicable
Pricing Supplement. Purchasers of the Notes are required to pay for them by
delivery of the requisite amount of the Specified Currency to the applicable
Agent, unless other arrangements have been made. Unless otherwise specified in
the applicable Pricing Supplement, payments on the Notes will be made in the
applicable Specified Currency, provided that, at the election of the Note Holder
and under specific circumstances at our option, payments on Foreign Currency
Notes denominated in a Specified Currency other than U.S. dollars ("Foreign
Currency Notes") may be made in U.S. dollars. See "Payment of Principal and
Interest" below and "Investment Considerations Relating to Foreign Currency
Notes." The term "Holder" means, with respect to any Note, the person in whose
name that Note is registered at such time in the security register for the Notes
maintained by Mellon Investor Services and does not include the owner of a
beneficial interest in a Book-Entry Note as described under "Book-Entry Notes"
below.
Each Note will be represented by either a permanent global Note (a "Global
Security") registered in the name of, or a nominee of, the Depositary (each of
the Notes represented by a permanent Global Security is referred to herein as a
"Book-Entry Note") or a certificate issued in definitive registered form,
without coupons (a "Certificated Note"), as set forth in the applicable Pricing
Supplement. Except as set forth under "Book-Entry Notes" below, Book-Entry Notes
will not be issuable in certificated form. So long as the Depositary or its
nominee is the registered holder of any permanent Global Security, the
Depositary or its nominee, as the case may be, will be considered the sole
Holder of the Book-Entry Note or Notes represented by that permanent Global
Security for all purposes under the Indenture and the Notes. For a further
description of the respective forms, denominations, and transfer and exchange
procedures for any that permanent Global Security and the Book-Entry Notes,
refer to "Book-Entry Notes" below and to the applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, Notes will
be sold in individual issuances of Notes having a date of issue, interest rate
or interest rate formula, if any, Stated Maturity, and other variable terms as
shall be selected by the initial purchasers and agreed to by us. Notes
denominated in U.S. dollars will be initially issued in denominations of $1,000
and integral multiples thereof, and Notes denominated in currencies other than
U.S. dollars will be initially issued in denominations of the amount of the
Specified Currency for the Note equivalent, at the 12:00 p.m. buying rate for
cable transfers in The City of New York for the Specified Currency (the
"Exchange Rate") on the first Market Day (as defined below) next preceding the
date on which we accept the offer to purchase that Note, in $1,000 and integral
multiples thereof (or the equivalent thereof in the Specified Currency for each
Note). Interest rates offered by us with respect to the Notes may differ
depending upon, among other things, the aggregate principal amount of the Notes
purchased in any single transaction.
Unless otherwise indicated in the applicable Pricing Supplement, each Note,
except any Notes which pay face value only and are issued at a discount (a "Zero
Coupon Note"), will bear interest at a fixed rate or a rate determined by
reference to one or more of the Commercial Paper Rate, the Prime Rate, LIBOR,
the Treasury Rate, the CD Rate, the CMT Rate, the Eleventh District Cost of
Funds Rate or the Federal Funds Rate, as adjusted by the Spread and/or Spread
Multiplier (each as defined below), if any, applicable to that Note. See
"Interest Rate." Zero Coupon Notes will be issued at a discount from the
principal amount payable at maturity thereof, but holders of Zero Coupon Notes
will not receive periodic payments of interest thereon.
The Notes may be issued as Original Issue Discount Notes ("OID Notes"). An
OID Note is a Note, including any Zero Coupon Note, that is issued at a price
lower than the principal amount thereof and that may provide that upon
redemption or acceleration of the maturity thereof an amount less than the
principal amount thereof shall become due and payable. In the event of
redemption or acceleration of the maturity of an OID Note, the amount payable to
the Holder of the OID Note upon redemption or acceleration will be determined in
accordance with the terms of the OID Note, but generally will be an amount less
than the amount payable at the Stated Maturity of the OID Note. In addition, a
Note issued at a discount may, for U.S. federal income tax purposes, be
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considered an Original Issue Discount Security (as defined in the accompanying
Prospectus), regardless of the amount payable upon redemption or acceleration of
maturity of that Note. See "U.S. Taxation."
The Notes will not be subject to any sinking fund and, unless we specify an
initial date on which a Note may be redeemed by us (a "Redemption Commencement
Date") in the applicable Pricing Supplement, the Notes will not be redeemable
before their maturity. If we do specify a Redemption Commencement Date for any
Note, the applicable Pricing Supplement will also specify one or more redemption
prices (expressed as a percentage of the principal amount of that Note)
("Redemption Prices") and the redemption period or periods ("Redemption
Periods") during which Redemption Prices shall apply. Unless otherwise specified
in the Pricing Supplement, the Notes shall be redeemable at our option at any
time on or after the specified Redemption Commencement Date at the specified
Redemption Price applicable to the Redemption Period during which the Note is to
be redeemed, together with interest accrued to the redemption date. If specified
in the applicable Pricing Supplement, Holders may elect to have their Notes
redeemed at one or more optional repayment dates. See "Repayment at the Option
of the Holder" below.
Certificated Notes may be presented for registration of transfer or
exchange at the applicable Paying Agent Office in The City of New York. With
respect to transfers of Book-Entry Notes and exchanges of permanent Global
Securities representing Book-Entry Notes, see "Book-Entry Notes" below.
For a description of the Indenture provisions relating to defeasance and
covenant defeasance that will be applicable to the Notes, see "Discharge,
Defeasance and Covenant Defeasance" below.
INTEREST RATE
Each Note, other than a Zero Coupon Note, will bear interest from and
including its date of issue or from and including the most recent Interest
Payment Date (as defined below) to which interest on that Note has been paid or
duly provided for at the fixed rate per annum, or at the rate per annum
determined pursuant to the interest rate formula, stated therein and in the
applicable Pricing Supplement until the principal thereof is paid or made
available for payment. Interest will be payable on each Interest Payment Date
and at maturity as specified below under "Payment of Principal and Interest."
Each Note, other than a Zero Coupon Note, will bear interest at either:
(a) a fixed rate (a "Fixed Rate Note"); or
(b) a variable rate determined by reference to an interest rate
formula (a "Floating Rate Note"), which may be adjusted by adding or
subtracting the Spread and/or multiplying by the Spread Multiplier (each
term as defined below).
A Floating Rate Note may also have either or both:
(a) a maximum, or ceiling, on the rate of interest that may accrue
during any interest period (a "Maximum Rate"); and
(b) a minimum, or floor, on the rate of interest that may accrue
during any interest period (a "Minimum Rate").
The "Spread" is the number of basis points specified in the applicable
Pricing Supplement as applying to the Interest Rate Basis (as defined below) for
the applicable Note, and the "Spread Multiplier" is the percentage specified in
the applicable Pricing Supplement as applying to the Interest Rate Basis for
that Note.
"Index Maturity" means, for a Floating Rate Note, the period to maturity of
the interest or obligation on which the interest rate formula is based, as
specified in the applicable Pricing Supplement. Unless otherwise provided in the
applicable Pricing Supplement, JPMorgan Chase Bank will be the calculation agent
(the "Calculation Agent") for Floating Rate Notes.
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"Business Day," as used herein means any day, other than Saturday or
Sunday, that is neither a legal holiday nor a day on which commercial banks are
authorized or required by law, regulation or executive order to close in the
City of New York; provided, however, that if the Specified Currency is other
than United States dollars, such day must not be a day on which commercial banks
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 Euro, such day must be a
day on which the Trans-European Automated Real-Time Gross Settlement Express
Transfer (TARGET) System is open).
"Market Day" means:
(a) for any Note, other than a LIBOR Note or a Foreign Currency Note,
any Business Day in The City of New York;
(b) for a LIBOR Note, any day on which dealings in deposits in the
Index Currency (as defined below) are transacted in the London interbank
market (a "London Banking Day") which is also a Business Day in The City of
New York;
(c) for a Foreign Currency Note, any Business Day in the Principal
Financial Center (as defined below) of the country issuing the applicable
Specified Currency which is also a Business Day in The City of New York;
and
(d) for a Note the payment in respect of which is to be made in Euros,
any Business Day in The City of New York which is also not a day that
appears as an Euro non-settlement day on the display designated as "ISDE"
on the Reuters Monitor Money Rates Service (or a day so designated by the
Euro Banking Association) or, if Euro non-settlement days do not appear on
that page (and are not so designated), is not a day on which payments in
Euros cannot be settled in the international interbank market.
The applicable Pricing Supplement relating to a Fixed Rate Note will
designate a fixed rate of interest per annum payable on that Fixed Rate Note.
The applicable Pricing Supplement relating to a Floating Rate Note will
designate an interest rate basis (the "Interest Rate Basis") for that Floating
Rate Note. The Interest Rate Basis for each Floating Rate Note will be one or
more of the following:
(a) the Commercial Paper Rate for "Commercial Paper Rate Notes;"
(b) the Prime Rate for "Prime Rate Notes;"
(c) LIBOR for "LIBOR Notes;"
(d) the Treasury Rate for "Treasury Rate Notes;"
(e) the CD Rate for "CD Rate Notes;"
(f) the Federal Funds Rate for "Federal Funds Rate Notes;"
(g) the CMT Rate for "CMT Rate Notes;"
(h) the Eleventh District Cost of Funds Rate for "Eleventh District
Cost of Funds Rate Notes;" or
(i) any other interest rate basis or formula as the Pricing Supplement
sets forth.
The applicable Pricing Supplement for a Floating Rate Note will specify the
Interest Rate Basis and, if applicable, the Calculation Agent, the Index
Maturity, the Spread and/or Spread Multiplier, the Maximum Rate, the Minimum
Rate, the Initial Interest Rate, the Interest Payment Dates, the Interest
Determination Date, and the Interest Reset Dates for that Note.
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The interest rate on each Floating Rate Note will be reset daily, weekly,
monthly, quarterly, semi-annually, annually, or otherwise (each an "Interest
Reset Date"), as specified in the applicable Pricing Supplement. The Interest
Reset Dates will be:
(a) for Floating Rate Notes which reset daily, each Market Day;
(b) for Floating Rate Notes (other than Treasury Rate Notes) that
reset weekly, the Wednesday of each week;
(c) for Treasury Rate Notes that reset weekly, the Tuesday of each
week;
(d) for Floating Rate Notes (other than Eleventh District Cost of
Funds Rate Notes) that reset monthly, the third Wednesday of each month;
(e) for Eleventh District Cost of Funds Rate Notes that reset monthly,
the first calendar day of the month;
(f) for Floating Rate Notes that reset quarterly, the third Wednesday
of March, June, September and December;
(g) for Floating Rate Notes that reset semi-annually, the third
Wednesday of two months of each year as specified in the applicable Pricing
Supplement;
(h) for Floating Rate Notes that reset annually, the third Wednesday
of the month of each year as specified in the applicable Pricing
Supplement; and
(i) for Floating Rate Notes that reset at intervals other than those
described above, the days specified in the applicable Pricing Supplement;
provided, however, that the interest rate in effect from the date of issue to
the first Interest Reset Date for a Floating Rate Note will be the Initial
Interest Rate (as set forth in the applicable Pricing Supplement). If any
Interest Reset Date for any Floating Rate Note would otherwise be a day that is
not a Market Day for that Floating Rate Note, the Interest Reset Date for that
Floating Rate Note shall be postponed to the next day that is a Market Day for
that Floating Rate Note (except that for a LIBOR Note, if the applicable Market
Day is in the next succeeding calendar month, the Interest Reset Date shall be
the immediately preceding Market Day).
The Interest Determination Date pertaining to an Interest Reset Date for a
Commercial Paper Rate Note (the "Commercial Paper Rate Interest Determination
Date"), for a Prime Rate Note (the "Prime Rate Interest Determination Date") and
for a Federal Funds Rate Note (the "Federal Funds Rate Interest Determination
Date") will be the Market Day preceding the Interest Reset Date. The Interest
Determination Date pertaining to an Interest Reset Date for a CD Rate Note (the
"CD Rate Interest Determination Date") and for a CMT Rate Note (the "CMT Rate
Interest Determination Date") will be the second Market Day preceding the
Interest Reset Date. The Interest Determination Date pertaining to an Interest
Reset Date for an Eleventh District Cost of Funds Rate Note (the "Eleventh
District Cost of Funds Rate Interest Determination Date") will be the last
working day of the month immediately preceding the applicable Interest Reset
Date on which the Federal Home Loan Bank of San Francisco (the "FHLB of San
Francisco") publishes the FHLB Index (as hereinafter defined). The Interest
Determination Date pertaining to an Interest Reset Date for a LIBOR Note will be
the second London Banking Day preceding that Interest Reset Date. The Interest
Determination Date pertaining to an Interest Reset Date for a Treasury Rate Note
(the "Treasury Rate Interest Determination Date") will be the day of the week in
which the Interest Reset Date falls on which Treasury bills would normally be
auctioned. Treasury bills are usually sold at auction on the Monday of each
week, unless that day is a legal holiday, in which case the auction is usually
held on the following Tuesday, except that the auction may be held on the
preceding Friday. If, as the result of a legal holiday, an auction is so held on
the preceding Friday, that Friday will be the Treasury Rate Interest
Determination Date pertaining to the Interest Reset Date occurring in the next
succeeding week.
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All percentages resulting from any calculations referred to in this
Prospectus Supplement will be rounded upwards, if necessary, to the next higher
one hundred-thousandth of a percentage point (e.g., 9.876541% (or .09876541)
being rounded to 9.87655% (or .0987655)), and all U.S. dollar amounts used in or
resulting from these calculations will be rounded to the nearest cent (with
one-half cent being rounded upwards) and, in the case of a Specified Currency
other than U.S. dollars, to the nearest unit (with one-half unit being rounded
upward).
In addition to any Maximum Rate that may apply to a Floating Rate Note
under the above provisions, the interest rate on the Floating Rate Notes will in
no event be higher than the maximum rate permitted by New York law, as the same
may be modified by U.S. law of general application. Under present New York law
the maximum rate of interest is 25% per annum on a simple interest basis, with
specific exceptions. The limit may not apply to Floating Rate Notes in which
U.S. $2,500,000 or more has been invested.
Upon the request of the Holder of any Floating Rate Note, the Calculation
Agent will provide the interest rate then in effect, and, if determined, the
interest rate that will become effective on the next Interest Reset Date for
that Floating Rate Note. The Calculation Agent's determination of any interest
rate will be final and binding in the absence of manifest error. Unless
otherwise indicated in the applicable Pricing Supplement, the "Calculation
Date," if applicable, pertaining to an Interest Determination Date will be the
earlier of (1) the tenth calendar day after that Interest Determination Date or,
if that day is not a Market Day, the next succeeding Market Day and (2) the
Market Day immediately preceding the applicable Interest Payment Date or the
date of maturity, as the case may be.
Interest rates offered by us with respect to the Notes may differ depending
upon, among other factors, the aggregate principal amount of Notes purchased in
any single transaction. Notes with different variable terms other than interest
rates may also be offered concurrently to different investors. Interest rates
or formulas and other terms of Notes are subject to change by us from time to
time, but no change will affect any Note previously issued or as to which an
offer to purchase has been accepted by us.
COMMERCIAL PAPER RATE NOTES
Commercial Paper Rate Notes will bear interest at the interest rates
(calculated with reference to the Commercial Paper Rate and the Spread and/or
Spread Multiplier, if any), and will be payable on the dates, specified on the
face of the Commercial Paper Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement,
"Commercial Paper Rate" means, for any Interest Reset Date, the Money Market
Yield (calculated as described below) of the per annum rate (quoted on a bank
discount basis) for the relevant Commercial Paper Rate Interest Determination
Date for commercial paper having the specified Index Maturity as published by
the Board of Governors of the Federal Reserve System in "Statistical Release
H.15(519), Selected Interest Rates" or any successor publication of the Board of
Governors of the Federal Reserve System ("H.15(519)") under the heading
"Commercial Paper-Nonfinancial." If that rate is not published before 3:00
p.m., New York City time, on the relevant Calculation Date, then the Commercial
Paper Rate for that Interest Reset Date shall be the Money Market Yield of that
rate on that Commercial Paper Rate Interest Determination Date for commercial
paper having the specified Index Maturity as published by the Federal Reserve
Bank of New York on the Internet, under the heading "Selected Daily Rates." If
by 3:00 p.m., New York City time, on that Calculation Date that rate is not yet
published either in H.15(519) or by the Federal Reserve Bank of New York, the
Commercial Paper Rate for that Interest Reset Date shall be calculated by the
Calculation Agent and shall be the Money Market Yield of the arithmetic mean of
the offered per annum rates (quoted on a bank discount basis), as of 11:00 a.m.,
New York City time, on that Commercial Paper Rate Interest Determination Date,
of three leading dealers of U.S. dollar commercial paper in The City of New York
(which may include the Agents) selected by the Calculation Agent for U.S. dollar
commercial paper of the specified Index Maturity placed for a nonfinancial
issuer whose bond rating is "Aa," or the equivalent, from a nationally
recognized statistical rating agency; provided, however, that if fewer than
three dealers selected by the Calculation Agent are quoting as mentioned in this
sentence, the Commercial Paper Rate for that Interest Reset Date will be the
Commercial Paper Rate in effect on that Commercial Paper Rate Interest
Determination Date.
"Money Market Yield" shall be a yield (expressed as a percentage)
calculated in accordance with the following formula:
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Money Market Yield = 360 x D x 100
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360 - (DxM)
where "D" refers to the per annum rate for commercial paper quoted on a bank
discount basis and expressed as a decimal and "M" refers to the number of days
in the period for which accrued interest is being calculated.
PRIME RATE NOTES
Prime Rate Notes will bear interest at the interest rates (calculated with
reference to the Prime Rate and the Spread and/or Spread Multiplier, if any),
and will be payable on the dates, specified on their faces and in the applicable
Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Prime
Rate" means, for any Interest Reset Date, the rate set forth for the relevant
Prime Rate Interest Determination Date in H.15(519) under the heading "Bank
Prime Loan." If that rate is not published before 3:00 p.m., New York City time,
on the relevant Calculation Date, then the Prime Rate for that Interest Reset
Date will be the arithmetic mean of the rates of interest publicly announced by
each bank that appears on the display designated as page "USPRIME1" on the
Reuters Monitor Money Rates Service (or any other page as may replace the
USPRIME1 page on that service for the purpose of displaying prime rates or base
lending rates of major U.S. banks) ("Reuters Screen USPRIME1 Page") as that
bank's prime rate or base lending rate as in effect for that Prime Rate Interest
Determination Date as quoted on the Reuters Screen USPRIME1 Page on that Prime
Rate Interest Determination Date as of 11:00 a.m., New York City time. If fewer
than four of these rates appear on the Reuters Screen USPRIME1 Page on that
Prime Rate Interest Determination Date by 3:00 p.m., New York City time, on the
related Calculation Date, the Prime Rate for that Interest Reset Date will be
the arithmetic mean of the prime rates or base lending rates (quoted on the
basis of the actual number of days in the year divided by a 360-day year) as of
the close of business on that Prime Rate Interest Determination Date by four
major money center banks in The City of New York selected by the Calculation
Agent. If the banks so selected by the Calculation Agent are not quoting as
mentioned above, then the Prime Rate will be the Prime Rate in effect on the
particular Interest Determination Date.
LIBOR NOTES
LIBOR Notes will bear interest at the rates (calculated with reference to
LIBOR and the Spread and/or Spread Multiplier, if any), specified in those LIBOR
Notes and in any applicable Pricing Supplement.
Unless otherwise specified in the applicable Pricing Supplement, "LIBOR"
means the rate determined by the Calculation Agent in accordance with the
following provisions:
(1) With respect to an Interest Determination Date relating to a LIBOR
Note or any Floating Rate Note for which the interest rate is determined
with reference to LIBOR (a "LIBOR Interest Determination Date"), LIBOR will
be either: (a) if "LIBOR Reuters" is specified in the applicable Pricing
Supplement, the arithmetic mean of the offered rates (unless the specified
Designated LIBOR Page by its terms provides only for a single rate, in
which case that single rate shall be used) for deposits in the Index
Currency having the Index Maturity designated in the applicable Pricing
Supplement, commencing on the second London Banking Day immediately
following that LIBOR Interest Determination Date, that appear on the
Designated LIBOR Page specified in the applicable Pricing Supplement as of
11:00 a.m. London time, on that LIBOR Interest Determination Date, if at
least two of these offered rates appear (unless, as aforesaid, only a
single rate is required) on the Designated LIBOR Page, or (b) if "LIBOR
Moneyline Telerate" is specified in the applicable Pricing Supplement or if
neither "LIBOR Reuters" nor "LIBOR Moneyline Telerate" is specified as the
method for calculating LIBOR, the rate for deposits in the Index Currency
having the Index Maturity designated in the applicable Pricing Supplement,
commencing on the second London Banking Day immediately following LIBOR
Interest Determination Date that appears on the Designated LIBOR Page
specified in the applicable Pricing Supplement as of 11:00 a.m., London
time, on that LIBOR Interest Determination Date. If fewer than two offered
rates appear, or if no rate appears, as applicable, LIBOR in respect of the
related LIBOR Interest Determination Date will be determined in accordance
with the provisions described in clause (2) below.
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(2) With respect to a LIBOR Interest Determination Date on which fewer
than two offered rates appear, or no rate appears, as the case may be, on
the applicable Designated LIBOR Page as described in clause (1) above, the
Calculation Agent will request the principal London office of each of four
major reference banks in the London interbank market, as selected by the
Calculation Agent, to provide the Calculation Agent with its offered
quotation for deposits in the Index Currency for the period of the Index
Maturity designated in the applicable Pricing Supplement, commencing on the
second London Banking Day immediately following that LIBOR Interest
Determination 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 that Index Currency in that market at that time. If at least
two of these quotations are so provided, then LIBOR on that LIBOR Interest
Determination Date will be the arithmetic mean of those quotations. If
fewer than two of these quotations are provided, LIBOR determined on that
LIBOR Interest Determination Date will be the arithmetic mean of the rates
quoted at approximately 11:00 a.m., in the applicable Principal Financial
Center, on that LIBOR Interest Determination Date by three major banks in
that Principal Financial Center (which may include affiliates of the
Agents) selected by the Calculation Agent, for loans in the Index Currency
to leading European banks, having the Index Maturity designated in the
applicable Pricing Supplement and in a principal amount that is
representative for a single transaction in that Index Currency in that
market at that time; provided, however, that if the banks so selected by
the Calculation Agent are not quoting as mentioned in this sentence, LIBOR
determined as of that LIBOR Interest Determination Date will be LIBOR in
effect on that LIBOR Interest Determination Date.
"Index Currency" means the currency (including composite currencies)
specified in the applicable Pricing Supplement as the currency for which LIBOR
shall be calculated. If no currency is specified in the applicable Pricing
Supplement, the Index Currency shall be U.S. dollars.
"Designated LIBOR Page" means either (a) if "LIBOR Reuters" is specified in
the applicable Pricing Supplement, the display on the Reuters Monitor Money
Rates Service for the purpose of displaying the London interbank rates of major
banks for the applicable Index Currency, or (b) if "LIBOR Moneyline Telerate" is
specified in the applicable Pricing Supplement or neither "LIBOR Reuters" nor
"LIBOR Moneyline Telerate" is specified as the method for calculating LIBOR, the
display on the Dow Jones Telerate Service for the purpose of displaying the
London interbank rates of major banks for the applicable Index Currency.
"Principal Financial Center" will be the capital city of the country
issuing the Specified Currency in respect of which payment on the Notes is to be
made or, solely with respect to the calculation of LIBOR, of the specified Index
Currency, except that with respect to U.S. dollars, Australian dollars, German
marks, Dutch guilders, Italian lire, Swiss francs and Euros, the Principal
Financial Center shall be The City of New York, Sydney, Frankfurt, Amsterdam,
Milan, Zurich and Luxembourg, respectively.
TREASURY RATE NOTES
Treasury Rate Notes will bear interest at the interest rates (calculated
with reference to the Treasury Rate and the Spread and/or Spread Multiplier, if
any), and will be payable on the dates, specified on the face of the Treasury
Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Treasury
Rate" means, for any Interest Reset Date,
(a) 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 Moneyline Telerate, Inc. (or any successor service) on page 56
(or any other page as may replace that page on that service) ("Moneyline
Telerate Page 56") or page 57 (or any other page as may replace that page
on that service) ("Moneyline Telerate Page 57"), or
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(b) if the rate referred to in clause (a) 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
(c) if the rate referred to in clause (b) 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 U.S. Department of the Treasury, or
(d) if the rate referred to in clause (c) is not so announced by the
U.S. Department of the Treasury, or if the Auction is not held, the Bond
Equivalent Yield of the rate on the particular 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
(e) if the rate referred to in clause (d) is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the rate on the
particular 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
(f) if the rate referred to in clause (e) is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the rate on the
particular 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
Interest Determination Date, of three primary U.S. 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
(g) if the dealers so selected by the Calculation Agent are not
quoting as mentioned in clause (f), the Treasury Rate in effect on the
particular Interest Determination Date.
"Bond Equivalent Yield" means a yield (expressed as a percentage)
calculated in accordance with the following formula:
Bond Equivalent Yield = DxN x 100
-----------
360 - (DxM)
where "D" refers to the 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 number of days in the period for which accrued
interest is being calculated.
CMT RATE NOTES
CMT Rate Notes will bear interest at the interest rates (calculated with
reference to the CMT Rate and the Spread and/or Spread Multiplier, if any), and
will be payable on the dates, specified on the face of the CMT Rate Note and in
the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "CMT Rate"
means, with respect to any Interest Reset Date,
(a) if CMT Moneyline Telerate Page 7051 is specified in the applicable
Pricing Supplement:
(1) the percentage equal to the yield for U.S. 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 Moneyline Telerate, Inc.
(or any successor service) on page 7051 (or any other page as may replace
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the specified page on that service) ("Moneyline Telerate Page 7051"), for
the particular Interest Determination Date, or
(2) if the rate referred to in clause (1) does not appear on Moneyline
Telerate Page 7051, the percentage equal to the yield for U.S. Treasury
securities as "constant maturity" having the particular Index Maturity and
for the particular Interest Determination Date as published in H.15(519)
under the caption "Treasury Constant Maturities," or
(3) if the rate referred to in clause (2) does not appear in
H.15(519), the rate on the particular 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 U.S. 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
(4) if the rate referred to in clause (3) is not published, 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 at approximately 3:30 P.M., New York City time, on that
Interest Determination Date of three leading primary U.S. 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 U.S. Treasury securities with an original maturity equal to the
particular Index Maturity, a remaining term to maturity no more than one
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
(5) if fewer than five but more than two of the prices referred to in
clause (4) 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
(6) if fewer than three prices referred to in clause (5) 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 U.S.
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
(7) if fewer than five but more than two prices referred to in clause
(6) 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 will be eliminated, or
(8) if fewer than three prices referred to in clause (6) are provided
as requested, the CMT Rate in effect on the particular Interest
Determination Date.
(b) if CMT Moneyline Telerate Page 7052 is specified in the applicable
Pricing Supplement:
(1) the percentage equal to the one-week or one-month, as specified in
the applicable Pricing Supplement, average yield for U.S. 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
Moneyline Telerate, Inc. (or any successor service) (on page 7052 or any
other page as may replace the specified page on that service) ("Moneyline
Telerate Page 7052"), for the week
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or month, as applicable, ended immediately preceding the week or month, as
applicable, in which the particular Interest Determination Date falls, or
(2) if the rate referred to in clause (1) does not appear on Moneyline
Telerate Page 7052, the percentage equal to the one-week or one-month, as
specified in the applicable Pricing Supplement, average yield for U.S.
Treasury securities at "constant maturity" having the particular Index
Maturity and for the week or month, as applicable, preceding the particular
Interest Determination Date as published in H.15(519) opposite the caption
"Treasury Constant Maturities," or
(3) if the rate referred to in clause (2) does not appear in
H.15(519), the one-week or one-month, as specified in the applicable
Pricing Supplement, average yield for U.S. 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
particular Interest Determination Date falls, or
(4) if the rate referred to in clause (3) is not published, 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 at approximately 3:30 P.M., New York City time, on that
Interest Determination Date 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 U.S. Treasury securities with an original
maturity equal to the particular Index Maturity, a remaining term to
maturity no more than one 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
(5) if fewer than five but more than two of the prices referred to in
clause (4) 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
(6) if fewer than three prices referred to in clause (5) 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 U.S.
