As filed with the Securities and Exchange Commission on March 21, 2000
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REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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STARWOOD FINANCIAL INC.
(Exact name of Registrant as specified in its charter)
Maryland 95-6881527
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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1114 AVENUE OF THE AMERICAS, 27TH FLOOR
NEW YORK, NEW YORK 10036
(212) 930-9400
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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JAY SUGARMAN
CHIEF EXECUTIVE OFFICER
STARWOOD FINANCIAL INC.
1114 AVENUE OF AMERICAS, 27TH FLOOR
NEW YORK, NEW YORK 10036
(212) 930-9400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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COPY TO:
JAMES B. CARLSON
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NY 10019
(212) 506-2500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. | |
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. | |
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. | |
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. | |
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum
Title of Each Class of Amount To Aggregate Offering Amount of
Securities to be Registered Be Registered Price (2) Registration Fee (2)
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Common Stock, par value $.001 per share (3)..... 66,295,152(1) $1,127,017,584 $297,533
Warrants to purchase common stock (4)........... 6,000,000
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(1) Pursuant to Rule 416 under the Securities Act, this Registration Statement
also covers such additional shares of common stock as may be issued to
prevent dilution of the shares of common stock concerned hereby resulting
from stock splits, stock dividends or similar transactions.
(2) Pursuant to Rule 457(c) under the Securities Act of 1933, as amended, and
estimated solely for the purpose of calculating the registration fee, the
proposed maximum aggregate offering price is equal to the average of the
high and low prices of the shares of common stock of Starwood Financial
Inc. on the New York Stock Exchange on March 14, 2000.
(3) Includes such shares of common stock issuable upon the exercise of warrants
and options.
(4) The warrants entitle the holders to purchase an aggregate of 6,113,165
shares of common stock.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
PARTICIPATING SECURITYHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE IN WHERE THE OFFER
OR SALE IS NOT PERMITTED PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
Subject to Completion, Dated March 21, 2000
PROSPECTUS
STARWOOD FINANCIAL INC.
66,295,152 SHARES OF COMMON STOCK
6,000,000 WARRANTS
This prospectus relates to the offer and sale of up to 66,295,152 shares of our
common stock (of which 8,546,646 are issuable upon exercise of warrants and
options) and 6,000,000 warrants. These securities may be offered and sold from
time to time by the securityholders specified in this prospectus or their
successors in interest, subject to compliance with agreements restricting sales
by some of the securityholders. See "Participating Securityholders." The Company
will not receive any of the proceeds from the sale of the securities.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
An investment in the securities entails certain material risks and uncertainties
that should be considered. See "RISK FACTORS" on page 7 of this prospectus.
TABLE OF CONTENTS
Page
WHERE YOU CAN FIND MORE INFORMATION...............................................................................3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...................................................................3
FORWARD-LOOKING STATEMENTS .......................................................................................4
THE COMPANY.......................................................................................................6
The Company..........................................................................................6
Recent Developments..................................................................................6
RISK FACTORS......................................................................................................7
We Are Subject To Real Estate Investment Risks.......................................................7
We Are Subject to Risks Relating to our Credit Tenant Lease Business.................................7
Our Growth is Dependent on Leverage, which May Create Other Risks....................................8
We Face a Risk of Liability under Environmental Laws.................................................9
Certain Provisions in Our Charter May Inhibit a Change in Control....................................9
Adverse Changes in General Economic Conditions Can Adversely Affect Our Business....................10
We May Be Subject to Adverse Consequences if We Fail to Qualify as a Real Estate
Investment Trust...............................................................................10
Tax-Exempt Shareholders May Be Subject to Taxation..................................................10
We May Be Unable to Integrate Our Leasing Subsidiary Successfully...................................11
The Ownership of the Company is Concentrated........................................................12
We Are Prohibited From Making Certain Investments...................................................12
USE OF PROCEEDS..................................................................................................12
PRICE RANGE OF SHARES AND DISTRIBUTIONS..........................................................................13
PARTICIPATING SECURITYHOLDERS ...................................................................................14
CERTAIN RELATIONSHIPS BETWEEN THE COMPANY AND
THE PARTICIPATING SECURITYHOLDERS ...............................................................................17
PLAN OF DISTRIBUTION.............................................................................................18
DESCRIPTION OF SECURITIES TO BE REGISTERED.......................................................................19
Common Stock........................................................................................19
Description of Warrants.............................................................................20
FEDERAL INCOME TAX CONSIDERATIONS................................................................................21
Taxation of the Company.............................................................................22
Taxation of Securityholders.........................................................................30
Other Tax Considerations............................................................................33
LEGAL MATTERS ...................................................................................................35
EXPERTS..........................................................................................................35
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy such reports, proxy or
information statements and other information at the public reference facilities
maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Regional Offices of the SEC at Seven World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. You may also obtain copies of such materials from the
Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. The SEC maintains a site on the World
Wide Web at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC. You can also inspect and copy reports, proxy or information
statements and other information about us at the offices of the New York Stock
Exchange, Public Reference Section, 20 Broad Street, New York, New York 10005.
