a5964463.htm
As filed
with the Securities and Exchange Commission on May 14, 2009
Registration
Statement No.
333-
=================================================================================================================================================================================
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
______________
FORM
S-3
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
______________
ANNALY
CAPITAL MANAGEMENT, INC.
(Exact
Name of Registrant as Specified in its Charter)
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Maryland
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22-3479661
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(State
or Other Jurisdiction of
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(I.R.S.
Employer
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Incorporation
or Organization)
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Identification
No.)
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1211
Avenue of the Americas, Suite 2902
New
York, New York 10036
(212)
696-0100
(Address,
Including Zip Code, and Telephone Number, including Area Code, of Registrant’s
Principal Executive Offices)
______________
Michael
A.J. Farrell
Chairman
of the Board, Chief Executive Officer and President
Annaly
Capital Management, Inc.
1211
Avenue of the Americas, Suite 2902
New
York, New York 10036
(212)
696-0100
(Name,
Address, Including Zip Code, and Telephone Number, including Area Code, of Agent
for Service)
______________
Copies
to:
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R.
Nicholas Singh, Esq.
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Phillip
J. Kardis, II, Esq.
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Annaly
Capital Management, Inc.
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K&L
Gates LLP
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1211
Avenue of the Americas, Suite 2902
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1601
K Street, N.W.
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New
York, New York 10036
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Washington,
DC 20006
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(212)
696-0100
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(202)
778-9401
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Approximate
date of commencement of proposed sale to the public: From time to
time or at one time after the effective date of the Registration Statement as
the Registrant shall determine.
If the
only securities being registered on this form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box. o
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 interest reinvestment plans, 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. o
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. o
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. x
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. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer or a smaller reporting
company. See definition of “accelerated filer and large accelerated
filer” in Rule 12b-2 of the Exchange Act. (Check one):
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Large
accelerated filer x
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Accelerated
filer o
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Non-accelerated
filer o
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Smaller
reporting company o
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(Do
not check if a smaller reporting company)
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CALCULATION
OF REGISTRATION FEE
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Title
of Each Class of Securities to be Registered
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Proposed
Maximum Aggregate
Offering
Price
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Amount
of Registration Fee
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Common
Stock , Preferred Stock
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(1)
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(1)(2)
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(1)
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An
indeterminate number or amount of the securities of each identified
class is being registered as may from time to time be sold at
indeterminate prices. There is also being registered hereunder an
indeterminate number of shares of common stock as shall be issuable upon
conversion of the shares of preferred stock registered
hereby. Separate consideration may or may not be
received for securities that are issuable upon conversion of, or in
exchange for, or upon exercise of, convertible or exchangeable
securities.
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In
reliance on and in accordance with Rule 456(b) and 457(r), the registrant
is deferring payment of all of the registration
fee. |
PROSPECTUS
Annaly
Capital Management, Inc.
Common
Stock and Preferred Stock
By this
prospectus, we may offer, from time to time, shares of our:
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§
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any
combination of the foregoing.
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We will
provide specific terms of each issuance of these securities in supplements to
this prospectus. You should read this prospectus and any supplement
carefully before you decide to invest.
This
prospectus may not be used to consummate sales of these securities unless it is
accompanied by a prospectus supplement.
The New
York Stock Exchange lists our common stock under the symbol “NLY” and our 7.875%
Series A Cumulative Redeemable Preferred Stock under the symbol “NLY
PrA.”
To assist
us in qualifying as a real estate investment trust (or REIT) for federal income
tax purposes, no person may own more than 9.8% of the outstanding shares of any
class of our common stock or our preferred stock, unless our Board of Directors
waives this limitation.
Investing
in these securities involves risks. You should carefully consider the
information referred to under the heading “Risk Factors” beginning on page 4 of
this prospectus.
We may
sell these securities to or through underwriters, dealers or agents, or we may
sell the securities directly to investors on our own behalf.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The date
of this prospectus is May 14, 2009.
TABLE
OF CONTENTS
This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission (or SEC) using a “shelf” registration
process. Under this process, we may offer and sell any combination of
common stock and preferred stock in one or more offerings. This
prospectus provides you with a general description of the securities we may
offer. Each time we offer to sell securities, we will provide a
supplement to this prospectus that will contain specific information about the
terms of that offering. The prospectus supplement may also add,
update or change information contained in this prospectus. It is
important for you to consider the information contained in this prospectus and
any prospectus supplement together with additional information described under
the heading “Where You Can Find More Information on Annaly.”
You should
rely only on the information incorporated by reference or set forth in this
prospectus or the applicable prospectus supplement. We have not
authorized anyone else to provide you with additional or different
information. You should not assume that the information in this
prospectus, the applicable prospectus supplement or any other offering material
is accurate as of any date other than the dates on the front of those
documents.
Certain
statements contained in this prospectus, any prospectus supplement and any other
offering material, and the information incorporated by reference in this
prospectus, any prospectus supplement and/or any other offering material, and
certain statements contained in our future filings with the Securities and
Exchange Commission (the “SEC” or the “Commission”), in our press releases or in
our other public or shareholder communications may not be based on historical
facts and are “forward-looking statements” within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended (or the Exchange
Act). Forward-looking statements, which are based on various
assumptions (some of which are beyond our control), may be identified by
reference to a future period or periods or by the use of forward-looking
terminology, such as “may,” “will,” “believe,” “expect,” “anticipate,”
“continue,” or similar terms or variations on those terms or the negative of
those terms. Actual results could differ materially from those set
forth in forward-looking statements due to a variety of factors, including, but
not limited to:
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changes
in interest rates;
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changes
in the yield curve;
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changes
in prepayment rates;
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the
availability of mortgage-backed securities and other securities for
purchase;
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the
availability and terms of
financing;
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changes
in the market value of our
assets;
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changes
in business conditions and the general
economy;
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changes
in government regulations affecting our
business;
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our
ability to maintain our qualification as a real estate investment trust
for federal income tax
purposes;
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risks
associated with the investment advisory business of our wholly-owned
subsidiaries, including:
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o
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the
removal by clients of assets
managed,
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o
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their
regulatory requirements,
and
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o
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competition
in the investment advisory business,
and
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risks
associated with the broker-dealer business of our
subsidiary.
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For a
discussion of the risks and uncertainties which could cause actual results to
differ from those contained in the forward-looking statements, please see the
information under the caption “Risk Factors” described in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2008 and any subsequent report
incorporated by reference in this prospectus. We do not undertake,
and specifically disclaim any obligation, to publicly release the result of any
revisions which may be made to any forward-looking statements to reflect the
occurrence of anticipated or unanticipated events or circumstances after the
date of such statements.
General
We own,
manage, and finance a portfolio of investment securities, including mortgage
pass-through certificates, collateralized mortgage obligations (or CMOs), agency
callable debentures, and other securities representing interests in or
obligations backed by pools of mortgage loans. Our principal business objective
is to generate net income for distribution to our stockholders from the spread
between the interest income on our investment securities and the cost of
borrowings to finance our acquisition of investment securities, and from
dividends we receive from our subsidiaries. We are a Maryland corporation that
commenced operations on February 18, 1997. We are self-advised and
self-managed.
We have
financed our purchases of investment securities with the net proceeds of equity
offerings and borrowings under repurchase agreements whose interest rates adjust
based on changes in short-term market interest rates. We have elected
to be taxed as a real estate investment trust (or REIT) under the Internal
Revenue Code of 1986, as amended (or the Code) and believe that we are organized
and have operated in a manner that qualifies us to be taxed as a REIT. If we
qualify for taxation as a REIT, we generally will not be subject to federal
income tax on our taxable income that is distributed to our stockholders.
Therefore, substantially all of our assets, other than our taxable REIT
subsidiaries, consist of qualified REIT real estate assets (of the type
described in Section 856(c)(5)(B) of the Code).
Stock
Listing
Our common
stock is traded on the New York Stock Exchange under the symbol “NLY” and our
7.875% Series A Cumulative Redeemable Preferred Stock (which we refer to as our
Series A Preferred Stock) is traded on the New York Stock Exchange under the
symbol “NLY PrA.” Our 6% Series B Cumulative Convertible Preferred
Stock (which we refer to as our Series B Preferred Stock) is not listed on a
national securities exchange or the National Association of Securities Dealers
Automated Quotation system.
Principal
Executive Offices and Telephone Number
Our
principal executive offices are located at 1211 Avenue of the Americas, Suite
2902, New York, New York 10036. Our telephone number is (212)
696-0100.
Investing
in our securities involves risks. You should carefully consider the risks
described under “Risk Factors” in our most recent Annual Report on Form 10-K and
any subsequent Quarterly Reports on Form 10-Q (which descriptions are
incorporated by reference herein), as well as the other information contained or
incorporated by reference in this prospectus or in any prospectus supplement
hereto before making a decision to invest in our securities. See “Where You Can
Find More Information On Annaly,” below.
Unless
otherwise indicated in an accompanying prospectus supplement, we intend to use
the net proceeds from the sale of the securities offered by this prospectus and
the related accompanying prospectus supplement for the purchase of
mortgage-backed securities. We then intend to increase our investment
assets by borrowing against these mortgage-backed securities and using the
proceeds to acquire additional mortgage-backed securities.
The
following table sets forth our ratios of earnings to combined fixed charges and
preferred stock dividends for periods indicated.
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Three
Months
Ended
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Fiscal
Years Ended December 31,
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March
31, 2009
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2008
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2007
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2006
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2005
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2004
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Ratio
of earnings to combined
fixed
charges and preferred
stock
dividends
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1.90x
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1.18x
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1.21x
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1.08x
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0.98x
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1.88x
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The ratios
of earnings to combined fixed charges and preferred stock dividends were
computed by dividing earnings as adjusted by fixed charges and preferred stock
dividends (where applicable). For this purpose, earnings consist of
net income from continuing operations and fixed charges. Fixed
charges consist of interest expense and preferred stock dividends paid on our
outstanding shares of Series A Preferred Stock and Series B Preferred
Stock.
General
Our
authorized capital stock consists of 1 billion shares of capital stock, par
value $.01 per share. Pursuant to our articles of incorporation, as
amended, our Board of Directors has the right to classify or reclassify any
unissued shares of common stock into one or more classes or series of common
stock or preferred stock. As of May 11, 2009, our Board of Directors
had classified 7,412,500 unissued shares of common stock as 7,412,500 shares of
Series A Preferred Stock, and classified 4,600,000 unissued shares of common
stock as 4,600,000 shares of Series B Preferred Stock. As of May 11,
2009, we had 544,345,748 shares of common stock outstanding, not including
7,653,652 shares of common stock issuable upon the exercise of options granted
pursuant to our Long-Term Incentive Plan. In addition, as of May 11,
2009, we had 7,412,500 shares of Series A Preferred Stock outstanding and
3,963,525 shares of Series B Preferred Stock outstanding.
Common
Stock
All shares
of common stock offered hereby will be duly authorized, fully paid and
nonassessable. The statements below describing the common stock are
in all respects subject to and qualified in their entirety by reference to our
articles of incorporation, as amended, by-laws, as amended and restated, and any
articles supplementary to our articles of incorporation, as
amended.
Each of
our common stockholders is entitled to one vote for each share held of record on
each matter submitted to a vote of common stockholders.
Our
by-laws, as amended and restated, provide that annual meetings of our
stockholders will be held each calendar year on the date determined by our Board
of Directors, and special meetings may be called by a majority of our Board of
Directors, our Chairman, a majority of our independent directors, our President
or generally by stockholders entitled to cast at least 25% of the votes which
all stockholders are entitled to cast at the meeting. Our articles of
incorporation, as amended, may be amended in accordance with Maryland
law.
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Dividends;
Liquidation; Other Rights
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Common
stockholders are entitled to receive dividends when declared by our Board of
Directors out of legally available funds. The right of common
stockholders to receive dividends is subordinate to the rights of preferred
stockholders or other senior stockholders. If we have a liquidation,
dissolution or winding up, our common stockholders will share ratably in all of
our assets remaining after the payment of all of our liabilities and the payment
of all liquidation and other preference amounts to preferred stockholders and
other senior stockholders. Common stockholders have no preemptive or
other subscription rights, and there are no conversion rights, or redemption or
sinking fund provisions, relating to the shares of common stock.
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Classification
or Reclassification of Common Stock or Preferred
Stock
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Our
articles of incorporation, as amended, authorize our Board of Directors to
reclassify any unissued shares of common or preferred stock into other classes
or series of shares, to establish the number of shares in each class or series
and to set the preferences, conversion and other rights, voting powers,
restrictions, limitations, and restrictions on ownership, limitations as to
dividends or other distributions, qualifications, and terms or conditions of
redemption for each class or series.