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
(7) if fewer than five but more than two prices referred to in clause
(6) 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 or the
lowest of the quotations will be eliminated, or
(8) if fewer than three prices referred to in clause (6) are provided
as requested, the CMT Rate in effect on that Interest Determination Date.
If two U.S. Treasury securities with an original maturity greater than the
Index Maturity specified in the applicable CMT Rate Note and the applicable
Pricing Supplement have remaining terms to maturity equally close to the Index
Maturity specified in the applicable CMT Rate Note and the applicable Pricing
Supplement, the quotes for the U.S. Treasury security with the shorter original
remaining term to maturity will be used.
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CD RATE NOTES
CD Rate Notes will bear interest at the interest rates (calculated with
reference to the CD Rate and the Spread and/or Spread Multiplier, if any), and
will be payable on the dates, specified on the face of the CD Rate Note and in
the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "CD Rate"
means, for any Interest Reset Date, the rate for the relevant CD Rate Interest
Determination Date in negotiable U.S. dollar certificates of deposit having the
specified Index Maturity as published in H.15(519) under the heading "CDs
(Secondary Market)." If that rate is not published before 3:00 p.m., New York
City time, on the relevant Calculation Date, then the CD Rate for that Interest
Reset Date shall be the rate on that CD Rate Interest Determination Date for
negotiable U.S. dollar certificates of deposit having the specified Index
Maturity as published by the Federal Reserve Bank of New York on the Internet,
under the heading "Selected Daily Rates." If by 3:00 p.m., New York City time,
on the applicable Calculation Date that rate is not published either in
H.15(519) or by the Federal Reserve Bank of New York, the CD Rate for that
Interest Reset Date shall be calculated by the Calculation Agent and shall be
the arithmetic mean of the secondary market offered rates, as of 10:00 a.m., New
York City time, on that CD Rate Interest Determination Date, of three leading
nonbank dealers in negotiable U.S. dollar certificates of deposit in The City of
New York selected by the Calculation Agent for negotiable certificates of
deposit of major U.S. money market banks with a remaining maturity closest to
the specified Index Maturity in an amount that is representative for a single
transaction in that market at that time; provided, however, that if the dealers
selected as provided above by the Calculation Agent are not quoting as mentioned
in this sentence, the CD Rate for that Interest Reset Date will be the CD Rate
in effect on that CD Rate Interest Determination Date.
FEDERAL FUNDS RATE NOTES
Federal Funds Rate Notes will bear interest at the interest rates
(calculated with reference to the Federal Funds Rate and the Spread and/or
Spread Multiplier, if any), and will be payable on the dates, specified on the
face of the Federal Funds Rate Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Federal
Funds Rate" means, for any Interest Reset Date,
(a) the rate on the particular Interest Determination Date for U.S.
dollar federal funds as published in H.15(519) under the heading "Federal Funds
(Effective)" and displayed on Moneyline Telerate, Inc. (or any successor
service) on page 120 (or any other page as may replace the specified page on
that service) ("Moneyline Telerate Page 120"), or
(b) if the rate referred to in clause (a) does not appear on Moneyline
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 the particular Interest Determination
Date for U.S. dollar federal funds as published in H.15 Daily Update, or any
other recognized electronic source used for the purpose of displaying the
applicable rate, under the caption "Federal Funds (Effective)," or
(c) if the rate referred to in clause (b) is not so published by 3:00
P.M., New York City time, on the related Calculation Date, the rate on the
particular Interest Determination Date calculated by the Calculation Agent as
the arithmetic mean of the rates for the last transaction in overnight U.S.
dollar federal funds arranged by three leading brokers of U.S. dollar 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 Interest Determination Date, or
(d) if the brokers so selected by the Calculation Agent are not quoting
as mentioned in clause (c), the Federal Funds Rate in effect on the particular
Interest Determination Date.
ELEVENTH DISTRICT COST OF FUNDS RATE NOTES
Eleventh District Cost of Funds Rate Notes will bear interest at the
interest rates (calculated with reference to the Eleventh District Cost of Funds
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Rate and the Spread and/or Spread Multiplier, if any), and will be payable on
the dates, specified on the face of the Eleventh District Cost of Funds Rate
Note and in the applicable Pricing Supplement.
Unless otherwise indicated in the applicable Pricing Supplement, "Eleventh
District Cost of Funds Rate" means, for any Interest Reset Date, the rate on the
relevant Eleventh District Cost of Funds Rate Interest Determination Date, which
is equal to the monthly weighted average cost of funds for the calendar month
immediately preceding the month in which the applicable Eleventh District Cost
of Funds Rate Interest Determination Date falls, as set forth under the caption
"11th District" on Moneyline Telerate Page 7058 as of 11:00 a.m., San Francisco
time, on that Eleventh District Cost of Funds Rate Interest Determination Date.
If that rate does not appear on Moneyline Telerate Page 7058 on that Eleventh
District Cost of Funds Rate Interest Determination Date, then the Eleventh
District Cost of Funds Rate on that Eleventh District Cost of Funds Rate
Interest Determination Date shall be the monthly weighted average cost of funds
paid by member institutions of the Eleventh Federal Home Loan Bank District that
was most recently announced (the "FHLB Index") by the FHLB of San Francisco as
the cost of funds for the calendar month immediately preceding the applicable
Eleventh District Cost of Funds Rate Interest Determination Date. If the FHLB of
San Francisco fails to announce the FHLB 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 determined as of
that Eleventh District Cost of Funds Rate Interest Determination Date will be
the Eleventh District Cost of Funds Rate in effect on that Eleventh District
Cost of Funds Rate Interest Determination Date.
INVERSE FLOATING RATE NOTES
Any Floating Rate Note may be designated in the applicable Pricing
Supplement as an "Inverse Floating Rate Note," in which event the interest rate
on that Floating Rate Note will be equal to (1) in the case of each period
commencing on the date of issue to but excluding the first Interest Reset Date,
the Initial Interest Rate specified in the applicable Pricing Supplement and (2)
in the case of each period commencing on an Interest Reset Date, a fixed rate of
interest specified in the applicable Pricing Supplement, minus the interest rate
determined by the reference to the Interest Rate Basis specified in the
applicable Pricing Supplement; provided, however, that unless otherwise
specified in the applicable Pricing Supplement, the interest rate thereon will
not be less than zero.
FLOATING RATE/FIXED RATE NOTES
The applicable Pricing Supplement may provide that a Note will be a
Floating Rate Note for a specified portion of its term and a Fixed Rate Note for
the remainder of its term, in which event the interest rate on that Note will be
determined as herein provided as if it were a Floating Rate Note and a Fixed
Rate Note thereunder for each respective period, all as specified in the
applicable Pricing Supplement.
INDEXED NOTES
Some Notes ("Indexed Notes") may be issued with the principal amount
payable at maturity, and/or the amount of interest payable on an Interest
Payment Date, to be determined by reference to one or more currencies (including
baskets of currencies), one or more commodities (including baskets of
commodities), one or more securities (including baskets of securities) and/or
any other index (each, an "Index") as set forth in the applicable Pricing
Supplement. Holders of Indexed Notes may receive a principal amount at maturity
that is greater than or less than the face amount (but not less than zero) of
those Notes depending upon the value at maturity of the applicable Index. With
respect to any Indexed Note, information as to the methods for determining the
principal amount payable at maturity and/or the amount of interest payable on an
Interest Payment Date, as the case may be, as to any one or more currencies
(including baskets of currencies), commodities (including baskets of
commodities), securities (including baskets of securities) or other indices to
which principal or interest is indexed, as to any additional foreign exchange or
other risks or as to any additional tax considerations may be set forth in the
applicable Pricing Supplement. See "Investment Considerations Relating to
Indexed Notes."
PAYMENT OF PRINCIPAL AND INTEREST
Payments of principal of (and premium, if any) and interest on all
Book-Entry Notes will be made in accordance with the procedures of the
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Depositary and its Participants in effect from time to time as described under
"Book-Entry Notes" below. Unless otherwise specified in the applicable Pricing
Supplement, payments of principal of (and premium, if any) and interest on all
Certificated Notes will be made in the applicable Specified Currency; provided,
however, that payments of principal (and premium, if any) and interest on
Foreign Currency Notes will nevertheless be made in U.S. dollars:
(a) with respect to any Certificated Notes, at the option of the
Holders of those Notes under the procedures described in the two following
paragraphs; and
(b) with respect to any Notes, at our option in the case of imposition
of exchange controls or other circumstances beyond our control as described
in the last paragraph under this heading.
Unless otherwise specified in the applicable Pricing Supplement, and except
as provided in the next paragraph, payments of principal of (and premium, if
any) and interest on any Certificated Foreign Currency Note will be made in U.S.
dollars if the registered Holder of that Note on the relevant Regular Record
Date, or at maturity, as the case may be, has transmitted a written request for
payment in U.S. dollars to the Paying Agent at the Paying Agent Office in The
City of New York on or before the applicable Regular Record Date, or the date 15
days before maturity, as the case may be. This request may be in writing (mailed
or hand delivered) or sent by cable, telex, or other form of facsimile
transmission. Any request made for any Certificated Foreign Currency Note by a
registered Holder will remain in effect for any further payments of principal of
(and premium, if any) and interest on that Note payable to that Holder, unless
that request is revoked on or before the relevant Regular Record Date or the
date 15 days before maturity, as the case may be. Holders of Certificated
Foreign Currency Notes that are registered in the name of a broker or nominee
should contact that broker or nominee to determine whether and how to elect to
receive payments in U.S. dollars.
Unless otherwise specified in the applicable Pricing Supplement, the U.S.
dollar amount to be received by a Holder of a Foreign Currency Note (including a
Book-Entry Note) who elects to receive payment in U.S. dollars will be based on
the highest bid quotation in The City of New York received by the Exchange Rate
Agent (as defined below) as of 11:00 a.m., New York City time, on the second
Market Day next preceding the applicable payment date from three recognized
foreign exchange dealers (one of which may be the Exchange Rate Agent) for the
purchase by the quoting dealer of the Specified Currency for U.S. dollars for
settlement on the applicable payment date in the aggregate amount of the
Specified Currency payable to all Holders of Foreign Currency Notes electing to
receive U.S. dollar payments and at which the applicable dealer commits to
execute a contract. If three bid quotations are not available on the second
Market Day preceding the date of payment of principal (and premium, if any) or
interest for any Note, the payment will be made in the Specified Currency. All
currency exchange costs associated with any payment in U.S. dollars on any of
these Notes will be borne by the Holder thereof by deductions from the payment.
The Exchange Rate Agent (the "Exchange Rate Agent") with respect to any Foreign
Currency Notes will be specified in the applicable Pricing Supplement.
Interest will be payable to the person in whose name a Note is registered
(which for a permanent Global Security representing Book-Entry Notes will be the
Depositary or a nominee of the Depositary) at the close of business on the
Regular Record Date next preceding each Interest Payment Date; provided,
however, that interest payable at maturity will be payable to the person to whom
principal shall be payable (which for permanent Global Securities representing
Book-Entry Notes, will be the Depositary or a nominee of the Depositary). The
first payment of interest on any Note originally issued between a Regular Record
Date and an Interest Payment Date will be made on the second Interest Payment
Date next succeeding its date of issue to the Holder of that Note on the Regular
Record Date relating to that second Interest Payment Date. Unless otherwise
indicated in the applicable Pricing Supplement, the "Regular Record Date" for
any Floating Rate Note shall be the date 15 calendar days before each Interest
Payment Date, whether or not that date is a Market Day, and the "Regular Record
Date" for any Fixed Rate Note shall be the March 1 and September 1 next
preceding the March 15 and September 15 Interest Payment Dates.
Unless otherwise indicated in the applicable Pricing Supplement and except
as provided below, interest will be payable:
(a) for Floating Rate Notes that reset 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 indicated in the applicable Pricing
Supplement);
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(b) for Floating Rate Notes that reset quarterly, on the third
Wednesday of March, June, September and December of each year;
(c) for Floating Rate Notes that reset semi-annually, on the third
Wednesday of the two months of each year specified in the applicable
Pricing Supplement;
(d) for Floating Rate Notes that reset annually, on the third
Wednesday of the month specified in the applicable Pricing Supplement; and
(e) for Floating Rate Notes that reset at intervals other than those
described above, on the days specified in the applicable Pricing
Supplement,
(each an "Interest Payment Date") and, in each case, at maturity. Payments of
interest on any Fixed Rate Note or Floating Rate Note for any Interest Payment
Date will include interest accrued to but excluding the applicable Interest
Payment Date or date of maturity as the case may be.
For a Floating Rate Note, accrued interest from (and including) the date of
issue or from (and including) the last date to which interest has been paid is
calculated by multiplying the principal amount of that Floating Rate Note by an
accrued interest factor. The accrued interest factor is computed by adding the
interest factor calculated for each day from (and including) the date of issue,
or from (and including) the last date to which interest has been paid to (but
excluding) the date for which accrued interest is being calculated. The interest
factor (expressed as a decimal) for each day is computed by dividing the
interest rate (expressed as a decimal) applicable to that date by 360 for
Commercial Paper Rate Notes, Prime Rate Notes, LIBOR Notes, CD Rate Notes,
Eleventh District Cost of Funds Rate Notes or Federal Funds Rate Notes, or by
the actual number of days in the year for Treasury Rate Notes or CMT Rate Notes.
Interest on Fixed Rate Notes will be computed on the basis of a 360-day year of
twelve 30-day months.
Except as provided in the next sentence, a payment on any Note due on any
day that is not a Market Day need not be made on that day, but may be made on
the next succeeding Market Day with the same force and effect as if made on the
due date, and no interest on that payment shall accrue for the period from and
after that date. If an Interest Payment Date (other than at maturity) for any
Floating Rate Note would otherwise fall on a day that is not a Market Day for
that Note, that Interest Payment Date will be postponed to the next succeeding
Market Day (or, for a LIBOR Note, if that day falls in the next calendar month,
the next preceding Market Day).
Payment of the principal of (and premium, if any) and any interest due on
any Certificated Note at maturity to be made in U.S. dollars will be made in
immediately available funds upon surrender of that Note at the Paying Agent
Office in The City of New York, provided that Certificated Note is presented to
the Paying Agent in time for the Paying Agent to make payments in those funds in
accordance with its normal procedures. Payments of interest on any Certificated
Note to be made in U.S. dollars other than at maturity will be made by check
mailed to the address of the Person entitled thereto as it appears in the
Security Register or, if that Holder owns Notes aggregating at least $10 million
in principal amount, by wire transfer to the account as may have been
appropriately designated by that Person.
Unless otherwise specified in the applicable Pricing Supplement, payments
of interest and principal (and premium, if any) with respect to any Certificated
Foreign Currency Note will be made by wire transfer of immediately available
funds to an account with a bank located in the country issuing the Specified
Currency (or, with respect to Certificated Notes denominated in or, in the case
of dual currency Notes, payable in Euros, must be made by wire transfer (not
check to an Euro Denominated account (or any other account to which Euros may be
credited or transferred) specified by the payer) or other jurisdiction
acceptable to us and the Paying Agent as shall have been designated at least
five Business Days prior to the Interest Payment Date or Stated Maturity, as the
case may be, by the registered Holder of that Note on the relevant Regular
Record Date or maturity, provided that, in the case of payment of principal (and
premium, if any) and any interest due at maturity, the Note is presented to the
Paying Agent in time for the Paying Agent to make payments in those funds in
accordance with its normal procedures. This designation shall be made by filing
the appropriate information with the Paying Agent at the Paying Agent Office in
The City of New York, and, unless revoked, any designation made with respect to
any Certificated Foreign Currency Note by a registered Holder will remain in
effect with respect to any further payments with respect to that Note payable to
that Holder. If a payment with respect to any Note cannot be made by wire
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transfer because the required designation has not been received by the Paying
Agent on or before the requisite date or for any other reason, a notice will be
mailed to the Holder at its registered address requesting a designation pursuant
to which that wire transfer can be made and, upon the Paying Agent's receipt of
a designation, that payment will be made within five Business Days of receipt.
We will pay any administrative costs imposed by banks in connection with making
payments by wire transfer, but any tax, assessment or governmental charge
imposed upon payments will be borne by the Holders of the Certificated Notes in
respect of which payments are made.
If the principal of (and premium, if any) or interest on any Note is
payable in other than U.S. dollars and that Specified Currency is not available
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
Note by making payment (including any payment at maturity) in U.S. dollars on
the basis of the most recently available Exchange Rate. If the principal of (and
premium, if any) and interest on any Note is payable in Euros, and the Euro is
not available 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 Note by making payment (including any payment at maturity) as described
under "Investment Considerations Relating to Foreign Currency Notes - Notes
Denominated in Euros." Any payment made under these circumstances in that manner
will not constitute an Event of Default under any Note or the Indenture.
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 Stated Maturity only if a Redemption Commencement 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 and after the applicable
Redemption Commencement Date in whole or from time to time in part in increments
of $1,000 (or the minimum denomination specified in the applicable Pricing
Supplement), provided that any remaining principal amount of those Notes will be
an authorized denomination of those Notes, at the applicable Redemption Price
(as defined below) on notice given not more than 60 nor less than 30 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 sum of (1) 100% of the unpaid principal amount thereof or the portion
thereof to be redeemed (or, if the applicable Note is an OID Note, the Amortized
Face Amount (as defined below) determined as of the date of redemption as
provided below), (2) the Initial Redemption Percentage specified in the
applicable Pricing Supplement (as adjusted by the Annual Redemption Percentage
Reduction, if applicable, also as specified in the Pricing Supplement)
multiplied by the unpaid principal amount or the portion to be redeemed (or, if
the applicable Note is an OID Note, the Issue Price (as determined under
Treasury Regulation Section 1.1273-2(a)(1)) specified in the applicable Pricing
Supplement (the "Issue Price"), net of any portion of the applicable Issue Price
which has been paid prior to the date of redemption, or the portion of the
applicable Issue Price (or that net amount) proportionate to the portion of the
unpaid principal amount to be redeemed) plus (3) accrued interest to the date of
redemption (or, if the applicable Note is an OID Note, any accrued interest to
the date of redemption the payment of which would constitute qualified stated
interest payments within the meaning of Treasury Regulation Section 1.1273-1(c)
under the Code (as defined below)). The Initial Redemption Percentage, if any,
applicable to a Note shall decline at each anniversary of the Redemption
Commencement Date by an amount equal to the applicable Annual Redemption
Percentage Reduction, if any, until it equals zero. "Amortized Face Amount,"
with respect to an OID Note, means an amount equal to the sum of (a) the Issue
Price plus (b) the aggregate of the portions of the original issue discount (the
excess of the amounts considered as part of the "stated redemption price at
maturity" of that Note within the meaning of Section 1273(a)(2) of the Code,
whether denominated as principal or interest, over the Issue Price) which shall
theretofore have accrued pursuant to Section 1272 of the Code (without regard to
Section 1272(a)(7) of the Code) from the date of issue of that Note to the date
of determination, minus (c) any amount considered as part of the "stated
redemption price at maturity" of that Note which has been paid from the date of
issue to the date of determination.
REPAYMENT AT THE OPTION OF THE HOLDER
If so specified in the applicable Pricing Supplement, the Notes will be
repayable by us in whole or from time to time in part at the option of the
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Holders thereof on their respective Optional Repayment Dates specified in that
Pricing Supplement. If no Optional Repayment Date is specified with respect to a
Note, that Note will not be repayable at the option of the Holder thereof prior
to Stated Maturity. Any repayment in part will be in increments of $1,000 (or
the minimum denomination specified in the applicable Pricing Supplement)
provided that any remaining principal amount of the applicable Note will be an
authorized denomination of the applicable Note. Unless otherwise specified in
the applicable Pricing Supplement, the repayment price for any Note to be repaid
means an amount equal to the sum of (1) 100% of the unpaid principal amount
thereof or the portion thereof (or, if the applicable Note is an OID Note, the
Amortized Face Amount determined as of the date of repayment) plus (2) accrued
interest to the date of repayment (or, if the applicable Note is an OID Note,
any accrued interest to the date of repayment the payment of which would
constitute qualified stated interest payments within the meaning of Treasury
Regulation Section 1.1273-1(c) under the Code). Information with respect to the
repayment price for Indexed Notes shall be set forth in the applicable Pricing
Supplement. For any Note to be repaid, that Note must be received, together with
the form thereon entitled "Option to Elect Repayment" duly completed, by the
applicable Trustee at its Corporate Trust Office (or any other address of which
we shall from time to time notify the Holders) not more than 60 nor less than 30
days prior to the date of repayment. Exercise of the repayment option by the
Holder will be irrevocable.
While the Book-Entry Notes are represented by the Global Securities held by
or on behalf of the Depositary, and registered in the name of the Depositary or
the Depositary's nominee, the option for repayment may be exercised by the
Depositary, acting on behalf of each applicable Participant, who is in turn
acting on behalf of the beneficial owners of the Global Security or Securities
representing Book-Entry Notes, by delivering a written notice substantially
similar to the above-mentioned form to the Trustee at its Corporate Trust Office
(or any other address of which we shall from time to time notify the Holders)
not more than 60 nor less than 30 days prior to the date of repayment. Any
written notice must be received by the Trustee by 5:00 p.m., New York City time,
on the last day for giving notice. In order to ensure that notice is received by
the Trustee on a particular day, the beneficial owner of the Global Security or
Securities representing the Book-Entry Notes must so direct the applicable
Participant before the Participant's deadline for accepting instructions for
that day. Different firms may have different deadlines for accepting
instructions from their customers. Accordingly, beneficial owners of the Global
Security or Securities representing Book-Entry Notes should consult the
Participants through which they own their interest therein for the respective
deadlines for the Participants. All instructions given to the Participants from
beneficial owners relating to the option to elect repayment shall be
irrevocable. In addition, at the time these instructions are given, the
beneficial owners shall cause the applicable Participant to transfer the
beneficial owner's interest in the Global Security or Securities representing
Book-Entry Notes, on the Depositary's records, to the applicable Trustee. See
"Book-Entry Notes."
If applicable, we will comply with the requirements of Rule 14e-1 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and any other
securities laws or regulations in connection with any repayment.
We may at any time purchase Notes at any price or prices in the open market
or otherwise. Notes so purchased by us may be held or resold or, at our
discretion, may be surrendered to the Trustee for cancellation.
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 or trust or
entity provided that: (1) either we are the continuing entity, or the successor
entity (if other than us) formed by or resulting from any consolidation or
merger or which shall have received the transfer of those assets shall expressly
assume payment of the principal of (and premium, if any) and interest, if any,
on all of the Debt Securities and the due and punctual performance and
observance of all of the covenants and conditions contained in the Indenture;
(2) immediately after giving effect to the transaction and treating any
indebtedness that becomes our obligation or the obligation of any Subsidiary as
a result thereof as having been incurred by us or that Subsidiary at the time of
the 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 officers' certificate and
legal opinion covering those conditions shall be delivered to the Trustee
(Sections 801 and 803 of the Indenture).
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COVENANTS
Limitations on Incurrence of Debt. We will not, and will not permit any
Subsidiary to, incur any Debt (as defined below) if, immediately after giving
effect to the incurrence of that Debt and the application of the proceeds
thereof, the aggregate principal amount of all our outstanding Debt and that of
any Subsidiaries on a consolidated basis determined in accordance with generally
accepted accounting principles is greater than 60% of the sum of (without
duplication) (1) our Total 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 Securities and
Exchange Commission (or, if that filing is not permitted under the Exchange Act,
with the Trustee) prior to the incurrence of the additional Debt and (2) the
purchase price of any real estate assets or mortgages receivable acquired, and
the amount of any securities offering proceeds received (to the extent the
proceeds were not used to acquire real estate assets or mortgages receivable or
used to reduce Debt), by us or any Subsidiary since the end of that calendar
quarter, including those proceeds obtained in connection with the incurrence of
that additional Debt (Section 1004 of the Indenture).
In addition to the foregoing limitation on the incurrence of Debt, we will
not, and will not permit any Subsidiary to, incur any Debt secured by any
mortgage, lien, charge, pledge, encumbrance or security interest of any kind
upon any of our property or that of any Subsidiary if, immediately after giving
effect to the incurrence of that Debt and the application of the proceeds
thereof, the aggregate principal amount of all our outstanding Debt and that of
the Subsidiaries on a consolidated basis which is secured by any mortgage, lien,
charge, pledge, encumbrance or security interest on our property and that of any
Subsidiary is greater than 40% of our Total Assets (Section 1004 of the
Indenture).
In addition to the foregoing limitations on the incurrence of Debt, we will
not, and will not permit any Subsidiary to, incur any Debt if the ratio of
Consolidated Income Available for Debt Service (as defined below) to the Annual
Service Charge (as defined below) for the four consecutive fiscal quarters most
recently ended prior to the date on which the additional Debt is to be incurred
shall have been less than 1.5, on a pro forma basis after giving effect thereto
and to the application of the proceeds therefrom, and calculated on the
assumption that: (1) that Debt and any other Debt incurred by us and the
Subsidiaries since the first day of that four-quarter period and the application
of the proceeds therefrom, including to refinance other Debt, had occurred at
the beginning of that period; (2) the repayment or retirement of any other Debt
by us and the Subsidiaries since the first day of that four-quarter period had
been incurred, repaid or retired at the beginning of that period (except that,
in making the computation, the amount of Debt under any revolving credit
facility shall be computed based upon the average daily balance of that Debt
during that period); (3) in the case of Acquired Debt (as defined below) or Debt
incurred in connection with any acquisition since the first day of that
four-quarter period, the related acquisition had occurred as of the first day of
that period with the appropriate adjustments with respect to that acquisition
being included in the applicable pro forma calculation; and (4) in the case of
any acquisition or disposition by us or the Subsidiaries of any asset or group
of assets since the first day of the applicable four-quarter period, whether by
merger, stock purchase or sale, or asset purchase or sale, that acquisition or
disposition or any related repayment of Debt had occurred as of the first day of
that period with the appropriate adjustments with respect to that acquisition or
disposition being included in the pro forma calculation (Section 1004 of the
Indenture).
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 legal existence, rights (charter and statutory) and
franchises; provided, however we will not be required to preserve any right or
franchise if we determine that the preservation thereof is no longer desirable
in the conduct of our business (Section 1005 of the Indenture).
Maintenance of Properties. We will cause all of our material properties
used or useful in the conduct of our business or the business of any Subsidiary
to be maintained and kept in good condition, repair and working order and
supplied with all necessary equipment and will cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
our judgment may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times (Section
1006 of the Indenture).
Insurance. We will keep, and will cause each of the Subsidiaries to keep,
all of our insurable properties insured against loss or damage in an amount at
least equal to their then full insurable value with insurers of recognized
responsibility and, if those insurers have publicly rated debt, the rating for
that debt must be at least investment grade with a nationally recognized rating
agency (Section 1007 of the Indenture).
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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 Subsidiary
or upon our income, profits or property or that of any Subsidiary and (2) all
lawful claims for labor, materials and supplies which, if unpaid, might by law
become a lien upon our property or that of any Subsidiary; 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 (Section 1008 of the Indenture).
Provision of Financial Information. Whether or not we are subject to
Section 13 or 15(d) of the Exchange Act, we will, within 15 days of each of the
respective dates by which we would have been required to file annual reports,
quarterly reports and other documents with the Securities and Exchange
Commission if we were so subject, (1) transmit by mail to all Note Holders, as
their names and addresses appear in the security register, without cost to those
Note Holders, copies of the annual reports, quarterly reports and other
documents that we would have been required to file with the Securities and
Exchange Commission pursuant to Section 13 or 15(d) of the Exchange Act if we
were subject to those Sections, (2) file with the Trustee copies of annual
reports, quarterly reports and other documents that we would have been required
to file with the Securities and Exchange Commission pursuant to Section 13 or
15(d) of the Exchange Act if we were subject to those Sections and (3) promptly
upon written request and payment of the reasonable cost of duplication and
delivery, supply copies of such documents to any prospective Note Holder
(Section 1009 of the Indenture).
