e424b5
Filed pursuant to Rule 424(b)(5)
Registration No. 333-143390
Prospectus Supplement
(To prospectus dated August 10, 2007)
Capstead Mortgage Corporation
3,000,000 Shares
Common Stock
Through this prospectus supplement, Capstead Mortgage Corporation may offer and sell from time
to time up to 3,000,000 shares of our common stock. Our common stock is listed on the New York
Stock Exchange under the symbol CMO.
We may sell all or a portion of the shares of stock offered pursuant to this prospectus
supplement through agents, to or through underwriters or dealers. We are a party to a sales
agreement with Brinson Patrick Securities Corporation as sales manager, relating to the sale of
shares offered pursuant to this prospectus supplement. The sales manager is not required to sell
any specific number or dollar amount of shares, but will use its best efforts to sell the shares
offered by this prospectus supplement. Such sales will be at market prices prevailing at the time
of the sale. On April 10, 2008, the last reported sales price on the New York Stock Exchange of
our common stock was $12.98 per share. The compensation to the sales manager for sales of common
stock will be at commission rates ranging from 2.0% to 3.0% of the gross sales price per share,
depending upon the aggregate sales proceeds raised by the sales manager in each year under the
sales agreement. The sales manager will be deemed to be an underwriter, within the meaning of the
Securities Act, in connection with any sales of common shares on our behalf. See Description of
Sales Agreement and Plan of Distribution.
Investing in these securities involves various risks. Risks associated with an investment in
these securities are described in the accompanying prospectus and in certain of our filings with
the Securities Exchange Commission, as described under Risk Factors on page 3 of the accompanying
prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities, or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus supplement is April 11, 2008.
IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is the prospectus supplement, which describes
the specific terms of this offering and also adds to and updates information contained in the
accompanying base prospectus and the documents incorporated by reference into this prospectus
supplement and the base prospectus. The second part, the base prospectus, gives more general
information about securities we may offer from time to time, some of which does not apply to this
offering. Generally, when we refer only to the prospectus, we are referring to both parts combined,
and when we refer to the accompanying prospectus, we are referring to the base prospectus.
If the description of this offering varies between this prospectus supplement and the
accompanying prospectus, you should rely on the information in this prospectus supplement.
You should rely only on the information contained in or incorporated by reference in this
prospectus supplement and the accompanying prospectus. We have not authorized anyone to provide you
with information that is different. If anyone provides you with different or inconsistent
information, you should not rely on it. We are offering to sell, and seeking offers to buy, shares
of our common stock only in jurisdictions where offers and sales are permitted. The information
contained in or incorporated by reference in this document is accurate only as of the date such
information was issued, regardless of the time of delivery of this prospectus supplement or any
sale of our common stock.
S-2
OUR COMPANY
We are a self-managed real estate investment trust, or REIT, formed in 1985 and based in
Dallas, Texas. Our core strategy is managing a leveraged portfolio of residential mortgage
securities consisting primarily of adjustable-rate mortgage, or ARM, securities issued and
guaranteed by government-sponsored entities, either Fannie Mae or Freddie Mac, or by an agency of
the federal government, Ginnie Mae, which we refer to collectively as agency securities. Agency
securities carry an actual or implied AAA credit rating with limited, if any, credit risk. We may
also augment our core portfolio with investments in credit-sensitive commercial real estate-related
assets. We have elected to be treated as a REIT for federal income tax purposes.
RECENT DEVELOPMENTS
Capital Raising Activity
In addition to raising $206 million in new common equity capital during the fourth quarter of
2007 through two underwritten public offerings and our continuous offering program, we completed a
third underwritten public offering in February 2008 raising another $126.7 million of new common
equity capital. On March 10, 2008 we filed a prospectus supplement to sell up to three million
shares of our common stock under our continuous offering program and today we filed this prospectus
supplement to make available another three million shares for this program. Shares under this
program may be issued by us at our option at any time, typically through open market sales of a
limited number of shares on a daily basis, subject to blackout periods associated with the
dissemination of our earnings and dividend announcements or other important company-specific news.
During March 2008 we issued 360,100 shares of our common stock under our continuous offering
program at an average sale price of $13.17 per share, raising $4.6 million of new common equity
capital, after expenses. Subsequent to quarter-end, we issued an additional 1,827,130 common
shares at an average sale price of $12.33 per share, raising $22.0 million, after expenses. We may
continue to raise new common equity capital under this program subject to market conditions and the
blackout period constraints mentioned above.
Market Conditions and Company Response
The month of March 2008 was a tumultuous time for the financial markets characterized by a
significant contraction in market liquidity centering on concerns over pricing for both non-agency
and agency-guaranteed mortgage securities, changes in terms of financing via short-term repurchase
agreements and, most critically, the potential for adverse changes in the availability of financing
to support leveraged portfolios of mortgage securities. Many market participants reduced holdings
of mortgage securities while institutional demand diminished during this timeframe, resulting in
lower pricing levels for short-duration agency-guaranteed mortgage securities that we own from the
relatively robust levels seen in January and February. In light of these conditions and concerns,
we concluded that it would be prudent to proactively lower our portfolio leverage through limited
asset sales and other means. To this end, in March we sold $758 million principal amount of
agency-guaranteed mortgage securities for a modest loss of approximately $1.4 million that will be
included in our first quarter earnings. We also terminated a $100 million two-year interest rate
swap agreement designated as a hedge for accounting purposes resulting in a $2.3 million loss that
will be amortized to earnings over the remaining term of the derivative. In addition, we have
temporarily curtailed our usual practice of replacing portfolio runoff and have not deployed over
$30 million of the capital raised in our February follow-on offering or any of the $26.6 million in
capital raised to date under our continuous offering program into additional holdings of
agency-guaranteed ARM securities. Together, these actions have reduced our portfolio leverage
significantly.
In our view, market conditions began improving late in March as they pertain to holdings of
agency-guaranteed mortgage securities largely due to recent actions taken by the Federal Reserve to
support the mortgage securities market through providing additional financing to both banks and
primary broker dealers and orchestrating the acquisition of the Bear Stearns Companies, Inc. by
JPMorgan Chase & Co. Additionally, actions taken by federal regulators to allow Fannie Mae,
Freddie Mac and the Federal Home Loan Banks to expand their holdings of agency-guaranteed mortgage
securities have provided further support to the market. These actions have improved pricing for
most agency-guaranteed mortgage securities and have largely stalled momentum toward higher
collateral requirements beyond commonly seen levels of 5%.
S-3
Dividend Information
On January 4, February 4, March 4, and April 4, 2008 we declared our fixed monthly dividends
of $0.105 per Series B preferred share. The January, February and March dividends have been paid
and the April dividend will be paid on April 30, 2008 to stockholders of record on April 17, 2008.
On March 4, 2008 we declared our fixed quarterly dividend of $0.40 per Series A preferred share and
the dividend was paid on March 31, 2008. On March 10, 2008 we declared our quarterly dividend of
$0.52 per common share to be paid on April 21, 2008 to common stockholders of record on March 31,
2008. We anticipate announcing our second quarter common dividend on or about June 12, 2008.
THE OFFERING
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Issuer
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Capstead Mortgage Corporation. |
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Common stock offered by us
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Up to 3,000,000 shares. |
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Common stock to be outstanding after this offering
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Up to 54,745,338 shares. |
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Manner of offering
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Best efforts, at-the-market
offering that may be made
from time to time through
Brinson Patrick Securities
Corporation, as sales
manager. See Plan of
Distribution on page S-5. |
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NYSE symbol
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CMO (common stock) |
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Use of proceeds
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We intend to use the net
proceeds from this offering
for general corporate
purposes, including, without
limitation, repayment of
maturing obligations,
redemption of outstanding
indebtedness, financing
future acquisitions
(including acquisitions of
real estate-related companies
or real estate-related
assets), capital expenditures
and working capital. Pending
any such uses, we may invest
the net proceeds from the
sale of any stock offered
pursuant to this prospectus
supplement in short-term
investments, or may use them
to reduce short-term
indebtedness. |
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Risk factors
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Investing in our securities
involves various risks.
Risks associated with an
investment in these
securities are described
under the heading Risk
Factors in our annual report
on Form 10-K for the year
ended December 31, 2007. |
Unless otherwise indicated, all offering information in this prospectus supplement is based on
the number of shares of common stock and number of options to purchase shares of common stock
outstanding as of April 10, 2008. Unless otherwise indicated, that number of shares of common
stock does not include (i) 551,375 shares of our common stock issuable upon the exercise of
outstanding options granted pursuant to our long-term incentive plans or (ii) 9,834,041 shares of
our common stock issuable upon the conversion of our Series A and Series B Preferred Stock.
USE OF PROCEEDS
The net proceeds from the stock offered by us will be available for general corporate
purposes, including, without limitation, repayment of maturing obligations, redemption of
outstanding indebtedness, financing future acquisitions (including acquisitions of real
estate-related companies or real estate-related assets), capital expenditures and working capital.
Pending any such uses, we may invest the net proceeds from the sale of any stock offered pursuant
to this prospectus supplement or related prospectus in short-term investments, or may use them to
reduce short-term indebtedness.
DESCRIPTION OF SALES AGREEMENT
We may sell our common stock from time to time (1) through arrangements with underwriters or
dealers, (2) directly to one or more purchasers, or (3) through agents. We have entered into a
sales agreement with Brinson Patrick Securities Corporation with respect to sales of shares of our
common stock and we may enter into other sales agreements
S-4
with other sales agents or underwriters in the future. Under the terms of the Brinson Patrick
sales agreement, we may issue and sell shares of our common stock from time to time through Brinson
Patrick, as our sales agent. We have agreed to provide indemnification and contribution to Brinson
Patrick against certain liabilities, including liabilities under the Securities Act.
All sales made pursuant to the Brinson Patrick sales agreement will be reported in our
Securities Exchange Act of 1934 reports.
Certain Terms of the Sales Agency Agreement
Sales pursuant to the Brinson Patrick sales agreement may be effected on a daily basis. The
compensation to Brinson Patrick for sales of common stock under the Brinson Patrick sales agreement
shall be at the following commission rates:
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3.0% of the gross sales price per shares (sales proceeds) for the first $8 million
of aggregate sales proceeds raised under the sales agreement in each sales period; |
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2.5% of sales proceeds for the next $4 million of aggregate sales proceeds raised in
each sales period; and |
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2.0% of sales proceeds for any additional aggregate sales proceeds raised in each
sales period. |
For purposes of determining the appropriate commission rates, the initial sales period shall
begin on March 10, 2008 and end on December 31, 2009, and each subsequent sales period shall be for
a two year period, commencing on January 1 and ending on December 31 of the following calendar
year. The remaining proceeds, after further deduction for any transaction fees imposed by any
governmental or self-regulatory organization in respect to such sale shall constitute the net
proceeds to us for such shares of stock.
The offering of common stock pursuant to the Brinson Patrick sales agreement will terminate
upon the earlier of (i) the sale of all shares of common stock subject thereto or (ii) termination
of the Brinson Patrick sales agreement. The Brinson Patrick sales agreement may be terminated by
us or by Brinson Patrick upon written notice and in certain other circumstances specified therein.
PLAN OF DISTRIBUTION
In connection with the sale of the common stock on our behalf under the Brinson Patrick sales
agreement, Brinson Patrick will be deemed to be an underwriter within the meaning of the
Securities Act of 1933, as amended (the Securities Act), and the compensation payable to Brinson
Patrick under the Brinson Patrick sales agreement will be deemed to be an underwriting commission
or discount. We have separately agreed to provide indemnification and contribution to Brinson
Patrick against certain civil liabilities, including liabilities under the Securities Act. Brinson
Patrick may engage in transactions with, or perform services for, us in the ordinary course of
business.
We will open and maintain a trading account at the clearing agent designated by Brinson
Patrick to facilitate the transactions contemplated by the Brinson Patrick sales agreement. The
net proceeds from the sale of the common stock under the Brinson Patrick sales agreement shall be
available in the trading account on the third business day (or such other day as is industry
practice for regular-way trading) following each sale of the common stock (each, a Settlement
Date). We will effect the delivery of the applicable number of shares of common stock to an
account designated by Brinson Patrick at The Depository Trust Company on or before the settlement
date of each sale hereunder. Brinson Patricks compensation shall be withheld from the sales
proceeds on each settlement date and shall be paid to Brinson Patrick.
The offering of common stock pursuant to the Brinson Patrick sales agreement will terminate
upon the earlier of (i) the sale of all shares of common stock subject thereto or (ii) termination
of the Brinson Patrick sales agreement. The Brinson Patrick sales agreement may be terminated by
us or by Brinson Patrick upon written notice and in certain other circumstances specified therein.
S-5
Commissions
The following tables show the public offering prices, underwriting commissions and proceeds,
before expenses, to us, assuming all 3,000,000 shares of common stock are sold at $12.98 per share
the last reported sales prices of our common stock on the New York Stock Exchange on April 10,
2008.
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Common Stock |
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Per Share* |
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Total* |
Public offering Price |
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12.980 |
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38,940,000 |
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Underwriting commissions (3.0%) |
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$ |
0.389 |
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$ |
1,167,000 |
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Proceeds, before expenses, to us |
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$ |
12.591 |
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37,773,000 |
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This is an offering that will be made, if at all,
from time to time at the then-prevailing market prices.
Therefore, there can be no assurances that the public offering
prices, underwriting commissions, and proceeds, before expenses,
will be as set forth above. The commissions are computed based
upon the highest applicable rate under the Brinson Patrick sales
agreement. |
The expenses of the offering, not including underwriting commissions, are estimated at $50,000
and are payable by us.
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed upon for us by Andrews
Kurth LLP, Dallas, Texas. Certain Maryland law matters in connection with this offering will be
passed upon for us by Hogan & Hartson L.L.P., Baltimore, Maryland. Andrews Kurth LLP will rely on
the opinion of Hogan & Hartson L.L.P., Baltimore, Maryland, as to all matters of Maryland law.
S-6
PROSPECTUS
$500,000,000
COMMON STOCK
PREFERRED STOCK
DEBT SECURITIES
WARRANTS
Capstead Mortgage Corporation intends to offer and sell from
time to time the debt and equity securities described in this
prospectus. The total offering price of the securities described
in this prospectus will not exceed $500,000,000 in the aggregate.
We will provide the specific terms of any securities we may
offer in a supplement to this prospectus. You should carefully
read this prospectus and any applicable prospectus supplement
before deciding to invest in these securities.
Our common stock is listed on the New York Stock Exchange under
the symbol CMO. We may make any sales of our common
shares under this prospectus, if any, on or through the
facilities of the New York Stock Exchange, to or through a
market maker, or to or through an electronic communications
network, at market prices prevailing at the time of sale, or in
any other manner permitted by law (including, without
limitation, privately negotiated transactions). On
August 9, 2007, the last reported sale price of our common
stock as reported was $9.40 per share.
The securities may be offered directly, through agents
designated by us from time to time, or through underwriters or
dealers.
Investing in our securities involves risks. See Risk
Factors beginning on page 3 of this prospectus for
information regarding risks associated with an investment in our
securities.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
The date of this prospectus is August 10, 2007.
TABLE OF
CONTENTS
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You should rely only on the information contained or
incorporated by reference in this prospectus. We have not
authorized anyone else to provide you with different
information. If anyone provides you with different or
inconsistent information, you should not rely on it. An offer to
sell these securities will not be made in any jurisdiction where
the offer and sale is not permitted. You should assume that the
information appearing in this prospectus, as well as information
we previously filed with the Securities and Exchange Commission
and incorporated by reference, is accurate as of the date on the
front cover of this prospectus only. Our business, financial
condition, results of operations and prospects may have changed
since that date.
i
ABOUT
THIS PROSPECTUS
This prospectus is part of a shelf registration statement. We
may sell, from time to time, in one or more offerings, any
combinations of the securities described in this prospectus.
This prospectus only provides you with a general description of
the securities we may offer. Each time we sell securities under
this prospectus, we will provide a prospectus supplement that
contains specific information about the terms of the securities.
The prospectus supplement may also add, update or change
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.
The total dollar amount of the securities sold under this
prospectus will not exceed $500,000,000.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other documents with the Securities and Exchange Commission
under the Securities Exchange Act of 1934. You may read and copy
any materials that we file with the SEC without charge at the
public reference room of the Securities and Exchange Commission,
450 Fifth Street, N.W., Room 1024, Washington, DC
20549. Information about the operation of the public reference
room may be obtained by calling the Securities and Exchange
Commission at
1-800-SEC-0330.
Also, the SEC maintains an internet website that contains
reports, proxy and information statements, and other information
regarding issuers, including Capstead, that file electronically
with the SEC. The public can obtain any documents that we file
with the SEC at www.sec.gov.
We also make available free of charge on or through our internet
website (www.capstead.com) our Annual Report on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K,
and, if applicable, amendments to those reports filed or
furnished pursuant to Section 13(a) of the Exchange Act as
soon as reasonably practicable after we electronically file such
material with, or furnish it to, the SEC.
This prospectus is part of a registration statement on
Form S-3
that we filed with the Securities and Exchange Commission. This
prospectus does not contain all of the information set forth in
the registration statement and exhibits and schedules to the
registration statement. For further information with respect to
our company and our securities, reference is made to the
registration statement, including the exhibits and schedules to
the registration statement. Statements contained in this
prospectus as to the contents of any contract or other document
referred to in this prospectus are not necessarily complete and,
where that contract is an exhibit to the registration statement,
each statement is qualified in all respects by reference to the
exhibit to which the reference relates.
INCORPORATION
OF INFORMATION BY REFERENCE
The SEC allows us to incorporate by reference the
information we file with them, which means that we can disclose
important information to you by referring you to other documents
that we file with the SEC. These incorporated documents contain
important business and financial information about us that is
not included in or delivered with this prospectus. The
information incorporated by reference is considered to be part
of this prospectus, and later information filed with the SEC
will update and supersede this information.
We incorporate by reference the documents listed below and any
future filings we make with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act of 1934, until
the offering of securities covered by this prospectus is
complete:
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our Annual Report on
Form 10-K
for the year ended December 31, 2006;
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our Quarterly Reports on
Form 10-Q
for the quarters ended March 31, 2007 and June 30,
2007; and
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our Current Reports on
Form 8-K,
filed with the SEC on February 9, 2007 (with respect to
item 5.02 only), May 7, 2007 and June 18, 2007.
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You may obtain copies of these documents at no cost by writing
or telephoning us at the following address:
Investor Relations
Capstead Mortgage Corporation
8401 N. Central Expressway, Suite 800
Dallas, Texas 75225
(214) 874-2323
A WARNING
ABOUT FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements
(within the meaning of the Private Securities Litigation Reform
Act of 1995) that inherently involve risks and
uncertainties. Our actual results and liquidity can differ
materially from those anticipated in these forward-looking
statements because of changes in the level and composition of
our investments and unforeseen factors. As discussed in our
filings with the Securities and Exchange Commission (the
SEC), these factors may include, but are not limited
to, changes in general economic conditions, the availability of
suitable qualifying investments from both an investment return
and regulatory perspective, the availability of new investment
capital, fluctuations in interest rates and levels of mortgage
prepayments, deterioration in credit quality and ratings, the
effectiveness of risk management strategies, the impact of
leverage, liquidity of secondary markets and credit markets,
increases in costs and other general competitive factors. In
addition to the above considerations, actual results and
liquidity related to investments in loans secured by commercial
real estate are affected by borrower performance under operating
or development plans, lessee performance under lease agreements,
changes in general as well as local economic conditions and real
estate markets, increases in competition and inflationary
pressures, changes in the tax and regulatory environment
including zoning and environmental laws, uninsured losses or
losses in excess of insurance limits and the availability of
adequate insurance coverage at reasonable costs, among other
factors.
