Unassociated Document
As
filed with the Securities and Exchange Commission on August 24,
2009
Registration
Nos. 333-______
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
S-3
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
AGREE
REALTY CORPORATION
(Exact
name of registrant as specified in its charters)
Maryland
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38-3148187
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(State
or other jurisdiction of incorporation or organization)
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(IRS
employer identification number)
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31850
Northwestern Highway
Farmington
Hills, Michigan 48334
(248)
737-4190
(Address,
including zip code, and telephone number, including area code, of the
registrant’s principal executive offices)
Richard
Agree
Chairman
and Chief Executive Officer
Agree
Realty Corporation
31850
Northwestern Highway
Farmington
Hills, Michigan 48334
Phone: (248)
737-4190
(Name,
address, including zip code, and telephone number, including
area
code, of agent for service)
|
Copy
to:
Jeffrey
M. Sullivan, Esq.
DLA
Piper LLP (US)
4141
Parklake Avenue, Suite 300
Raleigh,
North Carolina 27612
Phone: (919)
786-2000
Facsimile: (919)
786-2200
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Approximate date of commencement of
proposed sale to the public: From time to time after the effective date
of this Registration Statement.
If the
only securities being registered on this form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box. ¨
If any of
the securities being registered on this form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or reinvestment plans,
please check the following box. x
If this
form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ¨
If this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If this
Form is a registration statement pursuant to General Instruction I.D. or a
post-effective amendment thereto that shall become effective upon filing with
the Commission pursuant to Rule 462(e) under the Securities Act, check the
following box. ¨
If this
Form is a post-effective amendment to a registration statement filed pursuant to
General Instruction I.D. filed to register additional securities or additional
classes of securities pursuant to Rule 413(b) under the Securities Act, check
the following box. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer ¨ Accelerated
filer x
Non-accelerated
filer ¨ Smaller
reporting company ¨
(Do not
check is a smaller reporting company)
CALCULATION
OF REGISTRATION FEE
Title
of Securities to be Registered
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Proposed
Maximum
Aggregate
Offering
Price
(1)
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Amount
of
Registration
Fee
(2)
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Agree
Realty Corporation:
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Common
Stock
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|
|
|
|
|
|
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Preferred
Stock
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|
|
|
|
|
|
|
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Depository
Shares (3)
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Warrants
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Preferred
Stock Purchase Rights (4)
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Total
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$ |
125,000,000 |
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$ |
6,975 |
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(1)
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The
proposed aggregate offering prices per class of security will be
determined from time to time by the registrant in connection with the
issuance by the registrant of the securities registered
hereunder.
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(2)
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Calculated
pursuant to Rule 457(o) of the rules and regulations of the Securities Act
of 1933, as amended.
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(3)
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Each
depositary share will be issued under a deposit agreement, will represent
an interest in a fractional share of preferred stock or multiple shares of
preferred stock and will be evidenced by a depositary
receipt.
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(4)
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This
Registration Statement also relates to the rights to purchase shares of
Series A Junior Participating Preferred Stock of the registrant, which are
attached to all shares of common stock issued, pursuant to the terms of
the Registrant’s Second Amendment to Rights Agreement dated December 8,
2007. Until the occurrence of prescribed events, the rights are not
exercisable, are evidenced by the certificates for the common stock and
will be transferred with and only with such common
stock.
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The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
Common
Stock
Preferred
Stock
Depositary
Shares
Warrants
Agree
Realty Corporation intends to offer and sell from time to time the securities
described in this prospectus. The total offering price of the
securities described in this prospectus will not exceed $125,000,000 in the
aggregate.
We will provide specific terms of any
securities we may offer in supplements to this prospectus. The
securities may be offered separately or together in any combination and as
separate series. You should read this prospectus and any prospectus
supplement carefully before you invest. Our common stock is traded on
the New York Stock Exchange under the symbol “ADC.” We will make
applications to list on the NYSE any shares of common stock sold pursuant to a
supplement to this prospectus. We have not determined whether we will list
any other securities we may offer on any exchange or over-the-counter market.
If we decide to seek listing of any securities, the supplement to this
prospectus will disclose the exchange or market.
In addition, the specific terms may
include limitations on direct or beneficial ownership and restrictions on
transfer of the securities offered by this prospectus, in each case as may be
appropriate to preserve our status as a real estate investment trust, or REIT,
for federal income tax purposes.
The securities offered by this
prospectus may be offered directly, through agents designated from time to time
by us, or to or through underwriters or dealers. If any agents or
underwriters are involved in the sale of any of the securities offered by this
prospectus, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them, will be set forth, or will be
calculable from the information set forth, in the applicable prospectus
supplement. None of the securities offered by this prospectus may be sold
without delivery of the applicable prospectus supplement describing the method
and terms of the offering of those securities.
Each prospectus supplement will also
contain information, where applicable, about federal income tax considerations
and any legend or statement required by state law or the Securities and Exchange
Commission.
Investing
in our securities involves risks. See “Risk Factors” beginning on page
3.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of
these securities or determined if this prospectus is truthful or complete and
any representation to the contrary is a criminal offense.
The date
of this Prospectus is August 24, 2009.
We have
not authorized any dealer, salesman or other person to give any information or
to make any representation other than those contained or incorporated by
reference in this prospectus and the accompanying supplement to this prospectus.
You must not rely upon any information or representation not contained or
incorporated by reference in this prospectus or the accompanying prospectus
supplement. This prospectus and the accompanying supplement to this
prospectus do not constitute an offer to sell or the solicitation of an offer to
buy any securities other than the registered securities to which they relate,
nor do this prospectus and the accompanying supplement to this prospectus
constitute an offer to sell or the solicitation of an offer to buy securities in
any jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction. The information contained in this
prospectus and the supplement to this prospectus is accurate as of the dates on
their covers. When we deliver this prospectus or a supplement or make a
sale pursuant to this prospectus or a supplement, we are not implying that the
information is current as of the date of the delivery or sale.
TABLE
OF CONTENTS
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Page
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ABOUT THIS PROSPECTUS
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1
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WHERE CAN YOU FIND MORE
INFORMATION
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1
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INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE
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1
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DISCLOSURE REGARDING FORWARD-LOOKING
STATEMENTS
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2
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OUR COMPANY
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3
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RISK FACTORS
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3
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USE OF PROCEEDS
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3
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RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK
DIVIDENDS
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4
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DESCRIPTION OF COMMON STOCK
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4
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DESCRIPTION OF PREFERRED
STOCK
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10
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DESCRIPTION OF DEPOSITARY
SHARES
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16
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DESCRIPTION OF WARRANTS
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20
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FEDERAL INCOME TAX
CONSIDERATIONS
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21
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PLAN OF DISTRIBUTION
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38
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39
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LEGAL MATTERS
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39
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ABOUT
THIS PROSPECTUS
This prospectus is part of a “shelf”
registration statement that we have filed with the Securities and Exchange
Commission (the “SEC”). By using a shelf registration statement, we may sell, at
any time and from time to time, in one or more offerings, any combination of the
securities described in this prospectus. The exhibits to our registration
statement contain the full text of certain contracts and other important
documents we have summarized in this prospectus. Since these summaries may not
contain all the information that you may find important in deciding whether to
purchase the securities we offer, you should review the full text of these
documents. The registration statement and the exhibits can be obtained from the
SEC as indicated under the heading “Where You Can Find More
Information.”
This
prospectus only provides you with a general description of the securities we may
offer. Each time we sell securities, we will provide a prospectus supplement
that contains specific information about the terms of those 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 below under the
heading “Where You Can Find More Information.”
We
are not making an offer of these securities in any jurisdiction where the offer
is not permitted. You should not assume that the information in this prospectus
or a prospectus supplement is accurate as of any date other than the date on the
front of the document.
When used in this prospectus,
“Registrant,” “Company,” “we, ” “us, ” or “our ” refers to Agree Realty
Corporation and its majority-owned operating partnership, Agree Limited
Partnership (the “Operating Partnership”), and its direct and indirect
subsidiaries on a consolidated basis.
WHERE
CAN YOU FIND MORE INFORMATION
We file annual, quarterly and special
reports, proxy statements and other information with the SEC. Our SEC
filings are available to the public over the Internet at the SEC’s web site at
http://www.sec.gov. You may also read and copy any document we file with
the SEC at the SEC’s public reference room at 100 F Street, N.E., Washington, DC
20549.
You may also obtain copies of our SEC
filings at prescribed rates by writing to the Public Reference Section of the
SEC at 100 F Street, N.E., Washington, DC 20549. Please call
l-800-SEC-0330 for further information on the operations at the public reference
room. Our SEC filings are also available at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.
Statements contained in this prospectus
as to the contents of any contract or other document are not necessarily
complete, and in each instance reference is made to the copy of that contract or
other document filed as an exhibit to the registration statement, each such
statement being qualified in all respects by that reference and the exhibits and
schedules thereto. For further information about us and the securities
offered by this prospectus, you should refer to the registration statement and
such exhibits and schedules which may be obtained from the SEC at its principal
office in Washington, D.C. upon payment of any fees prescribed by the
SEC.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been
filed by us under the Securities Exchange Act of 1934, as amended (the
“Securities Exchange Act”), with the SEC and are incorporated by reference in
this prospectus:
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·
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Annual
Report on Form 10-K for the year ended December 31,
2008;
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·
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Quarterly
Reports on Form 10-Q for the quarters ended March 31, 2009 and June 30,
2009;
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·
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Current
Report on Form 8-K filed on January 8, 2009, the Current Report on Form
8-K filed on May 28, 2009, the Current Report on Form 8-K filed on June 9,
2009, and the Current Report on Form 8-K filed on July 16, 2009;
and
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·
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The
description of our common stock in our registration statement on Form 8-A
filed on March 18, 1994, including any amendments and reports filed for
the purpose of updating such
description.
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We are also incorporating by reference
into this prospectus all documents that we have filed or will file with the SEC
as prescribed by Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act since the date of this prospectus and prior to the termination of the sale
of the securities offered by this prospectus and the accompanying prospectus
supplement.
This means that important information
about us appears or will appear in these documents and will be regarded as
appearing in this prospectus. To the extent that information appearing in
a document filed later is inconsistent with prior information, the later
statement will control and the prior information, except as modified or
superseded, will no longer be a part of this prospectus.
Copies of all documents which are
incorporated by reference in this prospectus and the applicable prospectus
supplement (not including the exhibits to such information, unless such exhibits
are specifically incorporated by reference) will be provided without charge to
each person, including any beneficial owner of the securities offered by this
prospectus, to whom this prospectus or the applicable prospectus supplement is
delivered, upon written or oral request. Requests should be directed to
our Secretary, 31850 Northwestern Highway, Farmington Hills, Michigan 48334
(telephone number: (248) 737-4190). You may also obtain copies of these
filings, at no cost, by accessing our website at http://www.agreerealty.com;
however, the information found on our website is not considered part of this
prospectus or any accompanying prospectus supplement.
DISCLOSURE
REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, together with other
statements and information we publicly disseminate, contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the “Securities Act”), and Section 21E of the
Securities Exchange Act. We intend such forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements contained
in the Private Securities Litigation Reform Act of 1995 and include this
statement for purposes of complying with these safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe
our future plans, strategies and expectations, are generally identifiable by use
of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project”
or similar expressions. You should not rely on forward-looking statements
since they involve known and unknown risks, uncertainties and other factors
which are, in some cases, beyond our control and which could materially affect
actual results, performances or achievements. Factors which may cause
actual results to differ materially from current expectations include, but are
not limited to: (i) the ongoing U.S. recession, the existing global credit and
financial crisis and other changes in general economic, financial and real
estate market conditions; (ii) risks that our acquisition and development
projects will fail to perform as expected; (iii) financing risks, such as the
inability to obtain debt or equity financing on favorable terms or at all the
level and volatility of interest rates; (iv) loss or bankruptcy of one or more
of our major retail tenants; (v) a failure of our properties to generate
additional income to offset increases in operating expenses; (vi) and other
factors discussed in “Risk Factors” and elsewhere in this report and in
subsequent filings with the SEC.
We caution readers that any such
statements are based on currently available operational, financial and
competitive information, and they should not place undue reliance on these
forward-looking statements, which reflect management’s opinion only as of the
date on which they were made. Except as required by law, we disclaim any
obligation to review or update these forward-looking statements to reflect
events or circumstances as they occur.
OUR
COMPANY
We are a
fully-integrated, self-administered and self-managed real estate investment
trust that focuses primarily on the ownership, development, acquisition and
management of retail properties net leased to national
tenants. We were formed in December 1993 to continue and expand
the business founded in 1971 by our current Chief Executive Officer and
Chairman, Richard Agree. We specialize in developing retail
properties for national tenants who have executed long-term net leases prior to
the commencement of construction. As of June 30, 2009, approximately
89% of our
annualized base rent was derived from national tenants. All of our
freestanding property tenants and the majority of our community shopping center
tenants have triple-net leases, which require the tenant to be responsible for
property operating expenses including property taxes, insurance and
maintenance. We believe this strategy provides us with a generally
consistent source of income and cash for distributions.
At June
30, 2009, our portfolio consisted of 71 properties, located in 16 states
containing an aggregate of approximately 3.5 million square feet
of gross leasable area. As of June 30, 2009, our portfolio included
59 freestanding net leased properties and 12 community shopping centers that
were 98.2% leased
in aggregate with a weighted average lease term of approximately 10.8 years
remaining. As of June 30, 2009, approximately 69% of our annualized base
rent was derived from our top three tenants: Walgreen Co. – 29%;
Borders Group, Inc. – 29%, and Kmart Corporation – 11%.
Our assets are held by, and all of our
operations are conducted through, directly or indirectly, the Operating
Partnership, of which we are the sole general partner and in which we held a
95.93% interest as
of June 30, 2009. Under the partnership agreement of the Operating
Partnership, we, as the sole general partner, have exclusive responsibility and
discretion in the management and control of the Operating Partnership. Our
headquarters are located at 31850 Northwestern Highway, Farmington Hills,
MI 48334 and our telephone number is (248) 737-4190.
We
believe that we have operated, and we intend to continue to operate, in such a
manner to qualify as a REIT under the Internal Revenue Code of 1986, as amended
(the “Code”). In order to maintain qualification as a REIT, we must,
among other things, distribute at least 90% of our REIT income and meet certain
other asset and income tests. Additionally, our charter limits
ownership of the Company, directly or constructively, by any single person to
9.8% of the total number of outstanding shares, subject to certain
exceptions. As a REIT, we are not subject to federal income tax with
respect to that portion of our income that meets certain criteria and is
distributed annually to the stockholders.
RISK
FACTORS
You should carefully consider the risks
and uncertainties described in our reports we file with the SEC under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act that are incorporated
by reference herein, as well as all of the information set forth in this
prospectus and any accompanying prospectus supplement before investing in our
securities.
USE
OF PROCEEDS
Unless
the applicable prospectus supplement states otherwise, we expect to use the net
proceeds of the sale of these securities for general corporate purposes, which
may include:
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·
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acquiring
properties, securities or other assets as suitable opportunities
arise;
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·
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developing,
maintaining, expanding and improving properties in our
portfolio;
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·
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repayment
of indebtedness outstanding at that
time;
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·
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financing
future acquisitions of properties or businesses that we may from time to
time consider; and
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·
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general
working capital.
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Any
specific allocation of the net proceeds of an offering of securities to a
specific purpose will be determined at the time of such offering and will be
described in the related supplement to this prospectus.
RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
The
following table sets forth the consolidated ratios of earnings to combined fixed
charges and preferred stock dividends for the periods shown:
Six
Months Ended June 30, 2009
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4.59 |
x |
Year
Ended December 31, 2008
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3.74 |
x |
Year
Ended December 31, 2007
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3.98 |
x |
Year
Ended December 31, 2006
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4.11 |
x |
Year
Ended December 31, 2005
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3.96 |
x |
Year
Ended December 31, 2004
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3.71 |
x |
The
ratios of earnings to combined fixed charges and preferred dividends were
computed by dividing earnings by the aggregate of fixed charges and preferred
dividends. We had no preferred dividend requirement in any of the
foregoing periods. Therefore, the ratio of earnings to combined fixed
charges and preferred stock dividends are the same as the ratio of earnings to
fixed charges for such years. Earnings were calculated by adding
certain fixed charges (consisting of interest on indebtedness and amortization
of finance costs) to our income before extraordinary items. Fixed
charges consist of interest costs, whether expensed or capitalized and
amortization of debt issuance costs.
DESCRIPTION
OF COMMON STOCK
General
We have the authority to issue
20,000,000 shares of capital stock, par value $.0001 per share, of which
13,350,000 shares are classified as shares of common stock, par value $.0001 per
share, and 6,500,000 shares are classified as shares of excess stock, par value
$.0001 per share. At June 30, 2009, we had outstanding 8,191,574 shares of
common stock and no shares of excess stock.
The following description of our common
stock sets forth certain general terms and provisions of the common stock to
which any prospectus supplement may relate, including a prospectus supplement
providing that common stock will be issuable upon conversion of our preferred
stock or upon the exercise of common stock warrants issued by us. The
statements below describing the common stock are in all respects subject to and
qualified in their entirety by reference to the applicable provisions of our
charter and bylaws.
