S-3ASR
As filed with the Securities and Exchange Commission on November 26, 2008
Commission File No.: 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MFA MORTGAGE INVESTMENTS, INC.
(Exact name of registrant as specified in its charter)
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Maryland
(State or other jurisdiction of
incorporation or organization)
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350 Park Avenue, 21st Floor
New York, New York 10022
(212) 207-6400
(Address, including zip code, and telephone number,
including area code, of registrants principal executive
offices)
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13-3974868
(I.R.S. Employer Identification
No.) |
Stewart Zimmerman
Chairman of the Board and Chief Executive Officer
MFA Mortgage Investments, Inc.
350 Park Avenue, 21st Floor
New York, New York 10022
(212) 207-6400
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
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Timothy W. Korth, Esq.
MFA Mortgage Investments, Inc.
350 Park Avenue, 21st Floor
New York, New York 10022
Tel: (212) 207-6400
Fax: (212) 207-6420
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Jay L. Bernstein, Esq.
Clifford Chance US LLP
31 West 52nd Street
New York, New York 10019
Tel: (212) 878-8000
Fax: (212) 878-8375 |
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time
after the effective date of this registration statement.
If the only securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box: 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. þ
If this Form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act of 1933, 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 of 1933, 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. þ
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, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
Accelerated filer þ |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities |
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Amount to be |
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Proposed Maximum Offering |
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Proposed Maximum Aggregate |
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Amount of |
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to be Registered |
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Registered |
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Price Per Share (1) |
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Offering Price (1) |
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Registration Fee (2) |
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Common stock, par value $.01 per share |
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10,000,000 |
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$ |
4.60 |
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$ |
46,000,000 |
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$ |
1,807.80 |
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(1) |
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Estimated solely for the purpose of computing the amount of the
registration fee in accordance with Rule 457(c) under the Securities
Act of 1933, as amended. Estimate based on the high and low prices of
the registrants common stock as reported on the New York Stock
Exchange on November 20, 2008 pursuant to Rule 457(c) under the
Securities Act of 1933. |
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(2) |
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As discussed below, pursuant to Rule 415(a)(6) under the Securities
Act of 1933, this Registration Statement includes 8,215,919 unsold shares of
common stock that have been previously registered and 1,784,081 new
shares of common stock. Accordingly, the registration fee due in
connection with this Registration Statement relates only to the
1,784,081 new shares of common stock registered pursuant to this
Registration Statement. |
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Pursuant to Rule 415(a)(6) under the Securities Act of
1933, the securities
registered pursuant to this Registration Statement consist of
8,215,919 unsold shares of common stock previously registered on the
Registrants Registration Statement on Form S-3 (Registration No.
333-121366) (or the Prior Registration Statement) and 1,784,081 new
shares of common stock. In connection with the registration of the
unsold shares of common stock on the Prior Registration Statement, the
Registrant paid a registration fee of $8,750.63 which will
be applied to the pro rata portion of the registration fee for such unsold
shares of common stock.
In connection with the registration of the 1,784,081 new shares, the
Registrant includes herewith $322.53, the pro rata portion of the
registration fee for such new shares.
Pursuant to Rule 415(a)(6), the
offering of the unsold securities registered under the Prior
Registration Statement will be deemed terminated as of the date of
effectiveness of this Registration Statement. |
PROSPECTUS
MFA MORTGAGE INVESTMENTS, INC.
Discount Waiver, Direct Stock Purchase And Dividend Reinvestment Plan
Our Discount Waiver, Direct Stock Purchase and Dividend Reinvestment Plan (or the Plan)
provides new investors and existing holders of our common stock with a convenient and economical
method to purchase shares of our common stock. By participating in the Plan, you may purchase
additional shares of our common stock by reinvesting some or all of the cash dividends that you
receive on your shares of our common stock. If you elect to participate in the Plan, you may also
make optional cash purchases of shares of our common stock of between $50 (or $1,000 for new
investors) and $10,000 per month and, with our prior approval, in excess of $10,000 per month.
Shares of our common stock purchased under the Plan may be acquired at discounts of up to 5% from
the prevailing market price as determined and set by us from time to time.
Plan highlights include:
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Any registered holder of our common stock may elect to participate in the Plan. |
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Interested new investors who are not currently holders of our common stock may make
their initial purchase through the Plan. |
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Up to a 5% discount, as determined and set by us from time to time, on shares of our
common stock purchased under the Plan. |
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Full or partial dividend reinvestment options. |
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Optional cash purchases of between $50 (or $1,000 for new investors) and $10,000 per
month and, with our prior approval, optional cash purchases in excess of $10,000 per
month. |
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Available certificate safekeeping in book-entry form at no charge to you. |
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Detailed recordkeeping and reporting will be provided at no charge to you. |
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Optional automatic investment withdrawals from your bank account. |
This prospectus relates to the offer and sale of up to 10,000,000 authorized but unissued
shares of our common stock under the Plan. Participants should retain this prospectus for future
reference.
Our common stock is listed on the New York Stock Exchange (or NYSE) under the symbol MFA.
Investing in our common stock involves certain risks. Before buying any shares, you should
read the material risks of investing in our common stock referenced under the caption Risk
Factors on page 18 of this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
November 26, 2008
FORWARD-LOOKING STATEMENTS
This prospectus contains or incorporates by reference certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (or the Securities
Act), and Section 21E of the Securities Exchange Act of 1934, as amended (or the Exchange Act).
When used, statements which are not historical in nature, including those containing words such as
anticipate, estimate, expect, believe, plan, intend should, may and similar
expressions, are intended to identify forward-looking statements and, as such, may involve known
and unknown risks, uncertainties and assumptions.
These forward-looking statements are subject to various risks and uncertainties, including,
but not limited to, those relating to:
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changes in interest rates and the market value of our mortgage-backed securities (or
MBS); |
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changes in the prepayment rates on the mortgage loans securing our MBS; |
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our ability to borrow to finance our assets; |
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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 (or a
REIT) U.S. for federal income tax purposes; |
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our ability to maintain our exemption from registration under the Investment Company
Act of 1940; and |
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risks associated with investing in real estate assets, including changes in business
conditions and the general economy. |
These and other risks, uncertainties and
factors, including those identified in our annual
reports on Form 10-K for the fiscal year ended December 31, 2007, our quarterly report on Form 10-Q
for the fiscal quarter ended September 30, 2008 and our annual,
quarterly and current reports subsequently filed with the Securities
and Exchange Commission (or SEC), could cause our actual results to
differ materially from those projected in any forward-looking statements we make. All
forward-looking statements speak only as of the date they are made. New risks and uncertainties
arise over time and it is not possible to predict those factors or how they may affect us. Except
as required by law, we are not obligated to, and do not intend to, update or revise any
forward-looking statements whether as a result of new information, future events or otherwise.
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The following information is qualified in its entirety by the more detailed information and
financial statements and notes thereto appearing elsewhere in, or incorporated by reference into,
this prospectus. We encourage you to read this prospectus, as well as the information which is
incorporated by reference herein, in their entireties. You should carefully consider the
material risks of investing in our common stock referenced under the caption Risk Factors of
this prospectus before making a decision to participate in our Discount Waiver, Direct Stock
Purchase and Dividend Reinvestment Plan (or the Plan). All references to we, us or our
company in this prospectus mean MFA Mortgage Investments, Inc.
MFA MORTGAGE INVESTMENTS, INC.
We are a self-advised REIT primarily engaged in the business of investing, on a leveraged
basis, in hybrid and adjustable-rate MBS which are primarily secured by pools of hybrid and
adjustable-rate mortgage loans on single family residences. Our assets consist primarily of MBS
issued or guaranteed by a federally chartered corporation, such as Fannie Mae or Freddie Mac, or an
agency of the U.S. government, such as Ginnie Mae (or, collectively, Agency MBS), non-Agency MBS
rated AAA by at least one nationally recognized rating agency, MBS-related receivables and cash.
We were incorporated on July 24, 1997 under Maryland law. Our principal executive offices are
located at 350 Park Avenue, 21st Floor, New York, New York 10022. Our telephone number is (212)
207-6400. Our common stock and Series A Preferred Stock are listed on the NYSE under the symbols
MFA and MFA PrA, respectively. We maintain a website at www.mfa-reit.com. Information
contained on our website is not, and should not be interpreted to be, part of this prospectus.
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USE OF PROCEEDS
We will receive proceeds from the sale of shares of our common stock that the Plan
Administrator (as defined herein) purchases directly from us on behalf of the Plan. We intend to
use the net proceeds from the sales to acquire additional high-quality MBS, on a leveraged basis,
and other assets consistent with our investment policy and for working capital, which may include,
among other things, the repayment of our repurchase agreements. We have no basis for estimating
either the number of shares of common stock that will be sold directly by us to the Plan or the
prices at which such shares will be sold. We will not receive any proceeds from the sale of our
common stock that the Plan Administrator purchases on behalf of the Plan in the open market or in
privately negotiated transactions.
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DESCRIPTION OF THE PLAN
Our Discount Waiver, Direct Stock Purchase and Dividend Reinvestment Plan is described in the
following questions and answers:
1. Why is the Plan being offered?
The purpose of the Plan is to provide a convenient and economical method for our current
stockholders to automatically reinvest all or a portion of their cash dividends in additional
shares of our common stock. The Plan also provides our current stockholders and new investors with
an economical way to acquire shares of our common stock by directly investing additional cash
amounts. In these ways, the Plan is intended to benefit our long-term investors by allowing them
to increase their investment in our common stock. The Plan also provides us with a cost-efficient
way to raise additional capital through the direct sale of our common stock to participants in the
Plan.
2. How does the Plan work?
The dividend reinvestment component of the Plan permits our stockholders to designate that all
or a portion of their cash dividends on our common stock be reinvested in additional shares of our
common stock. The optional cash purchase component of the Plan permits current stockholders and
new investors to purchase shares of our common stock in amounts, subject to certain exceptions (see
Question 16), ranging from $50 to $10,000 on a monthly basis or, with our prior approval, in excess
of $10,000 (see Question 17). Funds invested pursuant to the Plan are fully invested through the
purchase of both whole and fractional shares of our common stock and, under the dividend
reinvestment component, proportionate cash dividends on fractional shares of our common stock held
in a participants Plan Account (as defined herein) are used to purchase additional shares under
the Plan.
3. What are the advantages of participating in the Plan?
The Plan provides participants with the opportunity to acquire additional shares of our common
stock directly from us without having to pay, subject to certain exceptions, the trading fees or
service charges associated with an independent purchase (see Question 27). If we issue new shares
of our common stock to participants in the Plan, we may sell them at a discount of up to 5% from
the current market price of our common stock. If the Plan Administrator acquires our shares in the
open market for participants in the Plan, we may discount such shares by paying up to 5% of the
purchase price for such shares. For shares acquired in the open market, the purchase price
includes all trading fees and service charges. You should note, however, that we are not required
to offer shares at a discount or to pay discounts, fees and service charges. We may change the
discount percentage offered, or discontinue to offer this feature of the Plan, at any time or from
time to time (see Question 12).
The Plan also offers a share safekeeping service that allows you to deposit your share
certificates with the Plan Administrator and have your share ownership maintained on the Plan
Administrators records as part of your Plan Account. There is no charge for this service.
4. What are the disadvantages of participating in the Plan?
Investing in our common stock through the Plan is no different from, and is subject to, the
same risks as investing in our common stock directly. This includes the risk that the market price
for our common stock may decline. See Risk Factors.
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NEITHER WE NOR THE PLAN ADMINISTRATOR CAN GUARANTEE THAT SHARES OF OUR COMMON STOCK PURCHASED
UNDER THE PLAN WILL BE WORTH MORE OR LESS THAN THEIR PURCHASE PRICE AT ANY PARTICULAR TIME.
Amounts contributed to the Plan will not necessarily be invested by the Plan Administrator
immediately upon receipt. Likewise, there may be delays in the delivery of moneys to be returned
to you under the Plan. The Plan will not pay interest to you on funds held pending investment or
pending return to you.
Purchases and sales of our common stock under the Plan will be effected by the Plan
Administrator only as soon as practicable after it receives investment instructions. Therefore, if
you participate in the Plan, you will not be able to control the specific timing of purchases and
sales made for you under the Plan. The market price of our common stock may fluctuate between the
time an investment instruction is received by the Plan Administrator and the time shares are
purchased or sold for you under the Plan.
You will not be able to pledge any shares of our common stock held in your Plan Account until
a certificate for those shares is issued to you.
If you reinvest your cash dividends, you will be treated as having received dividend income
for U.S. federal income tax purposes, but will not receive a dividend check. There may be other
tax-related disadvantages applicable to your participation in the Plan (see Question 33). See
Material U.S. Federal Income Tax Considerations.
There are certain fees that will be charged to you by the Plan Administrator (see Question
27).
5. Who is eligible to participate?
Anyone is potentially eligible to participate in the Plan. You may participate in the Plan
if: (i) you are a registered holder of our common stock; that is, your shares are registered in
your name on our stock transfer books; (ii) you are a beneficial owner of our common stock; that
is, your shares are registered in a name other than your own name (i.e., in the name of a broker,
bank or other nominee); or (iii) you are not presently a stockholder, but wish to acquire shares of
our common stock. Registered holders may participate in the Plan directly. If you are a
beneficial owner, you must either become a registered holder by having your shares transferred into
your own name or make arrangements with your broker, bank or other nominee to participate in the
Plan on your behalf (see Question 6).
You will not be allowed to participate if you live in a jurisdiction that makes it unlawful
for us to permit your participation in the Plan. Persons who are citizens or residents of a
country other than the United States, its territories and possessions should make certain that
their participation does not violate local laws governing such things as taxes, currency and
exchange controls, share registration, foreign investments and related matters. We reserve the
right to terminate anyones participation in the Plan if we deem it advisable under any applicable
laws or regulations. We also reserve the right, in our sole discretion, to exclude anyone from the
Plan who fails to comply with the requirements of the Plan, including, but not limited to, those
seeking to use the Plan to engage in short-term trading activities that may cause aberrations in
the trading volume of our common stock or who use multiple Plan Accounts to circumvent the Plans
standard $10,000 per month investment maximum.
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6. How do I enroll in the Plan?
If you hold shares of our common stock in your own name or if you are a new investor, you may
enroll in the Plan and/or make optional cash purchases by completing your plan enrollment online
via Investor ServiceDirect® at www.bnymellon.com/shareowner/isd . Alternatively, you may enroll
in the Plan by obtaining a plan enrollment form by calling, toll
free, (866) 249-2610 and mailing
your completed form to the Plan Administrator in care of BNY Mellon Shareowner Services, P.O. Box
358035, Pittsburgh, Pennsylvania 15252-8035 . If your shares are registered in a name other than
your own name (i.e., in the name of a broker, bank or other nominee), then you must either (i) have
your shares reregistered in your own name and then complete your plan enrollment as discussed
above or (ii) make arrangements with your nominee holder to participate on your behalf. You will
need to confirm that your nominee holder is able to accommodate your participation in the Plan.
An eligible person may elect to become a participant in the Plan at any time, subject to our
right to modify, suspend, terminate or refuse participation in the Plan. Your completed plan
enrollment appoints the Plan Administrator as your agent for purposes of the Plan and permits it to
reinvest dividends in the number of shares you designate and to make optional cash purchases on
your behalf as you direct. You may also specify whether you wish to have your shares held by the
Plan Administrator for safekeeping (see Question 21).
If you are enrolling for dividend reinvestment, the Plan Administrator must receive your
completed plan enrollment at least two business days prior to the record date established for a
particular dividend in order for you to be eligible for reinvestment of that dividend payment under
the Plan (see Question 15). Otherwise, reinvestment of your dividends will begin with the next
dividend payment.
If you are enrolling in the Plan by making an optional cash purchase (see Question 9), the
Plan Administrator must receive your completed plan enrollment and investment funds at least two
business days before the date such funds are scheduled to be invested for a particular month (see
Question 15). If your completed plan enrollment and investment funds are received after that date,
your funds will be held in your Plan Account until the next Cash Purchase Investment Date (as
defined herein); provided, however, that if your funds are not fully invested within 30 days of the
next Cash Purchase Investment Date, your uninvested funds will be returned to you without interest.
If you are not a current stockholder, you must submit your initial investment with your completed
plan enrollment.
7. Who is the Plan Administrator?
The
Plan is being administered by The Bank of New York Mellon, (or the Plan Administrator). Certain
administrative support services to the Plan Administrator will be performed by BNY Mellon
Shareowner Services, a registered transfer agent, or BNY Mellon Securities, LLC, an affiliate of
The Bank of New York Mellon and a registered broker dealer. Information on how to contact the Plan
Administrator is described in Question 35. The Plan Administrator, along with its affiliates,
keeps records, sends statements of account to each participant in the Plan and performs other
duties related to the Plan, including the safekeeping of the shares purchased for each participant.