OUR
COMPANY
We were incorporated on April 15, 1985, in Maryland and
commenced operations in September 1985. We are a mortgage
investment firm operating as a real estate investment trust
(REIT) that earns income from investing in real
estate-related assets on a leveraged basis and from other
investment strategies. These investments currently consist
primarily of a core portfolio of residential, adjustable-rate
mortgage securities issued and guaranteed by
government-sponsored entities, either Fannie Mae or Freddie Mac
or by an agency of the federal government, Ginnie Mae. We also
seek to opportunistically invest a portion of our investment
capital in credit-sensitive commercial real estate-related
assets, including subordinate commercial real estate loans.
We and our qualified REIT subsidiaries have elected to be taxed
as a REIT under the Internal Revenue Code of 1986, as amended
(the Code), and intend to continue to do so. As a
result of this election, we and our qualified REIT subsidiaries
are not taxed at the corporate level on taxable income
distributed to stockholders, provided that certain REIT
qualification tests are met. Certain of our affiliates, which
may be consolidated with us for financial reporting purposes,
may not be consolidated for federal income tax purposes because
such entities may elect taxable REIT subsidiary tax status. All
taxable income of any such taxable REIT subsidiaries would be
subject to federal and state income taxes, where applicable.
Our principal executive offices are located at
8401 N. Central Expressway, Suite 800, Dallas,
Texas 75225. Our telephone number is
(214) 874-2323.
Our website is
http://www.capstead.com.
The contents of our website are not a part of this prospectus.
Our shares of common stock are traded on the New York Stock
Exchange, or the NYSE, under the symbol
CMO.
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RISK
FACTORS
An investment in our securities involves various risks. You
should carefully consider the risk factors incorporated by
reference to our most recent Annual Report on
Form 10-K
and the other information contained in this prospectus, as
updated by our subsequent filings under the Securities Exchange
Act of 1934, as amended, and the risk factors and other
information contained in the applicable prospectus supplement
before acquiring any of our securities.
USE OF
PROCEEDS
Unless otherwise indicated in a prospectus supplement, we expect
to use the net proceeds from the sale of these securities for
general corporate purposes.
RATIO OF
INCOME FROM CONTINUING OPERATIONS (BEFORE FIXED CHARGES) TO
COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The following table sets forth the historical ratios of income
from continuing operations (before fixed charges) to combined
fixed charges and our preferred stock dividends for the periods
indicated:
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Six Months
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Ended
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Year Ended December 31,
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June 30, 2007
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2006
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2005
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2004
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2003
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2002
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Ratio of income from continuing operations (before fixed
charges) to combined fixed charges and preferred stock dividends
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1.01:1
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1.30:1
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1.48:1
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1.40:1
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Deficiency of income from continuing operations (before fixed
charges) to combined fixed charges and preferred stock dividends
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$
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16,413
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$
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3,061
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DESCRIPTION
OF OUR CAPITAL STOCK
General
We were formed under the laws of the State of Maryland. Rights
of our stockholders are governed by the Maryland General
Corporation Law, or MGCL, our charter and our bylaws. The
following is a summary of the material provisions of our capital
stock. Copies of our charter and bylaws are filed as exhibits to
the registration statement of which this prospectus is a part.
See Where You Can Find More Information.
Authorized
Stock
Our charter provides that we may issue up to 100 million
shares of voting common stock, par value $.01 per share,
and 100 million shares of preferred stock, par value $.10
per share.
Power to
Issue Additional Shares of Our Common Stock and Preferred
Stock
We believe that the power of our board of directors, without
stockholder approval, to issue additional authorized but
unissued shares of our common stock or preferred stock and to
classify or reclassify unissued shares of our common stock or
preferred stock and thereafter to cause us to issue such
classified or reclassified shares of stock provides us with
flexibility in structuring possible future financings and
acquisitions and in meeting other needs which might arise. The
additional classes or series, as well as the common stock, will
be available for issuance without further action by our
stockholders, unless stockholder consent is required by
applicable law or the rules of any stock exchange or automated
quotation system on which our securities may be listed or
traded. Although our board of directors does not intend to do
so, it could authorize us to issue an additional class or series
of stock that could, depending upon the terms of the particular
class or series, delay,
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defer or prevent a transaction or a change of control of our
company that might involve a premium price for our stockholders
or otherwise be in their best interest.
Restrictions
on Ownership and Transfer
Our charter provides that if our board of directors determines
in good faith that the direct or indirect ownership of our stock
has or may become concentrated to an extent which would cause us
to fail to qualify or be qualified as a REIT under
Sections 856(a)(5) or (6) of the Code, or similar
provisions of successor statutes, we may redeem or repurchase
any number of shares of common stock
and/or
preferred stock sufficient to maintain or bring such ownership
into conformity with the Code and may refuse to transfer or
issue shares of common stock
and/or
preferred stock to any person whose acquisition would result in
our being unable to conform with the requirements of the Code.
In general, Code Sections 856(a)(5) and (6) provide
that, as a REIT, we must have at least 100 beneficial owners for
335 days of each taxable year and that we cannot qualify as
a REIT if, at any time during the last half of our taxable year,
more than 50% in value of our outstanding stock is owned,
directly or indirectly, by or for not more than five
individuals. In addition, our charter provides that we may
redeem or refuse to transfer any shares of our capital stock to
the extent necessary to prevent the imposition of a penalty tax
as a result of ownership of those shares by certain disqualified
organizations, including governmental bodies and tax-exempt
entities that are not subject to tax on unrelated business
taxable income. The redemption or purchase price for those
shares shall be equal to the fair market value of those shares
as reflected in the closing sales price for those shares if then
listed on a national securities exchange, or the average of the
closing sales prices for those shares if then listed on more
than one national securities exchange, or if those shares are
not then listed on a national securities exchange, the latest
bid quotation for the shares if then traded over-the-counter on
the last business day for which closing prices are available
immediately preceding the day on which notices of such
acquisitions are sent or, if no such closing sales prices or
quotations are available, then the net asset value of those
shares as determined by our board of directors in accordance
with the provisions of applicable law.
Transfer
Agent and Registrar
The transfer agent and registrar for our common stock and
preferred stock is Wells Fargo Shareholder Services.
DESCRIPTION
OF OUR COMMON STOCK
The following description of our common stock sets forth certain
general terms and provisions of our common stock to which any
prospectus supplement may relate, including a prospectus
supplement providing that common stock will be issuable upon
conversion or exchange of our debt securities or preferred stock
or upon the exercise of warrants to purchase our common stock.
All shares of our common stock covered by this prospectus will
be duly authorized, fully paid and nonassessable. Subject to the
preferential rights of any other class or series of stock and to
the provisions of the charter regarding the restrictions on
transfer of stock, holders of shares of our common stock are
entitled to receive dividends on such stock when, as and if
authorized by our board of directors out of funds legally
available therefor and declared by us and to share ratably in
the assets of our company legally available for distribution to
our stockholders in the event of our liquidation, dissolution or
winding up after payment of or adequate provision for all known
debts and liabilities of our company, including the preferential
rights on dissolution of any class or classes of preferred stock.
Subject to the provisions of our charter regarding the
restrictions on transfer of stock, each outstanding share of our
common stock entitles the holder to one vote on all matters
submitted to a vote of stockholders, including the election of
directors and, except as provided with respect to any other
class or series of stock, the holders of such shares will
possess the exclusive voting power. There is no cumulative
voting in the election of our board of directors, which means
that the holders of a plurality of the outstanding shares of our
common stock can elect all of the directors then standing for
election and the holders of the remaining shares will not be
able to elect any directors.
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Holders of shares of our common stock have no preference,
conversion, exchange, sinking fund, redemption or appraisal
rights and have no preemptive rights to subscribe for any
securities of our company. Subject to the provisions of the
charter regarding the restrictions on transfer of stock, shares
of our common stock will have equal dividend, liquidation and
other rights.
Under the MGCL, a Maryland corporation generally cannot
dissolve, amend its charter, merge, consolidate, transfer all or
substantially all of its assets, engage in a statutory share
exchange or engage in similar transactions outside the ordinary
course of business unless declared advisable by the board of
directors and approved by the affirmative vote of stockholders
holding at least two-thirds of the shares entitled to vote on
the matter unless a lesser percentage (but not less than a
majority of all of the votes entitled to be cast on the matter)
is set forth in the corporations charter. Our charter
provides for a vote of a majority of the outstanding shares for
these matters. However, Maryland law permits a corporation to
transfer all or substantially all of its assets without the
approval of the stockholders of the corporation to one or more
persons if all of the equity interests of the person or persons
are owned, directly or indirectly, by the corporation. Because
operating assets may be held by a corporations
subsidiaries, as in our situation, this may mean that a
subsidiary of a corporation can transfer all of its assets
without a vote of the corporations stockholders.
Our charter authorizes our board of directors to reclassify any
unissued shares of our common stock into other classes or series
of classes of stock and to establish the number of shares in
each class or series and to set the preferences, conversion and
other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications or terms or
conditions of redemption for each such class or series.
DESCRIPTION
OF OUR PREFERRED STOCK
Our charter authorizes our board of directors to classify any
unissued shares of preferred stock and to reclassify any
previously classified but unissued shares of any series. Prior
to issuance of shares of each series, our board of directors is
required by the MGCL and our charter to set the terms,
preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of
redemption for each such series. Thus, our board of directors
could authorize the issuance of shares of preferred stock with
terms and conditions that could have the effect of delaying,
deferring or preventing a transaction or a change of control of
our company that might involve a premium price for holders of
our common stock or otherwise be in their best interest. As of
the date hereof, 202,246 shares of Series A Preferred
Stock and 15,819,432 shares of Series B Preferred
Stock are outstanding. Our preferred stock will, when issued, be
fully paid and nonassessable and will not have, or be subject
to, any preemptive or similar rights.
The prospectus supplement relating to the series of preferred
stock offered by that supplement will describe the specific
terms of those securities, including:
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the title and stated value of that preferred stock;
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the number of shares of that preferred stock offered, the
liquidation preference per share and the offering price of that
preferred stock;
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the dividend rate(s), period(s) and payment date(s) or method(s)
of calculation thereof applicable to that preferred stock;
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whether dividends will be cumulative or non-cumulative and, if
cumulative, the date from which dividends on that preferred
stock will accumulate;
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the voting rights applicable to that preferred stock;
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the procedures for any auction and remarketing, if any, for that
preferred stock;
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the provisions for a sinking fund, if any, for that preferred
stock;
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the provisions for redemption including any restriction thereon,
if applicable, of that preferred stock;
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any listing of that preferred stock on any securities exchange;
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the terms and conditions, if applicable, upon which that
preferred stock will be convertible into shares of our common
stock, including the conversion price (or manner of calculation
of the conversion price) and conversion period;
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a discussion of federal income tax considerations applicable to
that preferred stock;
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any limitations on issuance of any series of preferred stock
ranking senior to or on a parity with that series of preferred
stock as to dividend rights and rights upon liquidation,
dissolution or winding up of our affairs;
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in addition to those limitations described above under
DESCRIPTION OF CAPITAL STOCK Restrictions on
Ownership and Transfer, any other limitations on actual
and constructive ownership and restrictions on transfer, in each
case as may be appropriate to preserve our status as a
REIT; and
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any other specific terms, preferences, rights, limitations or
restrictions of that preferred stock.
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Rank
Within Our Capital Structure
Unless otherwise specified in the applicable prospectus
supplement, the preferred stock will, with respect to dividend
rights and rights upon liquidation, dissolution or winding up of
our affairs rank:
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senior to all classes or series of common stock and to all
equity securities ranking junior to the preferred stock with
respect to dividend rights or rights upon liquidation,
dissolution or winding up of our affairs;
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on a parity with all equity securities issued by us the terms of
which specifically provide that those equity securities rank on
a parity with the preferred stock with respect to dividend
rights or rights upon liquidation, dissolution or winding up of
our affairs; and
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junior to all equity securities issued by us the terms of which
specifically provide that those equity securities rank senior to
the preferred stock with respect to dividend rights or rights
upon liquidation, dissolution or winding up of our affairs.
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The term equity securities does not include
convertible debt securities.
Dividends
Subject to the preferential rights of any other class or series
of stock and to the provisions of the charter regarding the
restrictions on transfer of stock, holders of shares of our
preferred stock will be entitled to receive dividends on such
stock when, as and if authorized by our board of directors out
of funds legally available therefor and declared by us, at rates
and on dates as will be set forth in the applicable prospectus
supplement.
Dividends on any series or class of our preferred stock may be
cumulative or noncumulative, as provided in the applicable
prospectus supplement. Dividends, if cumulative, will be
cumulative from and after the date set forth in the applicable
prospectus supplement. If our board of directors fails to
authorize a dividend payable on a dividend payment date on any
series or class of preferred stock for which dividends are
noncumulative, then the holders of that series or class of
preferred stock will have no right to receive a dividend in
respect of the dividend period ending on that dividend payment
date, and we will have no obligation to pay the dividend accrued
for that period, whether or not dividends on such series or
class are declared or paid for any future period.
If any shares of preferred stock of any series or class are
outstanding, no dividends may be authorized or paid or set apart
for payment on the preferred stock of any other series or class
ranking, as to dividends, on a parity with or junior to the
preferred stock of that series or class for any period unless:
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the series or class of preferred stock has a cumulative
dividend, and full cumulative dividends have been or
contemporaneously are authorized and paid or authorized and a
sum sufficient for the payment
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of those dividends is set apart for payment on the preferred
stock of that series or class for all past dividend periods and
the then current dividend period; or
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the series or class of preferred stock does not have a
cumulative dividend, and full dividends for the then current
dividend period have been or contemporaneously are authorized
and paid or authorized and a sum sufficient for the payment of
those dividends is set apart for the payment on the preferred
stock of that series or class.
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When dividends are not paid in full (or a sum sufficient for the
full payment is not set apart) upon the shares of preferred
stock of any series or class and the shares of any other series
or class of preferred stock ranking on a parity as to dividends
with the preferred stock of that series or class, then all
dividends authorized on shares of preferred stock of that series
or class and any other series or class of preferred stock
ranking on a parity as to dividends with that preferred stock
shall be authorized pro rata so that the amount of dividends
authorized per share on the preferred stock of that series or
class and other series or class of preferred stock will in all
cases bear to each other the same ratio that accrued dividends
per share on the shares of preferred stock of that series or
class (which will not include any accumulation in respect of
unpaid dividends for prior dividend periods if the preferred
stock does not have a cumulative dividend) and that other series
or class of preferred stock bear to each other. No interest, or
sum of money in lieu of interest, will be payable in respect of
any dividend payment or payments on preferred stock of that
series or class that may be in arrears.
Redemption
We may have the right or may be required to redeem one or more
series of preferred stock, in whole or in part, in each case
upon the terms, if any, and at the time and at the redemption
prices set forth in the applicable prospectus supplement.
If a series of preferred stock is subject to mandatory
redemption, we will specify in the applicable prospectus
supplement the number of shares we are required to redeem, when
those redemptions start, the redemption price, and any other
terms and conditions affecting the redemption. The redemption
price will include all accrued and unpaid dividends, except in
the case of noncumulative preferred stock. The redemption price
may be payable in cash or other property, as specified in the
applicable prospectus supplement. If the redemption price for
preferred stock of any series or class is payable only from the
net proceeds of the issuance of our stock, the terms of that
preferred stock may provide that, if no such stock shall have
been issued or to the extent the net proceeds from any issuance
are insufficient to pay in full the aggregate redemption price
then due, that preferred stock shall automatically and
mandatorily be converted into shares of our applicable stock
pursuant to conversion provisions specified in the applicable
prospectus supplement.
Liquidation
Preference
Upon any voluntary or involuntary liquidation or dissolution of
us or winding up of our affairs, then, before any distribution
or payment will be made to the holders of common stock or any
other series or class of stock ranking junior to any series or
class of the preferred stock in the distribution of assets upon
any liquidation, dissolution or winding up of our affairs, the
holders of that series or class of preferred stock will be
entitled to receive out of our assets legally available for
distribution to shareholders liquidating distributions in the
amount of the liquidation preference per share (set forth in the
applicable prospectus supplement), plus an amount equal to all
dividends accrued and unpaid on the preferred stock (which will
not include any accumulation in respect of unpaid dividends for
prior dividend periods if the preferred stock does not have a
cumulative dividend). After payment of the full amount of the
liquidating distributions to which they are entitled, the
holders of preferred stock will have no right or claim to any of
our remaining assets.
If, upon any voluntary or involuntary liquidation, dissolution
or winding up, the legally available assets are insufficient to
pay the amount of the liquidating distributions on all
outstanding shares of any series or class of preferred stock and
the corresponding amounts payable on all shares of other classes
or series of our stock of ranking on a parity with that series
or class of preferred stock in the distribution of assets upon
liquidation, dissolution or winding up, then the holders of that
series or class of preferred stock and all other
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classes or series of capital stock will share ratably in any
distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively
entitled.
If liquidating distributions have been made in full to all
holders of any series or class of preferred stock, our remaining
assets will be distributed among the holders of any other
classes or series of stock ranking junior to that series or
class of preferred stock upon liquidation, dissolution or
winding up, according to their respective rights and preferences
and in each case according to their respective number of shares.
For these purposes, the consolidation or merger of us with or
into any other entity, or the sale, lease, transfer or
conveyance of all or substantially all of our property or
business, will not be deemed to constitute a liquidation,
dissolution or winding up of our affairs.
Voting
Rights
Holders of preferred stock will not have any voting rights,
except as set forth below or as indicated in the applicable
prospectus supplement.
Unless provided otherwise for any series or class of preferred
stock, so long as any shares of preferred stock of a series or
class remain outstanding, we will not, without the affirmative
vote or consent of the holders of at least a majority of the
shares of that series or class of preferred stock outstanding at
the time, given in person or by proxy, either in writing or at a
meeting (such series or class voting separately as a class):
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authorize or create, or increase the authorized or issued amount
of, any class or series of stock ranking prior to that series or
class of preferred stock with respect to payment of dividends or
the distribution of assets upon liquidation, dissolution or
winding up or reclassify any authorized stock into any of those
shares, or create, authorize or issue any obligation or security
convertible into or evidencing the right to purchase any of
those shares; or
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amend, alter or repeal the provisions of our charter or articles
supplementary for such series or class of preferred stock,
whether by merger, consolidation or otherwise, so as to
materially and adversely affect any right, preference, privilege
or voting power of that series or class of preferred stock or
the holders of the preferred stock.
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However, any increase in the amount of the authorized preferred
stock or the creation or issuance of any other series or class
of preferred stock, or any increase in the amount of authorized
shares of such series or class or any other series or class of
preferred stock, in each case ranking on a parity with or junior
to the preferred stock of that series or class with respect to
payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up, will not be deemed to
materially and adversely affect such rights, preferences,
privileges or voting powers.