Preferred
Stock
The
following description sets forth general terms and provisions of the 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 our articles of incorporation, as
amended, by-laws, as amended and restated, and any articles supplementary to our
articles of incorporation, as amended, designating terms of a series of
preferred stock. The preferred stock, when issued, will be validly
issued, fully paid, and non-assessable. Because our Board of
Directors has the power to establish the preferences, powers and rights of each
series of preferred stock, our Board of Directors may afford the holders of any
series of preferred stock preferences, powers and rights, voting or otherwise,
senior to the rights of common stockholders.
The
rights, preferences, privileges and restrictions of each series of preferred
stock will be fixed by the articles supplementary relating to the
series. A prospectus supplement, relating to each series, will
specify the terms of the preferred stock, as follows:
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the
title and stated value of the preferred
stock;
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the
voting rights of the preferred stock, if
applicable;
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the
preemptive rights of the preferred stock, if
applicable;
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the
restrictions on alienability of the preferred stock, if
applicable;
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the
number of shares offered, the liquidation preference per share and the
offering price of the shares;
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liability
to further calls or assessment of the preferred stock, if
applicable;
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the
dividend rate(s), period(s) and payment date(s) or method(s) of
calculation applicable to the preferred
stock;
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the
date from which dividends on the preferred stock will accumulate, if
applicable;
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the
procedures for any auction and remarketing for the preferred
stock;
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the
provision for a sinking fund, if any, for the preferred
stock;
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the
provision for and any restriction on redemption, if applicable, of the
preferred stock;
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the
provision for and any restriction on repurchase, if applicable, of the
preferred stock;
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any
listing of the preferred stock on any securities
exchange;
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the
terms and provisions, if any, upon which the preferred stock will be
convertible into common stock, including the conversion price (or manner
of calculation) and conversion
period;
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the
terms under which the rights of the preferred stock may be modified, if
applicable;
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any
other specific terms, preferences, rights, limitations or restrictions of
the preferred stock;
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a
discussion of certain material federal income tax considerations
applicable to the preferred stock;
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the
relative ranking and preferences of the preferred stock as to dividend
rights and rights upon the liquidation, dissolution or winding-up of our
affairs;
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any
limitation on issuance of any series of preferred stock ranking senior to
or on a parity with the series of preferred stock as to dividend rights
and rights upon the liquidation, dissolution or winding-up of our affairs;
and
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any
limitations on direct or beneficial ownership and restrictions on transfer
of the preferred stock, in each case as may be appropriate to preserve our
qualification as a REIT.
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Restrictions
on Ownership and Transfer
To assist
us in qualifying as a REIT, our articles of incorporation, as amended, prohibit
anyone from acquiring or holding, directly or constructively, ownership of a
number of shares of any class of our capital stock in excess of 9.8% of the
outstanding shares. For this purpose the term “ownership” generally
means either direct ownership or constructive ownership in accordance with the
constructive ownership provisions of Section 544 of the Code, as modified in
Section 856(h) of the Code.
The
constructive ownership provisions of Section 544 of the Code generally attribute
ownership of securities owned by a corporation, partnership, estate or trust
proportionately to its stockholders, partners or beneficiaries; attribute
ownership of securities owned by family members to other members of the same
family; and set forth rules for attributing securities constructively owned by
one person to another person. To determine whether a person holds or
would hold capital stock in excess of the 9.8% ownership limit, a person will be
treated as owning not only shares of capital stock actually owned, but also any
shares of capital stock attributed to that person under the attribution rules
described above. Accordingly, a person who individually owns less
than 9.8% of the shares outstanding may nevertheless be in violation of the 9.8%
ownership limit.
Any
transfer of shares of capital stock that would cause us to be disqualified as a
REIT or that would (a) create a direct or constructive ownership of shares of
capital stock in excess of the 9.8% ownership limit, or (b) result in the shares
of capital stock being beneficially owned (within the meaning of Section 856(a)
of the Code) by fewer than 100 persons (determined without reference to any
rules of attribution), or (c) result in us being “closely held” within the
meaning of Section 856(h) of the Code, will be null and void, and the intended
transferee (the “purported transferee”) will acquire no rights to those
shares. These restrictions on transferability and ownership will not
apply if our Board of Directors determines that it is no longer in our best
interests to continue to qualify as a REIT.
Any
purported transfer of shares of capital stock that would result in a purported
transferee owning (directly or constructively) shares of capital stock in excess
of the 9.8% ownership limit due to the unenforceability of the transfer
restrictions described above will constitute “excess
securities.” Excess securities will be transferred by operation of
law to a trust that we will establish for the exclusive benefit of a charitable
organization, until such time as the trustee of the trust retransfers the excess
securities. The trustee will be a banking institution designated by
us that is not affiliated with the purported transferee or us. While
the excess securities are held in trust, the purported transferee will not be
entitled to vote or to share in any dividends or other distributions with
respect to the securities. Subject to the 9.8% ownership limit,
excess securities may be transferred by the trust to any person (if such
transfer would not result in excess securities) at a price not to exceed the
price paid by the purported transferee (or, if no consideration was paid by the
purported transferee, the fair market value of the excess securities on the date
of the purported transfer), at which point the excess securities will
automatically cease to be excess securities.
Upon a
purported transfer of excess securities, the purported transferee shall cease to
be entitled to distributions, voting rights and other benefits with respect to
the shares of capital stock except the right to payment of the purchase price
for the shares of capital stock on the retransfer of securities as provided
above. Any dividend or distribution paid to a purported transferee on
excess securities prior to our discovery that shares of capital stock have been
transferred in violation of our articles of incorporation, as amended, shall be
repaid to us upon demand. If these transfer restrictions are
determined to be void, invalid or unenforceable by a court of competent
jurisdiction, then the purported transferee of any excess securities may be
deemed, at our option, to have acted as an agent on our behalf in acquiring the
excess securities and to hold the excess securities on our behalf.
All
certificates representing shares of capital stock will bear a legend referring
to the restrictions described above.
Any person
who acquires shares in violation of our articles of incorporation, as amended,
or any person who is a purported transferee such that excess securities results,
must immediately give written notice or, in the event of a proposed or attempted
transfer that would be void as set forth above, give at least 15 days prior
written notice to us of such event and shall provide us such other information
as we may request in order to determine the effect, if any, of the transfer on
our qualification as a REIT. In addition, every record owner of 5.0%
or more (during any period in which the number of record stockholders is 2,000
or more) or 1.0% or more (during any period in which the number of record
stockholders is greater than 200 but less than 2,000) or 1/2% or more (during
any period in which the number of record stockholders is 200 or less) of the
number or value of our outstanding shares must send us an annual written notice
by January 30 stating the name and address of the record owner and the number of
shares held and describing how the shares are held. Further, each
stockholder is required to disclose to us in writing information with respect to
the direct and constructive ownership of shares as the Board of Directors deems
reasonably necessary to comply with the REIT provisions of the Code, to comply
with the requirements of any taxing authority or governmental agency or to
determine any such compliance.
Our Board
of Directors may increase or decrease the 9.8% ownership limit. In
addition, to the extent consistent with the REIT provisions of the Code, our
Board of Directors may, pursuant to our articles of incorporation, as amended,
waive the 9.8% ownership limit for a purchaser of our stock. In
connection with any such waiver, we may require that the stockholder requesting
the waiver enter into an agreement with us providing that we may repurchase
shares from the stockholder under certain circumstances to ensure compliance
with the REIT provisions of the Code. The repurchase would be at fair
market value as set forth in the agreement between us and the
stockholder. The consideration received by the stockholder in the
repurchase might be characterized as the receipt by the stockholder of a
dividend from us, and any stockholder entering into an agreement with us should
consult its tax advisor. At present, we do not intend to waive the
9.8% ownership limit for any purchaser.
The
provisions described above may inhibit market activity, and may delay, defer or
prevent a change in control or other transaction and the resulting opportunity
for the holders of our capital stock to receive a premium for their shares that
might otherwise exist in the absence of such provisions. Such
provisions also may make us an unsuitable investment vehicle for any person
seeking to obtain ownership of more than 9.8% of the outstanding shares of our
capital stock.
Classification
of Board of Directors, Vacancies and Removal of Directors
Our
by-laws, as amended and restated, provide for a staggered Board of
Directors. Our by-laws, as amended and restated, provide for between
three and fifteen directors divided into three classes, with terms of three
years each. The number of directors in each class and the expiration
of each class term is as follows:
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Class
I
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3
Directors
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Expires
2009
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Class
II
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2
Directors
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Expires
2010
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Class
III
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3
Directors
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Expires
2011
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At each
annual meeting of our stockholders, successors of the class of directors whose
term expires at that meeting will be elected for a three-year term and the
directors in the other two classes will continue in office. A
classified Board of Directors may delay, defer or prevent a change in control or
other transaction that might involve a premium over the then prevailing market
price for our common stock or other attributes that our stockholders may
consider desirable. In addition, a classified Board of Directors
could prevent stockholders who do not agree with the policies of our Board of
Directors from replacing a majority of the Board of Directors for two years,
except in the event of removal for cause.
Our
by-laws, as amended and restated, provide that any vacancy on our Board of
Directors may be filled by a majority of the remaining directors. Any
individual so elected director will hold office for the unexpired term of the
director he or she is replacing. Our by-laws, as amended and
restated, provide that a director may be removed at any time only for cause upon
the affirmative vote of at least two-thirds of the votes entitled to be cast in
the election of directors, but only by a vote taken at a stockholder
meeting. These provisions preclude stockholders from removing
incumbent directors, except for cause and upon a substantial affirmative vote,
and filling the vacancies created by such removal with their own
nominees.
Indemnification
Our
articles of incorporation, as amended, obligate us to indemnify our directors
and officers and to pay or reimburse expenses for them before the final
disposition of a proceeding to the maximum extent permitted by Maryland
law. The Corporations and Associations Article of the Annotated Code
of Maryland (or the Maryland General Corporation Law) permits a corporation to
indemnify its present and former directors and officers against judgments,
penalties, fines, settlements and reasonable expenses actually incurred by them
in connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities, unless it is established that (1)
the act or omission of the director or officer was material to the matter giving
rise to the proceeding and (a) was committed in bad faith, or (b) was the result
of active and deliberate dishonesty, or (2) the director or officer actually
received an improper personal benefit in money, property or services, or (3) in
the case of any criminal proceeding, the director or officer had reasonable
cause to believe that the act or omission was unlawful.
Limitation
of Liability
The
Maryland General Corporation Law permits the charter of a Maryland corporation
to include a provision limiting the liability of its directors and officers to
the corporation and its stockholders for money damages, except to the extent
that (1) it is proved that the person actually received an improper benefit or
profit in money, property or services, or (2) a judgment or other final
adjudication adverse to the person is entered in a proceeding based on a finding
that the person’s action, or failure to act, was the result of active and
deliberate dishonesty and was material to the cause of action adjudicated in the
proceeding. Our articles of incorporation, as amended, provide for
elimination of the liability of our directors and officers to us or our
stockholders for money damages to the maximum extent permitted by Maryland law
from time to time.
Maryland
Business Combination Act
The
Maryland General Corporation Law establishes special requirements for “business
combinations” between a Maryland corporation and “interested stockholders”
unless exemptions are applicable. An interested stockholder is any
person who beneficially owns 10% or more of the voting power of our then
outstanding voting stock. Among other things, the law prohibits for a
period of five years a merger and other similar transactions between us and an
interested stockholder unless the Board of Directors approved the transaction
prior to the party becoming an interested stockholder. The five-year
period runs from the most recent date on which the interested stockholder became
an interested stockholder. The law also requires a supermajority
stockholder vote for such transactions after the end of the five-year
period. This means that the transaction must be approved by at
least:
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80%
of the votes entitled to be cast by holders of outstanding voting shares;
and
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two-thirds
of the votes entitled to be cast by holders of outstanding voting shares
other than shares held by the interested stockholder or an affiliate of
the interested stockholder with whom the business combination is to be
effected.
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As
permitted by the Maryland General Corporation Law, we have elected not to be
governed by the Maryland business combination statute. We made this
election by opting out of this statute in our articles of incorporation, as
amended. If, however, we amend our articles of incorporation, as
amended, to opt back in to the statute, the business combination statute could
have the effect of discouraging offers to acquire us and of increasing the
difficulty of consummating any such offers, even if our acquisition would be in
our stockholders’ best interests.