The Plan Administrator, along with its affiliates, also acts as the dividend disbursing agent,
transfer agent and registrar for our common stock.
8. How will I keep track of my investments?
The Plan Administrator will send you a transaction notice confirming the details of each Plan
transaction you make, including the number of shares purchased and the price paid. If you continue
to participate in the Plan, but have no transactions, the Plan Administrator will send you an
annual statement after the end of the year detailing the status of your holdings of our common
stock in your Plan Account.
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You will also receive annual income tax information on Form 1099. These statements are your
record of the cost of your purchases and should be retained for income tax and other purposes.
All notices from the Plan Administrator to you will be mailed to your last address of record.
However, if your shares are registered in a name other than your own name, communications regarding
the Plan will be made through your nominee holder.
9. What investment options are available under the Plan?
You can purchase shares of our common stock under the Plan through the following investment
options:
Dividend Reinvestment. You can instruct the Plan Administrator to apply the cash dividends
paid on all or any portion of the shares of our common stock designated by you for reinvestment.
In order to participate in the Plan, you do not have to submit the shares of our common stock
currently held by you or on your behalf to your Plan Account in order to elect to reinvest the
dividends on all or a portion of such shares, although share safekeeping is one of the benefits
available under the Plan (see Question 21). Shares of our common stock purchased for your Plan
Account will be automatically enrolled in the Plan in book-entry form, with the Plan Administrator
listed as your nominee, and all dividends paid on these shares will also be reinvested, even if you
withdraw the shares from your Plan Account, unless you instruct the Plan Administrator otherwise.
Cash dividends paid on shares of our common stock owned by you that are not held in your Plan
Account, and for which you do not elect to reinvest dividends, will continue to be paid directly to
you.
Optional Cash Purchases. You can make voluntary cash contributions to your Plan Account at
any time, even if you are not currently reinvesting dividends paid to you on our common stock.
Payment for these optional cash purchases can be made by check, money order or electronic funds
transfer from a pre-designated bank account. The Plan Administrator will use these funds to
purchase shares of our common stock on a monthly basis. If you are already a stockholder, the
minimum cash purchase is $50 per month. If you are using this feature to make your initial
investment in our common stock, the minimum cash purchase is $1,000. You may not make optional
cash purchases of more than $10,000 per month without our prior written approval (see Question 17).
Dividends paid on shares of our common stock that are purchased for your Plan Account with
voluntary cash contributions will automatically be reinvested in our common stock, unless you
instruct the Plan Administrator otherwise.
10. Can I change my dividend reinvestment options?
Yes. You may change your dividend reinvestment options at any time by completing a new plan
enrollment and submitting it to the Plan Administrator at least two business days prior to the
record date for the next dividend payment.
11. What is the source of shares purchased by the Plan?
We may either issue new shares of our common stock directly to the Plan or instruct the Plan
Administrator to acquire currently outstanding shares in the open market. Open market purchases
may be made, at the Plan Administrators option, on the NYSE or any other securities exchange where
our common stock is traded, in the over-the-counter market or in negotiated transactions with third
persons.
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12. At what price will shares be acquired?
Shares Acquired Directly from Us. The
purchase price to be paid by any participant for shares acquired directly from us pursuant to the Plan will be
equal to 100% of the volume-weighted average price (less any applicable discount), rounded to four decimal places,
if necessary, of our common stock as reported by the NYSE only, obtained from Bloomberg, LP for the trading hours
from 9:30 a.m. to 4:00 p.m., Eastern Time, on the applicable Dividend Payment Date (as defined herein) or the
applicable Cash Purchase Investment Date (as defined herein).
All shares of our common stock acquired directly from us
pursuant to the Plan may be acquired at a discount rate, as determined and set by us from time to
time, ranging from 0% to 5% from the volume-weighted average price.
Shares Acquired on the Open Market. The purchase price deemed to be paid by any participant for shares acquired in the open market on any
given day will be the weighted average of the actual prices paid for all shares acquired on that
date, rounded to four decimal places, if necessary, including all trading fees and service
charges. All shares of our common stock purchased by the Plan
Administrator in the open market may be acquired at a discount rate, as determined and set by us
from time to time, ranging from 0% to 5% from the prevailing market price, which will be paid by
us. Open market purchases may be made on such terms as to price, delivery and otherwise as
the Plan Administrator determines.
We are not required to sell shares issued by us at a discount to the Plan or to pay a discount
with respect to shares purchased by the Plan Administrator in the open market, and the discount
rate we offer is subject to change or discontinuance at our discretion and without prior notice to
participants in the Plan. The discount rate, if any, will be determined by us from time to time
based on a review of current market conditions, the level of participation in the Plan, our current
and projected capital needs and other factors that we deem to be relevant.
There are special rules for cash purchases in excess of $10,000 per month (see Question 17).
13. When are the shares purchased for the Plan?
We typically pay dividends on a quarterly basis. If these dividends are used to acquire new
shares directly from us, the Plan Administrator will reinvest dividends on the applicable date on
which we pay dividends (or a Dividend Payment Date). If these dividends are used to acquire shares
through open market purchases, the Plan Administrator will purchase all shares within 30 days of
the applicable Dividend Payment Date. If the dividends are not able to be fully invested within
this 30-day period, the uninvested dividends will be distributed in full, without interest, by the
Plan Administrator to the stockholders participating in the Plan.
Payment of dividends is always
announced in advance. You may learn the date of any announced dividend payment by calling the Plan
Administrator at (201) 680-5300.
Funds for optional cash purchases may be deposited into your Plan Account at any time and will
be used to acquire shares on the last business day of each month (or a Cash Purchase Investment
Date). If these funds deposited during a particular calendar month are used to acquire new shares
directly from us, they will be invested on the Cash Purchase Investment Date. If these funds are
used to acquire shares through open market purchases, the Plan Administrator will purchase all
shares within 30 days of the Cash Purchase Investment Date. If any funds deposited for optional
cash purchases are not able to be fully invested within this 30-day period, the uninvested funds
will be returned in full, without interest, by the Plan Administrator to the applicable
stockholders and/or new investors.
There are special rules for cash purchases in excess of $10,000 per month (see Question 17).
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14. Will I earn interest on funds in my Plan Account prior to investment or return to me?
No. Interest will not be paid on funds deposited by you in your Plan Account pending
investment or return to you.
15. What are the procedures for cash purchases?
If you are not already a stockholder, you are required under the Plan to make an initial
investment of at least $1,000, but not more than $10,000, except in the case of Large Cash
Purchases (as defined herein) (see Question 17). Your initial investment can be made through
Investor ServiceDirect® at www.bnymellon.com/shareowner/isd by authorizing either a
one-time deduction or a monthly automatic deduction from your designated bank account. You may
also make your initial investment by completing a plan enrollment form and submitting it with your
check made payable to BNY Mellon /MFA.
If you are already a stockholder and have enrolled in the Plan and want to make optional cash
purchases, you can authorize specific deductions from your designated bank account online through
Investor ServiceDirect® or send a check to the Plan Administrator for each purchase. If you choose
to submit a check, please make sure to include the contribution form from your Plan statement and
mail it in the envelope provided. If you wish to make regular monthly optional cash purchases, you
may authorize monthly automatic deductions from your bank account. This feature enables you to
make ongoing investments in an amount that is comfortable for you. Ongoing optional cash purchases
are subject to a minimum investment of $50 per month and a maximum of $10,000 per month, except in
the case of Large Cash Purchases.
In order for your funds to be invested on a particular Cash Purchase Investment Date, they
must be received by the Plan Administrator no later than two business days before the Cash Purchase
Investment Date. No interest will be paid on funds held by the Plan Administrator pending
investment.
You may cancel an optional cash purchase by advising the Plan Administrator at least two
business days before the applicable Cash Purchase Investment Date. The Plan Administrator will
return the funds from a cancelled purchase to you without interest as soon as practical. No refund
of a check will be made until the funds have been actually received by the Plan Administrator.
16. What limitations apply to optional cash purchases?
Minimum Investments. If you are already a stockholder, the minimum cash purchase is $50 for
any given month. If you are using this feature to make your initial investment in our common
stock, the minimum cash purchase is $1,000. Cash purchases for less than these minimums will be
returned to you without interest, unless we choose to waive these minimum amounts.
Large Cash Purchases. Cash purchases in excess of $10,000 per month (or Large Cash Purchases)
will not be allowed by the Plan Administrator without our prior written approval. Unless you have
complied with the procedures described in Question 17, any amount you submit for investment over
this limit will be returned to you without interest. For purposes of this limitation, we reserve
the right to aggregate all cash purchases from any participant with more than one Plan Account
using the same name, address or social security or taxpayer identification number. If you do not
supply a social security or taxpayer identification number to the Plan Administrator, your
participation may be limited to only one Plan Account. Also for the purpose of this limitation,
all Plan Accounts that we believe to be under common control or management or to have common
ultimate beneficial ownership may be aggregated. We may grant or withhold our permission to make
Large Cash Purchases in our sole discretion. We may
8
grant such request in whole or in part. We may also grant requests for some Large Cash
Purchases and deny requests for others even though they are made in the same month.
17. May I invest more than the Plan maximum of $10,000 per account per month?
Yes, if you request a waiver of this limit and we grant your waiver request. Upon receipt of
a written waiver form from an investor, we will consider waiving the maximum investment limit.
Grants of waiver requests will be made in our sole discretion based on a variety of factors, which
may include: our current and projected capital needs, prevailing market prices of our common stock
and other securities, and general economic and market conditions.
Large Cash Purchases will be priced as follows:
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Large Cash Purchases for which a waiver has been granted will be made subject to a
pricing period, which will generally consist of one to fifteen separate
days during which trading of our common stock is reported on the NYSE. Each of these
separate days will be an investment date, and an equal proportion of the investment
amount will be invested on each trading day during such pricing period, subject to the
qualifications listed below. The purchase price for shares acquired on a particular
investment date will be equal to 100% of the
volume-weighted average price (less any applicable discount), rounded to four decimal
places, of our common stock as reported by the NYSE only, obtained from Bloomberg, LP for
the trading hours from 9:30 a.m. to 4:00 p.m., Eastern Time, for that investment date.
Funds for such investments must be received by the Plan Administrator not later than the
business day before the first day of the pricing period. |
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We may establish a minimum, or threshold, price for any pricing period that the
volume-weighted average price, rounded to four decimal places, of our common stock must
equal or exceed during each trading day of the pricing period for investments made pursuant
to a waiver request. |
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If we decide to establish a threshold price for a particular pricing period, the
threshold price for any investments made pursuant to a request for waiver will be a stated
dollar amount that the volume-weighted average price, rounded to four decimal places, of our
common stock, as reported by the NYSE for each trading day in the relevant pricing period,
must equal or exceed. If the threshold price is not satisfied for a trading day in the
pricing period, then that trading day and the trading prices for that day will be excluded
from the pricing period. |
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We will only establish a threshold price if shares will be purchased directly from us in
connection with the relevant pricing period (please see first bullet above). If we have
established a threshold price with respect to the relevant pricing period, then we will
exclude from the pricing period any trading day that the volume-weighted average price is
less than the threshold price and refund that days proportional investment amount. For
example, if the threshold price is not met for two of the trading days in a ten-day pricing
period, then we will return 20% of the funds you submitted in connection with your waiver
request, without interest, unless we have activated the pricing period extension feature for
the pricing period, as described below. |
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Neither we nor the Plan Administrator are required to notify you that a threshold price
has been established for any pricing period. |
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We may elect to activate for any particular pricing period a pricing period extension
feature which will provide that the initial pricing period be extended by the number of days
that the |
9
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threshold price is not satisfied, subject to a maximum of five trading days. If we elect to
activate the pricing period extension feature and the threshold price is satisfied for any
additional day that has been added to the initial pricing period, that day will be included
as one of the trading days for the pricing period instead of the day on which the threshold
price was not met. For example, if the determined pricing period is ten days, and the
threshold price is not satisfied for three out of those ten days in the initial pricing
period, and we had previously announced in the bid-waiver form that the pricing period
extension feature was activated, then the pricing period will be automatically extended, and
if the threshold price is satisfied on the next three trading days (or a subset thereof),
then those three days (or subset thereof) will become investment dates in lieu of the three
days on which the threshold price was not met. As a result, because there were ten trading
days during the initial and extended pricing period on which the threshold price was
satisfied, all of the funds that you include with your request for waiver will be invested. |
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Newly issued shares purchased pursuant to Large Cash Purchases will be posted to
participants accounts within three business days following the end of the applicable
pricing period, or, if we elect to activate the continuous settlement feature, within three
business days of each separate investment date beginning on the first investment date in the
relevant pricing period and ending on the final investment date in the relevant pricing
period, with an equal amount being invested on each day, subject to the qualifications set
forth above. During any month when we are proposing to grant requests for waiver for one or
more investments, we may elect to activate the continuous settlement feature for such
investments by announcing in the bid-waiver form that we will be doing so. The purchase
price of shares acquired on each investment date will be equal to the volume-weighted
average price obtained from Bloomberg, LP (unless such service is unavailable, in which case
we will designate another service to be utilized before the beginning of the pricing
period), rounded to four decimal places, for the trading hours from 9:30 a.m. to 4:00 p.m.,
Eastern Time, for each of the investment dates during the pricing period, assuming the
threshold price is met on that day, less any discount that we may decide to offer. For each
pricing period (assuming the threshold price is met on each trading day of that pricing
period), we would have a separate settlement of each investment
dates purchases, each based
on the volume-weighted average price for the trading day relating to each of the investment
dates during the pricing period. |
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Waiver request forms and information regarding the establishment of a threshold price, if
any, may be obtained by contacting the Plan Administrator at (201) 680-5300 or
waivers@bnymellon.com. |
We may alter, amend, supplement or waive, in our sole discretion, the time periods and/or
other parameters relating to the pricing periods for Large Cash Purchases made by one or more
participants in the Plan or new investors, at any time and from time to time, prior to the
commencement of any pricing period and/or prior to the granting of any request for waiver with
respect to a particular pricing period.
18. Does the Plan Administrator credit my shares to a separate account?
Yes. The Plan Administrator will establish a separate Plan Account for you and credit it with
those shares that have been purchased for you under the Plan. In addition, the Plan Administrator
will credit your Plan Account with those shares that you have delivered to the Plan Administrator
for safekeeping (see Question 21). All shares in your Plan Account will be registered in
book-entry form in the name of the Plan Administrator or its nominee, but your beneficial ownership
will be maintained in your Plan Account. The total number of shares credited to your Plan Account
will be shown on each account statement.
10
In the event that you wish to have any whole shares of our common stock that have been
credited to your Plan Account issued in certificated form to you, you may do so by contacting the
Plan Administrator and making such request (see Question 20).
Although the Plan Administrator will maintain a separate Plan Account for you, it is
authorized to commingle funds in your Plan Account with those of other Plan participants for
purposes of making purchases of our common stock.
19. Are funds held in my Plan Account insured?
No. Funds held in your Plan Account pending investment or return are not treated as a bank
deposit or account and are not insured by the Federal Deposit Insurance Corporation or any other
governmental agency or instrumentality.
20. Will I receive certificates for the shares purchased for me under the Plan?
No. You will not receive certificates for shares purchased for you under the Plan. For your
convenience, the Plan Administrator will maintain the shares purchased for your Plan Account in non
certificated, book entry form. You may, however, request that a stock certificate be issued to
you for any or all whole shares of our common stock credited to your Plan Account. No certificates
for fractional shares will be issued. Certificates will be issued free of charge. Cash dividends
with respect to participating shares represented by certificates issued to you will continue to be
automatically reinvested, unless you instruct the Plan Administrator otherwise. Any remaining
shares will continue to be credited to your Plan Account. You may request certificates by
contacting the Plan Administrator at (866) 249-2610. You may also submit your request online via
Investor ServiceDirect® at www.bnymellon.com/shareowner/isd.
21. What is share safekeeping?
If you hold the certificates for shares of our common stock (whether or not you elect to have
dividends on these shares reinvested), you may deposit the certificates with the Plan Administrator
for safekeeping in your Plan Account. Share safekeeping protects your shares against loss, theft
or accidental destruction and is a convenient way for you to keep track of your shares. There is
no fee or other charge for this service. Shares held for safekeeping will be credited to your Plan
Account and the certificates for such shares will be cancelled. If at a later time you want to
withdraw those shares from share safekeeping in your Plan Account, a new certificate for such
shares shall be issued to you (see Question 20). Only shares held in safekeeping may be sold
through the Plan. The Plan Administrator may maintain shares held for safekeeping in its name or
in the name of its nominee. Contact the Plan Administrator at (866) 249-2610 for information on
how to submit your share certificates for safekeeping.