We have filed with the SEC a registration statement on Form S-3 under
the Securities Act of 1933, as amended, with respect to the securities offered
hereby. This prospectus does not contain all the information set forth in the
registration statement, certain portions of which have been omitted as permitted
by the rules and regulations of the SEC. Statements contained in this prospectus
as to the contents of any contract or other document filed as an exhibit to the
registration statement are not necessarily complete, and in each instance,
reference is made to the copy of such contract or document so filed, each such
statement being qualified in all respects by such reference. For further
information about us and the securities, please see the registration statement
and exhibits thereto.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with it, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be a part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below, which were filed by
Starwood Financial Trust, our predecessor, and any future filings made with the
SEC under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of
1934 until the Participating Securityholders sell all the securities being
offered or this offering is otherwise terminated:
1. Annual Report on Form 10-K for the fiscal year ended December 31,
1998, as amended.
2. Current Reports on Form 8-K dated June 22, 1999, July 15, 1999
and November 9, 1999.
3. Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999, June 30, 1999 and September 30, 1999.
4. The description of the shares of common stock contained in the
Registration Statement on Form 8-A filed on October 5, 1999.
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You may request a copy of these filings, at no cost, by writing to us
at Starwood Financial Inc., 1114 Avenue of the Americas, 27th Floor, New York,
NY 10036; Attention: Investor Relations, telephone number 212-930-9400.
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. No one is making an offer
of the securities in any state where the offer is not permitted. You should not
assume that the information in this prospectus or any prospectus supplement is
accurate as of any date other than the date on the front of those documents.
Except as the context may otherwise require, when we refer to "SFI,"
"the Company," "we," "us" or "our" in this prospectus, we mean Starwood
Financial Inc. and its predecessors, consolidated subsidiaries and joint
ventures.
FORWARD-LOOKING STATEMENTS
We make statements in this prospectus and the documents we incorporate
by reference that are considered "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, which are usually identified by the use of words such as
"will," "anticipates," "believes," "estimates," "expects," "projects," "plans,"
"intends," "should" or similar expressions. We intend those forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Reform Act of 1995 and are
including this statement for purposes of complying with these safe harbor
provisions. These forward-looking statements reflect our current views about the
company's plans, strategies and prospects, which are based on the information
currently available to us and on assumptions we have made. Although we believe
that our plans, intentions and expectations as reflected in or suggested by
those forward-looking statements are reasonable, we can give no assurance that
the plans, intentions or expectations will be achieved. We have listed below and
have discussed elsewhere in this prospectus some important risks, uncertainties
and contingencies which could cause the company's actual results, performances
or achievements to be materially different from the forward- looking statements
we make in this prospectus. These risks, uncertainties and contingencies
include, but are not limited to, the following:
1. The success or failure of our efforts to implement our current
business strategy.
2. Economic conditions generally and in the commercial real estate
and finance markets specifically.
3. The performance and financial condition of borrowers and tenants.
4. The actions of our competitors and our ability to respond to
those actions.
5. The cost of our capital, which depends in part on our asset
quality, the nature of our relationships with our lenders and
other capital providers, our business prospects and outlook, and
general market conditions.
6. Changes in governmental regulations, tax rates and similar
matters.
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7. Legislative and regulatory changes (including changes to laws
governing the taxation of REITs).
8. Other factors discussed under the heading "Risk Factors" and
elsewhere in this prospectus.
We assume no obligation to update publicly any forward-looking
statements, whether as a result of new information, future events or otherwise.
In evaluating forward-looking statements, you should consider these risks and
uncertainties, together with the other risks described from time to time in our
reports and documents filed with the SEC, and you should not place undue
reliance on those statements.
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THE COMPANY
THE COMPANY
We are the largest publicly-traded finance company in the United States
focused exclusively on commercial real estate. We provide, originate and acquire
structured mortgage, mezzanine and lease financing for our commercial properties
in major metropolitan markets nationwide. We provide real estate borrowers and
corporate customers with innovative, custom-tailored solutions to their
structured financing needs.
Our investment strategy targets specific sectors of the real estate
credit markets in which we believe we have a competitive advantage, thereby
creating pricing power and maximizing risk-adjusted returns. As a result of our
recent merger with TriNet Corporate Realty Trust, Inc. ("TriNet"), we have
expanded the focus of our credit tenant lease business to complement our overall
investment philosophy through innovative lease structures, efficient use of
leverage, credit enhancement instruments, better risk allocation, and by
focusing on market inefficiencies.
RECENT DEVELOPMENTS
On November 3, 1999, we changed our form of organization from a
Maryland real estate investment trust to a corporation and eliminated our dual
share structure through a merger of Starwood Financial Trust, or "SFT," with and
into the Company. In this merger, each issued and outstanding: (1) SFT Class A
Share of beneficial interest was converted into one share of our common stock;
(2) SFT Class B Share of beneficial interest was converted into one forty-ninth
of one share of our common stock; and (3) 9.5% Series A Preferred Share of SFT
was converted into one share of our 9.5% Series A Preferred Stock.
On November 4, 1999, we completed the TriNet merger, through which a
wholly owned subsidiary of the Company was merged with and into TriNet
(following the TriNet merger, the "Leasing Subsidiary"). In the TriNet merger,
each issued and outstanding share of: (1) common stock of the Leasing Subsidiary
was converted into 1.15 shares of our common stock; (2) 9.375% Series A
Preferred Stock of the Leasing Subsidiary was converted into one share of our
9.375% Series B Preferred Stock; (3) 9.2% Series B Preferred Stock of the
Leasing Subsidiary was converted into one share of our 9.2% Series C Preferred
Stock; and (4) 8.0% Series C Preferred Stock of the Leasing Subsidiary was
converted into one share of our 8.0% Series D Preferred Stock.