Subject to preferential rights with
respect to any outstanding preferred stock, holders of our common stock will be
entitled to receive dividends when, as and if authorized by our board of
directors and declared by us, out of assets legally available
therefor. Upon our liquidation, dissolution or winding up, holders of
common stock, together with the holders of excess stock (as described below),
will be entitled to share equally and ratably in any assets available for
distribution to them, after payment or provision for payment of our debts and
other liabilities and the preferential amounts owing with respect to any of our
outstanding preferred stock. The common stock will possess voting rights
in the election of directors and in respect of certain other corporate matters,
with each share entitling the holder thereof to one vote. Holders of
shares of common stock will not have cumulative voting rights in the election of
directors. The shares of common stock are not convertible into any
other class or series except into excess stock under limited
circumstances. See “— Restrictions on Ownership and
Transfer.” Holders of shares of common stock will not have preemptive
rights, which means they have no right to acquire any additional shares of
common stock that may be issued by us at a subsequent date. The common
stock will, when issued, be fully paid and nonassessable and will not be subject
to preemptive or similar rights. The common stock is listed on the
NYSE under the symbol “ADC.”
Transfer
Agent and Registrar
The transfer agent and registrar for
our common stock is Computershare Trust Company, N.A.
Restrictions
on Ownership and Transfer
For us to qualify as a REIT under the
Code, not more than 50% of the value of our issued and outstanding Equity Stock
(as defined below) may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include, except in limited circumstances,
certain entities such as qualified private pension plans) during the last half
of a taxable year, and the Equity Stock must be beneficially owned by 100 or
more persons during at least 335 days of a taxable year of 12 months or
during a proportionate part of a shorter taxable year. In addition,
certain percentages of our gross income must be from particular activities (see
“Federal Income Tax Considerations — REIT Qualification Requirements —
Income Tests”). Our charter contains restrictions on the ownership
and transaction of shares of Equity Stock to enable us to qualify as a
REIT.
Subject
to certain exceptions specified in our charter, no holder may own, or be deemed
to own by virtue of the attribution provisions of the Code, more than 9.8% (the
“Ownership Limit”) of the value of our outstanding common stock and preferred
stock (collectively, the “Equity Stock”) except that the any member of the
Agree-Rosenberg Group (as defined in our charter) may own up to
24%. Our board of directors may waive the Ownership Limit if evidence
satisfactory to the board of directors and our tax counsel is presented that
such ownership will not then or in the future jeopardize our status as a
REIT. As a condition of such waiver, the board of directors may
require opinions of counsel satisfactory to it and/or an undertaking from the
applicant with respect to preserving our REIT status. The foregoing
restrictions on transferability and ownership will not apply if the board of
directors determines that it is no longer in our best interests to continue to
qualify as a REIT. If shares of Equity Stock in excess of the
Ownership Limit, or shares which would cause us to be beneficially owned by less
than 100 persons, are issued or transferred to any person, such issuance or
transfer shall be null and void to the intended transferee, and the intended
transferee would acquire no rights to the stock. Shares transferred
in excess of the Ownership Limit will be automatically converted into shares of
excess stock that will be deemed transferred to the Company as trustee for the
exclusive benefit of the person or persons to whom the shares are ultimately
transferred, until the intended transferee retransfers the
shares. While these shares are held in trust, they will not be
entitled to vote or to share in any dividends or other
distributions. The shares may be retransferred by the intended
transferee to any person who may hold such shares at a price not to exceed the
price paid by the intended transferee, at which point the shares will
automatically be converted into ordinary Equity Stock. In addition,
such shares of excess stock held in trust are purchasable by us for a 90-day
period at a price equal to the lesser of the price paid for the stock by the
intended transferee and the market price for the stock on the date we determine
to purchase the stock. This period commences on the date of the violative
transfer if the intended transferee gives notice to us of the transfer, or the
date the board of directors determines that a violative transfer has occurred if
no notice has been provided.
All
certificates representing shares of common stock will bear a legend referring to
the restrictions described above.
In
order for us to comply with our record keeping requirements, our charter
requires that each beneficial or constructive owner of Equity Stock and each
person (including stockholders of record) who holds stock for a beneficial or
constructive owner, shall provide to us such information as we may request in
order to determine our status as a REIT and to ensure compliance with
limitations on the ownership of Equity Stock. Our charter also
requires each beneficial or constructive owner of a specified percentage of
Equity Stock to provide, no later than January 31 of each year, written
notice to us stating the name and address of such owner, the number of shares of
Equity Stock beneficially or constructively owned, and a description of how such
shares are held. In addition, each such stockholder must provide such additional
information as the Company may request in order to determine the effect of such
stockholder’s ownership of Equity Stock on the Company’s status as a REIT and to
ensure compliance with the limitations on the ownership of Equity
Stock.
This
ownership limitation may have the effect of precluding acquisition of control of
the Company by a third party unless the board of directors determines that
maintenance of REIT status is no longer in our best interests. No
restrictions on transfer will preclude the settlement of transactions entered
into through the facilities of the NYSE, provided that certain transactions may
be settled by the delivery of excess stock.
Shareholder
Rights Plan
We have adopted a rights agreement,
under which each holder of our common stock receives one preferred share
purchase right for each outstanding share of common stock. Each right
is attached to each share of common stock, is not currently exercisable and
trades only with the shares of common stock. Each right will separate
from the share of common stock to which it is attached and will become
exercisable 10 days after a public announcement that a person or group has
acquired common stock that would result in ownership of 15% or more of our
shares of common stock. Upon the occurrence of such an event, each
right would entitle the holder to purchase for an exercise price of $70.00 one
one-hundredth of a share of new Series A Junior Participating Preferred
Stock, which is designed to have economic and voting rights generally equivalent
to one share of common stock. If a person or group actually acquires
15% or more of our shares of common stock, each right held by the acquiring
person or group (or their transferees) will become void, and each right held by
our other stockholders will entitle those holders to purchase for the exercise
price a number of shares of our common stock having a market value of twice the
exercise price. If we, at any time after a person or group has become
a 15% beneficial owner and acquired control of our board of directors, are
involved in a merger or similar transaction with any person or group or sell
assets to any person or group, each outstanding right would then entitle its
holder to purchase for the exercise price a number of shares of such other
company having a market value of twice the exercise price. In
addition, if any person or group acquires 15% or more of our shares of common
stock, we may, at our option and to the fullest extent permitted by law,
exchange one share of common stock for each outstanding right. The
rights are not exercisable until the above events occur and will expire on
December 22, 2018, unless earlier exchanged or redeemed by us. We may
redeem the rights for $.001 per right under certain
circumstances.
Classification
of Board of Directors, Vacancies and Removal of Directors
Our board of directors is divided into
three classes of directors, serving staggered three year terms. At each annual
meeting of stockholders, the class of directors to be elected at the meeting
generally will be elected for a three-year term and the directors in the other
two classes will continue in office. Subject to the rights of any
class or series to elect directors, a director may only be removed for cause by
the affirmative vote of the holders of 80% of our outstanding shares of common
stock entitled to vote generally in the election of directors, voting together
as a single class. We believe that the classified board will help to
assure the continuity and stability of our board of directors and our business
strategies and policies as determined by our board of directors. The
use of a staggered board may delay or defer a change in control of us or the
removal of incumbent management.
Our charter and bylaws provide that,
subject to any rights of holders of preferred stock, and unless the board of
directors otherwise determines, any vacancies may be filled by a vote of the
stockholders or a majority of the remaining directors, though less than a
quorum, except vacancies created by the increase in the number of directors,
which only may be filled by a vote of the stockholders or a majority of the
entire board of directors. In addition, our charter and bylaws
provide that, subject to any rights of holders of preferred stock to elect
additional directors under specified circumstances, only a majority of the board
of directors may increase or decrease the number of persons serving on the board
of directors. These provisions could temporarily prevent stockholders
from enlarging the board of directors and from filling the vacancies created by
such removal with their own nominees.
Advance
Notice Provisions for Stockholder Nominations and Stockholder
Proposals
Our charter and bylaws establish an
advance notice procedure for stockholders to make nominations of candidates for
director or bring other business before an annual meeting of
stockholders.
Our bylaws provide that (i) only
persons who are nominated by, or at the direction of, the board of directors, or
by a stockholder who has given timely written notice containing specified
information to our secretary prior to the meeting at which directors are to be
elected, will be eligible for election as directors and (ii) at an annual
meeting, only such business may be conducted as has been brought before the
meeting by, or at the direction of, the chairman of the board of directors or by
a stockholder who has given timely written notice to our secretary of such
stockholder’s intention to bring such business before such
meeting. In general, for notice of stockholder nominations or
proposed business (other than business to be included in our proxy statement
under SEC Rule 14a-8) to be conducted at an annual meeting to be timely, such
notice must be received by us not less than 60 days nor more than 90 days prior
to the first anniversary of the previous year’s annual
meeting.
The purpose of requiring stockholders
to give us advance notice of nominations and other business is to afford our
board of directors a meaningful opportunity to consider the qualifications of
the proposed nominees or the advisability of the other proposed business and, to
the extent deemed necessary or desirable by our board of directors, to inform
stockholders and make recommendations about such nominees or business, as well
as to ensure an orderly procedure for conducting meetings of
stockholders. Although our charter and bylaws do not give the board
of directors power to block stockholder nominations for the election of
directors or proposal for action, they may have the effect of discouraging a
stockholder from proposing nominees or business, precluding a contest for the
election of directors or the consideration of stockholder proposals if
procedural requirements are not met and deterring third parties from soliciting
proxies for a non-management slate of directors or proposal, without regard to
the merits of such slate or proposal.
Relevant
Factors to be Considered by the Board of Directors
Our charter provides that, in
determining what is in our best interest in a business combination or certain
change of control events, each of our directors shall consider the interests of
our stockholders and, in his or her discretion, also may consider (i) the
interests of our employees, suppliers, creditors and tenants; and (ii) both the
long-term and short-term interests of our company and our stockholders,
including the possibility that these interests may be best served by the
continued independence of our company. Pursuant to this provision,
our board of directors may consider subjective factors affecting a proposal,
including certain nonfinancial matters, and on the basis of these considerations
may oppose a business combination or other transaction which, evaluated only in
terms of its financial merits, might be attractive to some, or a majority, of
our stockholders.
Additional
Classes and Series of Stock
Our board of directors is authorized to
establish one or more classes and series of stock, including series of preferred
stock, from time to time, and to establish the number of shares in each class or
series and to fix the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of such class or series, without any further vote or
action by the stockholders, unless such action 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.
The issuance of additional classes or
series of capital stock may have the effect of delaying, deferring or preventing
a change in control of our company without further action of the
stockholders. The issuance of additional classes or series of capital
stock with voting and conversion rights may adversely affect the voting power of
the holders of our capital stock, including the loss of voting control to
others. The ability of our board of directors to issue additional
classes or series of capital stock, while providing flexibility in connection
with possible acquisitions or other corporate purposes, could have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring, a majority of our outstanding voting stock, even
where such an acquisition may be beneficial to us or our
stockholders.
Business
Combinations
Maryland
law prohibits “business combinations” between us 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, share
exchange, or, in circumstances specified in the statute, an asset transfer or
issuance or transfer of equity securities, liquidation plan or reclassification
of equity securities. Maryland law defines an interested stockholder
as:
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any
person or entity who beneficially owns 10% or more of the voting power of
our stock; or
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an
affiliate or associate of ours 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 our then outstanding voting
stock.
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A
person is not an interested stockholder if our board of directors approves in
advance the transaction by which the person otherwise would have become an
interested stockholder. However, in approving a transaction, our 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 our board of
directors.
After the five-year prohibition, any
business combination between us and an interested stockholder or an affiliate of
an interested stockholder generally must be recommended by our 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 our then-outstanding shares
of voting stock; and
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two-thirds
of the votes entitled to be cast by holders of our voting stock other than
stock held by the interested stockholder with whom or with whose affiliate
the business combination is to be effected or stock held by an affiliate
or associate of the interested
stockholder.
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These super-majority vote
requirements do not apply if our common stockholders receive a minimum price, as
defined under Maryland law, for their shares in the form of cash or other
consideration in the same form as previously paid by the interested stockholder
for its stock.
The statute permits various
exemptions from its provisions, including business combinations that are
approved or exempted by the board of directors before the time that the
interested stockholder becomes an interested stockholder. Our board
of directors has exempted from these provisions of the MGCL any business
combination with Messrs. Richard Agree and Edward Rosenberg or any other person
acting in concert or as a group with Messrs. Agree and Rosenberg.
Control
Share Acquisitions
Maryland law provides that “control
shares” of a Maryland corporation acquired in a “control share acquisition” have
no voting rights, except to the extent approved by a vote of two-thirds of the
votes entitled to be cast on the matter. Shares owned by the acquiror or by
officers or by directors who are our employees are excluded from the shares
entitled to vote on the matter. “Control shares” are voting shares of stock
that, if aggregated with all other shares of stock currently owned by the
acquiring person, or in respect of which the acquiring person is able to
exercise or direct the exercise of voting power (except solely by virtue of a
revocable proxy), would entitle the acquiring person to exercise voting power in
electing directors within one of the following ranges of voting
power:
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one-tenth
or more but less than one-third;
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one-third
or more but less than a majority;
or
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a
majority or more of all voting
power.
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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 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. The right to compel the
calling of a special meeting is subject to the satisfaction of certain
conditions, including an undertaking to pay the expenses of the meeting. If no
request for a meeting is made, we may present the question at any stockholders
meeting.
If voting rights are not approved at
the stockholders meeting or if the acquiring person does not deliver the
statement required by Maryland law, then, subject to certain conditions and
limitations, we may redeem any or all of the control shares, except those for
which voting rights have previously been approved, for fair value. Fair value is
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 the shares were
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 for purposes of these 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 to
shares acquired in a merger, consolidation or share exchange if we are a party
to the transaction, nor does it apply to acquisitions approved by or exempted by
our charter or bylaws.
Our bylaws contain a provision
exempting from the control share acquisition statute any members of the
Agree-Rosenberg Group, our other officers, our employees, any of the associates
or affiliates of the foregoing and any other person acting in concert of as a
group with any of the foregoing. Consequently, the control share
acquisitions statute will not apply to Messrs. Agree and Rosenberg unless our
board of directors later amends our bylaws to modify or eliminate this
provision.
Maryland
Unsolicited Takeovers Act
Subtitle 8 of Title 3 of the MGCL
permits a Maryland corporation with a class of equity securities registered
under the Securities Exchange Act and at least three independent directors to
elect to be subject, by provision in its charter or bylaws or a resolution of
its board of directors and notwithstanding any contrary provision in the charter
or bylaws, to any or all of five provisions:
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a
two-thirds vote requirement for removing a
director;
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a
requirement that the number of directors be fixed only by vote of
directors;
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a
requirement that a vacancy on the board be filled only by the remaining
directors and for the remainder of the full term of the directorship in
which the vacancy occurred; and
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a
majority requirement for the calling of a special meeting of
stockholders.
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Through provisions in our charter and
bylaws unrelated to Subtitle 8, we (1) have a classified board, (2) require
an 80% vote for the removal of any director from the board, (3) vest in the
board the exclusive power to fix the number of directorships and
(4) provide that unless called by our chairman of our board of directors,
our president or our board of directors, a special meeting of stockholders may
only be called by our secretary upon the written request of the stockholders
entitled to cast not less than a majority of all the votes entitled to be cast
at the meeting.
Limitation
of Liability and Indemnification
The MGCL permits a Maryland
corporation to include in its charter a provision limiting the liability of its
directors and officers to the corporation and its stockholders for money
damages, except for liability resulting from:
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actual
receipt of an improper benefit or profit in money, property or services;
or
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active
and deliberate dishonesty established by a final judgment and which is
material to the cause of action.
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Our charter contains such a provision
that eliminates directors’ and officers’ liability to the maximum extent
permitted by Maryland law. These limitations of liability do not apply to
liabilities arising under the federal securities laws and do not generally
affect the availability of equitable remedies such as injunctive relief or
rescission.
Our officers and directors are and
will be indemnified under Maryland law and our articles of incorporation, as
amended, against certain liabilities. Our charter requires us to
indemnify our directors and officers to the fullest extent permitted from time
to time by the laws of the State of Maryland.
Maryland law requires a corporation
(unless its charter provides otherwise, which our charter does not) to indemnify
a director or officer who has been successful in the defense of any proceeding
to which he or she is made, or threatened to be made, a party by reason of his
or her service in that capacity. Maryland law 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, or threatened to be
made, a party by reason of their service in those or other capacities unless it
is established that:
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the
act or omission of the director or officer was material to the matter
giving rise to the proceeding and (1) was committed in bad faith or
(2) 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 Maryland law, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a judgment of liability on the basis of
that personal benefit was improperly received, unless in either case a court
orders indemnification and then only for expenses. In addition, Maryland law
permits a corporation to advance reasonable expenses to a director or officer
upon the corporation’s receipt of:
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a
written affirmation by the director or officer of his or her good faith
belief that he or she has met the standard of conduct necessary for
indemnification by the corporation;
and
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a
written undertaking by him or her on his or her behalf to repay the amount
paid or reimbursed by the corporation if it is ultimately determined that
the standard of conduct was not
met.