22. May the shares in my Plan Account be sold or transferred?
Yes. You may instruct the Plan Administrator to sell any or all of the whole shares held in
your Plan Account at any time. However, you will not be able to direct the date on which, or the
price at which, shares held in your Plan Account may be sold. In the case of a request to sell
submitted on behalf of a Plan participant who has died or is an adjudicated incompetent, the
request must be accompanied by certified evidence of the representatives authority to request a
sale of the participants shares. The Plan Administrator will process sales orders when
practicable, which will be at least once each week. Shares will be sold from your Plan Account at
the prevailing market price and the proceeds of sale, less applicable trading fees, transfer taxes
and the Plan Administrators administrative fee, will be remitted to you or your representative.
11
In addition, you may transfer the ownership of all or part of the shares in your Plan Account
to the Plan Account of another person without requiring the issuance of stock certificates. This
could include a gift or private sale. Transfers of less than all of the shares credited to your
Plan Account must be made in whole share amounts. No fractional shares may be transferred, unless
your entire Plan Account balance is transferred. Requests for these transfers must meet the same
requirements as are applicable to the transfer of stock certificates, including the requirement of
a medallion stamp guarantee. Shares that are transferred will be credited in book-entry form to
the transferees Plan Account. If the transferee does not have a Plan Account, one will be opened
for the transferee using the same investment options as your Plan Account, unless you specify
differently. The transferee may change the investment options after the transfer has been made.
After the transfer, the transferee will receive an account statement showing the number of shares
transferred to and held in the transferees Plan Account.
23. May shares in my Plan Account be pledged?
No. You must first request that certificates for shares credited to your Plan Account be
issued to you before you can pledge such shares.
24. Can I vote shares in my Plan Account?
Yes. You will have the right to vote all whole shares held in your Plan Account. Fractional
shares may not be voted. Proxies for whole shares held in your Plan Account will be forwarded to
you by the Plan Administrator. The Plan Administrator may vote your shares in certain cases if you
fail to return a proxy to the Plan Administrator.
25. May I transfer my right to participate in the Plan?
No. Your right to participate in the Plan is not transferable to any other person apart from
a transfer of your shares.
26. |
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What happens if the Company issues a stock dividend, declares a stock split or has a rights
offering? |
Any stock dividends or stock splits distributed by us on shares of our common stock held in
your Plan Account will be credited to your Plan Account. In the event we make available to our
stockholders rights to purchase additional shares of our common stock or other securities, you will
receive appropriate instructions in connection with all such rights directly from the Plan
Administrator in order to permit you to determine what action you desire to take. Transaction
processing under the Plan may be curtailed or suspended until the completion of any stock dividend,
stock split or stockholder rights offering.
12
27. Is there a cost to participate in the Plan?
The following fees will be paid to the Plan Administrator by Plan participants:
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Reinvestment of quarterly dividend |
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Stockholders
owning one share or more may
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5% of the dividend
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Per participant per |
elect to reinvest all or part of their cash
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amount, up to
$3.00
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quarter |
dividends and, have access to their account
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per quarter
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electronically over the internet and will |
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receive quarterly statements |
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Purchase of shares with additional
investment |
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By check
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$ |
5.00 |
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Per transaction |
By electronic debit
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$ |
2.00 |
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Per transaction |
Purchase of shares with Initial investment
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$ |
15.00 |
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Per transaction |
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Trading fee (open market purchase of shares)
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$ |
0.03 |
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Per share |
Sale of Shares
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$ |
15.00 |
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Per transaction |
Trading fee
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$ |
0.06 |
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Per share |
Returned check or debit
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$ |
35.00 |
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Per transaction |
13
In addition, the Plan Administrator will charge a fee of $35.00 for insufficient funds or
rejected automatic debits.
We will pay the Plan Administrators fees in connection with dividend reinvestments. There
are no fees for the share safekeeping service.
In general, trading fees and service charges incurred in connection with Plan purchases of
shares of our common stock in the open market will be added to and considered part of the purchase
price of such shares. Service fees will be charged to participants making initial and optional
cash purchases through electronic fund transfers. Further, the financial institution designated by
a participant on its plan enrollment may charge a fee for participating in the electronic fund
transfer. When shares of our common stock are sold by the Plan Administrator for a participant,
the participant will be responsible for any trading fees, expenses, service charges or other
expenses incurred pursuant to the sale of such shares of common stock.
28. How and when may I terminate my participation in the Plan?
You may discontinue the reinvestment of your dividends at any time by giving notice to the
Plan Administrator. To be effective for a given dividend payment, the Plan Administrator must
receive notice two business days before the record date of that particular dividend. You may
provide notice online via Investor ServiceDirect® at www.bnymellon.com/shareowner/isd, by
calling the Plan Administrator at (866) 249-2610 or by mailing your request to the Plan
Administrator in care of BNYMellon Shareowner Services P.O. Box 358035, Pittsburgh, Pennsylvania
15252-8035. The Plan Administrator will continue to hold your Plan shares after any
discontinuation, unless you request a certificate for any whole shares and a cash payment for any
fractional share. You may also request the sale of all or part of such shares or have the Plan
Administrator transfer your shares to your brokerage account or another Plan Account. In the case
of a request submitted on behalf of a Plan participant who has died or is an adjudicated
incompetent, the request must be accompanied by certified evidence of the representatives
authority to make such a request on behalf of the participant. Shares and cash will be retained in
the participants Plan Account until the participants legal representative has been appointed and
has furnished proof satisfactory to the Plan Administrator of the legal representatives right to
receive a distribution of these assets.
29. May the Plan be changed or discontinued?
Yes. We reserve the right to suspend or terminate the Plan in whole or in part at any time or
from time to time. Notice will be sent to participants of any suspension or termination as soon as
practicable after such action by us. Upon termination of the Plan, the Plan Administrator will
issue a stock certificate for the total number of whole shares credited to your Plan Account and a
cash payment for any portion of a fractional share credited to your Plan Account. However, if we
terminate the Plan for the purpose of establishing a new plan, you will be automatically enrolled
in the new plan and shares credited to your
14
Plan Account will be credited automatically to the new plan, unless, prior to the effective
date thereof, the Plan Administrator receives notice of termination of your Plan Account.
The Plan may also be altered, amended or supplemented by us in whole or in part at any time,
including the period between the dividend record date and the related Dividend Payment Date. Any
such amendment may include an appointment by the Plan Administrator of a successor Plan
Administrator. Plan participants will be notified of any amendments as soon as practicable. In
addition, the Plan Administrator reserves the right to change its administrative procedures for the
Plan.
30. Who interprets and regulates the Plan?
We reserve the right, without notice to Plan participants, to interpret and regulate the Plan
as we deem necessary or desirable in connection with our operations. Any such interpretation and
regulation shall be conclusive.
31. What law governs the Plan?
The terms and conditions of the Plan and its operation are governed by the laws of the State
of New York.
32. What are the responsibilities of the Company and the Plan Administrator under the Plan?
The Plan Administrator has had no responsibility with respect to the preparation or contents
of this prospectus. Neither we nor the Plan Administrator, in administering the Plan, shall be
liable for any act done in good faith, or for any good faith omission to act, including, without
limitation, any claims of liability (i) arising out of failure to terminate any participants Plan
Account upon such participants death or adjudication of incompetence, prior to receipt of notice
in writing of such death or adjudication of incompetence, (ii) with respect to the prices at which
shares of our common stock are purchased or sold for the participants Plan Account and the times
such purchases or sales are made or (iii) with respect to any loss or fluctuation in the market
value after the purchase of shares.
YOU SHOULD RECOGNIZE THAT NEITHER WE NOR THE PLAN ADMINISTRATOR CAN ASSURE A PROFIT OR PROTECT
AGAINST A LOSS IN VALUE OF THE SHARES OF OUR COMMON STOCK THAT YOU PURCHASE UNDER THE PLAN.
33. What are the U.S. federal income tax consequences of participating in the Plan?
Dividend Reinvestment. The reinvestment of dividends does not relieve you of any U.S. federal
income tax which may be payable on such dividends. When your dividends are reinvested to acquire
shares of our common stock (including any fractional share), you will be treated as having received
a distribution in the amount of the fair market value of our common stock on the Dividend Payment
Date (or the Fair Market Value), multiplied by the number of shares (including any fractional
share) purchased plus any trading fees or service charges that we pay on your behalf.
So long as we continue to qualify as a REIT under the Internal Revenue Code of 1986, as
amended (or the Internal Revenue Code), the distribution will be taxable under the provisions of
the Internal Revenue Code applicable to REITs and their stockholders, pursuant to which (i)
distributions (other than those designated as capital gain dividends) will be taxable to
stockholders as ordinary income to the extent of our current or accumulated earnings and profits,
(ii) distributions which are designated as capital gain dividends by us will be taxed as long-term
capital gains to stockholders to the extent they do not exceed our net capital gain for the taxable
year, (iii) distributions which are not designated as capital
15
gains dividends and which are in excess of our current or accumulated earnings and profits
will be treated as a tax-free return of capital to the stockholders and reduce the adjusted tax
basis of a stockholders shares (but not below zero) and (iv) such distributions in excess of a
stockholders adjusted tax basis in its shares will be treated as gain from the sale or exchange of
such shares.
You should be aware that, because shares of our common stock purchased with reinvested
dividends may be purchased at a discount and because we may pay a portion of the purchase price,
trading fees or service charges on your behalf, the taxable income received by you as a participant
in the Plan may be greater than the taxable income that would have resulted from the receipt of the
dividend in cash.
The Plan Administrator will report to you for tax purposes the dividends to be credited to
your account as well as any discounts or trading fees or service charges incurred by us. Such
information will also be furnished to the Internal Revenue Service (or the IRS) to the extent
required by law.
Cash Purchases. The tax consequences relating to a discount associated with a cash purchase
of shares under the Plan are not entirely clear under current law. We intend to treat the excess
value of the shares acquired by a stockholder by cash purchase under the Plan as a distribution
from us regardless of whether or not the stockholders are enrolled in the dividend reinvestment
feature. You should consult your tax advisors in this regard.
You will have a tax basis in shares acquired through the cash purchase component under the
Plan equal to the amount of the cash payment plus the excess, if any, of the fair market value of
the shares on the purchase date over the amount of the payment, but only to the extent such excess
is treated as a distribution taxable as a dividend.
The holding period for shares (including a fractional share) acquired under the Plan generally
will begin on the day after the shares are acquired. In the case of participants whose dividends
are subject to U.S. backup withholding (see Question 34), the Plan Administrator will reinvest dividends
less the amount of tax required to be withheld.
Receipt of Share Certificates and Cash. You will not realize any income when you receive
certificates for shares of our common stock credited to your Plan Account. Any cash received for a
fractional share held in your Plan Account will be treated as an amount realized on the sale of the
fractional share. You therefore will recognize gain or loss equal to any difference between the
amount of cash received for a fractional share and your tax basis in the fractional share.
34. What are the effects of the U.S. federal income tax withholding provisions?
We or the Plan Administrator may be required to withhold on all dividend payments to a
stockholder if (i) such stockholder has failed to furnish his or her taxpayer identification
number, which for an individual is his or her social security number, (ii) the IRS has notified us
that the stockholder has failed to properly report interest or dividends or (iii) the stockholder
has failed to certify, under penalty of perjury, that he or she is not subject to backup
withholding. In the case of a stockholder who is subject to backup withholding tax on dividends
under the Plan, the amount of the tax to be withheld will be deducted from the amount of the cash
dividend and only the reduced amount will be reinvested in Plan shares.
The summary set forth in Questions 33 and 34 is intended only as a general discussion of the
current U.S. federal income tax consequences of participation in the Plan. This discussion does
not purport to deal with all aspects of taxation that may be relevant to particular participants in
light of their
16
personal investment circumstances or certain types of participants (including foreign persons,
insurance companies, tax-exempt organizations, financial institutions or broker-dealers) subject to
special treatment under the U.S. federal income tax laws. For a discussion of the U.S. federal
income tax consequences of holding stock in a REIT generally, see Material U.S. Federal Income Tax
Considerations.
35. How do I get more information?
Questions regarding the Plan should be directed to BNY Mellon Shareowner Services, P.O. Box
358035, Pittsburgh, Pennsylvania 15252-8035, or by calling (866) 249-2610, between 9:00 a.m. and
7:00 p.m., Eastern Time, Monday through Friday. For questions regarding Large Cash Purchases,
please call the Plan Administrator at (866) 249-2610. You may also go to the website address set
up for the Plan at www.bnymellon.com/shareowner/isd. If your shares are not held in your name,
contact your brokerage firm, bank, or other nominee for more information regarding your
participation in the Plan. They can contact the Plan Administrator directly for instructions on
how to participate on your behalf. You can also get more information from our website at www.mfa
reit.com.
17
RISK FACTORS
Investment in our common stock involves risk. Before choosing to participate in the Plan and
acquiring any shares of our common stock offered pursuant to this prospectus, you should carefully
consider the risks of an investment in the Company set forth under the captions Item 1A. Risk
Factors and Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations (or similar captions) in our most recent Annual Report on Form 10-K and under the
captions Item 1A. Risk Factors and Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations (or similar captions) in our most recent Quarterly Report on Form 10-Q, which reports are
incorporated herein by reference. In the future, you should also carefully consider the disclosures
relating to the risks of an investment in the Company contained in
the reports or documents we subsequently file under Section 13(a),
13(c), 14 or 15(d) of the Exchange Act, which reports and documents
will deemed to be incorporated by reference into this prospectus upon
their filing. See Incorporation of Certain Documents by Reference and Forward
Looking Statements.
18
CERTAIN PROVISIONS OF MARYLAND LAW AND
OF OUR CHARTER AND BYLAWS
The following description of the terms of our stock and of certain provisions of Maryland law
is only a summary. This summary is not complete and is qualified by the provisions of our charter
and bylaws, and the Maryland General Corporation Law (or the MGCL). See Incorporation Of Certain
Documents By Reference.
Classification of Our Board
Our bylaws provide that the number of directors may be established by our board but may not be
fewer than the minimum number required by the MGCL nor more than fifteen. Any vacancy will be
filled, at any regular meeting or at any special meeting called for that purpose, by a majority of
the remaining directors, except that a vacancy resulting from an increase in the number of
directors must be filled by a majority of the entire board. Any director elected to fill a vacancy
by the Board serves until the next annual meeting and until his or her successor is elected and
qualifies.
Pursuant to our charter, our board is divided into three classes of directors. Directors of
each class serve for three-year terms and each year one class of directors will be elected by the
stockholders. The number of directors in each class and the expiration of the current term of each
class term is as follows:
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Class I
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2 Directors
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Expires 2011 |
Class II
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2 Directors
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Expires 2009 |
Class III
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3 Directors
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Expires 2010 |
We believe that the classification of our board helps to assure the continuity and stability
of our business strategies and policies as determined by our board. Common stockholders have no
right to cumulative voting in the election of directors.
The classified board provision of our charter could have the effect of making the replacement
of incumbent directors more time-consuming and difficult. At least two annual meetings of
stockholders, instead of one, will generally be required to effect a change in a majority of our
board. Thus, the classified board provision could increase the likelihood that incumbent directors
will retain their positions. The staggered terms of directors may delay, defer or prevent a tender
offer or an attempt to change control of our company, even though the tender offer or change in
control might be in the best interest of the stockholders.
Removal of Directors
Our charter provides that a director may be removed only for cause and only by the affirmative
vote of at least 80% of the votes entitled to be cast in the election of directors. This
provision, when coupled with the provision in our bylaws authorizing our board to fill vacant
directorships, precludes stockholders from removing incumbent directors except for cause and by a
substantial affirmative vote and filling the vacancies created by the removal with their own
nominees.
Business Combinations
Under Maryland law, business combinations between a Maryland corporation and an interested
stockholder or an affiliate of an interested stockholder are prohibited for five years after the
most recent date on which the interested stockholder becomes an interested stockholder. These
business combinations
19
include a merger, consolidation, share exchange, or, in circumstances specified in the
statute, an asset transfer or issuance or reclassification of equity securities. An interested
stockholder is defined as:
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any person who beneficially owns ten percent or more of the voting power of the
corporations outstanding voting stock; or |
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an affiliate or associate of the corporation who, at any time within the two-year
period prior to the date in question, was the beneficial owner of ten percent or more
of the voting power of the then outstanding voting stock of the corporation. |
A person is not an interested stockholder under the statute if the board of directors approved
in advance the transaction by which he or she otherwise would have become an interested
stockholder. However, in approving a transaction, the board of directors may provide that its
approval is subject to compliance, at or after the time of approval, with any terms and conditions
determined by the board.
After the five-year prohibition, any business combination between the Maryland corporation and
an interested stockholder generally must be recommended by the board of directors of the
corporation and approved by the affirmative vote of at least:
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80% of the votes entitled to be cast by holders of outstanding shares of voting
stock of the corporation; and |
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two-thirds of the votes entitled to be cast by holders of voting stock of the
corporation other than shares held by the interested stockholder with whom or with
whose affiliate the business combination is to be effected or held by an affiliate or
associate of the interested stockholder. |
These super-majority vote requirements do not apply if the corporations common stockholders
receive a minimum price, as defined under Maryland law, for their shares in the form of cash or
other consideration in the same form as previously paid by the interested stockholder for its
shares.