In addition, on November 4, 1999, through a merger and contribution of
interests referred to as the "Advisor Transaction," we acquired Starwood
Financial Advisors, L.L.C., our external adviser, or the "Advisor." As a result
of the Advisor Transaction, we have become a completely self-managed and self-
advised company.
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RISK FACTORS
This section describes some, but not all, of the risks of purchasing
our common stock and warrants. You should carefully consider these risks, in
addition to the other information contained in this prospectus or incorporated
by reference, before purchasing any of the securities offered hereby. In
connection with the forward-looking statements that appear in this prospectus,
you should carefully review the factors discussed below and the cautionary
statements referred to in "Forward-Looking Statements."
WE ARE SUBJECT TO REAL ESTATE INVESTMENT RISKS
Our real estate finance business is subject to risks, including the
following:
1. Defaults by borrowers on non-recourse loans where underlying
property values fall below the loan amount.
2. Costs and delays associated with the foreclosure process.
3. Borrower bankruptcies.
4. Possible unenforceability of loan terms, such as prepayment
provisions.
5. Acts or omissions by owners or managers of the underlying real
estate.
6. Borrower defaults on debt senior to our loans, if any.
7. Where debt senior to our loans exists, the presence of
intercreditor arrangements limiting our ability to amend our loan
documents, assign our loans, accept prepayments, exercise our
remedies (through "standstill" periods) and control decisions
made in bankruptcy proceedings relating to borrowers.
8. Lack of control over the underlying asset prior to a default.
The risks described above could impact our ability to realize on our
collateral or collect expected amounts on account of our portfolio. Where
applicable, these risks could also require us to expend funds in order to
protect our position as a subordinated lender. For example, we may determine
that it is in our interests to expend funds to keep a more senior lender current
on our obligations or to purchase a senior lender's position. Unanticipated
costs may also be incurred by us after a foreclosure. Bankruptcy and borrower
litigation can significantly increase the time needed for us to acquire
underlying collateral in the event of a default, during which time the
collateral may decline in value.
WE ARE SUBJECT TO RISKS RELATING TO OUR CREDIT TENANT LEASE BUSINESS
Our credit tenant lease business is subject to risks, including the
following:
1. Lease expirations may result in reduced revenues if prevailing
market rents at the time of such expirations are less than the
contractual rents under the expiring leases. In addition, if
tenants under expiring leases elect not to renew their leases, we
could experience long
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vacancy periods and incur substantial capital expenditures in
order to obtain replacement tenants. As of December 31, 1999, the
percentage of our assets that are subject to expiring leases
during each year from 2000 through 2004 is as follows:
2000 3.9%
2001 9.8%
2002 11.4%
2003 12.0%
2004 12.9%
2. Lease defaults by one or more significant tenants or lease
terminations by tenants following events of casualty or takings
by eminent domain could result in long vacancy periods and
require us to incur substantial capital expenditures in order to
obtain replacement tenants. In addition, there can be no
assurance that the rents received from replacement tenants will
be equal to the rents received from the defaulting or terminating
tenants. As of December 31, 1999, 20.8% of our annualized
operating lease revenues were derived from our five largest
tenants.
3. Illiquidity of ownership interests in real property.
4. Risks associated with joint ventures, such as lack of full
management control over venture activities and risk of
non-performance by venture partners.
5. Possible need for significant tenant improvements, including
conversions of single tenant buildings to multi-tenant buildings.
6. Competition from newer, more updated buildings.
Factors 1, 2, 5 and 6 would likely have negative impacts on our net
income. Factors 3, 4 and 5 may decrease our flexibility to vary our portfolio
and investment strategy promptly to respond to changes in market conditions.
OUR GROWTH IS DEPENDENT ON LEVERAGE, WHICH MAY CREATE OTHER RISKS
Our success is dependent, in part, upon our ability to grow our
portfolio of invested assets through the use of leverage. We currently intend to
leverage our portfolio primarily through secured and unsecured borrowings. Our
ability to obtain the leverage necessary for execution of our business plan will
ultimately depend upon our ability to maintain interest coverage ratios meeting
market underwriting standards that will vary according to lenders' assessments
of our creditworthiness and the terms of the borrowings.
The percentage of leverage used will vary depending on our estimate of
the stability of the portfolio's cash flow. To the extent that changes in market
conditions cause the cost of such financing to increase relative to the income
that can be derived from the assets acquired, we may reduce the amount of our
leverage.
Leverage creates an opportunity for increased net income, but at the
same time creates risks. For example, leveraging magnifies changes in our net
worth. We will leverage assets only when there is an expectation that it will
enhance returns, although there can be no assurance that our use of leverage
will prove
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to be beneficial. Moreover, there can be no assurance that we will be able to
meet our debt service obligations and, to the extent that we cannot, we risk the
loss of some or all of our assets or a financial loss if we are required to
liquidate assets at a commercially inopportune time.