Maintenance of Value of Unencumbered Assets to Unsecured Debt. We will at
all times maintain an Unencumbered Total Asset Value (as defined below) in an
amount of not less than 100% of the aggregate principal amount of all our
outstanding Debt and that of the Subsidiaries that is unsecured (Section 1013 of
the Indenture).
Limited Covenants in the Event of a Highly Leveraged Transaction. Other
than our covenants included in the Indenture as described above, there are no
covenants in the Indenture that will afford the Note Holders protection in the
event of a highly leveraged transaction or similar transaction involving us.
Restrictions on ownership and transfers of our common shares and preferred
shares are designed to preserve our status as a REIT and, therefore, may act to
prevent or hinder a change of control.
As used herein,
"Acquired Debt" means Debt of a person (1) existing at the time that person
becomes a Subsidiary or (2) assumed in connection with the acquisition of assets
from that person, in each case, other than Debt incurred in connection with, or
in contemplation of, that person becoming a Subsidiary or that acquisition.
Acquired Debt shall be deemed to be incurred on the date of the related
acquisition of assets from any person or the date the acquired person becomes a
Subsidiary.
"Annual Service Charge" as of any date means the maximum amount which is
payable in any period for interest on, and original issue discount of, our Debt
and that of the Subsidiaries and the amount of dividends which are payable in
respect of any Disqualified Stock (as defined below).
"Capital Shares" means, with respect to any person, any capital shares
(including preferred shares), interests, participations or other ownership
interests (however designated) of that person and any rights (other than debt
securities convertible into or exchangeable for capital shares), warrants or
options to purchase any thereof.
"Consolidated Income Available for Debt Service" for any period means our
Funds from Operations (as defined below) and those of the Subsidiaries plus
amounts which have been deducted for interest on Debt and that of the
Subsidiaries.
"Debt" of ours or any Subsidiary means any of our indebtedness, and that of
any Subsidiary, other than contingent liabilities (except to the extent set
forth in (3) below), in respect of (without duplication) (1) borrowed money
evidenced by bonds, notes, debentures or similar instruments, (2) indebtedness
secured by any mortgage, pledge, lien, charge, encumbrance or any security
interest existing on
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property owned by us or any Subsidiary, (3) the reimbursement obligations,
contingent or otherwise, in connection with any letters of credit actually
issued or amounts representing the balance deferred and unpaid of the purchase
price of any property or services, except any balance that constitutes an
accrued expense or trade payable, or all conditional sale obligations or
obligations under any title retention agreement, (4) the principal amount of all
our obligations and those of any Subsidiary with respect to redemption,
repayment or other repurchase of any Disqualified Stock or (5) any lease of
property by us or any Subsidiary as lessee which is reflected on our
consolidated balance sheet as a capitalized lease in accordance with generally
accepted accounting principles to the extent, in the case of items of
indebtedness under (1) through (3) above, that any of those items (other than
letters of credit) would appear as a liability on our consolidated balance sheet
in accordance with generally accepted accounting principles, but does not
include any of our obligations or those of any Subsidiary to be liable for, or
to pay, as obligor, guarantor or otherwise, Debt of another person (other than
us or any Subsidiary) unless and until we or our Subsidiary shall become
directly liable in respect thereof.
"Disqualified Stock" means, with respect to any person, any Capital Shares
of that person which by the terms of those Capital Shares (or by the terms of
any security into which it is convertible or for which it is exchangeable or
exercisable), upon the happening of any event or otherwise (1) matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, (2)
is convertible into or exchangeable or exercisable for Debt or Disqualified
Stock or (3) is redeemable at the option of the holder thereof, in whole or in
part, in each case on or prior to the Stated Maturity of the Debt Securities.
"Funds from Operations" for any period means net income plus depreciation
and amortization of real estate assets and extraordinary charges, excluding
gains and losses on sales of properties and securities.
"Subsidiary" means one of our subsidiaries.
"Total Assets" as of any date means the sum of (1) our Undepreciated Real
Estate Assets and (2) all other assets of ours determined in accordance with
generally accepted accounting principles (but excluding goodwill and unamortized
debt costs).
"Undepreciated Real Estate Assets" as of any date means the cost (original
cost plus capital improvements) of our real estate assets and those of the
Subsidiaries on the applicable 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 shall mean the sum of our
Total Assets which are unencumbered by any mortgage, lien, charge, pledge, or
security interest.
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: (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 or breach of any other covenant or warranty of ours
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) a default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by us (including obligations under leases
required to be capitalized on the balance sheet of the lessee under generally
accepted accounting principles but not including any indebtedness or obligations
for which recourse is limited to property purchased or property mortgaged) in an
aggregate principal amount in excess of $10,000,000 or under any mortgage
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any indebtedness for money borrowed by us (including those
leases but not including indebtedness or obligations for which recourse is
limited to property purchased) in an aggregate principal amount in excess of
$10,000,000 by us, whether that indebtedness now exists or shall hereafter be
created, which default shall have resulted in that indebtedness becoming or
being declared due and payable prior to the date on which it would otherwise
have become due and payable or those obligations being accelerated, without that
acceleration having been rescinded or annulled; (6) events of bankruptcy,
insolvency or reorganization, or court appointment of a receiver, liquidator or
trustee of us or any Significant Subsidiary (defined below) or either of our
properties; and (7) any other Event of Default provided with respect to a
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particular series of Debt Securities (Section 501 of the Indenture). The term
"Significant Subsidiary" means each of our significant subsidiaries (as defined
in Regulation S-X promulgated under the Securities Act).
If an Event of Default under the Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then 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 OID Notes or Indexed Notes, 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). 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 the applicable
series (or of all Debt Securities then outstanding under the Indenture, as the
case may be) may rescind and annul any 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 the applicable
series (or of all Debt Securities then outstanding under the Indenture, as the
case may be), plus fees, expenses, disbursements and advances of the Trustee and
(2) all Events of Default, other than the non-payment of accelerated principal
(or a 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 of the
Indenture). 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 the applicable series and its
consequences, except a default (a) in the payment of the principal of (or
premium if any) or interest, if any, 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 Holders of each outstanding Debt
Security affected thereby (Section 513 of the Indenture).
The Trustee is required to give notice to the Holders of Debt Securities
within 90 days of a default under the Indenture unless that default shall have
been cured or waived; provided, however, that that 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 premium, if
any) or interest, if any, 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 (Section 601 of the Indenture).
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 of the
Indenture). 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, if any, on those Debt Securities at the
respective due dates thereof (Section 508 of the Indenture).
Subject to provisions in the Indenture relating to its duties in case of
default, the Trustee is under an 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 thereunder reasonable security or
indemnity (Section 602 of the Indenture). 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 each series not joining therein (Section 512
of the Indenture).
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 default and the nature and statue thereof (Section
1010 of the Indenture).
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MODIFICATION OF THE INDENTURE
Modification and amendment of the Indenture may be made only with the
consent of the Holders of not less than a majority in principal amount of all
outstanding Debt Securities issued under the Indenture which are affected by the
modification or amendment; provided, however, that no modification or amendment
may, without the consent of the Holder of each Debt Security affected thereby,
(1) change the Stated Maturity of the principal of, or any installment of
interest (or premium, if any) on, any that Debt Security, (2) reduce the
principal amount of, or the rate or amount of interest on, or any premium
payable on redemption of, that Debt Security, or reduce the amount of principal
of an OID Note 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 that Debt Security, (3) change the place of
payment, or the coin or currency, for payment of principal of, premium, if any,
or interest, if any, on that Debt Security, (4) impair the right to institute
suit for the enforcement of any payment on or with respect to that Debt
Security, (5) reduce the above-stated percentage of outstanding Debt Securities
of any series necessary to modify or amend the applicable Indenture, to waive
compliance with specific provisions thereof or specific 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 past defaults or covenants, except to
increase the required percentage to effect that action or to provide that other
provisions may not be modified or waived without the consent of the Holder of
that Debt Security (Section 902 of the Indenture).
The Holders of not less than a majority in principal amount of outstanding
Debt Securities issued under the Indenture have the right to waive compliance by
us with specific covenants in the Indenture (Section 1012 of the Indenture).
Modifications and amendments of the Indenture may be made by us and the
Trustee thereunder 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 the 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 specific terms of, Debt Securities in bearer form, or to permit or
facilitate the issuance of Debt Securities in uncertificated form, provided that
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 change or elimination shall become
effective only when there are no Debt Securities outstanding of any series
created prior thereto which are entitled to the benefit of 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 shares
or preferred shares; (8) to provide for the acceptance or appointment of 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 action shall not adversely affect
the interests of Holders of Debt Securities of any series issued under the
Indenture; 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 the Debt Securities, provided that action shall not adversely affect the
interests of the Holders of the Debt Securities of any series (Section 901 of
the Indenture).
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Under the Indenture, we may discharge specific obligations to Holders of
any series of Debt Securities issued thereunder 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 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 of the Indenture).
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The Indenture provides that, if the provisions of Article Fourteen thereof
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 specific 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 of the Indenture) or (2) to be released from
our obligations with respect to those Debt Securities under Section 1004 to
1009, inclusive, and Section 1013 of the Indenture (being the restrictions
described under "Covenants") or, if provided pursuant to Section 301 of the
Indenture, our obligations with respect to any other covenant, and any omission
to comply with the obligations shall not constitute a default or an Event of
Default with respect to those Debt Securities ("covenant defeasance") (Section
1403 of the Indenture), in either case upon the irrevocable deposit by us with
the Trustee, in trust, of an amount, in those 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 (Section 1404 of the Indenture).
A trust may only be established if, among other things, we have delivered
to the Trustee an Opinion of Counsel (as specified in the Indenture) 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 a 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 of the Indenture).
"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 the 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 any Government Obligation or a specified payment of interest on or
principal of any Government Obligation held by the custodian for the account of
the holder of a depository receipt, provided that (except as required bylaw) 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 of the Indenture).
If after we have deposited funds and/or Government Obligations 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, 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 becomes payable as a result of the election or the cessation
of usage based on the applicable market exchange rate (Section 1405 of the
Indenture). "Conversion Event" means the cessation of use of (a) 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, (b)
the Euro both within the European Monetary System and for the settlement of
transactions by public institutions of or within the European Communities or (c)
any currency unit or composite currency other than the Euro for the purposes of
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which it was established. All payments of principal of (and premium, if any)
and interest, if any, 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 of the Indenture).
In the event that 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 through 1009, inclusive, and Section 1013 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 the
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 will remain liable to make payment of the amounts due at the time of
acceleration.
BOOK-ENTRY NOTES
The following provisions assume that we have established a depository
arrangement with The Depository Trust Company with respect to the Book-Entry
Notes. Any additional or differing terms of the depository arrangements with
respect to the Book-Entry Notes will be described in the applicable Pricing
Supplement.
Upon issuance, all Book-Entry Notes up to $200,000,000 aggregate principal
amount bearing interest (if any) at the same rate or pursuant to the same
formula and having the same date of issue, currency of denomination and payment,
redemption provisions (if any), repayment provisions (if any), Stated Maturity
and other variable terms will be represented by a single Global Security. Each
Global Security representing Book-Entry Notes will be deposited with, or on
behalf of, the Depositary and will be registered in the name of the Depositary
or a nominee of the Depositary. No Global Security may be transferred except as
a whole by a nominee of the Depositary to the Depositary or to another nominee
of the Depositary, or by the Depositary or any nominee to a successor of the
Depositary or a nominee of that successor.
So long as the Depositary or its nominee is the registered owner of a
Global Security, the Depositary or its nominee, as the case may be, will be the
sole Holder of the Book-Entry Notes represented thereby for all purposes under
the applicable Indenture. Except as otherwise provided in this section, 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 thereof for any purpose under the
Indenture, and no Global Security representing Book-Entry Notes shall be
exchangeable or transferable. Accordingly, each person owning a beneficial
interest in a Global Security must rely on the procedures of the Depositary and,
if that person is not a Participant, on the procedures of the Participant
through which that person owns its interest in order to exercise any rights of a
Holder under the Indenture. The laws of some jurisdictions require that
purchasers of securities take physical delivery of those securities in
certificated form. Those limits and laws may impair the ability to transfer
beneficial interests in a Global Security representing Book-Entry Notes.
Unless otherwise specified in the applicable Pricing Supplement, each
Global Security representing Book-Entry Notes will be exchangeable for
Certificated Notes of like tenor and terms and of differing authorized
denominations aggregating a like amount, only if (1) the Depositary notifies us
that it is unwilling or unable to continue as Depositary for the Global
Securities, (2) the Depositary ceases to be a clearing agency registered under
the Exchange Act, (3) we in our sole discretion determine that the Global
Securities shall be exchangeable for Certificated Notes, or (4) there shall have
occurred and be continuing an Event of Default under the Indenture with respect
to the Notes. Upon any exchange, Certificated Notes shall be registered in the
names of the beneficial owners of the Global Security or Securities representing
Book-Entry Notes as provided by the Depositary's relevant Participants (as
identified by the Depositary).
With respect to any Book-Entry Foreign Currency Note, the Depositary
currently has elected to have payments of principal (and premium, if any) and
Interest on that Note made in U.S. dollars unless notified by any of its
Participants through which an interest in that Note is held that it elects to
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receive payment of principal (or premium, if any) or interest in the Specified
Currency. Unless otherwise specified in the applicable Pricing Supplement, a
Beneficial Owner of Book-Entry Foreign Currency Notes electing to receive
payments of principal or any premium or interest in a currency other than U.S.
dollars must notify the Participant through which its interest is held on or
prior to the applicable Record Date, in the case of a payment of Interest, and
on or prior to the sixteenth day prior to maturity, in the case of principal or
premium, of the Beneficial Owner's election to receive all or a portion of the
payment in the Specified Currency. The Participant must notify the Depositary of
its election on or prior to the third Business Day after that Record Date or
after that sixteenth day. The Depositary will notify the Paying Agent of the
election on or prior to the fifth Business Day after that Record Date or after
that sixteenth day. If complete instructions are received by the Participant and
forwarded by the Participant to the Depositary and by the Depositary to the
Paying Agent, on or prior to those dates, the Beneficial Owner will receive
payments in the Specified Currency.
The following is based on information furnished by the Depositary:
The Depositary will act as securities depository for the Book-Entry Notes.
The Book-Entry Notes will be issued as fully registered securities registered in
the name of Cede & Co. (the Depositary's partnership nominee). One fully
registered Global Security will be issued for each issue of Book-Entry Notes,
each in the aggregate principal amount of the issue, and will be deposited with
the Depositary. If, however, the aggregate principal amount of any issue exceeds
$500,000,000, one Global Security will be issued with respect to each
$500,000,000 of principal amount and an additional Global Security will be
issued with respect to any remaining principal amount of the issue.
The Depositary is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing
agency" registered pursuant to the provisions of Section 17A of the Exchange
Act. The Depositary holds securities that its participants ("Participants")
deposit with the Depositary. The Depositary also facilitates the settlement
among Participants of securities transactions, as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and other organizations.
The Depositary is owned by a number of its direct participants ("Direct
Participants") and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc., and the National Association of Securities Dealers, Inc. Access
to the Depositary's system is also available to others as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to the Depositary and its Participants are
on file with the Securities and Exchange Commission.
Purchases of Book-Entry Notes under the Depositary's system must be made by
or through Direct Participants, which will receive a credit for those Book-Entry
Notes on the Depositary's records. The ownership interest of each actual
purchaser of each Book-Entry Note represented by a Global Security ("Beneficial
Owner") is in turn to be recorded on the Direct and Indirect Participants'
records. Beneficial Owners will not receive written confirmation from the
Depositary of their purchase, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Direct or Indirect Participants through
which the Beneficial Owner entered into the transaction. Transfers of ownership
interests in a Global Security representing Book-Entry Notes are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners of a Global Security representing
Book-Entry Notes will not receive Notes in certificated form representing their
ownership interests therein, 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 Depositary are
registered in the name of the Depositary's nominee, Cede & Co. The deposit of
Global Securities with, or on behalf of, the Depositary and their registration
in the name of Cede & Co. effect no change in beneficial ownership. The
Depositary has no knowledge of the actual Beneficial Owners of the Global
Securities representing the Book-Entry Notes; the Depositary's records reflect
only the identity of the Direct Participants to whose accounts those 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.
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Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any regulatory requirements as may be in
effect from time to time.
If applicable, redemption notices shall be sent to Cede & Co. If less than
all of the Book-Entry Notes within an issue are being redeemed, the Depositary's
practice is to determine by lot the amount of the interest of each Direct
Participant in that issue to be redeemed.
Neither the Depositary nor Cede & Co. will consent or vote with respect to
the Global Securities representing the Book-Entry Notes. Under its usual
procedures, the Depositary mails an omnibus proxy (the "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 interest payments on the Global Securities
representing the Book-Entry Notes will be made to the Depositary. The
Depositary's practice is to credit Direct Participant's accounts on the
applicable payment date in accordance with their respective holdings shown on
the Depositary's records unless the Depositary has reason to believe that it
will not receive payment on 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 the Participant
and not of the Depositary, the applicable 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 interest to the Depositary is our
responsibility or the Trustee, disbursement of payments to Direct Participants
shall be the responsibility of the Depositary, and disbursement of payments to
the Beneficial Owners shall be the responsibility of Direct and Indirect
Participants.
A Beneficial Owner shall give notice of any option to elect to have its
Book-Entry Notes repaid by us, through its Participant, to the Trustee, and
shall 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 Book-Entry Notes, on the Depositary's records, to the
Trustee. The requirements 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 Depositary's
records.
The Depositary 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 these circumstances, in the event that a
successor securities depositary is not obtained, Notes in certificated form are
required to be printed and delivered.
We may decide to discontinue use of a system of book-entry transfers
through the Depositary (or a successor securities depository). In that event,
Notes in certificated form will be printed and delivered.
The information in this section concerning the Depositary and the
Depositary's system has been obtained from sources that we believe are reliable,
but we take no responsibility for the accuracy thereof.
INVESTMENT CONSIDERATIONS RELATING TO INDEXED NOTES
In addition to potential foreign currency risks as described below under
"Investment Considerations Relating to Foreign Currency Notes," an investment in
Indexed Notes presents significant risks not associated with other types of
securities. Risks associated with a particular Indexed Note may be set forth
more fully in the applicable Pricing Supplement. Indexed Notes may present a
high level of risk, and investors in Indexed Notes may lose their entire
investment.
The treatment of Indexed Notes for U.S. federal income tax purposes is
often unclear due to the absence of any authority specifically addressing the
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issues presented by any particular Indexed Note. Accordingly, investors in
Indexed Notes should, in general, be capable of independently evaluating the
federal income tax consequences applicable in their particular circumstances of
purchasing an Indexed Note.
LOSS OF PRINCIPAL OR INTEREST
The principal amount of an Indexed Note payable at maturity and/or the
amount of interest payable on an Interest Payment Date will be determined by
reference to one or more currencies (including baskets of currencies), one or
more commodities (including baskets of commodities), one or more securities
(including baskets of securities) and/or any other index (each an "Index"). The
direction and magnitude of the change in the value of the relevant Index will
determine either or both the principal amount of an Indexed Note payable at
maturity or the amount of interest payable on an Interest Payment Date. The
terms of a particular Indexed Note may or may not include a guaranteed return of
a percentage of the face amount at maturity or a minimum interest rate.
Accordingly, the holder of an Indexed Note may lose all or a portion of the
principal invested in an Indexed Note and may receive no interest thereon.
VOLATILITY
Various Indices are highly volatile. The expected principal amount payable
at maturity of, or the interest rate on, an Indexed Note based on a volatile
Index may vary substantially from time to time. Because the principal amount
payable at the maturity of, or interest payable on, an Indexed Note is generally
calculated based on the value of the relevant Index on a specified date or over
a limited period of time, volatility in the Index increases the risk that the
return on the Indexed Notes may be adversely affected by a fluctuation in the
level of the relevant Index.
The volatility of an Index may be affected by political or economic events,
including governmental actions, or by the activities of participants in the
relevant markets, any of which could adversely affect the value of an Indexed
Note.
AVAILABILITY AND COMPOSITION OF INDICES
Various Indices reference several different currencies, commodities,
securities or other financial instruments. The compiler of this type of Index
typically reserves the right to alter the composition of the Index and the
manner in which the value of the Index is calculated. This alteration may
result in a decrease in the value of or return on an Indexed Note which is
linked to that Index.
An Index may become unavailable due to, among other things, war, natural
disasters, cessation of publication of the Index, or suspension of or disruption
in trading in the currency or currencies, commodity or commodities, security or
securities or other financial instrument or instruments comprising or underlying
that Index. If an Index becomes unavailable, the determination of principal of
or interest on an Indexed Note may be delayed or an alternative method may be
used to determine the value of the unavailable Index. Alternative methods of
valuation are generally intended to produce a value similar to the value
resulting from reference to the relevant Index. However, it is unlikely that
these alternative methods of valuation will produce values identical to those
which would be produced were the relevant Index to be used. An alternative
method of valuation may result in a decrease in the value of or return on an
Indexed Note.
Indexed Notes can also be linked to Indices that are not commonly utilized
or have been recently developed. The lack of a trading history may make it
difficult to anticipate the volatility or other risks to which those Notes are
subject. In addition, there may be less trading in these Indices or instruments
underlying these Indices, which could increase the volatility of these Indices
and decrease the value of or return on Indexed Notes relating thereto.
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INVESTMENT CONSIDERATIONS 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 in which the particular Notes are denominated. The
information set forth in this Prospectus Supplement is directed to prospective
purchasers who are U.S. residents and, with respect to Foreign Currency Notes,
is by necessity incomplete. We 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 on the Notes. These
persons should consult their own financial and legal advisors with regard to
these matters.
THIS PROSPECTUS SUPPLEMENT DOES NOT DESCRIBE ALL RISKS OF AN INVESTMENT IN
FOREIGN CURRENCY NOTES THAT RESULT FROM THOSE NOTES BEING DENOMINATED OR PAYABLE
IN A SPECIFIED CURRENCY OTHER THAN U.S. DOLLARS, EITHER AS THOSE RISKS EXIST AT
THE DATE OF THIS PROSPECTUS SUPPLEMENT OR AS THOSE RISKS MAY CHANGE FROM TIME TO
TIME. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN FINANCIAL AND LEGAL
ADVISORS AS TO THE RISKS ENTAILED BY AN INVESTMENT IN FOREIGN CURRENCY NOTES.
FOREIGN CURRENCY NOTES ARE NOT AN APPROPRIATE INVESTMENT FOR INVESTORS WHO ARE
UNSOPHISTICATED WITH RESPECT TO FOREIGN CURRENCY TRANSACTIONS.
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 U.S. dollars. These risks include, without limitation, the
possibility of significant changes in the rate of exchange between the U.S.
dollar and the applicable Specified Currency and the possibility of the
imposition or modification of exchange controls by either the United States or
foreign governments. These risks generally depend on events over which we have
no control, including economic, financial and political events and the supply
and demand for the relevant currencies. In recent years, rates of exchange
between the U.S. dollar and foreign currencies have been highly volatile and
this volatility may be expected in the future. Fluctuations in any particular
exchange rate that have occurred in the past are not necessarily indicative,
however, of fluctuations in the rate that may occur during the term of any
Foreign Currency Note. Depreciation of the Specified Currency applicable to a
Foreign Currency Note against the U.S. dollar would result in a decrease in the
U.S. dollar-equivalent yield of that Note, in the U.S. dollar-equivalent value
of the principal and premium, if any, payable at maturity of that Note, and,
generally, in the U.S. dollar-equivalent market value of that Note.
Governments or monetary authorities have imposed from time to time exchange
controls and may in the future impose or revise exchange controls at or prior to
the date on which any payment of principal of and premium, if any, or interest
on a Foreign Currency Note is due, which could affect exchange rates as well as
the availability of the Specified Currency on that date. Even if there are no
exchange controls, it is possible that the Specified Currency for any particular
Foreign Currency Note would not be available on the applicable payment date due
to other circumstances beyond our control. In that event, we will make the
required payment in respect of that Foreign Currency Note in U.S. dollars on the
basis of the most recently available Exchange Rate. See "Description of Notes -
Payment of Principal and Interest."
Unless otherwise indicated in the applicable Pricing Supplement, payments
on Notes made in a Specified Currency other than U.S. dollars may be made, at
our option, from an account with a bank located in the country issuing the
Specified Currency (or, with respect to Notes denominated in Euros, from a Euro
account). See "Description of Notes - Payment of Principal and Interest."
If Notes are denominated in a foreign or composite currency which is
expected to be replaced by Euro, the Pricing Supplement may allow for the
redenomination of the Notes from the original currency to the Euro.
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GOVERNING LAW; JUDGMENTS
The Notes will be governed by and construed in accordance with the laws of
the State of New York. If an action based on Foreign Currency Notes were
commenced in a court of the United States, it is likely that court would grant
judgment relating to those Notes only in U.S. dollars. It is not clear, however,
whether, in granting that judgment, the rate of conversion into U.S. dollars
would be determined with reference to the date of default, the date judgment is
rendered or some other date. 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 in which that Foreign
Currency Note is denominated, and that judgment would be converted into U.S.
dollars at the exchange rate prevailing on the date of entry of the judgment.
Accordingly, Holders of Foreign Currency Notes would bear the risk of exchange
rate fluctuations between the time the amount of the judgment is calculated and
the time that amount is converted from U.S. dollars into the applicable
Specified Currency.
EXCHANGE RATE AGENT
All determinations made by the Exchange Rate Agent shall be at its sole
discretion (except to the extent expressly provided herein or in the applicable
Pricing Supplement that any determination is subject to approval by us) and, in
the absence of manifest error, shall be conclusive for all purposes and binding
on Holders of the Notes and us, and the Exchange Rate Agent shall have no
liability therefor.
U.S. TAXATION
The following general discussion summarizes U.S. federal income tax aspects
of the acquisition, ownership and disposition of the Notes. This discussion is a
summary for general information only and does not consider all aspects of U.S.
federal income tax that may be relevant to the purchase, ownership and
disposition of the Notes by you in light of your own circumstances. This summary
discusses only the U.S. federal income tax consequences of ownership of Notes
held as capital assets within the meaning of Section 1221 of the U.S. Internal
Revenue Code of 1986, as amended (the "Code"). This discussion does not address
the U.S. federal income tax consequences to investors subject to special
treatment under the U.S. federal income tax laws, such as dealers in securities
or foreign currency, tax-exempt entities, banks, thrifts, insurance companies,
persons that hold the Notes as part of a "straddle" or as a "hedge" against
currency risk or that have a "functional currency" other than the U.S. dollar,
and investors in pass-through entities. In addition, the discussion is generally
limited to the U.S. federal income tax consequences to initial Holders. It does
not describe any tax consequences arising out of the tax laws of any state,
local or foreign jurisdiction. This discussion also does not address the special
rules that apply if the Holder receives principal in installment payments or if
the Note is called before the Stated Maturity. Further, this summary does not
discuss Notes which qualify as "applicable high-yield discount obligations"
under Section 163(i) of the Code.
This summary is based upon the Code, existing and proposed regulations
thereunder, and current administrative rulings and court decisions. All of the
foregoing are subject to change, and any change could apply retroactively.
IN CONSIDERING THE PURCHASE OF NOTES, YOU SHOULD CONSULT YOUR OWN TAX
ADVISORS CONCERNING THE APPLICATION OF U.S. FEDERAL INCOME TAX LAWS, AS WELL AS
THE LAWS OF ANY STATE, LOCAL, OR FOREIGN TAXING JURISDICTION TO YOUR PARTICULAR
SITUATION. ADDITIONAL U.S. FEDERAL INCOME TAX CONSEQUENCES APPLICABLE TO
PARTICULAR NOTES MAY BE SET FORTH IN THE APPLICABLE PRICING SUPPLEMENT.