Maryland
Control Share Acquisition Act
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 the other stockholders. Two-thirds of the shares
eligible to vote must vote in favor of granting the “control shares” voting
rights. “Control shares” are shares of stock that, taken together
with all other shares of stock the acquirer previously acquired, would entitle
the acquirer 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 of all voting
power;
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one-third
or more but less than a majority of all voting power;
or
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a
majority or more of all voting
power.
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Control
shares do not include shares of stock the acquiring person is 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.
If a
person who has made (or proposes to make) a control share acquisition satisfies
certain conditions (including agreeing to pay expenses), he may compel our Board
of Directors to call a special meeting of stockholders to consider the voting
rights of the shares. If such a person makes no request for a
meeting, we have the option to present the question at any stockholders’
meeting.
If voting
rights are not approved at a meeting of stockholders 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. We will determine the fair value of the shares, without regard
to the absence of voting rights, as of the date of either:
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the
last control share acquisition; or
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the
meeting where stockholders considered and did not approve voting rights of
the control shares.
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If voting
rights for control shares are approved at a stockholders’ meeting and the
acquirer becomes entitled to vote a majority of the shares of stock entitled to
vote, all other stockholders may obtain rights as objecting stockholders and,
thereunder, exercise appraisal rights. This means that you would be
able to force us to redeem your stock for fair value. Under Maryland law, the
fair value may not be less than the highest price per share paid in the control
share acquisition. Furthermore, certain limitations otherwise
applicable to the exercise of dissenters’ rights would not apply in the context
of a control share acquisition. The control share acquisition statute
would not apply to shares acquired in a merger, consolidation or share exchange
if we were a party to the transaction. The control share acquisition
statute could have the effect of discouraging offers to acquire us and of
increasing the difficulty of consummating any such offers, even if our
acquisition would be in our stockholders’ best interests.
Transfer
Agent and Registrar
Mellon
Investor Services LLC, 480 Washington Blvd., Jersey City, New
Jersey 07310, is the transfer agent and registrar for our
stock. Its telephone number is (800) 522-6645.
This
section summarizes the material federal income tax considerations that you, as
an Owner (as defined in the immediately succeeding paragraph) of shares of
capital stock, may consider relevant. K&L Gates LLP has acted as
our tax counsel, has reviewed this section and is of the opinion that the
discussion contained herein fairly summarizes the federal income tax
consequences that are likely to be material to an Owner of our shares of capital
stock. Because this section is a summary, it does not address all
aspects of taxation that may be relevant to particular Owners of our capital
stock in light of their personal investment or tax circumstances, or to certain
types of Owners that are subject to special treatment under the federal income
tax laws, such as insurance companies, tax-exempt organizations (except to the
extent discussed in “—Taxation of Owners,—Taxation of Tax-Exempt Owners” below),
regulated investment companies, partnerships and other pass-through entities
(including entities classified as partnerships for federal income tax purposes),
financial institutions or broker-dealers, and non-U.S. individuals and foreign
corporations (except to the extent discussed in “—Taxation of Owners,—Taxation
of Foreign Owners” below) and other persons subject to special tax
rules.
You should
be aware that in this section, when we use the term:
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“Code,”
we mean the Internal Revenue Code of 1986, as
amended;
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“Disqualified
organization,” we mean any organization described in section 860E(e)(5) of
the Code,
including:
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ii.
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any
state or political subdivision of the United
States;
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iv.
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any
international
organization;
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v.
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any
agency or instrumentality of any of the
foregoing;
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vi.
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any
charitable remainder trust or other tax-exempt organization, other than a
farmer’s cooperative described in section 521 of the Code, that is exempt
both from income taxation and from taxation under the unrelated business
taxable income provisions of the Code;
and
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vii.
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any
rural electrical or telephone
cooperative;
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“Domestic
Owner,” we mean an Owner that is a U.S.
Person;
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“Foreign
Owner,” we mean an Owner that is not a U.S.
Person;
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“IRS,”
we mean the Internal Revenue
Service;
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“Owner,”
we mean any person having a beneficial ownership interest in shares of our
capital
stock;
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“TMP,”
we mean a taxable mortgage pool as that term is defined in section
7701(i)(2) of the
Code;
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“TRS,”
we mean a taxable REIT subsidiary described under “—Requirements for
Qualification—Taxable REIT Subsidiaries”
below;
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“U.S.
Person,” we mean (i) a citizen or resident of the United States; (ii) a
corporation (or entity treated as a corporation for federal income tax
purposes) created or organized in the United States or under the laws of
the United States or of any state thereof, including, for this purpose,
the District of Columbia; (iii) a partnership (or entity treated as a
partnership for tax purposes) organized in the United States or under the
laws of the United States or of any state thereof, including, for this
purpose, the District of Columbia (unless provided otherwise by future
Treasury regulations); (iv) an estate whose income is includible in gross
income for federal income tax purposes regardless of its source; or (v) a
trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more U.S.
Persons have authority to control all substantial decisions of the trust.
Notwithstanding the preceding clause, to the extent provided in Treasury
regulations, certain trusts that were in existence on August 20, 1996,
that were treated as U.S. Persons prior to such date, and that elect to
continue to be treated as U.S. Persons, also are U.S.
Persons.
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The
statements in this section and the opinion of K&L Gates LLP are based on the
current federal income tax laws. We cannot assure you that new laws,
interpretations of law or court decisions, any of which may take effect
retroactively, will not cause any statement in this section to be
inaccurate. No assurance can be given that the IRS would not assert,
or that a court would not sustain, a position contrary to any of the tax
consequences described below. We have not sought and will not seek an
advance ruling from the IRS regarding any matter in this
prospectus.
This
summary provides general information only and is not tax advice. We
urge you to consult your tax advisor regarding the specific tax consequences to
you of the purchase, ownership and sale of our capital stock and of our election
to be taxed as a REIT. Specifically, you should consult your tax
advisor regarding the federal, state, local, foreign, and other tax consequences
of such purchase, ownership, sale and election, and regarding potential changes
in applicable tax laws.
Taxation
of Our Company
We have
elected to be taxed as a REIT under Sections 856 through 860 of the Code
commencing with our taxable year ended on December 31, 1997. We
believe that we were organized and have operated and will continue to operate in
such a manner as to qualify for taxation as a REIT under the federal income tax
laws, but no assurances can be given that we will operate in a manner so as to
qualify or remain qualified as a REIT. This section discusses the
laws governing the federal income tax treatment of a REIT and the owners of REIT
stock. These laws are highly technical and complex.
In the
opinion of K&L Gates LLP, our counsel, we have qualified to be taxed as a
REIT beginning with our taxable year ended on December 31, 1997, and our
organization and current and proposed method of operation will enable us to
continue to meet the requirements for qualification and taxation as a
REIT. Investors should be aware that K&L Gates LLP’s opinion is
based upon customary assumptions, is conditioned upon certain representations
made by us as to factual matters, including representations regarding the nature
of our assets and the conduct of our business, and is not binding upon the IRS
or any court.
In
addition, K&L Gates LLP’s opinion is based on existing federal income tax
law governing qualification as a REIT, which is subject to change either
prospectively or retroactively. Moreover, our qualification and
taxation as a REIT depend upon our ability to meet on a continuing basis,
through actual annual operating results, certain qualification tests set forth
in the federal income tax laws. Those qualification tests involve the
percentage of income that we earn from specified sources, the percentage of our
assets that falls within specified categories, the diversity of our stock
ownership, and the percentage of our earnings that we
distribute. K&L Gates LLP will not review our compliance with
those tests on a continuing basis. Accordingly, no assurance can be
given that our actual results of operations for any particular taxable year will
satisfy such requirements. For a discussion of the tax consequences
of our failure to qualify as a REIT, see “—Failure to Qualify.”
If we
qualify as a REIT, we generally will not be subject to federal income tax on our
taxable income that we currently distribute to our stockholders, but taxable
income generated by our domestic TRSs will be subject to regular federal (and
applicable state and local) corporate income tax. However, we will be
subject to federal tax in the following circumstances:
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We
will pay federal income tax on our taxable income, including net capital
gain, that we do not distribute to stockholders during, or within a
specified time period after, the calendar year in which the income is
earned.
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We
may be subject to the “alternative minimum
tax.”
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We
will pay federal income tax at the highest corporate rate
on:
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net
income from the sale or other disposition of property acquired through
foreclosure, which we refer to as foreclosure property, that we hold
primarily for sale to customers in the ordinary course of business,
and
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other
non-qualifying income from foreclosure
property.
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We
will pay a 100% tax on net income earned from sales or other dispositions
of property, other than foreclosure property, that we hold primarily for
sale to customers in the ordinary course of
business.
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If
we fail to satisfy the 75% gross income test or the 95% gross income test,
as described below under “—Gross Income Tests,” but nonetheless continue
to qualify as a REIT because we meet other requirements, we will be
subject to a 100% tax
on:
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the
greater of the amount by which we fail the 75% gross income test or the
95% gross income test, multiplied, in either case,
by
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a
fraction intended to reflect our
profitability.
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If
we fail to satisfy the asset tests by more than a de minimis amount, as
described below under “—Asset Tests,” as long as the failure was due to
reasonable cause and not to willful neglect, we dispose of the assets or
otherwise comply with such asset tests within six months after the last
day of the quarter in which we identify such failure and we file a
schedule with the IRS describing the assets that caused such failure, we
will pay a tax equal to the greater of $50,000 or 35% of the net income
from the non-qualifying assets during the period in which we failed to
satisfy such asset
tests.
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If
we fail to satisfy one or more requirements for REIT qualification, other
than the gross income tests and the asset tests, and such failure was due
to reasonable cause and not due to willful neglect, we will be required to
pay a penalty of $50,000 for each such
failure.
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We
may be required to pay monetary penalties to the IRS in certain
circumstances, including if we fail to meet recordkeeping requirements
intended to monitor our compliance with rules relating to the composition
of a REIT’s stockholders, as described below in “—Requirements for
Qualification.”
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If
we fail to distribute during a calendar year at least the sum of: (i) 85%
of our REIT ordinary income for the year, (ii) 95% of our REIT capital
gain net income for the year and (iii) any undistributed taxable income
from earlier periods, we will pay a 4% nondeductible excise tax on the
excess of the required distribution over the sum of the amount we actually
distributed and any retained amounts on which income tax has been paid at
the corporate
level.
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We
may elect to retain and pay federal income tax on our net long-term
capital gain. In that case, a Domestic Owner would be taxed on
its proportionate share of our undistributed long-term capital gain (to
the extent that we make a timely designation of such gain to the
stockholder) and would receive a credit or refund for its proportionate
share of the tax we
paid.
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We
will be subject to a 100% excise tax on transactions between us and any of
our TRSs that are not conducted on an arm’s-length
basis.
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If
(a) we recognize excess inclusion income for a taxable year as a result of
our ownership of a 100% equity interest in a TMP or our ownership of a
REMIC residual interest and (b) one or more Disqualified Organizations is
the record owner of shares of our capital stock during that year, then we
will be subject to tax at the highest corporate federal income tax rate on
the portion of the excess inclusion income that is allocable to the
Disqualified Organizations. We do not anticipate owning REMIC
residual interests or residual interests in TMPs. See “—Taxable
Mortgage
Pools.”
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If
we acquire any asset from a C corporation, or a corporation that generally
is subject to full corporate-level tax, in a merger or other transaction
in which we acquire a basis in the asset that is determined by reference
either to the C corporation’s basis in the asset or to another asset, we
will pay tax at the highest corporate federal income tax rate if we
recognize gain on the sale or disposition of the asset during the 10-year
period after we acquire the asset. The amount of gain on which
we will pay tax is the lesser
of:
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the
amount of gain that we recognize at the time of the sale or disposition,
and
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the
amount of gain that we would have recognized if we had sold the asset at
the time we acquired it, assuming that the C corporation will not elect in
lieu of this treatment to an immediate tax when the asset is
acquired.
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In
addition, notwithstanding our qualification as a REIT, we may also have to pay
certain state and local income taxes because not all states and localities treat
REITs in the same manner that they are treated for federal income tax
purposes. Moreover, as further described below, any domestic TRS in
which we own an interest will be subject to federal, state and local corporate
income tax on its taxable income. We could also be subject to tax in
situations and on transactions not presently contemplated.
Requirements
for Qualification
A REIT is a corporation, trust, or
association that meets each of the following requirements:
1. It
is managed by one or more trustees or directors.