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We
maintain liability insurance for each director and officer for certain losses
arising from claims or charges made against them while acting in their
capacities as our directors or officers.
Insofar
as the foregoing provisions permit indemnification of directors, executive
officers or persons controlling us for liability arising under the Securities
Act, we have been informed that, in the opinion of the SEC, this indemnification
is against public policy as expressed in the Securities Act and is therefore
unenforceable.
DESCRIPTION
OF PREFERRED STOCK
As of the date hereof, 150,000 shares
are classified as Series A Junior Participating Preferred Stock, par value
$.0001 per share. None of the Series A Junior Participating Preferred
Stock is issued or outstanding. Shares of our Series A Junior Participating
Preferred Stock may be issued under our shareholder rights plan, which is
summarized above.
The following description of our
preferred stock sets forth certain general terms and provisions of our preferred
stock to which any prospectus supplement may relate. The statements below
describing the preferred stock are in all respects subject to and qualified in
their entirety by reference to the applicable provisions of our charter
(including the applicable articles supplementary) and bylaws.
General
Subject to limitations prescribed by
Maryland law and our charter, our board of directors is authorized to fix the
number of shares constituting each class or series of preferred stock and the
designations and powers, preferences and relative, participating, optional or
other special rights and qualifications, limitations or restrictions thereof,
including those provisions as may be desired concerning voting, redemption,
dividends, dissolution or the distribution of assets, conversion or exchange,
and those other subjects or matters as may be fixed by resolution of our board
of directors or duly authorized committee thereof. The preferred stock will,
when issued, be fully paid and nonassessable and, except as may be determined by
our board of directors and set forth in the articles supplementary setting forth
the terms of any class or series of preferred stock, will not have, or be
subject to, any preemptive or similar rights.
You should refer to the prospectus
supplement relating to the class or series of preferred stock offered thereby
for specific terms, including:
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(1)
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The
class or series, title and stated value of that preferred
stock;
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(2)
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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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(3)
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The
dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to that preferred
stock;
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(4)
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Whether
dividends on that preferred stock shall be cumulative or not and, if
cumulative, the date from which dividends on that preferred stock shall
accumulate;
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(5)
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The
procedures for any auction and remarketing, if any, for that preferred
stock;
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(6)
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Provisions
for a sinking fund, if any, for that preferred
stock;
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(7)
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Provisions
for redemption, if applicable, of that preferred
stock;
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(8)
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Any
listing of that preferred stock on any securities
exchange;
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(9)
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The
terms and conditions, if applicable, upon which that preferred stock will
be convertible into our common stock, including the conversion price (or
manner of calculation thereof);
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(10)
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Whether
interests in that preferred stock will be represented by our depositary
shares;
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(11)
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The
relative ranking and preference of the preferred stock as to distribution
rights and rights upon our liquidation, dissolution or winding up if other
than as described in this
prospectus;
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(12)
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Any
limitations on issuance of any other series of preferred stock ranking
senior to or on a parity with the preferred stock as to distribution
rights and rights upon our liquidation, dissolution or winding
up;
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(13)
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A
discussion of certain federal income tax considerations applicable to that
preferred stock;
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(14)
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Any
limitations on actual, beneficial or constructive ownership and
restrictions on transfer of that preferred stock and, if convertible, the
related common stock, in each case as may be appropriate to preserve our
status as a REIT; and
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(15)
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Any
other material terms, preferences, rights, limitations or restrictions of
that preferred stock.
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Rank
Unless otherwise specified in the
applicable prospectus supplement and the articles supplementary setting forth
the terms of any class or series of preferred stock, the preferred stock will,
with respect to rights to the payment of dividends and distribution of our
assets and rights upon our liquidation, dissolution or winding up,
rank:
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(1)
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senior
to all classes or series of our common stock and excess stock and to all
of our equity securities the terms of which provide that those equity
securities are junior to the preferred
stock;
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(2)
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on
a parity with all of our equity securities other than those referred to in
clauses (1) and (3); and
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(3)
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junior
to all of our equity securities the terms of which provide that those
equity securities will rank senior to
it.
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Dividends
Holders of shares of our preferred
stock of each class or series shall be entitled to receive, when, as and if
authorized by our board of directors and declared by us, out of our assets
legally available for payment, cash dividends at rates and on dates that will be
set forth in the applicable prospectus supplement and the articles supplementary
setting forth the terms of any class or series of preferred stock. Each dividend
shall be payable to holders of record as they appear on our stock transfer books
on the record dates as shall be fixed by our board of directors.
Dividends on any class or series of our
preferred stock may be cumulative or non-cumulative, as provided in the
applicable prospectus supplement and the articles supplementary setting forth
the terms of any class or series of preferred stock. Dividends, if
cumulative, will accumulate from and after the date set forth in the applicable
prospectus supplement and the articles supplementary setting forth the terms of
any class or series of preferred stock. If our board of directors
fails to authorize a dividend payable on a dividend payment date on any class or
series of our preferred stock for which dividends are noncumulative, then the
holders of that class or series of our preferred stock will have no right to
receive a dividend in respect of the dividend period ending on that dividend
payment date, and we will have no obligation to pay the dividend accrued for
that period, whether or not dividends on that class or series are declared
payable on any future dividend payment date.
If any shares of our preferred stock of
any class or series are outstanding, no full dividends shall be declared or paid
or set apart for payment on our preferred stock of any other class or series
ranking, as to dividends, on a parity with or junior to the preferred stock of
that class or series for any period unless:
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(1)
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if
that class or series of preferred stock has a cumulative dividend, full
cumulative dividends have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for
that payment on the preferred stock of that class or series for all past
dividend periods and the then current dividend period,
or
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(2)
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if
that class or series of preferred stock does not have a cumulative
dividend, full dividends for the then current dividend period have been or
contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for that payment on the preferred stock
of that class or series.
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When dividends are not paid in full (or
a sum sufficient for their full payment is not so set apart) upon the shares of
preferred stock of any class or series and the shares of any other class or
series of preferred stock ranking on a parity as to dividends with the preferred
stock of that class or series, all dividends declared upon shares of preferred
stock of that class or series and any other class or series of preferred stock
ranking on a parity as to dividends with that preferred stock shall be declared
pro rata so that the amount of dividends declared per share on the preferred
stock of that class or series and that other class or series of preferred stock
shall in all cases bear to each other the same ratio that accrued and unpaid
dividends per share on the shares of preferred stock of that class or series
(which shall not include any accumulation in respect of unpaid dividends for
prior dividend periods if that preferred stock does not have a cumulative
dividend) and that other class or series of preferred stock bear to each other.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any dividend payment or payments on preferred stock of that series that may be
in arrears.
Except as provided in the immediately
preceding paragraph, unless: (1) if that class or series of preferred stock has
a cumulative dividend, full cumulative dividends on the preferred stock of that
class or series have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period; and (2) if that class or
series of preferred stock does not have a cumulative dividend, full dividends on
the preferred stock of that class or series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
aside for payment for the then current dividend period, then no dividends (other
than in our common stock or other stock ranking junior to the preferred stock of
that class or series as to dividends and upon our liquidation, dissolution or
winding up) shall be declared or paid or set aside for payment or other
distribution shall be declared or made upon our common stock, excess stock or
any of our other stock ranking junior to or on a parity with the preferred stock
of that class or series as to dividends or upon our liquidation, nor shall any
common stock, excess stock or any of our other stock ranking junior to or on a
parity with the preferred stock of such class or series as to dividends or upon
our liquidation, dissolution or winding up be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for a
sinking fund for the redemption of any shares of that stock) by us (except by
conversion into or exchange for other of our stock ranking junior to the
preferred stock of that class or series as to dividends and upon our
liquidation, dissolution or winding up).
Any dividend payment made on shares of
a class or series of preferred stock shall first be credited against the
earliest accrued but unpaid dividend due with respect to shares of that class or
series which remains payable.
Redemption
If the applicable prospectus supplement
and the articles supplementary setting forth the terms of any class or series of
preferred stock so states, the shares of preferred stock will be subject to
mandatory redemption or redemption at our option, in whole or in part, in each
case on the terms, at the times and at the redemption prices set forth in that
prospectus supplement and the articles supplementary setting forth the terms of
any class or series of preferred stock.
The prospectus supplement relating to a
class or series of preferred stock that is subject to mandatory redemption will
specify the number of shares of that preferred stock that shall be redeemed by
us in each year commencing after a date to be specified, at a redemption price
per share to be specified, together with an amount equal to all accrued and
unpaid dividends thereon (which shall not, if that preferred stock does not have
a cumulative dividend, include any accumulation in respect of unpaid dividends
for prior dividend periods) to the date of redemption. The redemption price may
be payable in cash or other property, as specified in the applicable prospectus
supplement. If the redemption price for preferred stock of any series is payable
only from the net proceeds of the issuance of our stock, the terms of that
preferred stock may provide that, if no such stock shall have been issued or to
the extent the net proceeds from any issuance are insufficient to pay in full
the aggregate redemption price then due, that preferred stock shall
automatically and mandatorily be converted into shares of our applicable stock
pursuant to conversion provisions specified in the applicable prospectus
supplement. Notwithstanding the foregoing, unless:
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(1)
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if
that class or series of preferred stock has a cumulative dividend, full
cumulative dividends on all outstanding shares of any class or series of
preferred stock shall have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend
period; and
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(2)
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if
that class or series of preferred stock does not have a cumulative
dividend, full dividends on the preferred stock of any class or series
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for the then
current dividend period.
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Unless otherwise specified in the
applicable prospectus supplement and the articles supplementary setting forth
the terms of any class or series of preferred stock no shares of any class
or series of preferred stock shall be redeemed unless all outstanding shares of
preferred stock of that class or series are simultaneously redeemed; provided,
however, that the foregoing shall not prevent the purchase or acquisition of
shares of preferred stock of that class or series pursuant to a purchase or
exchange offer made on the same terms to holders of all outstanding shares of
preferred stock of that class or series.
In addition, unless:
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(1)
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if
that class or series of preferred stock has a cumulative dividend, full
cumulative dividends on all outstanding shares of any class or series of
preferred stock have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for
payment for all past dividend periods and the then current dividend
period; and
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(2)
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if
that class or series of preferred stock does not have a cumulative
dividend, full dividends on the preferred stock of any class or series
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for payment for the then
current dividend period;
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we shall
not purchase or otherwise acquire directly or indirectly any shares of preferred
stock of that class or series (except by conversion into or exchange for our
stock ranking junior to the preferred stock of that class or series as to
dividends and upon our liquidation, dissolution or winding up).
If fewer than all of the outstanding
shares of preferred stock of any class or series are to be redeemed, the number
of shares to be redeemed will be determined by us and those shares may be
redeemed pro rata from the holders of record of those shares in proportion to
the number of those shares held by those holders (with adjustments to avoid
redemption of fractional shares) or by any other equitable method determined by
us that will not result in the issuance of any excess preferred
stock.
Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
holder of record of a share of preferred stock of any class or series to be
redeemed at the address shown on our stock transfer books. Each notice shall
state:
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(2)
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the
number of shares and class or series of the preferred stock to be
redeemed;
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(3)
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the
redemption price;
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(4)
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the
place or places where certificates for that preferred stock are to be
surrendered for payment of the redemption
price;
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(5)
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that
dividends on the shares to be redeemed will cease to accrue on that
redemption date; and
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(6)
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the
date upon which the holder’s conversion rights, if any, as to those shares
shall terminate.
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If fewer than all the shares of
preferred stock of any class or series are to be redeemed, the notice mailed to
each holder thereof shall also specify the number of shares of preferred stock
to be redeemed from each holder. If notice of redemption of any shares of
preferred stock has been given and if the funds necessary for that redemption
have been set apart by us in trust for the benefit of the holders of any shares
of preferred stock so called for redemption, then from and after the redemption
date dividends will cease to accrue on those shares of preferred stock, those
shares of preferred stock shall no longer be deemed outstanding and all rights
of the holders of those shares will terminate, except the right to receive the
redemption price.
Liquidation
Preference
Upon our voluntary or involuntary
liquidation, dissolution or winding up, then, before any distribution or payment
shall be made to the holders of any common stock, excess stock or any other
class or series of our stock ranking junior to that class or series of preferred
stock in the distribution of assets upon our liquidation, dissolution or winding
up, the holders of each class or series of preferred stock shall be entitled to
receive out of our assets legally available for distribution to stockholders
liquidating distributions in the amount of the liquidation preference per share
(set forth in the applicable prospectus supplement), plus an amount equal to all
dividends accrued and unpaid thereon (which shall not include any accumulation
in respect of unpaid dividends for prior dividend periods if that class or
series of preferred stock does not have a cumulative dividend). After payment of
the full amount of the liquidating distributions to which they are entitled, the
holders of that class or series of preferred stock will have no right or claim
to any of our remaining assets. If, upon our voluntary or involuntary
liquidation, dissolution or winding up, our legally available assets are
insufficient to pay the amount of the liquidating distributions on all
outstanding shares of that class or series of preferred stock and the
corresponding amounts payable on all shares of other classes or series of our
stock ranking on a parity with that class or series of preferred stock in the
distribution of assets upon our liquidation, dissolution or winding up, then the
holders of that class or series of preferred stock and all other classes or
series of stock shall share ratably in that distribution of assets in proportion
to the full liquidating distributions to which they would otherwise be
respectively entitled.
If liquidating distributions shall have
been made in full to all holders of shares of that class or series of preferred
stock, our remaining assets shall be distributed among the holders of any other
classes or series of stock ranking junior to that class or series of preferred
stock upon our liquidation, dissolution or winding up, according to their
respective rights and preferences and in each case according to their respective
number of shares. For those purposes, neither our consolidation or merger with
or into any other corporation, trust or other entity nor the sale, lease,
transfer or conveyance of all or substantially all of our property or business
shall be deemed to constitute our liquidation, dissolution or winding
up.
Voting
Rights
Except as set forth below or as
otherwise from time to time required by law or as indicated in the applicable
prospectus supplement and the articles supplementary setting forth the terms of
any class or series of preferred stock, holders of preferred stock will not have
any voting rights.
Whenever dividends on any shares of
that class or series of preferred stock shall be in arrears for six or more
quarterly periods, regardless of whether those quarterly periods are
consecutive, the holders of those shares of that class or series of preferred
stock (voting separately as a class with all other classes or series of
preferred stock upon which like voting rights have been conferred and are
exercisable) will be entitled to vote for the election of two additional
directors to our board of directors (and our entire board of directors will be
increased by two directors) at a special meeting called by one of our officers
at the request of a holder of that class or series of preferred stock or, if
that special meeting is not called by that officer within 30 days, at a special
meeting called by a holder of that class or series of preferred stock designated
by the holders of record of at least 10% of the shares of any of those classes
or series of preferred stock (unless that request is received less than 90 days
before the date fixed for the next annual or special meeting of the
stockholders), or at the next annual meeting of stockholders, and at each
subsequent annual meeting until:
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(1)
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if
that class or series of preferred stock has a cumulative dividend, all
dividends accumulated on those shares of preferred stock for the past
dividend periods and the then current dividend period shall have been
fully paid or declared and a sum sufficient for the payment thereof set
apart for payment, or
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(2)
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if
that class or series of preferred stock does not have a cumulative
dividend, four consecutive quarterly dividends shall have been fully paid
or declared and a sum sufficient for the payment thereof set apart for
payment.
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Unless provided otherwise for any
series of preferred stock, so long as any shares of preferred stock remain
outstanding, we shall not, without the affirmative vote or consent of the
holders of at least two-thirds of the shares of each class or series of
preferred stock outstanding at the time, given in person or by proxy, either in
writing or at a meeting (that class or series voting separately as a
class):
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(1)
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authorize
or create, or increase the authorized or issued amount of, any class or
series of stock ranking senior to that class or series of preferred stock
with respect to payment of dividends or the distribution of assets upon
our liquidation, dissolution or winding up or reclassify any of our
authorized stock into those shares, or create, authorize or issue any
obligation or security convertible into or evidencing the right to
purchase those shares; or
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(2)
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amend,
alter or repeal the provisions of the charter in respect of that class or
series of preferred stock, whether by merger, consolidation or otherwise,
so as to materially and adversely affect any right, preference, privilege
or voting power of that class or series of preferred stock; provided,
however, that any increase in the amount of the authorized preferred stock
or the creation or issuance of any other class or series of preferred
stock, or any increase in the number of authorized shares of that class or
series, in each case ranking on a parity with or junior to the preferred
stock of that class or series with respect to payment of dividends and the
distribution of assets upon our liquidation, dissolution or winding
up, shall not be deemed to materially and adversely affect those rights,
preferences, privileges or voting
powers.
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The foregoing voting provisions will
not apply if, at or prior to the time when the act with respect to which that
vote would otherwise be required shall be effected, all outstanding shares of
that class or series of preferred stock shall have been redeemed or called for
redemption upon proper notice and sufficient funds shall have been irrevocably
deposited in trust to effect that redemption.