Special considerations which relate to the U.S. federal income taxation of
payments on Foreign Currency Notes are discussed separately below under the
heading "U.S. Holders - Foreign Currency Notes." Special considerations relevant
to the U.S. federal income taxation of payments on Notes, the interest and/or
principal of which is indexed to property other than foreign currency and which
is not a "variable rate debt instrument" (discussed below under the heading
"U.S. Holders - Stated Interest; Original Issue Discount") will be discussed in
the applicable Pricing Supplement. Special considerations relevant to the U.S.
federal income taxation of Notes issued in bearer form will be discussed in the
applicable Pricing Supplement. The discussion below assumes that the Notes will
be treated as debt for U.S. federal income tax purposes. However, it is possible
that some contingent payment arrangements would not be treated as debt for U.S.
federal income tax purposes. Holders should consult their own tax advisors with
respect to whether any contingent payment obligations are debt.
S-31
U.S. HOLDERS
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of a Note that is for U.S. federal income tax
purposes (1) a citizen or resident of the United States, (2) a corporation or
partnership created or organized under the laws of the United States or any
state thereof or therein, including the District of Columbia (unless, in the
case of a partnership, Treasury regulations are adopted that provide otherwise),
(3) an estate, the income of which is subject to U.S. federal income tax
regardless of the source, (4) a trust if a court within the United States is
able to exercise primary supervision over the administration of the trust and
one or more U.S. persons have the authority to control all substantial decisions
of the trust, or (5) certain eligible trusts that elect to be taxed as U.S.
persons, or (6) any other person whose income or gain in respect of a Note is
effectively connected with the conduct of a U.S. trade or business (a "U.S.
Holder"). Aspects of U.S. federal income tax relevant to a holder other than a
U.S. Holder are discussed separately below.
Stated Interest; Original Issue Discount
Except as set forth below, interest on a Note will be taxable to a U.S.
Holder as ordinary interest income at the time it accrues or is received in
accordance with that holder's method of accounting for tax purposes. U.S.
Holders of Notes that bear original issue discount ("OID") generally will be
subject to the special tax accounting rules for original issue discount
obligations. U.S. Holders of Notes that bear OID and that mature more than one
year from the date of issuance will generally be required to include OID in
income as it accrues in advance of the receipt of cash attributable to that
income, whether that Holder uses the cash or accrual method of accounting.
The Internal Revenue Service (the "IRS") has issued final regulations (the
"OID Regulations") concerning the U.S. federal income tax treatment of debt
instruments issued with OID. Special rules for computing OID on a "variable
rate debt instrument" are considered below under the heading "Variable Rate
Notes."
The OID Regulations include an anti-abuse rule which provides that if a
principal purpose in structuring a debt instrument or applying the OID
Regulations is to achieve a result that is unreasonable in light of the purposes
of the applicable statutes, then the Commissioner of the IRS can apply or depart
from the OID Regulations as necessary or appropriate to achieve a reasonable
result. Whether a result is unreasonable is determined based on all of the facts
and circumstances. Although we do not believe that the Notes were structured
with that principal purpose, there can be no assurance that the IRS will agree
with our position.
The amount of OID, if any, on a Note is the excess of its "stated
redemption price at maturity" over its "issue price," subject to a statutory de
minimis exception. For this purpose, de minimis OID is OID that is less than
one-quarter of one percent of the stated redemption price at maturity multiplied
by the number of complete years to its maturity from the issue date.
Generally, the issue price of an issue of Notes will be the first price at
which a substantial amount of those Notes has been sold. For this purpose,
sales to bond houses, brokers or similar persons or organizations acting in the
capacity of underwriters, placement agents or wholesales are ignored. A U.S.
Holder may elect in specific circumstances to decrease the issue price by an
amount equal to the portion of the initial purchase price of the Note equal to
pre-issuance accrued interest.
A Note's stated redemption price at maturity includes all payments required
to be made over the term of the Note other than the payment of "qualified stated
interest," which is defined as interest that is unconditionally payable in cash
or property (other than debt instruments of the issuer) or that will be
constructively received under Section 451 of the Code at least annually at a
single fixed rate. If a debt instrument provides for alternate payment schedules
upon the occurrence of one or more contingencies, and no single payment schedule
is significantly more likely than not to occur, then the determination of
whether the debt instrument provides for qualified stated interest is made by
analyzing each alternative payment schedule (including the stated payment
schedule) as if it were the debt instrument's sole payment schedule. The debt
instrument will be considered to provide for qualified stated interest to the
extent of the lowest fixed rate at which qualified interest would be payable
under any payment schedule.
S-32
Interest is generally considered unconditionally payable only if late
payment (other than late payment within a reasonable grace period) or nonpayment
is expected to be penalized or reasonable remedies exist to compel payment.
For purposes of determining whether the OID on a Note is de minimis, in the
case of a Note that otherwise has less than the de minimis amount of OID and on
which all stated interest would be qualified stated interest except that for one
or more accrual periods the interest rate is below the rate applicable for the
remaining term of that Note (e.g., Notes with teaser rates or interest
holidays), the Note's stated redemption price at maturity is treated as equal to
the Note's issue price plus the greater of the amount of foregone interest or
the "true" discount (i.e., the excess of the Note's stated principal amount over
its issue price).
A U.S. Holder (whether on the cash or accrual method of accounting) must
include in income for the taxable year the sum of the daily portions of OID for
each day of the taxable year on which the U.S. Holder held the Note. The daily
portions of OID are determined by determining the OID attributable to each
accrual period and allocating a ratable portion of that amount to each day in
the accrual period. The accrual period 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 each scheduled payment of principal and interest occurs on the
final day of an accrual period or on the first day of an accrual period. In
general, OID allocable to an accrual period equals the product of (1) the
adjusted issue price at the beginning of the accrual period (i.e., the original
issue price plus previously accrued OID minus previous payments other than
payments of qualified stated interest) multiplied by the original yield to
maturity of the Note (determined on the basis of compounding at the end of each
accrual period) minus (2) the amount of qualified stated interest allocable to
the accrual period. Under the Code and the OID Regulations, OID is computed on
the basis of a constant yield. U.S. Holders, therefore, generally will have to
include increasingly greater amounts of OID in income as the adjusted issue
price of a debt instrument increases in successive accrual periods.
The OID Regulations provide special rules for determining the amount of OID
allocable to a period when there is unpaid qualified stated interest, for short
initial accrual periods and final accrual periods, and for determining the yield
to maturity for debt instruments subject to contingencies as to the timing of
payments, debt instruments that provide for options to accelerate or defer any
payments, and debt instruments with indefinite maturities. Under the OID
Regulations, options to convert debt into stock of the issuer or into stock or
debt of specific related parties or into cash or other property in an amount
equal to the approximate value of that stock or debt are disregarded in
determining OID.
Variable Rate Notes
The OID Regulations contain special rules for determining the accrual of
OID and the amount of qualified stated interest on a "variable rate debt
instrument." For purposes of these regulations, a variable rate debt instrument
is a debt instrument that: (1) has an issue price that does not exceed total
noncontingent principal payments by more than a specified percentage; (2)
provides 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;"
(3) provides that a qualified floating rate or objective rate in effect at any
time during the term of the instrument is set at a current value of that rate;
and (4) generally, does not provide for any principal payments that are
contingent.
For purposes of determining if a Note is a variable rate debt instrument, a
variable rate is a "qualified floating rate" if variations in the rate can
reasonably be expected to measure contemporaneous variations in the cost of
newly borrowed funds in the currency in which the debt instrument is
denominated. A multiple of a qualified floating rate is generally not a
qualified floating rate, unless it is either (a) a product of a qualified rate
times a fixed multiple greater than 0.65 but not more than 1.35 or (b) a
multiple of the type described in (a) increased or decreased by a fixed rate. If
a debt instrument provides for two or more qualified floating rates that can
reasonably be expected to have approximately the same value throughout the term
of the instrument, the qualified floating rates will be considered a single
qualified floating rate. Two or more rates will be considered to have
approximately the same value throughout the term of the instrument, if the
values of the rates on the date of issuance are within 25 basis points of each
other.
S-33
Restrictions on a minimum interest rate ("floor") or maximum interest rate
("cap"), or the amount of increase or decrease in the stated interest rate
("governor"), generally will not result in a variable rate failing to be treated
as a qualified floating rate if the restriction is fixed throughout the term of
the instrument. A cap or similar restriction that is not reasonably expected as
of the issue date of the debt instrument to cause the yield on the debt
instrument to be significantly less than the expected yield determined without
the cap will not generally cause a variable rate to fail to be a qualified
floating rate. A floor or similar restriction that is not reasonably expected
as of the issue date of the debt instrument to cause the yield on the debt
instrument to be significantly more than the expected yield without the floor
will not generally cause a variable rate to fail to be a qualified floating
rate. A governor or similar restriction that is not reasonably expected as of
the issue date of the debt instrument to cause the yield on the debt instrument
to be significantly more or significantly less than the expected yield without
the governor will not generally cause a variable rate to fail to be a qualified
floating rate.
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. In addition, the IRS may designate other
variable rates that will be treated as objective rates. However, a rate is not
an objective rate if it is reasonably expected that the average value of that
rate over the first half of the instrument's term will be either significantly
less or more than the average value of the rate during the final half of the
instrument's term (e.g., if there is a significant front-loading or back-loading
of interest).
An objective rate is a "qualified inverse floating rate" if it is equal to
a fixed rate minus a qualified floating rate and if variations in the rate can
reasonably be expected inversely to reflect contemporaneous variations in the
qualified floating rate.
If a variable rate debt instrument provides for stated interest at a single
qualified floating rate or an objective rate and the interest is unconditionally
payable in cash or in property (or will be constructively received under Section
451) at least annually, all stated interest with respect to the debt instrument
is qualified stated interest. In addition, the amount of qualified stated
interest and the amount of OID that accrues during an accrual period is
determined under the rules applicable to fixed rate debt instruments by assuming
that the variable rate is a fixed rate equal to (1) in the case of qualified
floating rate or qualified inverse floating rate, the value of that rate as of
the issue date or (2) in the case of an objective rate (other than a qualified
inverse floating rate) a fixed rate that reflects the yield that is reasonably
expected for the debt instrument. Further, the qualified stated interest
allocable to an accrual period is increased or decreased if the interest
actually paid during an accrual period exceeds or is less than the interest
assumed to be paid during the accrual period.
In general, any other debt instrument that qualifies as a "variable rate
debt instrument" will be converted into an "equivalent" fixed rate debt
instrument for purposes of determining the amount and accrual of original issue
discount and qualified stated interest on the debt instrument. The OID
Regulations generally require that this type of debt instrument be converted
into an "equivalent" fixed rate debt instrument by substituting any qualified
floating rate or qualified inverse floating rate provided for under the terms of
the debt instrument with a fixed rate equal to the value of the qualified
floating rate or qualified inverse floating rate, as the case may be, as of the
debt instrument's issue date. Any objective rate (other than a qualified inverse
floating rate) provided for under the terms of the debt instrument is converted
into a fixed rate that reflects the yield that is reasonably expected for the
debt instrument. In the case of a debt instrument that qualifies as a "variable
rate debt instrument" and provides for stated interest at a fixed rate in
addition to either one or more qualified floating rates or a qualified inverse
floating rate, the debt instrument is treated as if it provided for a qualified
floating rate (or a qualified inverse floating rate, if the debt instrument
provides for a qualified inverse floating rate) rather than the fixed rate.
Under these circumstances, the qualified floating rate or qualified inverse
floating rate that replaces the fixed rate must be such that the fair market
value of the debt instrument as of the debt instrument's issue date is
approximately the same as the fair market value of an otherwise identical debt
instrument that provides for either the qualified floating rate or qualified
inverse floating rate rather than the fixed rate. Subsequent to converting the
fixed rate into either a qualified floating rate or a qualified inverse floating
rate, the debt instrument is then converted into an "equivalent" fixed rate debt
instrument in the manner described above.
Once the debt instrument is converted into an "equivalent" fixed rate debt
instrument pursuant to the foregoing rules, the amount of original issue
discount and qualified stated interest, if any, are determined for the
S-34
"equivalent" fixed rate debt instrument by applying the general OID rules to the
"equivalent" fixed rate debt instrument and a U.S. Holder of the debt instrument
will account for the OID and qualified stated interest as if the U.S. Holder
held the "equivalent" fixed rate debt instrument. Each accrual period,
appropriate adjustments will be made to the amount of qualified stated interest
or OID assumed to have been accrued or paid with respect to the "equivalent"
fixed rate debt instrument in the event that those amounts differ from the
actual amount of interest accrued or paid on the debt instrument during the
accrual period.
Contingent Notes
If a note has a changeable rate but fails to qualify as a "variable rate
debt instrument," then that note will be taxable under the rules of the OID
Regulations applicable to contingent payment debt instruments. The OID
Regulations apply a four step process in determining the tax treatment of
contingent payment debt instruments. First, we must determine, as of the issue
date, the comparable yield for the 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 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 Note.
Further, the comparable yield must be a reasonable yield for us and must not be
less than the applicable federal rate (based on the overall maturity of the
Note) announced monthly by the IRS. Second, we must determine a projected
payment schedule for the Note. The schedule is determined as of the issue date
and generally remains in place throughout the term of the Note. If a right to a
contingent payment is 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 in the first step. The
amount of OID equals the excess of the projected payments over the issue price
of the Note.
Third, we must determine the daily portions of interest on the Note for a
taxable year. The interest income on the Note for each accrual period is
determined by multiplying the comparable yield of the Note (adjusted for the
length of the accrual period) by the Note's adjusted issue price at the
beginning of the accrual period. The amount so determined is so allocated on a
ratable basis to each day in the accrual period that the U.S. Holder held the
Note. Fourth, appropriate adjustments must be made to the interest income
determined pursuant to the foregoing steps to account for any differences
between the schedule prepared in step 2 and the actual contingent payments.
Interest income is generally increased (or decreased) if the actual contingent
payment is more (or less) than the projected payment. Differences between the
actual amounts of the contingent payments made in a calendar year and the
projected amounts of those 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
that year and thereafter, subject to specific limitations, as ordinary loss.
The OID Regulations require us to provide each holder of a Note with the
schedule described above. If we do not create a schedule or the schedule is
unreasonable, a U.S. Holder must establish its own projected payment schedule
and disclose the fact that the U.S. Holder's schedule is being used and the
reason therefor. This disclosure will generally be made on the statement
attached to the U.S. Holder's timely filed federal income tax return for the
taxable year in which the Note was acquired.
In general, any gain realized by a U.S. Holder on the sale, exchange or
retirement of a Note governed by the contingent payment provisions is interest
income. Any loss on that Note is ordinary loss to the extent that it does not
exceed the U.S. Holder's prior interest inclusions on the Note (net of negative
adjustments). Special rules also apply with respect to market discount and
premium on these Notes.
Election to Treat all Interest as OID
Under the OID Regulations, a U.S. Holder may elect for a Note to account
for all income on a Note (other than foreign currency gain or loss), including
stated interest, acquisition discount, OID, de minimis OID, market discount, de
minimis market discount and unstated interest, as adjusted by any amortizable
bond premium or acquisition premium in the same manner as OID. If this election
is made, the U.S. Holder may be subject to the conformity requirements of
Section 171(c) or 1278(b), respectively, which may require the amortization of
bond premium and the accrual of market discount on other debt instruments held
by the same U.S. Holder.
S-35
Short-Term Notes
In general, an individual or other cash method U.S. Holder of a Note that
has a Stated Maturity of not more than one year from the date of issuance (a
"short-term Note") is not required to accrue OID unless he or she elects to do
so. This election applies to all short-term Notes acquired by the U.S. Holder
during the first taxable year for which the election is made, and all subsequent
taxable years of the U.S. Holder unless the IRS consents to a revocation. U.S.
Holders who report income for U.S. federal income tax purposes on the accrual
method and electing cash method U.S. Holders are required to include OID on
those short-term Notes on a straight-line basis, unless an irrevocable election
with respect to any short-term Note is made to accrue the OID according to a
constant interest rate based on daily compounding. In the case of a U.S. Holder
who is not required, and does not elect, to include OID in income currently, any
gain realized on the sale, exchange or retirement of the short-term Note will be
ordinary income to the extent of the OID accrued on a straight-line basis (or,
if elected, according to the constant yield method based on daily compounding)
through the date of sale, exchange or retirement. In addition, those
non-electing U.S. Holders who are not subject to the current inclusion
requirement described above will be required to defer deductions for any
interest paid on indebtedness incurred or continued to purchase or carry those
short-term Notes.
Market Discount
If a Note is acquired at a "market discount," some or all of any gain
realized upon a sale or other disposition, or payment at maturity, or some or
all of a partial principal payment of that Note may be treated as ordinary
income, as described below. For this purpose, "market discount" is the excess
(if any) of the Note's stated redemption price at maturity over the purchase
price, subject to a statutory de minimis exception. In the case of a Note issued
with OID, in lieu of using the Note's stated redemption price at maturity, the
Note's revised issue price as of the purchase date is used. Unless a U.S. Holder
has elected to include the market discount in income as it accrues, any gain
realized on any subsequent disposition of that Note (other than in connection
with specific nonrecognition transactions) or payment at maturity, or some or
all of any partial principal payment with respect to that Note, will be treated
as ordinary income to the extent of the market discount that is treated as
having accrued during the period that Note was held.
The amount of market discount treated as having accrued will be determined
either (1) on a ratable basis by multiplying the market discount times a
fraction, the numerator of which is the number of days the Note was held by the
U.S. Holder and the denominator of which is the total number of days after the
date the U.S. Holder acquired the Note up to and including the date of its
maturity, or (2) if the U.S. Holder so elects, on a constant interest rate
method. A U.S. Holder may make that election with respect to any Note, and that
election is irrevocable.
In lieu of recharacterizing gain upon disposition as ordinary income to the
extent of accrued market discount at the time of disposition, a U.S. Holder of a
Note acquired at a market discount may elect to include market discount in
income currently, through the use of either the ratable inclusion method or the
elective constant interest method. Once made, the election to include market
discount in income currently applies to all Notes and other obligations of the
U.S. Holder that are purchased at a market discount during the taxable year for
which the election is made, and all subsequent taxable years of the U.S. Holder,
unless the IRS consents to a revocation of the election. If an election is made
to include market discount in income currently, the basis of the Note in the
hands of the U.S. Holder will be increased by the market discount thereon as it
is includible in income.
If the U.S. Holder makes the election to treat as OID all interest on a
debt instrument that has market discount, the U.S. Holder is deemed to have made
the election to accrue currently market discount on all other debt instruments
with market discount. In addition, if the U.S. Holder has previously made the
election to accrue market discount currently, the conformity requirements of
that election are met for debt instruments with respect to which the U.S. Holder
elects to treat all interest as OID.
Unless a U.S. Holder who acquires a Note at a market discount elects to
include market discount in income currently, that U.S. Holder may be required to
defer a portion of any interest expense that may otherwise be deductible on any
indebtedness incurred or maintained to purchase or carry that Note.
S-36
Premium
If a U.S. Holder purchases a Note issued with OID at an "acquisition
premium," the U.S. Holder reduces the amount of OID includible in income in each
taxable year by that portion of acquisition premium allocable to that year. A
Note is purchased at an acquisition premium if, immediately after the purchase,
the purchaser's adjusted basis in the Note is greater than the adjusted issue
price but not greater than all amounts payable on the instrument after the
purchase date (other than qualified stated interest) (i.e., the Note is not
purchased at a "bond premium"). In general, the reduction in OID allocable to
acquisition premium is determined by multiplying the daily portion of OID by a
fraction the numerator of which is the excess of the U.S. Holder's adjusted
basis in the Note immediately after the acquisition 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. Rather than
apply the above fraction, the U.S. Holder may, as discussed above, elect to
treat all interest, including for this purpose acquisition premium, as OID.
If a U.S. Holder purchases a Note and, immediately after the purchase, the
adjusted basis of the Note exceeds the sum of all amounts payable on the
instrument after the purchase date, other than qualified stated interest, the
Note has "bond premium." A U.S. Holder that purchases a Note at a bond premium
is not required to include OID in income. In addition, a U.S. Holder may elect
to amortize the bond premium over the remaining term of that Note (or, in
specific circumstances, until an earlier call date).
If bond premium is amortized, the amount of interest that must be included
in the U.S. Holder's income for each period ending on an Interest Payment Date
or maturity, as the case may be, will be reduced by the portion of premium
allocable to that period based on the Note's yield to maturity. If an election
to amortize bond premium is not made, a U.S. Holder must include the full amount
of each interest payment in income in accordance with its regular method of
accounting and will receive a tax benefit from the premium only in computing its
gain or loss upon the sale or other disposition or payment of the principal
amount of the Note.
An election to amortize premium will apply to amortizable bond premium on
all Notes and other bonds, the interest on which is includible in the U.S.
Holder's gross income, held at the beginning of the U.S. Holder's first taxable
year to which the election applies or thereafter acquired, and may be revoked
only with the consent of the IRS. The election to treat all interest, including
for this purpose amortizable premium, as OID is deemed to be an election to
amortize premium under Section 171(c) of the Code for purposes of the conformity
requirements of that section. In addition, if the U.S. Holder has already made
an election to amortize premium, the conformity requirements will be deemed
satisfied with respect to any Notes for which the U.S. Holder makes an election
to treat all interest as OID.
Sale, Exchange, Redemption or Repayment of the Notes
Upon the disposition of a Note by sale, exchange, redemption, or repayment,
the U.S. Holder will generally recognize gain or loss equal to the difference
between (1) the amount realized on the disposition (other than amounts
attributable to accrued and unpaid interest) and (2) the U.S. Holder's tax basis
in the Note. A U.S. Holder's tax basis in a Note generally will equal the cost
of the Note (net of accrued interest) to the U.S. Holder increased by amounts
includible in income as OID or market discount (if the holder elects to include
market discount on a current basis) and reduced by any amortized premium and any
payments other than payments of qualified stated interest made on that Note.
To the extent that the Note is held as a capital asset, gain or loss
(except to the extent that the market discount rules or rules relating to short
term OID notes otherwise provide) will generally constitute capital gain or loss
and will be long-term capital gain or loss if the U.S. Holder has held the Note
for longer than one year. In specific circumstances, if an issuer were found to
have an intention, at the time its debt obligations were issued, to call those
obligations before maturity, gain would be ordinary income to the extent of any
unamortized OID. The OID Regulations clarify that this rule will not apply to
publicly offered debt instruments.
S-37
Foreign Currency Notes
The following discussion applies to Foreign Currency Notes if these Notes
are not denominated in or indexed to a currency that is considered a
"hyperinflationary" currency or in more than one currency or are not contingent
notes. Special U.S. tax considerations apply to obligations denominated in or
indexed to a hyperinflationary currency or in more than one currency or that are
contingent notes.
In general, a U.S. Holder that uses the cash method of accounting and holds
Foreign Currency Notes will be required to include in income the U.S. dollar
value of the amount of interest income received whether or not the payment is
received in U.S. dollars or converted into U.S. dollars. The U.S. dollar value
of the amount of interest received is the amount of foreign currency interest
paid translated at the spot rate on the date of receipt. The U.S. Holder will
not have exchange gain or loss on the interest payment but may have exchange
gain or loss when it disposes of any foreign currency received.
A U.S. Holder on the accrual method of accounting is generally required to
include in income the U.S. dollar value of interest accrued during the accrual
period. Accrual basis U.S. Holders may determine the amount of income recognized
with respect to that interest in accordance with either of two methods. Under
the first method, the U.S. dollar value of accrued interest is translated at the
average rate for the interest accrual period (or, with respect to an accrual
period that spans two taxable years, the partial period within the taxable
year). For this purpose, the average rate is the simple average of spot rates of
exchange for each Business Day of the applicable period or other average
exchange rate for the period reasonably derived and consistently applied by the
U.S. Holder. Under the second method, a U.S. Holder can elect to accrue interest
at the spot rate on the last day of an accrual period (in the case of a partial
accrual period, the last date of the taxable year) or if the last day of an
accrual period is within five Business Days of the receipt, the spot rate on the
date of receipt. Any election will apply to all debt instruments held by the
U.S. Holder at the beginning of the first taxable year to which the election
applies or thereafter acquired and will be irrevocable without the consent of
the IRS. An accrual basis U.S. Holder will recognize exchange gain or loss, as
the case may be, on the receipt of a foreign currency interest payment if the
exchange rate on the date payment is received differs from the rate applicable
to the previous accrual of interest income. The foreign currency gain or loss
will generally be treated as U.S. source ordinary income or loss. In the case
of both a cash basis and accrual basis U.S. Holder, OID on a Note denominated in
a foreign currency is determined in foreign currency and is translated into U.S.
dollars in the same manner that an accrual basis U.S. Holder translates accrued
interest. Exchange gain or loss will be determined when OID is considered paid
to the extent the exchange rate on the date of payment differs from the exchange
rate at which the OID was accrued.
The amount of market discount on a Foreign Currency Note includible in
income will generally be determined by computing the market discount in the
foreign currency and translating that amount into U.S. dollars on the spot rate
on the date the Foreign Currency Note is retired or otherwise disposed of. If
the U.S. Holder accrues market discount currently, the amount of market discount
which accrues during any accrual period is determined in the foreign currency
and translated into U.S. dollars on the basis of the average exchange rate in
effect during the accrual period. Exchange gain or loss may be recognized to the
extent that the rate of exchange on the date of the retirement or disposition of
the Note differs from the rate of exchange at which the market discount was
accrued.
Amortizable premium on Foreign Currency Notes is also computed in units of
foreign currency and, if the U.S. Holder elects, will reduce interest income in
units of foreign currency. At the time amortized bond premium offsets interest
income, exchange gain or loss is realized measured by the difference between
exchange rates at that time and at the time of the acquisition of the Note.
In the case of a Note denominated in foreign currency, the cost of the Note
to the U.S. Holder will be the U.S. dollar value of the foreign currency
purchase price translated at the spot rate for the date of purchase (or, in some
cases, the settlement date). The conversion of U.S. dollars to a foreign
currency and the immediate use of that currency to purchase Foreign Currency
Notes generally will not result in a taxable gain or loss for a U.S. Holder. A
U.S. Holder who purchases a Note with previously owned foreign currency
generally will recognize exchange gain or loss on that currency equal to the
difference between the U.S. Holder's tax basis in the currency and the fair
market value of the currency determined on the date of purchase.
S-38
With respect to the sale, exchange, retirement, or repayment of a Note
denominated in a foreign currency, the foreign currency amount realized will be
considered to be the payment of accrued but unpaid interest (on which exchange
gain or loss is recognized as described above), accrued but unpaid OID (on which
exchange gain or loss is recognized as described above), and, finally, as a
payment of principal on which (1) gain or loss is computed in foreign currency
and translated on the date of retirement or disposition; and (2) exchange gain
or loss is separately computed on the foreign currency amount of principal
(reduced by amortizable premium) that is repaid to the extent that the rate of
exchange on the date of retirement or disposition differs from the rate of
exchange on the date the Note was acquired or deemed acquired. Exchange gain or
loss computed on accrued interest, OID, accrued market discount and principal
shall be recognized, however, only to the extent of total gain or loss on the
transaction. For purposes of determining the total gain or loss on the
transaction, a U.S. Holder's tax basis in the Note generally will equal the U.S.
dollar cost of the Note (as determined above) increased by the U.S. dollar
amounts includible in income as accrued interest, OID, or market discount (if
the U.S. Holder elects to include the market discount on a current basis) and
reduced by the U.S. dollar amount of amortized premium and of any payments other
than payments of qualified stated interest. A U.S. Holder will have a tax basis
in any foreign currency received on the sale, exchange or retirement of a Note
equal to the U.S. dollar value of the currency on the date of receipt.
Backup Withholding
A U.S. Holder of a Note may be subject to U.S. backup withholding with
respect to interest paid on the Note, unless that U.S. Holder (1) is a
corporation or comes within specific other exempt categories and, when required,
demonstrates this fact or (2) provides a correct taxpayer identification number,
certifies as to no loss of exemption from backup withholding and otherwise
complies with the applicable requirements of the backup withholding rules. U.S.
Holders of Notes should consult their tax advisors as to their qualification for
exemption from U.S. backup withholding and the procedure for obtaining an
exemption. Any amount paid as backup withholding will be creditable against the
U.S. Holder's U.S. federal income tax liability.
Pre-Issuance Accrued Interest
If (1) a portion of the initial purchase price of a Note is attributable to
pre-issuance accrued interest, (2) the first stated interest payment on the Note
is to be made within one year of the Note's issue date and (3) the payment will
equal or exceed the amount of pre-issuance accrued interest, then the U.S.