2. Its
beneficial ownership is evidenced by transferable shares or by transferable
certificates of beneficial interest.
3. It
would be taxable as a domestic corporation, but for the REIT provisions of the
federal income tax laws.
4. It
is neither a financial institution nor an insurance company subject to special
provisions of the federal income tax laws.
5. At
least 100 persons are beneficial owners of its shares or ownership
certificates.
6. Not
more than 50% in value of its outstanding shares or ownership certificates is
owned, directly or indirectly, by five or fewer individuals, which the federal
income tax laws define to include certain entities, during the last half of any
taxable year. For purposes of this requirement, indirect ownership
will be determined by applying attribution rules set out in section 544 of the
Code, as modified by section 856(h) of the Code.
7. It
elects to be taxed as a REIT, or has made such election for a previous taxable
year, and satisfies all relevant filing and other administrative requirements
that must be met to elect and maintain REIT qualification.
8. It
meets certain other qualification tests, described below, regarding the nature
of its income and assets.
We must
meet requirements 1 through 4 during our entire taxable year and must meet
requirement 5 during at least 335 days of a taxable year of twelve months, or
during a proportionate part of a taxable year of less than twelve
months. If we comply with all the requirements for ascertaining the
ownership of our outstanding stock in a taxable year and have no reason to know
that we violated requirement 6, we will be deemed to have satisfied requirement
6 for that taxable year. For purposes of determining share ownership
under requirement 6, an “individual” generally includes a supplemental
unemployment compensation benefits plan, a private foundation, or a portion of a
trust permanently set aside or used exclusively for charitable
purposes. An “individual” generally does not include a trust that is
a qualified employee pension or profit sharing trust under the federal income
tax laws, however, and beneficiaries of such a trust will be treated as owning
our stock in proportion to their actuarial interests in the trust for purposes
of requirement 6.
We believe
that we have always had and will continue to have sufficient diversity of
ownership to satisfy requirements 5 and 6. In addition, our charter
restricts the ownership and transfer of our stock so that we should continue to
satisfy these requirements. The provisions of our charter restricting
the ownership and transfer of our capital stock are described in “Description of
Capital Stock—Restrictions on Ownership and Transfer.”
To monitor
compliance with the share ownership requirements, we generally are required to
maintain records regarding the actual ownership of our shares. To do
so, we must demand written statements each year from the record holders of
significant percentages of our stock pursuant to which the record holders must
disclose the actual owners of the shares (i.e., the persons required to include
our dividends in their gross income). We must maintain a list of
those persons failing or refusing to comply with this demand as part of our
records. We could be subject to monetary penalties if we fail to
comply with these record keeping requirements. If you fail or refuse
to comply with the demands, you will be required by Treasury Regulations to
submit a statement with your tax return disclosing your actual ownership of our
shares and other information. In addition, we must satisfy all
relevant filing and other administrative requirements that must be met to elect
and maintain REIT qualification and use a calendar year for federal income tax
purposes. We intend to continue to comply with these
requirements.
Qualified
REIT Subsidiaries
A
corporation that is a “qualified REIT subsidiary” is not treated as a
corporation separate from its parent REIT. All assets, liabilities,
and items of income, deduction and credit of a qualified REIT subsidiary are
treated as assets, liabilities, and items of income, deduction and credit of the
REIT. A qualified REIT subsidiary is a corporation, other than a TRS,
all of the capital stock of which is owned, directly or indirectly, by the
REIT. Thus, in applying the requirements described herein, any
qualified REIT subsidiary that we own will be ignored, and all assets,
liabilities, and items of income, deduction and credit of such subsidiary will
be treated as our assets, liabilities, and items of income, deduction and
credit.
Other Disregarded Entities and
Partnerships
An
unincorporated domestic entity, such as a partnership, limited liability
company, or trust that has a single owner generally is not treated as an entity
separate from its parent for federal income tax purposes. An
unincorporated domestic entity with two or more owners generally is treated as a
partnership for federal income tax purposes. In the case of a REIT
that is a partner in a partnership that has other partners, the REIT is treated
as owning its proportionate share of the assets of the partnership and as
earning its allocable share of the gross income of the partnership for purposes
of the applicable REIT qualification tests. For purposes of the 10%
value test (see “—Asset Tests”), our proportionate share is based on our
proportionate interest in the equity interests and certain debt securities
issued by the partnership. For all of the other asset and income
tests, our proportionate share is based on our proportionate interest in the
capital interests in the partnership. Our proportionate share of the
assets, liabilities, and items of income of any partnership, joint venture or
limited liability company that is treated as a partnership for federal income
tax purposes in which we acquire an interest, directly or indirectly, will be
treated as our assets and gross income for purposes of applying the various REIT
qualification requirements.
If a
disregarded subsidiary of ours ceases to be wholly-owned—for example, if any
equity interest in the subsidiary is acquired by a person other than us or
another disregarded subsidiary of ours—the subsidiary’s separate existence would
no longer be disregarded for federal income tax purposes. Instead,
the subsidiary would have multiple owners and would be treated as either a
partnership or a taxable corporation. Such an event could, depending
on the circumstances, adversely affect our ability to satisfy the various asset
and gross income requirements applicable to REITs, including the requirement
that REITs generally may not own, directly or indirectly, more than 10% of the
securities of another corporation. See “—Asset Tests” and “—Gross
Income Tests.”
Taxable
REIT Subsidiaries
A REIT is
permitted to own up to 100% of the stock of one or more TRSs. A TRS
is a fully taxable corporation that may earn income that would not be qualifying
income if earned directly by the parent REIT. The subsidiary and the
REIT must jointly elect to treat the subsidiary as a TRS. A
corporation with respect to which a TRS directly or indirectly owns more than
35% of the voting power or value of the stock will automatically be treated as a
TRS. We generally may not own more than 10%, as measured by voting
power or value, of the securities of a corporation that is not a qualified REIT
subsidiary unless we and such corporation elect to treat such corporation as a
TRS. Overall, no more than 25% of the value of a REIT’s assets may
consist of stock or securities of one or more TRSs.
The
separate existence of a TRS or other taxable corporation, unlike a qualified
REIT subsidiary or other disregarded subsidiary as discussed above, is not
ignored for U.S. federal income tax purposes. Accordingly, a domestic
TRS would generally be subject to federal (and applicable state and local income
tax) corporate income tax on its earnings, which may reduce the cash flow
generated by us and our subsidiaries in the aggregate and our ability to make
distributions to our stockholders.
A REIT is
not treated as holding the assets of a TRS or other taxable subsidiary
corporation or as receiving any income that the subsidiary
earns. Rather, the stock issued by the subsidiary is an asset in the
hands of the REIT, and the REIT generally recognizes as income the dividends, if
any, that it receives from the subsidiary. This treatment can affect
the gross income and asset test calculations that apply to the REIT, as
described below. Because a parent REIT does not include the assets
and income of such subsidiary corporations in determining the parent’s
compliance with the REIT requirements, such entities may be used by the parent
REIT to undertake indirectly activities that the REIT rules might otherwise
preclude it from doing directly or through pass-through subsidiaries or render
commercially unfeasible (for example, activities that give rise to certain
categories of income such as non-qualifying hedging income or inventory
sales).
Certain
restrictions imposed on TRSs are intended to ensure that such entities will be
subject to appropriate levels of U.S. federal income taxation. If a
TRS that has for any taxable year both (i) a debt-to-equity ratio in excess of
1.5 to 1, and (ii) accrued interest expense in excess of accrued interest
income, then the TRS may be denied an interest expense deduction for a portion
of the interest expense accrued on indebtedness owed to the parent REIT
(although the TRS can carry forward the amount disallowed to subsequent taxable
years). In addition, if amounts are paid to a REIT or deducted by a
TRS due to transactions between the REIT and a TRS that exceed the amount that
would be paid to or deducted by a party in an arm’s-length transaction, the REIT
generally will be subject to an excise tax equal to 100% of such
excess. We intend to scrutinize all of our transactions with any of
our subsidiaries that are treated as a TRS in an effort to ensure that we do not
become subject to this excise tax; however, we cannot assure you that we will be
successful in avoiding this excise tax.
Gross
Income Tests
We must
satisfy two gross income tests annually to maintain qualification as a
REIT. First, at least 75% of our gross income for each taxable year
must consist of defined types of income that we derive from investments relating
to real property or mortgages on real property, or from qualified temporary
investments. Qualifying income for purposes of the 75% gross income
test generally includes:
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rents
from real
property;
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interest
on debt secured by a mortgage on real property or on interests in real
property;
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dividends
or other distributions on, and gain from the sale of, shares in other
REITs;
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gain
from the sale of real estate
assets;
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any
amount includible in gross income with respect to a regular or residual
interest in a REMIC, unless less than 95% of the REMIC’s assets are real
estate assets, in which case only a proportionate amount of such income
will qualify;
and
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income
derived from certain temporary
investments.
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Second, in
general, at least 95% of our gross income for each taxable year must consist of
income that is qualifying income for purposes of the 75% gross income test,
other types of interest and dividends, gain from the sale or disposition of
stock or securities (provided that such stock or securities are not inventory
property, i.e., property held primarily for sale to customers in the ordinary
course of business) or any combination of these.
Gross
income from the sale of inventory property is excluded from both the numerator
and the denominator in both income tests. Income and gain from
hedging transactions that we enter into to hedge indebtedness incurred or to be
incurred to acquire or carry real estate assets will generally be excluded from
both the numerator and the denominator for purposes of the 95% gross income test
and the 75% gross income test. We intend to monitor the amount of our
non-qualifying income and manage our investment portfolio to comply at all times
with the gross income tests but we cannot assure you that we will be successful
in this effort.
Interest
The term
“interest,” as defined for purposes of both gross income tests, generally
excludes any amount that is based in whole or in part on the income or profits
of any person. However, interest generally includes the following:
(i) an amount that is based on a fixed percentage or percentages of gross
receipts or sales and (ii) an amount that is based on the income or profits of a
borrower, where the borrower derives substantially all of its income from the
real property securing the debt by leasing substantially all of its interest in
the property, but only to the extent that the amounts received by the borrower
would be qualifying “rents from real property” if received directly by a
REIT.
If a loan
contains a provision that entitles a REIT to a percentage of the borrower’s gain
upon the sale of the real property securing the loan or a percentage of the
appreciation in the property’s value as of a specific date, income attributable
to that loan provision will be treated as gain from the sale of the property
securing the loan, which generally is qualifying income for purposes of both
gross income tests.
Interest,
including any original issue discount or market discount, on mortgage-backed
securities in which we have invested and in which we propose to invest is
qualifying income both for purposes of the 75% gross income test and the 95%
gross income test. Interest income that we have accrued and will
accrue in the future on other debt securities that are not secured by mortgages
on real property is qualifying income for purposes of the 95% gross income
test.
Fee
Income
We may
receive various fees in connection with our operations. The fees will
be qualifying income for purposes of both the 75% gross income and 95% gross
income tests if they are received in consideration for entering into an
agreement to make a loan secured by a mortgage on real property or an interest
in real property and the fees are not determined by income or profits of any
person. Other fees are not qualifying income for purposes of either
gross income test. Any fees earned by our TRS will not be included
for purposes of the gross income tests.
Dividends
Our share
of any dividends received from any corporation (including any TRS that we own,
but excluding any REIT or any qualified REIT subsidiary) in which we own an
equity interest will qualify for purposes of the 95% gross income test but not
for purposes of the 75% gross income test. Our share of any dividends
received from any other REIT in which we own an equity interest will be
qualifying income for purposes of both gross income tests.
Hedging
Transactions
We may,
from time to time, enter into hedging transactions with respect to the interest
rate risk associated with our borrowings. To the extent that we enter
into a contract to hedge interest rate risk on indebtedness incurred to acquire
or carry real estate assets, any income and gain from such hedging transaction
will be excluded from gross income for purposes of the 95% gross income test and
the 75% gross income test. To the extent that we hedge for
certain other purposes, the resultant income or gain will be treated as income
that does not qualify under the 95% gross income test or the 75% gross income
test. We intend to structure any hedging transaction in a manner that
does not jeopardize our status as a REIT but we cannot assure you that we will
be successful in this regard. We may conduct some or all of our
hedging activities through a TRS, the income from which may be subject to
federal income tax, rather than participating in the arrangements directly or
through a partnership, qualified REIT subsidiary or other disregarded
subsidiary. No assurance can be given, however, that our hedging
activities will not give rise to income that does not qualify for purposes of
either or both of the REIT gross income tests, and will not adversely affect our
ability to satisfy the REIT qualification requirements.