We and our subsidiaries are parties to agreements and debt instruments
that restrict future indebtedness and the payment of dividends, including
indirect restrictions (through, for example, covenants requiring the maintenance
of specified levels of net worth and earnings to debt service ratios) and direct
restrictions. As a result, in the event of a deterioration in our financial
condition, these agreements or debt instruments could restrict our ability to
pay dividends. Moreover, if we fail to pay dividends as required by the Internal
Revenue Code, whether as a result of restrictive covenants in our debt
instruments or otherwise, we may lose our status as a REIT. For more information
regarding the consequences of loss of REIT status, please read the risk factor
entitled "We May Be Subject to Adverse Consequences if We Fail to Qualify as a
Real Estate Investment Trust."
WE FACE A RISK OF LIABILITY UNDER ENVIRONMENTAL LAWS
Under various federal, state and local environmental laws, ordinances
and regulations, a current or previous owner of real estate (including, in
certain circumstances, a secured lender that succeeds to ownership or control of
a property) may become liable for the costs of removal or remediation of certain
hazardous or toxic substances at, on, under or in its property. Those laws
typically impose cleanup responsibility and liability without regard to whether
the owner or control party knew of or was responsible for the release or
presence of such hazardous or toxic substances. The costs of investigation,
remediation or removal of those substances may be substantial. The owner or
control party of a site may be subject to common law claims by third parties
based on damages and costs resulting from environmental contamination emanating
from a site. Certain environmental laws also impose liability in connection with
the handling of or exposure to asbestos- containing materials, pursuant to which
third parties may seek recovery from owners of real properties for personal
injuries associated with asbestos-containing materials. Absent succeeding to
ownership or control of real property, a secured lender is not likely to be
subject to any of these forms of environmental liability.
CERTAIN PROVISIONS IN OUR CHARTER MAY INHIBIT A CHANGE IN CONTROL.
Generally, to maintain our qualification as a REIT under the Internal
Revenue Code, not more than 50% in value of our outstanding shares of stock may
be owned, directly or indirectly, by five or fewer individuals at any time
during the last half of our taxable year. The Internal Revenue Code defines
"individuals" for purposes of the requirement described in the preceding
sentence to include some types of entities. Under our charter, no person may own
more than 9.8% of the outstanding shares of stock, with some exceptions. The
restrictions on transferability and ownership may delay, deter or prevent a
change in control or other transaction that might involve a premium price or
otherwise be in the best interest of the securityholders.
Our Board of Directors is divided into two classes. Directors of each
class are chosen for two-year staggered terms. Staggered terms of directors may
reduce the possibility of a tender offer or an attempt to change control, even
though a tender offer or change in control might be in the best interest of our
securityholders. Our charter authorizes our Board of Directors:
1. To cause us to issue additional authorized but unissued shares of
common or preferred stock.
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2. To classify or reclassify, in one or more series, any of our
unissued preferred shares.
3. To set the preferences, rights and other terms of any classified
or reclassified securities that we issue.
ADVERSE CHANGES IN GENERAL ECONOMIC CONDITIONS CAN ADVERSELY AFFECT OUR BUSINESS
Our success is dependent upon the general economic conditions in the
geographic areas in which a substantial number of our investments are located.
Adverse changes in national economic conditions or in the economic conditions of
the regions in which we conduct substantial business likely would have an
adverse effect on real estate values, interest rates and, accordingly, our
business.
WE MAY BE SUBJECT TO ADVERSE CONSEQUENCES IF WE FAIL TO QUALIFY AS A REAL ESTATE
INVESTMENT TRUST
We intend to operate so as to qualify as a real estate investment trust
for federal income tax purposes. We have received an opinion of our legal
counsel that, based on certain assumptions, representations and an opinion of
another law firm delivered to us last year described in "Federal Income Tax
Consequences," our existing legal organization and our actual and proposed
method of operation described in this prospectus, as set forth in our
organizational documents and as represented by us to our counsel, enable us to
satisfy the requirements for qualification as a real estate investment trust
under the Internal Revenue Code in the ordinary course of our actual and
proposed operations. Investors should be aware, however, that opinions of
counsel are not binding on the Internal Revenue Service or any court. The real
estate investment trust qualification opinion only represents the view of our
counsel based on such counsel's review and analysis of existing law, which
includes no controlling precedent. Furthermore, both the validity of the opinion
and our qualification as a real estate investment trust will depend on our
continuing ability to meet various requirements concerning, among other things,
the ownership of our outstanding stock, the nature of our assets, the sources of
our income and the amount of our distributions to our shareholders. See "Federal
Income Tax Consequences--Taxation of the Company."
If we were to fail to qualify as a real estate investment trust for any
taxable year, we would not be allowed a deduction for distributions to our
shareholders in computing our taxable income and would be subject to federal
income tax, including any applicable minimum tax, on our taxable income at
regular corporate rates. Unless entitled to relief under certain Internal
Revenue Code provisions, we also would be disqualified from treatment as a real
estate investment trust for the four subsequent taxable years following the year
during which qualification was lost. As a result, cash available for
distribution would be reduced for each of the years involved. Furthermore, it is
possible that future economic, market, legal, tax or other considerations may
cause the Board of Directors to revoke the real estate investment trust
election. See "Federal Income Tax Consequences."
Even if we qualify as a real estate investment trust for federal income
tax purpose, we may be subject to certain state and local taxes on our income
and property, and may be subject to certain federal taxes. See "Federal Income
Tax Consequences--Taxation of the Company."