Holder may elect to decrease the issue price of the Note by the amount of
pre-issuance accrued interest. In that event, a portion of the first stated
interest payment will be treated as a return of the excluded pre-issuance
accrued interest and not as an amount payable on the Note.
NON-U.S. HOLDERS
The following is a summary of the U.S. federal income tax consequences of
the ownership and disposition of the Notes by a holder who does not meet the
criteria set forth in the definition of a U.S. Holder (a "Non-U.S. Holder").
This discussion does not consider all aspects of U.S. federal income and estate
taxation that may be relevant to the purchase, ownership or disposition of the
Notes by a Non-U.S. Holder in light of that holder's personal circumstances,
including holding the Notes through a partnership. For example, persons who are
partners in foreign partnerships and beneficiaries of foreign trusts or estates
who are subject to U.S. federal income tax because of their own status, such as
U.S. residents or foreign persons engaged in a trade or business in the United
States, may be subject to U.S. federal income tax even though the entity is not
subject to income tax on the disposition of its Note.
For purposes of the following discussion, interest (including OID) and gain
on the sale, exchange or other disposition of the Note will be considered "U.S.
trade or business income" if that income or gain is (1) effectively connected
with the conduct of a U.S. trade or business or (2) in the case of a treaty
resident, attributable to a U.S. permanent establishment (or in the case of an
individual treaty resident, a fixed base) in the United States.
Interest and Original Issue Discount
Generally, any interest or OID paid to a Non-U.S. Holder of a Note that is
not "U.S. trade or business income" will not be subject to U.S. federal income
S-39
tax if the interest (or OID) qualifies as "portfolio interest." Generally,
interest on registered Notes will qualify as portfolio interest if (1) the
interest is not contingent on our financial results (such as our profits or the
value of our properties) or the financial results of a related party, (2) the
Non-U.S. Holder does not actually or constructively own 10% or more of the total
voting power of all our voting stock, is not a controlled foreign corporation
with respect to which we are a "related person" within the meaning of the Code
and is not a Bank receiving interest described in Section 881(c)(3)(A) of the
Code, and (3) the Non-U.S. Holder (as beneficial owner of the Note) files with
the person through whom it holds the Note, an IRS Form W-8BEN (Certificate of
Foreign Status of Beneficial Ownership for United States Tax Withholding) or
equivalent.
The gross amount of payments to a Non-U.S. Holder of interest or OID that
do not qualify for the portfolio interest exception and that are not U.S. trade
or business income will be subject to U.S. federal income tax at the rate of 30%
unless a U.S. income tax treaty applies to reduce or eliminate withholding. U.S.
trade or business income will be taxed on a net basis at regular U.S. rates
rather than the 30% gross rate.
Sale of Notes
Except as described below and subject to the discussion concerning backup
withholding, any gain realized by a Non-U.S. Holder on the sale or exchange of a
Note generally will not be subject to U.S. federal income tax, unless (1) the
gain is U.S. trade or business income, (2) subject to specific exceptions, the
Non-U.S. Holder is an individual who holds the Note as a capital asset and is
present in the U.S. for 183 days or more in the taxable year of the disposition,
or (3) the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S.
tax law applicable to specific U.S. expatriates.
Federal Estate Tax
Except with respect to Notes that bear contingent interest that is not
eligible for the portfolio interest exception, Notes held (or treated as held)
by an individual who is a Non-U.S. Holder at the time of his death will not be
subject to U.S. federal estate tax provided that the individual does not
actually or constructively own 10% or more of the total voting power of all our
voting stock.
Information Reporting and Backup Withholding
We must report annually to the IRS and to each Non-U.S. Holder any interest
and OID that is subject to withholding or that is exempt from U.S. withholding
tax pursuant to a tax treaty or the portfolio interest exception. Copies of
these information returns may also be made available under the provisions of a
specific treaty or agreement with the tax authorities of the country in which
the Non-U.S. Holder resides.
In the case of payments of principal on the Notes by us to a Non-U.S.
Holder, the regulations provide that backup withholding and information
reporting will not apply to payments if the Holder certifies to its Non-U.S.
Holder status under penalties of perjury or otherwise establishes an exemption
(provided that neither we nor our paying agent has actual knowledge that the
holder is a U.S. person or that the conditions of any other exemption are not,
in fact, satisfied).
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be allowed as a refund or a credit against the Non-U.S.
Holder's U.S. federal income tax liability, provided that the required
information is furnished to the IRS.
S-40
SUPPLEMENTAL PLAN OF DISTRIBUTION
Goldman, Sachs & Co., Banc of America Securities LLC, Banc One Capital
Markets, Inc., Commerzbank Capital Markets Corp., Credit Suisse First Boston
LLC, Deutsche Bank Securities Inc., J.P. Morgan Securities Inc., Lehman Brothers
Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, PNC Capital Markets,
Inc., UBS Warburg LLC and Wachovia Securities, Inc. (collectively, the "Agents")
have entered into a distribution agreement with us with respect to the Notes.
Subject to specific conditions, the Agents have agreed to use their reasonable
efforts to solicit purchases of the Notes. We have the right to accept offers
to purchase Notes and may reject any proposed purchase of the Notes. The Agents
may also reject any offer to purchase Notes. We will pay the Agents a
commission on any Notes sold through the Agents. The commission will range from
0.125% to 0.750% of the principal amount of the Notes, depending on the maturity
of the Notes.
We may also sell Notes to the Agents who will purchase the Notes as
principals for their own accounts. Any sale of this type will be made at a
discount equal to the discount set forth on the cover page of this Prospectus
Supplement if no other discount is agreed. Any Notes the Agents purchase as
principal may be resold at the market price or at other prices determined by the
Agents at the time of resale. We may also sell Notes directly on our own behalf.
No commissions will be paid on Notes sold directly by us.
The Agents may resell any Notes they purchase to other brokers or dealers
at a discount which may include all or part of the discount the Agents received
from us. The Agents will purchase the Notes at a price equal to 100% of the
principal amount less a discount. Unless otherwise stated the discount will
equal the applicable commission on an agency sales of Notes of the same
maturity. If all the Notes are not sold at the initial offering price, the
Agents may change the offering price and the other selling terms.
In connection with the offering, the Agents may purchase and sell Notes in
the open market. These transactions may include short sales, stabilizing
transactions and purchases to cover positions created by short sales. Short
sales involve the sale by the Agents of a greater number of Notes than they are
required to purchase in the offering. Stabilizing transactions consist of bids
or purchases made for the purpose of preventing or retarding a decline in the
market price of the Notes while the offering is in progress.
The Agents also may impose a penalty bid. This occurs when a particular
Agent repays to the Agents a portion of the underwriting discount received by it
because the Agents have repurchased Notes sold by or for the account of the
Agent in stabilizing or short covering transactions.
These activities by the Agents may stabilize, maintain or otherwise affect
the market price of the Notes. As a result, the price of the Notes may be higher
than the price that otherwise might exist in the open market. If these
activities are commenced, they may be discontinued by the Agents at any time.
These transactions may be effected in the over-the-counter market or otherwise.
The Agents, whether acting as agents or principals, may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933 (the "Act"). We
have agreed to indemnify the several Agents against specific liabilities,
including liabilities under the Act.
The Agents may sell to dealers who may resell to investors and the Agents
may pay all or part of the discount or commission they receive from us to the
dealers. These dealers may be deemed to be "underwriters" within the meaning of
the Act.
The Notes are a new issue of securities with no established trading market
and will not be listed on a securities exchange. No assurance can be given as to
the liquidity of the trading market for the Notes.
We estimate that our share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $100,000.
Unless otherwise indicated in the applicable Pricing Supplement, the
purchase price of the Notes will be required to be paid in immediately available
funds in New York, New York.
S-41
The Agents and their affiliates may be customers of, engage in transactions
with and perform services for us in the ordinary course of business.
J.P. Morgan Securities Inc. is an affiliate of JPMorgan Chase Bank
("JPMC"), which is the agent bank and a lender to us under our revolving credit
facility. JPMC will receive its proportionate share of any repayment by us of
amounts outstanding under that facility from the proceeds of the offering of the
Notes. Banc of America Securities LLC is an affiliate of Bank of America, N.A.,
which is a lender to us under our revolving credit facility and other credit
facilities. Bank of America N.A. will receive its proportionate share of any
repayment by us of amounts outstanding under those facilities from the proceeds
of the offering of the Notes. If more than 10% of the net proceeds of an
offering are used to repay amounts outstanding under the revolving credit
facility to affiliates of any of the Agents who are participating in that
offering, that offering will be made pursuant to Rule 2710(c)(8) of the Conduct
Rules of the National Association of Securities Dealers Inc.
JPMC is also Trustee under the Indenture and Paying Agent for the Notes. In
addition, JPMC, or its affiliates, participates on a regular basis in various
general financing and banking transactions for us and our affiliates. Mr. Marc
J. Shapiro, the Vice Chairman of J.P. Morgan Chase & Co. and JPMorgan Chase
Bank, affiliates of each of J.P. Morgan Securities Inc. and JPMC, is one of our
Trust Managers.
VALIDITY OF NOTES
The validity of the Notes will be passed upon for us by Locke Liddell &
Sapp LLP, Dallas, Texas, and for the Agents by Sidley Austin Brown & Wood llp,
New York, New York. The opinions of Locke Liddell & Sapp LLP and Sidley Austin
Brown & Wood llp will be conditioned upon, and subject to, assumptions as to
future actions required to be taken in connection with the issuance and sale of
the Notes and as to other events that may affect the validity of the Notes but
which cannot be ascertained on the date of the opinions.
S-42
PROSPECTUS
WEINGARTEN REALTY INVESTORS
$500,000,000
COMMON SHARES, PREFERRED SHARES, DEPOSITARY SHARES, CONVERTIBLE DEBT SECURITIES,
DEBT SECURITIES AND SECURITIES WARRANTS
__________
Weingarten Realty Investors, a real estate investment trust formed under
the Texas Real Estate Investment Trust Act, may offer, from time to time, in one
or more series or classes and in amounts, at prices and on terms that it will
determine at the time of offering, with an aggregate public offering price of up
to $500,000,000:
- unsecured debt securities that may be either senior debt securities or
subordinated debt securities;
- convertible debt securities;
- whole or fractional preferred shares;
- preferred shares represented by depositary shares;
- common shares; or
- warrants to purchase debt securities, convertible debt securities,
preferred shares or common shares, all as shall be designated by
Weingarten at the time of the offering.
We will provide the specific terms of these securities in supplements to
this prospectus. You should read this prospectus and the supplements carefully
before you invest in any of these securities.
We may offer the securities directly, through agents designated from time
to time, or to or through underwriters or dealers. If any agents or underwriters
are involved in the sale of any of the securities, their names, and any
applicable purchase price, fee, commission or discount arrangement between or
among them, will be set forth, or will be calculable from the information set
forth, in the applicable prospectus supplement. For more information on this
topic, please see "Plan of Distribution" on page 31. No securities may be sold
without the delivery of the applicable prospectus supplement describing the
method and terms of the offering of such securities.
Our common shares trade on the New York Stock Exchange under the symbol
"WRI."
____________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES DISCUSSED IN THE
PROSPECTUS, NOR HAVE THEY DETERMINED WHETHER THIS PROSPECTUS IS ACCURATE OR
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is October 30, 2001
WE HAVE NOT AUTHORIZED ANY DEALER, SALESMAN OR OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR ANY APPLICABLE SUPPLEMENT TO
THIS PROSPECTUS. YOU MUST NOT RELY UPON ANY INFORMATION OR REPRESENTATION NOT
CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS OR ANY APPLICABLE
SUPPLEMENT TO THIS PROSPECTUS AS IF WE HAD AUTHORIZED IT. THIS PROSPECTUS AND
ANY APPLICABLE PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH THEY RELATE, NOR DOES THIS PROSPECTUS AND ANY ACCOMPANYING
PROSPECTUS SUPPLEMENT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SECURITIES IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. YOU SHOULD NOT ASSUME
THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS OR ANY APPLICABLE PROSPECTUS
SUPPLEMENT IS CORRECT ON ANY DATE AFTER THEIR RESPECTIVE DATES, EVEN THOUGH THIS
PROSPECTUS IS DELIVERED OR SECURITIES ARE SOLD ON A LATER DATE.
TABLE OF CONTENTS
Cautionary Statement Concerning Forward-Looking Statements . . . . . . . . 1
About This Prospectus. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Ratios of Earnings to Combined Fixed Charges and Preferred Share Dividends 2
Description of Debt Securities and Convertible Debt Securities . . . . . . 3
Description of Capital Shares. . . . . . . . . . . . . . . . . . . . . . . 9
Description of Securities Warrants . . . . . . . . . . . . . . . . . . . . 18
Description of Other Classes of Outstanding Shares . . . . . . . . . . . . 19
Federal Income Tax Consequences. . . . . . . . . . . . . . . . . . . . . . 21
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Where You Can Find More Information. . . . . . . . . . . . . . . . . . . . 32
Incorporation of Documents By Reference. . . . . . . . . . . . . . . . . . 33
i
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This prospectus and the applicable prospectus supplement include and
incorporate by reference forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act. We intend those forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. Forward-looking statements are
generally identifiable by use of the words "believe" "expect" "intend"
"anticipate" "plan" "estimate" "project" or similar expressions. Our ability to
predict results or the actual effect of future plans or strategies is inherently
uncertain. Actual results could differ materially from those in forward-looking
statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
ABOUT THIS PROSPECTUS
This prospectus is part of a "shelf" registration statement that we filed
with the SEC. By using a shelf-registration statement, we may sell, from time to
time, in one or more offerings, any combination of the securities described in
this prospectus. Warrants that will become exercisable within one year or less
from the date of issuance and the securities underlying any warrants that may be
sold hereunder are being registered herein. The total dollar amount of the
securities we sell through these offerings will not exceed $500,000,000. This
prospectus provides you with a description of the material terms of the
securities we may offer, which are known at this time. Each time we sell
securities, we will provide you with a prospectus supplement that contains
specific information about the terms of the securities being offered. The
prospectus supplement will supplement information contained in this prospectus.
You should read both this prospectus and any prospectus supplement together with
the additional information described under the heading "Where You Can Find More
Information" on page 32.
THE COMPANY
We are a real estate investment trust based in Houston, Texas. We develop,
acquire and own anchored neighborhood community shopping centers. To a lesser
degree, we develop, acquire and own industrial real estate. We have engaged in
these activities since 1948.
As of September 30, 2001, we owned or had an equity interest in 282
operating properties consisting of 33.9 million square feet of building area.
These properties consist of 227 shopping centers generally in the 100,000 to
400,000 square foot range, 53 industrial projects, one multi-family apartment
complex and one office building. Our properties are located in Texas (182
properties) and the following states: California (19), Louisiana (14), Arizona
(13), Nevada (9), Tennessee (7), Arkansas (6), New Mexico (6), Florida (6),
Oklahoma (4), Kansas (5), Colorado (5), Missouri (2), Mississippi (1), North
Carolina (1), Maine (1) and Illinois (1). Our shopping centers are anchored
primarily by supermarkets, drugstores and other retailers that sell basic
necessity-type items. We currently lease to approximately 4,000 different
tenants under 5,200 separate leases. As of September 30, 2001, our properties
were 92.4% occupied.
Our executive offices are located at 2600 Citadel Plaza Drive, Suite 300,
Houston, Texas 77008, and our telephone number (713) 866-6000.
USE OF PROCEEDS
Unless otherwise described in the applicable prospectus supplement, we
intend to use the net proceeds from the sale of the securities for general
corporate purposes, working capital, acquisitions (which may include
acquisitions of real property, interests therein or real estate-related
securities), development, repayment or refinancing of debt, or capital
expenditures. Pending the use thereof, Weingarten intends to invest any net
proceeds in short-term interest-bearing securities.
1
RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS
The following table sets forth the ratio of earnings to combined fixed
charges and preferred share dividends and of funds from operations before
interest expense to combined fixed charges and preferred share dividends for the
periods shown:
YEARS ENDED DECEMBER 31,
---------------------------------
1996 1997 1998 1999 2000
----- ----- ----- ----- -----
Ratio of earnings to combined fixed charges
and preferred share dividends . . . . . . . 3.20x 2.72x 2.27x 2.29x 1.80x
Ratio of funds from operations to combined
fixed charges and preferred share dividends 4.37x 3.80x 3.28x 2.79x 2.60x
The ratios of earnings to combined fixed charges and preferred share
dividends were computed by dividing earnings by the sum of fixed charges and
preferred share dividends. The ratios of funds from operations before interest
expense to combined fixed charges and preferred share dividends were computed by
dividing funds from operations before interest expense by the sum of fixed
charges and preferred share dividends.
For these purposes, earnings consist of income before extraordinary items
plus fixed charges (excluding interest costs capitalized) and preferred share
dividends. Funds from operations before interest expense consists of net income
plus depreciation and amortization of real estate assets, interest on
indebtedness and extraordinary charges, less gains and losses on sales of
properties and securities.
The Board of Governors of the National Association of Real Estate
Investment Trusts defines funds from operations as net income (loss) computed in
accordance with generally accepted accounting principles, excluding gains or
losses from sales of property, plus real estate related depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures. In addition, NAREIT recommends that extraordinary items not be
considered in arriving at FFO. We calculate FFO in a manner consistent with the
NAREIT definition. Most industry analysts and equity REITS, including
Weingarten, believe FFO is an alternative measure of performance relative to
other REITs. There can be no assurance that FFO presented by Weingarten is
comparable to similarly titled measures of other REITs. FFO should not be
considered as an alternative to net income or other measurements under GAAP as
an indicator of our operating performance or to cash flows from operating,
investing, or financing activities as a measure of liquidity. FFO does not
reflect working capital changes, cash expenditures for capital improvements, or
principal payments on indebtedness.
2
DESCRIPTION OF DEBT SECURITIES AND CONVERTIBLE DEBT SECURITIES
The senior debt securities will be issued under a senior indenture dated as
of May 1, 1995 between us and Chase Bank of Texas, National Association, as
trustee, and the subordinated debt securities will be issued under a
subordinated indenture dated as of May 1, 1995 between us and Chase Bank of
Texas, National Association, as trustee. The term "trustee" as used in this
prospectus refers to any bank that we may appoint as trustee under the terms of
the applicable indenture, in its capacity as trustee for the senior securities
or the subordinated securities.
We have summarized the material terms and provisions of the indentures. The
summary is not complete. If we refer to particular provisions of the indentures,
the provisions, including definitions of terms, are incorporated by reference as
a part of the summary. We have included references to articles or section
numbers of the applicable indenture so that you can easily locate these
provisions in the indentures. The indentures have been incorporated by reference
as exhibits to the registration statement of which this prospectus is a part. We
urge you to read the indentures because they, and not this description, define
the rights of holders of debt securities. The indentures are subject to the
Trust Indenture Act of 1939, as amended. To obtain copies of the indentures, see
"Where You Can Find More Information" on page 32.
GENERAL
The debt securities will be direct, unsecured general obligations of
Weingarten. The senior debt securities will rank equally with all of our other
unsecured and unsubordinated indebtedness. The subordinated debt securities will
be subordinated in right of payment to the prior payment in full of our senior
debt securities. See "--Subordinated Debt Securities" on page 4.
The indentures do not limit the amount of debt securities that we can
offer. Each indenture allows us to issue debt securities up to the principal
amount that may be authorized by us. We may issue additional debt securities
without your consent. We may issue debt securities in one or more series. All
debt securities of one series need not be issued at the same time and, unless
otherwise provided, a series may be reopened, without the consent of the holders
of the debt securities of such series, for issuances of additional debt
securities of such series. (Section 301)
A prospectus supplement and any supplemental indentures relating to any
series of debt securities being offered will include specific terms relating to
the offering. These terms will include some or all of the following:
- the title, type and amount of the debt securities;
- the total principal amount and priority of the debt securities;
- the percentage of the principal amount at which the debt securities
will be issued and any payments due if the maturity of the debt
securities is accelerated;
- the dates on which the principal of the debt securities will be
payable;
- the interest rates (which may be fixed or variable) which the debt
securities will bear, or the method for determining rates;
- the dates from which the interest on the debt securities will accrue
and be payable, or the method of determining those dates, and any
record dates for the payments due;
- any provisions for redemption, conversion or exchange of the debt
securities, at our option or otherwise, including the periods, prices
and terms of redemption or conversion;
- any sinking fund or similar provisions, which would obligate us to
repurchase or otherwise redeem the debt securities, along with the
periods, prices and terms of redemption, purchase or repayment;
3
- the amount or percentage payable if we accelerate the maturity of the
debt securities, if other than the principal amount;
- any additional events of default or covenants set forth in the
indentures;
- the terms of subordination, if any;
- any special tax implications of the debt securities, including
provisions for original issue discount securities; and
- any other terms consistent with the indenture.
The debt securities may be issued in registered, bearer, coupon or global
form. We may authorize and determine the terms of a series of debt securities by
resolution of our board of trust managers or the pricing committee of our board
of trust managers or through a supplemental indenture. Unless otherwise
described in the applicable prospectus supplement, we will issue debt securities
only in denominations of $1,000 and integral multiples of that amount. (Section
301)
SENIOR DEBT SECURITIES
Any additional senior debt securities we issue will rank equally in right
of payment with the senior debt securities offered by this prospectus and the
applicable prospectus supplement. Further, the senior indenture does not
prohibit us from issuing additional debt securities that may rank equally in
right of payment to the senior debt securities. Any senior debt securities
offered pursuant to the senior indenture will be senior in right of payment to
all subordinated debt securities issued under the subordinated indenture.
SUBORDINATED DEBT SECURITIES
The subordinated debt securities will have a junior position to all of our
senior debt. Under the subordinated indenture, payment of the principal,
interest and any premium on the subordinated debt securities will generally be
subordinated and junior in right of payment to the prior payment in full of all
senior debt. The subordinated indenture provides that no payment of principal,
interest and any premium on the subordinated debt securities may be made in the
event:
- of any insolvency, bankruptcy or similar proceeding involving us or
our properties; or
- we fail to pay the principal, interest, any premium or any other
amounts on any senior debt when due.
The subordinated indenture will not limit the amount of senior debt that we
may incur. All series of subordinated debt securities as well as other
subordinated debt issued under the subordinated indenture will rank equally with
each other in right of payment.
The subordinated indenture prohibits us from making a payment of principal,
premium, interest or sinking fund payments for the subordinated debt securities
during the continuance of any default on senior debt or any default under any
agreement pursuant to which the senior debt was issued beyond the grace period,
unless and until the default on the senior debt is cured or waived.
(Subordinated Indenture Article Sixteen)
Upon any distribution of our assets in connection with any dissolution,
winding up, liquidation, reorganization, bankruptcy or other similar proceeding,
the holders of all senior debt securities will first be entitled to receive
payment in full of the principal, any premium and interest due on the senior
debt before the holders of the subordinated debt securities are entitled to
receive any payment. (Subordinated Indenture Article Sixteen) Because of this
subordination, if we become insolvent, our creditors who are not holders of
senior debt or of the subordinated debt securities may recover less, ratably,
than holders of senior debt but may recover more, ratably, than holders of the
subordinated debt securities.
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GLOBAL CERTIFICATES
Unless the prospectus supplement otherwise provides, we will issue debt
securities as one or more global certificates that will be deposited with The
Depositary Trust Company. Unless otherwise specified in the applicable
prospectus supplement, debt securities issued in the form of a global
certificate to be deposited with DTC will be represented by a global certificate
registered in the name of DTC or its nominee. This means that we will not issue
certificates to each holder. Generally, we will issue global securities in the
total principal amount of the debt securities in a series. Debt securities in
the form of a global certificate may not be transferred except as a whole among
DTC, its nominee or a successor to DTC and any nominee of that successor.
We may determine not to use global certificates for any series. In that
event, we will issue debt securities in certificate form.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in certificate form. Those laws
and some conditions on transfer of global securities may impair the ability to
transfer interests in global securities.
OWNERSHIP OF GLOBAL SECURITIES
So long as DTC or its nominee is the registered owner of a global security,
that entity will be the sole holder of the debt securities represented by that
instrument. Both we and the trustee are only required to treat DTC or its
nominee as the legal owner of those securities for all purposes under the
indentures.
Unless otherwise specified in this prospectus or the prospectus supplement,
no actual purchaser of debt securities represented by a global security will be
entitled to receive physical delivery of certificated securities or will be
considered the holder of those securities for any purpose under the indentures.
In addition, no actual purchaser will be able to transfer or exchange global
securities unless otherwise specified in this prospectus or the prospectus
supplement. As a result, each actual purchaser must rely on the procedures of
DTC to exercise any rights of a holder under the applicable indenture. Also, if
an actual purchaser is not a DTC participant, the actual purchaser must rely on
the procedures of the participant through which it owns its interest in a global
security.
THE DEPOSITARY TRUST COMPANY
The following is based on information furnished by DTC and applies to the
extent that it is the depositary, unless otherwise provided in the prospectus
supplement.
Registered Owner. The debt securities will be issued as fully registered
securities in the name of Cede & Co. (which is DTC's partnership nominee). The
trustee will deposit the global security with the depositary. The deposit with
the depositary and its registration in the name of Cede & Co. will not change
the nature of the actual purchaser's ownership interest in the debt securities.
DTC's Organization. DTC is a limited purpose trust company organized under
the New York Banking Law, a "banking organization" within the meaning of that
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 under the provisions of Section 17A of the Securities Exchange Act of
1934, as amended.
DTC is owned by a number of its direct participants, the New York Stock
Exchange, Inc. and NasdaqAmex. Direct participants include securities brokers
and dealers, banks, trust companies, clearing corporations and certain other
organizations who directly participate in DTC. Other entities may access DTC's
system by clearing transactions through or maintaining a custodial relationship
with direct participants. The rules applicable to DTC and its participants are
on file with the SEC.
DTC's Activities. DTC holds securities that its participants deposit with
it. DTC also facilitates the settlement among participants of securities
transactions, such as transfers and pledges, in deposited securities through
electronic computerized book-entry changes in participants' accounts. Doing so
eliminates the need for physical movement of securities certificates.
5
Participants' Records. Except as otherwise provided in this prospectus or a
prospectus supplement, purchases of debt securities must be made by or through a
direct participant, which will receive a credit for the securities on DTC's
records. The purchaser's interest is in turn to be recorded on the participants'
records. Actual purchasers will not receive written confirmations from DTC of
their purchase, but they generally receive confirmations along with periodic
statements of their holdings from the participants through which they entered
into the transaction.
Transfers of interests in the global securities will be made on the books
of the participants on behalf of the actual purchasers. Certificates
representing the interest of the actual purchasers in the securities will not be
issued unless the use of global securities is suspended. DTC has no knowledge of
the actual purchasers of global securities. DTC's records only reflect the
identity of the direct participants who are responsible for keeping account of
their holdings on behalf of their customers.
Notices Among the depositary, Participants and Actual Owners. Notices and
other communications by DTC, its participants and the actual purchasers will be
governed by arrangements among them, subject to any legal requirements in
effect.
Voting Procedures. Neither DTC nor Cede & Co. will give consents for or
vote the global securities. DTC generally mails an omnibus proxy to us just
after the applicable record date. That proxy assigns Cede & Co.'s voting rights
to the direct participants to whose accounts the securities are credited at that
time.
Payments. Principal and interest payments made by us will be delivered to
DTC. DTC's practice is to credit direct participants' accounts on the applicable
payment date unless it has reason to believe that it will not receive payment on
that date. Payments by participants to actual purchasers will be governed by
standing instructions and customary practices, as is the case with securities
held for customers in bearer form or registered in "street name." Those
payments will be the responsibility of that participant, not DTC, the trustee or
us, subject to any legal requirements in effect at that time.
We are responsible for payment of principal, interest and premium, if any,
to the trustee, who is responsible to pay it to DTC. DTC is responsible for
disbursing those payments to direct participants. The participants are
responsible for disbursing payment to the actual purchasers.
TRANSFER OR EXCHANGE OF DEBT SECURITIES
You may transfer or exchange debt securities (other than global securities)
without a service charge at the corporate trust office of the trustee. You may
also surrender debt securities (other than global securities) for conversion or
registration of transfer without a service charge at the corporate trust office
of the trustee. You must execute a proper form of transfer and pay any taxes or
other governmental charges resulting from that action.