The business combination statute may discourage others from trying to acquire control of us
and increase the difficulty of consummating any offer.
Control Share Acquisitions
Maryland law provides that control shares of a Maryland corporation acquired in a control
share acquisition have no voting rights except to the extent approved by a vote of two-thirds of
the votes entitled to be cast on the matter. Shares owned by the acquiror, by officers or by
directors who are employees of the corporation are excluded from shares entitled to vote on the
matter. Control shares are voting shares of stock which, if aggregated with all other shares of
stock owned by the acquiror or in respect of which the acquiror is able to exercise or direct the
exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror
to exercise voting power in electing directors within one of the following ranges of voting power:
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one-tenth or more but less than one-third; |
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one-third or more but less than a majority; or |
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a majority or more of all voting power. |
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Control shares do not include shares the acquiring person is then entitled to vote as a result
of having previously obtained stockholder approval. A control share acquisition means the
acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition may compel the board of
directors of the corporation to call a special meeting of stockholders to be held within 50 days of
demand to consider the voting rights of the shares. The right to compel the calling of a special
meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the
expenses of the meeting. If no request for a meeting is made, the corporation may itself present
the question at any stockholders meeting.
If voting rights are not approved at the meeting or if the acquiring person does not deliver
an acquiring person statement as required by the statute, then the corporation may redeem for fair
value any or all of the control shares, except those for which voting rights have previously been
approved. The right of the corporation to redeem control shares is subject to certain conditions
and limitations. Fair value is determined, without regard to the absence of voting rights for the
control shares, as of the date of the last control share acquisition by the acquiror or of any
meeting of stockholders at which the voting rights of the shares are considered and not approved.
If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes
entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise
appraisal rights. The fair value of the shares as determined for purposes of appraisal rights may
not be less than the highest price per share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (i) to shares acquired in a merger,
consolidation or share exchange if the corporation is a party to the transaction, or (ii) to
acquisitions approved or exempted by the charter or bylaws of the corporation.
Our bylaws contain a provision exempting from the control share acquisition statute any and
all acquisitions by any person of shares of our stock. There can be no assurance that this
provision will not be amended or eliminated at any time in the future.
Amendment to Our Charter
Our charter may be amended only by the affirmative vote of the holders of not less than a
majority of all of the votes entitled to be cast on the matter; provided, however, that certain
amendments related to our board, business combinations, indemnification, exculpation, advance
notice of stockholder proposals and the charter amendment section require the affirmative vote of
not less than 80% of all the votes entitled to be cast on such matters.
Dissolution of Our Company
The dissolution of our company must be approved by the affirmative vote of the holders of not
less than a majority of all of the votes entitled to be cast on the matter.
Advance Notice of Director Nominations and New Business
Our charter and bylaws provide that with respect to an annual meeting of stockholders,
nominations of individuals for election to our board and the proposal of business to be considered
by stockholders may be made only (i) pursuant to our notice of the meeting, (ii) by our board or
(iii) by a stockholder who has complied with the advance notice procedures of the bylaws. With
respect to special meetings of stockholders, only business specified in our notice of the meeting
may be brought before the
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meeting. Nominations of individuals for election to our board of directors at a special
meeting may be made only (i) pursuant to our notice of the meeting, (ii) by our board or (iii)
provided that our board of directors has determined that directors will be elected at the meeting,
by a stockholder who has complied with the advance notice provisions of the bylaws.
Anti-takeover Effect of Certain Provisions of Maryland Law and of Our Charter and Bylaws
The business combination provisions and, if the applicable provision in our bylaws is
rescinded, the control share acquisition provisions of Maryland law, the provisions of our charter
on classification of our board and removal of directors and the advance notice provisions of our
bylaws could delay, defer or prevent a transaction or a change in control of our company that might
involve a premium price for holders of common stock or otherwise be in their best interest.
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MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax considerations relating to
our qualification and taxation as a REIT and the acquisition, holding, and disposition of our
common stock. This summary is based upon the Internal Revenue Code, the regulations promulgated by
the U.S. Treasury Department (or the Treasury regulations), current administrative interpretations
and practices of the IRS (including administrative interpretations and practices expressed in
private letter rulings which are binding on the IRS only with respect to the particular taxpayers
who requested and received those rulings) and judicial decisions, all as currently in effect and
all of which are subject to differing interpretations or to change, possibly with retroactive
effect. 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. No advance ruling has been or
will be sought from the IRS regarding any matter discussed in this summary. The summary is also
based upon the assumption that the operation of our company, and of its subsidiaries and other
lower-tier and affiliated entities, will, in each case, be in accordance with its applicable
organizational documents. This summary is for general information only, and does not purport to
discuss all aspects of U.S. federal income taxation that may be important to a particular
stockholder in light of its investment or tax circumstances or to stockholders subject to special
tax rules, such as:
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persons who mark-to-market our common stock; |
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subchapter S corporations; |
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U.S. stockholders (as defined below) whose functional currency is not the U.S. dollar; |
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financial institutions; |
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regulated investment companies (or RICs); |
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holders who receive our common stock through the exercise of employee stock options or
otherwise as compensation; |
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persons holding our common stock as part of a straddle, hedge, conversion
transaction, synthetic security or other integrated investment; |
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persons subject to the alternative minimum tax provisions of the Internal Revenue Code; |
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persons holding their interest through a partnership or similar pass-through entity; |
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persons holding a 10% or more (by vote or value) beneficial interest in us; and, except to
the extent discussed below: |
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tax-exempt organizations; and |
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non-U.S. stockholders (as defined below). |
This summary assumes that stockholders will hold our common stock as capital assets, which
generally means as property held for investment.
THE U.S. FEDERAL INCOME TAX TREATMENT OF HOLDERS OF OUR COMMON STOCK DEPENDS IN SOME INSTANCES
ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF U.S. FEDERAL INCOME TAX LAW
FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. IN ADDITION, THE TAX CONSEQUENCES OF
HOLDING OUR COMMON STOCK TO ANY PARTICULAR STOCKHOLDER WILL DEPEND ON THE STOCKHOLDERS PARTICULAR
TAX CIRCUMSTANCES. YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE,
LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES TO YOU, IN LIGHT OF YOUR PARTICULAR INVESTMENT
OR TAX CIRCUMSTANCES, OF ACQUIRING, HOLDING, AND DISPOSING OF OUR COMMON STOCK.
Taxation of Our Company General
We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code,
commencing with our taxable year ended December 31, 1998. We believe that we have been organized
and operated in a manner that allows us to qualify for taxation as a REIT under the Internal
Revenue Code, and we intend to continue to be organized and operate in such a manner.
In the opinion of Clifford Chance US LLP, our counsel, commencing with our taxable year ended
December 31, 1998, we have been organized and operated in conformity with the requirements for
qualification and taxation as a REIT under the Code and our proposed method of operation will
enable us to continue to so qualify. Clifford Chance US LLPs opinion relies, with respect to all
taxable periods beginning prior to January 1, 2002, solely on an opinion issued by Kutak Rock LLP,
which previously served as our counsel. It must be emphasized that Clifford Chance US LLPs opinion
is based and conditioned upon certain assumptions and representations made by us as to factual
matters (including our representations concerning our income and properties and the past, present,
and future conduct of our business operations as set forth in this prospectus and factual
certificates provided by our management). The opinion is expressed as of the date of this
prospectus and Clifford Chance US LLP has no obligation to advise of any subsequent change in the
matters stated, represented or assumed or any subsequent change in the applicable law. Moreover,
our qualification and taxation as a REIT depends upon our ability to meet, through actual annual
operating results, distribution levels and diversity of stock ownership, the various requirements
imposed under the Internal Revenue Code as discussed below, the results of which will not be
reviewed by Clifford Chance US LLP. Accordingly, no assurance can be given that the actual results
of our operation for any one taxable year have satisfied or will satisfy such requirements. See
Failure to Qualify. An opinion of counsel is not binding on the IRS, and no assurance can be given
that the IRS will not challenge our qualification as a REIT.
Taxation of REITs in General
As indicated above, qualification and taxation as a REIT depends upon our ability to meet, on
a continuing basis, various qualification requirements imposed upon REITs by the Internal Revenue
Code. The material qualification requirements are summarized below, under Requirements for
Qualification as a REIT. While we believe that we have operated and intend to continue to operate
so that we qualify as a REIT, no assurance can be given that the IRS will not challenge our
qualification as a REIT or that we will be able to operate in accordance with the REIT requirements
in the future. See Failure to Qualify.
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Provided that we qualify as a REIT, we will generally be entitled to a deduction for dividends
that we pay and, therefore, will not be subject to U.S. federal corporate income tax on our net
income that is currently distributed to our stockholders. This treatment substantially eliminates
the double taxation at the corporate and stockholder levels that results generally from
investment in a corporation. Rather, income generated by a REIT generally is taxed only at the
stockholder level, upon a distribution of dividends by the REIT.
For tax years through 2010, stockholders who are individual U.S. stockholders (as defined
below) are generally taxed on corporate dividends at a maximum rate of 15% (the same as long-term
capital gains), thereby substantially reducing, though not completely eliminating, the double
taxation that has historically applied to corporate dividends. With limited exceptions, however,
dividends received by individual U.S. stockholders from us or from other entities that are taxed as
REITs will continue to be taxed at rates applicable to ordinary income, which will be as high as
35% through 2010.
Net operating losses, foreign tax credits and other tax attributes of a REIT generally do not
pass through to the stockholders of the REIT, subject to special rules for certain items, such as
capital gains, recognized by REITs. See Taxation of Taxable U.S. Stockholders.
Even if we qualify for taxation as a REIT, however, we will be subject to U.S. federal income
taxation as follows:
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We will be taxed at regular corporate rates on any undistributed income, including
undistributed net capital gains. |
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We may be subject to the alternative minimum tax on our items of tax preference, if any. |
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If we have net income from prohibited transactions, which are, in general, sales or other
dispositions of property held primarily for sale to customers in the ordinary course of
business, other than foreclosure property, such income will be subject to a 100% tax. See
Prohibited Transactions and Foreclosure Property below. |
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If we elect to treat property that we acquire in connection with a foreclosure of a
mortgage loan or from certain leasehold terminations as foreclosure property, we may thereby
avoid (i) the 100% tax on gain from a resale of that property (if the sale would otherwise
constitute a prohibited transaction) and (ii) the inclusion of any income from such property
not qualifying for purposes of the REIT gross income tests discussed below, but the income
from the sale or operation of the property may be subject to corporate income tax at the
highest applicable rate (currently 35%). |
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If we fail to satisfy the 75% gross income test or the 95% gross income test, as discussed
below, but nonetheless maintain our qualification as a REIT because other requirements are
met, we will be subject to a 100% tax on an amount equal to (i) the greater of (a) the amount
by which we fail the 75% gross income test or (b) the amount by which we fail the 95% gross
income test, as the case may be, multiplied by (ii) a fraction intended to reflect our
profitability. |
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If we fail to satisfy any of the REIT asset tests, as described below, other than a failure
of the 5% or 10% REIT asset tests that do not exceed a statutory de minimis amount as
described more fully below, but our failure is due to reasonable cause and not due to willful
neglect and we nonetheless maintain our REIT qualification because of specified cure
provisions, we will be required to pay a tax equal to the greater of $50,000 or the highest
corporate tax rate (currently 35%) of the net income generated by the nonqualifying assets
during the period in which we failed to satisfy the asset tests. |
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If we fail to satisfy any provision of the Internal Revenue Code that would result in our
failure to qualify as a REIT (other than a gross income or asset test requirement) and the
violation is due to reasonable cause, we may retain our REIT qualification but we will be
required to pay a penalty of $50,000 for each such failure. |
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If we fail to distribute during each calendar year at least the sum of (i) 85% of our REIT
ordinary income for such year, (ii) 95% of our REIT capital gain net income for such year and
(iii) any undistributed taxable income from prior periods (or the required distribution), we
will be subject to a 4% excise tax on the excess of the required distribution over the sum of
(a) the amounts actually distributed (taking into account excess distributions from prior
years), plus (b) retained amounts on which income tax is paid at the corporate level. |
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We may be required to pay monetary penalties to the IRS in certain circumstances, including
if we fail to meet record-keeping requirements intended to monitor our compliance with rules
relating to the composition of our stockholders, as described below in Requirements for
Qualification as a REIT. |
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A 100% excise tax may be imposed on some items of income and expense that are directly or
constructively paid between us and any taxable REIT subsidiaries (or TRSs) we may own if and
to the extent that the IRS successfully adjusts the reported amounts of these items. |
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If we acquire appreciated assets from a corporation that is not a REIT in a transaction in
which the adjusted tax basis of the assets in our hands is determined by reference to the
adjusted tax basis of the assets in the hands of the non-REIT corporation, we will be subject
to tax on such appreciation at the highest corporate income tax rate then applicable if we
subsequently recognize gain on a disposition of any such assets during the 10-year period
following their acquisition from the non-REIT corporation. The results described in this
paragraph assume that the non-REIT corporation will not elect, in lieu of this treatment, to
be subject to an immediate tax when the asset is acquired by us. |
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We will generally be subject to tax on the portion of any excess inclusion income derived
from an investment in residual interests in real estate mortgage investment conduits (or
REMICs) to the extent our stock is held by specified tax-exempt organizations not subject to
tax on unrelated business taxable income. To the extent that we own a REMIC residual interest
through a TRS, we will not be subject to this tax. For a discussion of excess inclusion
income, see Excess Inclusion Income. |
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We may elect to retain and pay income tax on our net long-term capital gain. In that case,
a stockholder would include its proportionate share of our undistributed long-term capital
gain (to the extent we make a timely designation of such gain to the stockholder) in its
income, would be deemed to have paid the tax that we paid on such gain, and would be allowed a
credit for its proportionate share of the tax deemed to have been paid, and an adjustment
would be made to increase the stockholders basis in our common stock. |
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We may have subsidiaries or own interests in other lower-tier entities that are subchapter
C corporations, the earnings of which could be subject to U.S. federal corporate income tax. |
In addition, we may be subject to a variety of taxes other than U.S. federal income tax,
including payroll taxes and state, local, and foreign income, franchise property and other taxes.
We could also be subject to tax in situations and on transactions not presently contemplated.
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Requirements for Qualification as a REIT
The Internal Revenue Code defines a REIT as a corporation, trust or association:
i. That is managed by one or more trustees or directors;
ii. the beneficial ownership of which is evidenced by transferable shares or by transferable
certificates of beneficial interest;
iii. that would be taxable as a domestic corporation but for the special Internal Revenue Code
provisions applicable to REITs;
iv. that is neither a financial institution nor an insurance company subject to specific
provisions of the Internal Revenue Code;
v. the beneficial ownership of which is held by 100 or more persons during at least 335 days
of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12
months;
vi. in which, during the last half of each taxable year, not more than 50% in value of the
outstanding stock is owned, directly or indirectly, by five or fewer individuals (as defined in
the Internal Revenue Code to include specified entities);
vii. which meets other tests described below, including with respect to the nature of its
income and assets and the amount of its distributions; and
viii. that makes an election to be a REIT for the current taxable year or has made such an
election for a previous taxable year that has not been terminated or revoked.
The Internal Revenue Code provides that conditions (i) through (iv) must be met during the
entire year. Conditions (v) and (vi) do not apply to the first taxable year for which an election
is made to be taxed as a REIT.
We believe that we currently satisfy conditions (i) through (viii) above. In addition, our
charter provides for restrictions regarding ownership and transfer of our common stock. These
restrictions are intended to assist us in satisfying the share ownership requirements described in
(v) and (vi) above. To maintain compliance with the share ownership requirements, we are generally
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, in
which the record holders are to disclose the actual owners of the shares (i.e., the persons
required to include in gross income the dividends paid by us). A list of those persons failing or
refusing to comply with this demand must be maintained as part of our records. Failure by us to
comply with these record-keeping requirements could subject us to monetary penalties. If we satisfy
these requirements and have no reason to know that condition (vi) is not satisfied, we will be
deemed to have satisfied such condition. A stockholder that fails or refuses to comply with the
demand is required by Treasury regulations to submit a statement with its tax return disclosing the
actual ownership of the shares and other information.
In addition, a corporation generally may not elect to become a REIT unless its taxable year is
the calendar year. We satisfy this requirement.