These voting provisions will not apply if, at or prior to the
time when the act with respect to which that vote would
otherwise be required will be effected, all outstanding shares
of that series or class of preferred stock have been redeemed or
called for redemption upon proper notice and sufficient funds
have been deposited in trust to effect that redemption.
Conversion
Rights
The terms and conditions, if any, upon which shares of any
series or class of preferred stock are convertible into shares
of common stock will be set forth in the applicable prospectus
supplement. The terms will include:
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the number of shares of common stock into which the preferred
stock is convertible;
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the conversion price (or manner of calculation of the conversion
price);
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the conversion period;
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provisions as to whether conversion will be at the option of the
holders of the preferred stock or us,
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the events requiring an adjustment of the conversion
price; and
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provisions affecting conversion in the event of the redemption
of the preferred stock.
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Series A
Preferred Stock
Our board of directors has classified and designated
5,465,000 shares of Series A Preferred Stock, of which
202,246 shares are currently outstanding. The Series A
Preferred Stock generally provides for the following rights,
preferences and obligations.
Dividend Rights. Holders of the Series A
Preferred Stock are entitled to receive, when, as and if
declared by our board of directors out of funds legally
available therefor, cumulative preferential cash dividends at
the rate of $1.60 per annum per share, and no more, payable in
equal quarterly installments on each March 31,
June 30, September 30 and December 31.
Liquidation Rights. Upon any voluntary or
involuntary liquidation, dissolution or winding up of our
company, the holders of Series A Preferred Stock will be
entitled to receive a liquidation preference of $16.40 per
share, plus any accumulated, accrued and unpaid dividends
(whether or not declared), before any payment or distribution
will be made or set aside for holders of any junior stock.
Redemption Provisions. We may redeem
Series A Preferred Stock, in whole or from time to time in
part, at a cash redemption price equal to 100% of the
liquidation preference plus all accrued and unpaid dividends
(whether or not earned or declared) to the date fixed for
redemption. The Series A Preferred Stock has no stated
maturity and is not subject to any sinking fund or mandatory
redemption provisions.
Voting Rights. Holders of Series A
Preferred Stock generally have no voting rights, except in
certain circumstances when our board of directors will be
expanded by two seats and the holders of Series A Preferred
Stock will be entitled to elect these two directors. In
addition, the issuance of senior shares or certain changes to
the terms of the Series A Preferred Stock that would be
materially adverse to the rights of holders of Series A
Preferred Stock cannot be made without the affirmative vote of
holders of at least
662/3%
of the outstanding Series A Preferred Stock and shares of
any class or series of shares ranking on a parity with the
Series A Preferred Stock which are entitled to similar
voting rights, if any, voting as a single class.
Conversion and Preemptive Rights. Holders of
the Series A Preferred Stock may, at their option, convert
shares of Series A Preferred Stock into shares of our
common stock at the rate of 1.5512 shares of our common
stock for each share of Series A Preferred Stock converted.
The conversion rates of the Series A Preferred Stock are
subject to adjustment in certain circumstances. Holders of
shares of our Series A Preferred Stock have no preemptive
rights to subscribe for any securities of our company.
Series B
Preferred Stock
Our board of directors has classified and designated
31,000,000 shares of Series B Preferred Stock, of
which 15,819,432 shares are currently outstanding. The
Series B Preferred Stock generally provides for the
following rights, preferences and obligations.
Dividend Rights. Holders of the Series B
Preferred Stock are entitled to receive, when, as and if
declared by our board of directors out of funds legally
available therefor, cumulative preferential cash dividends at
the annual rate of $1.26 per share, and no more, payable in
equal monthly installments on each monthly dividend payment date.
Liquidation Rights. Upon any voluntary or
involuntary liquidation, dissolution or winding up of our
company, the holders of Series B Preferred Stock will be
entitled to receive a liquidation preference of $11.38 per
share, plus an amount equal to all accumulated, accrued and
unpaid dividends (whether or not declared) to the date of
liquidation, dissolution or winding up of the affairs of our
company, before any payment or distribution will be made to or
set apart for the holders of any junior stock.
Redemption Provisions. We may redeem
Series B Preferred Stock, in whole or from time to time in
part, at a cash redemption price equal to $12.50 per share, plus
all accrued and unpaid dividends (whether or
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not earned or declared) to the date fixed for redemption. The
Series B Preferred Stock has no stated maturity and is not
subject to any sinking fund or mandatory redemption provisions.
Voting Rights. Holders of Series B
Preferred Stock are entitled to vote on (i) all matters
submitted to the holders of our common stock together with the
holders of our common stock as a single class and
(ii) certain matters affecting the Series Preferred
Stock as a separate class. In certain circumstances, our board
of directors will be expanded by two seats and the holders of
Series B Preferred Stock will be entitled to elect these
two directors.
So long as 20% or more of the aggregate number of shares of
Series B Preferred Stock issued in connection with the
Tyler Cabot merger remain outstanding, the affirmative vote of
at least a majority of the outstanding shares of such
Series B Preferred Stock will be required for the sale,
lease or conveyance by us of all or substantially all of our
property or business, or our consolidation or merger with any
other corporation unless the corporation resulting from such
consolidation or merger will have after such consolidation or
merger no class of shares either authorized or outstanding
ranking prior to or on a parity with the Series B Preferred
Stock except the same number of shares ranking prior to or on a
parity with the Series B Preferred Stock and having the
same rights and preferences as our authorized and outstanding
shares immediately preceding such consolidation or merger, and
each holder of Series B Preferred Stock immediately
preceding such consolidation or merger shall receive the same
number of shares, with the same rights and preferences, of the
resulting corporation.
Conversion and Preemptive Rights. Holders of
Series B Preferred Stock may, at their option, convert
shares of Series B Preferred Stock into shares of the our
common stock at the rate of 0.5980 shares of our common
stock for each share of Series B Preferred Stock converted.
The conversion rates of the Series B Preferred Stock are
subject to adjustment in certain circumstances. Holders of
shares of our Series B Preferred Stock have no preemptive
rights to subscribe for any securities of our company.
DESCRIPTION
OF OUR DEBT SECURITIES
The following description, together with the additional
information we include in any applicable prospectus supplements,
summarizes the material terms and provisions of the debt
securities that we may offer under this prospectus. While the
terms we have summarized below will apply generally to any
future debt securities we may offer, we will describe the
particular terms of any debt securities that we may offer in
more detail in the applicable prospectus supplement. If we
indicate in a prospectus supplement, the terms of any debt
securities we offer under that prospectus supplement may differ
from the terms we describe below.
The debt securities will be our direct unsecured general
obligations and may include debentures, notes, bonds or other
evidences of indebtedness. The debt securities will be either
senior debt securities or subordinated debt securities. The debt
securities will be issued under one or more separate indentures.
Senior debt securities will be issued under a senior indenture,
and subordinated debt securities will be issued under a
subordinated indenture. We use the term indentures
to refer to both the senior indenture and the subordinated
indenture. The forms of indentures are filed as exhibits to the
registration statement of which this prospectus forms a part.
The indentures will be qualified under the Trust Indenture
Act of 1939, as amended. We use the term trustee to
refer to either the senior trustee or the subordinated trustee,
as applicable.
The following summaries of material provisions of the debt
securities and indentures are subject to, and qualified in their
entirety by reference to, all the provisions of the indenture
applicable to a particular series of debt securities.
General
We will describe in each prospectus supplement the following
terms relating to a series of debt securities:
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the title;
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any limit on the amount that may be issued;
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whether or not we will issue the series of debt securities in
global form, the terms and who the depository will be;
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the maturity date;
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the annual interest rate, which may be fixed or variable, or the
method for determining the rate and the date interest will begin
to accrue, the dates interest will be payable and the regular
record dates for interest payment dates or the method for
determining such dates;
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whether or not the debt securities will be secured or unsecured,
and the terms of any secured debt;
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the terms of the subordination of any series of subordinated
debt;
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the place where payments will be payable;
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our right, if any, to defer payment of interest and the maximum
length of any such deferral period;
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the date, if any, after which, and the price at which, we may,
at our option, redeem the series of debt securities pursuant to
any optional redemption provisions;
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the date, if any, on which, and the price at which we are
obligated, pursuant to any mandatory sinking fund provisions or
otherwise, to redeem, or at the holders option to
purchase, the series of debt securities;
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whether the indenture will restrict our ability to pay
dividends, or will require us to maintain any asset ratios or
reserves;
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whether we will be restricted from incurring any additional
indebtedness;
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a discussion on any material or special United States federal
income tax considerations applicable to the debt securities;
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the denominations in which we will issue the series of debt
securities, if other than denominations of $1,000 and any
integral multiple thereof; and
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any other specific terms, preferences, rights or limitations of,
or restrictions on, the debt securities not inconsistent with
the applicable indentures.
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We may issue debt securities at less than the principal amount
payable at maturity. We refer to these securities as
original issue discount securities. If material or
applicable, we will describe in the applicable prospectus
supplement special US federal income tax, accounting and other
considerations applicable to original issue discount securities.
Consolidation,
Merger or Sale
Under the terms of the indentures, we would be generally
permitted to consolidate or merge with another company. We would
be also permitted to sell, convey, transfer, lease or otherwise
dispose of all or substantially all of our assets to another
company. However, we would not be able to take any of these
actions unless the following conditions are met:
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if we merge out of existence or sell our assets, the other
company must be an entity organized under the laws of one of the
states of the United States or the District of Columbia or under
United States federal law and must agree to be legally
responsible for our debt securities; and
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immediately after the merger, sale of assets or other
transaction, we may not be in default on the debt securities.
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Events of
Default Under the Indenture
The following are events of default under the indentures with
respect to any series of debt securities that we may issue:
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if we fail to pay the principal or any premium on a debt
security when due, for more than a specified number of days past
the due date;
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if we fail to pay interest on a debt security when due, for more
than a specified number of days past the due date;
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if we fail to deposit any sinking fund payment when due, for
more than a specified number of days past the due date;
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if we fail to observe or perform any other covenant contained in
the debt securities or the indentures, other than a covenant
specifically relating to another series of debt securities, and
our failure continues for a number of days to be stated in the
indenture after we receive notice from the trustee or holders of
at least 25% in aggregate principal amount of the outstanding
debt securities of the applicable series; and
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if specified events of bankruptcy, insolvency or reorganization
occur as to us.
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If an event of default with respect to debt securities of any
series occurs and is continuing, the trustee or the holders of
at least 25% in aggregate principal amount of the outstanding
debt securities of that series, by notice to us in writing, and
to the trustee if notice is given by such holders, may declare
the unpaid principal of, premium, if any, and accrued interest,
if any, due and payable immediately.
The holders of a majority in principal amount of the outstanding
debt securities of an affected series may waive any default or
event of default with respect to the series and its
consequences, except defaults or events of default regarding
payment of principal, premium, if any, or interest, unless we
have cured the default or event of default in accordance with
the indenture. Any waiver shall cure the default or event of
default.
Subject to the terms of the indentures, if an event of default
under an indenture shall occur and be continuing, the trustee
will be under no obligation to exercise any of its rights or
powers under such indenture at the request or direction of any
of the holders of the applicable series of debt securities,
unless such holders have offered the trustee reasonable
indemnity. The holders of a majority in principal amount of the
outstanding debt securities of any series will have the right to
direct the time, method and place of conducting any proceeding
for any remedy available to the trustee, or exercising any trust
or power conferred on the trustee, with respect to the debt
securities of that series, provided that:
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the direction so given by the holder is not in conflict with any
law or the applicable indenture; and
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subject to its duties under the Trust Indenture Act, the
trustee need not take any action that might involve it in
personal liability or might be unduly prejudicial to the holders
not involved in the proceeding.
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A holder of the debt securities of any series will only have the
right to institute a proceeding under the indentures or to
appoint a receiver or trustee, or to seek other remedies if:
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the holder has given written notice to the trustee of a
continuing event of default with respect to that series;
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the holders of at least 25% in aggregate principal amount of the
outstanding debt securities of that series have made written
request, and such holders have offered reasonable indemnity to
the trustee to institute the proceeding as trustee;
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the trustee does not institute the proceeding, and does not
receive from the holders of a majority in aggregate principal
amount of the outstanding debt securities of that series other
conflicting directions within 60 days after the notice,
request and offer; and
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no direction inconsistent with such written request has been
given to the trustee during such
60-day
period by the holders of a majority in principal amount of the
debt securities of that series.
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These limitations do not apply to a suit instituted by a holder
of debt securities if we default in the payment of the
principal, premium, if any, or interest on, the debt securities.
We will periodically file statements with the trustee regarding
our compliance with specified covenants in the indentures.
Modification
of Indenture; Waiver
We and the trustee may change an indenture without the consent
of any holders with respect to specific matters, including:
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to fix any ambiguity, defect or inconsistency in the
indenture; and
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to change anything that does not materially adversely affect the
interests of any holder of debt securities of any series.
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In addition, under the indentures, the rights of holders of a
series of debt securities may be changed by us and the trustee
with the written consent of the holders of at least a majority
in aggregate principal amount of the outstanding debt securities
of each series that is affected. However, we and the trustee may
only make the following changes with the consent of each holder
of any outstanding debt securities affected:
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changing the stated maturity of the principal or interest on a
series of debt securities;
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reducing the principal amount, reducing the rate of or extending
the time of payment of interest, or any premium payable upon the
redemption of any debt securities;
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changing the currency of payment on a debt security;
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impair your right to sue for payment;
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modify the subordination provisions, if any, in a manner that is
adverse to you;
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reducing the percentage of debt securities the holders of which
are required to consent to any amendment; or
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modify any of the foregoing provisions.
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Certain
Covenants
The indentures contain certain covenants requiring us to take
certain actions and prohibiting us from taking certain actions,
including the following:
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we must maintain a paying agent in each place of payment for the
debt securities;
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we will do or cause to be done all things necessary to preserve
and keep in full force and effect our existence; and
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we will cause all properties used or useful in the conduct of
our business to be maintained and kept in good condition.
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Any additional or different covenants or modifications to the
foregoing covenants with respect to any series of debt
securities will be described in the applicable prospectus
supplement.
Redemption
The indentures provide that the debt securities of any series
that are redeemable may be redeemed at any time at our option,
in whole or in part. Debt securities may also be subject to
optional or mandatory redemption on terms and conditions
described in the applicable prospectus supplement.
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From and after notice has been given as provided in the
applicable indenture, if funds for the redemption of any debt
securities called for redemption shall have been made available
on such redemption date, such debt securities will cease to bear
interest on the date fixed for such redemption specified in such
notice, and the only right of the holders of the debt securities
will be to receive payment of the redemption price.
Discharge,
Defeasance and Covenant Defeasance
To the extent stated in the prospectus supplement, we may elect
to apply the provisions in the indentures relating to defeasance
and discharge of indebtedness, or to defeasance of restrictive
covenants, to the debt securities of any series. The indentures
provide that, upon satisfaction of the requirements described
below, we may terminate all of our obligations under the debt
securities of any series and the applicable indenture, known as
legal defeasance, other than our obligation:
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to maintain a registrar and paying agents and hold monies for
payment in trust;
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to register the transfer or exchange of the debt
securities; and
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to replace mutilated, destroyed, lost or stolen debt securities.
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In addition, we may terminate our obligation to comply with any
restrictive covenants under the debt securities of any series or
the applicable indenture, known as covenant defeasance.
We may exercise our legal defeasance option even if we have
previously exercised our covenant defeasance option. If we
exercise either defeasance option, payment of the debt
securities may not be accelerated because of the occurrence of
events of default.
To exercise either defeasance option as to debt securities of
any series, we must irrevocably deposit in trust with the
trustee money
and/or
obligations backed by the full faith and credit of the United
States that will provide money in an amount sufficient in the
written opinion of a nationally recognized firm of independent
public accountants to pay the principal of, premium, if any, and
each installment of interest on the debt securities. We may only
establish this trust if, among other things:
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no event of default shall have occurred or be continuing;
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in the case of legal defeasance, we have delivered to the
trustee an opinion of counsel to the effect that we have
received from, or there has been published by, the Internal
Revenue Service a ruling or there has been a change in law,
which in the opinion of our counsel, provides that holders of
the debt securities will not recognize gain or loss for federal
income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would have
been the case if such deposit, defeasance and discharge had not
occurred;
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in the case of covenant defeasance, we have delivered to the
trustee an opinion of counsel to the effect that the holders of
the debt securities will not recognize gain or loss for federal
income tax purposes as a result of such deposit and covenant
defeasance and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would have
been the case if such deposit and covenant defeasance had not
occurred; and
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we satisfy other customary conditions precedent described in the
applicable indenture.
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Conversion
and Exchange of Securities
The terms and conditions, if any, upon which any debt securities
are convertible or exchangeable into debt securities, common
stock, preferred stock or other securities or property will be
set forth in the applicable prospectus supplement relating
thereto. Such terms will include:
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whether such debt securities are convertible or exchangeable
into debt securities, common stock, preferred stock or other
securities or property;
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the conversion price (or manner of calculation thereof);
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the conversion period;
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provisions as to whether conversion will be at the option of the
holders or us;
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the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption
of such debt securities; and
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any restrictions on conversion, including restrictions directed
at maintaining our REIT status.
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Form,
Exchange and Transfer
We will issue the debt securities of each series only in fully
registered form without coupons and, unless we otherwise specify
in the applicable prospectus supplement, in denominations of
$1,000 and any integral multiple thereof. The indentures provide
that we may issue debt securities of a series in temporary or
permanent global form and as book-entry securities that will be
deposited with, or on behalf of, The Depository
Trust Company or another depository named by us and
identified in a prospectus supplement with respect to that
series.
At the option of the holder, subject to the terms of the
indentures and the limitations applicable to global securities
described in the applicable prospectus supplement, the holder of
the debt securities of any series can exchange the debt
securities for other debt securities of the same series, in any
authorized denomination and of like tenor and aggregate
principal amount.
Subject to the terms of the indentures and the limitations
applicable to global securities set forth in the applicable
prospectus supplement, holders of the debt securities may
present the debt securities for exchange or for registration of
transfer, duly endorsed or with the form of transfer endorsed
thereon duly executed if so required by us or the security
registrar, at the office of the security registrar or at the
office of any transfer agent designated by us for this purpose.
Unless otherwise provided in the debt securities that the holder
presents for transfer or exchange, we will make no service
charge for any registration of transfer or exchange, but we may
require payment of any taxes or other governmental charges.
We will name in the applicable prospectus supplement the
security registrar, and any transfer agent in addition to the
security registrar, that we initially designate for any debt
securities. We may at any time designate additional transfer
agents or rescind the designation of any transfer agent or
approve a change in the office through which any transfer agent
acts, except that we will be required to maintain a transfer
agent in each place of payment for the debt securities of each
series.
If we elect to redeem the debt securities of any series, we will
not be required to:
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issue, register the transfer of, or exchange any debt securities
of that series during a period beginning at the opening of
business 15 days before the day of mailing of a notice of
redemption of any debt securities that may be selected for
redemption and ending at the close of business on the day of the
mailing; or
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register the transfer of or exchange any debt securities so
selected for redemption, in whole or in part, except the
unredeemed portion of any debt securities we are redeeming in
part.