TRANSFER AGENT
If we designate a transfer agent (in addition to the trustee) in a
prospectus supplement, we may at any time rescind this designation or approve a
change in the location through which any such transfer agent acts. We will,
however, be required to maintain a transfer agent in each place of payment for a
series of debt securities. We may at any time designate additional transfer
agents for a series of debt securities.
COVENANTS
Under the indentures, we are required to:
- pay the principal, interest and any premium on the debt securities
when due;
- maintain a place of payment;
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- deliver a report to the trustee at the end of each fiscal year
reviewing our obligations under the indentures;
- deposit sufficient funds with any paying agent on or before the due
date for any principal, interest or any premium; and
- maintain an unencumbered total asset value (as defined in the
indentures) in an amount of not less than 100% of the aggregate
principal amount of all our outstanding debt.
Under the indentures, we may not:
- incur or permit a subsidiary to incur any debt (as defined in the
indentures) which causes the aggregate principal amount of all our
outstanding debt to become greater than 60% of the sum of (1) our
total assets (as defined in the indentures) at the end of the calendar
quarter covered in our then most recent 10-K or 10-Q and (2) the
purchase price of any real estate assets or mortgages receivable
acquired and any securities offering proceeds received since the end
of such calendar quarter to the extent such proceeds were not used by
us to acquire real estate assets or mortgages receivable or used to
reduce debt;
- incur or permit a subsidiary to incur any debt if our ratio of
consolidated income available for debt service (as defined in the
indentures) to the annual service charge (as defined in the
indentures) shall have been less than 2.5 for the four quarters then
most recently ended; and
- incur any debt or permit a subsidiary to incur any debt secured by any
mortgage lien, charge, pledge, encumbrance or security interest in
which the aggregate principal amount of all our outstanding secured
debt in greater than 40% of our total assets.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Events of default under the indentures for any series of debt securities
include:
- failure for 30 days to pay interest on any debt securities of that
series;
- failure to pay principal or premium, if any, of any debt securities of
that series;
- failure to pay any sinking fund payment when due;
- failure to perform any other covenants contained in the indentures
(other than a covenant added to the indentures solely for the benefit
of a particular series of debt securities), which continues for 60
days after written notice as provided in the indenture;
- default under any of our other debt instruments with an aggregate
principal amount outstanding of at least $10,000,000; or
- events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee.
An event of default for a particular series of debt securities does not
necessarily constitute an event of default for any other series of debt
securities issued under an indenture. The trustee may withhold notice to the
holders of debt securities of any default (except in the payment of principal or
interest) if it considers such withholding of notice to be in the best interests
of the holders.
If an event of default for any series of debt securities occurs and
continues, the trustee or the holders of at least 25% of the total principal
amount of the debt securities of the series may declare the entire principal of
that series due and payable immediately. (Section 502) The trustee will not be
charged with knowledge of any event of default other than our failure to make
7
principal, interest or sinking fund payments unless written notice is received
by the trustee or the trustee has actual notice of the event of default.
(Section 603) If this happens, the holders of a majority of the aggregate
principal amount of the debt securities of that series can generally void the
declaration. (Section 502)
The indentures limit the right to institute legal proceedings. No holder of
any debt securities will have the right to bring a claim under an indenture
unless:
- the holder has given written notice of default to the trustee;
- the holders of not less than 25% of the aggregate principal amount of
debt securities of that series shall have made a written request to
the trustee to bring the claim and furnished the trustee reasonable
indemnification as it may require;
- the trustee has not commenced an action within 60 days of receipt of
the notice; and
- no direction inconsistent with a request has been given to the trustee
by the holders of not less than a majority of the aggregate principal
amount of the debt securities. The holders of debt securities may
enforce payment of the principal of or premium, if any, or interest on
their debt securities. No holder of debt securities of a particular
series has the right to prejudice the rights or obtain priority or
preference over the rights of any other holder of debt securities of
that series. (Section 507)
The holders of a majority in aggregate principal amount of any series of
debt securities may direct the time, method and place of conducting any
proceeding for any remedy available to the trustee or exercising any power
conferred on the trustee with respect to the securities of any series; provided,
however, that
- the direction does not conflict with any rule of law or an indenture,
- the trustee may take any action it deems proper and which is
consistent with the direction of the holders; and
- the trustee is not required to take any action that would unduly
prejudice the holders of the debt securities not taking part in the
action or would impose personal liability on the trustee. (Section
512)
Each indenture provides that, if an event of default has occurred, the
trustee is to use the degree of care a prudent person would use in the conduct
of his own affairs. (Section 602) Subject to those provisions, the trustee is
under no obligation to exercise any of its rights or powers under an indenture
at the request of any of the holders of the debt securities of a series unless
they have furnished to the trustee reasonable security or indemnity. (Section
603)
We will be required to furnish to the trustee in an annual statement a
notice as to our fulfillment of all of our obligations under the relevant
indenture. (Section 1010)
MODIFICATION OF THE INDENTURES
In order to change or modify an indenture, we must obtain the consent of
holders of at least a majority in principal amount of all outstanding debt
securities affected by that change. The consent of holders of at least a
majority in principal amount of each series of outstanding debt securities is
required to waive compliance by us with specific covenants in an indenture. We
must obtain the consent of each holder affected by a change:
- to extend the maturity, or to reduce the principal, redemption premium
or interest rate;
- change the place of payment, or the coin or currency, for payment;
limit the right to sue for payment;
8
- reduce the level of consents needed to approve a change to an
indenture; or 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 level of consents needed to
approve a change to an indenture. (Article Nine)
DEFEASANCE
We may defease the debt securities of a series, which means that we would
satisfy our duties under that series before maturity. We may do so by depositing
with the trustee, in trust for the benefit of the holders, sufficient funds to
pay the entire indebtedness on that series, including principal, premium, if
any, and interest. We must also comply with other conditions before we defease
the debt securities. We must deliver an opinion of counsel to the effect that
the holders of that series will have no federal income tax consequences as a
result of the defeasance. (Article Fourteen)
CONVERSION
Debt securities may be convertible into or exchangeable for common shares
or preferred shares. The prospectus supplement will describe the terms of any
conversion rights. To protect our status as a REIT, debt securities are not
convertible if, as a result of that conversion, any person would then be deemed
to own, directly or indirectly, more than 9.8% of our capital shares. See
"Description of Capital Shares--Restrictions On Ownership" on page 15.
MERGER, CONSOLIDATION AND SALE OF ASSETS
Each indenture generally permits us to consolidate or merge with another
entity. The indentures also permit us to sell all or substantially all of our
property and assets. If this happens, the remaining or acquiring entity shall
assume all of our responsibilities and liabilities under the indentures
including the payment of all amounts due on the debt securities and performance
of the covenants in the indentures. However, we will only consolidate or merge
with or into any other entity or sell all or substantially all of our assets
according to the terms and conditions of the indentures. The remaining or
acquiring entity will be substituted for us in the indentures with the same
effect as if it had been an original party to the indentures. Thereafter, the
successor entity may exercise our rights and powers under any indenture, in our
name or in its own name. Any act or proceeding required or permitted to be done
by our board of trust managers or any of our officers may be done by the board
or officers of the successor entity. (Article Eight)
DESCRIPTION OF CAPITAL SHARES
Our declaration of trust provides that we may issue up to 160,000,000
shares of beneficial interest, consisting of 150,000,000 common shares, par
value $0.03 per share, and 10,000,000 preferred shares, par value $.03 per
share. At September 30, 2001, 32,490,804 common shares, 3,000,000 7.44% Series
A Cumulative Redeemable Preferred Shares, 3,528,221 7.125% Series B Cumulative
Redeemable Preferred Shares and 2,256,253 7.0% Series C Cumulative Redeemable
Preferred Shares were issued and outstanding. In addition, we have 1,637,000
common shares available for issuance upon the exercise of options under our
employee and trust manager share option plans, which includes 1,000,000 common
shares under the 2001 Long Term Incentive Plan that is subject to shareholder
approval. Our common shares are listed on the New York Stock Exchange under the
symbol "WRI." Mellon Investor Service, LLC is the transfer agent and registrar
of our common shares and preferred shares.
COMMON SHARES
The following description of our common shares sets forth certain of their
material terms and provisions. The following description of our common shares
is in all respects subject to and qualified by reference to the applicable
provisions of our declaration of trust and our bylaws.
Our common shares possess ordinary voting rights for the election of trust
managers and in respect of other trust matters, each share entitling the holder
thereof to one vote. Holders of common shares do not have cumulative voting
rights in the election of trust managers. The board of trust managers may
declare dividends on common shares in its discretion if funds are legally
9
available for those purposes. On liquidation, common shareholders are entitled
to receive pro rata any of our remaining assets, after we satisfy or provide for
the satisfaction of all liabilities and obligations on our preferred shares, if
any. Common shareholders do not have conversion, redemption or preemptive rights
to subscribe for or purchase any of our capital shares or any of our other
securities.
PREFERRED SHARES
General. Under our declaration of trust, our board of trust managers is
authorized to determine for each series of preferred shares, and the prospectus
supplement shall set forth with respect to each series that may be issued and
sold pursuant hereto:
- the designation of such shares and the number of shares that
constitute such series;
- the dividend rate (or the method of calculation thereof), if any, on
the shares of such series and the priority as to the payment of
dividends with respect to other classes or series of Weingarten
capital shares;
- the dividend periods (or the method of calculation thereof);
- the voting rights of the shares;
- the liquidation preference and the priority as to payment of such
liquidation preference with respect to other classes or series of
capital shares of Weingarten and any other rights of the shares of
such series upon liquidation or winding-up of Weingarten;
- whether or not and on what terms the shares of such series will be
subject to redemption or repurchase at the option of Weingarten;
- whether and on what terms the shares of such series will be
convertible into or exchangeable for other debt or equity securities
of Weingarten which have been registered under the registration
statement of which this prospectus constitutes a part thereof;
- whether the shares of such series of preferred shares will be listed
on a securities exchange;
- any special U.S. federal income tax considerations applicable to such
series; and
- the other rights and privileges and any qualifications, limitations or
restrictions of such rights or privileges of such series not
inconsistent with our declaration of trust, our bylaws and the Texas
Real Estate Investment Trust Act.
Convertibility. No series of preferred shares that may be issued and sold
pursuant hereto will be convertible into or exchangeable for other securities or
property, except as set forth in the applicable prospectus supplement which will
set forth the terms and conditions upon which such conversion or exchange may be
effected, including the initial conversion or exchange rate and any adjustments
thereto, the conversion or exchange period and any other conversion or exchange
provisions.
Dividends. Holders of preferred shares shall be entitled to receive, when
and as declared by our board of trust managers, out of funds legally available
therefor, an annual cash dividend payable at such dates and such rates, if any,
per share per annum as set forth in the applicable prospectus supplement.
Unless otherwise set forth in the applicable prospectus supplement, each
series of preferred shares that may be issued and sold pursuant hereto, will
rank junior as to dividends to any preferred shares that may be issued in the
future that is expressly senior as to dividends to the preferred shares. If at
any time Weingarten has failed to pay accrued dividends on any such senior
shares at the time such dividends are payable, Weingarten may not pay any
dividend on the preferred shares or redeem or otherwise repurchase preferred
10
shares until such accumulated but unpaid dividends on such senior shares have
been paid or set aside for payment in full by Weingarten.
Unless otherwise set forth herein or in the applicable Prospectus
Supplement relating to any class or series of preferred shares that may be
issued and sold pursuant hereto, no dividends shall be declared or set aside for
payment nor shall any other distribution be declared or made upon the common
shares, or any other capital shares of Weingarten ranking junior to or on a
parity with the preferred shares with such series as to dividends, nor shall any
common shares or any other capital shares of Weingarten ranking junior to or on
a parity with the preferred shares with such series as to dividends or upon
liquidation be redeemed, purchased or otherwise acquired for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any shares by Weingarten (except by conversion into or exchange
for other capital shares of Weingarten ranking junior to the preferred shares of
such series as to dividends and upon liquidation)) unless
- if such series of preferred shares has a cumulative dividend, full
cumulative dividends on the preferred shares of such series have been
or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for all past dividend
periods and the then current dividend period; and
- if such series of preferred shares does not have a cumulative
dividend, full dividends on the preferred shares of such series have
been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for the then
current dividend period;
provided, however, that any monies theretofore deposited in any sinking fund
with respect to any preferred shares in compliance with the provisions of such
sinking fund may thereafter be applied to the purchase or redemption of such
preferred shares in accordance with the terms of such sinking fund, regardless
of whether at the time of such application full cumulative dividends upon
preferred shares outstanding on the last dividend payment date shall have been
paid or declared and set apart for payment; and provided, further, that any such
junior or parity preferred shares or common shares may be converted into or
exchanged for shares of Weingarten ranking junior to the preferred shares as to
dividends.
The amount of dividends payable for the initial dividend period or any
period shorter than a full dividend period shall be computed on the basis of a
360-day year or twelve 30-day months. Accrued but unpaid dividends will not bear
interest.
Redemption and Sinking Fund. No series of preferred shares that may be
issued and sold pursuant hereto will be redeemable or be entitled to receive the
benefit of a sinking fund, except as set forth in the applicable prospectus
supplement, which will set forth the terms and conditions thereof, including the
dates and redemption price of any such redemption, any conditions thereto, and
any other redemption or sinking fund provisions.
Liquidation Rights. In the event of our voluntary liquidation, dissolution
or winding-up, the holders of any series of any class of preferred shares shall
be entitled to receive in full out of our assets, including our capital, before
any amount shall be paid or distributed among the holders of the common shares
or any other shares ranking junior to such series, the amounts fixed by our
board of trust managers with respect to such series and set forth in the
applicable prospectus supplement. In addition, each holder will receive an
amount equal to all dividends accrued and unpaid on that series of preferred
shares to the date of payment of the amount due pursuant to our liquidation,
dissolution or winding-up. However, holders of noncumulative preferred shares
will only receive dividends for the current dividend period. After holders of
the preferred shares are paid the full preferential amounts to which they are
entitled, they will have no right or claim to any of our remaining assets. If
liquidating distributions are made in full to all holders of preferred shares,
our remaining assets will be distributed among the holders of any other classes
or series of capital shares ranking junior to the preferred shares upon
liquidation, dissolution or winding-up. The distributions will be made according
to the holders' respective rights and preferences and, in each case, according
to their respective numbers of shares. Our merger or consolidation into or with
any other corporation, or the sale, lease or conveyance of all or substantially
all of our assets, shall not constitute a dissolution, liquidation or winding-
up.
Voting Rights. Holders of preferred shares will not have any voting rights,
except as follows and as from time to time required by law. If and when we are
in default in the payment of (or, with respect to noncumulative shares, have not
paid or declared and set aside a sum sufficient for the payment of) dividends on
any series of any class of outstanding preferred shares, for consecutive
11
dividend payment periods which in the aggregate contain at least 540 days, all
holders of shares of such class, voting separately as a class, together and
combined with all other preferred shares upon which like voting rights have been
conferred and are exercisable, will be entitled to elect a number of trust
managers set forth in the applicable prospectus supplement. This voting right
shall be vested and any additional trust managers shall serve until all accrued
and unpaid dividends (except, with respect to noncumulative shares, only
dividends for the then current dividend period) on such outstanding preferred
shares have been paid or declared and a sufficient sum set aside for payment
thereof.
The affirmative vote of the holders of at least 66 2/3% of a class of
outstanding preferred shares, voting separately as a class, shall be necessary
to effect either of the following:
- the authorization, creation or increase in the authorized number of
any shares, or any security convertible into shares, senior to such
class of preferred shares; or
- any amendment, alteration or repeal, whether by merger, consolidation
or otherwise, of any of the provisions of our declaration of trust
which adversely and materially affects the preferences or voting or
other rights of the holders of such class of preferred shares which
are set forth in the our declaration of trust. However, the amendment
of the declaration of trust to authorize, create or change the
authorized or outstanding number of a class of preferred shares or of
any shares ranking on a parity with or junior to such class of
preferred shares does not adversely and materially affect preferences
or voting or other rights of the holders of such class of preferred
shares. In addition, amending the declaration of trust to change the
number or classification of our trust managers does not adversely or
materially affect preferences or voting rights or other rights. Voting
shall be done in person at a meeting called for one of the above
purposes or in writing by proxy.
Without limiting the provisions described above, under the Texas REIT Act,
unless otherwise such authority is granted to the trust managers under our
declaration of trust, holders of each class of preferred shares will be entitled
to vote as a class on any amendment to the declaration of trust, whether or not
they are entitled to vote thereon by the declaration of trust, if the amendment
would
(1) increase or decrease the aggregate number of authorized shares of such
class or series;
(2) increase or decrease the par value of the shares of such class,
including changing shares having a par value into shares without par value, or
shares without par value into shares with par value;
(3) effect an exchange, reclassification, or cancellation of all or part of
the shares of such class or series;
(4) effect an exchange or create a right of exchange of all or any part of
the shares of another class into the shares of such class or series;
(5) change the designations, preferences, limitations, or relative rights
of the shares of such class or series;
(6) change the shares of such class or series, whether with or without par
value, into the same or a different number of shares, either with or without par
value, of the same class or series or another class or series;
(7) create a new class or series of shares having rights and preferences
equal, prior, or superior to the shares of the class or series, or increase the
rights and preferences of any class or series having rights and preferences
equal, prior, or superior to the shares of the class or series, or increase the
rights and preferences of any class or series having rights or preferences later
or inferior to the shares of the class or series in such a manner as to become
equal, prior, or superior to the shares of the class or series;
(8) divide the shares of the class into series and fix and determine the
designation of the series and the variations in the relative rights and
preferences between the shares of the series;
(9) limit or deny the existing preemptive rights of the shares of the class
or series, if the rights have previously been granted pursuant to the Texas REIT
Act; or
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(10) cancel or otherwise affect dividends on the shares of the class or
series that had accrued but had not been declared.
DEPOSITARY SHARES
We may issue receipts for depositary shares, each of which will represent a
fractional interest of a particular series of a class of preferred shares, as
specified in the applicable prospectus supplement. The preferred shares of each
series represented by depositary shares will be deposited under a separate
deposit agreement among us, the depositary named in the deposit agreement and
the holders of the depositary receipts. Immediately following our issuance and
delivery of the preferred shares to the depositary, we will cause the depositary
to issue, on our behalf, the depositary receipts. Subject to the terms of the
applicable depositary agreement, each owner of a depositary receipt will be
entitled, in proportion to the fractional interest of a share of a particular
series of a preferred shares represented by the depositary shares evidenced by
the depositary receipts, to all the rights and preferences of the preferred
shares represented by the depositary shares (including dividend, voting,
conversion, redemption and liquidation rights ) as designated by our board of
trust managers.
The summary of our depositary shares set forth below is not complete. You
should refer to the applicable prospectus supplement, provisions of the deposit
agreement and the depositary receipts that will be filed with the SEC as part of
the offering of any depositary shares. To obtain copies of these documents, see
"Where You Can Find More Information" on page 32.
Dividends and Other Distributions. The depositary will distribute all cash
dividends or other cash distributions received on behalf of the preferred shares
proportionately to the record holders of the related depositary receipts owned
by such holder. Such distributions are subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the depositary.
In the event of a non-cash distribution, the depositary will distribute
property it receives to the record holders of depositary receipts entitled to
the property unless the depositary determines that it is not feasible to make
such distribution, in which case the depositary may, with our approval, sell
such property and distribute the net proceeds of such sale to holders. Such
distributions by the depositary are subject to certain obligations of holders to
file proofs, certificates and other information and to pay certain changes and
expenses to the depositary.
Withdrawal of Shares. Unless the related depositary shares have previously
been called for redemption, upon surrender of the depositary receipts at the
corporate trust office of the depositary, the holders thereof will be entitled
to delivery at such office, to or upon such holder's order, of the number of
whole or fractional preferred shares and any money or other property represented
by the depositary shares evidenced by such depositary receipts. Holders of
depositary receipts will be entitled to receive whole or fractional shares of
the related preferred shares on the basis of the proportion of preferred shares
represented by each depositary share as specified in the applicable prospectus
supplement, but holders of such preferred shares 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 preferred shares to be withdrawn, the
depositary will deliver to such holder at the same time a new depositary receipt
evidencing such excess number of depositary shares.
Redemption. Whenever we redeem preferred shares held by the depositary,
the depositary will redeem as of the same redemption date the number of
depositary shares representing the preferred shares so redeemed, provided we
have paid in full to the depositary the redemption price of the preferred shares
to be redeemed plus an amount equal to any accrued and unpaid dividends thereon
to the date fixed for redemption. With respect to noncumulative preferred
shares, dividends will be paid for the current dividend period only. The
redemption price per depositary share will be equal to the redemption price and
any other amounts per share payable with respect to the preferred shares. If
less than all the depositary shares are to be redeemed, the depositary shares to
be redeemed will be selected by the depositary by lot.
After the date fixed for redemption, the depositary shares 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 called for
redemption will cease. However, the holders will have the right to receive any
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moneys payable upon redemption and any money or other property that the holders
of such depositary receipts were entitled to at the time of redemption when they
surrender their depositary receipts to the depositary.
Voting Rights. Upon receipt of notice of any meeting at which the holders
of the preferred shares are entitled to vote, the depositary will mail the
information contained in such notice to the record holders of the depositary
receipts related to such preferred shares. Each record holder of depositary
receipts on the record date will be entitled to instruct the depositary as to
the exercise of the voting rights of the preferred shares related to such
holder's depositary receipts. The record date for depositary receipts will be
the same date as the record date for preferred shares. The depositary will vote
the preferred shares related to such depositary receipts in accordance with such
instructions, and we will agree to take all reasonable action that the
depositary deems necessary to enable it to vote the preferred shares. The
depositary will abstain from voting preferred shares represented by such
depositary shares to the extent it does not receive specific instructions from
the holders of depositary receipts.
Liquidation Preference. In the event of our liquidation, dissolution or
winding-up, whether voluntary or involuntary, each holder of a depositary
receipt will be entitled to the fraction of the liquidation preference accorded
each preferred share represented by the depositary share evidenced by such
depositary receipt, as set forth in the applicable prospectus supplement.
Conversion of Preferred Shares. The depositary shares, as such, are not
convertible into common shares or any of our other securities or property.
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 depositary with written instructions to the depositary
to instruct us to cause conversion of the preferred shares represented by the
depositary shares into whole common shares, other preferred shares or other
shares of capital shares. We have agreed that upon receipt of such 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 shares
to effect such conversion. If the depositary shares evidenced by a depositary
receipt are to be converted in part only, one or more new depositary receipts
will be issued for any depositary shares not to be converted. No fractional
common shares will be issued upon conversion. If conversion will result in a
fractional share being issued, we will pay in cash an amount equal to the value
of the fractional interest based upon the closing price of the common shares 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 shares
and any provision of the deposit agreement may at any time be amended by
agreement between the depositary and us. However, any amendment that materially
and adversely alters the rights of the holders of depositary receipts will not
be effective unless it has been approved by the existing holders of at least a
majority of the depositary shares evidenced by outstanding depositary receipts.
We may terminate the deposit agreement upon not less than 30 days' prior
written notice to the depositary if (1) such termination is to preserve our
status as a REIT or (2) a majority of each class of preferred shares affected by
such termination consents to such termination. Upon termination of the deposit
agreement, the depositary shall deliver or make available to each holder of
depositary receipts, upon surrender of the depositary receipts held by such
holder, such number of whole or fractional preferred shares as are represented
by the depositary shares evidenced by such depositary receipts. In addition, the
deposit agreement will automatically terminate if:
- all outstanding depositary shares have been redeemed;
- there has been a final distribution in respect of the related
preferred shares in connection with any liquidation, dissolution or
winding-up and such distribution has been distributed to the holders
of depositary receipts evidencing the depositary shares representing
such preferred shares; or
- each related preferred share shall have been converted into capital
shares that are not represented by depositary shares.
Fees of 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 depositary in connection
with the performance of its duties under the deposit agreement. However, holders
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of depositary receipts will pay the depositary's fees and expenses for any
duties that holders request to be performed which are outside those expressly
provided for in the deposit agreement.
Resignation and Removal of depositary. The depositary may resign at any
time by delivering to us notice of its resignation, and we may remove the
depositary at any time. Any such resignation or removal will take effect upon
the appointment of a successor depositary. A successor depositary must be
appointed within 60 days after delivery of the notice of resignation or removal.
A successor depositary must be a bank or trust company having its principal
office in the U.S. and having a combined capital and surplus of at least
$50,000,000.
Miscellaneous. The depositary will forward to holders of depositary
receipts any reports and communications from us which it receives with respect
to the related preferred shares. Neither us nor the 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. The obligations
of us and the depositary under the deposit agreement will be limited to
performing their duties thereunder in good faith and without negligence, gross
negligence or willful misconduct. Weingarten and the depositary will not be
obligated to prosecute or defend any legal proceeding in respect of any
depositary receipts, depositary shares or preferred shares represented thereby
unless satisfactory indemnity is furnished. Weingarten and the depositary may
rely on written advice of counsel or accountants, or information provided by
persons presenting preferred shares represented thereby for deposit, holders of
depositary receipts or other persons believed to be competent to give such
information, and on documents believed to be genuine and signed by a proper
party.
If the 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 depositary shall be entitled to act on such claims,
requests or instructions received from us.
RESTRICTIONS ON OWNERSHIP
In order for us to qualify as a REIT under the Internal Revenue Code, not
more than 50% in value of our outstanding capital shares may be owned, directly
or indirectly, by five or fewer individuals during the last half of a taxable
year. In addition, our capital shares 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. For purposes of restrictions on
ownership, "capital shares" means our common shares and any securities
convertible into common shares.
Because the board believes it is essential for us to continue to qualify as
a REIT, our declaration of trust generally provides that no holder may own, or
be deemed to own by virtue of the attribution provisions of the Internal Revenue
Code, more than 9.8% of our total outstanding capital shares. Any transfer of
shares will not be valid if it would:
- create a direct or indirect ownership of shares in excess of 9.8% of
our total outstanding capital shares;
- result in shares being owned by fewer than 100 persons;
- result in our being "closely held" within the meaning of Section
856(h) of the Internal Revenue Code; or
- result in our disqualification as a REIT.
Shares in excess of 9.8% of our total outstanding capital shares will
automatically be deemed to be transferred to us as trustee of a trust for the
exclusive benefit of the transferees to whom those shares may ultimately be
transferred without violating the 9.8% ownership limit. While in trust, these
shares will not be entitled to vote (except as required by law), and will not be
entitled to participate in dividends or other distributions. These shares would
be treated as if offered to us for sale at a price equal to the lesser of the
price paid for the shares and the market price of the shares on the date we
accept the offer to purchase the shares. We have the right to purchase the
shares for 90 days after the transfer of shares which resulted in a shareholder
owning in excess of 9.8% of our total outstanding shares or the date our trust
managers determine that a transfer resulting in a shareholder owning in excess
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of 9.8% of our outstanding shares has occurred. All certificates representing
capital shares will bear a legend referring to the restrictions described above.
These restrictions on ownership may have the effect of precluding the
acquisition of control unless our board of trust managers and shareholders
determine that maintenance of REIT status is no longer in our best interests.
BUSINESS COMBINATIONS
Our declaration of trust requires that except in certain circumstances, a
business combination between us and a related person must be approved by the
affirmative vote of the holders of not less than 80% of our outstanding common
shares, including the affirmative vote of the holders of not less than 50% of
the outstanding common shares not owned by the related person. However, the 50%
voting requirement is not applicable if the business combination is approved by
the affirmative vote of the holders of not less than 90% of our outstanding
common shares. Our declaration of trust provides that a "business combination"
is:
(1) any merger or consolidation, if and to the extent permitted by law, of
us or our subsidiary, with or into a related person;
(2) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of more than 35% of the book value of the total assets of us and our
subsidiaries (taken as a whole) as of the end of the fiscal year ending prior to
the time the determination is being made, to or with a related person;
(3) the issuance or transfer by us or our subsidiary (other than by way of
a pro rata distribution to all shareholders) of any securities by us or our
subsidiary to a related person;
(4) any reclassification of securities (including any reverse share split)
or recapitalization by us, the effect of which would be to increase the voting
power of the related person;
(5) the adoption of any plan or proposal for the liquidation or dissolution
of us proposed by or on behalf of a related person which involves any transfer
of assets, or any other transaction, in which the related person has any direct
or indirect interest (except proportionally as a shareholder);
(6) any series or combination of transactions having, directly or
indirectly, the same or substantially the same effect as any of the foregoing;
and
(7) any agreement, contract or other arrangement providing, directly or
indirectly, for any of the foregoing.