Conversion
Rights
The terms and conditions, if any, upon
which shares of any class or series of preferred stock are convertible into
common stock, debt securities or another series of preferred stock will be set
forth in the applicable prospectus supplement relating thereto and the articles
supplementary setting forth the terms of any class or series of preferred stock.
Such terms will include the number of shares of common stock or those other
series of preferred stock or the principal amount of debt securities into which
the preferred stock is convertible, the conversion price (or manner of
calculation thereof), the conversion period, provisions as to whether conversion
will be at our option or at the option of the holders of that class or series of
preferred stock, the events requiring an adjustment of the conversion price and
provisions affecting conversion in the event of the redemption of that class or
series of preferred stock.
Restrictions
on Ownership and Transfer
See “Description of Common
Stock—Restrictions on Ownership and Transfer,” for a discussion of the
restrictions on ownership and transfer of shares of capital stock necessary for
us to qualify as a REIT under the Code.
Transfer
Agent and Registrar
The transfer agent and registrar for
the preferred stock will be set forth in the applicable prospectus
supplement.
DESCRIPTION
OF DEPOSITARY SHARES
General
We may issue depositary shares, each
of which would represent a fractional interest of a share of a particular series
of preferred stock. We will deposit shares of preferred stock represented by
depositary shares under a separate deposit agreement among us, a preferred stock
depositary and the holders of the depositary shares. Subject to the terms of the
deposit agreement, each owner of a depositary share will possess, in proportion
to the fractional interest of a share of preferred stock represented by the
depositary share, all the rights and preferences of the preferred stock
represented by the depositary shares.
Depositary receipts will evidence the
depositary shares issued pursuant to the deposit agreement. Immediately after we
issue and deliver preferred stock to a preferred stock depositary, the preferred
stock depositary will issue the depositary receipts.
Dividends
and Other Distributions
The depositary will distribute all
cash dividends on the preferred stock to the record holders of the depositary
shares. Holders of depositary shares generally must file proofs,
certificates and other information and pay charges and expenses of the
depositary in connection with distributions.
If a distribution on the preferred
stock is other than in cash and it is feasible for the depositary to distribute
the property it receives, the depositary will distribute the property to the
record holders of the depositary shares. If such a distribution is not feasible
and we approve, the depositary may sell the property and distribute the net
proceeds from the sale to the holders of the depositary shares.
Withdrawal
of Stock
Unless we have previously called the
underlying preferred stock for redemption or the holder of the depositary shares
has converted such shares, a holder of depositary shares may surrender them at
the corporate trust office of the depositary in exchange for whole or fractional
shares of the underlying preferred stock together with any money or other
property represented by the depositary shares. Once a holder has exchanged the
depositary shares, the holder may not redeposit the preferred stock and receive
depositary shares again. If a depositary receipt presented for exchange into
preferred stock represents more shares of preferred stock than the number to be
withdrawn, the depositary will deliver a new depositary receipt for the excess
number of depositary shares.
Redemption
of Depositary Shares
Whenever we redeem shares of
preferred stock held by a depositary, the depositary will redeem the
corresponding amount of depositary shares. The redemption price per depositary
share will be equal to the applicable fraction of the redemption price and any
other amounts payable with respect to the preferred stock. If we intend to
redeem less than all of the underlying preferred stock, our company and the
depositary will select the depositary shares to be redeemed as nearly pro rata
as practicable without creating fractional depositary shares or by any other
equitable method determined by us that preserves our REIT status.
On the redemption date:
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·
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all
dividends relating to the shares of preferred stock called for redemption
will cease to accrue;
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·
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our
company and the depositary will no longer deem the depositary shares
called for redemption to be outstanding;
and
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·
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all
rights of the holders of the depositary shares called for redemption will
cease, except the right to receive any money payable upon the redemption
and any money or other property to which the holders of the depositary
shares are entitled upon
redemption.
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Voting
of the Preferred Stock
When a depositary receives notice
regarding a meeting at which the holders of the underlying preferred stock have
the right to vote, it will mail that information to the holders of the
depositary shares. Each record holder of depositary shares on the record date
may then instruct the depositary to exercise its voting rights for the amount of
preferred stock represented by that holder’s depositary shares. The depositary
will vote in accordance with these instructions. The depositary will abstain
from voting to the extent it does not receive specific instructions from the
holders of depositary shares. A depositary will not be responsible for any
failure to carry out any instruction to vote, or for the manner or effect of any
vote, as long as any action or non-action is in good faith and does not result
from negligence or willful misconduct of the depositary.
Liquidation
Preference
In the event of our liquidation,
dissolution or winding up, a holder of depositary shares will receive the
fraction of the liquidation preference accorded each share of underlying
preferred stock represented by the depositary share.
Conversion
of Preferred Stock
Depositary shares will not themselves
be convertible into our common stock or any other securities or property of our
company. However, if the underlying preferred stock is convertible,
holders of depositary shares may surrender them to the depositary with written
instructions to convert the preferred stock represented by their depositary
shares into whole shares of common stock, other shares of our preferred stock or
other shares of stock, as applicable. Upon receipt of these instructions and any
amounts payable in connection with a conversion, we will convert the preferred
stock using the same procedures as those provided for delivery of preferred
stock. If a holder of depositary shares converts only part of its depositary
shares, the depositary will issue a new depositary receipt for any depositary
shares not converted. We will not issue fractional shares of common stock upon
conversion. If a conversion will result in the issuance of a fractional share,
we will pay an amount in cash equal to the value of the fractional interest
based upon the closing price of the common stock on the last business day prior
to the conversion.
Amendment
and Termination of a Deposit Agreement
Our company and the depositary may
amend any form of depositary receipt evidencing depositary shares and any
provision of a deposit agreement. However, unless the existing holders of at
least two-thirds of the applicable depositary shares then outstanding have
approved the amendment, we may not make any amendment that:
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would
materially and adversely alter the rights of the holders of depositary
shares; or
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·
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would
be materially and adversely inconsistent with the rights granted to the
holders of the underlying preferred
stock.
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Subject to exceptions in the deposit
agreement and except in order to comply with the law, no amendment may impair
the right of any holders of depositary shares to surrender their depositary
shares with instructions to deliver the underlying preferred stock and all money
and other property represented by the depositary shares. Every holder of
outstanding depositary shares at the time any amendment becomes effective who
continues to hold the depositary shares will be deemed to consent and agree to
the amendment and to be bound by the amended deposit agreement.
We may terminate a deposit agreement
upon not less than 30 days’ prior written notice to the depositary
if:
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the
termination is necessary to preserve our REIT status;
or
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·
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a
majority of each series of preferred stock affected by the termination
consents to the termination.
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Upon a termination of a deposit
agreement, holders of the depositary shares may surrender their depositary
shares and receive in exchange the number of whole or fractional shares of
preferred stock and any other property represented by the depositary shares. If
we terminate a deposit agreement to preserve our status as a REIT, then we will
use our best efforts to list the preferred stock issued upon surrender of the
related depositary shares on a national securities exchange.
In addition, a deposit agreement will
automatically terminate if:
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·
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we
have redeemed all underlying preferred stock subject to the
agreement;
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·
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a
final distribution of the underlying preferred stock in connection with
any liquidation, dissolution or winding up has occurred, and the
depositary has distributed the distribution to the holders of the
depositary shares; or
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·
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each
share of the underlying preferred stock has been converted into other
capital stock of our company not represented by depositary
shares.
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Charges
of a Preferred Stock Depositary
We will pay all transfer and other
taxes and governmental charges arising in connection with a deposit agreement.
In addition, we will generally pay the fees and expenses of a depositary in
connection with the performance of its duties. However, holders of depositary
shares will pay the fees and expenses of a depositary for any duties requested
by the holders that the deposit agreement does not expressly require the
depositary to perform.
Resignation
and Removal of Depositary
A depositary may resign at any time
by delivering to us notice of its election to resign. We may also remove a
depositary at any time. Any resignation or removal will take effect upon the
appointment of a successor depositary. We will appoint a successor depositary
within 60 days after delivery of the notice of resignation or removal. The
successor must be a bank or trust company with its principal office in the
United States and have a combined capital and surplus of at least $50
million.
Miscellaneous
The depositary will forward to the
holders of depositary shares any reports and communications from us with respect
to the underlying preferred stock.
Neither the depositary nor our
company will be liable if any law or any circumstances beyond their control
prevent or delay them from performing their obligations under a deposit
agreement. The obligations of our company and a depositary under a deposit
agreement will be limited to performing our duties in good faith and without
negligence in regard to voting of preferred stock, gross negligence or willful
misconduct. Neither us nor a depositary must prosecute or defend any legal
proceeding with respect to any depositary shares or the underlying preferred
stock unless they are furnished with satisfactory indemnity.
Our company and any depositary may
rely on the written advice of counsel or accountants, or information provided by
persons presenting shares of preferred stock for deposit, holders of depositary
shares or other persons they believe in good faith to be competent, and on
documents they believe in good faith to be genuine and signed by a proper
party.
In the event a depositary receives
conflicting claims, requests or instructions from our company and any holders of
depositary shares, the depositary will be entitled to act on the claims,
requests or instructions received from us.
Depositary
The prospectus supplement will
identify the depositary for the depositary shares.
Listing
of the Depositary Shares
The prospectus supplement will
specify whether or not the depositary shares will be listed on any securities
exchange.
DESCRIPTION
OF WARRANTS
We may issue warrants for the purchase
of our common stock or preferred stock. Warrants may be issued
independently or together with any of the other securities offered by this
prospectus that are offered by any prospectus supplement and may be attached to
or separate from the securities offered by this prospectus. Each series of
warrants will be issued under a separate warrant agreement to be entered into
between us and a warrant agent specified in the applicable prospectus
supplement. The warrant agent will act solely as our agent in connection
with the warrants of such series and will not assume any obligation or
relationship of agency or trust for or with any holders or beneficial owners of
warrants.
The applicable prospectus supplement
will describe the terms of the warrants in respect of which this prospectus is
being delivered, including, where applicable, the following:
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(1)
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the
title of the warrants;
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(2)
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the
aggregate number of the warrants;
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(3)
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the
price or prices at which the warrants will be
issued;
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(4)
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the
designation, number and terms of the securities purchasable upon exercise
of the warrants;
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(5)
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the
designation and terms of the other securities offered by this prospectus
with which the warrants are issued and the number of the warrants issued
with each security offered by this
prospectus;
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(6)
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the
date, if any, on and after which the warrants and the related securities
will be separately transferable;
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(7)
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the
price or prices at which the securities purchasable upon exercise of the
warrants may be purchased;
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(8)
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the
date on which the right to exercise the warrants shall commence and the
date on which that right shall
expire;
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(9)
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the
minimum or maximum amount of the warrants which may be exercised at any
one time;
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(10)
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information
with respect to book-entry procedures, if
any;
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(11)
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a
discussion of federal income tax considerations;
and
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(12)
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any
other material terms of the warrants, including terms, procedures and
limitations relating to the exchange and exercise of the
warrants.
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FEDERAL
INCOME TAX CONSIDERATIONS
The following summary of federal income
tax considerations is based on existing law, and is limited to investors who own
our shares as investment assets rather than as inventory or as property used in
a trade or business. The summary does not discuss all of the particular tax
consequences that might be relevant to you if you are subject to special rules
under federal income tax law, for example if you are:
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a
bank, life insurance company, regulated investment company, or other
financial institution;
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a
broker, dealer or trader in securities or foreign
currency;
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a
person who has a functional currency other than the U.S.
dollar;
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a
person who acquires our shares in connection with employment or other
performance of services;
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a
person subject to alternative minimum
tax;
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·
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a
person who owns our shares as part of a straddle, hedging transaction,
constructive sale transaction, constructive ownership transaction, or
conversion transaction; or
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·
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except
as specifically described in the following summary, a tax-exempt entity or
a foreign person.
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The Code sections that govern federal
income tax qualification and treatment of a REIT and its stockholders are
complex. This presentation is a summary of applicable Code provisions, related
rules and regulations, and administrative and judicial interpretations, all of
which are subject to change, possibly with retroactive effect. Future
legislative, judicial, or administrative actions or decisions could also affect
the accuracy of statements made in this summary. We have not received a ruling
from the Internal Revenue Service, or IRS, with respect to any matter described
in this summary, and we cannot assure you that the IRS or a court will agree
with the statements made in this summary. The IRS or a court could, for example,
take a different position, which could result in significant tax liabilities for
applicable parties, from that described in this summary with respect to our
acquisitions, operations, restructurings or any other matters described in this
summary. In addition, this summary is not exhaustive of all possible tax
consequences, and does not discuss any estate, gift, state, local, or foreign
tax consequences. For all these reasons, we urge you and any prospective
acquiror of our shares to consult with a tax advisor about the federal income
tax and other tax consequences of the acquisition, ownership and disposition of
our shares. Our intentions and beliefs described in this summary are based upon
our understanding of applicable laws and regulations that are in effect as of
the date of the filing of this prospectus. If new laws or regulations
are enacted which impact us directly or indirectly, we may change our intentions
or beliefs.
Your federal income tax consequences
may differ depending on whether or not you are a “U.S. stockholder.” For
purposes of this summary, a “U.S. stockholder” for federal income tax purposes
is:
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a
citizen or resident of the United States, including an alien individual
who is a lawful permanent resident of the United States or meets the
substantial presence residency test under the federal income tax
laws;
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an
entity treated as a corporation for federal income tax purposes, that is
created or organized in or under the laws of the United States, any state
thereof or the District of
Columbia;
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an
estate the income of which is subject to federal income taxation
regardless of its source; or
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a
trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United
States persons have the authority to control all substantial decisions of
the trust, or an electing trust in existence on August 20, 1996, to
the extent provided in Treasury
regulations;
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whose
status as a U.S. stockholder is not overridden by an applicable tax treaty.
Conversely, a “non-U.S. stockholder” is a beneficial owner of our shares who is
not a U.S. stockholder. If a partnership (including any entity treated as a
partnership for federal income tax purposes) is a beneficial owner of our
shares, the tax treatment of a partner in the partnership generally will depend
upon the status of the partner and the activities of the partnership. A
beneficial owner that is a partnership and partners in such a partnership should
consult their tax advisors about the federal income tax consequences of the
acquisition, ownership and disposition of our shares.
Taxation
as a REIT
We have elected to be taxed as a REIT
under Sections 856 through 860 of the Code, commencing with our taxable
year ending December 31, 1994. Our REIT election, assuming
continuing compliance with the then applicable qualification tests, continues in
effect for subsequent taxable years. Although no assurance can be given, we
believe that we have been organized and have operated, and will continue to be
organized and to operate, in a manner that qualified and will continue to
qualify us to be taxed under the Code as a REIT.
As a REIT, we generally are not subject
to federal income tax on our net income distributed as dividends to our
stockholders. Distributions to our stockholders generally are included in their
income as dividends to the extent of our current or accumulated earnings and
profits. Our dividends are not generally entitled to the favorable 15% rate on
qualified dividend income (scheduled to increase to ordinary income rates for
taxable years beginning after December 31, 2010), but a portion of our
dividends may be treated as capital gain dividends, all as explained below. No
portion of any of our dividends is eligible for the dividends received deduction
for corporate stockholders. Distributions in excess of current or accumulated
earnings and profits generally are treated for federal income tax purposes as
return of capital to the extent of a recipient stockholder’s basis in our
shares, and will reduce this basis. Our current or accumulated earnings and
profits are generally allocated first to distributions made on our preferred
stock, and thereafter to distributions made on our common stock. For all these
purposes, our distributions include both cash distributions and any in kind
distributions of property that we might make.
Our counsel, DLA Piper LLP (US), has
opined that we have been organized and have qualified as a REIT under the Code
for our 2005 through 2008 taxable years, and that our current investments and
plan of operation enable us to continue to meet the requirements for
qualification and taxation as a REIT under the Code. Our continued qualification
and taxation as a REIT will depend upon our compliance with various
qualification tests imposed under the Code and summarized below. While we
believe that we will satisfy these tests, our counsel has not reviewed and will
not review compliance with these tests on a continuing basis. If we fail to
qualify as a REIT, we will be subject to federal income taxation as if we were a
C corporation and our stockholders will be taxed like stockholders of C
corporations. In this event, we could be subject to significant tax liabilities,
and the amount of cash available for distribution to our stockholders may be
reduced or eliminated.
If we qualify as a REIT and meet the
tests described below, we generally will not pay federal income tax on amounts
we distribute to our stockholders. However, even if we qualify as a REIT, we may
be subject to federal tax in the following circumstances:
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We
will be taxed at regular corporate rates on any undistributed “real estate
investment trust taxable income,” including our undistributed net capital
gains.
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If
our alternative minimum taxable income exceeds our taxable income, we may
be subject to the corporate alternative minimum tax on our items of tax
preference.
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If
we have net income from the disposition of “foreclosure property” that is
held primarily for sale to customers in the ordinary course of business or
from other nonqualifying income from foreclosure property, we will be
subject to tax on this income at the highest regular corporate rate,
currently 35%.