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Information
Concerning the Trustee
The trustee, other than during the occurrence and continuance of
an event of default under an indenture, undertakes to perform
only those duties as are specifically set forth in the
applicable indenture. Upon an event of default under an
indenture, the trustee must use the same degree of care as a
prudent person would exercise or use in the conduct of his or
her own affairs. Subject to this provision, the trustee is under
no obligation to exercise any of the powers given it by the
indentures at the request of any holder of debt securities
unless it is offered reasonable security and indemnity against
the costs, expenses and liabilities that it might incur.
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Payment
and Paying Agents
Unless we otherwise indicate in the applicable prospectus
supplement, we will make payment of the interest on any debt
securities on any interest payment date to the person in whose
name the debt securities, or one or more predecessor securities,
are registered at the close of business on the regular record
date for the interest.
We will pay principal of and any premium and interest on the
debt securities of a particular series at the office of the
paying agents designated by us, except that unless we otherwise
indicate in the applicable prospectus supplement, we will make
interest payments by check which we will mail to the holder.
Unless we otherwise indicate in a prospectus supplement, we will
designate the corporate trust office of the trustee in the City
of New York as our sole paying agent for payments with respect
to debt securities of each series. We will name in the
applicable prospectus supplement any other paying agents that we
initially designate for the debt securities of a particular
series. We will maintain a paying agent in each place of payment
for the debt securities of a particular series.
All money we pay to a paying agent or the trustee for the
payment of the principal of or any premium or interest on any
debt securities which remains unclaimed at the end of two years
after such principal, premium or interest has become due and
payable will be repaid to us, and the holder of the security
thereafter may look only to us for payment thereof.
Subordination
The prospectus supplement relating to any offering of
subordinated debt securities will describe the specific
subordination provisions. However, unless otherwise noted in the
prospectus supplement, subordinated debt securities will be
subordinate and junior in right of payment to senior
indebtedness.
The indebtedness underlying any subordinated debt securities
will be payable only if all payments due under our senior
indebtedness, as defined in the applicable indenture and any
indenture supplement, including any outstanding senior debt
securities, have been made. If we distribute our assets to
creditors upon any dissolution,
winding-up,
liquidation or reorganization or in bankruptcy, insolvency,
receivership or similar proceedings, we must first pay all
amounts due or to become due on all senior indebtedness before
we pay the principal of, or any premium or interest on, the
subordinated debt securities. In the event the subordinated debt
securities are accelerated because of an event of default, we
may not make any payment on the subordinated debt securities
until we have paid all senior indebtedness or the acceleration
is rescinded.
By reason of such subordination, if we experience a bankruptcy,
dissolution or reorganization, holders of senior indebtedness
may receive more, ratably, and holders of subordinated debt
securities may receive less, ratably, than our other creditors.
The indenture for subordinated debt securities may not limit our
ability to incur additional senior or subordinated indebtedness.
Governing
Law
The indentures and the debt securities will be governed by and
construed in accordance with the laws of the State of New York,
except to the extent that the Trust Indenture Act is
applicable.
DESCRIPTION
OF OUR WARRANTS
This section describes the general terms and provisions of our
securities warrants. The applicable prospectus supplement will
describe the specific terms of the securities warrants offered
through that prospectus supplement as well as any general terms
described in this section that will not apply to those
securities warrants.
We may issue securities warrants for the purchase of our debt
securities, preferred stock, or common stock. We may issue
warrants independently or together with other securities, and
they may be attached to or separate from the other securities.
Each series of securities warrants will be issued under a
separate warrant agreement that we will enter into with a bank
or trust company, as warrant agent, as detailed in the
applicable
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prospectus supplement. The warrant agent will act solely as our
agent in connection with the securities warrants and will not
assume any obligation, or agency or trust relationship, with you.
The prospectus supplement relating to a particular issue of
securities warrants will describe the terms of those securities
warrants, including, where applicable:
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the aggregate number of the securities covered by the warrant;
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the designation, amount and terms of the securities purchasable
upon exercise of the warrant;
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the exercise price for our debt securities, the amount of debt
securities upon exercise you will receive, and a description of
that series of debt securities;
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the exercise price for shares of our preferred stock, the number
of shares of preferred stock to be received upon exercise, and a
description of that series of our preferred stock;
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the exercise price for shares of our common stock and the number
of shares of common stock to be received upon exercise;
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the expiration date for exercising the warrant;
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the minimum or maximum amount of warrants that may be exercised
at any time;
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a discussion of U.S. federal income tax
consequences; and
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any other material terms of the securities warrants.
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After the warrants expire they will become void. The prospectus
supplement will describe how to exercise securities warrants. A
holder must exercise warrants for our preferred stock or common
stock through payment in U.S. dollars. All securities
warrants will be issued in registered form. The prospectus
supplement may provide for the adjustment of the exercise price
of the securities warrants.
Until a holder exercises warrants to purchase our debt
securities, preferred stock, or common stock, that holder will
not have any rights as a holder of our debt securities,
preferred stock, or common stock by virtue of ownership of
warrants.
BOOK-ENTRY
SECURITIES
The securities offered by means of this prospectus may be issued
in whole or in part in book-entry form, meaning that beneficial
owners of the securities will not receive certificates
representing their ownership interests in the securities, except
in the event the book-entry system for the securities is
discontinued. Securities issued in book entry form will be
evidenced by one or more global securities that will be
deposited with, or on behalf of, a depositary identified in the
applicable prospectus supplement relating to the securities. We
expect that The Depository Trust Company will serve as
depository. Unless and until it is exchanged in whole or in part
for the individual securities represented by that security, a
global security may not be transferred except as a whole by the
depository for the global security to a nominee of that
depository or by a nominee of that depository to that depository
or another nominee of that depository or by the depository or
any nominee of that depository to a successor depository or a
nominee of that successor. Global securities may be issued in
either registered or bearer form and in either temporary or
permanent form. The specific terms of the depositary arrangement
with respect to a class or series of securities that differ from
the terms described here will be described in the applicable
prospectus supplement.
Unless otherwise indicated in the applicable prospectus
supplement, we anticipate that the provisions described below
will apply to depository arrangements.
Upon the issuance of a global security, the depository for the
global security or its nominee will credit on its book-entry
registration and transfer system the respective principal
amounts of the individual securities represented by that global
security to the accounts of persons that have accounts with such
depository, who are called participants. Those
accounts will be designated by the underwriters, dealers or
agents with respect to the securities or by us if the securities
are offered and sold directly by us. Ownership of beneficial
interests in
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a global security will be limited to the depositorys
participants or persons that may hold interests through those
participants. Ownership of beneficial interests in the global
security will be shown on, and the transfer of that ownership
will be effected only through, records maintained by the
applicable depository or its nominee (with respect to beneficial
interests of participants) and records of the participants (with
respect to beneficial interests of persons who hold through
participants). The laws of some states require that certain
purchasers of securities take physical delivery of such
securities in definitive form. These limits and laws may impair
the ability to own, pledge or transfer beneficial interest in a
global security.
So long as the depository for a global security or its nominee
is the registered owner of such global security, that depository
or nominee, as the case may be, will be considered the sole
owner or holder of the securities represented by that global
security for all purposes under the applicable indenture or
other instrument defining the rights of a holder of the
securities. Except as provided below or in the applicable
prospectus supplement, owners of beneficial interest in a global
security will not be entitled to have any of the individual
securities of the series represented by that global security
registered in their names, will not receive or be entitled to
receive physical delivery of any such securities in definitive
form and will not be considered the owners or holders of that
security under the applicable indenture or other instrument
defining the rights of the holders of the securities.
Payments of amounts payable with respect to individual
securities represented by a global security registered in the
name of a depository or its nominee will be made to the
depository or its nominee, as the case may be, as the registered
owner of the global security representing those securities. None
of us, our officers and directors or any trustee, paying agent
or security registrar for an individual series of securities
will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial
ownership interests in the global security for such securities
or for maintaining, supervising or reviewing any records
relating to those beneficial ownership interests.
We expect that the depository for a series of securities offered
by means of this prospectus or its nominee, upon receipt of any
payment of principal, premium, interest, dividend or other
amount in respect of a permanent global security representing
any of those securities, will immediately credit its
participants accounts with payments in amounts
proportionate to their respective beneficial interests in the
principal amount of that global security for those securities as
shown on the records of that depository or its nominee. We also
expect that payments by participants to owners of beneficial
interests in that global security held through those
participants will be governed by standing instructions and
customary practices, as is the case with securities held for the
account of customers in bearer form or registered in
street name. Those payments will be the
responsibility of these participants.
If a depository for a series of securities is at any time
unwilling, unable or ineligible to continue as depository and a
successor depository is not appointed by us within 90 days,
we will issue individual securities of that series in exchange
for the global security representing that series of securities.
In addition, we may, at any time and in our sole discretion,
subject to any limitations described in the applicable
prospectus supplement relating to those securities, determine
not to have any securities of that series represented by one or
more global securities and, in that event, will issue individual
securities of that series in exchange for the global security or
securities representing that series of securities.
MATERIAL
PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND
BYLAWS
The following is a summary of certain provisions of Maryland law
and of our charter and bylaws. Copies of our charter and bylaws
are filed as exhibits to the registration statement of which
this prospectus is a part. See Where You Can Find More
Information.
The Board
of Directors
Our bylaws provide that the number of directors of our company
may be established by our board of directors but may not be
fewer than the minimum number permitted under the MGCL nor more
than 25. Any
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vacancy will be filled, at any regular meeting or at any special
meeting called for that purpose, by a majority of the remaining
directors.
Pursuant to our charter, each member of our board of directors
will serve one year terms and until their successors are elected
and qualified. Holders of shares of our common stock will have
no right to cumulative voting in the election of directors.
Consequently, at each annual meeting of stockholders at which
our board of directors is elected, the holders of a plurality of
the shares of our common stock will be able to elect all of the
members of our board of directors.
Business
Combinations
Maryland law prohibits business combinations between
a corporation and an interested stockholder or an affiliate of
an interested stockholder for five years after the most recent
date on which the interested stockholder becomes an interested
stockholder. These business combinations include a merger,
consolidation, statutory share exchange, or, in circumstances
specified in the statute, certain transfers of assets, certain
stock issuances and transfers, liquidation plans and
reclassifications involving interested stockholders and their
affiliates as asset transfer or issuance or reclassification of
equity securities. Maryland law defines an interested
stockholder as:
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any person who beneficially owns 10% or more of the voting power
of our voting stock; or
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an affiliate or associate of the corporation who, at any time
within the two-year period prior to the date in question, was
the beneficial owner of 10% or more of the voting power of the
then-outstanding voting stock of the corporation.
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A person is not an interested stockholder if the board of
directors approves in advance the transaction by which the
person otherwise would have become an interested stockholder.
However, in approving the transaction, the board of directors
may provide that its approval is subject to compliance, at or
after the time of approval, with any terms and conditions
determined by the board of directors.
After the five year prohibition, any business combination
between a corporation and an interested stockholder generally
must be recommended by the board of directors and approved by
the affirmative vote of at least:
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80% of the votes entitled to be cast by holders of the then
outstanding shares of common stock; and
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two-thirds of the votes entitled to be cast by holders of the
common stock other than shares held by the interested
stockholder with whom or with whose affiliate the business
combination is to be effected or shares held by an affiliate or
associate of the interested stockholder.
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These super-majority vote requirements do not apply if certain
fair price requirements set forth in the MGCL are satisfied.
The statute permits various exemptions from its provisions,
including business combinations that are approved by the board
of directors before the time that the interested stockholder
becomes an interested stockholder.
Control
Share Acquisitions
The MGCL provides that control shares of a Maryland
corporation acquired in a control share acquisition
have no voting rights except to the extent approved at a special
meeting by the affirmative vote of two-thirds of the votes
entitled to be cast on the matter, excluding shares of stock in
a corporation in respect of which any of the following persons
is entitled to exercise or direct the exercise of the voting
power of shares of stock of the corporation in the election of
directors: (i) a person who makes or proposes to make a
control share acquisition, (ii) an officer of the
corporation or (iii) an employee of the corporation who is
also a director of the corporation. Control shares
are voting shares of stock which, if aggregated with all other
such shares of stock previously acquired by the acquiror or in
respect of which the acquiror is able to exercise or direct the
exercise of voting power (except solely by virtue of a revocable
proxy), would entitle the acquiror to
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exercise voting power in electing directors within one of the
following ranges of voting power: (i) one-tenth or more but
less than one-third, (ii) one-third or more but less than a
majority, or (iii) a majority or more of all voting power.
Control shares do not include shares the acquiring person is
then entitled to vote as a result of having previously obtained
stockholder approval. A control share acquisition
means the acquisition of control shares, subject to certain
exceptions.
A person who has made or proposes to make a control share
acquisition, upon satisfaction of certain conditions (including
an undertaking to pay expenses), may compel our board of
directors to call a special meeting of stockholders to be held
within 50 days of demand to consider the voting rights of
the shares. If no request for a meeting is made, the corporation
may itself present the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the
acquiring person does not deliver an acquiring person statement
as required by the statute, then, subject to certain conditions
and limitations, the corporation may redeem any or all of the
control shares (except those for which voting rights have
previously been approved) for fair value determined, without
regard to the absence of voting rights for the control shares,
as of the date of the last control share acquisition by the
acquiror or of any meeting of stockholders at which the voting
rights of such shares are considered and not approved. If voting
rights for control shares are approved at a stockholders meeting
and the acquiror becomes entitled to vote a majority of the
shares entitled to vote, all other stockholders may exercise
appraisal rights. The fair value of the shares as determined for
purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control
share acquisition.
The control share acquisition statute does not apply (i) to
shares acquired in a merger, consolidation or share exchange if
the corporation is a party to the transaction or (ii) to
acquisitions approved or exempted by the charter or bylaws of
the corporation.
Amendment
to Our Charter
Our charter may be amended only if declared advisable by the
board of directors and approved by the affirmative vote of the
holders of at least a majority of all of the votes entitled to
be cast on the matter.
Dissolution
of Our Company
The dissolution of our company must be declared advisable by the
board of directors and approved by the affirmative vote of the
holders of not less than a majority of all of the votes entitled
to be cast on the matter.
Advance
Notice of Director Nominations and New Business
Our bylaws provide that:
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with respect to an annual meeting of stockholders, the only
business to be considered and the only proposals to be acted
upon will be those properly brought before the annual meeting:
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pursuant to our notice of the meeting;
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by, or at the direction of, a majority of our board of
directors; or
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by a stockholder who is entitled to vote at the meeting and has
complied with the advance notice procedures set forth in our
bylaws;
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with respect to special meetings of stockholders, only the
business specified in our companys notice of meeting may
be brought before the meeting of stockholders unless otherwise
provided by law; and
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nominations of persons for election to our board of directors at
any annual or special meeting of stockholders may be made only:
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by, or at the direction of, our board of directors; or
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by a stockholder who is entitled to vote at the meeting and has
complied with the advance notice provisions set forth in our
bylaws.
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20
Anti-Takeover
Effect of Certain Provisions of Maryland Law and of Our Charter
and Bylaws
The advance notice provisions of our bylaws could delay, defer
or prevent a transaction or a change of control of our company
that might involve a premium price for holders of our common
stock or otherwise be in their best interest.
Indemnification
and Limitation of Directors and Officers
Liability
Our charter provide for indemnification of our officers and
directors against liabilities to the fullest extent permitted by
the MGCL, as amended from time to time.
The MGCL permits a corporation to indemnify a director or
officer who has been successful, on the merits or otherwise, in
the defense of any proceeding to which he or she is made a party
by reason of his or her service in that capacity. The MGCL
permits a corporation to indemnify its present and former
directors and officers, among others, against judgments,
penalties, fines, settlements and reasonable expenses actually
incurred by them in connection with any proceeding to which they
may be made a party by reason of their service in those or other
capacities unless it is established that:
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an act or omission of the director or officer was material to
the matter giving rise to the proceeding and:
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was committed in bad faith; or
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was the result of active and deliberate dishonesty;
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the director or officer actually received an improper personal
benefit in money, property or services; or
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in the case of any criminal proceeding, the director or officer
had reasonable cause to believe that the act or omission was
unlawful.
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However, under the MGCL, a Maryland corporation may not
indemnify for an adverse judgment in a suit by or in the right
of the corporation (other than for expenses incurred in a
successful defense of such an action) or for a judgment of
liability on the basis that personal benefit was improperly
received. In addition, the MGCL permits a corporation to advance
reasonable expenses to a director or officer upon the
corporations receipt of:
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a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary
for indemnification by the corporation; and
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a written undertaking by the director or on the directors
behalf to repay the amount paid or reimbursed by the corporation
if it is ultimately determined that the director did not meet
the standard of conduct.
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Our bylaws obligate us, to the fullest extent permitted by
Maryland law in effect from time to time, to indemnify and,
without requiring a preliminary determination of the ultimate
entitlement to indemnification, pay or reimburse reasonable
expenses in advance of final disposition of a proceeding to:
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any present or former director or officer who is made a party to
the proceeding by reason of his or her service in that
capacity; or
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any individual who, while a director or officer of our company
and at our request, serves or has served another corporation,
real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise as a director,
officer, partner or trustee and who is made a party to the
proceeding by reason of his or her service in that capacity.
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Our bylaws also obligate us to indemnify and advance expenses to
any person who served a predecessor of ours in any of the
capacities described in second and third bullet points above and
to any employee or agent of our company or a predecessor of our
company.
Insofar as the foregoing provisions permit indemnification of
directors, officers or persons controlling us for liability
arising under the Securities Act, we have been informed that in
the opinion of the Securities and Exchange Commission, this
indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
21
FEDERAL
INCOME TAX CONSEQUENCES OF OUR STATUS AS A REIT
The following discussion is a summary of the material federal
income tax considerations that may be relevant to a prospective
holder of securities, and, unless otherwise noted in the
following discussion, expresses the opinion of Andrews Kurth LLP
insofar as it relates to matters of United States federal income
tax law and legal conclusions with respect to those matters. The
discussion does not address all aspects of taxation that may be
relevant to particular investors in light of their personal
investment or tax circumstances, or to certain types of
investors that are subject to special treatment under the
federal income tax laws, such as insurance companies, financial
institutions or broker-dealers, tax-exempt organizations (except
to the limited extent discussed in Taxation of
Tax-Exempt Stockholders), foreign corporations and persons
who are not citizens or residents of the United States (except
to the limited extent discussed in Taxation of
Non-U.S. Holders),
investors who hold or will hold securities as part of hedging or
conversion transactions, investors subject to federal
alternative minimum tax, investors that have a principal place
of business or tax home outside the United States
and investors whose functional currency is not the United States
dollar.
The statements of law in this discussion and the opinion of
Andrews Kurth LLP are based on current provisions of the
Internal Revenue Code of 1986, as amended, or the
Code, existing temporary and final Treasury
regulations thereunder, and current administrative rulings and
court decisions. No assurance can be given that future
legislative, judicial, or administrative actions or decisions,
which may be retroactive in effect, will not affect the accuracy
of any statements in this prospectus with respect to the
transactions entered into or contemplated prior to the effective
date of such changes.
We urge you to consult your own tax advisor regarding the
specific tax consequences to you of ownership of our securities
and of our election to be taxed as a REIT. Specifically, we urge
you to consult your own tax advisor regarding the federal,
state, local, foreign, and other tax consequences of such
ownership and election and regarding potential changes in
applicable tax laws.