Failure
to Satisfy Gross Income Tests
We intend
to monitor the amount of our non-qualifying income and manage our assets to
comply with the gross income tests for each taxable year for which we seek to
maintain our status as a REIT. We cannot assure you, however, that we
will be able to satisfy the gross income tests. If we fail to satisfy
one or both of the gross income tests for any taxable year, we may nevertheless
qualify as a REIT for such year if we qualify for relief under certain
provisions of the Code. These relief provisions will be generally
available if (i) our failure to meet such tests was due to reasonable cause and
not due to willful neglect, and (ii) we file with the IRS a schedule describing
the sources of our gross income in accordance with Treasury
Regulations. We cannot predict, however, whether in all
circumstances, we would qualify for the benefit of these relief
provisions. In addition, as discussed above under “—Taxation of Our
Company,” even if the relief provisions apply, a tax would be imposed upon the
amount by which we fail to satisfy the particular gross income
test.
Asset
Tests
To qualify
as a REIT, we also must satisfy the following asset tests at the end of each
quarter of each taxable year. First, at least 75% of the value of our
total assets must consist of some combination of “real estate assets,” cash,
cash items, government securities, and, under some circumstances, stock or debt
instruments purchased with new capital. For this purpose, the term
“real estate assets” includes interests in real property (including leaseholds
and options to acquire real property and leaseholds), stock of other
corporations that qualify as REITs and interests in mortgage loans secured by
real property (including certain types of mortgage backed
securities). Assets that do not qualify for purposes of the 75% test
are subject to the additional asset tests described below.
Second,
the value of our interest in any one issuer’s securities (other than debt and
equity securities issued by any of our TRSs, qualified REIT subsidiaries, any
other entity that is disregarded as an entity separate from us, and any equity
interest we may hold in a partnership) may not exceed 5% of the value of our
total assets. Third, we may not own more than 10% of the voting power
or 10% of the value of any one issuer’s outstanding securities (other than debt
and equity securities issued by any of our TRSs, qualified REIT subsidiaries,
any other entity that is disregarded as an entity separate from us, and any
equity interest we may hold in a partnership). Fourth, no more than
25% of the value of our total assets may consist of the securities of one or
more TRSs. For purposes of the 10% value test, the term “securities”
does not include certain “straight debt” securities.
Notwithstanding
the general rule that, for purposes of the gross income and asset tests, a REIT
is treated as owning its proportionate share of the underlying assets of a
partnership in which it holds a partnership interest, if a REIT holds
indebtedness issued by a partnership, the indebtedness will be subject to, and
may cause a violation of the asset tests, unless it is a qualifying mortgage
asset or otherwise satisfies the rules for “straight
debt.” Similarly, although stock of another REIT qualifies as a real
estate asset for purposes of the REIT asset tests, non-mortgage debt issued by
another REIT may not so qualify.
Any
regular or residual interest that we own in a REMIC will generally qualify as
real estate assets. However, if less than 95% of the assets of a
REMIC consist of assets that qualify as real estate assets, then we will be
treated as holding directly our proportionate share of the assets of such REMIC
for purposes of the asset tests.
We believe
that the mortgage-backed securities that we hold and those we expect to hold
will be qualifying assets for purposes of the 75% asset
test. However, our investment in other asset-backed securities, bank
loans and other instruments that are not secured by mortgages on real property
will not be qualifying assets for purposes of the 75% asset test.
We have
monitored and will continue to monitor the status of our assets for purposes of
the various asset tests and will seek to manage our portfolio to comply at all
times with such tests. There can be no assurance, however, that we
will be successful in this effort. In this regard, to determine our
compliance with these requirements, we will need to estimate the value of our
assets to ensure compliance with the asset tests. We will not obtain
independent appraisals to support our conclusions concerning the values of our
assets, and we will generally rely on representations and warranties of sellers
from whom we acquire mortgage loans concerning the loan-to-value ratios for such
mortgage loans. Moreover, some of the assets that we may own may not
be susceptible to precise valuation. Although we will seek to be
prudent in making these estimates, there can be no assurance that the IRS will
not disagree with these determinations and assert that a different value is
applicable, in which case we might not satisfy the 75% asset test and the other
asset tests and would fail to qualify as a REIT.
Failure
to Satisfy Asset Tests
If we fail
to satisfy the asset tests as the end of a quarter, we will not lose our REIT
qualification if:
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we
satisfied the asset tests at the end of the preceding calendar quarter;
and
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the
discrepancy between the value of our assets and the asset test
requirements arose from changes in the market values of our assets and was
not wholly or partly caused by the acquisition of one or more
non-qualifying
assets.
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If we did
not satisfy the condition described in the second bullet above, we still could
avoid disqualification by eliminating any discrepancy within 30 days after the
close of the calendar quarter in which it arose.
If we
violate the 5% value test, 10% voting test or 10% value test described above at
the end of any calendar quarter, we will not lose our REIT qualification if (i)
the failure is de minimis (up to the lesser of 1% of our total assets or $10
million) and (ii) we dispose of these assets or otherwise comply with the asset
tests within six months after the last day of the quarter. In the
event of a more than de minimis failure of any of the asset tests, as long as
the failure was due to reasonable cause and not to willful neglect, we will not
lose our REIT qualification if we (i) file with the IRS a schedule describing
the assets that caused the failure, (ii) dispose of these assets or otherwise
comply with the asset tests within six months after the last day of the quarter
and (iii) pay a tax equal to the greater of $50,000 per failure or an amount
equal to the product of the highest corporate income tax rate (currently 35%)
and the net income from the non-qualifying assets during the period in which we
failed to satisfy the asset tests.
Annual
Distribution Requirements
To qualify
as a REIT, we are required to distribute dividends (other than capital gain
dividends) to our stockholders in an amount at least equal to:
(A) the
sum of
(i) 90%
of our “REIT taxable income” (computed without regard to the dividends paid
deduction and our net capital gains), and
(ii) 90%
of the net income (after tax), if any, from foreclosure property (as described
below), minus
(B) the
sum of certain items of non-cash income.
In
addition, if we were to recognize “built-in-gain” (as defined below) on
disposition of any assets acquired from a “C” corporation in a transaction in
which our basis in the assets was determined by reference to the “C”
corporation’s basis (for instance, if the assets were acquired in a tax-free
reorganization), we would be required to distribute at least 90% of the
built-in-gain recognized net of the tax we would pay on such
gain. “Built-in-gain” is the excess of (a) the fair market value of
an asset (measured at the time of acquisition) over (b) the basis of the asset
(measured at the time of acquisition).
Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if either (i) we declare the distribution before we file
a timely federal income tax return for the year and pay the distribution with or
before the first regular dividend payment after such declaration or (ii) we
declare the distribution in October, November or December of the taxable year,
payable to stockholders of record on a specified day in any such month, and we
actually pay the dividends before the end of January of the following
year. The distributions under clause (i) are taxable to the Owners of
our capital stock in the year in which paid, and the distributions in clause
(ii) are treated as paid on December 31 of the prior taxable year. In
both instances, these distributions relate to our prior taxable year for
purposes of the 90% distribution requirement.
We will
pay federal income tax at corporate tax rates on our taxable income, including
net capital gain, that we do not distribute to
stockholders. Furthermore, if we fail to distribute during each
calendar year, or by the end of January following the calendar year in the case
of distributions with declaration and record dates falling in the last three
months of the calendar year, at least the sum of (i) 85% of our REIT ordinary
income for such year, (ii) 95% of our REIT capital gain income for such year and
(iii) any undistributed taxable income from prior periods, we will be subject to
a 4% nondeductible excise tax on the excess of such required distribution over
the amounts actually distributed. We generally intend to make timely
distributions sufficient to satisfy the annual distribution requirements and to
avoid corporate federal income tax and the 4% nondeductible excise
tax.
We may
elect to retain, rather than distribute, our net capital gain and pay tax on
such gains. In this case, we could elect to have our stockholders
include their proportionate share of such undistributed capital gains in income
and to receive a corresponding credit or refund, as the case may be, for their
share of the tax paid by us. Stockholders would then increase the
adjusted basis of their stock by the difference between the designated amounts
of capital gains from us that they include in their taxable income, and the tax
paid on their behalf by us with respect to that income.
To the
extent that a REIT has available net operating losses carried forward from prior
tax years, such losses may reduce the amount of distributions that it must make
to comply with the REIT distribution requirements. Such losses,
however, will generally not affect the character, in the hands of stockholders,
of any distributions that are actually made by the REIT, which are generally
taxable to stockholders to the extent that the REIT has current or accumulated
earnings and profits. See “—Taxation of Stockholders, —Taxation of
Taxable Domestic Stockholders.”
We may
find it difficult or impossible to meet distribution requirements in certain
circumstances. Due to the nature of the assets in which we will
invest, we may be required to recognize taxable income from those assets in
advance of our receipt of cash flow on or proceeds from disposition of such
assets. For instance, we may be required to accrue interest and
discount income on mortgage-backed securities and other types of debt securities
or interests in debt securities before we receive any payments of interest or
principal on such assets. Thus, for any taxable year, we may be
required to fund distributions in excess of cash flow received from our
investments. If such circumstances arise, then to fund our
distribution requirement and maintain our status as a REIT we may have to sell
assets at unfavorable prices, borrow at unfavorable terms, make taxable stock
dividends, or pursue other strategies. We cannot be assured, however,
any such strategy would be successful if our cash flow were to become
insufficient to make the required distributions.
Under
certain circumstances, we may be able to rectify a failure to meet the
distribution requirement for a year by paying “deficiency dividends” to
stockholders in a later year, which may be included in our deduction for
dividends paid for the earlier year. Thus, we may be able to avoid
being taxed on amounts distributed as deficiency dividends; however, we will be
required to pay interest and a penalty to the IRS based on the amount of any
deduction taken for deficiency dividends.
Failure
to Qualify
If we fail
to satisfy one or more requirements for REIT qualification, other than the gross
income tests and the asset tests, we could avoid disqualification if our failure
is due to reasonable cause and not to willful neglect and we pay a penalty of
$50,000 for each such failure. In addition, there are relief
provisions for a failure of the gross income tests and asset tests, as described
in “—Gross Income Tests” and “—Asset Tests.”
If we fail
to qualify for taxation as a REIT in any taxable year, and the relief provisions
do not apply, we will be subject to tax (including any applicable alternative
minimum tax) on our taxable income at regular federal corporate income tax
rates. Distributions to stockholders in any year in which we fail to
qualify will not be deductible by us nor will they be required to be
made. In such event, to the extent of current and accumulated
earnings and profits, all distributions to stockholders will be taxable as
ordinary income, and, subject to certain limitations of the Code, corporate
stockholders may be eligible for the dividends received deduction, and
individual stockholders and other non-corporate stockholders may be eligible to
be taxed at the reduced 15% rate currently applicable to qualified dividend
income (through 2010). Unless entitled to relief under specific
statutory provisions, we will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was
lost. We cannot predict whether in all circumstances we would be
entitled to such statutory relief.
Prohibited
Transactions
Net income
derived by a REIT from a prohibited transaction is subject to a 100% excise
tax. The term “prohibited transaction” generally includes a sale or
other disposition of property (other than foreclosure property) that is held
“primarily for sale to customers in the ordinary course of a trade or
business.” Although we do not expect that our assets will be held
primarily for sale to customers or that a sale of any of our assets will be in
the ordinary course of our business, these terms are dependent upon the
particular facts and circumstances, and we cannot assure you that we will never
be subject to this excise tax. The 100% tax does not apply to gains
from the sale of property that is held through a TRS or other taxable
corporation, although such income will be subject to tax in the hands of the
corporation at regular federal corporate income tax rates.
Foreclosure
Property
A REIT is
subject to tax at the maximum corporate rate (currently 35%) on any income from
foreclosure property, including gain from the disposition of such foreclosure
property, other than income that otherwise would be qualifying income for
purposes of the 75% gross income test. Foreclosure property is real
property and any personal property incident to such real property (i) that is
acquired by a REIT as result of the REIT having bid on such property at
foreclosure, or having otherwise reduced the property to ownership or possession
by agreement or process of law, after there was a default (or default was
imminent) on a lease of such property or a mortgage loan held by the REIT and
secured by the property, (ii) for which the related loan or lease was acquired
by the REIT at a time when default was not imminent or anticipated and (iii) for
which such REIT makes a proper election to treat the property as foreclosure
property. Any gain from the sale of property for which a foreclosure
election has been made will not be subject to the 100% excise tax on gains from
prohibited transactions described above, even if the property would otherwise
constitute inventory or dealer property in the hands of the selling
REIT. We have not received any income from foreclosure property and
we do not expect to receive income from foreclosure property.