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If
we have net income from prohibited transactions, including dispositions of
inventory or property held primarily for sale to customers in the ordinary
course of business other than foreclosure property, we will be subject to
tax on this income at a 100% rate.
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If
we fail to satisfy the 75% gross income test or the 95% gross income test
discussed below, but nonetheless maintain our qualification as a REIT, we
will be subject to tax at a 100% rate on the greater of the amount by
which we fail the 75% or the 95% test, with adjustments, multiplied by a
fraction intended to reflect our
profitability.
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If
we fail to distribute for any calendar year at least the sum of 85% of our
REIT ordinary income for that year, 95% of our REIT capital gain net
income for that year, and any undistributed taxable income from prior
periods, we will be subject to a 4% nondeductible excise tax on the excess
of the required distribution over the amounts actually
distributed.
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If
we acquire an asset from a corporation in a transaction in which our basis
in the asset is determined by reference to the basis of the asset in the
hands of a present or former C corporation, and if we subsequently
recognize gain on the disposition of this asset during the ten year period
beginning on the date on which the asset ceased to be owned by the C
corporation, then we will pay tax at the highest regular corporate tax
rate, which is currently 35%, on the lesser of the excess of the fair
market value of the asset over the C corporation’s basis in the asset on
the date the asset ceased to be owned by the C corporation, or the gain we
recognize in the disposition.
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If
we acquire a corporation, to preserve our status as a REIT we must
generally distribute all of the C corporation earnings and profits
inherited in that acquisition, if any, not later than the end of the
taxable year of the acquisition. However, if we fail to do so, relief
provisions would allow us to maintain our status as a REIT provided we
distribute any subsequently discovered C corporation earnings and profits
and pay an interest charge in respect of the period of delayed
distribution. As discussed below, we have acquired a C Corporation in
connection with our acquisition of real estate. Our investigations of this
C Corporation indicated that it did not have undistributed earnings and
profits that we inherited but failed to timely distribute. However, upon
review or audit, the IRS may
disagree.
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As
summarized below, REITs are permitted within limits to own stock and
securities of a “taxable REIT subsidiary.” A taxable REIT subsidiary is
separately taxed on its net income as a C corporation, and is subject to
limitations on the deductibility of interest expense paid to its REIT
parent. In addition, its REIT parent is subject to a 100% tax on the
difference between amounts charged and redetermined rents and deductions,
including excess interest.
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If
and to the extent we invest in properties in foreign jurisdictions, our
income from those properties will generally be subject to tax in those
jurisdictions. If we continue to operate as we do, then we will distribute
our taxable income to our stockholders each year and we will generally not
pay federal income tax. As a result, we cannot recover the cost of foreign
income taxes imposed on our foreign investments by claiming foreign tax
credits against our federal income tax liability. Also, we cannot pass
through to our stockholders any foreign tax
credits.
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If we fail to qualify or elect not to
qualify as a REIT, we will be subject to federal income tax in the same manner
as a C corporation. Distributions to our stockholders if we do not qualify as a
REIT will not be deductible by us nor will distributions be required under the
Code. In that event, distributions to our stockholders will generally be taxable
as ordinary dividends potentially eligible for the 15% income tax rate
(scheduled to increase to ordinary income rates for taxable years beginning
after December 31, 2010) discussed below in “Taxation of U.S. Stockholders”
and, subject to limitations in the Code, will be eligible for the dividends
received deduction for corporate stockholders. Also, we will generally be
disqualified from qualification as a REIT for the four taxable years following
disqualification. If we do not qualify as a REIT for even one year, this could
result in reduction or elimination of distributions to our stockholders, or in
our incurring substantial indebtedness or liquidating substantial investments in
order to pay the resulting corporate-level taxes. The Code provides certain
relief provisions under which we might avoid automatically ceasing to be a REIT
for failure to meet certain REIT requirements, all as discussed in more detail
below.
REIT
Qualification Requirements
General Requirements. Section
856(a) of the Code defines a REIT as a corporation, trust or
association:
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(1)
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that
is managed by one or more trustees or
directors;
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(2)
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the
beneficial ownership of which is evidenced by transferable shares or by
transferable certificates of beneficial
interest;
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(3)
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that
would be taxable, but for Sections 856 through 859 of the Code, as a
C corporation;
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(4)
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that
is not a financial institution or an insurance company subject to special
provisions of the Code;
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(5)
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the
beneficial ownership of which is held by 100 or more
persons;
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(6)
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that
is not “closely held” as defined under the personal holding company stock
ownership test, as described below;
and
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(7)
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that
meets other tests regarding income, assets and distributions, all as
described below.
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Section 856(b)
of the Code provides that conditions (1) through (4) must be met
during the entire taxable year and that condition (5) must be met during at
least 335 days of a taxable year of 12 months, or during a pro rata
part of a taxable year of less than 12 months. Section 856(h)(2) of
the Code provides that neither condition (5) nor (6) need be met for
our first taxable year as a REIT. We believe that we have met
conditions (1) through (7) during each of the requisite periods ending
on or before our most recently completed taxable year, and that we can continue
to meet these conditions in future taxable years. There can, however, be no
assurance in this regard.
By reason of condition (6), we
will fail to qualify as a REIT for a taxable year if at any time during the last
half of a year more than 50% in value of our outstanding shares is owned
directly or indirectly by five or fewer individuals. To help comply with
condition (6), our declaration of trust and bylaws restrict transfers of
our shares. In addition, if we comply with applicable Treasury regulations to
ascertain the ownership of our shares and do not know, or by exercising
reasonable diligence would not have known, that we failed condition (6),
then we will be treated as having met condition (6). However, our failure
to comply with these regulations for ascertaining ownership may result in a
penalty of $25,000, or $50,000 for intentional violations. Accordingly, we
intend to comply with these regulations, and to request annually from record
holders of significant percentages of our shares information regarding the
ownership of our shares. Under our declaration of trust and bylaws, our
stockholders are required to respond to these requests for
information.
For purposes of condition (6),
REIT shares held by a pension trust are treated as held directly by the pension
trust’s beneficiaries in proportion to their actuarial interests in the pension
trust. Consequently, five or fewer pension trusts could own more than 50% of the
interests in an entity without jeopardizing that entity’s federal income tax
qualification as a REIT. However, as discussed below, if a REIT is a
“pension-held REIT,” each pension trust owning more than 10% of the REIT’s
shares by value generally may be taxed on a portion of the dividends it receives
from the REIT.
The Code provides that we will not
automatically fail to be a REIT if we do not meet conditions (1) through
(6), provided we can establish reasonable cause for any such failure. Each such
excused failure will result in the imposition of a $50,000 penalty instead of
REIT disqualification. It is impossible to state whether in all circumstances we
would be entitled to the benefit of this relief provision. This relief provision
applies to any failure of the applicable conditions, even if the failure first
occurred in a prior taxable year, as long as each of the requirements of the
relief provision is satisfied after October 22, 2004.
Our Wholly Owned Subsidiaries and
Our Investments through Partnerships. Except in respect of
taxable REIT subsidiaries as discussed below, Section 856(i) of the Code
provides that any corporation, 100% of whose stock is held by a REIT, is a
qualified REIT subsidiary and shall not be treated as a separate corporation.
The assets, liabilities and items of income, deduction and credit of a qualified
REIT subsidiary are treated as the REIT’s. We believe that each of our direct
and indirect wholly owned subsidiaries, other than the taxable REIT subsidiaries
discussed below, will either be a qualified REIT subsidiary within the meaning
of Section 856(i) of the Code, or a noncorporate entity that for federal
income tax purposes is not treated as separate from its owner under regulations
issued under Section 7701 of the Code. Thus, except for the taxable REIT
subsidiaries discussed below, in applying all the federal income tax REIT
qualification requirements described in this summary, all assets, liabilities
and items of income, deduction and credit of our direct and indirect wholly
owned subsidiaries are treated as ours.
We have invested and may invest in real
estate through one or more limited or general partnerships or limited liability
companies that are treated as partnerships for federal income tax purposes. In
the case of a REIT that is a partner in a partnership, regulations under the
Code provide that, for purposes of the REIT qualification requirements regarding
income and assets discussed below, the REIT is deemed to own its proportionate
share of the assets of the partnership corresponding to the REIT’s proportionate
capital interest in the partnership and is deemed to be entitled to the income
of the partnership attributable to this proportionate share. In addition, for
these purposes, the character of the assets and gross income of the partnership
generally retain the same character in the hands of the REIT. Accordingly, our
proportionate share of the assets, liabilities, and items of income of each
partnership in which we are a partner is treated as ours for purposes of the
income tests and asset tests discussed below. In contrast, for purposes of the
distribution requirement discussed below, we must take into account as a partner
our share of the partnership’s income as determined under the general federal
income tax rules governing partners and partnerships under Sections 701
through 777 of the Code.
Taxable REIT
Subsidiaries. We are permitted to own any or all of the
securities of a “taxable REIT subsidiary” as defined in Section 856(l) of
the Code, provided that no more than 25% of our assets, at the close of each
quarter, is comprised of our investments in the stock or securities of our
taxable REIT subsidiaries. (For our 2001 through 2008 taxable years, no more
than 20% of our assets, at the close of each quarter, was permitted to be
comprised of our investments in the stock or securities of our taxable REIT
subsidiaries; before the introduction of taxable REIT subsidiaries in 2001, our
ability to own separately taxable corporate subsidiaries was more limited.)
Among other requirements, a taxable REIT subsidiary must:
(1) be a non-REIT corporation for
federal income tax purposes in which we directly or indirectly own
shares;
(2) join with us in making a taxable
REIT subsidiary election;
(3) not directly or indirectly operate
or manage a lodging facility or a health care facility; and
(4) not directly or indirectly provide
to any person, under a franchise, license, or otherwise, rights to any brand
name under which any lodging facility or health care facility is operated,
except that in limited circumstances a subfranchise, sublicense or similar right
can be granted to an independent contractor to operate or manage a lodging
facility or, after our 2008 taxable year, a health care facility.
In addition, a corporation other than a
REIT in which a taxable REIT subsidiary directly or indirectly owns more than
35% of the voting power or value will automatically be treated as a taxable REIT
subsidiary. Subject to the discussion below, we believe that we and each of our
taxable REIT subsidiaries have complied with, and will continue to comply with,
the requirements for taxable REIT subsidiary status at all times during which we
intend for a subsidiary’s taxable REIT subsidiary election to be in effect, and
we believe that the same will be true for any taxable REIT subsidiary that we
later form or acquire.
Our ownership of stock and securities
in taxable REIT subsidiaries is exempt from the 10% and 5% REIT asset tests
discussed below. Also, as discussed below, taxable REIT subsidiaries can perform
services for our tenants without disqualifying the rents we receive from those
tenants under the 75% or 95% gross income tests discussed below. Moreover,
because taxable REIT subsidiaries are taxed as C corporations that are separate
from us, their assets, liabilities and items of income, deduction and credit are
not generally imputed to us for purposes of the REIT qualification requirements
described in this summary. Therefore, taxable REIT subsidiaries can generally
undertake third-party management and development activities and activities not
related to real estate.
Restrictions are imposed on taxable
REIT subsidiaries to ensure that they will be subject to an appropriate level of
federal income taxation. For example, a taxable REIT subsidiary may not deduct
interest paid in any year to an affiliated REIT to the extent that the interest
payments exceed, generally, 50% of the taxable REIT subsidiary’s adjusted
taxable income for that year. However, the taxable REIT subsidiary may carry
forward the disallowed interest expense to a succeeding year, and deduct the
interest in that later year subject to that year’s 50% adjusted taxable income
limitation. In addition, if a taxable REIT subsidiary pays interest, rent, or
other amounts to its affiliated REIT in an amount that exceeds what an unrelated
third party would have paid in an arm’s length transaction, then the REIT
generally will be subject to an excise tax equal to 100% of the excessive
portion of the payment. Finally, if in comparison to an arm’s length
transaction, a tenant has overpaid rent to the REIT in exchange for underpaying
the taxable REIT subsidiary for services rendered, then the REIT may be subject
to an excise tax equal to 100% of the overpayment. There can be no assurance
that arrangements involving our taxable REIT subsidiaries will not result in the
imposition of one or more of these deduction limitations or excise taxes, but we
do not believe that we are or will be subject to these impositions.
Income
Tests. There are two gross income requirements for
qualification as a REIT under the Code:
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At
least 75% of our gross income (excluding: (a) gross income from sales
or other dispositions of property held primarily for sale; (b) any
income arising from “clearly identified” hedging transactions that we
enter into after July 30, 2008 to manage interest rate or price
fluctuations with respect to borrowings we incur to acquire or carry real
estate assets; (c) any income arising from “clearly identified”
hedging transactions that we enter into after July 30, 2008 primarily
to manage risk of currency fluctuations relating to any item that
qualifies under the 75% or 95% gross income tests; and (d) real
estate foreign exchange gain (as defined in Section 856(n)(2) of the
Code) that we recognize after July 30, 2008) must be derived from
investments relating to real property, including “rents from real
property” as defined under Section 856 of the Code, interest and gain
from mortgages on real property, income and gain from foreclosure
property, or dividends and gain from shares in other REITs. When we
receive new capital in exchange for our shares or in a public offering of
five-year or longer debt instruments, income attributable to the temporary
investment of this new capital in stock or a debt instrument, if received
or accrued within one year of our receipt of the new capital, is generally
also qualifying income under the 75% gross income
test.
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At
least 95% of our gross income (excluding: (a) gross income from sales
or other dispositions of property held primarily for sale; (b) any
income arising from “clearly identified” hedging transactions that we
enter into after December 31, 2004 to manage interest rate or price
fluctuations with respect to borrowings we incur to acquire or carry real
estate assets; (c) any income arising from “clearly identified”
hedging transactions that we enter into after July 30, 2008 primarily
to manage risk of currency fluctuations relating to any item that
qualifies under the 75% or 95% gross income tests; and (d) passive
foreign exchange gain (as defined in Section 856(n)(3) of the Code)
that we recognize after July 30, 2008) must be derived from a
combination of items of real property income that satisfy the 75% gross
income test described above, dividends, interest, gains from the sale or
disposition of stock, securities, or real property or, for financial
instruments entered into during our 2004 or earlier taxable years, certain
payments under interest rate swap or cap agreements, options, futures
contracts, forward rate agreements or similar financial
instruments.
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For
purposes of the 75% and 95% gross income tests outlined above, income derived
from a “shared appreciation provision” in a mortgage loan is generally treated
as gain recognized on the sale of the property to which it relates. Although we
will use our best efforts to ensure that the income generated by our investments
will be of a type that satisfies both the 75% and 95% gross income tests, there
can be no assurance in this regard.
In order to qualify as “rents from real
property” under Section 856 of the Code, several requirements must be
met:
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The
amount of rent received generally must not be based on the income or
profits of any person, but may be based on receipts or
sales.
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Rents
do not qualify if the REIT owns 10% or more by vote or value of the
tenant, whether directly or after application of attribution rules. While
we intend not to lease property to any party if rents from that property
would not qualify as rents from real property, application of the 10%
ownership rule is dependent upon complex attribution rules and
circumstances that may be beyond our control. For example, an unaffiliated
third party’s ownership directly or by attribution of 10% or more by value
of our shares, as well as an ownership position in the stock of one of our
tenants which, when added to our own ownership position in that tenant,
totals 10% or more by vote or value of the stock of that tenant, would
result in that tenant’s rents not qualifying as rents from real property.
Our declaration of trust and bylaws disallow transfers or purported
acquisitions, directly or by attribution, of our shares to the extent
necessary to maintain our REIT status under the Code. Nevertheless, there
can be no assurance that these provisions in our declaration of trust and
bylaws will be effective to prevent our REIT status from being jeopardized
under the 10% affiliated tenant rule. Furthermore, there can be no
assurance that we will be able to monitor and enforce these restrictions,
nor will our stockholders necessarily be aware of ownership of shares
attributed to them under the Code’s attribution
rules.
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There
is a limited exception to the above prohibition on earning “rents from
real property” from a 10% affiliated tenant, if the tenant is a taxable
REIT subsidiary. If at least 90% of the leased space of a property is
leased to tenants other than taxable REIT subsidiaries and 10% affiliated
tenants, and if the taxable REIT subsidiary’s rent for space at that
property is substantially comparable to the rents paid by nonaffiliated
tenants for comparable space at the property, then otherwise qualifying
rents paid by the taxable REIT subsidiary to the REIT will not be
disqualified on account of the rule prohibiting 10% affiliated
tenants.
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In
order for rents to qualify, we generally must not manage the property or
furnish or render services to the tenants of the property, except through
an independent contractor from whom we derive no income or, for our 2001
taxable year and thereafter, through one of our taxable REIT subsidiaries.
There is an exception to this rule permitting a REIT to perform customary
tenant services of the sort that a tax-exempt organization could perform
without being considered in receipt of “unrelated business taxable income”
as defined in Section 512(b)(3) of the Code. In addition, a de minimis amount of
noncustomary services will not disqualify income as “rents from real
property” so long as the value of the impermissible services does not
exceed 1% of the gross income from the
property.