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Effect of Subsidiary Entities
Ownership of Partnership Interests
In the case of a REIT that is a partner in a partnership, Treasury regulations provide that
the REIT is deemed to own its proportionate share of the partnerships assets and to earn its
proportionate share of the partnerships gross income based on its pro rata share of capital
interests in the partnership for purposes of the asset and gross income tests applicable to REITs,
as described below. However, solely for purposes of the 10% value test, described below, the
determination of a REITs interest in partnership assets will be based on the REITs proportionate
interest in any securities issued by the partnership, excluding for these purposes, certain
excluded securities as described in the Internal Revenue Code. In addition, the assets and gross
income of the partnership generally are deemed to retain the same character in the hands of the
REIT. Thus, our proportionate share of the assets and items of income of partnerships in which we
own an equity interest is treated as assets and items of income of our company for purposes of
applying the REIT requirements described below. Consequently, to the extent that we directly or
indirectly hold a preferred or other equity interest in a partnership, the partnerships assets and
operations may affect our ability to qualify as a REIT, even though we may have no control or only
limited influence over the partnership.
Disregarded Subsidiaries
If a REIT owns a corporate subsidiary that is a qualified REIT subsidiary, that subsidiary
is disregarded for U.S. federal income tax purposes, and all assets, liabilities and items of
income, deduction and credit of the subsidiary are treated as assets, liabilities and items of
income, deduction and credit of the REIT itself, including for purposes of the gross income and
asset tests applicable to REITs, as summarized below. A qualified REIT subsidiary is any
corporation, other than a TRS, that is wholly-owned by a REIT, by other disregarded subsidiaries or
by a combination of the two. Single member limited liability companies that are wholly-owned by a
REIT are also generally disregarded as separate entities for U.S. federal income tax purposes,
including for purposes of the REIT gross income and asset tests. Disregarded subsidiaries, along
with partnerships in which we hold an equity interest, are sometimes referred to herein as
pass-through subsidiaries.
In the event that a disregarded subsidiary ceases to be wholly-owned by us (for example, if
any equity interest in the subsidiary is acquired by a person other than us or another disregarded
subsidiary of us), the subsidiarys separate existence would no longer be disregarded for U.S.
federal income tax purposes. Instead, it 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 tests applicable to
REITs, including the requirement that REITs generally may not own, directly or indirectly, more
than 10% of the value or voting power of the outstanding securities of another corporation. See
Asset Tests and Gross Income Tests.
Taxable REIT Subsidiaries
A REIT, in general, may jointly elect with a subsidiary corporation, whether or not
wholly-owned, to treat the subsidiary corporation as a TRS. The separate existence of a TRS or
other taxable corporation, unlike a disregarded subsidiary as discussed above, is not ignored for
U.S. federal income tax purposes. Accordingly, such an entity would generally be subject to
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 TRSs
ability to derive income from lodging and health care related properties is subject to certain
limitations under the Internal Revenue Code.
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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 parents
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). If dividends are paid to us by one or more TRSs we may own then a portion of the dividends
that we distribute to stockholders who are taxed at individual rates generally will be eligible for
taxation at preferential qualified dividend income tax rates rather than at ordinary income rates.
See Taxation of Taxable U.S. Stockholders and Annual Distribution Requirements.
Certain restrictions imposed on TRSs are intended to ensure that such entities will be subject
to appropriate levels of U.S. federal income taxation. First, a TRS may not deduct interest
payments made in any year to an affiliated REIT to the extent that such payments exceed, generally,
50% of the TRSs adjusted taxable income for that year (although the TRS may carry forward to, and
deduct in, a succeeding year the disallowed interest amount if the 50% test is satisfied in that
year). In addition, if amounts are paid to a REIT or deducted by a TRS due to transactions between
a REIT, its tenants and/or the TRS, that exceed the amount that would be paid to or deducted by a
party in an arms-length transaction, the REIT generally will be subject to an excise tax equal to
100% of such excess.
We had made a TRS election with respect to our ownership interest in Retirement Centers
Corporation (or RCC), which election was effective, for U.S. federal income tax purposes, as of
March 30, 2002. During the time RCC was our TRS, we and RCC engaged in certain transactions
pursuant to which RCC made interest and other payments to us. We believe that such transactions
were entered into at arms length. However, no assurance can be given that any such payments would
not result in the limitation on interest deductions or 100% excise tax provisions being applicable
to us and RCC. We, together with RCC, revoked RCCs election to be a TRS on January 2, 2003. As a
result, effective January 2, 2003, RCC became a qualified REIT subsidiary.
Gross Income Tests
In order to maintain our qualification as a REIT, we annually must satisfy two gross income
tests. First, at least 75% of our gross income for each taxable year, excluding gross income from
sales of inventory or dealer property in prohibited transactions, must be derived from
investments relating to real property or mortgages on real property, including rents from real
property, dividends received from and gains from the disposition of other shares of REITs,
interest income derived from mortgage loans secured by real property (including certain types of
MBS), and gains from the sale of real estate assets, as well as income from certain kinds of
temporary investments. Second, at least 95% of our gross income in each taxable year, excluding
gross income from prohibited transactions, must be derived from some combination of income that
qualifies under the 75% income test described above, as well as other dividends, interest, and gain
from the sale or disposition of stock or securities, which need not have any relation to real
property.
For purposes of the 75% and 95% gross income tests, a REIT is deemed to have earned a
proportionate share of the income earned by any partnership, or any limited liability company
treated as a partnership for U.S. federal income tax purposes, in which it owns an interest, which
share is determined by reference to its capital interest in such entity, and is deemed to have
earned the income earned by any qualified REIT subsidiary.
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Interest Income. Interest income constitutes qualifying mortgage interest for purposes of the
75% gross income test to the extent that the obligation is secured by a mortgage on real property.
If we receive interest income with respect to a mortgage loan that is secured by both real property
and other property and the highest principal amount of the loan outstanding during a taxable year
exceeds the fair market value of the real property on the date that we acquired the mortgage loan,
the interest income will be apportioned between the real property and the other property, and our
income from the arrangement will qualify for purposes of the 75% gross income test only to the
extent that the interest is allocable to the real property. Even if a loan is not secured by real
property or is undersecured, the income that it generates may nonetheless qualify for purposes of
the 95% gross income test.
To the extent that the terms of a loan provide for contingent interest that is based on the
cash proceeds realized upon the sale of the property securing the loan (or a shared appreciation
provision), income attributable to the participation feature will be treated as gain from sale of
the underlying property, which generally will be qualifying income for purposes of both the 75% and
95% gross income tests, provided that the property is not inventory or dealer property in the hands
of the borrower or us.
To the extent that we derive interest income from a loan where all or a portion of the amount
of interest payable is contingent, such income generally will qualify for purposes of the gross
income tests only if it is based upon the gross receipts or sales and not the net income or profits
of any person. This limitation does not apply, however, to a mortgage loan where the borrower
derives substantially all of its income from the property from the leasing of substantially all of
its interest in the property to tenants, to the extent that the rental income derived by the
borrower would qualify as rents from real property had it been earned directly by us.
Any amount includible in our gross income with respect to a regular or residual interest in a
REMIC generally is treated as interest on an obligation secured by a mortgage on real property. If,
however, less than 95% of the assets of a REMIC consists of real estate assets (determined as if we
held such assets), we will be treated as receiving directly our proportionate share of the income
of the REMIC.
We believe that the interest, original issue discount, and market discount income that we
receive from our mortgage related securities generally will be qualifying income for purposes of
both gross income tests. However, to the extent that we own non-REMIC collateralized mortgage
obligations or other debt instruments secured by mortgage loans (rather than by real property) or
secured by non-real estate assets, or debt securities that are not secured by mortgages on real
property or interests in real property, the interest income received with respect to such
securities generally will be qualifying income for purposes of the 95% gross income test, but not
the 75% gross income test. In addition, the loan amount of a mortgage loan that we own may exceed
the value of the real property securing the loan. In that case, a portion of the income from the
loan will be qualifying income for purposes of the 95% gross income test, but not the 75% gross
income test.
Dividend Income. We may indirectly receive distributions from TRSs or other corporations that
are not REITs or qualified REIT subsidiaries. These distributions will be classified as dividend
income to the extent of the earnings and profits of the distributing corporation. Such
distributions will generally constitute qualifying income for purposes of the 95% gross income
test, but not under the 75% gross income test. Any dividends received by us from a REIT will be
qualifying income in our hands for purposes of both the 95% and 75% gross income tests.
Foreign Investments. To the extent that we hold or acquire foreign investments, such as CMBS
denominated in foreign currencies, such investments may generate foreign currency gains and losses.
Foreign currency gains are generally treated as income that does not qualify under the 95% or 75%
gross income tests. However, in general, if foreign currency gain is recognized with respect to
income which
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otherwise qualifies for purposes of the 95% or 75% gross income tests, then such foreign
currency gain will not constitute gross income for either the 95% or 75% gross income tests,
respectively. No assurance can be given that any foreign currency gains recognized by us directly
or through pass-through subsidiaries will not adversely affect our ability to satisfy the REIT
qualification requirements.
Hedging Transactions. We may enter into hedging transactions with respect to one or more of
our assets or liabilities. Hedging transactions could take a variety of forms, including swaps,
caps, options, futures contracts, forward rate agreements or similar financial instruments. For our
taxable years ended prior to January 1, 2005, to the extent that we entered into hedging
transactions to reduce our interest rate risk on indebtedness incurred to acquire or carry real
estate assets, any income or gain from such hedging transactions should be qualifying income for
purposes of the 95% gross income test, but not the 75% gross income test. For taxable years
commencing with our taxable year ended December 31, 2005, except to the extent provided by Treasury
regulations, any income from a hedging transaction we enter into in the normal course of our
business primarily to manage risk of interest rate or price changes or currency fluctuations with
respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, to
acquire or carry real estate assets, which is clearly identified as specified in Treasury
regulations before the close of the day on which it was acquired, originated, or entered into,
including gain from the sale or disposition of such a transaction, will not constitute gross income
for purposes of the 95% gross income test (and will generally constitute non-qualifying income for
purposes of the 75% gross income test). Any income from a hedging transaction entered into after
July 30, 2008 in the normal course of our trade or business (i) primarily to manage risk of
interest rate or price changes or currency fluctuations with respect to borrowings made or to be
made, or ordinary obligations incurred or to be incurred by us to acquire or own real estate
assets, which is clearly identified as such before the close of the day on which it was acquired,
originated or entered into, and (ii) primarily to manage risk of currency fluctuations with respect
to any item of income or gain that would be qualifying income under the 75% or 95% income tests
which is clearly identified as such before the close of the day on which it was acquired,
originated, or entered into, including gain from the disposition of such a transaction, will not
constitute gross income for purposes of the 75% or 95% gross income test. To the extent that we
enter into other types of hedging transactions, the income from those transactions is likely to be
treated as non-qualifying income for purposes of both of the 75% and 95% gross income tests. We
intend to structure any hedging transactions in a manner that does not jeopardize our ability to
qualify as a REIT.
Rents from Real Property. To the extent that we own real property or interests therein, rents
we receive qualify as rents from real property in satisfying the gross income tests described
above, only if several conditions are met, including the following. If rent attributable to
personal property leased in connection with real property is greater than 15% of the total rent
received under any particular lease, then all of the rent attributable to such personal property
will not qualify as rents from real property. The determination of whether an item of personal
property constitutes real or personal property under the REIT provisions of the Internal Revenue
Code is subject to both legal and factual considerations and is therefore subject to different
interpretations.
In addition, in order for rents received by us to qualify as rents from real property, the
rent must not be based in whole or in part on the income or profits of any person. However, an
amount will not be excluded from rents from real property solely by being based on a fixed
percentage or percentages of sales or if it is based on the net income of a tenant which derives
substantially all of its income with respect to such property from subleasing of substantially all
of such property, to the extent that the rents paid by the subtenants would qualify as rents from
real property, if earned directly by us. Moreover, for rents received to qualify as rents from
real property, we generally must not operate or manage the property or furnish or render certain
services to the tenants of such property, other than through an independent contractor who is
adequately compensated and from which we derive no income or through a TRS. We are permitted,
however, to perform services that are usually or customarily rendered
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in connection with the rental of space for occupancy only and are not otherwise considered
rendered to the occupant of the property. In addition, we may directly or indirectly provide
non-customary services to tenants of our properties without disqualifying all of the rent from the
property if the payment for such services does not exceed 1% of the total gross income from the
property. In such a case, only the amounts for non-customary services are not treated as rents from
real property and the provision of the services does not disqualify the related rent.
Rental income will qualify as rents from real property only to the extent that we do not
directly or constructively own, (i) in the case of any tenant which is a corporation, stock
possessing 10% or more of the total combined voting power of all classes of stock entitled to vote,
or 10% or more of the total value of shares of all classes of stock of such tenant, or (ii) in the
case of any tenant which is not a corporation, an interest of 10% or more in the assets or net
profits of such tenant.
Failure to Satisfy the Gross Income Tests
We intend to monitor our sources of income, including any non-qualifying income received by
us, so as to ensure our compliance with the gross income tests. If we fail to satisfy one or both
of the 75% or 95% gross income tests for any taxable year, we may still qualify as a REIT for the
year if we are entitled to relief under applicable provisions of the Internal Revenue Code. These
relief provisions will generally be available if the failure of our company to meet these tests was
due to reasonable cause and not due to willful neglect and, following the identification of such
failure, we set forth a description of each item of our gross income that satisfies the gross
income tests in a schedule for the taxable year filed in accordance with the Treasury regulation.
It is not possible to state whether we would be entitled to the benefit of these relief provisions
in all circumstances. If these relief provisions are inapplicable to a particular set of
circumstances involving us, we will not qualify as a REIT. As discussed above under Taxation of
REITs in General, even where these relief provisions apply, a tax would be imposed upon the profit
attributable to the amount by which we fail to satisfy the particular gross income test.
Asset Tests
We, at the close of each calendar quarter, must also satisfy four tests relating to the nature
of our assets. First, at least 75% of the value of our total assets must be represented by some
combination of real estate assets, cash, cash items, U.S. government securities and, under some
circumstances, stock or debt instruments purchased with new capital. For this purpose, real estate
assets include interests in real property, such as land, buildings, leasehold interests in real
property, stock of other corporations that qualify as REITs and certain kinds of MBS and mortgage
loans. Regular or residual interest in REMICs are generally treated as a real estate asset. If,
however, less than 95% of the assets of a REMIC consists of real estate assets (determined as if we
held such assets), we will be treated as owning our proportionate share of the assets of the REMIC.
Assets that do not qualify for purposes of the 75% test are subject to the additional asset tests
described below. Second, the value of any one issuers securities owned by us may not exceed 5% of
the value of our gross assets. Third, we may not own more than 10% of any one issuers outstanding
securities, as measured by either voting power or value. Fourth, the aggregate value of all
securities of TRSs held by us may not exceed 25% (20% for our taxable years beginning prior to
January 1, 2009) of the value of our gross assets.
The 5% and 10% asset tests do not apply to securities of TRSs and qualified REIT subsidiaries.
The 10% value test does not apply to certain straight debt and other excluded securities, as
described in the Internal Revenue Code, including but not limited to any loan to an individual or
an estate, any obligation to pay rents from real property and any security issued by a REIT. In
addition, (i) a REITs interest as a partner in a partnership is not considered a security for
purposes of applying the 10% value test; (ii) any debt instrument issued by a partnership (other
than straight debt or other excluded security)
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will not be considered a security issued by the partnership if at least 75% of the
partnerships gross income is derived from sources that would qualify for the 75% REIT gross income
test; and (iii) any debt instrument issued by a partnership (other than straight debt or other
excluded security) will not be considered a security issued by the partnership to the extent of the
REITs interest as a partner in the partnership.
For purposes of the 10% value test, straight debt means a written unconditional promise to
pay on demand on a specified date a sum certain in money if (i) the debt is not convertible,
directly or indirectly, into stock, (ii) the interest rate and interest payment dates are not
contingent on profits, the borrowers discretion, or similar factors other than certain
contingencies relating to the timing and amount of principal and interest payments, as described in
the Internal Revenue Code and (iii) in the case of an issuer which is a corporation or a
partnership, securities that otherwise would be considered straight debt will not be so considered
if we, and any of our controlled taxable REIT subsidiaries as defined in the Internal Revenue
Code, if any, hold any securities of the corporate or partnership issuer which: (a) are not
straight debt or other excluded securities (prior to the application of this rule), and (b) have an
aggregate value greater than 1% of the issuers outstanding securities (including, for the purposes
of a partnership issuer, our interest as a partner in the partnership).