Taxable
Mortgage Pools
An entity,
or a portion of an entity, may be classified as a TMP under the Code
if (i) substantially all of its assets consist of debt
obligations or interests in debt obligations, (ii) more than 50% of
those debt obligations are real estate mortgage loans, interests in real estate
mortgage loans or interests in certain mortgage-backed securities as of
specified testing dates, (iii) the entity has issued debt obligations that have
two or more maturities and (iv) the payments required to be made by the entity
on its debt obligations “bear a relationship” to the payments to be received by
the entity on the debt obligations that it holds as assets. Under
Treasury Regulations, if less than 80% of the assets of an entity (or a portion
of an entity) consist of debt obligations, these debt obligations are considered
not to comprise “substantially all” of its assets, and therefore the entity
would not be treated as a TMP.
We do not
intend to structure or enter into securitization or financing transactions that
will cause us to be viewed as owning interests in one or more
TMPs. Generally, if an entity or a portion of an entity is classified
as a TMP, then the entity or portion thereof is treated as a taxable corporation
and it cannot file a consolidated federal income tax return with any other
corporation. If, however, a REIT owns 100% of the equity interests in
a TMP, then the TMP is a qualified REIT subsidiary and, as such, ignored as an
entity separate from the REIT.
If,
notwithstanding our intent to avoid having the issuing entity in any of our
securitization or financing transactions classified as a TMP, one or more of
such transactions was so classified, then as long as we owned 100% of the equity
interests in the issuing entity, all or a portion of the income that we
recognize with respect to our investment in the issuing entity will be treated
as excess inclusion income. Section 860E(c) of the Code defines the
term “excess inclusion” with respect to a residual interest in a
REMIC. The IRS, however, has yet to issue guidance on the computation
of excess inclusion income on equity interests in a TMP held by a
REIT. Generally, however, excess inclusion income with respect to our
investment in any TMP and any taxable year will equal the excess of (i) the
amount of income we accrue on our investment in the TMP over (ii) the amount of
income we would have accrued if our investment were a debt instrument having an
issue price equal to the fair market value of our investment on the day we
acquired it and a yield to maturity equal to 120% of the long-term applicable
federal rate in effect on the date we acquired our interest. The term
“applicable federal rate” refers to rates that are based on weighted average
yields for treasury securities and are published monthly by the IRS for use in
various tax calculations. If we undertake securitization transactions
that are TMPs, the amount of excess inclusion income we recognize in any taxable
year could represent a significant portion of our total taxable for that
year.
Although
we intend to structure our securitization and financing transactions so that we
will not recognize any excess inclusion income, we cannot assure you that we
will always be successful in this regard. If, notwithstanding our
intent, we recognized excess inclusion income, then under guidance issued by the
IRS we would be required to allocate the excess inclusion income proportionately
among the dividends we pay to our stockholders and we must notify our
stockholders of the portion of our dividends that represents excess inclusion
income. The portion of any dividend you receive that is treated as
excess inclusion income is subject to special rules. First, your
taxable income can never be less than the sum of your excess inclusion income
for the year; excess inclusion income cannot be offset with net operating losses
or other allowable deductions. Second, if you are a tax-exempt
organization and your excess inclusion income is subject to the unrelated
business income tax, then the excess inclusion portion of any dividend you
receive will be treated as unrelated business taxable income. Third,
dividends paid to Foreign Owners who hold stock for investment and not in
connection with a trade or business conducted in the United Sates will be
subject to United States federal withholding tax without regard to any reduction
in rate otherwise allowed by any applicable income tax treaty.
If we
recognize excess inclusion income, and one or more Disqualified Organizations
are record holders of shares of capital stock, we will be taxable at the highest
federal corporate income tax rate on the portion of any excess inclusion income
equal to the percentage of our stock that is held by Disqualified
Organizations. In such circumstances, we may reduce the amount of our
distributions to a Disqualified Organization whose stock ownership gave rise to
the tax. To the extent that our capital stock owned by Disqualified
Organizations is held by a broker/dealer or other nominee, the broker/dealer or
other nominee would be liable for a tax at the highest corporate tax rate on the
portion of our excess inclusion income allocable to our capital stock held by
the broker/dealer or other nominee on behalf of the Disqualified
Organizations.
If we own
less than 100% of the equity interests in a TMP, the foregoing rules would not
apply. Rather, the entity would be treated as a corporation for
federal income tax purposes and would potentially be subject to federal
corporate income tax. This could adversely affect our compliance with
the REIT gross income and asset tests described above. We currently
do not have, and currently do not intend to enter into any securitization or
financing transaction that is a TMP in which we own some, but less than all, of
the equity interests, and we intend to monitor the structure of any TMPs in
which we have an interest to ensure that they will not adversely affect our
status as a REIT. We cannot assure you that we will be successful in
this regard.
Taxation
of Owners
Taxation
of Taxable Domestic Owners
Distributions. As
long as we qualify as a REIT, distributions we make to our taxable Domestic
Owners out of current or accumulated earnings and profits (and not designated as
capital gain dividends) will be taken into account by them as ordinary
income. Dividends we pay to a corporation will not be eligible for
the dividends received deduction. In addition, distributions we make
to individuals and other Owners that are not corporations generally will not be
eligible for the 15% reduced rate of tax currently (through 2010) in effect for
“qualified dividend income.” However, provided certain holding period
and other requirements are met, an individual or other non-corporate Owner will
be eligible for the 15% reduced rate with respect to (i) distributions
attributable to dividends we receive from certain “C” corporations, such as our
TRSs, and (ii) distributions attributable to income upon which we have paid
corporate income tax.
Distributions
that we designate as capital gain dividends will be taxed as long-term capital
gains (to the extent that they do not exceed our actual net capital gain for the
taxable year) without regard to the period for which you have owned our capital
stock. However, corporate Owners may be required to treat up to 20%
of certain capital gain dividends as ordinary income. Long-term
capital gains are generally taxable at maximum federal rates of 15% (through
2010) in the case of individuals, trusts and estates, and 35% in the case of
corporations.
Rather
than distribute our net capital gains, we may elect to retain and pay the
federal income tax on them, in which case you will (i) include your
proportionate share of the undistributed net capital gains in income, (ii)
receive a credit for your share of the federal income tax we pay and (iii)
increase the basis in your capital stock by the difference between your share of
the capital gain and your share of the credit.
Distributions
in excess of our current and accumulated earnings and profits will not be
taxable to you to the extent that they do not exceed your adjusted tax basis in
our capital stock you own, but rather, will reduce your adjusted tax basis in
your capital stock. Assuming that the capital stock you own is a
capital asset, to the extent that such distributions exceed your adjusted tax
basis in the capital stock you own, you must include them in income as long-term
capital gain (or short-term capital gain if the capital stock has been held for
one year or less).
If we
declare a dividend in October, November or December of any year that is payable
to stockholders of record on a specified date in any such month, but actually
distribute the amount declared in January of the following year, then you must
treat the January distribution as though you received it on December 31 of the
year in which we declared the dividend. In addition, we may elect to
treat other distributions after the close of the taxable year as having been
paid during the taxable year, but you will be treated as having received these
distributions in the taxable year in which they are actually made.
To the
extent that we have available net operating losses and capital losses carried
forward from prior tax years, such losses may reduce the amount of distributions
that we must make to comply with the REIT distribution
requirements. See “—Annual Distribution
Requirements.” Such losses, however, are not passed through to you
and do not offset your income from other sources, nor would they affect the
character of any distributions that you receive from us; you will be subject to
tax on those distributions to the extent that we have current or accumulated
earnings and profits.
Although
we do not expect to recognize any excess inclusion income, if we did recognize
excess inclusion income, we would identify a portion of the distributions that
we make to you as excess inclusion income. Your taxable income can
never be less than the sum of your excess inclusion income for the year; excess
inclusion income cannot be offset with net operating losses or other allowable
deductions. See “—Taxable Mortgage Pools.”
Dispositions of Our
Stock. Any gain or loss you recognize upon the sale or other
disposition of our capital stock will generally be capital gain or loss for
federal income tax purposes, and will be long-term capital gain or loss if you
held the capital stock for more than one year. In addition, any loss
you recognize upon a sale or exchange of our capital stock that you have owned
for six months or less (after applying certain holding period rules) will
generally be treated as a long-term capital loss to the extent of distributions
received from us that you are required to treat as long-term capital
gain.
If you
recognize a loss upon a disposition of our capital stock in an amount that
exceeds a prescribed threshold, it is possible that the provisions of recently
adopted Treasury Regulations involving “reportable transactions” could apply,
with a resulting requirement to separately disclose the loss-generating
transaction to the IRS. While these regulations are directed towards
“tax shelters,” they are written quite broadly, and apply to transactions that
would not typically be considered tax shelters. In addition, recently
enacted legislation imposes significant penalties for failure to comply with
these requirements. You should consult your tax advisor concerning
any possible disclosure obligation with respect to the receipt or disposition of
our capital stock, or transactions that might be undertaken directly or
indirectly by us. Moreover, you should be aware that we and other
participants in the transactions involving us (including our advisors) may be
subject to disclosure or other requirements pursuant to these
regulations.
Amounts
that you are required to include in taxable income with respect to our capital
stock you own, including taxable distributions and the income you recognize with
respect to undistributed net capital gain, and any gain recognized upon your
disposition of our capital stock, will not be treated as passive activity
income. You may not offset any passive activity losses you may have,
such as losses from limited partnerships in which you have invested, with income
you recognize with respect to our shares of capital stock. Generally,
income you recognize with respect to our capital stock will be treated as
investment income for purposes of the investment interest
limitations.
Information Reporting and Backup
Withholding. We will report to our stockholders and to the IRS
the amount of distributions we pay during each calendar year and the amount of
tax we withhold, if any. Under the backup withholding rules, you may
be subject to backup withholding at a current rate of 28% with respect to
distributions unless you:
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are
a corporation or come within certain other exempt categories and, when
required, demonstrate this fact;
or
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provide
a taxpayer identification number, certify as to no loss of exemption from
backup withholding, and otherwise comply with the applicable requirements
of the backup withholding
rules.
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Any amount
paid as backup withholding will be creditable against your federal income tax
liability. For a discussion of the backup withholding rules as
applied to foreign owners, see “—Taxation of Foreign Owners.”
Taxation
of Tax-Exempt Owners
Tax-exempt
entities, including qualified employee pension and profit sharing trusts and
individual retirement accounts, are generally exempt from federal income
taxation. However, they are subject to taxation on their unrelated
business taxable income (“UBTI”). Provided that a tax-exempt Owner
(i) has not held our capital stock as “debt financed property” within the
meaning of the Code and (ii) has not used our capital stock in an unrelated
trade or business, amounts that we distribute to tax-exempt Owners generally
should not constitute UBTI. However, a tax-exempt Owner’s allocable
share of any excess inclusion income that we recognize will be subject to tax as
UBTI. See “—Taxable Mortgage Pools.” We intend to
structure our securitization and financing transactions so that we will avoid
recognizing any excess inclusion income.
Tax-exempt
Owners that are social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts and qualified group legal services
plans, exempt from taxation under special provisions of the federal income tax
laws, are subject to different UBTI rules, which generally will require them to
characterize distributions that they receive from us as UBTI.
In certain
circumstances, a qualified employee pension trust or profit sharing trust that
owns more than 10% of our stock could be required to treat a percentage of the
dividends that it receives from us as UBTI if we are a “pension-held
REIT.” We will not be a pension-held REIT unless either (a) one
pension trust owns more than 25% of the value of our stock or (b) a group of
pension trusts individually holding more than 10% of our stock collectively owns
more than 50% of the value of our stock. However, the restrictions on
ownership and transfer of our stock, as described under “Description of Capital
Stock—Restrictions on Ownership and Transfer” are designed among other things to
prevent a tax-exempt entity from owning more than 10% of the value of our stock,
thus making it unlikely that we will become a pension-held REIT.
Taxation
of Foreign Owners
The
following is a summary of certain U.S. federal income and estate tax
consequences of the ownership and disposition of our capital stock applicable to
a Foreign Owner.