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If
rent attributable to personal property leased in connection with a lease
of real property is 15% or less of the total rent received under the
lease, then the rent attributable to personal property will qualify as
“rents from real property”; if this 15% threshold is exceeded, the rent
attributable to personal property will not so qualify. For our taxable
years through December 31, 2000, the portion of rental income treated
as attributable to personal property was determined according to the ratio
of the tax basis of the personal property to the total tax basis of the
real and personal property that is rented. For our 2001 taxable year and
thereafter, the ratio is determined by reference to fair market values
rather than tax bases.
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We
believe that all or substantially all our rents have qualified and will qualify
as rents from real property for purposes of Section 856 of the
Code.
In order to qualify as mortgage
interest on real property for purposes of the 75% test, interest must derive
from a mortgage loan secured by real property with a fair market value, at the
time the loan is made, at least equal to the amount of the loan. If the amount
of the loan exceeds the fair market value of the real property, the interest
will be treated as interest on a mortgage loan in a ratio equal to the ratio of
the fair market value of the real property to the total amount of the mortgage
loan.
Absent the “foreclosure property” rules
of Section 856(e) of the Code, a REIT’s receipt of business operating
income from a property would not qualify under the 75% and 95% gross income
tests. But as foreclosure property, gross income from such a business operation
would so qualify. In the case of property leased by a REIT to a tenant,
foreclosure property is defined under applicable Treasury regulations to include
generally the real property and incidental personal property that the REIT
reduces to possession upon a default or imminent default under the lease by the
tenant, and as to which a foreclosure property election is made by attaching an
appropriate statement to the REIT’s federal income tax return.
Any gain that a REIT recognizes on the
sale of foreclosure property, plus any income it receives from foreclosure
property that would not qualify under the 75% gross income test in the absence
of foreclosure property treatment, reduced by expenses directly connected with
the production of those items of income, would be subject to income tax at the
maximum corporate rate, currently 35%, under the foreclosure property income tax
rules of Section 857(b)(4) of the Code. Thus, if a REIT should lease
foreclosure property in exchange for rent that qualifies as “rents from real
property” as described above, then that rental income is not subject to the
foreclosure property income tax.
Other than sales of foreclosure
property, any gain we realize on the sale of property held as inventory or other
property held primarily for sale to customers in the ordinary course of business
will be treated as income from a prohibited transaction that is subject to a
penalty tax at a 100% rate. This prohibited transaction income also may
adversely affect our ability to satisfy the 75% and 95% gross income tests for
federal income tax qualification as a REIT. We cannot provide assurances as to
whether or not the IRS might successfully assert that one or more of our
dispositions is subject to the 100% penalty tax. However, we believe that
dispositions of assets that we have made or that we might make in the future
will not be subject to the 100% penalty tax, because we intend to:
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own
our assets for investment with a view to long-term income production and
capital appreciation;
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engage
in the business of developing, owning and managing our existing properties
and acquiring, developing, owning and managing new properties;
and
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make
occasional dispositions of our assets consistent with our long-term
investment objectives.
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If we fail to satisfy one or both of
the 75% or the 95% gross income tests in any taxable year, we may nevertheless
qualify as a REIT for that year if we satisfy the following requirements after
October 22, 2004:
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our
failure to meet the test is due to reasonable cause and not due to willful
neglect, and
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after
we identify the failure, we file a schedule describing each item of
our gross income included in the 75% or 95% gross income tests for that
taxable year.
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It is
impossible to state whether in all circumstances we would be entitled to the
benefit of this relief provision for the 75% and 95% gross income tests. Even if
this relief provision does apply, a 100% tax is imposed upon the greater of the
amount by which we failed the 75% test or the 95% test, with adjustments,
multiplied by a fraction intended to reflect our profitability. This relief
provision applies to any failure of the applicable income tests, even if the
failure first occurred in a prior taxable year, as long as each of the
requirements of the relief provision is satisfied after October 22,
2004.
Under prior law, if we failed to
satisfy one or both of the 75% or 95% gross income tests, we nevertheless would
have qualified as a REIT for that year if: our failure to meet the test was due
to reasonable cause and not due to willful neglect; we reported the nature and
amount of each item of our income included in the 75% or 95% gross income tests
for that taxable year on a schedule attached to our tax return; and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. For our 2004 and prior taxable years, we attached a schedule of gross
income to our federal income tax returns, but it is impossible to state whether
in all circumstances we would be entitled to the benefit of this prior relief
provision for the 75% and 95% gross income tests. Even if this relief provision
did apply, a 100% tax is imposed upon the greater of the amount by which we
failed the 75% test or the 95% test, with adjustments, multiplied by a fraction
intended to reflect our profitability.
Asset
Tests. At the close of each quarter of each
taxable year, we must also satisfy the following asset percentage tests in order
to qualify as a REIT for federal income tax purposes:
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At
least 75% of our total assets must consist of real estate assets, cash and
cash items, shares in other REITs, government securities, and temporary
investments of new capital (that is, stock or debt instruments purchased
with proceeds of a stock offering or a public offering of our debt with a
term of at least five years, but only for the one-year period commencing
with our receipt of the offering
proceeds).
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Not
more than 25% of our total assets may be represented by securities other
than those securities that count favorably toward the preceding 75% asset
test.
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Of
the investments included in the preceding 25% asset class, the value of
any one non-REIT issuer’s securities that we own may not exceed 5% of the
value of our total assets, and we may not own more than 10% of any one
non-REIT issuer’s outstanding voting securities. For our 2001 taxable year
and thereafter, we may not own more than 10% of the vote or value of any
one non-REIT issuer’s outstanding securities, unless that issuer is our
taxable REIT subsidiary or the securities are “straight debt” securities
or otherwise excepted as discussed
below.
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For
our 2001 taxable year and thereafter, our stock and securities in a
taxable REIT subsidiary are exempted from the preceding 10% and 5% asset
tests. However, no more than 25% (for our 2001 through 2008 taxable years,
20%) of our total assets may be represented by stock or securities of
taxable REIT subsidiaries.
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When a failure to satisfy the above
asset tests results from an acquisition of securities or other property during a
quarter, the failure can be cured by disposition of sufficient nonqualifying
assets within 30 days after the close of that quarter.
In addition, if we fail the 5% value
test or the 10% vote or value tests at the close of any quarter and do not cure
such failure within 30 days after the close of that quarter, that failure
will nevertheless be excused if (a) the failure is de minimis and
(b) within 6 months after the last day of the quarter in which we
identify the failure, we either dispose of the assets causing the failure or
otherwise satisfy the 5% value and 10% vote and value asset tests. For purposes
of this relief provision, the failure will be “de minimis” if the value of
the assets causing the failure does not exceed the lesser of (a) 1% of the
total value of our assets at the end of the relevant quarter or
(b) $10,000,000. If our failure is not de minimis, or if any of the
other REIT asset tests have been violated, we may nevertheless qualify as a REIT
if (a) we provide the IRS with a description of each asset causing the
failure, (b) the failure was due to reasonable cause and not willful
neglect, (c) we pay a tax equal to the greater of (i) $50,000 or
(ii) the highest rate of corporate tax imposed (currently 35%) on the net
income generated by the assets causing the failure during the period of the
failure, and (d) within 6 months after the last day of the quarter in
which we identify the failure, we either dispose of the assets causing the
failure or otherwise satisfy all of the REIT asset tests. These relief
provisions apply to any failure of the applicable asset tests, even if the
failure first occurred in a prior taxable year, as long as each of the
requirements of the relief provision is satisfied after October 22,
2004.
The Code also provides, for our 2001
taxable year and thereafter, an excepted securities safe harbor to the 10% value
test that includes among other items (a) “straight debt” securities,
(b) certain rental agreements in which payment is to be made in subsequent
years, (c) any obligation to pay rents from real property,
(d) securities issued by governmental entities that are not dependent in
whole or in part on the profits of or payments from a nongovernmental entity,
and (e) any security issued by another REIT.
We intend to maintain records of the
value of our assets to document our compliance with the above asset tests, and
to take actions as may be required to cure any failure to satisfy the tests
within 30 days after the close of any quarter.
Annual Distribution
Requirements. In order to qualify for taxation as
a REIT under the Code, we are required to make annual distributions other than
capital gain dividends to our stockholders in an amount at least equal to the
excess of:
(A) the sum of 90% of our
“real estate investment trust taxable income,” as defined in Section 857 of
the Code, computed by excluding any net capital gain and before taking into
account any dividends paid deduction for which we are eligible, and 90% of our
net income after tax, if any, from property received in foreclosure,
over
(B) the sum of our
qualifying noncash income, e.g., imputed rental income or income from
transactions inadvertently failing to qualify as like-kind
exchanges.
The
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before we timely file our tax return for the
earlier taxable year and if paid on or before the first regular distribution
payment after that declaration. If a dividend is declared in October, November,
or December to stockholders of record during one of those months, and is paid
during the following January, then for federal income tax purposes the dividend
will be treated as having been both paid and received on December 31 of the
prior taxable year. A distribution which is not pro rata within a class of our
beneficial interests entitled to a distribution, or which is not consistent with
the rights to distributions among our classes of beneficial interests, is a
preferential distribution that is not taken into consideration for purposes of
the distribution requirements, and accordingly the payment of a preferential
distribution could affect our ability to meet the distribution requirements.
Taking into account our distribution policies, including the dividend
reinvestment plan we have adopted, we expect that we will not make any
preferential distributions. The distribution requirements may be waived by the
IRS if a REIT establishes that it failed to meet them by reason of distributions
previously made to meet the requirements of the 4% excise tax discussed below.
To the extent that we do not distribute all of our net capital gain and all of
our real estate investment trust taxable income, as adjusted, we will be subject
to tax on undistributed amounts.
In addition, we will be subject to a 4%
nondeductible excise tax to the extent we fail within a calendar year to make
required distributions to our stockholders of 85% of our ordinary income and 95%
of our capital gain net income plus the excess, if any, of the “grossed up
required distribution” for the preceding calendar year over the amount treated
as distributed for that preceding calendar year. For this purpose, the term
“grossed up required distribution” for any calendar year is the sum of our
taxable income for the calendar year without regard to the deduction for
dividends paid and all amounts from earlier years that are not treated as having
been distributed under the provision. We will be treated as having sufficient
earnings and profits to treat as a dividend any distribution by us up to the
amount required to be distributed in order to avoid imposition of the 4% excise
tax.
If we do not have enough cash or other
liquid assets to meet the 90% distribution requirements, we may find it
necessary and desirable to arrange for new debt or equity financing to provide
funds for required distributions in order to maintain our REIT status. We can
provide no assurance that financing would be available for these purposes on
favorable terms.
We may be able to rectify a failure to
pay sufficient dividends for any year by paying “deficiency dividends” to
stockholders in a later year. These deficiency dividends may be included in our
deduction for dividends paid for the earlier year, but an interest charge would
be imposed upon us for the delay in distribution.
In addition to the other distribution
requirements above, to preserve our status as a REIT we are required to timely
distribute C corporation earnings and profits that we inherit from acquired
corporations.
Depreciation
and Federal Income Tax Treatment of Leases
Our initial tax bases in our assets
will generally be our development and acquisition cost. We will generally
depreciate our real property on a straight-line basis over 40 years and our
personal property over the applicable shorter periods. These depreciation
schedules may vary for properties that we acquire through tax-free or carryover
basis acquisitions.
We are entitled to depreciation
deductions from our facilities only if we are treated for federal income tax
purposes as the owner of the facilities. This means that the leases of the
facilities must be classified for federal income tax purposes as true leases,
rather than as sales or financing arrangements, and we believe this to be the
case. In the case of sale-leaseback arrangements, the IRS could assert that we
realized prepaid rental income in the year of purchase to the extent that the
value of a leased property, at the time of purchase, exceeded the purchase price
for that property. While we believe that the value of leased property at the
time of purchase did not exceed purchase prices, because of the lack of clear
precedent we cannot provide assurances as to whether the IRS might successfully
assert the existence of prepaid rental income in any of our sale-leaseback
transactions.
Taxation
of U.S. Stockholders
The maximum individual federal income
tax rate for long-term capital gains is generally 15% (scheduled to increase to
20% for taxable years beginning after December 31, 2010) and for most
corporate dividends is generally also 15% (scheduled to increase to ordinary
income rates for taxable years beginning after December 31, 2010). However,
because we are not generally subject to federal income tax on the portion of our
REIT taxable income or capital gains distributed to our stockholders, dividends
on our shares generally are not eligible for such 15% tax rate on dividends
while that rate is in effect. As a result, our ordinary dividends continue to be
taxed at the higher federal income tax rates applicable to ordinary income.
However, the favorable federal income tax rates for long-term capital gains, and
while in effect, for dividends, generally apply to:
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(1)
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your
long-term capital gains, if any, recognized on the disposition of our
shares;
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(2)
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our
distributions designated as long-term capital gain dividends (except to
the extent attributable to real estate depreciation recapture, in which
case the distributions are subject to a 25% federal income tax
rate);
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(3)
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our
dividends attributable to dividends, if any, received by us from non-REIT
corporations such as taxable REIT subsidiaries;
and
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(4) our
dividends to the extent attributable to income upon which we have paid federal
corporate income tax.
As long as we qualify as a REIT for
federal income tax purposes, a distribution to our U.S. stockholders that we do
not designate as a capital gain dividend will be treated as an ordinary income
dividend to the extent of our current or accumulated earnings and profits.
Distributions made out of our current or accumulated earnings and profits that
we properly designate as capital gain dividends will be taxed as long-term
capital gains, as discussed below, to the extent they do not exceed our actual
net capital gain for the taxable year. However, corporate stockholders may be
required to treat up to 20% of any capital gain dividend as ordinary income
under Section 291 of the Code.
In addition, we may elect to retain net
capital gain income and treat it as constructively distributed. In that
case:
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(1)
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we
will be taxed at regular corporate capital gains tax rates on retained
amounts;
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(2)
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each
U.S. stockholder will be taxed on its designated proportionate share of
our retained net capital gains as though that amount were distributed and
designated a capital gain dividend;
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(3)
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each
U.S. stockholder will receive a credit for its designated proportionate
share of the tax that we pay;
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(4)
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each
U.S. stockholder will increase its adjusted basis in our shares by the
excess of the amount of its proportionate share of these retained net
capital gains over its proportionate share of the tax that we pay;
and
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(5)
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both
we and our corporate stockholders will make commensurate adjustments in
our respective earnings and profits for federal income tax
purposes.
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If we
elect to retain our net capital gains in this fashion, we will notify our U.S.
stockholders of the relevant tax information within 60 days after the close
of the affected taxable year.
As discussed above, for noncorporate
U.S. stockholders, long-term capital gains are generally taxed at maximum rates
of 15% (scheduled to increase to 20% for taxable years beginning after
December 31, 2010) or 25%, depending upon the type of property disposed of
and the previously claimed depreciation with respect to this property. If for
any taxable year we designate capital gain dividends for U.S. stockholders, then
the portion of the capital gain dividends we designate will be allocated to the
holders of a particular class of shares on a percentage basis equal to the ratio
of the amount of the total dividends paid or made available for the year to the
holders of that class of shares to the total dividends paid or made available
for the year to holders of all classes of our shares. We will similarly
designate the portion of any capital gain dividend that is to be taxed to
noncorporate U.S. stockholders at the maximum rates of 15% (scheduled to
increase to 20% for taxable years beginning after December 31, 2010) or 25%
so that the designations will be proportionate among all classes of our
shares.
Distributions in excess of current or
accumulated earnings and profits will not be taxable to a U.S. stockholder to
the extent that they do not exceed the stockholder’s adjusted tax basis in the
stockholder’s shares, but will reduce the stockholder’s basis in those shares.
To the extent that these excess distributions exceed the adjusted basis of a
U.S. stockholder’s shares, they will be included in income as capital gain, with
long-term gain generally taxed to noncorporate U.S. stockholders at a maximum
rate of 15% (scheduled to increase to 20% for taxable years beginning after
December 31, 2010). No U.S. stockholder may include on his federal income
tax return any of our net operating losses or any of our capital
losses.
Dividends that we declare in October,
November or December of a taxable year to U.S. stockholders of record on a date
in those months will be deemed to have been received by stockholders on
December 31 of that taxable year, provided we actually pay these dividends
during the following January. Also, items that are treated differently for
regular and alternative minimum tax purposes are to be allocated between a REIT
and its stockholders under Treasury regulations which are to be prescribed. It
is possible that these Treasury regulations will require tax preference items to
be allocated to our stockholders with respect to any accelerated depreciation or
other tax preference items that we claim.
A U.S. stockholder will generally
recognize gain or loss equal to the difference between the amount realized and
the stockholder’s adjusted basis in our shares that are sold or exchanged. This
gain or loss will be capital gain or loss, and will be long-term capital gain or
loss if the stockholder’s holding period in the shares exceeds one year. In
addition, any loss upon a sale or exchange of our shares held for six months or
less will generally be treated as a long-term capital loss to the extent of our
long-term capital gain dividends during the holding period.