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TAX-EXEMPT SHAREHOLDERS MAY BE SUBJECT TO TAXATION
The Internal Revenue Service (the "IRS") has issued a revenue ruling in
which it held that amounts distributed by a REIT to a tax-exempt employees'
pension trust do not constitute unrelated business taxable income ("UBTI"). In
general, subject to the discussion below regarding a "pension-held REIT" and
subject to the following sentence, based upon such ruling and the statutory
framework of the Internal Revenue Code, distributions to a shareholder of a real
estate investment trust that is a tax-exempt entity should not constitute UBTI,
provided that:
1. The tax-exempt entity has not financed the acquisition of its
shares of common stock with "acquisition indebtedness" within the
meaning of the Internal Revenue Code.
2. The shares of common stock are not otherwise used in an unrelated
trade or business of the tax-exempt entity.
3. The real estate investment trust does not hold a residual
interest in a real estate mortgage investment conduit ("REMIC")
that is an entity or arrangement that satisfies the standards set
forth in Section 860D of the Internal Revenue Code.
However, because we may invest in certain classes of REMICs that are
designated as the residual interest in the related REMIC (a "REMIC residual
interest"), any dividends received by a shareholder that is a tax-exempt entity
that are allocable to Excess Inclusion income (as defined below) will be treated
as UBTI. Certain taxable income produced by REMIC residual interests may cause
our shareholders to suffer certain adverse tax consequences. See "Federal Income
Tax Consequences."
If any pension or other retirement trust that qualifies under Section
401(a) of the Internal Revenue Code (a "qualified pension trust") holds more
than 10% by value of the interests in a "pension-held REIT" at any time during a
taxable year, a portion of the dividends paid to the qualified pension trust by
such REIT may constitute UBTI. For these purposes, a "pension-held REIT" is
defined as a REIT: (1) that would not have qualified as a REIT but for the
provisions of the Internal Revenue Code which look through such a qualified
pension trust in determining ownership of securities of the REIT; and (2) as to
which at least one qualified pension trust holds more than 25% by value of the
interests of such REIT or one or more qualified pension trusts (each owning more
than a 10% interest by value in the REIT) hold in the aggregate more than 50% by
value of the interests in such REIT.
We do not expect that we will be a "pension-held REIT." However,
notwithstanding our current belief that we will not be a "pension-held REIT," no
assurance can be given that we will not become a "pension-held REIT" in the
future.
If we were to become a "pension-held REIT" in the future and were to
acquire investments using debt, or otherwise were to engage in a transaction
resulting in UBTI, determined as though we were a qualified pension plan, any
qualified pension plan owning 10% or more of our shares, by value, would have a
portion of its dividend income from us taxed as UBTI. Even if we were not a
"pension-held REIT," certain amounts received by a shareholder that is a
tax-exempt entity may be treated as UBTI. See "Federal Income Tax Consequences."
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WE MAY BE UNABLE TO INTEGRATE OUR LEASING SUBSIDIARY SUCCESSFULLY
We acquired the Leasing Subsidiary with the expectation that the merger
would create a combined company that would be able to operate efficiently.
Achieving this anticipated result will depend in part on the efficient
integration of our businesses. We are currently in the process of integrating
our businesses and can provide no assurance that an efficient integration will
occur.
THE OWNERSHIP OF THE COMPANY IS CONCENTRATED
SOFI-IV SMT Holdings, L.L.C. ("SOFI-IV SMT"), B Holdings, L.L.C.
("BLLC") and Starwood Mezzanine Investors, L.P. ("Mezzanine") , or the "Starwood
Affiliates", hold approximately 47.9%, 0.6% and 12.6%, respectively, of our
outstanding shares of common stock. Starwood Capital Group, L.L.C. ("Starwood
Capital") controls the general partner of Starwood Opportunity Fund IV, L.P.,
which in turn is the sole member and general manager of SOFI-IV SMT. In
addition, entities that Starwood Capital may be deemed to control the co-general
partners of Mezzanine and Starwood Capital is a member of BLLC and is affiliated
with the other member of BLLC. As a result of their ownership interests in the
Company, Starwood Capital and the Starwood Affiliates have the power to elect a
majority of the members of our Board of Directors. Further, individuals that own
interests (direct or indirect) in the Starwood Affiliates, including Barry
Sternlicht, the Company's Chairman, Jay Sugarman, the Company's President and
Chief Executive Officer and a director, and Jeffrey Dishner, Jonathan Eilian,
Madison Grose and Merrick Kleeman, directors of the Company, own directly an
aggregate of 4.1% and hold options to purchase an additional 1.1% of the
Company's common stock, in addition to their interests in Starwood Capital and
the Starwood Affiliates.
WE ARE PROHIBITED FROM MAKING CERTAIN INVESTMENTS
We are prohibited from making certain types of investments as a result
of restrictions and potential conflicts involving Starwood Capital and its
affiliates. These restrictions may limit our flexibility in implementing our
investment policy. Specifically, without the amendment, termination or waiver of
provisions of certain non-competition agreements between Starwood Capital and
Starwood Hotels & Resorts Worldwide, Inc., we are prohibited from:
1. Making investments in loans collateralized by hotel assets where
it is anticipated that the underlying equity will be acquired by
the debt holder within one year from the acquisition of such
debt.