Taxation
of Our Company
We are currently taxed as a REIT under the federal income tax
laws. We believe that we are organized and operate in such a
manner as to qualify for taxation as a REIT under the Code, and
we intend to continue to operate in such a manner, but no
assurance can be given that we will operate in a manner so as to
continue to qualify as a REIT. This section discusses the laws
governing the federal income tax treatment of a REIT and its
investors. These laws are highly technical and complex.
Andrews Kurth LLP has acted as our counsel in connection with
the filing of this registration statement. In the opinion of
Andrews Kurth LLP for the taxable years beginning
September 5, 1985, and ending December 31, 2006, we
qualified to be taxed as a REIT pursuant to sections 856
through 860 of the Code, and our organization and present
and proposed method of operation enables us to meet the
requirements for qualification and taxation as a REIT under the
Code. Investors should be aware that Andrews Kurth LLPs
opinion is based upon customary assumptions, is conditioned upon
the accuracy of certain representations made by us as to factual
matters, including representations regarding the nature of our
assets and the future conduct of our business, and is not
binding upon the Internal Revenue Service (IRS) or
any court. In addition, Andrews Kurth LLPs opinion is
based on existing federal income tax law governing qualification
as a REIT, which is subject to change either prospectively or
retroactively. Moreover, our continued qualification and
taxation as a REIT depend upon our ability to meet on a
continuing basis, through actual annual operating results,
certain qualification tests set forth in the federal tax laws.
Those qualification tests include the percentage of income that
we earn from specified sources, the percentage of our assets
that falls within specified categories, the diversity of our
share ownership, and the percentage of our earnings that we
distribute. While Andrews Kurth LLP has reviewed those matters
in connection with the foregoing opinion, Andrews Kurth LLP will
not review our compliance with those tests on a continuing
basis. Accordingly, no assurance can be given that the actual
results of our operation for any particular taxable year will
satisfy such requirements. For a discussion of the tax
consequences of our failure to qualify as a REIT, see
Failure to Qualify.
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If we qualify as a REIT, we generally will not be subject to
federal income tax on the taxable income that we distribute to
our stockholders. The benefit of that tax treatment is that it
avoids the double taxation, or taxation at both the
corporate and stockholder levels, that generally results from
owning stock in a corporation. However, we will be subject to
federal tax in the following circumstances:
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We will pay federal income tax on taxable income, including net
capital gain, that we do not distribute to our stockholders
during, or within a specified time period after, the calendar
year in which the income is earned.
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Under certain circumstances, we may be subject to the
alternative minimum tax on items of tax preference.
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We will pay income tax at the highest corporate rate on
(1) net income from the sale or other disposition of
property acquired through foreclosure (foreclosure
property) that we hold primarily for sale to customers in
the ordinary course of business and (2) other
non-qualifying income from foreclosure property.
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We will pay a 100% tax on net income from sales or other
dispositions of property, other than foreclosure property, that
we hold primarily for sale to customers in the ordinary course
of business.
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If we fail to satisfy the 75% gross income test or the 95% gross
income test, as described below under Income
Tests, and nonetheless continue to qualify as a REIT
because we meet other requirements, we will pay a 100% tax on
(1) the gross income attributable to the greater of the
amounts by which we fail the 75% and 95% gross income tests,
multiplied by (2) a fraction intended to reflect our
profitability.
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If we fail to distribute during a calendar year at least the sum
of (1) 85% of our REIT ordinary income for such year,
(2) 95% of our REIT capital gain net income for such year,
and (3) any undistributed taxable income from prior
periods, we will pay a 4% excise tax on the excess of this
required distribution over the sum of the amount we actually
distributed, plus any retained amounts on which income tax has
been paid at the corporate level.
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We may elect to retain and pay income tax on our net long-term
capital gain. In that case a U.S. holder, as defined below
under Taxation of U.S. Holders, would be
taxed on its proportionate share of our undistributed long-term
capital gain (to the extent that a timely designation of such
gain is made by us to the stockholder) and would receive a
credit or refund for its proportionate share of the tax we paid.
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If we acquire any asset from a C corporation, or a corporation
that generally is subject to full corporate-level tax, in a
merger or other transaction in which we acquire a basis in the
asset that is determined by reference to the C
corporations basis in the asset, we will pay tax at the
highest regular corporate rate applicable if we recognize gain
on the sale or disposition of such asset during the
10-year
period after we acquire such asset. The amount of gain on which
we will pay tax generally is the lesser of: (1) the amount
of gain that we recognize at the time of the sale or
disposition; or (2) the amount of gain that we would have
recognized if we had sold the asset at the time we acquired the
asset.
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We will incur a 100% excise tax on transactions with a taxable
REIT subsidiary (TRS) that are not conducted on an
arms-length basis.
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If we fail to satisfy certain asset tests, described below under
Asset Tests and nonetheless continue to
qualify as a REIT because we meet certain other requirements, we
will be subject to a tax of the greater of $50,000 or at the
highest corporate rate on the income generated by the
non-qualifying assets.
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We may be subject to a $50,000 tax for each failure if we fail
to satisfy certain REIT qualification requirements, other than
income tests or asset tests, and the failure is due to
reasonable cause and not willful neglect.
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If we recognize excess inclusion income and have stockholders
who are disqualified organizations, we may have to
pay tax at the highest corporate rate on the portion of the
excess inclusion income allocable to the stockholders that are
disqualified organizations. See Taxable Mortgage
Pools below.
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In addition, notwithstanding our qualification as a REIT, we may
also have to pay certain state and local income taxes, because
not all states and localities treat REITs in the same manner
that they are treated for federal income tax purposes. Moreover,
as further described below, any TRS in which we own an interest
will be subject to federal and state corporate income tax on its
taxable income.
Requirements
for Qualification
A REIT is a corporation, trust, or association that meets the
following requirements:
1. it is managed by one or more trustees or directors;
2. its beneficial ownership is evidenced by transferable
shares or by transferable certificates of beneficial interest;
3. it would be taxable as a domestic corporation but for
the REIT provisions of the federal income tax laws;
4. it is neither a financial institution nor an insurance
company subject to special provisions of the federal income tax
laws;
5. at least 100 persons are beneficial owners of its
shares or ownership certificates;
6. no more than 50% in value of its outstanding shares or
ownership certificates is owned, directly or indirectly, by five
or fewer individuals, as defined in the federal income tax laws
to include certain entities, during the last half of each
taxable year;
7. it elects to be a REIT, or has made such election for a
previous taxable year, and satisfies all relevant filing and
other administrative requirements established by the IRS that
must be met to elect and maintain REIT status;
8. it uses a calendar year for federal income tax purposes
and complies with the recordkeeping requirements of the federal
income tax laws; and
9. it meets certain other qualification tests, described
below, regarding the nature of its income and assets and the
amount of its distributions.
We must meet requirements 1 through 4 during our entire taxable
year and must meet requirement 5 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. If we comply
with all the requirements for ascertaining the ownership of our
outstanding shares in a taxable year and have no reason to know
that we violated requirement 6, we will be deemed to have
satisfied requirement 6 for such taxable year. For purposes of
determining share ownership under requirement 6, an
individual generally includes a supplemental
unemployment compensation benefits plan, a private foundation,
or a portion of a trust permanently set aside or used
exclusively for charitable purposes. An individual,
however, generally does not include a trust that is a qualified
employee pension or profit sharing trust under the federal
income tax laws, and beneficiaries of such a trust will be
treated as holding shares of our stock in proportion to their
actuarial interests in the trust for purposes of requirement 6.
We have issued sufficient stock with enough diversity of
ownership to satisfy requirements 5 and 6 set forth above. In
addition, our charter restricts the ownership and transfer of
the stock so that we should continue to satisfy requirements 5
and 6. The provisions of our charter restricting the ownership
and transfer of the stock are described in Description of
Our Capital Stock Restrictions on Ownership and
Transfer.
If we comply with regulatory rules pursuant to which we are
required to send annual letters to holders of our stock
requesting information regarding the actual ownership of our
stock, and we do not know, or
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exercising reasonable diligence would not have known, whether we
failed to meet requirement 6 above, we will be treated as having
met the requirement.
In addition, we must satisfy all relevant filing and other
administrative requirements established by the IRS that must be
met to elect and maintain REIT qualification.
A corporation that is a qualified REIT subsidiary is
not treated as a corporation separate from its parent REIT. All
assets, liabilities, and items of income, deduction, and credit
of a qualified REIT subsidiary are treated as
assets, liabilities, and items of income, deduction, and credit
of the REIT. A qualified REIT subsidiary is a
corporation, other than a TRS, all of the capital stock of which
is owned by the REIT. Thus, in applying the requirements
described in this section, any qualified REIT
subsidiary that we own will be ignored, and all assets,
liabilities, and items of income, deduction, and credit of that
subsidiary will be treated as our assets, liabilities, and items
of income, deduction, and credit. Similarly, any wholly owned
limited liability company or certain wholly owned partnerships
that we own will be disregarded, and all assets, liabilities and
items of income, deduction and credit of such limited liability
company will be treated as ours.
In the case of a REIT that is a partner in a partnership that
has other partners, the REIT is treated as owning its
proportionate share of the assets of the partnership and as
earning its allocable share of the gross income of the
partnership for purposes of the applicable REIT qualification
tests. For purposes of the 10% value test (as described below
under Asset Tests), our proportionate share
is based on our proportionate interest in the equity interests
and certain debt securities issued by the partnership. For all
of the other asset and income tests, our proportionate share is
based on our proportionate interest in the capital interests in
the partnership. Our proportionate share of the assets,
liabilities, and items of income of any partnership, joint
venture, or limited liability company that is treated as a
partnership for federal income tax purposes in which we own or
will acquire an interest, directly or indirectly, are treated as
our assets and gross income for purposes of applying the various
REIT qualification requirements.
Subject to restrictions on the value of TRS securities held by
the REIT, a REIT is permitted to own up to 100% of the stock of
one or more TRSs. A TRS is a fully taxable corporation. The TRS
and the REIT must jointly elect to treat the subsidiary as a
TRS. A corporation of which a TRS directly or indirectly owns
more than 35% of the voting power or value of the stock will be
automatically treated as a TRS. Overall, no more than 20% of the
value of a REITs assets may consist of TRS securities. See
Taxable REIT Subsidiaries.
Income
Tests
We must satisfy two gross income tests annually to maintain our
qualification as a REIT. First, at least 75% of our gross income
for each taxable year must consist of defined types of income
that we derive, directly or indirectly, from investments
relating to real property or mortgages on real property or
qualified temporary investment income. Qualifying income for
purposes of that 75% gross income test generally includes:
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rents from real property;
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interest on debt secured by mortgages on real property or on
interests in real property;
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dividends and gain from the sale of shares in other REITs;
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gain from the sale of real estate assets; and
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income derived from the temporary investment of new capital or
qualified temporary investment income, that is
attributable to the issuance of our stock or a public offering
of our debt with a maturity date of at least five years and that
we receive during the one year period beginning on the date on
which we received such new capital.
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Second, in general, at least 95% of our gross income for each
taxable year must consist of income that is qualifying income
for purposes of the 75% gross income test, other types of
dividends and interest, gain from the sale or disposition of
stock or securities, income from certain hedging transactions,
or any combination of these. Gross income from sale of any
property that we hold primarily for sale to customers in the
ordinary
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course of business is excluded from both income tests. In
addition, income and gain from hedging transactions,
as defined in Hedging Transactions, that we
enter into to hedge indebtedness incurred or to be incurred to
acquire or carry real estate assets and that are clearly and
timely identified as such will be excluded from both the
numerator and the denominator for purposes of the 95% gross
income test (but not the 75% gross income test). The following
paragraphs discuss the specific application of the gross income
tests to us.
Rents from Real Property. Rent that we receive
from any real property that we might own and lease to tenants
will qualify as rents from real property, which is
qualifying income for purposes of the 75% and 95% gross income
tests, only if the following conditions are met:
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First, the rent must not be based, in whole or in part, on the
income or profits of any person but may be based on a fixed
percentage or percentages of gross receipts or gross sales.
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Second, neither we nor a direct or indirect owner of 10% or more
of our shares of stock may own, actually or constructively, 10%
or more of a tenant other than a TRS from whom we receive rent.
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Third, if the rent attributable to personal property leased in
connection with a lease of any real property that we might own
exceeds 15% of the total rent received under the lease, then the
portion of rent attributable to that personal property will not
qualify as rents from real property.
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Fourth, we generally must not operate or manage any real
property or furnish or render services to tenants, other than
through an independent contractor who is adequately
compensated, from whom we do not derive revenue, and who does
not, directly or through its stockholders, own more than 35% of
our shares of stock, taking into consideration the applicable
ownership attribution rules. However, we need not provide
services through an independent contractor, but
instead may provide services directly to any such tenants, if
the services are usually or customarily rendered in
the geographic area in connection with the rental of space for
occupancy only and are not considered to be provided for the
tenants convenience. In addition, we may provide a minimal
amount of non-customary services to the tenants of a
property, other than through an independent contractor, as long
as our income from the services (valued at not less than 150% of
our direct cost of performing such services) does not exceed 1%
of our income from the related property. Furthermore, we may own
up to 100% of the stock of a TRS which may provide customary and
noncustomary services to tenants without tainting our rental
income from the related properties. See Taxable
REIT Subsidiaries.
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Interest. The term interest, as
defined for purposes of both the 75% and 95% gross income tests,
generally does not include any amount received or accrued,
directly or indirectly, if the determination of such amount
depends in whole or in part on the income or profits of any
person. However, an amount received or accrued generally will
not be excluded from the term interest solely by
reason of being based on a fixed percentage or percentages of
receipts or sales. Furthermore, to the extent that interest from
a loan that is based on the residual cash proceeds from the sale
of the property securing the loan constitutes a shared
appreciation provision, income attributable to such
participation feature will be treated as gain from the sale of
the secured property.
In Revenue Procedure
2003-65, the
IRS established a safe harbor under which interest from loans
secured by a first priority security interest in ownership
interests in a partnership or limited liability company owning
real property will be treated as qualifying income for both the
75% and 95% gross income tests, provided several requirements
are satisfied. Although the Revenue Procedure provides a safe
harbor on which taxpayers may rely, it does not prescribe rules
of substantive tax law. Moreover, although we anticipate that
most or all of any mezzanine loans that we make or acquire will
qualify for the safe harbor in Revenue Procedure
2003-65, it
is possible that we may make or acquire some mezzanine loans
that do not qualify for the safe harbor.
Prohibited Transactions. A REIT will incur a
100% tax on the net income derived from any sale or other
disposition of property, other than foreclosure property, that
the REIT holds primarily for sale to customers in the ordinary
course of a trade or business. Whether a REIT holds an asset
primarily for sale to customers in the ordinary course of
a trade or business depends on the facts and circumstances
in effect from
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time to time, including those related to a particular asset. We
do not own assets that are held primarily for sale to customers.
We will attempt to comply with the terms of safe-harbor
provisions in the federal income tax laws prescribing when an
asset sale will not be characterized as a prohibited
transaction. We cannot provide assurance, however, that we can
comply with such safe-harbor provisions or that we or our
subsidiaries will avoid owning property that may be
characterized as property held primarily for sale to
customers in the ordinary course of a trade or business.
Foreclosure Property. We will be subject to
tax at the maximum corporate rate on any income from foreclosure
property, other than income that would be qualifying income for
purposes of the 75% gross income test, less expenses directly
connected with the production of such income. However, gross
income from such foreclosure property will qualify for purposes
of the 75% and 95% gross income tests. Foreclosure
property is any real property, including interests in real
property, and any personal property incident to such real
property:
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that is acquired by a REIT as the result of such REIT having bid
on such property at foreclosure, or having otherwise reduced
such property to ownership or possession by agreement or process
of law, after there was a default or default was imminent on a
lease of such property or on an indebtedness that such property
secured;
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for which the related loan or lease was acquired by the REIT at
a time when the REIT had no intent to evict or foreclose or the
REIT did not know or have reason to know that default would
occur; and
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for which such REIT makes a proper election to treat such
property as foreclosure property.
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However, a REIT will not be considered to have foreclosed on a
property where the REIT takes control of the property as a
mortgagee-in-possession
and cannot receive any profit or sustain any loss except as a
creditor of the mortgagor. Property generally ceases to be
foreclosure property with respect to a REIT at the end of the
third taxable year following the taxable year in which the REIT
acquired such property, or longer if an extension is granted by
the Secretary of the Treasury. The foregoing grace period is
terminated and foreclosure property ceases to be foreclosure
property on the first day:
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on which a lease is entered into with respect to such property
that, by its terms, will give rise to income that does not
qualify for purposes of the 75% gross income test or any amount
is received or accrued, directly or indirectly, pursuant to a
lease entered into on or after such day that will give rise to
income that does not qualify for purposes of the 75% gross
income test;
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on which any construction takes place on such property, other
than completion of a building, or any other improvement, where
more than 10% of the construction of such building or other
improvement was completed before default became imminent; or
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which is more than 90 days after the day on which such
property was acquired by the REIT and the property is used in a
trade or business which is conducted by the REIT, other than
through an independent contractor from whom the REIT itself does
not derive or receive any income.
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As a result of the rules with respect to foreclosure property,
if a lessee defaults on its obligations under a percentage
lease, we terminate the lessees leasehold interest, and we
are unable to find a replacement lessee for the property within
90 days of such foreclosure, gross income from operations
conducted by us from such property could cease to qualify for
the 75% and 95% gross income tests unless we are able to hire an
independent contractor to manage and operate the property. In
such event, we might be unable to satisfy the 75% and 95% gross
income tests and, thus, might fail to qualify as a REIT.
Hedging Transactions. From time to time, we
may enter into hedging transactions with respect to one or more
of our assets or liabilities. Our hedging activities may include
entering into interest rate swaps, caps, and floors, options to
purchase such items, and futures and forward contracts. To the
extent that we entered into interest rate cap contracts to hedge
our indebtedness incurred to acquire or carry real estate
assets prior to January 1, 2005, any periodic income
or gain from the disposition of such contract should be
qualifying income for purposes of the 95% gross income test, but
not the 75% gross income test. To the extent that we enter into
hedging transactions after December 31, 2004, income
arising from clearly identified hedging
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transactions that are entered into by the REIT in the normal
course of business, either directly or through certain
subsidiary entities, to manage the risk of interest rate
movements, price changes, or currency fluctuations with respect
to borrowings or obligations incurred or to be incurred by the
REIT to acquire or carry real estate assets is excluded from the
95% income test, but not the 75% income test. In general, for a
hedging transaction to be clearly identified,
(A) the transaction must be identified as a hedging
transaction before the end of the day on which it is entered
into, and (B) the items or risks being hedged must be
identified substantially contemporaneously with the
hedging transaction, meaning that the identification of the
items or risks being hedged must generally occur within
35 days after the date the transaction is entered into. We
intend to structure any hedging transactions in a manner that
does not jeopardize our status as a REIT. The REIT income and
asset rules may limit our ability to hedge loans or securities
acquired as investments.
Failure to Satisfy Gross Income Tests. If we
fail to satisfy one or both of the gross income tests for any
taxable year, we nevertheless may qualify as a REIT for such
year if we qualify for relief under certain provisions of the
federal income tax laws. Those relief provisions generally will
be available if:
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our failure to meet such tests is due to reasonable cause and
not due to willful neglect; and
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following our identification of the failure to meet one or both
gross income tests for a taxable year, a description of each
item of our gross income included in the 75% or 95% gross income
tests is set forth in a schedule for such taxable year filed as
specified by Treasury regulations.