Effective
for federal tax returns with due dates after October 22, 2004, the Code
imposes a penalty for the failure to properly disclose a “reportable
transaction.” A reportable transaction currently includes, among other things, a
sale or exchange of our shares resulting in a tax loss in excess of
(i) $10 million in any single year or $20 million in any
combination of years in the case of our shares held by a C corporation or by a
partnership with only C corporation partners or (ii) $2 million in any
single year or $4 million in any combination of years in the case of our
shares held by any other partnership or an S corporation, trust or individual,
including losses that flow through pass through entities to individuals. A
taxpayer discloses a reportable transaction by filing IRS Form 8886 with
its federal income tax return and, in the first year of filing, a copy of
Form 8886 must be sent to the IRS’s Office of Tax Shelter Analysis. The
penalty for failing to disclose a reportable transaction is generally $10,000 in
the case of a natural person and $50,000 in any other case.
Noncorporate U.S. stockholders who
borrow funds to finance their acquisition of our shares could be limited in the
amount of deductions allowed for the interest paid on the indebtedness incurred.
Under Section 163(d) of the Code, interest paid or accrued on indebtedness
incurred or continued to purchase or carry property held for investment is
generally deductible only to the extent of the investor’s net investment income.
A U.S. stockholder’s net investment income will include ordinary income dividend
distributions received from us and, if an appropriate election is made by the
stockholder, capital gain dividend distributions received from us; however,
distributions treated as a nontaxable return of the stockholder’s basis will not
enter into the computation of net investment income.
Taxation
of Tax-Exempt Stockholders
In Revenue Ruling 66-106, the IRS ruled
that amounts distributed by a REIT to a tax-exempt employees’ pension trust did
not constitute “unrelated business taxable income,” even though the REIT may
have financed some of its activities with acquisition indebtedness. Although
revenue rulings are interpretive in nature and subject to revocation or
modification by the IRS, based upon the analysis and conclusion of Revenue
Ruling 66-106, our distributions made to stockholders that are tax-exempt
pension plans, individual retirement accounts, or other qualifying tax-exempt
entities should not constitute unrelated business taxable income, provided that
the stockholder has not financed its acquisition of our shares with “acquisition
indebtedness” within the meaning of the Code, and provided further that,
consistent with our present intent, we do not hold a residual interest in a real
estate mortgage investment conduit.
Tax-exempt pension trusts that own more
than 10% by value of a “pension-held REIT” at any time during a taxable year may
be required to treat a percentage of all dividends received from the
pension-held REIT during the year as unrelated business taxable income. This
percentage is equal to the ratio of:
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(1)
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the
pension-held REIT’s gross income derived from the conduct of unrelated
trades or businesses, determined as if the pension-held REIT were a
tax-exempt pension fund, less direct expenses related to that income,
to
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(2)
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the
pension-held REIT’s gross income from all sources, less direct expenses
related to that income,
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except
that this percentage shall be deemed to be zero unless it would otherwise equal
or exceed 5%. A REIT is a pension-held REIT if:
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·
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the
REIT is “predominantly held” by tax-exempt pension trusts;
and
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·
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the
REIT would fail to satisfy the “closely held” ownership requirement
discussed above if the stock or beneficial interests in the REIT held by
tax-exempt pension trusts were viewed as held by tax-exempt pension trusts
rather than by their respective
beneficiaries.
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A REIT is
predominantly held by tax-exempt pension trusts if at least one tax-exempt
pension trust owns more than 25% by value of the REIT’s stock or beneficial
interests, or if one or more tax-exempt pension trusts, each owning more than
10% by value of the REIT’s stock or beneficial interests, own in the aggregate
more than 50% by value of the REIT’s stock or beneficial interests. Because of
the share ownership concentration restrictions in our declaration of trust and
bylaws, we believe that we are not and will not be a pension-held REIT. However,
because our shares are publicly traded, we cannot completely control whether or
not we are or will become a pension-held REIT.
Social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts and qualified
group legal services plans exempt from federal income taxation under
Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Code, respectively,
are subject to different unrelated business taxable income rules, which
generally will require them to characterize distributions from a REIT as
unrelated business taxable income. In addition, these prospective investors
should consult their own tax advisors concerning any “set aside” or reserve
requirements applicable to them.
Taxation
of Non-U.S. Stockholders
The rules governing the United States
federal income taxation of non-U.S. stockholders are complex, and the following
discussion is intended only as a summary of these rules. If you are a non-U.S.
stockholder, we urge you to consult with your own tax advisor to determine the
impact of United States federal, state, local, and foreign tax laws, including
any tax return filing and other reporting requirements, with respect to your
investment in our shares.
In general, a non-U.S. stockholder will
be subject to regular United States federal income tax in the same manner as a
U.S. stockholder with respect to its investment in our shares if that investment
is effectively connected with the non-U.S. stockholder’s conduct of a trade or
business in the United States (and, if provided by an applicable income tax
treaty, is attributable to a permanent establishment or fixed base the non-U.S.
stockholder maintains in the United States). In addition, a corporate non-U.S.
stockholder that receives income that is or is deemed effectively connected with
a trade or business in the United States may also be subject to the 30% branch
profits tax under Section 884 of the Code, which is payable in addition to
regular United States federal corporate income tax. The balance of this
discussion of the United States federal income taxation of non-U.S. stockholders
addresses only those non-U.S. stockholders whose investment in our shares is not
effectively connected with the conduct of a trade or business in the United
States.
A distribution by us to a non-U.S.
stockholder that is not attributable to gain from the sale or exchange of a
United States real property interest and that is not designated as a capital
gain dividend will be treated as an ordinary income dividend to the extent that
it is made out of current or accumulated earnings and profits. A distribution of
this type will generally be subject to United States federal income tax and
withholding at the rate of 30%, or at a lower rate if the non-U.S. stockholder
has in the manner prescribed by the IRS demonstrated its entitlement to benefits
under a tax treaty. In the case of any in kind distributions of property, we or
other applicable withholding agents will collect the amount required to be
withheld by reducing to cash for remittance to the IRS a sufficient portion of
the property that the non-U.S. stockholder would otherwise receive, and the
non-U.S. stockholder may bear brokerage or other costs for this withholding
procedure. Because we cannot determine our current and accumulated earnings and
profits until the end of the taxable year, withholding at the rate of 30% or
applicable lower treaty rate will generally be imposed on the gross amount of
any distribution to a non-U.S. stockholder that we make and do not designate a
capital gain dividend. Notwithstanding this withholding on distributions in
excess of our current and accumulated earnings and profits, these distributions
are a nontaxable return of capital to the extent that they do not exceed the
non-U.S. stockholder’s adjusted basis in our shares, and the nontaxable return
of capital will reduce the adjusted basis in these shares. To the extent that
distributions in excess of current and accumulated earnings and profits exceed
the non-U.S. stockholder’s adjusted basis in our shares, the distributions will
give rise to tax liability if the non-U.S. stockholder would otherwise be
subject to tax on any gain from the sale or exchange of these shares, as
discussed below. A non-U.S. stockholder may seek a refund from the IRS of
amounts withheld on distributions to him in excess of our current and
accumulated earnings and profits.
From time to time, some of our
distributions may be attributable to the sale or exchange of United States real
property interests. However, capital gain dividends that are received by a
non-U.S. stockholder, including dividends attributable to our sales of United
States real property interests, and that are deductible by us in respect of our
2005 taxable year and thereafter will be subject to the taxation and withholding
regime applicable to ordinary income dividends and the branch profits tax will
not apply, provided that (1) the capital gain dividends are received with
respect to a class of shares that is “regularly traded” on a domestic
“established securities market” such as the New York Stock Exchange, or the
NYSE, both as defined by applicable Treasury regulations, and (2) the
non-U.S. stockholder does not own more than 5% of that class of shares at any
time during the one-year period ending on the date of distribution of the
capital gain dividends. If both of these provisions are satisfied, qualifying
non-U.S. stockholders will not be subject to withholding on capital gain
dividends as though those amounts were effectively connected with a United
States trade or business, and qualifying non-U.S. stockholders will not be
required to file United States federal income tax returns or pay branch profits
tax in respect of these capital gain dividends. Instead, these dividends will be
subject to United States federal income tax and withholding as ordinary
dividends, currently at a 30% tax rate unless reduced by applicable treaty, as
discussed below. Although there can be no assurance in this regard, we believe
that our common stock and each class of our preferred stock have been and will
remain “regularly traded” on a domestic “established securities market” within
the meaning of applicable Treasury regulations; however, we can provide no
assurance that our shares will continue to be “regularly traded” on a domestic
“established securities market” in future taxable years.
Except as discussed above, for any year
in which we qualify as a REIT, distributions that are attributable to gain from
the sale or exchange of a United States real property interest are taxed to a
non-U.S. stockholder as if these distributions were gains effectively connected
with a trade or business in the United States conducted by the non-U.S.
stockholder. Accordingly, a non-U.S. stockholder that does not qualify for the
special rule above will be taxed on these amounts at the normal capital gain
rates applicable to a U.S. stockholder, subject to any applicable alternative
minimum tax and to a special alternative minimum tax in the case of nonresident
alien individuals; such a non-U.S. stockholder will be required to file a
United States federal income tax return reporting these amounts, even if
applicable withholding is imposed as described below; and such a non-U.S.
stockholder that is also a corporation may owe the 30% branch profits tax under
Section 884 of the Code in respect of these amounts. We or other applicable
withholding agents will be required to withhold from distributions to such
non-U.S. stockholders, and remit to the IRS, 35% of the maximum amount of any
distribution that could be designated as a capital gain dividend. In addition,
for purposes of this withholding rule, if we designate prior distributions as
capital gain dividends, then subsequent distributions up to the amount of the
designated prior distributions will be treated as capital gain dividends. The
amount of any tax withheld is creditable against the non-U.S. stockholder’s
United States federal income tax liability, and the non-U.S. stockholder may
file for a refund from the IRS of any amount of withheld tax in excess of that
tax liability.
Effective generally from and after
2006, a special “wash sale” rule applies to a non-U.S. stockholder who owns any
class of our shares if (1) the stockholder owns more than 5% of that class
of shares at any time during the one-year period ending on the date of the
distribution described below, or (2) that class of our shares is not,
within the meaning of applicable Treasury regulations, “regularly traded” on a
domestic “established securities market” such as the NYSE. Although there can be
no assurance in this regard, we believe that our common stock and each class of
our preferred stock have been and will remain “regularly traded” on a domestic
“established securities market” within the meaning of applicable Treasury
regulations, all as discussed above; however, we can provide no assurance that
our shares will continue to be “regularly traded” on a domestic “established
securities market” in future taxable years. We thus anticipate this wash sale
rule to apply, if at all, only to a non-U.S. stockholder that owns more than 5%
of either our common stock or any class of our preferred stock. Such a non-U.S.
stockholder will be treated as having made a “wash sale” of our shares if it
(1) disposes of an interest in our shares during the 30 days preceding
the ex-dividend date of a distribution by us that, but for such disposition,
would have been treated by the non-U.S. stockholder in whole or in part as gain
from the sale or exchange of a United States real property interest, and then
(2) acquires or enters into a contract to acquire a substantially identical
interest in our shares, either actually or constructively through a related
party, during the 61-day period beginning 30 days prior to the ex-dividend
date. In the event of such a wash sale, the non-U.S. stockholder will have gain
from the sale or exchange of a United States real property interest in an amount
equal to the portion of the distribution that, but for the wash sale, would have
been a gain from the sale or exchange of a United States real property interest.
As discussed above, a non-U.S. stockholder’s gain from the sale or exchange of a
United States real property interest can trigger increased United States taxes,
such as the branch profits tax applicable to non-U.S. corporations, and
increased United States tax filing requirements.
If for any taxable year we designate
capital gain dividends for our stockholders, then the portion of the capital
gain dividends we designate will be allocated to the holders of a particular
class of shares on a percentage basis equal to the ratio of the amount of the
total dividends paid or made available for the year to the holders of that class
of shares to the total dividends paid or made available for the year to holders
of all classes of our shares.
Tax treaties may reduce the withholding
obligations on our distributions. Under some treaties, however, rates below 30%
that are applicable to ordinary income dividends from United States corporations
may not apply to ordinary income dividends from a REIT or may apply only if the
REIT meets certain additional conditions. You must generally use an applicable
IRS Form W-8, or substantially similar form, to claim tax treaty benefits.
If the amount of tax withheld with respect to a distribution to a non-U.S.
stockholder exceeds the stockholder’s United States federal income tax liability
with respect to the distribution, the non-U.S. stockholder may file for a refund
of the excess from the IRS. The 35% withholding tax rate discussed above on some
capital gain dividends corresponds to the maximum income tax rate applicable to
corporate non-U.S. stockholders but is higher than the current 15% and 25%
maximum rates on capital gains generally applicable to noncorporate non-U.S.
stockholders. Treasury regulations also provide special rules to determine
whether, for purposes of determining the applicability of a tax treaty, our
distributions to a non-U.S. stockholder that is an entity should be treated as
paid to the entity or to those owning an interest in that entity, and whether
the entity or its owners are entitled to benefits under the tax treaty. In the
case of any in kind distributions of property, we or other applicable
withholding agents will have to collect the amount required to be withheld by
reducing to cash for remittance to the IRS a sufficient portion of the property
that the non-U.S. stockholder would otherwise receive, and the non-U.S.
stockholder may bear brokerage or other costs for this withholding
procedure.
If our shares are not “United States
real property interests” within the meaning of Section 897 of the Code,
then a non-U.S. stockholder’s gain on sale of these shares generally will not be
subject to United States federal income taxation, except that a nonresident
alien individual who was in the United States for 183 days or more during
the taxable year may be subject to a 30% tax on this gain. Our shares will not
constitute a United States real property interest if we are a “domestically
controlled REIT.” A domestically controlled REIT is a REIT in which at all times
during the preceding five-year period less than 50% in value of its shares is
held directly or indirectly by foreign persons. We believe that we have been and
will remain a domestically controlled REIT and thus a non-U.S. stockholder’s
gain on sale of our shares will not be subject to United States federal income
taxation. However, because our shares are publicly traded, we can provide no
assurance that we have been or will remain a domestically controlled REIT. If we
are not a domestically controlled REIT, a non-U.S. stockholder’s gain on sale of
our shares will not be subject to United States federal income taxation as a
sale of a United States real property interest, if that class of shares is
“regularly traded,” as defined by applicable Treasury regulations, on an
established securities market like the NYSE, and the non-U.S. stockholder has at
all times during the preceding five years owned 5% or less by value of that
class of shares. In this regard, because the shares of others may be redeemed, a
non-U.S. stockholder’s percentage interest in a class of our shares may increase
even if it acquires no additional shares in that class. If the gain on the sale
of our shares were subject to United States federal income taxation, the
non-U.S. stockholder will generally be subject to the same treatment as a U.S.
stockholder with respect to its gain, will be required to file a United
States federal income tax return reporting that gain, and a corporate non-U.S.
stockholder might owe branch profits tax under Section 884 of the Code. A
purchaser of our shares from a non-U.S. stockholder will not be required to
withhold on the purchase price if the purchased shares are regularly traded on
an established securities market or if we are a domestically controlled REIT.
Otherwise, a purchaser of our shares from a non-U.S. stockholder may be required
to withhold 10% of the purchase price paid to the non-U.S. stockholder and to
remit the withheld amount to the IRS.
Backup
Withholding and Information Reporting
Information reporting and backup
withholding may apply to distributions or proceeds paid to our stockholders
under the circumstances discussed below. The backup withholding rate is
currently 28% and is scheduled to increase to 31% after 2010. Amounts withheld
under backup withholding are generally not an additional tax and may be refunded
by the IRS or credited against the REIT stockholder’s federal income tax
liability. In the case of any in kind distributions of property by us to a
stockholder, we or other applicable withholding agents will have to collect any
applicable backup withholding by reducing to cash for remittance to the IRS a
sufficient portion of the property that our stockholder would otherwise receive,
and the stockholder may bear brokerage or other costs for this withholding
procedure.
A U.S. stockholder will be subject to
backup withholding when it receives distributions on our shares or proceeds upon
the sale, exchange, redemption, retirement or other disposition of our shares,
unless the U.S. stockholder properly executes, or has previously properly
executed, under penalties of perjury an IRS Form W-9 or substantially
similar form that:
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provides
the U.S. stockholder’s correct taxpayer identification number;
and
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certifies
that the U.S. stockholder is exempt from backup withholding because it is
a corporation or comes within another exempt category, it has not been
notified by the IRS that it is subject to backup withholding, or it has
been notified by the IRS that it is no longer subject to backup
withholding.
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If the
U.S. stockholder has not provided and does not provide its correct taxpayer
identification number on the IRS Form W-9 or substantially similar form, it
may be subject to penalties imposed by the IRS, and the REIT or other
withholding agent may have to withhold a portion of any distributions or
proceeds paid to it. Unless the U.S. stockholder has established on a properly
executed IRS Form W-9 or substantially similar form that it is a
corporation or comes within another exempt category, distributions or proceeds
on our shares paid to it during the calendar year, and the amount of tax
withheld, if any, will be reported to it and to the IRS.
Distributions on our shares to a
non-U.S. stockholder during each calendar year and the amount of tax withheld,
if any, will generally be reported to the non-U.S. stockholder and to the IRS.