2. Acquiring equity interests in hotels (other than acquisitions of
warrants, equity participations or similar rights incidental to a
debt investment or that are acquired as a result of the exercise
of remedies in respect of a loan in which we have an interest).
3. Selling or contributing to or acquiring any interests in Starwood
Hotels & Resorts Worldwide, Inc., including debt positions or
equity interests obtained by us under, pursuant to or by reason
of the holding of debt positions.
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USE OF PROCEEDS
The Participating Securityholders shall receive all of the proceeds
from selling the Securities offered hereby. See "Participating Securityholders."
The Company will not receive any of the proceeds.
PRICE RANGE OF SHARES AND DISTRIBUTIONS
The shares of common stock are listed on the New York Stock Exchange
under the symbol "SFI." The following table sets forth, for the fiscal periods
indicated, the high and low sales prices per share for our common stock, which
is listed on the NYSE and for Class A Shares of SFT, which were listed on the
American Stock Exchange. The table also sets forth distributions to holders of
such shares during the same period.
PRICE
PERIOD HIGH LOW DISTRIBUTIONS
------ -------------------- -------------
1999
- -----
Fourth Quarter $27.625 $16.6875 $0.57
Third Quarter $76.00 $27.875 $0.44
Second Quarter $66.50 $31.625 $0.43
First Quarter $63.50 $42.50 $0.42
1998
- ----
Fourth Quarter $80.25 $45.25 $0.41
Third Quarter $59.25 $35.25 $0.38
Second Quarter $56.00 $26.25 $0.35
First Quarter $36.75 $27.375 $0.00
During the fourth quarter of 1999, we issued a dividend of 999,758
shares of common stock to our shareholders on a pro rata basis. During the
second quarter of 1998, we declared a one-for-six reverse stock split. The high
and low prices set forth in the table have been adjusted to reflect the reverse
stock split.
The warrants are not listed for trading and holders are not entitled to
receive distributions.
In order to remain qualified as a REIT, we must make annual
distributions to our shareholders of at least 95%, or 90% for taxable years
beginning after December 31, 2000, of our taxable income (which does not include
net capital gains). Thus, we intend to continue to pay regular quarterly
dividends. Under certain circumstances, we may be required to make distributions
in excess of cash available for distribution in order to meet such distribution
requirements. In such event, we would seek to borrow the amount of the
deficiency
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or sell assets to obtain the cash necessary to make the distributions necessary
to retain our qualification as a REIT for federal income tax purposes.
Distributions will be determined by our Board of Directors and will depend on a
number of factors, including the amount of cash flow from operations, the annual
distribution requirements under the REIT provisions of the Code and such other
factors as the Board of Directors deems relevant. Under the terms of the Leasing
Subsidiary's current credit facilities, the Leasing Subsidiary is generally
permitted to make cash distributions to us on an annual basis in an amount equal
to 85% of the cash flow from operations (as defined) in any rolling four
quarter-period.
PARTICIPATING SECURITYHOLDERS
This prospectus relates to the offer and sale for the account of the
Participating Securityholders from time to time of an aggregate of up to
66,295,152 shares of common stock and up to 6,000,000 warrants, as adjusted.
There is no assurance that the Participating Securityholders will sell any or
all of the shares of common stock, warrants or options.
Some of the Participating Securityholders are parties to agreements
that restrict their ability to sell shares of common stock even though those
shares of common stock have been registered with the SEC. In connection with the
acquisition of the Leasing Subsidiary, each of SOFI-IV SMT, Mezzanine and BLLC
executed lock-up agreements in which they agreed, subject to customary
exceptions (including pledges to lenders):
1. Not to transfer or encumber any shares of common stock during the
first six months after November 4, 1999 (the closing date of the
acquisition), other than 5% of such holdings that may be
transferred in any manner, 20% that may be transferred in
connection with public offerings by us and 30% that may be
transferred in off-market transactions (all shares of common
stock transferred under any exemption also counting against the
amount transferable under the other two exemptions).
2. Not to transfer or encumber any shares of common stock during the
second six months after the closing of the acquisition, other
than one third of the shares of common stock such shareholder
held as of the six-month anniversary of the closing of the
acquisition.
3. Not to transfer or encumber any of our shares of common stock
during the third six months after the closing of the acquisition,
other than two thirds of the shares of common stock such
shareholder held as of the six-month anniversary of the closing
of the acquisition.
4. Not to liquidate, dissolve or make distributions of the shares of
common stock in respect of such shareholder's equity interest
unless all persons or entities receiving the shares of common
stock execute deeds of adherence to its lock-up agreement.
In connection with the Advisor Transaction, each of the owners of
interests in the Advisor, including Barry Sternlicht (our Chairman), Jay
Sugarman (our President and Chief Executive Officer) and Spencer B. Haber (our
Chief Financial Officer) and Starwood Capital, agreed, subject to customary
exceptions:
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1. Not to transfer or encumber any shares of common stock they
received in the Advisor Transaction during the 12 months after
the closing of the transaction (which occurred on November 4,
1999).
2. Not to liquidate, dissolve or make distributions of the shares of
common stock in the combined company in respect of their equity
interest unless all persons or entities receiving the shares of
common stock execute deeds of adherence to its lock-up agreement.