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We cannot predict, however, whether in all circumstances we
would qualify for the relief provisions. In addition, as
discussed above in Taxation of Our Company,
even if the relief provisions apply, we would incur a 100% tax
on the gross income attributable to the greater of the amounts
by which we fail the 75% and 95% gross income tests, multiplied
by a fraction intended to reflect our profitability.
Asset
Tests
To maintain our qualification as a REIT, we also must satisfy
the following asset tests at the close of each quarter of each
taxable year:
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First, at least 75% of the value of our total assets must
consist of:
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cash or cash items, including certain receivables;
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government securities;
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interests in real property, including leaseholds and options to
acquire real property and leaseholds;
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interests in mortgages on real property;
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stock in other REITs; and
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investments in stock or debt instruments during the one-year
period following our receipt of new capital that we raise
through equity offerings or offerings of debt with at least a
five-year term.
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Second, of our investments not included in the 75% asset class,
the value of our interest in any one issuers securities
may not exceed 5% of the value of our total assets.
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Third, of our investments not included in the 75% asset class,
we may not own more than 10% of the voting power or value of any
one issuers outstanding securities.
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Fourth, no more than 20% of the value of our total assets may
consist of the securities of one or more TRSs.
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For purposes of the second and third asset tests, the term
securities does not include stock in another REIT,
equity or debt securities of a qualified REIT subsidiary or TRS,
or equity interests in a partnership.
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For purposes of the 10% value test, the term
securities does not include:
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Straight debt securities, which is defined as a
written unconditional promise to pay on demand or on a specified
date a sum certain in money if (i) the debt is not
convertible, directly or indirectly, into stock, and
(ii) the interest rate and interest payment dates are not
contingent on profits, the borrowers discretion, or
similar factors. Straight debt securities do not
include any securities issued by a partnership or a corporation
in which we or any controlled TRS (i.e., a TRS in which we own
directly or indirectly more than 50% of the voting power or
value of the stock) hold non straight debt
securities that have an aggregate value of more than 1% of the
issuers outstanding securities. However, straight
debt securities include debt subject to the following
contingencies:
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a contingency relating to the time of payment of interest or
principal, as long as either (i) there is no change to the
effective yield of the debt obligation, other than a change to
the annual yield that does not exceed the greater of 0.25% or 5%
of the annual yield, or (ii) neither the aggregate issue
price nor the aggregate face amount of the issuers debt
obligations held by us exceeds $1 million and no more than
12 months of unaccrued interest on the debt obligations can
be required to be prepaid; and
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a contingency relating to the time or amount of payment upon a
default or prepayment of a debt obligation, as long as the
contingency is consistent with customary commercial practice.
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Any loan to an individual or an estate.
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Any section 467 rental agreement, other
than an agreement with a related party tenant.
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Any obligation to pay rents from real property.
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Certain securities issued by governmental entities.
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Any security issued by a REIT.
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Any debt instrument of an entity treated as a partnership for
federal income tax purposes to the extent of our interest as a
partner in the partnership.
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Any debt instrument of an entity treated as a partnership for
federal income tax purposes not described in the preceding
bullet points if at least 75% of the partnerships gross
income, excluding income from prohibited transactions, is
qualifying income for purposes of the 75% gross income test
described above in Income Tests.
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We believe that our interests in each existing mezzanine loan
that is secured only by ownership interests in an entity owning
real property qualify for the safe harbor in Revenue Procedure
2003-65,
pursuant to which mezzanine loans secured by a first priority
security interest in ownership interests in a partnership or
limited liability company will be treated as qualifying assets
for purposes of the 75% asset test. We may make or acquire some
mezzanine loans that are secured only by a first priority
security interest in ownership interests in a partnership or
limited liability company and that do not qualify for the safe
harbor in Revenue Procedure
2003-65
relating to the 75% asset test and that do not qualify as
straight debt for purposes of the 10% value test. We
will make or acquire mezzanine loans that do not qualify for the
safe harbor in Revenue Procedure
2003-65 or
as straight debt securities but only to the extent
that such loans will not cause us to fail the asset tests
described above.
We will monitor the status of our assets for purposes of the
various asset tests and will seek to manage our assets to comply
at all times with such tests. There can be no assurances,
however, that we will be successful in this effort. In this
regard, to determine our compliance with these requirements, we
will need to estimate the value of the real estate securing our
mortgage loans at various times. In addition, we will have to
value our investment in our other assets to ensure compliance
with the asset tests. Although we will seek to be prudent in
making these estimates, there can be no assurances that the IRS
might not disagree with these determinations and assert that a
different value is applicable, in which case we might not
satisfy the 75% and
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the other asset tests and would fail to qualify as a REIT. If we
fail to satisfy the asset tests at the end of a calendar
quarter, we will not lose our REIT qualification if:
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we satisfied the asset tests at the end of the preceding
calendar quarter; and
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the discrepancy between the value of our assets and the asset
test requirements arose from changes in the market values of our
assets and was not wholly or partly caused by the acquisition of
one or more non qualifying assets.
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If we did not satisfy the condition described in the second
item, above, we still could avoid disqualification by
eliminating any discrepancy within 30 days after the close
of the calendar quarter in which it arose.
In the event that we violate the second or third asset tests
described above at the end of any calendar quarter, we will not
lose our REIT qualification if (i) the failure is de
minimis (up to the lesser of 1% of our assets or
$10 million) and (ii) we dispose of assets or
otherwise comply with the asset tests within six months after
the last day of the quarter in which we identified such failure.
In the event of a more than de minimis failure of any of the
asset tests, as long as the failure was due to reasonable cause
and not to willful neglect, we will not lose our REIT
qualification if we (i) dispose of assets or otherwise
comply with the asset tests within six months after the last day
of the quarter in which we identified such failure,
(ii) file a schedule with the IRS describing the assets
that caused such failure in accordance with regulations
promulgated by the Secretary of Treasury and (iii) pay a
tax equal to the greater of $50,000 or 35% of the net income
from the nonqualifying assets during the period in which we
failed to satisfy the asset tests.
Distribution
Requirements
Each taxable year, we must distribute dividends, other than
capital gain dividends and deemed distributions of retained
capital gain, to our stockholders in an aggregate amount at
least equal to:
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the sum of (1) 90% of our REIT taxable income,
computed without regard to the dividends paid deduction and our
net capital gain, and (2) 90% of our after-tax net income,
if any, from foreclosure property; minus
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the sum of certain items of non-cash income.
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We must pay such distributions in the taxable year to which they
relate, or in the following taxable year if we declare the
distribution before we timely file our federal income tax return
for such year and pay the distribution on or before the first
regular dividend payment date after such declaration. Any
dividends declared in the last three months of the taxable year,
payable to stockholders of record on a specified date during
such period, will be treated as paid on December 31 of such year
if such dividends are distributed during January of the
following year.
We will pay federal income tax on taxable income, including net
capital gain, that we do not distribute to our stockholders.
Furthermore, if we fail to distribute during a calendar year, or
by the end of January following such calendar year in the case
of distributions with declaration and record dates falling in
the last three months of the calendar year, at least the sum of:
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85% of our REIT ordinary income for such year;
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95% of our REIT capital gain income for such year; and
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any undistributed taxable income from prior periods,
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we will incur a 4% nondeductible excise tax on the excess of
such required distribution over the amounts we actually
distributed. We may elect to retain and pay income tax on the
net long-term capital gain we receive in a taxable year. See
Taxation of Taxable U.S. Holders of
Stock. If we so elect, we will be treated as having
distributed any such retained amount for purposes of the 4%
excise tax described above. We intend to make timely
distributions sufficient to satisfy the annual distribution
requirements.
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It is possible that, from time to time, we may experience timing
differences between (1) the actual receipt of income and
actual payment of deductible expenses, and (2) the
inclusion of that income and deduction of such expenses in
arriving at our REIT taxable income. In addition, we may not
deduct recognized net capital losses from our REIT taxable
income. As a result of the foregoing, we may have less
cash than is necessary to distribute all of our taxable income
and thereby avoid corporate income tax and the excise tax
imposed on certain undistributed income. In such a situation, we
may need to borrow funds or issue additional common or preferred
shares.
Under certain circumstances, we may be able to correct a failure
to meet the distribution requirement for a year by paying
deficiency dividends to our stockholders in a later
year. We may include such deficiency dividends in our deduction
for dividends paid for the earlier year. Although we may be able
to avoid income tax on amounts distributed as deficiency
dividends, we will be required to pay interest to the IRS based
upon the amount of any deduction we take for deficiency
dividends.
Recordkeeping
Requirements
To avoid a monetary penalty, we must request on an annual basis
information from our stockholders designed to disclose the
actual ownership of our outstanding shares of stock. We intend
to comply with such requirements.
Failure
to Qualify
If we fail to satisfy one or more requirements for REIT
qualification, other than the gross income tests and the asset
tests, we could avoid disqualification if our failure is due to
reasonable cause and not to willful neglect and we pay a penalty
of $50,000 for each such failure. In addition, there are relief
provisions for a failure of the gross income tests and asset
tests, as described in Income Tests and
Asset Tests.
If we were to fail to qualify as a REIT in any taxable year, and
no relief provision applied, we would be subject to federal
income tax on our taxable income at regular corporate rates and
any applicable alternative minimum tax. In calculating our
taxable income in a year in which we failed to qualify as a
REIT, we would not be able to deduct amounts paid out to
stockholders. In fact, we would not be required to distribute
any amounts to stockholders in such year. In such event, to the
extent of our current and accumulated earnings and profits, all
distributions to stockholders would be taxable as regular
corporate dividends. The excess inclusion income rules (which
are described under Taxable Mortgage Pools below)
will not apply to the distributions we make. Subject to certain
limitations of the federal income tax laws, corporate
stockholders might be eligible for the dividends received
deduction and individual and certain non corporate trust and
estate stockholders may be eligible for the reduced
U.S. federal income tax rate of 15% on such dividends.
Unless we qualified for relief under specific statutory
provisions, we also would be disqualified from taxation as a
REIT for the four taxable years following the year during which
we ceased to qualify as a REIT. We cannot predict whether in all
circumstances we would qualify for such statutory relief.
Taxation
of Tax-Exempt Entities or Accounts
Tax-exempt entities or accounts, including qualified employee
pension and profit sharing trusts and individual retirement
accounts, generally are exempt from federal income taxation,
thus typically dividends received by such entities are not
subject to taxation when received. However, these entities or
accounts are subject to taxation on any unrelated business
taxable income generated. While many investments in real estate
generate unrelated business taxable income, the IRS has issued a
published ruling that dividend distributions from a REIT to an
exempt employee pension trust do not constitute unrelated
business taxable income, provided that the exempt employee
pension trust does not otherwise use the shares of the REIT in
an unrelated trade or business of the pension trust. Based on
that ruling, amounts that we distribute to tax-exempt
stockholders generally should not constitute unrelated business
taxable income.
However, if a tax-exempt stockholder were to finance its
acquisition of our stock with debt, a portion of the income that
it receives from us would constitute unrelated business taxable
income pursuant to the debt-
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financed property rules. Furthermore, social clubs,
voluntary employee benefit associations, supplemental
unemployment benefit trusts, and qualified group legal services
plans that are exempt from taxation under special provisions of
the federal income tax laws are subject to different unrelated
business taxable income rules, which generally will require them
to characterize distributions that they receive from us as
unrelated business taxable income. Finally, if we are a
pension-held REIT, a qualified employee pension or
profit sharing trust that owns more than 10% of our shares of
stock is required to treat a percentage of the dividends that it
receives from us as unrelated business taxable income. That
percentage is equal to the gross income that we derive from an
unrelated trade or business, if any, determined as if we were a
pension trust, divided by our total gross income for the year in
which we pay the dividends. That rule applies to a pension trust
holding more than 10% of our shares of stock only if:
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the percentage of our dividends that the tax-exempt trust would
be required to treat as unrelated business taxable income is at
least 5%;
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we qualify as a REIT by reason of the modification of the rule
requiring that no more than 50% of our stock be owned by five or
fewer individuals that allows the beneficiaries of the pension
trust to be treated as holding our stock in proportion to their
actuarial interests in the pension trust (see
Requirements for Qualification above); and
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either (1) one pension trust owns more than 25% of the
value of our stock or (2) a group of pension trusts
individually holding more than 10% of the value of our stock
collectively owns more than 50% of the value of our stock.
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The ownership and transfer restrictions in our charter reduce
the risk that we may become a pension-held REIT.
A tax-exempt entity may also be required to treat any excess
inclusion income as unrelated business taxable income as
described in Taxable Mortgage Pools.
Taxation
of U.S. Holders
The term U.S. holder means a holder of our
securities that for U.S. federal income tax purposes is a
U.S. person. A U.S. person
means:
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a citizen or resident of the United States;
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a corporation (including an entity treated as a corporation for
U.S. federal income tax purposes) created or organized in
or under the laws of the United States, any of its states, or
the District of Columbia;
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an estate whose income is subject to U.S. federal income
taxation regardless of its source; or
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any trust if (1) a U.S. court is able to exercise
primary supervision over the administration of such trust and
one or more U.S. persons have the authority to control all
substantial decisions of the trust or (2) it has a valid
election in place to be treated as a U.S. person.
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If a partnership, entity or arrangement treated as a partnership
for U.S. federal income tax purposes holds our securities,
the federal income tax treatment of a partner in the partnership
will generally depend on the status of the partner and the
activities of the partnership. If you are a partner in a
partnership holding our securities, you should consult your tax
advisor regarding the consequences of the purchase, ownership
and disposition of our securities by the partnership. The
following section addresses the treatment of a U.S. holder
that holds our stock; the treatment of a U.S. holder that
holds our debt securities is discussed below under
Holders of Debt Securities.
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Taxation
of Taxable U.S. Holders of Stock
As long as we qualify as a REIT, (1) a taxable
U.S. holder of our stock must report as ordinary income,
distributions or retained long-term capital gain that are made
out of our current or accumulated earnings and profits and that
we do not designate as capital gain dividends, and (2) a
corporate U.S. holder of our stock will not qualify for the
dividends received deduction generally available to
corporations. In addition, dividends paid to a U.S. holder
generally will not qualify for the 15% tax rate (through
2010) for qualified dividend income. Without
future congressional action, the maximum tax rate on qualified
dividend income will move to 39.6% in 2011. Qualified dividend
income generally includes dividends from most
U.S. corporations but does not generally include REIT
dividends. As a result, our ordinary REIT dividends generally
will continue to be taxed at the higher tax rate applicable to
ordinary income. Currently, the highest marginal individual
income tax rate on ordinary income is 35%. However, the 15% tax
rate for qualified dividend income will apply to our ordinary
REIT dividends, if any, that are (1) attributable to
dividends received by us from non-REIT corporations, such as our
TRSs, and (2) attributable to income upon which we have
paid corporate income tax (e.g., to the extent that we
distribute less than 100% of our taxable income). In general, to
qualify for the reduced tax rate on qualified dividend income, a
stockholder must hold our stock for more than 60 days
during the
121-day
period beginning on the date that is 60 days before the
date on which our stock becomes ex-dividend.
A U.S. holder generally will report distributions that we
designate as capital gain dividends as long-term capital gain
without regard to the period for which the U.S. holder has
held our stock. A corporate U.S. holder, however, may be
required to treat up to 20% of certain capital gain dividends as
ordinary income.
We may elect to retain and pay income tax on the net long-term
capital gain that we receive in a taxable year. In that case, a
U.S. holder would be taxed on its proportionate share of
our undistributed long-term capital gain, to the extent that we
designate such amount in a timely notice to such stockholder.
The U.S. holder would receive a credit or refund for its
proportionate share of the tax we paid. The U.S. holder
would increase the basis in its stock by the amount of its
proportionate share of our undistributed long-term capital gain,
minus its share of the tax we paid.
To the extent that we make a distribution in excess of our
current and accumulated earnings and profits, such distribution
will not be taxable to a U.S. holder to the extent that it
does not exceed the adjusted tax basis of the
U.S. holders stock. Instead, such distribution will
reduce the adjusted tax basis of such stock. To the extent that
we make a distribution in excess of both our current and
accumulated earnings and profits and the U.S. holders
adjusted tax basis in its stock, such stockholder will recognize
long-term capital gain, or short-term capital gain if the stock
has been held for one year or less, assuming the stock is a
capital asset in the hands of the U.S. holder. The IRS has
ruled that if total distributions for two or more classes of
stock are in excess of current and accumulated earnings and
profits, dividends must be treated as having been distributed to
those stockholders having a priority under the corporate charter
before any distribution to stockholders with lesser priority. If
we declare a dividend in October, November, or December of any
year that is payable to a U.S. holder of record on a
specified date in any such month, such dividend shall be treated
as both paid by us and received by the U.S. holder on
December 31 of such year, provided that we actually pay the
dividend during January of the following calendar year.
Stockholders may not include in their individual income tax
returns any of our net operating losses or capital losses.
Instead, we would carry over such losses for potential offset
against our future income generally. Taxable distributions from
us and gain from the disposition of our stock will not be
treated as passive activity income, and, therefore, stockholders
generally will not be able to apply any passive activity
losses, such as losses from certain types of limited
partnerships in which the stockholder is a limited partner,
against such income. In addition, taxable distributions from us
and gain from the disposition of the stock generally will be
treated as investment income for purposes of the investment
interest limitations.
We will notify stockholders after the close of our taxable year
as to the portions of the distributions attributable to that
year that constitute ordinary income, return of capital, and
capital gain.
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Taxation of U.S. Holders on the Disposition of
Stock. In general, a U.S. holder who is not
a dealer in securities must treat any gain or loss realized upon
a taxable disposition of our stock as long-term capital gain or
loss if the U.S. holder has held the stock for more than
one year and otherwise as short-term capital gain or loss.
However, a U.S. holder must treat any loss upon a sale or
exchange of stock held by such stockholder for six months or
less as a long-term capital loss to the extent of any actual or
deemed distributions from us that such U.S. holder
previously has characterized as long-term capital gain. All or a
portion of any loss that a U.S. holder realizes upon a
taxable disposition of the stock may be disallowed if the
U.S. holder purchases the same type of stock within
30 days before or after the disposition.
Capital Gains and Losses. A taxpayer generally
must hold a capital asset for more than one year for gain or
loss derived from its sale or exchange to be treated as
long-term capital gain or loss. The highest marginal individual
income tax rate is currently 35%. The maximum tax rate on
long-term capital gain applicable to non-corporate taxpayers is
15% for sales and exchanges of assets held for more than one
year. The maximum tax rate on long-term capital gain from the
sale or exchange of section 1250 property, or
depreciable real property, is 25% to the extent that such gain
would have been treated as ordinary income if the property were
section 1245 property. With respect to
distributions that we designate as capital gain dividends and
any retained capital gain that we are deemed to distribute, we
generally may designate whether such a distribution is taxable
to our non-corporate stockholders at a 15% or 25% rate. Thus,
the tax rate differential between capital gain and ordinary
income for non-corporate taxpayers may be significant. In
addition, the characterization of income as capital gain or
ordinary income may affect the deductibility of capital losses.
A non-corporate taxpayer may deduct capital losses not offset by
capital gains against its ordinary income only up to a maximum
annual amount of $3,000. A non-corporate taxpayer may carry
forward unused capital losses indefinitely. A corporate taxpayer
must pay tax on its net capital gain at ordinary corporate
rates. A corporate taxpayer may deduct capital losses only to
the extent of capital gains, with unused losses being carried
back three years and forward five years.