If a
partnership, including for this purpose any entity that is treated as a
partnership for U.S. federal income tax purposes, holds our capital stock, the
tax treatment of a partner in the partnership will generally depend upon the
status of the partner and the activities of the partnership. An
investor that is a partnership having Foreign Owners as partners should consult
its tax advisors about the U.S. federal income tax consequences of the
acquisition, ownership and disposition of our capital stock.
The
discussion is based on current law and is for general information
only. The discussion addresses only certain and not all aspects of
U.S. federal income and estate taxation.
Ordinary Dividend
Distributions. The portion of dividends received by a Foreign
Owner payable out of our current and accumulated earnings and profits that are
not attributable to our capital gains and that are not effectively connected
with a U.S. trade or business of the Foreign Owner will be subject to U.S.
withholding tax at the rate of 30% (unless reduced by an applicable income tax
treaty). In general, a Foreign Owner will not be considered engaged
in a U.S. trade or business solely as a result of its ownership of our capital
stock. In cases where the dividend income from a Foreign Owner’s
investment in our capital stock is (or is treated as) effectively connected with
the Foreign Owner’s conduct of a U.S. trade or business, the Foreign Owner
generally will be subject to U.S. tax at graduated rates, in the same manner as
Domestic Owners are taxed with respect to such dividends (and may also be
subject to the 30% branch profits tax in the case of a foreign owner that is a
foreign corporation). If a Foreign Owner is the record holder of
shares of our capital stock, we plan to withhold U.S. income tax at the rate of
30% on the gross amount of any distribution paid to a Foreign Owner
unless:
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·
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a
lower income treaty rate applies and the Foreign Owner provides us with an
IRS Form W-8BEN evidencing eligibility for that reduced rate;
or
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·
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the
Foreign Owner provides us with an IRS Form W-8ECI certifying that the
distribution is effectively connected
income.
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Under some
income tax treaties, lower withholding tax rates do not apply to ordinary
dividends from REITs. Furthermore, reduced treaty rates are not
available to the extent that distributions are treated as excess inclusion
income. See “—Taxable Mortgage Pools.” We intend to
structure our securitization and financing transactions so that we will avoid
recognizing any excess inclusion income.
Non-Dividend
Distributions. Distributions we make to a Foreign Owner that
are not considered to be distributions out of our current and accumulated
earnings and profits will not be subject to U.S. federal income or withholding
tax unless the distribution exceeds the Foreign Owner’s adjusted tax basis in
our capital stock at the time of the distribution and, as described below, the
Foreign Owner would otherwise be taxable on any gain from a disposition of our
capital stock. If it cannot be determined at the time a distribution
is made whether or not such distribution will be in excess of our current and
accumulated earnings and profits, the entire distribution will be subject to
withholding at the rate applicable to dividends. A Foreign Owner may,
however, seek a refund of such amounts from the IRS if it is subsequently
determined that the distribution was, in fact, in excess of our current and
accumulated earnings and profits, provided the proper forms are timely filed
with the IRS by the Foreign Owner.
Capital Gain
Dividends. Distributions that we make to Foreign Owners that
are attributable to our disposition of U.S. real property interests (“USRPI,”
which term does not include interests in mortgage loans and mortgage backed
securities) are subject to U.S. federal income and withholding taxes pursuant to
the Foreign Investment in Real Property Act of 1980, or FIRPTA, and may also be
subject to branch profits tax if the Foreign Owner is a corporation that is not
entitled to treaty relief or exemption. Although we do not anticipate
recognizing any gain attributable to the disposition of USRPI, as defined by
FIRPTA, Treasury Regulations interpreting the FIRPTA provisions of the Code
could be read to impose a withholding tax at a rate of 35% on all of our capital
gain dividends (or amounts we could have designated as capital gain dividends)
paid to Foreign Owners, even if no portion of the capital gains we recognize
during the year are attributable to our disposition of
USRPI. However, in any event, the FIRPTA rules will not apply to
distributions to a Foreign Owner with respect to any class of our capital stock
so long as (i) such class of stock is regularly traded (as defined by applicable
Treasury Regulations) on an established securities market, and (ii) the Foreign
Owner owns (actually or constructively) no more than 5% of such class of stock
at any time during the one-year period ending with the date of the
distribution.
Dispositions of Our
Stock. Unless our capital stock constitutes a USRPI, a sale of
our capital stock by a Foreign Owner generally will not be subject to U.S.
federal income tax under FIRPTA. We do not expect that our capital
stock will constitute a USRPI. Our capital stock will not constitute
a USRPI if less than 50% of our assets throughout a prescribed testing period
consist of interests in real property located within the United States,
excluding, for this purpose, interest in real property solely in the capacity as
a creditor. Even if the foregoing test is not met, our capital stock
will not constitute a USRPI if we are a domestically controlled
REIT. A “domestically controlled REIT” is a REIT in which, at all
times during a specified testing period, less than 50% in value of its shares is
held directly or indirectly by foreign owners. We do not intend to
maintain records to determine whether we are a domestically controlled REIT for
this purpose.
Even if we
do not constitute a domestically controlled REIT, a Foreign Owner’s sale of a
class of our capital stock generally will still not be subject to tax under
FIRPTA as a sale of a USRPI provided that (i) such class of stock is “regularly
traded” (as defined by applicable Treasury Regulations) on an established
securities market and (ii) the selling Foreign Owner has owned (actually or
constructively) 5% or less of such class of stock at all times during a
specified testing period.
If gain on
the sale of our capital stock were subject to taxation under FIRPTA, the Foreign
Owner would generally be subject to the same treatment as a Domestic Owner with
respect to such gain (subject to applicable alternative minimum tax and a
special alternative minimum tax in the case of nonresident alien individuals)
and the purchaser of the capital stock could be required to withhold 10% of the
purchase price and remit such amount to the IRS.
Capital
gains not subject to FIRPTA will nonetheless be taxable in the United States to
a Foreign Owner in two cases. First, if the Foreign Owner’s
investment in our capital stock is effectively connected with a U.S. trade or
business conducted by such Foreign Owner, the Foreign Owner will generally be
subject to the same treatment as a Domestic Owner with respect to such
gain. Second, if the Foreign Owner is a nonresident alien individual
who was present in the United States for 183 days or more during the taxable
year and has a “tax home” in the United States, the nonresident alien individual
will be subject to a 30% tax on the individual’s capital gain.
Estate Tax. Our
capital stock owned or treated as owned by an individual who is not a citizen or
resident of the United States (as specially defined for U.S. federal estate tax
purposes) at the time of death will be includible in the individual’s gross
estate for U.S. federal estate tax purposes, unless an applicable estate tax
treaty provides otherwise. Such individual’s estate may be subject to
U.S. federal estate tax on the property includible in the estate for U.S.
federal estate tax purposes.
Other
Tax Consequences
Possible Legislative or Other
Actions Affecting Tax Consequences. Prospective investors
should recognize that the present federal income tax treatment of an investment
in our capital stock may be modified by legislative, judicial or administrative
action at any time, and that any such action may affect investments and
commitments previously made. The rules dealing with federal income
taxation are constantly under review by persons involved in the legislative
process and by the IRS and Treasury Department, resulting in revisions of
regulations and revised interpretations of established concepts as well as
statutory changes. Revisions in federal tax laws and interpretations
thereof could adversely affect the tax consequences of an investment in our
capital stock.
State and Local
Taxes. We and our stockholders may be subject to state or
local taxation in various state or local jurisdictions, including those in which
we or they transact business or reside. The state and local tax
treatment may not conform to the federal income tax consequences discussed
above. Consequently, prospective investors should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in our capital stock.
We may
sell the securities offered pursuant to this prospectus and any accompanying
prospectus supplements to or through one or more underwriters or dealers or we
may sell the securities to investors directly or through agents. Each
prospectus supplement, to the extent applicable, will describe the number and
terms of the securities to which such prospectus supplement relates, the name or
names of any underwriters or agents with whom we have entered into arrangements
with respect to the sale of such securities, the public offering or purchase
price of such securities and the net proceeds we will receive from such
sale. Any underwriter or agent involved in the offer and sale of the
securities will be named in the applicable prospectus supplement. We
may sell securities directly to investors on our own behalf in those
jurisdictions where we are authorized to do so.
Underwriters
may offer and sell the securities at a fixed price or prices, which may be
changed, at market prices prevailing at the time of sale, at prices related to
the prevailing market prices or at negotiated prices. We also may,
from time to time, authorize dealers or agents to offer and sell these
securities upon such terms and conditions as may be set forth in the applicable
prospectus supplement. In connection with the sale of any of these
securities, underwriters may receive compensation from us in the form of
underwriting discounts or commissions and may also receive commissions from
purchasers of the securities for whom they may act as
agent. Underwriters may sell the securities to or through dealers,
and such dealers may receive compensation in the form of discounts, concessions
or commissions from the underwriters or commissions from the purchasers for
which they may act as agents.
Shares may
also be sold in one or more of the following transactions: (a) block
transactions (which may involve crosses) in which a broker-dealer may sell all
or a portion of the shares as agent but may position and resell all or a portion
of the block as principal to facilitate the transaction; (b) purchases by a
broker-dealer as principal and resale by the broker-dealer for its own account
pursuant to a prospectus supplement; (c) a special offering, an exchange
distribution or a secondary distribution in accordance with applicable New York
Stock Exchange or other stock exchange rules; (d) ordinary brokerage
transactions and transactions in which a broker-dealer solicits purchasers; (e)
sales “at the market” to or through a market maker or into an existing trading
market, on an exchange or otherwise, for shares; and (f) sales in other ways not
involving market makers or established trading markets, including direct sales
to purchasers. Broker-dealers may also receive compensation from
purchasers of the shares which is not expected to exceed that customary in the
types of transactions involved.
Any
underwriting compensation paid by us to underwriters or agents in connection
with the offering of these securities, and any discounts or concessions or
commissions allowed by underwriters to participating dealers, will be set forth
in the applicable prospectus supplement. Dealers and agents participating in the
distribution of the securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the securities may be deemed to be underwriting discounts and
commissions.
Underwriters,
dealers and agents may be entitled, under agreements entered into with us, to
indemnification against and contribution toward certain civil liabilities,
including liabilities under the Securities Act of 1933. Unless
otherwise set forth in the accompanying prospectus supplement, the obligations
of any underwriters to purchase any of these securities will be subject to
certain conditions precedent.
In
connection with the offering of the securities hereby, certain underwriters, and
selling group members and their respective affiliates, may engage in
transactions that stabilize, maintain or otherwise affect the market price of
the applicable securities. These transactions may include stabilization
transactions effected in accordance with Rule 104 of Regulation M promulgated by
the SEC pursuant to which these persons may bid for or purchase securities for
the purpose of stabilizing their market price.
The
underwriters in an offering of securities may also create a “short position” for
their account by selling more securities in connection with the offering than
they are committed to purchase from us. In that case, the
underwriters could cover all or a portion of the short position by either
purchasing securities in the open market following completion of the offering of
these securities or by exercising any over-allotment option granted to them by
us. In addition, the managing underwriter may impose “penalty bids”
under contractual arrangements with other underwriters, which means that they
can reclaim from an underwriter (or any selling group member participating in
the offering) for the account of the other underwriters, the selling concession
for the securities that are distributed in the offering but subsequently
purchased for the account of the underwriters in the open market. Any
of the transactions described in this paragraph or comparable transactions that
are described in any accompanying prospectus supplement may result in the
maintenance of the price of the securities at a level above that which might
otherwise prevail in the open market. None of the transactions
described in this paragraph or in an accompanying prospectus supplement are
required to be taken by any underwriters and, if they are undertaken, may be
discontinued at any time.
Our common
stock is listed on the New York Stock Exchange under the symbol “NLY” and our
Series A Preferred Stock is listed on the New York Stock Exchange under the
symbol “NLY PrA.” All other series of our preferred stock other than
the Series A Preferred Stock and our Series B Preferred Stock will be new issues
of securities with no established trading market and may or may not be listed on
a national securities exchange. Any underwriters or agents to or
through which securities are sold by us may make a market in the securities, but
these underwriters or agents will not be obligated to do so and any of them may
discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of or trading market for any
securities sold by us.
Underwriters,
dealers and agents may engage in transactions with, or perform services for, us
and our affiliates in the ordinary course of business. Underwriters
have from time to time in the past provided, and may from time to time in the
future provide, investment banking services to us for which they have in the
past received, and may in the future receive, customary fees.