The following charts show, according to our records as of February 29,
2000, the number of shares of common stock and warrants beneficially owned by
the Participating Securityholders and the number of shares of common stock and
warrants being offered hereby:
Shares of Common Stock
Owned Prior to the Offering
---------------------------
Number of Percentage Shares Being
Participating Securityholder Shares of Class (1) Offered
---------------------------- ------ -------- -------
SOFI-IV SMT Holdings, L.L.C. and its direct
and indirect partners...................... 41,854,934 47.9% 41,854,934
Starwood Mezzanine Investors, L.P. and its
direct and indirect partners............... 10,962,886 12.6% 10,962,886
Lazard Freres Real Estate Fund II, L.P.(2)...... 3,031,519 3.4% 3,031,519
Lazard Freres Real Estate Offshore Fund II,
L.P.(2).................................... 1,916,999 2.1% 1,916,999
Starwood Financial Advisors, L.L.C. and its
transferees (3)............................ 1,689,723 1.9% 1,689,723
Barry S. Sternlicht............................. 1,536,887 1.8% 1,536,887
Jay Sugarman(4)................................. 1,284,632 1.5% 1,284,632
LF Offshore Investment L.P.(2).................. 1,164,647 1.3% 1,164,647
New York Financial Advisors, L.L.C. and its
transferees (3)............................ 764,145 * 764,145
Jonathan Eilian(5).............................. 559,577 * 559,577
B Holdings, L.L.C. and its direct and indirect
partners................................... 545,518 * 545,518
Merrick R. Kleeman(6)........................... 484,033 * 484,033
Spencer B. Haber(7)............................. 414,395 * 414,395
Jeffrey G. Dishner(8)........................... 388,179 * 388,179
W9/Reit Holdings Two, Inc. and its direct and
indirect partners and shareholders......... 350,746 * 350,746
Madison F. Grose(9)............................. 276,362 * 276,362
Jerome C. Silvey(10)............................ 160,071 * 160,071
Roger M. Cozzi(11).............................. 122,292 * 122,292
James Babb(12).................................. 79,209 * 79,209
Ellis Rinaldi (13).............................. 78,012 * 78,012
Jeffrey Rosenthal (14).......................... 71,218 * 71,218
Starwood Capital Group, L.L.C. and its direct
and indirect partners...................... 8,000 * 8,000
* Less than one percent.
(1) Based on 87,336,421 shares of common stock outstanding on February 29, 2000
(including shares that may have been repurchased).
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(2) The shares owned by these securityholders are issuable upon the exercise of
the warrants at an original exercise price of $35.00 per share, subject to
anti-dilution adjustments. The warrants expire on December 15, 2005.
(3) The shares owned by this securityholder and its transferees are issuable
upon the exercise of options at an original exercise price of $15.00 per
share, subject to antidilution adjustments. The options expire on March 13,
2008.
(4) Includes shares issuable upon the exercise of options to purchase 509,430
shares of common stock.
(5) Includes shares issuable upon the exercise of options to purchase 127,357
shares of common stock.
(6) Includes shares issuable upon the exercise of options to purchase 127,357
shares of common stock.
(7) Includes shares issuable upon the exercise of options to purchase 254,715
shares of common stock.
(8) Includes shares issuable upon the exercise of options to purchase 127,357
shares of common stock.
(9) Includes shares issuable upon the exercise of options to purchase 84,581
shares of common stock.
(10) Includes shares issuable upon the exercise of options to purchase 50,943
shares of common stock.
(11) Includes shares issuable upon the exercise of options to purchase 42,452
shares of common stock.
(12) Includes shares issuable upon the exercise of options to purchase 41,943
shares of common stock.
(13) Includes shares issuable upon the exercise of options to purchase 40,754
shares of common stock.
(14) Includes shares issuable upon the exercise of options to purchase 41,943
shares of common stock.
Warrants Owned
Prior to the Offering
---------------------
Number of Percentage Warrants Being
Participating Securityholder Warrants of Class Offered
---------------------------- --------- -------- -------
Lazard Freres Real Estate Fund II, L.P.......... 2,975,400 49.6% 2,975,400
Lazard Freres Real Estate Offshore Fund II,
L.P........................................ 1,881,512 31.4% 1,881,511
LF Offshore Investment L.P...................... 1,143,088 19.1% 1,143,088
Because each of the Participating Securityholders may offer all or some
of the securities pursuant to the offering made hereby, no estimate can be given
as to the number of the securities that will be held by the Participating
Securityholders after completion of the offering.
We have prepared this prospectus to meet our obligations under certain
agreements with the Participating Securityholders.
On December 15, 1998, SFT sold 4,400,000 Series A Preferred Shares of
beneficial interest and warrants to purchase 6,000,000 Class A Shares of
beneficial interest pursuant to a Securities Purchase Agreement, dated as of
December 15, 1998, by and among the Company, Lazard Freres Real Estate Fund II,
L.P., a Delaware limited partnership ("Fund II"), Lazard Freres Real Estate
Offshore Fund II, L.P., a Delaware limited partnership (the "Offshore Fund"),
and LF Mortgage REIT, a Maryland real estate investment trust (the "Lazard
Transaction"). Effective as of March 30, 1999, the Offshore Fund assigned
warrants to purchase 1,143,088 Class A Shares of beneficial interest to LF
Offshore Investment ("LF Offshore", and together with Fund II and the Offshore
Fund, the "Lazard Investors"). The warrants, which were assumed by the Company
in its merger with SFT, and are now exercisable for a total of 6,113,165 shares
of common stock at an aggregate price of $210 million, became exercisable on
December 15, 1999 subject to anti-dilution adjustments, and expire on December
15, 2005.