A "related person" generally is defined in the declaration of trust to
include any individual, corporation, partnership or other person and the
affiliates and associates of any such individual, corporation, partnership or
other person which individually or together is the beneficial owner in the
aggregate of more than 50% of our outstanding common shares.
The 80% and 50% voting requirements outlined above will not apply, however,
if:
(1) the trust managers by a vote of not less than 80% of the trust
managers then holding office (a) have expressly approved in advance the
acquisition of our common shares that caused the related person to become a
related person or (b) have expressly approved the business combination
prior to the date on which the related person involved in the business
combination shall have become a related person; or
(2) the business combination is solely between us and another
corporation, 100% of the voting stock of which is owned directly or
indirectly by us; or
(3) the business combination is proposed to be consummated within one
year of the consummation of a fair tender offer (as defined in the
declaration of trust) by the related person in which the business
combination, the cash or fair market value of the property, securities or
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other consideration to be received per share by all remaining holders of
our common shares in the business combination is not less than the price
offered in the fair tender offer;
(4) all of the following conditions shall have been met:
(a) the business combination is a merger or consolidation, the
consummation of which is proposed to take place within one year of the
date of the transaction pursuant to which such person became a related
person and the cash or fair market value of the property, securities
or other consideration to be received per share by all remaining
holders of common shares in the business combination is not less than
the highest per-share price, with appropriate adjustments for
recapitalizations and for share splits and share dividends, paid by
the related person in acquiring any of its holdings of our common
shares, which shall constitute a "fair price;"
(b) the consideration to be received by such holders is either
cash or, if the related person shall have acquired the majority of its
holdings of our common shares for a form of consideration other than
cash, in the same form of consideration with which the related person
acquired such majority;
(c) after such person has become a related person and prior to
consummation of such business combination:
- there shall have been no reduction in the annual rate of
dividends, if any, paid per share on our common shares
(adjusted as appropriate for recapitalizations and for share
splits, reverse share splits and share dividends), except
any reduction in such rate that is made proportionately with
any decline in our net income for the period for which such
dividends are declared and except as approved by a majority
of the trust managers continuing in office; and
- such related person shall not have received the benefit,
directly or indirectly (except proportionately as a
shareholder), of any loans, advances, guarantees, pledges or
other financial assistance or any tax credits or other tax
advantages provided by us prior to the consummation of such
business combination (other than in connection with
financing a fair tender offer); and
(d) proxy statement that conforms in all respects with the
provisions of the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder shall be mailed to holders of our
common shares at least 30 days prior to the consummation of the
business combination for the purpose of soliciting shareholder
approval of the business combination; or
(5) the "rights" (as defined below) shall have become exercisable.
If a person has become a related person and within one year after the date
of the transaction pursuant to which the related person became a related person,
which shall be considered as the "acquisition date,"
(1) a business combination meeting all of the requirements of
paragraphs (4)(a)(b)(c) and (d) above regarding the applicability of the
80% voting requirement shall not have been consummated;
(2) a fair tender offer shall not have been consummated; and
(3) we have not been dissolved and liquidated,
then, in such event the beneficial owner of each common share (not including
shares beneficially owned by the related person) shall have the right (each a
"right" and collectively the "rights") which may be exercised subject to certain
conditions, commencing at the opening of business on the one-year anniversary
date of the acquisition date and continuing for a period of 90 days thereafter,
subject to certain extensions, to sell to us on the terms set forth herein one
share upon exercise of such right. At 5:00 P.M., Houston, Texas time, on the
last day of the exercise period, each right not exercised shall become void, all
rights in respect thereof shall cease as of such time and the certificates shall
no longer represent rights.
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DESCRIPTION OF SECURITIES WARRANTS
We may issue securities warrants for the purchase of debt securities,
preferred shares or common shares. We may issue securities warrants
independently or together with debt securities, preferred shares or common
shares or attached to or separate from the offered securities. We will issue
each series of securities warrants under a separate warrant agreement between us
and a bank or trust company as warrant agent, as specified in the applicable
prospectus supplement.
The warrant agent will act solely as our agent in connection with the
securities warrants and will not act for or on behalf of securities warrant
holders. The following sets forth certain general terms and provisions of the
securities warrants that may be offered under this registration statement.
Further terms of the securities warrants and the applicable warrant agreements
will be set forth in the applicable prospectus supplement.
The applicable prospectus supplement will describe the terms of the
securities warrants in respect of which this prospectus being delivered,
including, where applicable, the following:
- the title of such securities warrants;
- the aggregate number of such securities warrants;
- the price or prices at which such securities warrants will be issued;
- the type and number of securities purchasable upon exercise of such
securities warrants;
- the designation and terms of the other offered securities, if any,
with which such securities warrants are issued and the number of such
securities warrants issued with each such offered security;
- the date, if any, on and after which such securities warrants and the
related securities will be separately transferable;
- the price at which each security purchasable upon exercise of such
securities warrants may be purchased;
- the date on which the right to exercise such securities warrants shall
commence and the date on which such right shall expire;
- the minimum or maximum amount of such securities warrants that may be
exercised at any one time;
- information with respect to book-entry procedures, if any;
- a discussion of certain federal income tax considerations; and
- any other terms of such securities warrants, including terms,
procedures and limitations relating to the exercise and exchange of
such securities warrants.
Warrant certificates will be exchangeable for new warrant certificates of
different denominations and warrants may be exercised at the corporate trust
office of the warrant agent or any other office indicated in the applicable
prospectus supplement. Prior to the exercise of their warrants, holders of
warrants will not have any of the rights of holders of the securities
purchasable upon such exercise and will not be entitled to payment of principal
of (or premium, if any) or interest, if any, on the debt securities of
Weingarten purchasable upon such exercise or to any dividend payments or voting
rights as to which holders of the preferred shares or common shares purchasable
upon such exercise may be entitled.
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Each warrant will entitle the holder to purchase for cash such principal
amount of debt securities of Weingarten, or such number of preferred shares or
common shares, at such exercise price as shall, in each case, be set forth in,
or be determinable as set forth in, the applicable prospectus supplement
relating to the warrants offered thereby. Unless otherwise specified in the
applicable prospectus supplement, warrants may be exercised at any time up to
5:00 p.m. New York City time on the expiration date set forth in applicable
prospectus supplement. After 5:00 p.m. time on the expiration date, unexercised
warrants will become void.
Warrants may be exercised as set forth in the applicable prospectus
supplement relating to the warrants. Upon receipt of payment and the warrant
certificate properly completed and duly executed at the corporate trust office
of the warrant agent or any other office indicated in the applicable prospectus
supplement, Weingarten will, as soon as practicable, forward the securities
purchasable upon such exercise. If less than all of the warrants are presented
by such warrant certificate of exercise, a new warrant certificate will be
issued for the remaining amount of warrants.
DESCRIPTION OF OTHER CLASSES OF OUTSTANDING SHARES
7.44% SERIES A CUMULATIVE REDEEMABLE PREFERRED SHARES
On February 19, 1998, we issued 3,000,000 shares of 7.44% Series A
Cumulative Redeemable Preferred Shares for $75.0 million. The Series A
Preferred has a liquidation preference of $25.00 pre share and the holders are
entitled to cumulative dividends from the date of original issuance of $1.86 per
share per year. We may not redeem the shares before March 31, 2003 and
thereafter, the shares may be redeemed solely from the proceeds of an offering
of our capital shares. The redemption price per share is $25.00, plus any
accrued and unpaid dividends through the date of such redemption. The shares
have no maturity date and will remain outstanding indefinitely unless redeemed.
The shares are not convertible into any of our other securities. The Series A
Preferred shareholders generally have no voting rights, except if we fail to pay
dividends for six quarters. In that event, the holders of the Series A
Preferred, Series B Preferred and Series C Preferred, voting together as a
single class, have the right to elect two trust managers who shall serve until
all dividend arrearages have been paid.
The Series A Preferred is listed for trading on the New York Stock
Exchange.
7.125% SERIES B CUMULATIVE REDEEMABLE PREFERRED SHARES
On October 20, 1998, we issued 3,600,000 of 7.125% Series B Cumulative
Redeemable Preferred Shares for $90.0 million. Except with respect to the
description of the dividend rate and the redemption rights upon the death of a
holder of Series B Preferred, the terms of the Series B Preferred are
substantially identical to the terms of the Series A Preferred. The Series B
Preferred ranks on parity with the Series A Preferred with respect to the
payment of dividends and payments upon liquidation. The holders of the Series B
Preferred are entitled to cumulative dividends from the date of original
issuance of $1.78 per share per year. We may not redeem the shares before
October 20, 2003.
Commencing December 15, 1998, on March 15, June 15, September 15 and
December 15 of each year, we will, upon the death of any registered holder of
the Series B Preferred, redeem such shares held by the registered owner upon
presentation of appropriate documentation by such registered owner's personal
representative or surviving joint tenant. Our obligation to redeem the shares
is subject to the following limitations:
- We will only redeem 1,000 shares per owner per year.
- During the first 10 years, in any one year, we will only redeem up to
108,000 shares.
- During years 11 through 20, in any one year, we will only redeem up to
72,000 shares.
- After year 20, we will only redeem up to 36,000 shares each year.
- The yearly redemption limitations listed above are cumulative. The
difference, if any, between that year's redemption limitation and the
amount actually redeemed in such year will be available for redemption
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in later years, subject to an overall redemption limitation of 108,000
shares per year.
- We will redeem shares only four times each year subject to the
following cumulative limitations:
March 15 - up to 27,000 shares;
June 15 - up to 54,000 shares;
September 15 - up to 81,000 shares; and
December 15 - up to 108,000 shares.
The Series B Preferred is not listed for trading on any exchange.
7.00% SERIES C CUMULATIVE REDEEMABLE PREFERRED SHARES
On January 14, 1999, we issued 2,300,000 shares of 7.00% Series C
Cumulative Redeemable Preferred Shares for $115.0 million. Except with respect
to the description of the liquidation preference, dividend rate and the
redemption date of the Series C Preferred, the terms of the Series C Preferred
are substantially identical to the terms of the Series A Preferred and Series B
Preferred. The Series C Preferred ranks on parity with the Series A Preferred
and Series B Preferred with respect to the payment of dividends and payments
upon liquidation. The Series C Preferred has a liquidation preference of $50.00
per share and the holders are entitled to cumulative dividends from the date of
original issuance of $3.50 per share per year. We may not redeem the shares
before March 15, 2004. The redemption price per share is $50.00, plus any
accrued and unpaid dividends through the date of such redemption. Commencing
March 15, 1999, upon the death of any registered owner of this Series C
Preferred, we will redeem such shares held by such registered owner upon
presentation of appropriate documentation by the registered owner's personal
representative or surviving joint tenant. Our obligation to redeem the shares
is subject to the following limitations:
- We will only redeem 500 shares per owner per year.
- During the first 10 years, in any one year, we will only redeem upon
to 69,000 shares.
- During years 11 through 20, in any one year, we will only redeem up to
46,000 shares.
- After year 20, we will only redeem up to 23,000 shares per year.
- The above yearly redemption limitations are cumulative. The
difference, if any, between that year's redemption limitation and the
amount actually redeemed in such year will be available for redemption
in later years, subject to an overall redemption limitation of 69,000
shares per year.
- We will redeem shares only four times each year subject to the
following cumulative limitations:
March 15 - up to 17,500 shares;
June 15 - up to 34,500 shares;
September 15 - up to 51,750 shares; and
December 15 - up to 69,000 shares.
The Series C Preferred is listed for trading on the New York Stock
Exchange.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following summary of material federal income tax consequences that may
be relevant to a holder of our securities is based on current law, is for
general information only and is not intended as tax advice. The following
discussion, which is not exhaustive of all possible tax consequences, does not
include a detailed discussion of any state, local or foreign tax consequences.
Nor does it discuss all of the aspects of federal income taxation that may be
relevant to a prospective holder of our securities in light of his or her
particular circumstances or to certain types of holders (including insurance
companies, tax-exempt entities, financial institutions or broker-dealers,
foreign corporations and persons who are not citizens or residents of the U.S.
and persons holding securities as part of a conversion transaction, a hedging
transaction or as a position in a straddle for tax purposes) who are subject to
special treatment under the federal income tax laws.
The statements in this discussion are based on current provisions of the
Internal Revenue Code existing, temporary and currently proposed Treasury
Regulations under the Internal Revenue Code, the legislative history of the
Internal Revenue Code, existing administrative rulings and practices of the IRS
and judicial decisions. No assurance can be given that legislative, judicial or
administrative changes will not affect the accuracy of any statements in this
discussion with respect to transactions entered into or contemplated prior to
the effective date of such changes. Any such change could apply retroactively to
transactions preceding the date of the change. We do not plan to request any
rulings from the IRS concerning our tax treatment and the statements in this
discussion are not binding on the IRS or any court. Thus, we can provide no
assurance that these statements will not be challenged by the IRS or that such
challenge will not be sustained by a court.
THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING.
EACH PROSPECTIVE PURCHASER OF SECURITIES IS ADVISED TO CONSULT WITH HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF SECURITIES IN AN ENTITY ELECTING TO BE
TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, DISPOSITION AND ELECTION, AND OF
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
We have elected to be treated as a REIT under Sections 856 through 860 of
the Internal Revenue Code for federal income tax purposes commencing with our
taxable year ended December 31, 1985. We believe that we have been organized and
have operated in a manner that qualifies for taxation as a REIT under the
Internal Revenue Code. We also believe that we will continue to operate in a
manner that will preserve our status as a REIT. We cannot however, assure you
that such requirements will be met in the future.
We have received an opinion from Locke Liddell & Sapp LLP, our legal
counsel, to the effect that we qualified as a REIT under the Internal Revenue
Code for our taxable year ended December 31, 1985 and all years thereafter
through our taxable year ended December 31, 2000 we have been organized and our
manner of operation has been in conformity with the requirements for
qualification and taxation as a REIT as of the date of this prospectus and that
our proposed manner of operation and diversity of equity ownership should enable
us to continue to satisfy the requirements for qualification as a REIT in
calendar year 2001 if we operate in accordance with the methods of operations
described herein including our representations concerning our intended method of
operation. However, you should be aware that opinions of counsel are not binding
on the IRS or on the courts, and, if the IRS were to challenge these
conclusions, no assurance can be given that these conclusions would be sustained
in court. The opinion of Locke Liddell & Sapp LLP is based on various
assumptions as well as on certain representations made by us as to factual
matters, including a factual representation letter provided by us. The rules
governing REITs are highly technical and require ongoing compliance with a
variety of tests that depend, among other things, on future operating results,
asset diversification, distribution levels and diversity of stock ownership.
Locke Liddell & Sapp LLP will not monitor our compliance with these
requirements. While we expect to satisfy these tests, and will use our best
efforts to do so, no assurance can be given that we will qualify as a REIT for
any particular year, or that the applicable law will not change and adversely
affect us and our shareholders. See "--Failure to Qualify as a REIT." The
following is a summary of the material federal income tax considerations
affecting us as a REIT and the holders of our securities. This summary is
qualified in its entirety by the applicable Internal Revenue Code provisions,
relevant rules and regulations promulgated under the Internal Revenue Code, and
administrative and judicial interpretations of the Internal Revenue Code and
these rules and regulations.
21
REIT QUALIFICATION
We must be organized as an entity that would, if we do not maintain our
REIT status, be taxable as a regular corporation. We cannot be a financial
institution or an insurance company. We must be managed by one or more trust
managers. Our taxable year must be the calendar year. Our beneficial ownership
must be evidenced by transferable shares. Our capital shares must be held by at
least 100 persons 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. Not more
than 50% of the value of the shares of our capital shares may be held, directly
or indirectly, applying the applicable constructive ownership rules of the
Internal Revenue Code, by five or fewer individuals at any time during the last
half of each of our taxable years. We must also meet certain other tests,
described below, regarding the nature of our income and assets and the amount of
our distributions.
Our outstanding common shares are owned by a sufficient number of investors
and in appropriate proportions to permit us to satisfy these share ownership
requirements. To protect against violations of these share ownership
requirements, our declaration of trust provides that no person is permitted to
own, applying constructive ownership tests set forth in the Internal Revenue
Code, more than 9.8% of our outstanding common shares, unless the trust managers
(including a majority of the independent trust managers) are provided evidence
satisfactory to them in their sole discretion that our qualification as a REIT
will not be jeopardized. In addition, our declaration of trust contains
restrictions on transfers of capital shares, as well as provisions that
automatically convert common shares into excess securities to the extent that
the ownership otherwise might jeopardize our REIT status. These restrictions,
however may not ensure that we will, in all cases, be able to satisfy the share
ownership requirements. If we fail to satisfy these share ownership
requirements, except as provided in the next sentence, our status as a REIT will
terminate. However, if we comply with the rules contained in applicable Treasury
Regulations that require us to ascertain the actual ownership of our shares and
we do not know, or would not have known through the exercise of reasonable
diligence, that we failed to meet the 50% requirement described above, we will
be treated as having met this requirement. See the section below entitled
"--Failure to Qualify as a REIT."
To monitor our compliance with the share ownership requirements, we are
required to and we do maintain records disclosing the actual ownership of our
common shares. To do so, we will demand written statements each year from the
record holders of certain percentages of shares in which the record holders are
to disclose the actual owners of the shares (i.e., the persons required to
include in gross income the REIT dividends). A list of those persons failing or
refusing to comply with this demand will be maintained as part of our records.
Shareholders who fail or refuse to comply with the demand must submit a
statement with their tax returns disclosing the actual ownership of the shares
and certain other information.
We currently satisfy, and expect to continue to satisfy, each of these
requirements discussed above. We also currently satisfy, and expect to continue
to satisfy, the requirements that are separately described below concerning the
nature and amounts of our income and assets and the levels of required annual
distributions.
Sources of Gross Income. In order to qualify as a REIT for a particular
year, we also must meet two tests governing the sources of our income - a 75%
gross income test and a 95% gross income test. These tests are designed to
ensure that a REIT derives its income principally from passive real estate
investments. The Internal Revenue Code allows a REIT to own and operate a number
of its properties through wholly-owned subsidiaries which are "qualified REIT
subsidiaries." The Internal Revenue Code provides that a qualified REIT
subsidiary is not treated as a separate corporation, and all of its assets,
liabilities and items of income, deduction and credit are treated as assets,
liabilities and items of income of the REIT.
In the case of a REIT which is a partner in a partnership or any other
entity such as a limited liability company that is treated as a partnership for
federal income tax purposes, Treasury Regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the partnership. Also,
the REIT will be deemed to be entitled to its proportionate share of the income
of the partnership. The character of the assets and gross income of the
partnership retains the same character in the hands of the REIT for purposes of
Section 856 of the Internal Revenue Code, including satisfying the gross income
tests and the asset tests. Thus, our proportionate share of the assets and items
of income of any partnership in which we own an interest are treated as our
assets and items of income for purposes of applying the requirements described
in this discussion, including the income and asset tests described below.
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75% Gross Income Test. At least 75% of a REIT's gross income for each
taxable year must be derived from specified classes of income that principally
are real estate related. The permitted categories of principal importance to us
are:
- rents from real property;
- interest on loans secured by real property;
- gains from the sale of real property or loans secured by real property
(excluding gain from the sale of property held primarily for sale to
customers in the ordinary course of our business, referred to below as
"dealer property");
- income from the operation and gain from the sale of property acquired
in connection with the foreclosure of a mortgage securing that
property ("foreclosure property");
- distributions on, or gain from the sale of, shares of other qualifying
REITs;
- abatements and refunds of real property taxes;
- amounts received as consideration for entering into agreements to make
loans secured by real property or to purchase or lease real property;
and
- "qualified temporary investment income" (described below).
In evaluating our compliance with the 75% gross income test, as well as the
95% gross income test described below, gross income does not include gross
income from "prohibited transactions." In general, a prohibited transaction is
one involving a sale of dealer property, not including foreclosure property and
not including certain dealer property we have held for at least four years.
We expect that substantially all of our operating gross income will be
considered rent from real property and interest income. Rent from real property
is qualifying income for purposes of the gross income tests only if certain
conditions are satisfied. Rent from real property includes charges for services
customarily rendered to tenants, and rent attributable to personal property
leased together with the real property so long as the personal property rent is
not more than 15% of the total rent received or accrued under the lease for the
taxable year. We do not expect to earn material amounts in these categories.
Rent from real property generally does not include rent based on the income
or profits derived from the property. However, rent based on a percentage of
gross receipts or sales is permitted as rent from real property and we will have
leases where rent is based on a percentage of gross receipts or sales. We
generally do not intend to lease property and receive rentals based on the
tenant's income or profit. Also excluded from "rents from real property" is rent
received from a person or corporation in which we (or any of our 10% or greater
owners) directly or indirectly through the constructive ownership rules
contained in Section 318 and Section 856(d)(5) of the Internal Revenue Code, own
a 10% or greater interest.
A third exclusion from qualifying rent income covers amounts received with
respect to real property if we furnish services to the tenants or manage or
operate the property, other than through an "independent contractor" from whom
we do not derive any income or through a "taxable REIT subsidiary." A taxable
REIT subsidiary is a corporation in which a REIT owns stock, directly or
indirectly, and with respect to which the corporation and the REIT have made a
joint election to treat the corporation as a taxable REIT subsidiary. The
obligation to operate through an independent contractor or a taxable REIT
subsidiary generally does not apply, however, if the services we provide are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and are not considered rendered primarily for the convenience of
the tenant (applying standards that govern in evaluating whether rent from real
property would be unrelated business taxable income when received by a
tax-exempt owner of the property). Further, if the value of the non-customary
service income with respect to a property, valued at no less than 150% of our
direct cost of performing such services, is 1% or less of the total income
derived from the property, then the provision of such non-customary services
shall not prohibit the rental income (except the non-customary service income)
from qualifying as "rents from real property."
23
We believe that the only material services generally to be provided to
tenants will be those usually or customarily rendered in connection with the
rental of space for occupancy only. We do not intend to provide services that
might be considered rendered primarily for the convenience of the tenants, such
as hotel, health care or extensive recreational or social services.
Consequently, we believe that substantially all of our rental income will be
qualifying income under the gross income tests, and that our provision of
services will not cause the rental income to fail to be included under that
test.
Upon the ultimate sale of our properties, any gains realized also are
expected to constitute qualifying income, as gain from the sale of real property
(not involving a prohibited transaction).
95% Gross Income Test. In addition to earning 75% of our gross income from
the sources listed above, 95% of our gross income for each taxable year must
come either from those sources, or from dividends, interest or gains from the
sale or other disposition of stock or other securities that do not constitute
dealer property. This test permits a REIT to earn a significant portion of its
income from traditional "passive" investment sources that are not necessarily
real estate related. The term "interest" (under both the 75% and 95% tests) does
not include amounts that are based on the income or profits of any person,
unless the computation is based only on a fixed percentage of receipts or sales.
Failing the 75% or 95% Tests; Reasonable Cause. As a result of the 75% and
95% tests, REITs generally are not permitted to earn more than 5% of their gross
income from active sources, including brokerage commissions or other fees for
services rendered. We may receive certain types of that income. This type of
income will not qualify for the 75% test or 95% test but is not expected to be
significant and that income, together with other nonqualifying income, is
expected to be at all times less than 5% of our annual gross income. While we do
not anticipate that we will earn substantial amounts of nonqualifying income, if
nonqualifying income exceeds 5% of our gross income, we could lose our status as
a REIT. We may establish taxable REIT subsidiaries to hold assets generating
non-qualifying income. The gross income generated by these subsidiaries would
not be included in our gross income. However, dividends we receive from these
subsidiaries would be included in our gross income and qualify for the 95%
income test.
If we fail to meet either the 75% or 95% income tests during a taxable
year, we may still qualify as a REIT for that year if (1) we report the source
and nature of each item of our gross income in our federal income tax return for
that year, (2) the inclusion of any incorrect information in our return is not
due to fraud with intent to evade tax, and (3) the failure to meet the tests is
due to reasonable cause and not to willful neglect. It is not possible, however,
to state whether in all circumstances we would be entitled to the benefit of
this relief provision. For example, if we fail to satisfy the gross income tests
because nonqualifying income that we intentionally accrue or receive causes us
to exceed the limits on nonqualifying income, the IRS could conclude that our
failure to satisfy the tests was not due to reasonable cause. If these relief
provisions do not apply to a particular set of circumstances, we will not
qualify as a REIT. As discussed below, even if these relief provisions apply,
and we retain our status as a REIT, a tax would be imposed with respect to our
non-qualifying income. We would be subject to a 100% tax based on the greater of
the amount by which we fail either the 75% or 95% income tests for that year.
See "- Taxation as a REIT" on page 26.
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 (including our share of any such
gain realized by any subsidiary partnerships), will be treated as income from a
prohibited transaction that is subject to a 100% penalty tax. This prohibited
transaction income may also adversely affect 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 a
trade or business depends on all the facts and circumstances surrounding the
particular transaction. We intend to hold our and our subsidiary partnerships
intend to hold their properties for investment with a view to long-term
appreciation, to engage in the business of acquiring, developing and owning
properties, and to make occasional sales of the properties as are consistent
with their investment objectives. The IRS may contend, however, that one or more
of these sales is subject to the 100% penalty tax.
Character of Assets Owned. At the close of each calendar quarter of our
taxable year, we also must meet three tests concerning the nature of our
investments. First, at least 75% of the value of our total assets generally must
consist of real estate assets, cash, cash items (including receivables) and
government securities. For this purpose, "real estate assets" include interests
in real property, interests in loans secured by mortgages on real property or by
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certain interests in real property, shares in other REITs and certain options,
but excluding mineral, oil or gas royalty interests. The temporary investment of
new capital in debt instruments also qualifies under this 75% asset test, but
only for the one-year period beginning on the date we receive the new capital.
Second, although the balance of our assets generally may be invested without
restriction, other than certain debt securities, we will not be permitted to own
(1) securities of any one non-governmental issuer that represent more than 5% of
the value of our total assets, (2) securities possessing more than 10% of the
voting power of the outstanding securities of any single issuer or (3)
securities having a value of more than 10% of the total value of the outstanding
securities of any one issuer. A REIT, however, may own 100% of the stock of a
qualified REIT subsidiary, in which case the assets, liabilities and items of
income, deduction and credit of the subsidiary are treated as those of the REIT.
A REIT may also own more than 10% of the voting power or value of a taxable REIT
subsidiary. Third, not more than 20% of the value of a REIT's total assets may
be represented by securities of one or more taxable REIT subsidiaries. In
evaluating a REIT's assets, if the REIT invests in a partnership, it is deemed
to own its proportionate share of the assets of the partnership.
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 we fail
to satisfy the asset tests because we acquire securities or other property
during a quarter, we can cure this failure by disposing of sufficient
nonqualifying assets within 30 days after the close of that quarter. We intend
to take such action within the 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 this time period, we would cease to qualify as a REIT.
Annual Distributions to Shareholders. To maintain our REIT status, we
generally must distribute as a dividend to our shareholders in each taxable year
at least 90% of our net ordinary income. Capital gain is not required to be
distributed. More precisely, we must distribute an amount equal to (1) 90% of
the sum of (a) our "REIT Taxable Income" before deduction of dividends paid and
excluding any net capital gain and (b) any net income from foreclosure property
less the tax on such income, minus (2) certain limited categories of "excess
noncash income," including, income attributable to leveled stepped rents,
cancellation of indebtedness and original issue discount income. REIT Taxable
Income is defined to be the taxable income of the REIT, computed as if it were
an ordinary corporation, with certain modifications. For example, the deduction
for dividends paid is allowed, but neither net income from foreclosure property,
nor net income from prohibited transactions, is included. In addition, the REIT
may carry over, but not carry back, a net operating loss for 20 years following
the year in which it was incurred.