Information Reporting Requirements and Backup
Withholding. We will report to our stockholders
and to the IRS the amount of distributions we pay during each
calendar year and the amount of tax we withhold, if any. Under
the backup withholding rules, a stockholder may be subject to
backup withholding at the rate of 28% with respect to
distributions unless such holder:
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is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact; or
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provides a 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.
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A stockholder who does not provide us with its correct taxpayer
identification number also may be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be
creditable against the stockholders income tax liability.
In addition, any stockholders who fail to certify their
non-foreign status to us may be subject to withholding on a
portion of capital gain distributions. See Taxation
of
Non-U.S. Holders.
Taxation
of Non-U.S.
Holders
The rules governing U.S. federal income taxation of
nonresident alien individuals, foreign corporations, foreign
partnerships, and other holders of our securities that are not
U.S. persons (collectively,
non-U.S. holders)
are complex. This section is only a summary of such rules as
they apply to
non-U.S. holders
of our stock; a summary of such rules as they apply to
non-U.S. holders
of our debt securities is discussed below under
Holders of Debt Securities. We urge
non-U.S. holders
to consult their own tax advisors to determine the impact of
federal, state, and local income tax laws on ownership of our
stock, including any reporting requirements.
A
non-U.S. holder
that receives a distribution that is not attributable to gain
from our sale or exchange of U.S. real property interests,
as defined below, and that we do not designate as a capital gain
dividend will recognize ordinary income to the extent that we
pay such distribution out of our current or accumulated
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earnings and profits. A withholding tax equal to 30% of the
gross amount of the distribution ordinarily will apply to such
distribution unless an applicable tax treaty reduces or
eliminates the tax. However, if a distribution is treated as
effectively connected with the
non-U.S. holders
conduct of a U.S. trade or business, the
non-U.S. holder
generally will be subject to federal income tax on the
distribution at graduated rates, in the same manner as
U.S. holders are taxed with respect to such distributions.
A
non-U.S. holder
that is a corporation also may be subject to the 30% branch
profits tax with respect to the distribution. Generally, a
non-U.S. holder
will be subject to U.S. income tax withholding at the rate
of 30% on the gross amount of any such distribution paid to a
non-U.S. holder
unless either:
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a lower treaty rate applies and the
non-U.S. holder
files an IRS Form
W-8BEN
evidencing eligibility for that reduced rate with the
payor; or
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the
non-U.S. holder
files an IRS
Form W-8ECI
with the payor claiming that the distribution is effectively
connected income.
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A
non-U.S. holder
will not incur tax on a distribution in excess of our current
and accumulated earnings and profits if the excess portion of
such distribution does not exceed the adjusted basis of its
stock. Instead, the excess portion of such distribution will
reduce the adjusted basis of such stock. A
non-U.S. holder
will be subject to tax on a distribution that exceeds both our
current and accumulated earnings and profits and the adjusted
basis of its stock, if the
non-U.S. holder
otherwise would be subject to tax on gain from the sale or
disposition of its stock, as described below. Because we
generally cannot determine at the time we make a distribution
whether or not the distribution will exceed our current and
accumulated earnings and profits, the entire amount of any
distribution will be subject to withholding as a taxable
dividend. However, a
non-U.S. holder
may obtain a full or partial refund, as appropriate, of amounts
that are withheld if we later determine that a distribution in
fact exceeded our current and accumulated earnings and profits.
Unless we are a domestically-controlled REIT, as
defined below, withholding at a rate of 10% is required on any
distribution that exceeds our current and accumulated earnings
and profits. Consequently, although withholding at a rate of 30%
on the entire amount of any distribution is generally required,
withholding at a rate of 10% may be required on any portion of a
distribution not subject to withholding at a rate of 30%.
For any year in which we qualify as a REIT, a
non-U.S. holder
may incur tax on distributions that are attributable to gain
from any sale or exchange of United States real property
interests under special provisions of the federal income
tax laws referred to as FIRPTA. The term
United States real property interests includes
certain interests in real property and stock in corporations at
least 50% of whose assets consists of interests in real
property. Under those rules, a
non-U.S. holder
is taxed on distributions attributable to gain from sales of
United States real property interests as if such gain were
effectively connected with a United States business of the
non-U.S. holder.
A
non-U.S. holder
thus would be taxed on such a distribution at the normal capital
gains rates applicable to U.S. holders, subject to
applicable alternative minimum tax and a special alternative
minimum tax in the case of a nonresident alien individual. A
non-U.S. corporate
holder not entitled to treaty relief or exemption also may be
subject to the 30% branch profits tax on such a distribution.
Except as described below with respect to regularly traded
stock, withholding is required at a rate of 35% of any
distribution that we could designate as a capital gain dividend.
A
non-U.S. holder
may receive a credit against its tax liability for the amount we
withhold. Any distribution with respect to any class of stock
which is regularly traded on an established securities market
located in the United States, such as our stock, shall not be
treated as gain recognized from the sale or exchange of a United
States real property interest if the
non-U.S. holder
did not own more than 5% of such class of stock at any time
during the taxable year within which the distribution is
received. The distribution will be treated as an ordinary
dividend to the
non-U.S. holder
and taxed as an ordinary dividend that is not a capital gain. A
non-U.S. holder
is not required to file a U.S. federal income tax return by
reason of receiving such a distribution, and the branch profits
tax no longer applies to such a distribution. However, the
distribution will be subject to U.S. federal income tax
withholding as an ordinary dividend as described above.
On May 17, 2006, President Bush signed into law the Tax
Increase Prevention and Reconciliation Act of 2005
(TIPRA). TIPRA requires any distribution that is
made by a REIT that would otherwise be subject to
35
FIRPTA because the distribution is attributable to the
disposition of a United States real property interest to retain
its character as FIRPTA income when distributed to any regulated
investment company or other REIT, and to be treated as if it
were from the disposition of a United States real property
interest by that regulated investment company or other REIT.
This provision of TIPRA applies to distributions with respect to
taxable years beginning after December 31, 2005. A
wash sale rule is also included in TIPRA for
transactions involving certain dispositions of REIT stock to
avoid FIRPTA tax on dispositions of United States real property
interests. These wash sale rules are applicable to transactions
occurring on or after the thirtieth day following the date of
enactment of TIPRA.
A
non-U.S. holder
generally will not incur tax under FIRPTA with respect to gain
realized upon a disposition of our stock as long as we are a
domestically-controlled REIT. A domestically
controlled REIT is a REIT in which, at all times during a
specified testing period, less than 50% in value of its shares
are held directly or indirectly by non U.S. holders. We
cannot assure you that that test will be met. However, a
non-U.S. holder
that owned, actually or constructively, 5% or less of our stock
at all times during a specified testing period will not incur
tax under FIRPTA with respect to any such gain if the stock is
regularly traded on an established securities
market. To the extent that our stock is regularly traded on an
established securities market, a
non-U.S. holder
will not incur tax under FIRPTA unless it owns more than 5% of
our stock. If the gain on the sale of the stock were taxed under
FIRPTA, a
non-U.S. holder
would be taxed in the same manner as U.S. holders with
respect to such gain, subject to applicable alternative minimum
tax and a special alternative minimum tax in the case of
nonresident alien individuals. Furthermore, a
non-U.S. holder
generally will incur tax on gain not subject to FIRPTA if
(1) the gain is effectively connected with the
non-U.S. holders
U.S. trade or business, in which case the
non-U.S. holder
will be subject to the same treatment as U.S. holders with
respect to such gain, or (2) the
non-U.S. holder
is a nonresident alien individual who was present in the
U.S. for 183 days or more during the taxable year and
has a tax home in the United States, in which case
the
non-U.S. holder
will incur a 30% tax on his capital gains.
Taxable
REIT Subsidiaries
We may own stock of a TRS. A TRS is a fully taxable corporation
for which a TRS election is properly made. A corporation of
which a TRS directly or indirectly owns more than 35% of the
voting power or value of the stock will automatically be treated
as a TRS. Overall, no more than 20% of the value of our assets
may consist of securities of one or more TRSs, and no more than
25% of the value of our assets may consist of the securities of
TRSs and other assets that are not qualifying assets for
purposes of the 75% asset test.
The TRS rules limit the deductibility of interest paid or
accrued by a TRS to us to assure that the TRS is subject to an
appropriate level of corporate taxation. Further, the rules
impose a 100% excise tax on transactions between a TRS and us or
our tenants, if any, that are not conducted on an
arms-length basis.
We have formed and made a timely election with respect to one
TRS presently owned. Additionally, we may form or acquire
additional TRSs in the future.
Taxable
Mortgage Pools
A taxable mortgage pool is any entity (or in certain cases, a
portion of an entity) other than a REMIC or a financial asset
securitization investment trust that has the following
characteristics:
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Substantially all (generally, more than 80%) of the assets of
such entity consist of debt obligations and more than 50% of
such debt obligations are real estate mortgages;
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Such entity issues two or more classes of debt obligations
having different maturities; and
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The timing and amount of payments or projected payments on the
debt obligations issued by the entity are determined in large
part by the timing and amount of payments the entity receives on
the debt obligations it holds as assets.
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If a REIT is a taxable mortgage pool, or if a REIT owns a
qualified REIT subsidiary that is a taxable mortgage pool, then
a portion of the REITs income will be treated as excess
inclusion income and a portion
36
of the dividends the REIT pays to its stockholders will be
considered to be excess inclusion income. You cannot offset
excess inclusion income with net operating losses or otherwise
allowable deductions. Moreover, if you are a tax-exempt
stockholder, such as a domestic pension fund, you must treat
excess inclusion income as unrelated business taxable income. If
you are not a U.S. holder, your dividend distributions may
be subject to withholding tax, without regard to any exemption
or reduction in rate that might otherwise apply, with respect to
your share of excess inclusion income. The manner in which
excess inclusion income would be allocated among shares of
different classes of our stock or how such income is to be
reported to stockholders is not clear under current law.
Although we generally leverage our investments in mortgage
securities and commercial loans, we believe that our financing
transactions do not presently cause any portion of our assets to
be treated as a taxable mortgage pool.
Redemption
and Conversion of Preferred Stock
Cash
Redemption of Preferred Stock
A redemption of preferred stock will be treated for federal
income tax purposes as a distribution taxable as a dividend (to
the extent of our current and accumulated earnings and profits)
at ordinary income rates, unless the redemption satisfies one of
the tests set forth in Section 302(b) of the Code and is
therefore treated as a sale or exchange of the redeemed shares.
Such a redemption will be treated as a sale or exchange if it
(i) is substantially disproportionate with
respect to the holder (which will not be the case if only
non-voting preferred stock is redeemed), (ii) results in a
complete termination of the holders equity
interest in our Company, or (iii) is not essentially
equivalent to a dividend with respect to the holder, all
within the meaning of Section 302(b) of the Code.
In determining whether any of these tests has been met, shares
of our common stock and preferred stock considered to be owned
by the holder by reason of certain constructive ownership rules
set forth in the Code, as well as shares of our common stock and
preferred stock actually owned by the holder, must generally be
taken into account. If a holder of preferred stock owns
(actually and constructively) no shares of our outstanding
common stock or an insubstantial percentage thereof, a
redemption of shares of preferred stock of that holder is likely
to qualify for sale or exchange treatment because the redemption
would be not essentially equivalent to a dividend.
However, because the determination as to whether any of the
alternative tests of Section 302(b) of the Code will be
satisfied with respect to any particular holder of preferred
stock depends upon the facts and circumstances at the time the
determination must be made. We urge prospective holders of
preferred stock to consult their own tax advisors to determine
such tax treatment.
If a redemption of preferred stock is not treated as a
distribution taxable as a dividend to a particular holder, it
will be treated as a taxable sale or exchange by that holder. As
a result, the holder will recognize gain or loss for federal
income tax purposes in an amount equal to the difference between
(i) the amount of cash and the fair market value of any
property received (less any portion thereof attributable to
accumulated and declared but unpaid dividends, which will be
taxable as a dividend to the extent of our current and
accumulated earnings and profits) and (ii) the
holders adjusted tax basis in the shares of the preferred
stock. Such gain or loss will be capital gain or loss if the
shares of preferred stock were held as a capital asset, and will
be long-term gain or loss if such shares were held for more than
one year. If a redemption of preferred stock is treated as a
distribution taxable as a dividend, the amount of the
distribution will be measured by the amount of cash and the fair
market value of any property received by the holder. The
holders adjusted tax basis in the redeemed shares of the
preferred stock will be transferred to the holders
remaining shares of our stock. If the holder owns no other
shares of our stock, such basis may, under certain
circumstances, be transferred to a related person or it may be
lost entirely. Proposed Treasury Regulations would, if adopted,
alter the method for recovering your adjusted tax basis in any
shares redeemed in a dividend-equivalent redemption. Under the
proposed Treasury Regulations, you would be treated as realizing
a capital loss on the date of the dividend-equivalent redemption
equal to the adjusted tax basis of the preferred stock redeemed,
subject to adjustments.
37
The recognition of such loss would generally be deferred until
the occurrence of specified events, such as, for example, when
you cease to own, actually or constructively, any shares of our
stock. There can be no assurance that the proposed Treasury
Regulations will be adopted, or that they will be adopted in
their current form.
Conversion
of Preferred Stock into Common Stock
In general, no gain or loss will be recognized for federal
income tax purposes upon conversion of the preferred stock
solely into shares of common stock. The basis that a stockholder
will have for tax purposes in the shares of common stock
received upon conversion will be equal to the adjusted basis for
the stockholder in the shares of preferred stock so converted,
and provided that the shares of preferred stock were held as a
capital asset, the holding period for the shares of common stock
received would include the holding period for the shares of
preferred stock converted. A stockholder will, however,
generally recognize gain or loss on the receipt of cash in lieu
of fractional shares of common stock in an amount equal to the
difference between the amount of cash received and the
stockholders adjusted basis for tax purposes in the
preferred stock for which cash was received. Furthermore, under
certain circumstances, a stockholder of shares of preferred
stock may recognize gain or dividend income to the extent that
there are dividends in arrears on the shares at the time of
conversion into common stock.
Adjustments
to Conversion Price
Adjustments in the conversion price, or the failure to make such
adjustments, pursuant to the anti-dilution provisions of the
preferred stock or otherwise, may result in constructive
distributions to the stockholders of preferred stock that could,
under certain circumstances, be taxable to them as dividends
pursuant to Section 305 of the Code. If such a constructive
distribution were to occur, a stockholder of preferred stock
could be required to recognize ordinary income for tax purposes
without receiving a corresponding distribution of cash.
Warrants
Upon the exercise of a warrant for common stock, a holder will
not recognize gain or loss and will have a tax basis in the
common stock received equal to the tax basis in such
stockholders warrant plus the exercise price of the
warrant. The holding period for the common stock purchased
pursuant to the exercise of a warrant will begin on the day
following the date of exercise and will not include the period
that the stockholder held the warrant.
Upon a sale or other disposition of a warrant, a holder will
recognize capital gain or loss in an amount equal to the
difference between the amount realized and the holders tax
basis in the warrant. Such a gain or loss will be long term if
the holding period is more than one year. In the event that a
warrant lapses unexercised, a holder will recognize a capital
loss in an amount equal to his tax basis in the warrant. Such
loss will be long term if the warrant has been held for more
than one year.
Holders
of Debt Securities
U.S.
Holders
Payments of Interest. In general, except as
described below under Original Issue
Discount, interest on debt securities will be taxable to a
U.S. holder as ordinary income at the time it accrues or is
received, in accordance with the U.S. holders regular
method of accounting for United States federal income tax
purposes. In general, if the terms of a debt instrument entitle
a holder to receive payments other than qualified stated
interest (generally, stated interest that is
unconditionally payable in cash or in property (other than debt
instruments of the issuer) at least annually at a single fixed
or qualifying floating rate), such holder might be required to
recognize additional interest as original issue
discount over the term of the instrument.
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Original Issue Discount. If you own debt
securities issued with original issue discount
(OID), you will be subject to special tax accounting
rules, as described in greater detail below. In that case, you
should be aware that you generally must include OID in gross
income in advance of the receipt of cash attributable to that
income. However, you generally will not be required to include
separately in income cash payments received on the debt
securities, even if denominated as interest, to the extent those
payments do not constitute qualified stated
interest, as defined below. If we determine that a
particular debt security will be an OID debt security, we will
disclose that determination in the prospectus supplement or
supplements relating to those debt securities.
A debt security with an issue price that is less
than the stated redemption price at maturity (the
sum of all payments to be made on the debt security other than
qualified stated interest) generally will be issued
with OID if that difference is at least 0.25% of the stated
redemption price at maturity multiplied by the number of
complete years to maturity. The issue price of each
debt security in a particular offering will be the first price
at which a substantial amount of that particular offering is
sold to the public. The term qualified stated
interest means stated interest that is unconditionally
payable in cash or in property, other than debt instruments of
the issuer, and the interest to be paid meets all of the
following conditions:
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it is payable at least once per year;
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it is payable over the entire term of the debt security; and
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it is payable at a single fixed rate or, subject to certain
conditions, based on one or more interest indices.
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If we determine that particular debt securities of a series will
bear interest that is not qualified stated interest, we will
disclose that determination in the prospectus supplement or
supplements relating to those debt securities.
If you own a debt security issued with de minimis
OID, which is discount that is not OID because it is less than
0.25% of the stated redemption price at maturity multiplied by
the number of complete years to maturity, you generally must
include the de minimis OID in income at the time principal
payments on the debt securities are made in proportion to the
amount paid. Any amount of de minimis OID that you have included
in income will be treated as capital gain.
Certain of the debt securities may contain provisions permitting
them to be redeemed prior to their stated maturity at our option
and/or at
your option. OID debt securities containing those features may
be subject to rules that differ from the general rules discussed
herein. If you are considering the purchase of OID debt
securities with those features, you should carefully examine the
applicable prospectus supplement or supplements and should
consult your own tax advisors with respect to those features
since the tax consequences to you with respect to OID will
depend, in part, on the particular terms and features of the
debt securities.
If you own OID debt securities with a maturity upon issuance of
more than one year you generally must include OID in income in
advance of the receipt of some or all of the related cash
payments using the constant yield method described
in the following paragraphs. This method takes into account the
compounding of interest.
The amount of OID that you must include in income if you are the
initial U.S. holder of an OID debt security is the sum of
the daily portions of OID with respect to the debt
security for each day during the taxable year or portion of the
taxable year in which you held that debt security (accrued
OID). The daily portion is determined by allocating to
each day in any accrual period a pro rata portion of
the OID allocable to that accrual period. The accrual
period for an OID debt security may be of any length and
may vary in length over the term of the debt security, provided
that each accrual period is no longer than one year and
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each scheduled payment of principal or interest occurs on the
first day or the final day of an accrual period. The amount of
OID allocable to any accrual period is an amount equal to the
excess, if any, of:
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the debt securitys adjusted issue price at the
beginning of the accrual period multiplied by its yield to
maturity, determined on the basis of compounding at the close of
each accrual period and properly adjusted for the length of the
accrual period, over
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the aggregate of all qualified stated interest allocable to the
accrual period.