We currently own 100% of RCC. RCC elected to be taxed as a REIT for its taxable year ended
December 31, 2001 and jointly elected, together with us, to be treated as a TRS effective as of
March 30, 2002. On January 2, 2003, we, together with RCC, revoked RCCs election to be treated as
a TRS. As a result, effective January 2, 2003, RCC became a qualified REIT subsidiary. We believe
that RCC met all of the requirements for taxation as a REIT with respect to its taxable year ended
December 31, 2001 and as a TRS commencing as of March 30, 2002 through January 2, 2003; however,
the sections of the Internal Revenue Code that relate to qualification as a REIT are highly
technical and complex and there are certain requirements that must be met in order for RCC to have
qualified as a TRS effective March 30, 2002. Since RCC was, and we believe has been, subject to
taxation as a REIT or a TRS, as the case may be, at the close of each quarter of our taxable years
beginning with our taxable year ended December 31, 2001, until such time RCC became a qualified
REIT subsidiary, we believe that our ownership interest in RCC did not cause us to fail to satisfy
the 10% value test. In addition, we believe that we have at all times prior to October 1, 2002
owned less than 10% of the voting securities of RCC. No assurance, however, can be given that RCC
in fact qualified as a REIT for its taxable year ended December 31, 2001 or as a TRS as of March
30, 2002, that the non-voting preferred stock of RCC owned by us would not be deemed to be voting
stock for purposes of the asset tests or, as a result of any of the foregoing, that we have
qualified or will continue to qualify as a REIT.
After initially meeting the asset tests at the close of any quarter, we will not lose our
qualification as a REIT for failure to satisfy the asset tests at the end of a later quarter solely
by reason of changes in asset values. If we fail to satisfy the asset tests because we acquire
securities during a quarter, we can cure this failure by disposing of sufficient non-qualifying
assets within 30 days after the close of that quarter. If we fail the 5% asset test, or the 10%
vote or value asset tests at the end of any quarter and such failure is not cured within 30 days
thereafter, we may dispose of sufficient assets (generally within six months after the last day of
the quarter in which our identification of the failure to satisfy these asset tests occurred) to
cure such a violation that does not exceed the lesser of 1% of our assets at the end of the
relevant quarter or $10,000,000. If we fail any of the other asset tests or our failure of the 5%
and 10% asset tests is in excess of the de minimis amount described above, as long as such failure
was due to reasonable cause and not willful neglect, we are permitted to avoid disqualification as
a REIT, after the 30-day cure period, by taking steps including the disposition of sufficient
assets to meet the asset test (generally within six months after the last day of the quarter in
which our identification of the failure to satisfy the REIT asset test occurred) and paying a tax
equal to the greater of $50,000 or the highest
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corporate income tax rate (currently 35%) of the net income generated by the non-qualifying
assets during the period in which we failed to satisfy the asset test.
We expect that the assets and mortgage related securities that we own generally will be
qualifying assets for purposes of the 75% asset test. We believe that our holdings of securities
and other assets will be structured in a manner that will comply with the foregoing REIT asset
requirements and intend to monitor compliance on an ongoing basis. Moreover, values of some assets
may not be susceptible to a precise determination and are subject to change in the future.
Furthermore, the proper classification of an instrument as debt or equity for U.S. federal income
tax purposes may be uncertain in some circumstances, which could affect the application of the REIT
asset tests. Accordingly, there can be no assurance that the IRS will not contend that our
interests in subsidiaries or in the securities of other issuers (including REIT issuers) cause a
violation of the REIT asset tests.
In addition, we have entered into and we intend to continue to enter into repurchase
agreements under which we nominally sell certain of our assets to a counterparty and simultaneously
enter into an agreement to repurchase the sold assets. We believe that we have been and will
continue to be treated for U.S. federal income tax purposes as the owner of the assets that are the
subject of any such agreement notwithstanding that we may transfer record ownership of the assets
to the counterparty during the term of the agreement. It is possible, however, that the IRS could
assert that we did not own the assets during the term of the repurchase agreement, in which case we
could fail to qualify as a REIT.
Annual Distribution Requirements
In order 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:
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90% of our REIT taxable income (computed without regard to our deduction for
dividends paid and our net capital gains); and |
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90% of the net income (after tax), if any, from foreclosure property (as described
below); minus |
(b) the sum of specified items of non-cash income that exceeds a percentage of our income.
These distributions must be paid in the taxable year to which they relate or in the following
taxable year if such distributions are declared in October, November or December of the taxable
year, are payable to stockholders of record on a specified date in any such month and are actually
paid before the end of January of the following year. Such distributions are treated as both paid
by us and received by each stockholder on December 31 of the year in which they are declared. In
addition, at our election, a distribution for a taxable year may be declared before we timely file
our tax return for the year and be paid with or before the first regular dividend payment after
such declaration, provided that such payment is made during the 12-month period following the close
of such taxable year. These distributions are taxable to our stockholders in the year in which
paid, even though the distributions relate to our prior taxable year for purposes of the 90%
distribution requirement.
In order for distributions to be counted towards our distribution requirement and to give rise
to a tax deduction by us, they must not be preferential dividends. A dividend is not a
preferential dividend if it is pro rata among all outstanding shares of stock within a particular
class and is in accordance with the preferences among different classes of stock as set forth in
the organizational documents.
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To the extent that we distribute at least 90%, but less than 100%, of our REIT taxable
income, as adjusted, we will be subject to tax at ordinary corporate tax rates on the retained
portion. In addition, we may elect to retain, rather than distribute, our net long-term capital
gains and pay tax on such gains. In this case, we could elect to have our stockholders include
their proportionate share of such undistributed long-term capital gains in income and receive a
corresponding credit for their proportionate share of the tax paid by us. Our stockholders would
then increase the adjusted basis of their stock in us by the difference between the designated
amounts included in their long-term capital gains and the tax deemed paid with respect to their
proportionate shares.
If we fail to distribute during each calendar year at least the sum of (i) 85% of our REIT
ordinary income for such year, (ii) 95% of our REIT capital gain net income for such year and (iii)
any undistributed taxable income from prior periods, we will be subject to a 4% excise tax on the
excess of such required distribution over the sum of (x) the amounts actually distributed (taking
into account excess distributions from prior periods) and (y) the amounts of income retained on
which we have paid corporate income tax. We intend to make timely distributions so that we are not
subject to the 4% excise tax.
It is possible that we, from time to time, may not have sufficient cash to meet the
distribution requirements due to timing differences between (i) the actual receipt of cash and (ii)
the inclusion of items in income by us for U.S. federal income tax purposes. In the event that such
timing differences occur, in order to meet the distribution requirements, it might be necessary to
arrange for short-term, or possibly long-term, borrowings or to pay dividends in the form of
taxable in-kind distributions of property.
We may be able to rectify a failure to meet the distribution requirements 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. In this case, we may be able to avoid losing our qualification
as a REIT or being taxed on amounts distributed as deficiency dividends. However, we will be
required to pay interest and a penalty based on the amount of any deduction taken for deficiency
dividends.
Recordkeeping Requirements
We are required to maintain records and request on an annual basis information from specified
stockholders. These requirements are designed to assist us in determining the actual ownership of
our outstanding stock and maintaining our qualification as a REIT.
Excess Inclusion Income
If we acquire a residual interest in a REMIC, we may realize excess inclusion income. If we
are deemed to have issued debt obligations having two or more maturities, the payments on which
correspond to payments on mortgage loans owned by us, such arrangement will be treated as a taxable
mortgage pool for U.S. federal income tax purposes and, as a result, we may also realize excess
inclusion income. If all or a portion of our company is treated as a taxable mortgage pool or we
own a residual interest in a REMIC, our qualification as a REIT generally should not be impaired;
however, a portion of our REIT taxable income may be characterized as excess inclusion income and
allocated to our stockholders. Any excess inclusion income:
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could not be offset by net operating losses of a stockholder; |
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in the case of a stockholder that is a REIT, a RIC, a common trust fund or other
pass-through entity, would be considered excess inclusion income of such entity and such
entity will be subject to tax at the highest corporate tax rate on any excess inclusion income
allocated to their owners that are disqualified organizations; |
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would be subject to tax as unrelated business taxable income to a tax-exempt holder; |
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would be subject to the application of U.S. federal income tax withholding (without
reduction pursuant to any otherwise applicable income tax treaty) with respect to amounts
allocable to non-U.S. stockholders; and |
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would be taxable (at the highest corporate tax rates) to us, rather than our stockholders,
to the extent allocable to our stock held in record name by disqualified organizations
(generally, tax-exempt entities not subject to unrelated business income tax, including
governmental organizations). Nominees or other broker/dealers who hold our stock on behalf of
disqualified organizations are subject to this tax on the portion of our excess inclusion
income allocable to the common stock held on behalf of disqualified organizations. |
The manner in which excess inclusion income would be allocated among shares of different
classes of stock is not clear under the current law. Tax-exempt investors, RIC or REIT investors,
foreign investors, and taxpayers with net operating losses should consult with their tax advisors
with respect to excessive inclusion income.
Prohibited Transactions
Net income derived from a prohibited transaction is subject to a 100% 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 by a REIT, by a lower-tier partnership in which the REIT holds an equity interest
or by a borrower that has issued a shared appreciation mortgage or similar debt instrument to the
REIT. We intend to conduct our operations so that no asset owned by us or our pass-through
subsidiaries will be held for sale to customers, and that a sale of any assets owned by us directly
or through a pass-through subsidiary will not be in the ordinary course of business. However,
whether property is held primarily for sale to customers in the ordinary course of a trade or
business depends on the particular facts and circumstances. No assurance can be given that any
particular asset in which we hold a direct or indirect interest will not be treated as property
held for sale to customers or that certain safe-harbor provisions of the Internal Revenue Code that
prevent such treatment will apply. The 100% tax will 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 corporate income tax rates.
Foreclosure Property
Foreclosure
property is real property and any personal property incidental to such real property
(i) that is acquired by a REIT as a result of the REIT having bid on the 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 the 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. REITs generally are subject
to tax at the maximum corporate rate (currently 35%) on any net income from foreclosure property,
including any gain from the disposition of the foreclosure property, other than income that would
otherwise be qualifying income for purposes of the 75% gross income test. Any gain from the sale of
property for which a foreclosure property election has been made will not be subject to the 100%
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 do not anticipate that
we will receive any income from foreclosure property that is not
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qualifying income for purposes of the 75% gross income test, but, if we do receive any such
income, we intend to elect to treat the related property as foreclosure property.
Failure to Qualify
In the event that we violate a provision of the Internal Revenue Code that would result in our
failure to qualify as a REIT, specified relief provisions will be available to us to avoid such
disqualification if (i) the violation is due to reasonable cause and not due to willful neglect,
(ii) we pay a penalty of $50,000 for each failure to satisfy the provision and (iii) the violation
does not include a violation under the gross income or asset tests described above (for which other
specified relief provisions are available). This cure provision reduces the instances that could
lead to our disqualification as a REIT for violations due to reasonable cause. If we fail to
qualify for taxation as a REIT in any taxable year and none of the relief provisions of the
Internal Revenue Code apply, we will be subject to tax, including any applicable alternative
minimum tax, on our taxable income at regular corporate rates. Distributions to our stockholders in
any year in which we are not a REIT will not be deductible by us, nor will they be required to be
made. In this situation, to the extent of current and accumulated earnings and profits, and,
subject to limitations of the Internal Revenue Code, distributions to our stockholders will
generally be taxable in the case of our stockholders who are individual U.S. stockholders (as
defined below), at a maximum rate of 15%, and dividends in the hands of our corporate U.S.
stockholders may be eligible for the dividends received deduction. Unless we are entitled to relief
under the specific statutory provisions, we will also be disqualified from re-electing to be taxed
as a REIT for the four taxable years following a year during which qualification was lost. It is
not possible to state whether, in all circumstances, we will be entitled to statutory relief.
Taxation of Taxable U.S. Stockholders
This section summarizes the taxation of U.S. stockholders that are not tax-exempt
organizations. For these purposes, a U.S. stockholder is a beneficial owner of our common stock
that for U.S. federal income tax purposes is:
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a citizen or resident of the U.S.; |
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a corporation (including an entity treated as a corporation for U.S. federal income tax
purposes) created or organized in or under the laws of the U.S. or of a political subdivision
thereof (including the District of Columbia); |
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an estate whose income is subject to U.S. federal income taxation regardless of its source;
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any trust if (i) a U.S. court is able to exercise primary supervision over the
administration of such trust and one or more U.S. persons have the authority to control all
substantial decisions of the trust or (ii) it has a valid election in place to be treated as a
U.S. person. |
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes
holds our common stock, the U.S. federal income tax treatment of a partner generally will depend
upon the status of the partner and the activities of the partnership. A partner of a partnership
holding our common stock should consult its own tax advisor regarding the U.S. federal income tax
consequences to the partner of the acquisition, ownership and disposition of our stock by the
partnership.
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Distributions
Provided that we qualify as a REIT, distributions made to our taxable U.S. stockholders out of
our current and accumulated earnings and profits, and not designated as capital gain dividends,
will generally be taken into account by them as ordinary dividend income and will not be eligible
for the dividends received deduction for corporations. In determining the extent to which a
distribution with respect to our common stock constitutes a dividend for U.S. federal income tax
purposes, our earnings and profits will be allocated first to distributions with respect to our
preferred stock, if any, and then to our common stock. Dividends received from REITs are generally
not eligible to be taxed at the preferential qualified dividend income rates applicable to
individual U.S. stockholders who receive dividends from taxable subchapter C corporations.
In addition, distributions from us that are designated as capital gain dividends will be taxed
to U.S. stockholders as long-term capital gains, to the extent that they do not exceed the actual
net capital gain of our company for the taxable year, without regard to the period for which the
U.S. stockholder has held its stock. To the extent that we elect under the applicable provisions of
the Internal Revenue Code to retain our net capital gains, U.S. stockholders will be treated as
having received, for U.S. federal income tax purposes, our undistributed capital gains as well as a
corresponding credit for taxes paid by us on such retained capital gains. U.S. stockholders will
increase their adjusted tax basis in our common stock by the difference between their allocable
share of such retained capital gain and their share of the tax paid by us. Corporate U.S.
stockholders may be required to treat up to 20% of some 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 U.S. stockholders who are individuals, and 35% for corporations. Capital gains attributable
to the sale of depreciable real property held for more than 12 months are subject to a 25% maximum
U.S. federal income tax rate for individual U.S. stockholders who are individuals, to the extent of
previously claimed depreciation deductions.
Distributions in excess of our current and accumulated earnings and profits will not be
taxable to a U.S. stockholder to the extent that they do not exceed the adjusted tax basis of the
U.S. stockholders shares in respect of which the distributions were made, but rather will reduce
the adjusted tax basis of these shares. To the extent that such distributions exceed the adjusted
tax basis of an individual U.S. stockholders shares, they will be included in income as long-term
capital gain, or short-term capital gain if the shares have been held for one year or less. In
addition, any dividend declared by us in October, November or December of any year and payable to a
U.S. stockholder of record on a specified date in any such month will be treated as both paid by us
and received by the U.S. stockholder on December 31 of such year, provided that the dividend is
actually paid by us before the end of January of the following calendar year.
With respect to U.S. stockholders who are taxed at the rates applicable to individuals, we may
elect to designate a portion of our distributions paid to such U.S. stockholders as qualified
dividend income. A portion of a distribution that is properly designated as qualified dividend
income is taxable to non-corporate U.S. stockholders as capital gain, provided that the U.S.
stockholder has held the common stock with respect to which the distribution is made for more than
60 days during the 121-day period beginning on the date that is 60 days before the date on which
such common stock became ex-dividend with respect to the relevant distribution. The maximum amount
of our distributions eligible to be designated as qualified dividend income for a taxable year is
equal to the sum of:
(a) the qualified dividend income received by us during such taxable year from non-REIT C
corporations (including any TRS in which we may own an interest);
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(b) the excess of any undistributed REIT taxable income recognized during the immediately
preceding year over the U.S. federal income tax paid by us with respect to such undistributed REIT
taxable income; and
(c) the excess of any income recognized during the immediately preceding year attributable to
the sale of a built-in-gain asset that was acquired in a carry-over basis transaction from a
non-REIT C corporation over the U.S. federal income tax paid by us with respect to such built-in
gain.
Generally, dividends that we receive will be treated as qualified dividend income for purposes
of (a) above if the dividends are received from a domestic C corporation (other than a REIT or a
RIC), any TRS we may form, or a qualifying foreign corporation and specified holding period
requirements and other requirements are met.
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 must be made in order
to comply with the REIT distribution requirements. See Taxation of Our Company General and
Annual Distribution Requirements. Such losses, however, are not passed through to U.S.
stockholders and do not offset income of U.S. stockholders from other sources, nor do they affect
the character of any distributions that are actually made by us, which are generally subject to tax
in the hands of U.S. stockholders to the extent that we have current or accumulated earnings and
profits.