The
consolidated financial statements incorporated in this prospectus by reference
from the Company's Annual Report on Form 10-K, and the effectiveness of Annaly
Capital Management, Inc.'s internal control over financial reporting have been
audited by Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their report, which is incorporated herein by
reference. Such consolidated financial statements have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
The
validity of the securities offered hereby is being passed upon for us by K&L
Gates LLP. The opinion of counsel described under the heading
“Federal Income Tax Considerations” is being rendered by K&L Gates
LLP. This opinion is subject to various assumptions and is based on
current tax law.
We file
annual, quarterly and current reports, proxy statements and other information
with the SEC. The public may read any materials we file with the SEC
at the SEC’s Public Reference Room at 100 F Street, N.E, Washington, D.C.
20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC. The address of that site is http://www.sec.gov. Our
common stock is listed on the New York Stock Exchange under the symbol “NLY” and
our Series A Preferred Stock is listed on the New York Stock Exchange under the
symbol “NLY PrA,” and all such reports, proxy statements and other information
filed by us with the New York Stock Exchange may be inspected at the New York
Stock Exchange’s offices at 20 Broad Street, New York, New York
10005. Finally, we also maintain an Internet site where you can find
additional information. The address of our Internet site is http://www.annaly.com. All
internet addresses provided in this prospectus or in any accompanying prospectus
supplement are for informational purposes only and are not intended to be
hyperlinks. In addition, the information on our internet site is not a part of,
and is not incorporated or deemed to be incorporated by reference in, this
prospectus or any accompanying prospectus supplement or other offering
materials. Accordingly, no information in our or any of these other internet
addresses is included herein or incorporated or deemed to be incorporated by
reference herein.
We have
filed a registration statement, of which this prospectus is a part, covering the
securities offered hereby. As allowed by SEC rules, this prospectus
does not contain all of the information set forth in the registration statement
and the exhibits, financial statements and schedules thereto. We
refer you to the registration statement, the exhibits, financial statements and
schedules thereto for further information. This prospectus is
qualified in its entirety by such other information.
The SEC
allows us to “incorporate by reference” information into this prospectus, which
means that we can disclose important information to you by referring you to
another document filed separately with the SEC. The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by information in this prospectus. We have
filed the documents listed below with the SEC (File No. 1-13447) under the
Exchange Act, and these documents are incorporated herein by
reference:
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Our
Annual Report on Form 10-K for the year ended December 31, 2008 as filed
on February 26, 2009;
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Our
Current Report on Form 8-K filed on April 29,
2009;
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Our
Quarterly Report on Form 10-Q for the quarter ended March 31, 2009 filed
on May 7, 2009;
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-
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Description
of our common stock included in our Registration Statement on Form 8-A,
filed on October 6, 1997;
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-
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Description
of our Series A Preferred Stock included in our Registration Statement on
Form 8-A, filed April 1, 2004; and
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-
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Description
of our Series B Preferred Stock included in our Registration Statement on
Form 8-A, filed April 12, 2006.
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All
documents we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange
Act after the date of this prospectus and prior to the termination of the
offering of the securities to which this prospectus relates (other than
information in such documents that is not deemed to be filed) shall be deemed to
be incorporated by reference into this prospectus and to be part hereof from the
date of filing of those documents. All documents we file pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of the
initial registration statement that contains this prospectus and prior to the
effectiveness of the registration statement shall be deemed to be incorporated
by reference into this prospectus and to be part hereof from the date of filing
those documents.
Any
statement contained in this prospectus or in a document incorporated by
reference shall be deemed to be modified or superseded for all purposes to the
extent that a statement contained in this prospectus or in any other document
which is also incorporated by reference modifies or supersedes that
statement.
We will
provide to each person, including any beneficial owner, to whom a copy of this
prospectus is delivered, a copy of any or all of the information that has been
incorporated by reference in this prospectus but not delivered with this
prospectus (other than the exhibits to such documents which are not specifically
incorporated by reference herein); we will provide this information at no cost
to the requester upon written or oral request to Investor Relations, Annaly
Capital Management, Inc., 1211 Avenue of the Americas, Suite 2902, New York, New
York 10036, telephone number (212) 696-0100.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
14. Other Expenses of Issuance and Distribution.
The fees
and expenses to be paid in connection with the distribution of the securities
being registered hereby are estimated as follows:
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Registration
fee
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*
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Legal
fees and expenses (including Blue Sky fees)
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**
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Accounting
fees and
expenses
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**
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Printing
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**
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Miscellaneous
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**
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Total
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**
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*
Deferred pursuant to Rules 456(b) and 457(r).
**
Estimated expenses are not presently known.
Item
15. Indemnification of Directors and Officers.
Section
2-418 of the Corporations and Associations Article of the Annotated Code of
Maryland (or Maryland General Corporation Law) provides that a Maryland
corporation may indemnify any director or officer of a corporation who is made a
party to any proceeding by reason of service in that capacity 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 was the result of active and
deliberate dishonesty; or the person actually received an improper personal
benefit in money, property or services; or, in the case of any criminal
proceeding, the person had reasonable cause to believe that the act or omission
was unlawful. Indemnification may be against judgments, penalties,
fines, settlements, and reasonable expenses actually incurred by the director or
officer in connection with the proceeding, but if the proceeding was one by or
in the right of the corporation, indemnification may not be made in respect of
any proceeding in which the director or officer shall have been adjudged to be
liable to the corporation. Such indemnification may not be made
unless authorized for a specific proceeding after a determination has been made,
in the manner prescribed by the law, that indemnification is permissible in the
circumstances because the director or officer has met the applicable standard of
conduct. On the other hand, unless limited by the corporation’s
charter, the director or officer must be indemnified for expenses if he has been
successful in the defense of the proceeding or as otherwise ordered by a
court. The law also prescribes the circumstances under which the
corporation may advance expenses to, or obtain insurance or similar protection
for, directors and officers.
Our
articles of incorporation, as amended, provide that our directors and officers
will, and our employees and agents in the discretion of our Board of Directors
may, be indemnified to the fullest extent required or permitted from time to
time by the laws of Maryland.
The
Maryland General Corporation Law permits the charter of a Maryland corporation
to include a provision limiting the liability of its directors and officers to
the corporation and its stockholders for money damages except to the extent that
(i) it is proved that the person actually received an improper benefit or profit
in money, property or services for the amount of the benefit or profit in money,
property or services actually received, or (ii) a judgment or other final
adjudication is entered in a proceeding based on a finding that the person’s
action, or failure to act, was the result of active and deliberate dishonesty
and was material to the cause of action adjudicated in the
proceeding. Our articles of incorporation, as amended, contain a
provision providing for elimination of the liability of our directors and
officers to us or our stockholders for money damages to the maximum extent
permitted by Maryland law.
We
maintain policies of insurance under which our directors and officers are
insured, within the limits and subject to the limitations of the policies,
against expenses in connection with the defense of actions, suits or proceedings
resulting from such director or officer being or having been a director or
officer, and certain liabilities which might be imposed as a result of these
actions, suits or proceedings.
Item
16. Exhibits.
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Exhibit
Number
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Exhibit
Description
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4.1
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Specimen
Common Stock Certificate (incorporated by reference to Exhibit 4.1 to
Amendment No. 1 to the Registrant’s Registration Statement on Form S-11
(Registration No. 333-32913) filed with the SEC on September 17,
1997).
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4.2
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Specimen
Preferred Stock Certificate (incorporated by reference to Exhibit 4.2 to
the Registrant’s Registration Statement on Form S-3 (Registration
Statement No. 333-74618) filed with the SEC on December 5,
2001).
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4.3
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Specimen
Series A Preferred Stock Certificate (incorporated by reference to the
Registrant’s Registration Statement on Form 8-A filed with the SEC on
April 1, 2004).
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4.4
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Specimen
Series B Preferred Stock Certificate (incorporated by reference to the
Registrant’s Registration Statement on Form 8-A filed with the SEC on
April 12, 2006).
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5.1
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Opinion
of K&L Gates LLP (including consent of such firm).
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8.1
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Tax
Opinion of K&L Gates LLP (including consent of such
firm).
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12.1
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Statements
re: Computation of Ratios.
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23.1
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Consent
of Deloitte & Touche LLP.
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23.2
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Consent
of K&L Gates LLP (included in Exhibit 5.1).
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23.3
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Consent
of K&L Gates LLP (included in Exhibit 8.1).
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24.1
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Power
of Attorney (included on the signature page of the Registration
Statement).
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Item
17. Undertakings.
(a) The
undersigned registrant hereby undertakes:
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(1)
To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration
statement:
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(i) To
include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
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(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 this 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 was 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
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(iii)
To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in this registration
statement;
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provided,
however, that paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this
section 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 the registration statement, or is contained in a
form of prospectus filed pursuant to Rule 424(b) that is
part of the registration statement.
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(2) 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.
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(3) 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.
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(4) That,
for purposes of determining liability under the Securities Act of 1933 to
any purchaser:
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(i) Each
prospectus filed by the 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
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(ii) 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 that 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.
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(5) 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:
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(i) Any
preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to
Rule 424;
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(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;
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(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
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(iv)
Any other communication that is an offer in the offering made by the
undersigned registrant to the
purchaser.
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(b) The
undersigned registrant hereby undertakes 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.
(c) 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 Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 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 Securities Act of 1933 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 New
York, State of New York, on May 12, 2009.
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ANNALY
CAPITAL MANAGEMENT, INC. |
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By:
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/s/
Michael A.J. Farrell |
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Michael
A.J. Farrell |
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Chairman
of the Board of Directors, |
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Chief
Executive Officer and
President |
Each
person whose signature appears below hereby authorizes Michael A.J. Farrell and
Wellington J. Denahan, and each of them, as attorney-in-fact, to sign on his or
her behalf, individually and in each capacity stated below, any amendment,
including post-effective amendments to this registration statement, and to file
the same, with all exhibits thereto, and all documents in connection therewith,
with the Securities and Exchange Commission.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed below by the following persons in the capacities and on the date
indicated.
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Signatures
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Title
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Date
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/s/ Michael A.J. Farrell
Michael
A.J. Farrell
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Chairman
of the Board of Directors, Chief Executive Officer,
President
and Director (principal
executive officer)
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May
12, 2009
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/s/ Kathryn F. Fagan
Kathryn
F. Fagan
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Chief
Financial Officer and Treasurer (principal financial
and
accounting officer)
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May
12, 2009
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/s/ Kevin P. Brady
Kevin
P. Brady
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Director
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May
12, 2009
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/s/ Jonathan D. Green
Jonathan
D. Green
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Director
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May
12, 2009
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/s/ Michael Haylon
Michael
Haylon
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Director
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May
12, 2009
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/s/ John A. Lambiase
John
A. Lambiase
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Director
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May
12, 2009
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/s/ Donnell A. Segalas
Donnell
A. Segalas
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Director
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May
12, 2009
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/s/ E. Wayne Nordberg
E.
Wayne Nordberg
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Director
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May
12, 2009
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/s/ Wellington J.
Denahan-Norris
Wellington
J. Denahan-Norris
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Vice
Chairman of the Board of Directors and
Director
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May
12,
2009
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EXHIBIT
INDEX
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Exhibit
Number
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Exhibit
Description
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4.1
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Specimen
Common Stock Certificate (incorporated by reference to Exhibit 4.1 to
Amendment No. 1 to the Registrant’s Registration Statement on Form S-11
(Registration No. 333-32913) filed with the SEC on September 17,
1997).
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4.2
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Specimen
Preferred Stock Certificate (incorporated by reference to Exhibit 4.2 to
the Registrant’s Registration Statement on Form S-3 (Registration
Statement No. 333-74618) filed with the SEC on December 5,
2001).
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4.3
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Specimen
Series A Preferred Stock Certificate (incorporated by reference to the
Registrant’s Registration Statement on Form 8-A filed with the SEC on
April 1, 2004).
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4.4
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Specimen
Series B Preferred Stock Certificate (incorporated by reference to the
Registrant’s Registration Statement on Form 8-A filed with the SEC on
April 12, 2006).
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5.1
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Opinion
of K&L Gates LLP (including consent of such firm).
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8.1
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Tax
Opinion of K&L Gates LLP (including consent of such
firm).
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12.1
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Statements
re: Computation of Ratios.
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23.1
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Consent
of Deloitte & Touche LLP.
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23.2
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Consent
of K&L Gates LLP (included in Exhibit 5.1).
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23.3
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Consent
of K&L Gates LLP (included in Exhibit 8.1).
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24.1
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Power
of Attorney (included on the signature page of the Registration
Statement).
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