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OID allocable to a final accrual period is the difference
between the amount payable at maturity, other than a payment of
qualified stated interest, and the adjusted issue price at the
beginning of the final accrual period. Special rules will apply
for calculating OID for an initial short accrual period. The
adjusted issue price of a debt security at the
beginning of any accrual period is equal to its issue price
increased by the accrued OID for each prior accrual period,
determined without regard to the amortization of any acquisition
or bond premium, as described below, and reduced by any payments
made on the debt security (other than qualified stated interest)
on or before the first day of the accrual period. Under these
rules, you will generally have to include in income increasingly
greater amounts of OID in successive accrual periods. We are
required to provide information returns stating the amount of
OID accrued on debt securities held of record by persons other
than corporations and other exempt holders.
Floating rate debt securities are subject to special OID rules.
In the case of an OID debt security that is a floating rate debt
security, both the yield to maturity and
qualified stated interest will be determined solely
for purposes of calculating the accrual of OID as though the
debt security will bear interest in all periods at a fixed rate
generally equal to the rate that would be applicable to interest
payments on the debt security on its date of issue or, in the
case of certain floating rate debt securities, the rate that
reflects the yield to maturity that is reasonably expected for
the debt security. Additional rules may apply if either:
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the interest on a floating rate debt security is based on more
than one interest index; or
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the principal amount of the debt security is indexed in any
manner.
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This discussion does not address the tax rules applicable to
debt securities with an indexed principal amount. If you are
considering the purchase of floating rate OID debt securities or
securities with indexed principal amounts, you should carefully
examine the prospectus supplement or supplements relating to
those debt securities, and should consult your own tax advisors
regarding the United States federal income tax consequences to
you of holding and disposing of those debt securities.
You may elect to treat all interest on any debt securities as
OID and calculate the amount includible in gross income under
the constant yield method described above. For purposes of this
election, interest includes 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. You must make
this election for the taxable year in which you acquired the
debt security, and you may not revoke the election without the
consent of the IRS. You should consult with your own tax
advisors about this election.
Market Discount. If you purchase a debt
security for less than the stated redemption price of the debt
security at maturity, if the debt security was issued without
OID, or the adjusted issue price, if the debt security was
issued with OID, the difference is considered market discount to
the extent it exceeds a specified de minimis exception. Under
the de minimis exception, market discount is treated as zero if
the market discount is less than
1/4
of one percent of the stated redemption price of the debt
security multiplied by the number of complete years to maturity
from the date acquired. If you acquire a debt security at a
market discount, you will be required to treat as ordinary
income any partial principal payment or gain recognized on the
disposition of that debt security to the extent of the market
discount which has not previously been included in your income
and is treated as having accrued at the time of the payment or
disposition. In addition, you may be required to defer the
deduction of a portion of the interest on any indebtedness
incurred or maintained to purchase or carry the debt security
until the debt security is disposed of in a taxable transaction,
unless you elect to include market discount in income as it
accrues.
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Any market discount will be considered to accrue ratably during
the period from the date of acquisition to the maturity date of
the debt security, unless you elect to accrue on a constant
interest method. You may elect to include market discount in
income currently as it accrues on either a ratable or constant
interest method, in which case the rule described above
regarding deferral of interest deductions will not apply. This
election to include market discount in income currently, once
made, applies to all market discount obligations acquired on or
after the first taxable year to which the election applies and
may not be revoked without the consent of the IRS.
Amortizable Premium. If you purchase a debt
security for an amount in excess of the sum of all amounts
payable on the debt security after the purchase date other than
qualified stated interest, you will be considered to have
purchased the debt security with amortizable bond premium equal
to the amount of that excess. You generally may elect to
amortize the premium using a constant yield method over the
remaining term of the debt security. The amount amortized in any
year will be treated as a reduction of your interest income from
the debt security. If you do not elect to amortize bond premium,
that premium will decrease the gain or increase the loss you
would otherwise recognize on disposition of the debt security.
This election to amortize premium on a constant yield method
will also apply to all debt obligations you hold or subsequently
acquire on or after the first taxable year to which the election
applies and may not be revoked without the consent of the IRS.
Sale, Exchange and Retirement of Debt
Securities. Your tax basis in the debt securities
that you beneficially own will, in general, be your cost for
those debt securities increased by OID and market discount that
you previously included in income, and reduced by any amortized
premium and any cash payments received with respect to that debt
security other than payments of qualified stated interest.
Upon your sale, exchange, retirement or other taxable
disposition of the debt securities, you will recognize gain or
loss equal to the difference between the amount you realize upon
the sale, exchange, retirement or other disposition (less an
amount equal to any accrued stated interest that will be treated
as a payment of interest for U.S. federal income tax
purposes if not previously taken into income ) and your adjusted
tax basis in the debt securities. Except as described above with
respect to market discount with respect to gain or loss
attributable to changes in exchange rates as described below
with respect to foreign currency debt securities, that gain or
loss will be capital gain or loss. Capital gains of individuals
derived in respect of capital assets held for more than one year
are eligible for reduced rates of taxation. The deductibility of
capital losses is subject to limitations.
Extendible Debt Securities, Renewable Debt Securities and
Reset Debt Securities. If so specified in the
prospectus supplement or supplements relating to the debt
securities of a series, we or you may have the option to extend
the maturity of those debt securities. In addition, we may have
the option to reset the interest rate, the spread or the spread
multiplier.
The United States federal income tax treatment of a debt
security with respect to which such an option has been exercised
is unclear and will depend, in part, on the terms established
for such debt securities by us pursuant to the exercise of the
option. You may be treated for federal income tax purposes as
having exchanged your debt securities for new debt securities
with revised terms. If this is the case, you would realize gain
or loss equal to the difference between the issue price of the
new debt securities and your tax basis in the old debt
securities.
If the exercise of the option is not treated as an exchange of
old debt securities for new debt securities, you will not
recognize gain or loss as a result of such exchange.
The presence of such options may also affect the calculation of
OID, among other things. Solely for purposes of the accrual of
OID, if we issue debt securities and have an option or
combination of options to extend the term of those debt
securities, we will be presumed to exercise such option or
options in a manner that minimizes the yield on those debt
securities. Conversely, if you are treated as having a put
option, such an option will be presumed to be exercised in a
manner that maximizes the yield on those debt securities. If we
exercise such option or options to extend the term of those debt
securities, or your option to put does not occur (contrary to
the assumptions made), then solely for purposes of the accrual
of OID, those debt securities
41
will be treated as reissued on the date of the change in
circumstances for an amount equal to their adjusted issue price
on the date.
You should carefully examine the prospectus supplement or
supplements relating to any such debt securities, and should
consult your own tax advisor regarding the United States federal
income tax consequences of the holding and disposition of such
debt securities.
Information Reporting and Backup
Withholding. In general, information reporting
requirements will apply to certain payments of principal,
premium, if any, redemption price, if any, OID, if any, interest
and other amounts paid to you on the debt securities and to the
proceeds of sales of the debt securities made to you unless you
are an exempt recipient (such as a corporation). A backup
withholding tax may apply to such payments if you fail to
provide a correct taxpayer identification number or
certification of exempt status or fail to report in full
dividend and interest income.
Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against your U.S. federal
income tax liability provided the required information is timely
furnished to the IRS.
Non-U.S.
Holders
The following is a discussion of the material U.S. federal
income and estate tax consequences that generally will apply to
you if you are a
non-U.S. holder
of debt securities.
U.S. Federal Withholding Tax. The 30%
U.S. federal withholding tax will not apply to any payment
of principal of and, under the portfolio interest
rule, interest, including OID, on the debt securities, provided
that:
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you do not actually or constructively own 10% or more of the
total combined voting power of all classes of our voting stock
within the meaning of Section 871(h)(3) of the Code and
related U.S. Treasury regulations;
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you are not a controlled foreign corporation that is related to
us through stock ownership;
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you are not a bank whose receipt of interest on the debt
securities is described in Section 881(c)(3)(A) of the Code;
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the interest is not considered contingent interest under Section
871(h)(4)(A) of the Code and the related U.S. Treasury
regulations; and
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you provide your name and address on an IRS
Form W-8BEN
(or successor form), and certify, under penalty of perjury, that
you are not a U.S. person or (2) you hold your debt
securities through certain foreign intermediaries, and you
satisfy the certification requirements of applicable
U.S. Treasury regulations. Special certification rules
apply to certain
non-U.S. holders
that are entities rather than individuals.
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If you cannot satisfy the requirements described above, payments
of premium, if any, and interest, including OID, made to you
will be subject to the 30% U.S. federal withholding tax
(which will be deducted from such interest payments by the
paying agent), unless you provide us with a properly executed:
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IRS
Form W-8BEN
(or successor form) claiming an exemption from or reduction in
the rate of withholding under the benefit of an applicable tax
treaty; or
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IRS
Form W-8ECI
(or successor form) stating that interest paid on the debt
securities is not subject to withholding tax because it is
effectively connected with your conduct of a trade or business
in the United States as discussed below.
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Special certification rules apply to
non-U.S. holders
that are pass-through entities rather than corporations or
individuals. The 30% U.S. federal withholding tax generally
will not apply to any payment of principal that you realize on
the sale, exchange, retirement or other taxable disposition of
any of the debt securities.
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U.S. Federal Income Tax. If you are
engaged in a trade or business in the United States and premium,
if any, and interest, including OID, on the debt securities is
effectively connected with the conduct of that trade or
business, you will be subject to U.S. federal income tax on
that premium, if any, and interest, including OID, on a net
income basis (although you will be exempt from the 30%
withholding tax, provided the certification requirements
discussed above are satisfied) in the same manner as if you were
a U.S. person. In addition, if you are a foreign
corporation, you may be subject to a branch profits tax equal to
30% (or lower applicable treaty rate) of your earnings and
profits for the taxable year, subject to adjustments, that are
effectively connected with the conduct by you of a trade or
business in the United States. For this purpose, premium, if
any, and interest, including OID, on debt securities will be
included in your earnings and profits.
Any gain realized on the disposition of debt securities
generally will not be subject to U.S. federal income tax
unless:
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that gain is effectively connected with your conduct of a trade
or business in the United States and, if required by an
applicable income tax treaty, is attributable to a
U.S. permanent establishment; or
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you are an individual who is present in the United States for
183 days or more in the taxable year of that disposition
and certain other conditions are met.
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U.S. Federal Estate Tax. Your estate will
not be subject to U.S. federal estate tax on the debt
securities beneficially owned by you at the time of your death,
provided that any payment to you on the debt securities,
including OID, would be eligible for exemption from the 30%
U.S. federal withholding tax under the portfolio
interest rule described above under
U.S. Federal Withholding Tax, without regard to the
certification requirement described in the fifth bullet point of
that section.
Information Reporting and Backup
Withholding. Generally, we must report to the IRS
and to you the amount of interest, including OID, on the debt
securities paid to you and the amount of tax, if any, withheld
with respect to such payments. Copies of the information returns
reporting such interest payments and any withholding may also be
made available to the tax authorities in the country in which
you reside under the provisions of an applicable income tax
treaty.
In general, backup withholding will not apply to payments that
we make or any of our paying agents (in its capacity as such)
makes to you if you have provided the required certification
that you are a
non-U.S. holder
as described above and provided that neither we nor any of our
paying agents has actual knowledge or reason to know that you
are a U.S. holder (as described above).
In addition, you will not be subject to backup withholding and
information reporting with respect to the proceeds of the sale
of debt securities within the United States or conducted through
certain
U.S.-related
financial intermediaries, if the payor receives the statement
described above and does not have actual knowledge or reason to
know that you are a U.S. person, as defined under the Code,
or you otherwise establish an exemption.
Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against your U.S. federal
income tax liability provided the required information is timely
furnished to the IRS.
State and
Local Taxes
We and/or
you may be subject to state and local tax in various states and
localities, including those states and localities in which we or
you transact business, own property, or reside. The state and
local tax treatment in such jurisdictions may differ from the
federal income tax treatment described above. Consequently, you
should consult your own tax advisor regarding the effect of
state and local tax laws upon an investment in our securities.
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PLAN OF
DISTRIBUTION
We may sell our securities domestically or abroad, through
underwriters, dealers or agents, or directly, or through any
combination of those methods. The applicable prospectus
supplement will describe the terms of the offering that it
applies to, including the names of any underwriters, dealers or
agents, the purchase price for our securities, and the proceeds
we expect to receive. It will also include any delayed delivery
arrangements, any underwriting discounts and other items
constituting underwriters compensation, the initial public
offering price, any discounts or concessions allowed or
re-allowed or paid to dealers, and a list of any securities
exchanges on which the securities offered may be listed.
If we use underwriters in any sale, our securities will be
purchased by the underwriters or dealers for their own account
and may be resold from time to time in one or more transactions,
including negotiated transactions, at a fixed public offering
price or at varying prices determined at the time of sale. Our
securities may be offered to the public either through
underwriting syndicates represented by one or more managing
underwriters or directly by one or more firms acting as
underwriters. The underwriters with respect to a particular
underwritten offering will be named in the applicable prospectus
supplement relating to that offering. If an underwriting
syndicate is used, the managing underwriter or underwriters will
be disclosed on the cover of the applicable prospectus
supplement. Generally, the obligations of the underwriters or
agents to purchase the securities that we offer will be subject
to conditions precedent, and the underwriters will have to
purchase all of the offered securities if any are purchased. The
initial public offering price and any discounts or concessions
allowed or re-allowed or paid to dealers may be changed from
time to time. In no event will the maximum commission or
discount to be received by any NASD member or independent
broker-dealer exceed 8% for the sale of the securities
registered hereunder.
If we use dealers to sell our securities, we will sell our
securities to the dealers as principals. The dealers may then
resell our securities to the public at varying prices that they
determine at the time of resale. We will disclose the names of
the dealers and the terms of the transaction in the applicable
prospectus supplement.
We may sell the securities through agents that we designate from
time to time at fixed prices that may be changed, or at varying
prices determined at the time of sale. We will name any agent
involved in the offer or sale of our securities and specify any
commissions that we will pay them. Unless otherwise specified in
the applicable prospectus supplement, any agent will be acting
on a best efforts basis for the period of its appointment.
Underwriters or agents may be paid by us or by purchasers of our
securities for whom they act as agents in the form of discounts,
concessions or commissions. Underwriters, agents and dealers
participating in the distribution of our securities may all be
deemed to be underwriters, and any discounts or commissions that
they receive, as well as profit they receive on the resale of
our securities, may be deemed to be underwriting discounts or
commissions under the Securities Act of 1933.
A prospectus supplement may indicate that we will authorize
agents, underwriters or dealers to solicit from specified types
of institutions offers to purchase our securities at the public
offering price set forth in the prospectus supplement pursuant
to delayed delivery contracts permitting payment and delivery on
a specified future date. The prospectus supplement will describe
conditions of any delayed delivery contracts, as well as the
commission we will pay for solicitation of these contracts.
Some or all of the securities that we offer though this
prospectus may be new issues of securities with no established
trading market. Any underwriters to whom we sell our securities
for public offering and sale may make a market in those
securities, but they will not be obligated to and they may
discontinue any market making at any time without notice.
Accordingly, we cannot assure you of the liquidity of, or
continued trading markets for, any securities that we offer.
In order to facilitate the offering of our securities, any
underwriters or agents involved in the offering may engage in
transactions that stabilize, maintain or otherwise affect the
price of our securities, or other securities that affect
payments on our securities. Specifically, the underwriters or
agents may overallot in connection with the offering, creating a
short position for their own account. In addition, to cover
overallotments or to stabilize the price of our securities, or
other securities that affect payments on our securities, the
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underwriters or agents may bid for and purchase the securities
in the open market. In any offering of our securities through a
syndicate of underwriters, the underwriting syndicate may
reclaim selling concessions allowed to an underwriter or dealer
for distributing our securities if the syndicate repurchases
previously distributed securities in transactions to cover
syndicate short positions, in stabilizing transactions or
otherwise. Any of these activities may stabilize or maintain the
market price of our securities above independent market levels.
The underwriters or agents are not required to engage in these
activities, and may end any of these activities at any time.
Agents, dealers and underwriters may be entitled to be
indemnified by us against specified civil liabilities, including
liabilities under the Securities Act of 1933, or to contribution
with respect to payments that they may be required to make.
Any underwriters, dealers or agents that we use, as well as
their affiliates, may engage in transactions with us or perform
services for us in the ordinary course of business.
EXPERTS
The consolidated financial statements of Capstead Mortgage
Corporation appearing in Capstead Mortgage Corporations
Annual Report
(Form 10-K)
for the year ended December 31, 2006, and Capstead Mortgage
Corporation managements assessment of the effectiveness of
internal control over financial reporting as of
December 31, 2006 included therein, have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their reports thereon, included
therein, and incorporated herein by reference. Such consolidated
financial statements and managements assessment are
incorporated herein by reference in reliance upon such reports
given on the authority of such firm as experts in accounting and
auditing.
LEGAL
MATTERS
Certain legal matters in connection with this offering will be
passed upon for us by Andrews Kurth LLP, Dallas, Texas. In
addition, the description of federal income tax consequences
contained in the section of the prospectus entitled
Federal Income Tax Consequences of Our Status as a
REIT is based on the opinion of Andrews Kurth LLP. Certain
Maryland law matters in connection with this offering will be
passed upon for us by Hogan & Hartson L.L.P.,
Baltimore, Maryland. Andrews Kurth LLP will rely on the opinion
of Hogan & Hartson L.L.P., Baltimore, Maryland as to
all matters of Maryland law.
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You should rely only on the information contained or incorporated by reference in this prospectus
supplement or the accompanying prospectus. We have not, and the underwriters have not, authorized
anyone to provide you with different information. If anyone provides you with different of
inconsistent information, you should not rely on it. We are offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales are permitted. You
should assume that the information appearing in this prospectus supplement and the accompanying
prospectus, as well as information we previously filed with the Securities and Exchange Commission
and incorporated by reference, is only accurate as of their respective dates. Our business,
financial condition, results of operations and prospects may have changed since those dates.
TABLE OF CONTENTS
Prospectus Supplement
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IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS SUPPLEMENT |
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S-2 |
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OUR COMPANY |
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S-3 |
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RECENT DEVELOPMENTS |
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S-3 |
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THE OFFERING |
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S-4 |
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USE OF PROCEEDS |
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S-4 |
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DESCRIPTION OF SALES AGREEMENT |
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S-4 |
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PLAN OF DISTRIBUTION |
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S-5 |
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LEGAL MATTERS |
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S-6 |
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Prospectus
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About This Prospectus |
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1 |
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Where You Can Find More Information |
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Incorporation of Information by Reference |
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A Warning About Forward-Looking Statements |
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Our Company |
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Risk Factors |
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Use of Proceeds |
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Ratio of Income From Continuing Operations (Before Fixed Charges)
to Combined Fixed Charges and Preferred Stock Dividends |
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Description of Our Capital Stock |
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Description of Our Common Stock |
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Description of Our Preferred Stock |
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Description of Our Debt Securities |
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Description of Our Warrants |
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Book-Entry Securities |
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Material Provisions of Maryland Law and of Our Charter
and Bylaws |
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Federal Income Tax Consequences of Our Status as a REIT |
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22 |
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Plan of Distribution |
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44 |
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Experts |
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Legal Matters |
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Capstead Mortgage
Corporation
3,000,000 Shares
Common Stock
PROSPECTUS SUPPLEMENT
April 11, 2008