Dispositions of Our Common Stock
In general, a U.S. stockholder will realize gain or loss upon the sale, redemption or other
taxable disposition of our common stock in an amount equal to the difference between the sum of the
fair market value of any property and the amount of cash received in such disposition and the U.S.
stockholders adjusted tax basis in the common stock at the time of the disposition. In general, a
U.S. stockholders adjusted tax basis will equal the U.S. stockholders acquisition cost, increased
by the excess of net capital gains deemed distributed to the U.S. stockholder (discussed above)
less tax deemed paid on it and reduced by returns of capital. In general, capital gains recognized
by individuals and other non-corporate U.S. stockholders upon the sale or disposition of shares of
our common stock will be subject to a maximum U.S. federal income tax rate of 15% for taxable years
through 2010, if our common stock is held for more than 12 months, and will be taxed at ordinary
income rates (of up to 35% through 2010) if our common stock is held for 12 months or less. Gains
recognized by U.S. stockholders that are corporations are subject to U.S. federal income tax at a
maximum rate of 35%, whether or not classified as long-term capital gains. The IRS has the
authority to prescribe, but has not yet prescribed, regulations that would apply a capital gain tax
rate of 25% (which is generally higher than the long-term capital gain tax rates for non-corporate
holders) to a portion of capital gain realized by a non-corporate holder on the sale of REIT stock
or depositary shares that would correspond to the REITs unrecaptured Section 1250 gain.
U.S. stockholders are advised to consult with their tax advisors with respect to their capital
gain tax liability. Capital losses recognized by a U.S. stockholder upon the disposition of our
common stock held for more than one year at the time of disposition will be considered long-term
capital losses, and are generally available only to offset capital gain income of the U.S.
stockholder but not ordinary income (except in the case of individuals, who may offset up to $3,000
of ordinary income each year). In addition, any loss upon a sale or exchange of shares of our
common stock by a U.S. stockholder who has held the shares for six months or less, after applying
holding period rules, will be treated as a long-term capital loss to the extent of distributions
received from us that were required to be treated by the U.S. stockholder as long-term capital
gain.
39
Passive Activity Losses and Investment Interest Limitations
Distributions made by us and gain arising from the sale or exchange by a U.S. stockholder of
our common stock will not be treated as passive activity income. As a result, U.S. stockholders
will not be able to apply any passive losses against income or gain relating to our common stock.
Distributions made by us, to the extent they do not constitute a return of capital, generally will
be treated as investment income for purposes of computing the investment interest limitation. A
U.S. stockholder that elects to treat capital gain dividends, capital gains from the disposition of
stock or qualified dividend income as investment income for purposes of the investment interest
limitation will be taxed at ordinary income rates on such amounts.
Taxation of Tax-Exempt U.S. Stockholders
U.S. tax-exempt entities, including qualified employee pension and profit sharing trusts and
individual retirement accounts, generally are exempt from U.S. federal income taxation. However,
they are subject to taxation on their unrelated business taxable income, which we refer to in this
prospectus as UBTI. While many investments in real estate may generate UBTI, the IRS has ruled that
dividend distributions from a REIT to a tax-exempt entity do not constitute UBTI. Based on that
ruling, and provided that (i) a tax-exempt U.S. stockholder has not held our common stock as debt
financed property within the meaning of the Internal Revenue Code (i.e., where the acquisition or
holding of the property is financed through a borrowing by the tax-exempt stockholder), (ii) our
common stock is not otherwise used in an unrelated trade or business and (iii) we do not hold an
asset that gives rise to excess inclusion income (see Effect of Subsidiary Entities, and
Excess Inclusion Income), distributions from us and income from the sale of our common stock
generally should not give rise to UBTI to a tax-exempt U.S. stockholder.
Tax-exempt U.S. stockholders that are social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts, and qualified group legal services plans exempt from U.S.
federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal
Revenue Code, respectively, are subject to different UBTI rules, which generally will require them
to characterize distributions from us as UBTI.
In certain circumstances, a pension trust (i) that is described in Section 401(a) of the
Internal Revenue Code, (ii) that is tax exempt under Section 501(a) of the Internal Revenue Code, and
(iii) that owns more than 10% of our stock could be required to treat a percentage of the dividends
from us as UBTI if we are a pension-held REIT. We will not be a pension-held REIT unless (i)
either (a) one pension trust owns more than 25% of the value of our stock, or (b) a group of
pension trusts, each individually holding more than 10% of the value of our stock, collectively
owns more than 50% of such stock; and (ii) we would not have qualified as a REIT but for the fact
that Section 856(h)(3) of the Internal Revenue Code provides that stock owned by such trusts shall
be treated, for purposes of the requirement that not more than 50% of the value of the outstanding
stock of a REIT is owned, directly or indirectly, by five or fewer individuals (as defined in the
Internal Revenue Code to include certain entities), as owned by the beneficiaries of such trusts.
Certain restrictions on ownership and transfer of our stock should generally prevent a tax-exempt
entity from owning more than 10% of the value of our stock, or us from becoming a pension-held
REIT.
Tax-exempt U.S. stockholders are urged to consult their tax advisors regarding the U.S.
federal, state, local and foreign tax consequences of owning our stock.
40
Taxation of Non-U.S. Stockholders
The following is a summary of certain U.S. federal income tax consequences of the acquisition,
ownership and disposition of our common stock applicable to non-U.S. stockholders of our common
stock. For purposes of this summary, a non-U.S. stockholder is a beneficial owner of our common
stock that is not a U.S. stockholder or an entity that is treated as a partnership for U.S. federal
income tax purposes. The discussion is based on current law and is for general information only. It
addresses only selective and not all aspects of U.S. federal income taxation.
Ordinary Dividends
The portion of dividends received by non-U.S. stockholders payable out of our earnings and
profits that are not attributable to gains from sales or exchanges of U.S. real property interests
and which are not effectively connected with a U.S. trade or business of the non-U.S. stockholder
will generally be subject to U.S. federal withholding tax at the rate of 30%, unless reduced or
eliminated by an applicable income tax treaty. Under some treaties, however, lower rates generally
applicable to dividends do not apply to dividends from REITs. In addition, any portion of the
dividends paid to non-U.S. stockholders that are treated as excess inclusion income will not be
eligible for exemption from the 30% withholding tax or a reduced treaty rate.
In general, non-U.S. stockholders will not be considered to be engaged in a U.S. trade or
business solely as a result of their ownership of our stock. In cases where the dividend income
from a non-U.S. stockholders investment in our common stock is, or is treated as, effectively
connected with the non-U.S. stockholders conduct of a U.S. trade or business, the non-U.S.
stockholder generally will be subject to U.S. federal income tax at graduated rates, in the same
manner as U.S. stockholders are taxed with respect to such dividends, and may also be subject to
the 30% branch profits tax on the income after the application of the income tax in the case of a
non-U.S. stockholder that is a corporation.
Non-Dividend Distributions
Unless (i) our common stock constitutes a U.S. real property interest (or USRPI) or (ii)
either (a) if the non-U.S. stockholders investment in our common stock is effectively connected
with a U.S. trade or business conducted by such non-U.S. stockholder (in which case the non-U.S.
stockholder will be subject to the same treatment as U.S. stockholders with respect to such gain)
or (b) if the non-U.S. stockholder is a nonresident alien individual who was present in the U.S.
for 183 days or more during the taxable year and has a tax home in the U.S. (in which case the
non-U.S. stockholder will be subject to a 30% tax on the individuals net capital gain for the
year), distributions by us which are not dividends out of our earnings and profits will not be
subject to U.S. federal income tax. If it cannot be determined at the time at which a distribution
is made whether or not the distribution will exceed current and accumulated earnings and profits,
the distribution will be subject to withholding at the rate applicable to dividends. However, the
non-U.S. stockholder may seek a refund from the IRS of any amounts withheld if it is subsequently
determined that the distribution was, in fact, in excess of our current and accumulated earnings
and profits. If our common stock constitutes a USRPI, as described below, distributions by us in
excess of the sum of our earnings and profits plus the non-U.S. stockholders adjusted tax basis in
our common stock will be taxed under the Foreign Investment in Real Property Tax Act of 1980 (or
FIRPTA) at the rate of tax, including any applicable capital gains rates, that would apply to a
U.S. stockholder of the same type (e.g., an individual or a corporation, as the case may be), and
the collection of the tax will be enforced by a refundable withholding at a rate of 10% of the
amount by which the distribution exceeds the stockholders share of our earnings and profits.
41
Capital Gain Dividends
Under FIRPTA, a distribution made by us to a non-U.S. stockholder, to the extent attributable
to gains from dispositions of USRPIs held by us directly or through pass-through subsidiaries (or
USRPI capital gains), will be considered effectively connected with a U.S. trade or business of the
non-U.S. stockholder and will be subject to U.S. federal income tax at the rates applicable to U.S.
stockholders, without regard to whether the distribution is designated as a capital gain dividend.
In addition, we will be required to withhold tax equal to 35% of the amount of capital gain
dividends to the extent the dividends constitute USRPI capital gains. Distributions subject to
FIRPTA may also be subject to a 30% branch profits tax in the hands of a non-U.S. Stockholder that
is a corporation. However, the 35% withholding tax will not apply to any capital gain dividend with
respect to any class of our stock which is regularly traded on an established securities market
located in the U.S. if the non-U.S. stockholder did not own more than 5% of such class of stock at
any time during the taxable year. Instead any capital gain dividend will be treated as a
distribution subject to the rules discussed above under Taxation of Non-U.S. Stockholders
Ordinary Dividends. Also, the branch profits tax will not apply to such a distribution. A
distribution is not a USRPI capital gain if we held the underlying asset solely as a creditor,
although the holding of a shared appreciation mortgage loan would not be solely as a creditor.
Capital gain dividends received by a non-U.S. stockholder from a REIT that are not USRPI capital
gains are generally not subject to U.S. federal income or withholding tax, unless either (i) if the
non-U.S. stockholders investment in our common stock is effectively connected with a U.S. trade or
business conducted by such non-U.S. stockholder (in which case the non-U.S. stockholder will be
subject to the same treatment as U.S. stockholders with respect to such gain) or (ii) if the
non-U.S. stockholder is a nonresident alien individual who was present in the U.S. for 183 days or
more during the taxable year and has a tax home in the U.S. (in which case the non-U.S.
stockholder will be subject to a 30% tax on the individuals net capital gain for the year).
Dispositions of Our Common Stock
Unless our common stock constitutes a USRPI, a sale of the stock by a non-U.S. stockholder
generally will not be subject to U.S. federal income taxation under FIRPTA. The stock will not be
treated as a USRPI if less than 50% of our assets throughout a prescribed testing period consist of
interests in real property located within the U.S., excluding, for this purpose, interests in real
property solely in a capacity as a creditor. We do not expect that more than 50% of our assets will
consist of interests in real property located in the U.S.
In addition, our common 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 outstanding stock is held directly or indirectly by non-U.S.
stockholders. We believe we are, and we expect to continue to be, a domestically controlled REIT
and, therefore, the sale of our common stock should not be subject to taxation under FIRPTA.
However, because our stock is widely held, we cannot assure our investors that we are or will
remain a domestically controlled REIT. Even if we do not qualify as a domestically controlled REIT,
a non-U.S. stockholders sale of our common stock nonetheless will generally not be subject to tax
under FIRPTA as a sale of a USRPI, provided that (a) our common stock owned is of a class that is
regularly traded, as defined by the applicable Treasury regulation, on an established securities
market, and (b) the selling non-U.S. stockholder owned, actually or constructively, 5% or less of
our outstanding stock of that class at all times during a specified testing period.
If gain on the sale of our common stock were subject to taxation under FIRPTA, the non-U.S.
stockholder would be subject to the same treatment as a U.S. stockholder with respect to such gain,
subject to applicable alternative minimum tax and a special alternative minimum tax in the case of
42
non-resident alien individuals, and the purchaser of the stock could be required to withhold
10% of the purchase price and remit such amount to the IRS.
Gain from the sale of our common stock that would not otherwise be subject to FIRPTA will
nonetheless be taxable in the U.S. to a non-U.S. stockholder in two cases: (i) if the non-U.S.
stockholders investment in our common stock is effectively connected with a U.S. trade or business
conducted by such non-U.S. stockholder, the non-U.S. stockholder will be subject to the same
treatment as a U.S. stockholder with respect to such gain, or (ii) if the non-U.S. stockholder is a
nonresident alien individual who was present in the U.S. for 183 days or more during the taxable
year and has a tax home in the U.S., the nonresident alien individual will be subject to a 30%
tax on the individuals capital gain.
Tax Consequences of Participation in the Plan
General
We
plan to offer stockholders and prospective stockholders the opportunity to participate in
the Plan. All shares of our common stock acquired from us or in the open market pursuant to the
Plan may be acquired at a discount as determined an set by us from time to time, ranging from 0% to
5%.
Amounts Treated as a Distribution
Generally, a Plan participant will be treated as having received a distribution with respect
to our common stock for U.S. federal income tax purposes in an amount determined as described
below.
|
|
A stockholder who participates in the dividend reinvestment feature of the Plan and whose
dividends are reinvested in our common stock purchased from us will be treated for U.S.
federal income tax purposes as having received a distribution from us with respect to our
common stock equal to the fair market value of our common stock credited to the stockholders
Plan account on the date the dividends are reinvested. The amount of the distribution deemed
received (and that will be reported on the Form 1099-DIV received by the stockholder) may
exceed the amount of the cash dividend that was reinvested, due to a discount being offered on
the purchase price of the common stock purchased. |
|
|
A stockholder who participates in the dividend reinvestment feature of the Plan and whose
dividends are reinvested in our common stock purchased in the open market, will be treated for
U.S. federal income tax purposes as having received (and will receive a Form 1099-DIV
reporting) a distribution from us with respect to its stock equal to the fair market value of
our stock credited to the stockholders Plan account (plus any brokerage fees and any other
expenses deducted from the amount of the distribution reinvested) on the date the dividends
are reinvested. If we offer a discount on our common stock purchased on the open market in the
future, the amount of the distribution the stockholder will be treated as receiving (and that
will be reported on the Form 1099-DIV received by the stockholder) may exceed the cash
distribution reinvested as a result of any such discount. |
|
|
A stockholder who participates in both the dividend reinvestment feature and the optional
cash purchase feature of the Plan and who purchases our stock through the cash investment
feature of the Plan will be treated for U.S. federal income tax purposes as having received a
distribution from us with respect to its stock equal to the fair market value of our stock
credited to the stockholders Plan account on the date the
stock is purchased less the amount
paid by the stockholder for our common stock (plus any brokerage fees and any other expenses
paid by the stockholder). |
43
|
|
A stockholder who participates in the cash purchase feature of the Plan will not be treated
as receiving a distribution from us if no discount is offered. |
|
|
Newly enrolled participants who are making their initial investment in our common stock
through the Plans cash purchase feature and therefore are not currently our stockholders
should not be treated as receiving a distribution from us, even if a discount is offered. |
|
|
Although the tax treatment with respect to a stockholder who participates only in the cash
investment feature of the Plan and does not participate in the dividend reinvestment feature
of the Plan is not entirely clear, we will report any discount offered as a distribution to
that stockholder on Form 1099-DIV. Stockholders are urged to consult with their tax advisor
regarding the tax treatment to them of receiving a discount on cash purchases in our stock
made through the Plan. |
In the situations described above, a stockholder will be treated as receiving a distribution
from us even though no cash distribution is actually received. These distributions will be taxable
in the same manner as all other distributions paid by us, as described above under Taxation of
Taxable U.S. Stockholders, Taxation of Tax-Exempt Stockholders, or Taxation of Non-U.S.
Stockholders, as applicable.
Basis and Holding Period in Stock Acquired Pursuant to the Plan. The tax basis for our common
stock acquired by reinvesting cash distributions through the Plan generally will equal the fair
market value of our common stock on the date of distribution (plus the amount of any brokerage fees
paid by the stockholder). Accordingly, if we offer a discount on the purchase price of our common
stock purchased with reinvested cash distributions, the tax basis in our common stock would include
the amount of any discount. The holding period for our common stock acquired by reinvesting cash
distributions will begin on the day following the date of distribution.
The tax basis in our common stock acquired through an optional cash purchase generally will
equal the cost paid by the participant in acquiring our stock, including any brokerage fees paid by
the stockholder. If we offer a discount on the purchase price of our stock purchased by making an
optional cash purchase, then the tax basis in those shares of stock also would include any amounts
taxed as a dividend. The holding period for our common stock purchased through the optional cash
purchase feature of the Plan generally will begin on the day our stock is purchased for the
participants account.
Withdrawal of Stock from the Plan. When a participant withdraws stock from the Plan and
receives whole stock, the participant will not realize any taxable income. However, if the
participant receives cash for a fractional share, the participant will be required to recognize
gain or loss with respect to that fractional share.
Effect of Withholding Requirements. Withholding requirements generally applicable to
distributions from us will apply to all amounts treated as distributions pursuant to the Plan. See
Backup Withholding and Information Reporting for discussion of the withholding requirements
that apply to other distributions that we pay. All withholding amounts will be withheld from
distributions before the distributions are reinvested under the Plan. Therefore, if a U.S.
stockholder is subject to withholding, distributions which would otherwise be available for
reinvestment under the Plan will be reduced by the withholding amount.