This information reporting requirement applies regardless of whether the
non-U.S. stockholder is subject to withholding on distributions on our shares or
whether the withholding was reduced or eliminated by an applicable tax treaty.
Also, distributions paid to a non-U.S. stockholder on our shares may be subject
to backup withholding, unless the non-U.S. stockholder properly certifies its
non-U.S. stockholder status on an IRS Form W-8 or substantially similar
form in the manner described above. Similarly, information reporting and backup
withholding will not apply to proceeds a non-U.S. stockholder receives upon the
sale, exchange, redemption, retirement or other disposition of our shares, if
the non-U.S. stockholder properly certifies its non-U.S. stockholder status on
an IRS Form W-8 or substantially similar form. Even without having executed
an IRS Form W-8 or substantially similar form, however, in some cases
information reporting and backup withholding will not apply to proceeds that a
non-U.S. stockholder receives upon the sale, exchange, redemption, retirement or
other disposition of our shares if the non-U.S. stockholder receives those
proceeds through a broker’s foreign office.
Other
Tax Consequences
Our tax treatment and that of our
stockholders may be modified by legislative, judicial, or administrative actions
at any time, which actions may be retroactive in effect. The rules dealing with
federal income taxation are constantly under review by the Congress, the IRS and
the Treasury Department, and statutory changes, new regulations, revisions to
existing regulations, and revised interpretations of established concepts are
issued frequently. Likewise, the rules regarding taxes other than federal income
taxes may also be modified. No prediction can be made as to the likelihood of
passage of new tax legislation or other provisions, or the direct or indirect
effect on us and our stockholders. Revisions to tax laws and interpretations of
these laws could adversely affect the tax or other consequences of an investment
in our shares. We and our stockholders may also be subject to taxation by state,
local or other jurisdictions, including those in which we or our stockholders
transact business or reside. These tax consequences may not be comparable to the
federal income tax consequences discussed above.
PLAN
OF DISTRIBUTION
The
common stock, preferred stock, depositary shares and warrants may be
sold:
|
·
|
to
or through underwriting syndicates represented by managing
underwriters;
|
|
·
|
through
one or more underwriters without a syndicate for them to offer and sell to
the public;
|
|
·
|
through
dealers or agents; or
|
|
·
|
to
investors directly in negotiated sales or in competitively bid
transactions.
|
The
prospectus supplement for each series of securities we sell will describe that
offering, including:
|
·
|
the
name or names of any underwriters;
|
|
·
|
the
purchase price and the proceeds to us from that
sale;
|
|
·
|
any
underwriting discounts and other items constituting underwriters’
compensation;
|
|
·
|
any
initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers; and
|
|
·
|
any
securities exchanges on which the securities may be
listed.
|
Underwriters
If
underwriters are used in the sale, we will execute an underwriting agreement
with those underwriters relating to the securities that we will offer. Unless
otherwise set forth in the prospectus supplement, the obligations of the
underwriters to purchase these securities will be subject to conditions. The
underwriters will be obligated to purchase all of these securities if any are
purchased.
The
securities subject to the underwriting agreement will be acquired by the
underwriters for their own account and may be resold by them 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.
Underwriters may be deemed to have received compensation from us in the form of
underwriting discounts or commissions and may also receive commissions from the
purchasers of these securities for whom they may act as agent. Underwriters may
sell these securities to or through dealers. These dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agent. Any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to
time.
Underwriters could make sales in
privately negotiated transactions and/or any other method permitted by law,
including sales deemed to be an “at-the-market” offering, sales made directly on
the NYSE, the existing trading market for our common stock, or sales made to or
through a market maker other than on an exchange. The name of any such
underwriter or agent involved in the offer and sale of our common stock, the
amounts underwritten, and the nature of its obligations to take our common stock
will be described in the applicable prospectus supplement.
We also
may sell the securities in connection with a remarketing upon their purchase, in
connection with a redemption or repayment, by a remarketing firm acting as
principal for its own account or as our agent. Remarketing firms may be deemed
to be underwriters in connection with the securities that they
remarket.
We may
authorize underwriters to solicit offers by institutions to purchase the
securities subject to the underwriting agreement from us, at the public offering
price stated in the prospectus supplement under delayed delivery contracts
providing for payment and delivery on a specified date in the future. If we sell
securities under these delayed delivery contracts, the prospectus supplement
will state that as well as the conditions to which these delayed delivery
contracts will be subject and the commissions payable for that
solicitation.
Agents
We may
also sell any of the securities through agents designated by us from time to
time. We will name any agent involved in the offer or sale of these securities
and will list commissions payable by us to these agents in the prospectus
supplement. These agents will be acting on a best efforts basis to solicit
purchases for the period of its appointment, unless we state otherwise in the
prospectus supplement.
Direct
Sales
We may
sell any of the securities directly to purchasers. In this case, we will not
engage underwriters or agents in the offer and sale of these
securities.
Indemnification
We may
indemnify underwriters, dealers or agents who participate in the distribution of
securities against certain liabilities, including liabilities under the
Securities Act and agree to contribute to payments which these underwriters,
dealers or agents may be required to make.
No
Assurance of Liquidity
The
securities offered hereby may be a new issue of securities with no established
trading market. Any underwriters that purchase securities from us may make a
market in these securities. The underwriters will not be obligated, however, to
make a market and may discontinue market-making at any time without notice to
holders of the securities. We cannot assure you that there will be liquidity in
the trading market for any securities of any series.
EXPERTS
The financial statements of Agree
Realty Corporation appearing in Agree Realty Corporation’s Annual Report (Form
10-K) for the year ended December 31, 2008 have been audited by Baker Tilly
Virchow Krause, LLP, independent registered public accounting firm, as set forth
in their report thereon, included therein, and incorporated herein by
reference. Such financial statements are incorporated herein by
reference in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
LEGAL
MATTERS
The validity of the securities offered
by this prospectus will be passed upon for us by DLA Piper LLP (US). Any
underwriters, dealers or agents will be advised about the other issues relating
to any offering by their own legal counsel.
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other
Expenses of Issuance and Distribution.
The following table sets forth
estimated costs and expenses of the sale and distribution of the securities
being registered, all of which will be paid by the registrant. All
amounts are estimated except the SEC registration fee.
Securities
and Exchange Commission registration fee
|
|
$ |
6,975 |
|
Printing
and engraving fees
|
|
|
50,000 |
|
Legal
fees and expenses
|
|
|
150,000 |
|
Accounting
fees and expenses
|
|
|
150,000 |
|
Miscellaneous
|
|
|
143,025 |
|
Total
|
|
$ |
500,000 |
|
Item 15. Indemnification of Directors and
Officers.
Maryland General Corporation Law, or
MGCL, permits a Maryland corporation to include in its charter a provision
limiting the liability of its directors and officers to the corporation and its
stockholders for money damages, except for liability resulting
from:
|
·
|
actual
receipt of an improper benefit or profit in money, property or services;
or
|
|
·
|
active
and deliberate dishonesty established by a final judgment and which is
material to the cause of action.
|
The Company’s charter contains such a
provision that eliminates directors’ and officers’ liability to the maximum
extent permitted by Maryland law. These limitations of liability do not apply to
liabilities arising under the federal securities laws and do not generally
affect the availability of equitable remedies such as injunctive relief or
rescission.
The Company’s officers and directors
are and will be indemnified under Maryland law and the Company’s articles of
incorporation, as amended, against certain liabilities. The Company’s
charter requires it to indemnify its directors and officers to the fullest
extent permitted from time to time by the laws of the State of
Maryland.
Maryland law requires a corporation
(unless its charter provides otherwise, which the Company’s charter does not) to
indemnify a director or officer who has been successful in the defense of any
proceeding to which he or she is made, or threatened to be made, a party by
reason of his or her service in that capacity. Maryland law 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, or threatened to be made, a party by reason of their service in those or
other capacities unless it is established that:
|
·
|
the
act or omission of the director or officer was material to the matter
giving rise to the proceeding and (1) was committed in bad faith or
(2) was the result of active and deliberate
dishonesty;
|
|
·
|
the
director or officer actually received an improper personal benefit in
money, property or services; or
|
|
·
|
in
the case of any criminal proceeding, the director or officer had
reasonable cause to believe that the act or omission was
unlawful.
|
However, under Maryland law, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation or for a judgment of liability on the basis of
that personal benefit was improperly received, unless in either case a court
orders indemnification and then only for expenses. In addition, Maryland law
permits a corporation to advance reasonable expenses to a director or officer
upon the corporation’s receipt of:
|
·
|
a
written affirmation by the director or officer of his or her good faith
belief that he or she has met the standard of conduct necessary for
indemnification by the corporation;
and
|
|
·
|
a
written undertaking by him or her on his or her behalf to repay the amount
paid or reimbursed by the corporation if it is ultimately determined that
the standard of conduct was not
met.
|
The
Company maintains liability insurance for each director and officer for certain
losses arising from claims or charges made against them while acting in their
capacities as the Company’s directors or officers.
Insofar
as the foregoing provisions permit indemnification of directors, executive
officers or persons controlling the Company for liability arising under the
Securities Act, the Company has been informed that, in the opinion of the SEC,
this indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
Item 16. Exhibits.
Exhibit No.
|
|
Description
|
|
|
|
1
|
|
Form
of Underwriting Agreement*
|
|
|
|
4.1
|
|
Second
Amendment to Rights Agreement, dated as of December 8, 2008, by and
between Agree Realty Corporation, a Maryland corporation, and
Computershare Trust Company, N.A., f/k/a EquiServe Trust Company, N.A., a
national banking association, as successor rights agent to BankBoston,
N.A., a national banking association (incorporated by reference to Exhibit
4.1 to the Company’s Form 8-K filed on December 9,
2008)
|
|
|
|
4.2
|
|
Form
of certificate representing shares of common stock
|
|
|
|
4.3
|
|
Form
of certificate representing shares of preferred stock*
|
|
|
|
4.4
|
|
Form
of Deposit Agreement*
|
|
|
|
4.5
|
|
Form
of Depositary Receipt*
|
|
|
|
4.6
|
|
Form
of Warrant Agreement*
|
|
|
|
5
|
|
Opinion
of DLA Piper LLP (US) re legality
|
|
|
|
8
|
|
Opinion
of DLA Piper LLP (US) re tax matters
|
|
|
|
12.1
|
|
Statement
of computation of ratios of earnings to combined fixed charges and
preferred stock dividends
|
|
|
|
23.1
|
|
Consent
of DLA Piper LLP (US) (included in Exhibits 5 and 8)
|
|
|
|
23.2
|
|
Consent
of Baker Tilly Virchow Krause, LLP
|
|
|
|
24
|
|
Power
of Attorney (included on signature
page)
|
*
|
To
be filed by amendment of the Registration Statement or as an exhibit to a
Current Report on Form 8-K and incorporated herein by
reference.
|
Item 17. Undertakings.
The undersigned registrant hereby
undertakes:
To file, during any period in which
offers or sales are being made, a post-effective amendment to this registration
statement;
(i) To
include any prospectus required by Section 10(a)(3) of the Securities Act of
1933;
(ii) To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities offered
would not exceed that which as registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration statement;
and
(iii) To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change in
such information in the registration statement;
provided, however, that
paragraphs (i), (ii) and (iii) do not apply if the information required to be
included in a post-effective amendment by those paragraphs is contained in
reports filed with or furnished to the Commission by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in this registration statement, or is contained in a
form of prospectus filed pursuant to Rule 424(b) that is part of the
registration statement.
That, for the purpose of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.
To remove from registration by means of
a post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
That, for the purpose of determining
liability under the Securities Act of 1933 to any purchaser:
(A) Each
prospectus filed by a registrant pursuant to Rule 424(b)(3) shall be deemed to
be part of the registration statement as of the date the filed prospectus was
deemed part of and included in the registration statement; and
(B) Each
prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5) or (b)(7) as
part of a registration statement in reliance on Rule 430B relating to an
offering made pursuant to Rule 415(a)(1)(i), (vii) or (x) for the purpose of
providing the information required by Section 10(a) of the Securities Act of
1933 shall be deemed to be part of and included in the registration statement as
of the earlier of the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of securities in the
offering described in the prospectus. As provided in Rule 430B, for
liability purposes of the issuer and any person that is at that date an
underwriter, such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the registration statement
to which the prospectus relates, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof. Provided,
however, that no statement made in a registration statement or prospectus
that is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such effective date, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such effective date.
That, for
the purpose of determining liability of the registrant under the Securities Act
of 1933 to any purchaser in the initial distribution of the securities, the
undersigned registrant undertakes that in a primary offering of securities of
the undersigned registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the purchaser, if the
securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(i) Any
preliminary prospectus or prospectus of the undersigned registrant relating to
the offering required to be filed pursuant to Rule 424;
(ii) Any
free writing prospectus relating to the offering prepared by or on behalf of the
undersigned registrant or used or referred to by the undersigned
registrant;
(iii) The
portion of any other free writing prospectus relating to the offering containing
material information about the undersigned registrant or its securities provided
by or on behalf of the undersigned registrant; and
(iv) Any
other communication that is an offer in the offering made by the undersigned
registrant to the purchaser.
That, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant’s
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide
offering thereof.
Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant certifies that
it has reasonable grounds to believe that it meets all of the requirements for
filing on Form S-3 and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Farmington Hills, State of Michigan, on August 24, 2009.
AGREE
REALTY CORPORATION
|
|
|
|
|
By:
|
/s/ Richard Agree
|
|
|
Richard
Agree
|
|
|
Chairman
and Chief Executive Officer
|
|
KNOW ALL MEN BY THESE PRESENTS, that
each person whose signature appears below hereby constitutes and appoints
Richard Agree, Joey Agree and Kenneth R. Howe and each of them, his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this registration statement, and
any additional related registration statement filed pursuant to Rule 462(b)
under the Securities Act of 1933, as amended (including post-effective
amendments to the registration statement and any such related registration
statements), and to file the same, with all exhibits thereto, and any other
documents in connection therewith, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ |
Richard Agree
|
|
Chairman
and Chief Executive
|
|
August
24, 2009
|
Richard
Agree
|
|
Officer
|
|
|
|
|
|
|
|
/s/ |
Joey Agree
|
|
President,
Chief Operating Officer
|
|
August
24, 2009
|
Joey
Agree
|
|
and
Director
|
|
|
|
|
|
|
|
/s/ |
Farris G. Kalil
|
|
Director
|
|
August
24, 2009
|
Farris
G. Kalil
|
|
|
|
|
|
|
|
|
|
/s/ |
Michael Rotchford
|
|
Director
|
|
August
24, 2009
|
Michael
Rotchford
|
|
|
|
|
|
|
|
|
|
/s/ |
William S. Rubenfaer
|
|
Director
|
|
August
24, 2009
|
William
S. Rubenfaer
|
|
|
|
|
|
|
|
|
|
/s/ |
Leon M. Schurgin
|
|
Director
|
|
August
24, 2009
|
Leon
M. Schurgin
|
|
|
|
|
|
|
|
|
|
/s/ |
Gene Silverman
|
|
Director
|
|
August
24, 2009
|
Gene
Silverman
|
|
|
|
|
|
|
|
|
|
/s/ |
Kenneth R. Howe
|
|
Vice
President, Finance
|
|
August
24, 2009
|
Kenneth
R. Howe
|
|
(Principal
Financial Officer and
|
|
|
|
|
Principal
Accounting Officer)
|
|
|
EXHIBIT
INDEX
Exhibit No.
|
|
Description
|
|
|
|
1
|
|
Form
of Underwriting Agreement*
|
|
|
|
4.1
|
|
Second
Amendment to Rights Agreement, dated as of December 8, 2008, by and
between Agree Realty Corporation, a Maryland corporation, and
Computershare Trust Company, N.A., f/k/a EquiServe Trust Company, N.A., a
national banking association, as successor rights agent to BankBoston,
N.A., a national banking association (incorporated by reference to Exhibit
4.1 to the Company’s Form 8-K filed on December 9,
2008)
|
|
|
|
4.2
|
|
Form
of certificate representing shares of common stock
|
|
|
|
4.3
|
|
Form
of certificate representing shares of preferred stock*
|
|
|
|
4.4
|
|
Form
of Deposit Agreement*
|
|
|
|
4.5
|
|
Form
of Depositary Receipt*
|
|
|
|
4.6
|
|
Form
of Warrant Agreement*
|
|
|
|
5
|
|
Opinion
of DLA Piper LLP (US) re legality
|
|
|
|
8
|
|
Opinion
of DLA Piper LLP (US) re tax matters
|
|
|
|
12.1
|
|
Statement
of computation of ratios of earnings to combined fixed charges and
preferred stock dividends
|
|
|
|
23.1
|
|
Consent
of DLA Piper LLP (US) (included in Exhibits 5 and 8)
|
|
|
|
23.2
|
|
Consent
of Baker Tilly Virchow Krause, LLP
|
|
|
|
24
|
|
Power
of Attorney (included on signature
page)
|
*
|
To
be filed by amendment of the Registration Statement or as an exhibit to a
Current Report on Form 8-K and incorporated herein by
reference.
|