A REIT may satisfy the 90% distribution test with dividends paid during the
taxable year and with certain dividends paid after the end of the taxable year.
Dividends paid in January that were declared during the last calendar quarter of
the prior year and were payable to shareholders of record on a date during the
last calendar quarter of that prior year are treated as paid on December 31 of
the prior year. Other dividends declared before the due date of our tax return
for the taxable year, including extensions, also will be treated as paid in the
prior year if they are paid (1) within 12 months of the end of that taxable year
and (2) no later than our next regular distribution payment. Dividends that are
paid after the close of a taxable year that do not qualify under the rule
governing payments made in January (described above) will be taxable to the
shareholders in the year paid, even though we may take them into account for a
prior year. A nondeductible excise tax equal to 4% will be imposed for each
calendar year to the extent that dividends declared and distributed or deemed
distributed on or before December 31 are less than the sum of (a) 85% of our
"ordinary income" plus (b) 95% of our capital gain net income plus (c) any
undistributed income from prior periods.
To be entitled to a dividends paid deduction, the amount distributed by a
REIT must not be preferential. For example, every shareholder of the class of
shares to which a distribution is made must be treated the same as every other
shareholder of that class, and no class of shares may be treated otherwise than
in accordance with its dividend rights as a class.
We will be taxed at regular corporate rates to the extent that we retain
any portion of our taxable income. For example, if we distribute only the
required 90% of our taxable income, we would be taxed on the retained 10%. Under
certain circumstances we may not have sufficient cash or other liquid assets to
meet the distribution requirement. This could arise because of competing demands
for our funds, or due to timing differences between tax reporting and cash
receipts and disbursements (i.e., income may have to be reported before cash is
25
received, or expenses may have to be paid before a deduction is allowed).
Although we do not anticipate any difficulty in meeting this requirement, no
assurance can be given that necessary funds will be available. In the event
these circumstances do occur, then in order to meet the 90% distribution
requirement, we may cause our operating partnership to arrange for short-term,
or possibly long-term, borrowings to permit the payment of required dividends.
If we fail to meet the 90% distribution requirement because of an
adjustment to our taxable income by the IRS, we may be able to cure the failure
retroactively by paying a "deficiency dividend," as well as applicable interest
and penalties, within a specified period.
TAXATION AS A REIT
As a REIT, we generally will not be subject to corporate income tax to the
extent we currently distribute our REIT taxable income to our shareholders. This
treatment effectively eliminates the "double taxation" imposed on investments in
most corporations. Double taxation refers to taxation that occurs once at the
corporate level when income is earned and once again at the shareholder level
when such income is distributed. We generally will be taxed only on the portion
of our taxable income that we retain, which will include any undistributed net
capital gain, because we will be entitled to a deduction for dividends paid to
shareholders during the taxable year. A dividends paid deduction is not
available for dividends that are considered preferential within any given class
of shares or as between classes except to the extent that class is entitled to a
preference. We do not anticipate that we will pay any of those preferential
dividends. Because excess shares will represent a separate class of outstanding
shares, the fact that those shares will not be entitled to dividends should not
adversely affect our ability to deduct our dividend payments.
Even as a REIT, we will be subject to tax in certain circumstances as
follows:
- we would be subject to tax on any income or gain from foreclosure
property at the highest corporate rate (currently 35%).
Foreclosure property is generally defined as property acquired
through foreclosure or after a default on a loan secured by the
property or a lease of the property;
- a confiscatory tax of 100% applies to any net income from
prohibited transactions which are, in general, certain sales or
other dispositions of property held primarily for sale to
customers in the ordinary course of business;
- if we fail to meet either the 75% or 95% source of income tests
described above, but still qualify for REIT status under the
reasonable cause exception to those tests, a 100% tax would be
imposed equal to the amount obtained by multiplying (a) the
greater of the amount, if any, by which it failed either the 75%
income test or the 95% income test, times (b) a fraction intended
to reflect our profitability;
- we will be subject to the alternative minimum tax on items of tax
preference, excluding items specifically allocable to our
shareholders;
- if we should fail to distribute with respect to each calendar
year at least the sum of (a) 85% of our REIT ordinary income for
that year, (b) 95% of our REIT capital gain net income for that
year, and (c) any undistributed taxable income from prior years,
we would be subject to a 4% excise tax on the excess of the
required distribution over the amounts actually distributed;
- under temporary regulations, we also may be taxed at the highest
regular corporate tax rate on any built-in gain attributable to
assets that we acquire in certain tax-free corporate
transactions, to the extent the gain is recognized during the
first ten years after we acquire those assets. Built-in gain is
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
beginning of the ten-year recognition period. The results
described in this paragraph with respect to the recognition of
built-in gain assume that we will make an election pursuant to
the temporary regulations; and
- we will be taxed at regular corporate rates on any undistributed
REIT taxable income, including undistributed net capital gains.
As a result of recent legislation, a tax is imposed on a REIT equal to 100%
of redetermined rents, redetermined deductions and excess interest.
Redetermined rents are generally rents from real property which would otherwise
26
be reduced on distribution, apportionment or allocation to clearly reflect
income as a result of services furnished or rendered by a taxable REIT
subsidiary to tenants of the REIT. There are a number of exceptions with regard
to redetermined rents, which are summarized below.
- Redetermined rents do not include amounts received directly or
indirectly by a REIT for customary services.
- Redetermined rents do not include de minimis payments received by
the REIT with respect to non-customary services rendered to the
tenants of a property owned by the REIT that do not exceed 1% of
all amounts received by the REIT with respect to the property.
- The redetermined rent provisions do not apply with respect to any
services rendered by a taxable REIT subsidiary to the tenants of
the REIT, as long as the taxable REIT subsidiary renders a
significant amount of similar services to persons other than the
REIT and to tenants who are unrelated to the REIT or the taxable
REIT subsidiary or the REIT tenants, and the charge for these
services is substantially comparable to the charge for similar
services rendered to such unrelated persons.
- The redetermined rent provisions do not apply to any services
rendered by a taxable REIT subsidiary to a tenant of a REIT if
the rents paid by tenants leasing at least 25% of the net
leasable space in the REIT's property who are not receiving such
services are substantially comparable to the rents paid by
tenants leasing comparable space who are receiving the services
and the charge for the services is separately stated.
- The redetermined rent provisions do not apply to any services
rendered by a taxable REIT subsidiary to tenants of a REIT if the
gross income of the taxable REIT subsidiary from these services
is at least 150% of the taxable REIT subsidiary's direct cost of
rendering the service.
- The Secretary of the Treasury has the power to waive the tax that
would otherwise be imposed on redetermined rents if the REIT
establishes to the satisfaction of the Secretary that rents
charged to tenants were established on an arm's length basis even
though a taxable REIT subsidiary provided services to the
tenants.
Redetermined deductions are deductions, other than redetermined rents, of a
taxable REIT subsidiary if the amount of these deductions would be decreased on
distribution, apportionment or allocation to clearly reflect income between the
taxable REIT subsidiary and the REIT. Excess interest means any deductions for
interest payments made by a taxable REIT subsidiary to the REIT to the extent
that the interest payments exceed a commercially reasonable rate of interest.
FAILURE TO QUALIFY AS A REIT
For any taxable year in which we fail to qualify as a REIT and certain
relief provisions do not apply, we would be taxed at regular corporate rates,
including alternative minimum tax rates on all of our taxable income.
Distributions to our shareholders would not be deductible in computing that
taxable income, and distributions would no longer be required to be made. Any
corporate level taxes generally would reduce the amount of cash available for
distribution to our shareholders and, because the shareholders would continue to
be taxed on the distributions they receive, the net after tax yield to the
shareholders from their investment likely would be reduced substantially. As a
result, failure to qualify as a REIT during any taxable year could have a
material adverse effect on an investment in our common shares. If we lose our
REIT status, unless certain relief provisions apply, we would not be eligible to
elect REIT status again until the fifth taxable year which begins after the
taxable year during which our election was terminated. It is not possible to
state whether in all circumstances we would be entitled to this statutory
relief.
TAXATION OF TAXABLE U.S. SHAREHOLDERS
Except as discussed below, distributions generally will be taxable to
taxable U.S. shareholders as ordinary income to the extent of our current or
accumulated earnings and profits. We may generate cash in excess of our net
earnings. If we distribute cash to shareholders in excess of our current and
accumulated capital earnings and profits (other than as a capital gain
dividend), the excess cash will be deemed to be a return of capital to each
shareholder to the extent of the adjusted tax basis of the shareholder's shares.
Distributions in excess of the adjusted tax basis will be treated as gain from
27
the sale or exchange of the shares. A shareholder who has received a
distribution in excess of current and our accumulated earnings and profits may,
upon the sale of the shares, realize a higher taxable gain or a smaller loss
because the basis of the shares as reduced will be used for purposes of
computing the amount of the gain or loss. Distributions we make, whether
characterized as ordinary income or as capital gains, are not eligible for the
dividends received deduction for corporations. For purposes of determining
whether distributions to holders of common shares are out of current or
accumulated earnings and profits, our earnings and profits will be allocated
first to the outstanding preferred shares, if any, and then to the common
shares.
Dividends we declare in October, November, or December of any year and
payable to a shareholder of record on a specified date in any of these months
shall be treated as both paid by us and received by the shareholder on December
31 of that year, provided we actually pay the dividend on or before January 31
of the following calendar year. Shareholders may not include in their own income
tax returns any of our net operating losses or capital losses.
Distributions that we properly designate as capital gain dividends will be
taxable to taxable U.S. shareholders as gains from the sale or disposition of a
capital asset to the extent that they do not exceed our actual net capital gain
for the taxable year. Depending on the period of time the tax characteristics of
the assets which produced these gains, and on certain designations, if any,
which we may make, these gains may be taxable to non-corporate U.S. shareholders
at a 20% or 25% rate. U.S. shareholders that are corporations may, however, be
required to treat up to 20% of certain capital gain dividends as ordinary
income.
We may elect to retain, rather than distribute as a capital gain dividend,
our net long-term capital gains. If we make this election, we would pay tax on
our retained net long-term capital gains. In addition, to the extent we
designate, a U.S. shareholder generally would:
- include its proportionate share of our undistributed long-term capital
gains in computing its long-term capital gains in its return for its
taxable year in which the last day of our taxable year falls;
- be deemed to have paid the capital gains tax imposed on us on the
designated amounts included in the U.S. shareholder's long-term
capital gains;
- receive a credit or refund for the amount of tax deemed paid by it;
- increase the adjusted basis of its common stock by the difference
between the amount of includable gains and the tax deemed to have been
paid by it; and
- in the case of a U.S. shareholder that is a corporation, appropriately
adjust its earnings and profits for the retained capital gains in
accordance with Treasury Regulations to be prescribed by the IRS.
Distributions we make and gain arising from the sale or exchange by a U.S.
shareholder of our shares will not be treated as income from a passive activity,
within the meaning of Section 469 of the Internal Revenue Code, since income
from a passive activity generally does not include dividends and gain
attributable to the disposition of property that produces dividends. As a
result, U.S. shareholders subject to the passive activity rules will generally
be unable to apply any "passive losses" against this income or gain.
Distributions we make, to the extent they do not constitute a return of capital,
generally will be treated as investment income for purposes of computing the
investment interest limitation. Gain arising from the sale or other disposition
of our shares, however, will be treated as investment income if a shareholder so
elects, in which case the capital gain is taxed at ordinary income rates.
Generally, gain or loss realized by a shareholder upon the sale of shares
will be reportable as capital gain or loss. If a shareholder receives a
long-term capital gain dividend from us and has held the shares for six months
or less, any loss incurred on the sale or exchange of the shares is treated as a
long-term capital loss to the extent of the corresponding long-term capital gain
dividend received.
In any year in which we fail to qualify as a REIT, the shareholders
generally will continue to be treated in the same fashion described above,
except that none of our dividends will be eligible for treatment as capital
28
gains dividends, corporate shareholders will qualify for the dividends received
deduction and the shareholders will not be required to report any share of our
tax preference items.
BACKUP WITHHOLDING
We will report to our shareholders and the IRS the amount of dividends paid
during each calendar year and the amount of tax withheld, if any. If a
shareholder is subject to backup withholding, we will be required to deduct and
withhold from any dividends payable to that shareholder a tax of 31%. These
rules may apply (1) when a shareholder fails to supply a correct taxpayer
identification number, (2) when the IRS notifies us that the shareholder is
subject to the rules or has furnished an incorrect taxpayer identification
number, or (3) in the case of corporations or others within certain exempt
categories, when they fail to demonstrate that fact when required. A shareholder
that does not provide a correct taxpayer identification number may also be
subject to penalties imposed by the IRS. Any amount withheld as backup
withholding may be credited against the shareholder's federal income tax
liability. We also may be required to withhold a portion of capital gain
distributions made to shareholders who fail to certify their non-foreign status.
The U.S. Treasury has recently issued final regulations regarding the
withholding and information reporting rules discussed above. In general, the
final regulations do not alter the substantive withholding and information
reporting requirements but unify current certification procedures and clarify
reliance standards. The final regulations are generally effective for payments
made on or after January 1, 2001, subject to certain transition rules.
Prospective investors should consult their own tax advisors concerning the
adoption of the final regulations and the potential effect on their ownership of
common shares.
TAXATION OF TAX-EXEMPT ENTITIES
In general, a tax-exempt entity that is a shareholder will not be subject
to tax on distributions or gain realized on the sale of shares. A tax-exempt
entity may be subject to unrelated business taxable income, however, to the
extent that it has financed the acquisition of its shares with "acquisition
indebtedness" within the meaning of the Internal Revenue Code. In determining
the number of shareholders a REIT has for purposes of the "50% test" described
above under "-REIT Qualification," generally, any shares held by tax-exempt
employees' pension and profit sharing trusts which qualify under Section 401(a)
of the Internal Revenue Code and are exempt from tax under Section 501(a) of the
Internal Revenue Code ("qualified trusts") will be treated as held directly by
its beneficiaries in proportion to their interests in the trust and will not be
treated as held by the trust.
A qualified trust owning more than 10% of a REIT may be required to treat a
percentage of dividends from the REIT as UBTI. The percentage is determined by
dividing the REIT's gross income (less direct expenses related thereto) derived
from an unrelated trade or business for the year (determined as if the REIT were
a qualified trust) by the gross income of the REIT for the year in which the
dividends are paid. However, if this percentage is less than 5%, dividends are
not treated as UBTI. These UBTI rules apply only if the REIT qualifies as a REIT
because of the "look-thru" rule with respect to the 50% test discussed above and
if the trust is "predominantly held" by qualified trusts. A REIT is
predominantly held by qualified trusts if at least one pension trust owns more
than 25% of the value of the REIT or a group of pension trusts each owning more
than 10% of the value of the REIT collectively own more than 50% of the value of
the REIT. We do not currently meet either of these requirements.
For social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services plans exempt from
federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of
the Internal Revenue Code, respectively, income from an investment in our
capital stock will constitute UBTI unless the organization is able to deduct an
amount properly set aside or placed in reserve for certain purposes so as to
offset the UBTI generated by the investment in our capital stock. These
prospective investors should consult their own tax advisors concerning the "set
aside" and reserve requirements.
TAXATION OF FOREIGN INVESTORS
The rules governing federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
shareholders are complex and no attempt will be made herein to provide more than
a summary of such rules. Prospective non-U.S. shareholders should consult with
29
their own tax advisors to determine the impact of federal, state and local
income tax laws with regard to an investment in common shares, including any
reporting requirements, as well as the tax treatment of such an investment under
the laws of their home country.
Dividends that are not attributable to gain from any sales or exchanges we
make of U.S. real property interests and which we do not designate as capital
gain dividends will be treated as dividends of ordinary income to the extent
that they are made out of our current or accumulated earnings and profits. Those
dividends ordinarily will be subject to a withholding tax equal to 30% of the
gross amount of the dividend unless an applicable tax treaty reduces or
eliminates that tax. However, if income from the investment in the common shares
is treated as effectively connected with the non-U.S. shareholder's conduct of a
U.S. trade or business, the non-U.S. shareholder generally will be subject to a
tax at graduated rates, in the same manner as U.S. shareholders are taxed with
respect to those dividends, and may also be subject to the 30% branch profits
tax in the case of a shareholder that is a foreign corporation. For withholding
tax purposes, we are currently required to treat all distributions as if made
out of our current and accumulated earnings and profits and thus we intend to
withhold at the rate of 30%, or a reduced treaty rate if applicable, on the
amount of any distribution (other than distributions designated as capital gain
dividends) made to a non-U.S. shareholder unless (1) the non-U.S. shareholder
files on IRS Form W-8BEN claiming that a lower treaty rate applies or (2) the
non-U.S. shareholder files an IRS Form W-8ECI claiming that the dividend is
effectively connected income.
Under the final regulations, generally effective for distributions on or
after January 1, 2001, we would not be required to withhold at the 30% rate on
distributions we reasonably estimate to be in excess of our current and
accumulated earnings and profits. Dividends in excess of our current and
accumulated earnings and profits will not be taxable to a shareholder to the
extent that they do not exceed the adjusted basis of the shareholder's shares,
but rather will reduce the adjusted basis of those shares. To the extent that
those dividends exceed the adjusted basis of a non-U.S. shareholder's shares,
they will give rise to tax liability if the non-U.S. shareholder would otherwise
be subject to tax on any gain from the sale or disposition of his shares, as
described below. If it cannot be determined at the time a dividend is paid
whether or not a dividend will be in excess of current and accumulated earnings
and profits, the dividend will be subject to such withholding. We do not intend
to make quarterly estimates of that portion of dividends that are in excess of
earnings and profits, and, as a result, all dividends will be subject to such
withholding. However, the non-U.S. shareholder may seek a refund of those
amounts from the IRS.
For any year in which we qualify as a REIT, distributions that are
attributable to gain from our sales or exchanges of U.S. real property interests
will be taxed to a non-U.S. shareholder under the provisions of the Foreign
Investment in Real Property Tax Act of 1980, commonly known as "FIRPTA." Under
FIRPTA, those dividends are taxed to a non-U.S. shareholder as if the gain were
effectively connected with a U.S. business. Non-U.S. shareholders would thus be
taxed at the normal capital gain rates applicable to U.S. shareholders subject
to applicable alternative minimum tax and a special alternative minimum tax in
the case of nonresident alien individuals. Also, dividends subject to FIRPTA may
be subject to a 30% branch profits tax in the hands of a corporate non-U.S.
shareholder not entitled to treaty exemption. We are required by the Code and
applicable Treasury Regulations to withhold 35% of any dividend that could be
designated as a capital gain dividend. This amount is creditable against the
non-U.S. shareholder's FIRPTA tax liability.
Gain recognized by a non-U.S. shareholder upon a sale of shares generally
will not be taxed under FIRPTA if we are a "domestically controlled REIT,"
defined generally as a REIT in which at all times during a specified testing
period less than 50% in value of the shares was held directly or indirectly by
foreign persons. It is currently anticipated that we will be a "domestically
controlled REIT," and therefore the sale of shares will not be subject to
taxation under FIRPTA. Because the common shares will be publicly traded,
however, no assurance can be given that we will remain a "domestically
controlled REIT." However, gain not subject to FIRPTA will be taxable to a
non-U.S. shareholder if (1) investment in the common shares is effectively
connected with the non-U.S. shareholder's U.S. trade or business, in which case
the non-U.S. shareholder will be subject to the same treatment as U.S.
shareholders with respect to that gain, and may also be subject to the 30%
branch profits tax in the case of a corporate non-U.S. shareholder, or (2) the
non-U.S. shareholder is a nonresident alien individual who was present in the
United States for 183 days or more during the taxable year and has a "tax home"
in the U.S., in which case the nonresident alien individual will be subject to a
30% withholding tax on the individual's capital gains. If we were not a
domestically controlled REIT, whether or not a non-U.S. shareholder's sale of
shares would be subject to tax under FIRPTA would depend on whether or not the
common shares were regularly traded on an established securities market (such as
the NYSE) and on the size of selling non-U.S. shareholder's interest in our
30
capital shares. If the gain on the sale of shares were to be subject to taxation
under FIRPTA, the non-U.S. shareholder will be subject to the same treatment as
U.S. shareholders with respect to that gain (subject to applicable alternative
minimum tax and a special alternative minimum tax in the case of nonresident
alien individuals and the possible application of the 30% branch profits tax in
the case of foreign corporations) and the purchaser of our common shares may be
required to withhold 10% of the gross purchase price.
STATE AND LOCAL TAXES
We, and our shareholders, may be subject to state or local taxation in
various state or local jurisdictions, including those in which it or they
transact business or reside. Consequently, prospective shareholders should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in our capital shares.
PLAN OF DISTRIBUTION
We may offer securities directly or through underwriters, dealers or
agents. The prospectus supplement will identify those underwriters, dealers or
agents and will describe the plan of distribution, including commissions to be
paid. If we do not name a firm in the prospectus supplement, the firm may not
directly or indirectly participate in any underwriting of those securities,
although it may participate in the distribution of securities under
circumstances entitling it to a dealer's allowance or agent's commission. Any
underwriting agreement will entitle the underwriters to indemnification against
designated civil liabilities under the federal securities laws and other laws.
The underwriters' obligations to purchase securities will be subject to
compliance with specific conditions and generally will require them to purchase
all of the securities if any are purchased.
Unless otherwise noted in the prospectus supplement, the securities will be
offered by the underwriters, if any, when, as and if issued by us, delivered to
and accepted by the underwriters and subject to their right to reject orders in
whole or in part.
We may sell securities to dealers, as principals. Those dealers then may
resell the securities to the public at varying prices set by those dealers from
time to time. We may also offer securities through agents. Agents generally act
on a "best efforts" basis during their appointment, meaning that they are not
obligated to purchase securities. Dealers and agents may be entitled to
indemnification as underwriters by us against designated liabilities under the
federal securities laws and other laws.
An underwriter may engage in over-allotment, stabilizing transactions,
short covering transactions and penalty bids in accordance with securities laws.
Over-allotment involves sales in excess of the offering size, which creates a
short position. Stabilizing transactions permit bidders to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Short covering transactions involve purchases of the securities in the
open market after the distribution is completed to cover short positions.
Penalty bids permit the underwriters to reclaim a selling concession from a
dealer when the securities originally sold by the dealer are purchased in a
covering transaction to cover short positions. Those activities may cause the
price of the securities to be higher than it would otherwise be. The
underwriters may engage in these activities on any exchange or other market in
which the securities may be traded. If commenced, the underwriters may
discontinue these activities at any time.
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.
The prospectus supplement or Pricing Supplement, as applicable, will set
forth the anticipated delivery date of the securities being sold at that time.
LEGAL MATTERS
Unless otherwise noted in a prospectus supplement, Locke Liddell & Sapp
LLP, Dallas, Texas, will pass on the legality of the securities offered through
this prospectus and certain tax matters. Counsel for any underwriters or agents
will be noted in the applicable Prospectus Supplement.
31
EXPERTS
The financial statements and the related financial statement schedules
incorporated in this prospectus by reference from the Company's Annual Report on
Form 10-K have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the reporting requirements of the Securities and Exchange
Act of 1934, as amended, and file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document we file at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can request copies of these documents by writing to
the SEC and paying a fee for the copying cost. Please call the SEC at
1-800-SEC-0330 for more information about the operation of the public reference
room. Our SEC filings are also available to the public at the SEC's web site at
http://www.sec.gov. In addition, you may read and copy our SEC filings at the
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offices of the New York Stock Exchange, 20 Broad Street, New York, New York
10005. Our website address is http://www.weingarten.com.
This prospectus is only part of a registration statement we filed with the
SEC under the Securities Act of 1933, as amended, and therefore omits certain
information contained in the registration statement. We have also filed exhibits
and schedules to the registration statement that we have excluded from this
prospectus, and you should refer to the applicable exhibit or schedule for a
complete description of any statement referring to any contract or document. You
may inspect or obtain a copy of the registration statement, including exhibits
and schedules, as described in the previous paragraph.
32
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it. This means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus and the information we file later with
the SEC will automatically update and supersede this information.
We incorporate by reference the documents listed below and any future
filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 until this offering is completed:
- Annual Report on Form 10-K/A for the year ended December 31, 2000
(File No. 001-09876).
- Quarterly Report on Form 10-Q/A-2 for the quarter ended March 31, 2001
(File No. 001-09876).
- Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2001
(File No. 001-09876).
- The description of our common shares of beneficial interest contained
in our registration statement on Form 8-B filed March 17, 1988 (File
No. 001-09876).
- The description of our 7.44% Series A Cumulative Redeemable Preferred
Shares contained in our registration statement on Form 8-A filed
February 23, 1998 (File No. 001-09876).
- The description of our 7.00% Series C Cumulative Redeemable Preferred
Shares contained in our registration statement on Form 8-A filed
January 19, 1999 (File No. 001-09876).
- Current Report on Form 8-K filed January 22, 2001 (File No.
001-09876).
- Current Report on Form 8-K filed March 22, 2001 (File No. 001-09876).
- Current Report on Form 8-K filed April 16, 2001 (File No. 001-09876).
- Current Report on Form 8-K filed April 26, 2001 (File No. 001-09876).
- Current Report on Form 8-K/A filed April 30, 2001 (File No.
001-09876).
- Current Report on Form 8-K filed May 4, 2001 (File No. 001-09876).
- Current Report on Form 8-K/A filed June 18, 2001 (File No. 001-09876).
- Current Report on Form 8-K/A filed June 21, 2001 (File No. 001-09876).
- Current Report on Form 8-K filed August 13, 2001 (File No. 001-09876).
- Current Report on Form 8-K filed October 29, 2001 (File No.
001-09876).
- Current Report on Form 8-K/A filed October 29, 2001 (File No.
001-09876).
You may request copies of these filings at no cost by writing or
telephoning our Investor Relations Department at the following address and
telephone number:
Weingarten Realty Investors
2600 Citadel Plaza Drive
Suite 300
Houston, Texas 77008
(713) 866-6000
33
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No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell only the Notes offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information in this
prospectus is current only as of its date.
_______________
TABLE OF CONTENTS
Prospectus Supplement Page
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Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . S-2
Description of Notes. . . . . . . . . . . . . . . . . . . . . S-3
Investment Considerations
Relating to Indexed Notes . . . . . . . . . . . . . . . S-28
Investment Considerations
Relating to Foreign Currency Notes . . . . . . . . . . S-30
U.S. Taxation. . . . . . . . . . . . . . . . . . . . . . . . . S-30
Supplemental Plan of Distribution. . . . . . . . . . . . . . S-41
Validity of Notes . . . . . . . . . . . . . . . . . . . . . . S-42
Prospectus
Cautionary Statement Concerning
Forward-Looking Statements. . . . . . . . . . . . . . . . 1
About this Prospectus . . . . . . . . . . . . . . . . . . . . 1
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . 1
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . 1
Ratios of Earnings to Combined Fixed Charges
and Preferred Share Dividends . . . . . . . . . . . . . 2
Description of Debt Securities
and Convertible Debt Securities . . . . . . . . . . . . 2
Description of Capital Shares. . . . . . . . . . . . . . . . 9
Description of Securities Warrants . . . . . . . . . . . . . 18
Description of Other Classes of Outstanding Shares. . . . 19
Federal Income Tax Consequences. . . . . . . . . . . . . . . 21
Plan of Distribution. . . . . . . . . . . . . . . . . . . . . 31
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . 32
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Where You Can Find More Information .. . . . . . . . . . . 32
Incorporation of Documents by Reference . . . . . . . . . . 33
$207,000,000
WEINGARTEN REALTY
INVESTORS
Medium-Term Notes,
Series A, Due 9 Months or More
From Date of Issue
_______________
PROSPECTUS SUPPLEMENT
_______________
GOLDMAN, SACHS & CO.
BANC OF AMERICA SECURITIES LLC
BANC ONE CAPITAL MARKETS, INC.
COMMERZBANK SECURITIES
CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANK SECURITIES
JPMORGAN
LEHMAN BROTHERS
MERRILL LYNCH & CO.
PNC CAPITAL MARKETS, INC.
WACHOVIA SECURITIES
UBS WARBURG
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