Backup Withholding and Information Reporting
We will report to our U.S. stockholders and the IRS the amount of dividends paid during each
calendar year and the amount of any tax withheld. Under the backup withholding rules, a U.S.
stockholder
44
may be subject to backup withholding with respect to dividends paid unless the holder is a
corporation or comes within other exempt categories and, when required, demonstrates this fact or
provides a taxpayer identification number or social security number, certifies as to no loss of
exemption from backup withholding and otherwise complies with applicable requirements of the backup
withholding rules. A U.S. stockholder that does not provide his or her correct taxpayer
identification number or social security number may also be subject to penalties imposed by the
IRS. Backup withholding is not an additional tax. In addition, we may be required to withhold a
portion of capital gain distribution to any U.S. stockholder who fails to certify their non-foreign
status.
We must report annually to the IRS and to each non-U.S. stockholder the amount of dividends
paid to such holder and the tax withheld with respect to such dividends, regardless of whether
withholding was required. Copies of the information returns reporting such dividends and
withholding may also be made available to the tax authorities in the country in which the non-U.S.
stockholder resides under the provisions of an applicable income tax treaty. A non-U.S. stockholder
may be subject to backup withholding unless applicable certification requirements are met.
Payment of the proceeds of a sale of our common stock within the U.S. is subject to both
backup withholding and information reporting unless the beneficial owner certifies under penalties
of perjury that it is a non-U.S. stockholder (and the payor does not have actual knowledge or
reason to know that the beneficial owner is a U.S. person) or the holder otherwise establishes an
exemption. Payment of the proceeds of a sale of our common stock conducted through certain U.S.
related financial intermediaries is subject to information reporting (but not backup withholding)
unless the financial intermediary has documentary evidence in its records that the beneficial owner
is a non-U.S. stockholder and specified conditions are met or an exemption is otherwise
established.
Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit
against such stockholders U.S. federal income tax liability provided the required information is
furnished to the IRS.
State, Local and Foreign Taxes
We and our stockholders may be subject to state, local or foreign taxation in various
jurisdictions, including those in which it or they transact business, own property or reside. We
own interests in properties located in several jurisdictions, and may be required to file tax
returns in certain of those jurisdictions. The state, local or foreign tax treatment of our company
and our stockholders may not conform to the U.S. federal income tax treatment discussed above. Any
foreign taxes incurred by us would not pass through to stockholders as a credit against their U.S.
federal income tax liability. Prospective stockholders should consult their tax advisors regarding
the application and effect of state, local and foreign income and other tax laws on an investment
in our companys common stock.
45
PLAN OF DISTRIBUTION
In connection with the administration of the Plan, we may be requested to approve investments
made pursuant to requests for waiver by or on behalf of participants or other investors who may be
engaged in the securities business.
Persons who acquire shares of our common stock through the Plan and resell them shortly after
acquiring them, including coverage of short positions, under certain circumstances, may be
participating in a distribution of securities that would require compliance with Regulation M under
the Exchange Act and may be considered to be underwriters within the meaning of the Securities Act.
We will not extend to any such person any rights or privileges other than those to which they
would be entitled as a participant, nor will we enter into any agreement with any such person
regarding the resale or distribution by any such person of the shares of our common stock so
purchased. We may, however, accept investments made pursuant to requests for waiver in connection
with Large Cash Purchases by such persons.
From time to time, financial intermediaries, including brokers and dealers, and other persons
may engage in positioning transactions in order to benefit from any waiver discounts applicable to
investments made pursuant to requests for waiver for Large Cash Purchases under the Plan. Those
transactions may cause fluctuations in the trading volume of our common stock. Financial
intermediaries and such other persons who engage in positioning transactions may be deemed to be
underwriters. We have no arrangements or understandings, formal or informal, with any person
relating to the sale of shares of our common stock to be received under the Plan. We reserve the
right to modify, suspend or terminate participation in the Plan by otherwise eligible persons to
eliminate practices that are inconsistent with the purpose of the Plan.
Our common stock may not be available under the Plan in all states or jurisdictions. We are
not making an offer to sell our common stock in any jurisdiction where the offer or sale is not
permitted.
LEGAL MATTERS
The validity of the common stock offered by this prospectus is being passed upon for us by
Clifford Chance US LLP, New York, New York. The opinion of counsel described under Federal Income
Tax Considerations is being rendered by Clifford Chance US LLP, which opinion is subject to
various assumptions and is based on current tax law. Alan L. Gosule, a partner at Clifford Chance
US LLP, is a member of our board of directors and owns 7,586 shares of our common stock.
EXPERTS
Ernst & Young LLP, independent
registered public accounting firm, has audited our consolidated financial
statements included in our Annual Report on Form 10-K for the year
ended December 31, 2007, and the effectiveness of our internal
control over financial reporting as of December 31, 2007,
as set forth in their reports,which are incorporated by
reference in this registration statement. Our consolidated financial statements are incorporated
by reference in reliance
on Ernst & Young LLPs report, given on their authority
as experts in accounting and auditing.
46
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We are incorporating by reference in this prospectus the following documents which we have
previously filed with the SEC under the File Number 1-13991:
(i) Our Annual Report on Form 10-K for fiscal year ended December 31, 2007;
(ii) Our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2008, June 30, 2008
and September 30, 2008;
(iii) Our Definitive Proxy Statement dated April 8, 2008;
(iv) Our Current Reports on Form 8-K filed on January 2, 2008, January 8, 2008, January 17,
2008, March 11, 2008, March 20, 2008, June 23, 2008, and August 14, 2008;
(v) The description of the shares of capital stock contained in the Registration Statement on
Form 8-A filed on March 26, 1998, including all amendments and reports filed for the purpose of
updating such description; and
(vi) The description of the shares of our 8.50% Series A Cumulative Redeemable preferred stock
contained on Form 8-A filed on April 23, 2004.
Whenever after the date of this prospectus we file reports or documents under Section 13(a),
13(c), 14 or 15(d) of the Exchange Act those reports and documents will be deemed to be part of
this prospectus from the time they are filed. If anything in a report or document we file after
the date of this prospectus changes anything in it, this prospectus will be deemed to be changed by
that subsequently filed report or document beginning on the date the report or document is filed.
We will provide to each person 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. We will provide this information at no cost to the requestor upon
written or oral request addressed to MFA Mortgage Investments, Inc., 350 Park Avenue, 21st Floor,
New York, New York 10022, attention: Investor Relations Department (Telephone: 212-207-6400).
INFORMATION WE FILE
We file annual, quarterly and current reports, proxy statements and other materials with the
SEC. The public may read and copy any materials we file with the SEC at the SECs 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 a
website that contains reports, proxy and information statements and other information regarding
issuers (including us) that file electronically with the SEC. The address of that website is
http://www.sec.gov.
Reports, proxy statements and other information we file also can be inspected at the offices
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.
47
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses to be borne by the registrant in connection with
the offerings described in this registration statement. All such expenses other than the SEC
registration fee are estimates.
|
|
|
|
|
SEC registration fee |
|
$ |
1,807.80 |
|
Legal fees and expenses(1) |
|
|
20,000 |
|
Accounting fees and expenses(1) |
|
|
10,000 |
|
Printing(1) |
|
|
10,000 |
|
Miscellaneous(1) |
|
|
20,000 |
|
|
|
|
|
Total |
|
$ |
61,807.80 |
|
Item 15. Indemnification of Officers and Directors.
Maryland law permits a Maryland corporation to include in its charter a provision limiting the
liability of its directors and officers to the corporation and its stockholders for money damages
except for liability resulting from (i) actual receipt of an improper benefit or profit in money,
property or services or (ii) active and deliberate dishonesty established by a final judgment and
which is material to the cause of action. Our charter contains such a provision which eliminates
directors and officers liability to the maximum extent permitted by Maryland law.
Our charter obligates us, to the maximum extent permitted by Maryland law, to indemnify any
director or officer or any individual who, while a director or officer of our company and at the
request of our company, serves or has served another entity, from and against any claim or
liability to which that individual may become subject or which that individual may incur by reason
of his or her status as a director or officer of our company and to pay or reimburse his or her
reasonable expenses in advance of final disposition of a proceeding. The charter also permits our
company to indemnify and advance expenses to any employee or agent of our company.
Maryland law requires a corporation (unless its charter provides otherwise, which our charter
does not) to indemnify a director or officer who has been successful in the defense of any
proceeding to which he or she is made, or threatened to be made, a party by reason of his or her
service in that capacity. Maryland law permits a corporation to indemnify its present and former
directors and officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding to which they may
be made, or threatened to be made, a party by reason of their service in those or other capacities
unless it is established that (i) 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, (ii) the director or officer actually received an improper
personal benefit in money, property or services or (iii) in the case of any criminal proceeding,
the director or officer had reasonable cause to believe that the act or omission was unlawful.
However, under Maryland law, a Maryland corporation may not indemnify for an adverse judgment in a
suit by or in the right of the corporation or for a judgment of liability on the basis that
personal benefit was improperly received, unless in either case a court orders indemnification and
then only for expenses. In addition, Maryland law permits a corporation to advance reasonable
expenses to a director or officer
II-1
upon the corporations receipt of (i) a written affirmation by the director or officer of his
or her good faith belief that he or she has met the standard of conduct necessary for
indemnification by the corporation and (ii) a written undertaking by him or her or on his or her
behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined
that the standard of conduct was not met.
Item 16. Exhibits.
The following documents are filed with or incorporated by reference in this registration
statement:
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Exhibit |
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Description |
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4.1
|
|
Specimen of Common Stock Certificate of the Registrant (incorporated herein by
reference to Exhibit 4.1 of the Registration Statement on Form S-4, dated
February 12, 1998, filed by the Registrant pursuant to the Securities Act
(Commission File No. 333-46179)). |
|
4.2
|
|
Specimen of Stock certificate representing the 8.50% Series A Cumulative
Redeemable Preferred Stock of the Registrant (incorporated herein by reference to
Exhibit 4 of the Form 8-A, dated April 23, 2004, filed by the Registrant pursuant
to the Exchange Act (Commission File No. 1-13991)). |
|
5.1
|
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Opinion of Clifford Chance US LLP as to legality. |
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8.1
|
|
Opinion of Clifford Chance US LLP as to tax matters. |
|
12.1
|
|
Computation of Ratio of Assets to Equity (incorporated herein by reference to
Exhibit 12.1 of the Form 10-K, for the year ended December 31, 2007, filed by
Registrant pursuant to the Exchange Act (Commission File No. 1-13991)). |
|
12.2
|
|
Computation of Ratio of Debt to Equity (incorporated herein by reference to
Exhibit 12.2 of the Form 10-K, for the year ended December 31, 2007, filed by
Registrant pursuant to the Exchange Act (Commission File No. 1-13991)). |
|
23.1
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Consent of Clifford Chance US LLP (included in Exhibits 5.1 and 8.1). |
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23.2
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Consent of Ernst & Young LLP. |
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24.1
|
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Powers of Attorney (included on the signature page of the registration statement). |
|
99.1
|
|
Enrollment Form for MFA Mortgage Investments, Inc. Discount Waiver, Direct Stock
Purchase and Dividend Reinvestment Plan. |
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(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) |
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To include any prospectus required by Section 10(a)(3) of the
Securities Act; |
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(ii) |
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To reflect in the prospectus any facts or events arising after
the effective date of this 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 the 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 |
II-2
|
|
|
maximum offering range may be reflected in the form of prospectus filed with
the SEC 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) |
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To include any material information with respect to the plan
of distribution not previously disclosed in this registration statement or any
material change to such information in this registration statement; |
provided, however, that paragraphs (i), (ii) and (iii) above 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 SEC by the registrant pursuant to
Section 13 or 15(d) of the Exchange Act that are incorporated by reference in this
registration statement, or is contained in a form of prospectus filed pursuant to Rule
424(b) that is part of the registration statement.
(2) That, for the purposes of determining any liability under the Securities Act, 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.
(3) To remove from registration by means of a post-effective amendment any of the
securities being offered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act 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 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; |
II-3
(5) That, for the purpose of determining liability of the registrant under the
Securities Act to any purchaser in the initial distribution of the securities, the
undersigned registrant undertakes that in a primary offering of securities of the
undersigned registrant pursuant to this registration statement, regardless of the
underwriting method used to sell the securities to the purchaser, if the securities are
offered or sold to such purchaser by means of any of the following communications, the
undersigned registrant will be a seller to the purchaser and will be considered to offer or
sell such securities to such purchaser:
|
(i) |
|
Any preliminary prospectus or prospectus of the undersigned
registrant relating to the offering required to be filed pursuant to Rule 424; |
|
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(ii) |
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Any free writing prospectus relating to the offering prepared
by or on behalf of the undersigned registrant or used or referred to by the
undersigned registrant; |
|
|
(iii) |
|
The portion of any other free writing prospectus relating to
the offering containing material information about the undersigned registrant
or its securities provided by or on behalf of the undersigned registrant; and |
|
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(iv) |
|
Any other communication that is an offer in the offering made
by the undersigned registrant to the purchaser. |
(6) That, for purposes of determining any liability under the Securities Act, each
filing of the registrants annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plans annual report pursuant
to Section 15(d) of the Exchange Act) 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 the securities at that time shall be deemed to be the
initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities Act 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 SEC
such indemnification is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has been settled by the
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 and will be
governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the information
omitted from the form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to be a new
II-4
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.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, 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
November 26, 2008.
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MFA MORTGAGE INVESTMENTS, INC.
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By: |
/s/ Stewart Zimmerman |
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Name: |
Stewart Zimmerman |
|
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Title: |
Chairman of the Board and Chief Executive
Officer |
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POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Stewart Zimmerman and William Gorin, and each of them, with full power to act without the
other, such persons true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign
this Registration Statement, and any and all amendments thereto (including post-effective
amendments), and to file the same, with exhibits and schedules thereto, and other documents in
connection therewith, with the SEC, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing necessary or
desirable to be done in and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration
Statement has been signed by the following persons in the capacities and on the dates indicated.
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Name and Signature |
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Title |
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Date |
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/s/ Stewart Zimmerman Stewart Zimmerman
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Chairman of the Board, Chief
Executive Officer (Principal
Executive Officer)
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November 26, 2008 |
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/s/ William S. Gorin William S. Gorin
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President and Chief Financial
Officer (Principal Financial
Officer)
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November 26, 2008 |
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/s/ Teresa D. Covello
Teresa D. Covello
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Chief Accounting Officer, Senior
Vice President and Treasurer
(Principal Accounting Officer)
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|
November 26, 2008 |
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/s/
Alan L. Gosule Alan L. Gosule
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Director
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November 26, 2008 |
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/s/
Edison C. Buchanan Edison C. Buchanan
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Director
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November 26, 2008 |
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/s/
Stephen R. Blank Stephen R. Blank
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Director
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November 26, 2008 |
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/s/
James A. Brodsky James A. Brodsky
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Director
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November 26, 2008 |
II-6
EXHIBIT INDEX
|
|
|
Exhibit |
|
Description |
|
|
|
4.1
|
|
Specimen of Common Stock Certificate of the Registrant (incorporated herein by
reference to Exhibit 4.1 of the Registration Statement on Form S-4, dated
February 12, 1998, filed by the Registrant pursuant to the Securities Act
(Commission File No. 333-46179)). |
|
|
|
4.2
|
|
Specimen of Stock certificate representing the 8.50% Series A Cumulative
Redeemable Preferred Stock of the Registrant (incorporated herein by reference to
Exhibit 4 of the Form 8-A, dated April 23, 2004, filed by the Registrant pursuant
to the Exchange Act (Commission File No. 1-13991)). |
|
|
|
5.1
|
|
Opinion of Clifford Chance US LLP as to legality. |
|
|
|
8.1
|
|
Opinion of Clifford Chance US LLP as to tax matters. |
|
|
|
12.1
|
|
Computation of Ratio of Assets to Equity (incorporated herein by reference to
Exhibit 12.1 of the Form 10-K, for the year ended December 31, 2007, filed by
Registrant pursuant to the Exchange Act (Commission File No. 1-13991)). |
|
|
|
12.2
|
|
Computation of Ratio of Debt to Equity (incorporated herein by reference to
Exhibit 12.2 of the Form 10-K, for the year ended December 31, 2007, filed by
Registrant pursuant to the Exchange Act (Commission File No. 1-13991)). |
|
|
|
23.1
|
|
Consent of Clifford Chance US LLP (included in Exhibits 5.1 and 8.1). |
|
|
|
23.2
|
|
Consent of Ernst & Young LLP. |
|
|
|
24.1
|
|
Powers of Attorney (included on the signature page of the registration statement). |
|
|
|
99.1
|
|
Enrollment Form for MFA Mortgage Investments, Inc. Discount Waiver, Direct Stock
Purchase and Dividend Reinvestment Plan. |
II-7