Pursuant to an Investor Rights Agreement dated December 15, 1998 with
the Lazard Investors and other parties named therein (the "Lazard Rights
Agreement"), we are required to use our best efforts to file a registration
statement covering the warrants and the shares of common stock issuable upon
exercise of the warrants.
On May 29, 1998, TriNet entered into the Amended and Restated Limited
Liability Company Operating Agreement of W/9 TriNet Poydras, LLC with W9/Reit
Holdings Two, Inc., Stone Street W9/TriNet Corp., Stone Street Real Estate Fund
1998, L.P. and Bridge Street Real Estate Fund 1998, L.P. (the "Whitehall
-16-
Parties") in connection with a venture that owns real property in New Orleans,
Louisiana. Pursuant to the agreement, the Whitehall Parties were given the
option to exchange their interests in the venture for common stock of TriNet
upon any change of control of TriNet. This option became exercisable upon our
merger with TriNet and the Whitehall Parties delivered notice of their desire to
exchange on November 12, 1999. We issued 350,746 shares of common stock to the
Whitehall Parties pursuant to the notice.
Pursuant to a Registration Rights Agreement, dated March 16, 1998
between TriNet and the Whitehall Parties (the "Whitehall Rights Agreement"),
which we assumed in the TriNet merger, we are required to file a registration
statement on Form S-3 with respect to the shares of common stock held by the
Whitehall Parties.
The shares of common stock held by the Starwood Affiliates were
acquired in a contribution transaction in March 1998 (the "Recapitalization").
The Starwood Affiliates are parties to a Registration Rights Agreement, dated
March 13, 1998 (the "Affiliate Rights Agreement"), pursuant to which we are
required to register the shares of common stock for resale by the Starwood
Affiliates and their limited partners on a registration statement maintained
with the SEC until such time as the Starwood Affiliates and their limited
partners no longer own any shares of common stock.
The shares of common stock held by the directors and officers and
Starwood Capital were acquired: (1) through the Advisor Transaction; (2) through
open market purchases; (3) through option grants; and (4) from distributions of
the Starwood Affiliates and other affiliates. We are required to register the
shares of common stock acquired pursuant to the Advisor Transaction pursuant to
an Agreement and Plan of Merger and Interest Contribution Agreement, dated as of
June 15, 1999 (the "Advisor Agreement").
In addition, in each of the Lazard Rights Agreement, the Whitehall
Rights Agreement, the Affiliate Rights Agreement and the Advisor Agreement, we
have agreed to indemnify the Participating Securityholders and any broker or
dealer to or through whom any of the securities are sold against certain civil
liabilities, including liabilities under the Securities Act, or to contribute to
payments a Selling Securityholder may be required to make in respect thereof.
CERTAIN RELATIONSHIPS BETWEEN THE COMPANY AND
THE PARTICIPATING SECURITYHOLDERS
We have not had any material relationship with any of the Participating
Securityholders since January 1, 1997, other than as set forth in this Section
or under "Participating Securityholders."
Messrs. Sternlicht, Sugarman, Haber, Dishner, Eilian, Grose, Kleeman,
each of whom is a director and/or executive officer of the Company, received
shares of common stock in the Advisor Transaction in exchange for their
interests in our external advisor. Each of Messrs. Sternlicht, Sugarman, Haber,
Dishner, Eilian, Grose and Kleeman has agreed that he will not sell any of the
shares of common stock for the period of 12 months after the Advisor
Transaction.
Each of Messrs. Sternlicht, Sugarman, Dishner, Eilian, Grose and
Kleeman has a direct or indirect economic interest in each of the Starwood
Affiliates.
On December 15, 1998, we purchased $248.5 million in mortgage and
mezzanine loans from affiliates of the Lazard Investors. Pursuant to the Lazard
Rights Agreement, the Lazard Investors are entitled to appoint one director to
our Board of Directors as long as the Lazard Investors and certain of their
affiliates are not "Competitors" (as defined in the Lazard Rights Agreement).
On June 18, 1998, SFT granted options to purchase 2,493,842 Class A
Shares of beneficial interest to Starwood Financial Advisors, L.L.C. (the
"Advisor"), which we assumed in the merger with SFT. Pursuant
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to the Advisor Transaction, the Advisor became our subsidiary. Because of
certain distributions by the Advisor and New York Financial Advisors, L.L.C.
("NYFA") and anti-dilution adjustments resulting from the share dividend issued
in November 1999, the Advisor and its grantees currently possess options to
purchase 1,689,723 shares of common stock and NYFA and its grantees possess
options to purchase 764,145 shares of common stock.
Mezzanine acquired 83,333 Class A Shares of beneficial interest of SFT
for $6.00 a share on January 22, 1997 upon exercise of its rights under a
warrant SFT had previously granted. In addition, SFT paid Mezzanine $25.5
million in cash and issued 25,857,999 Class A Shares of beneficial interest of
SFT at a price of $15.00 per share in exchange for certain assets and issued
Mezzanine 761,490 Class A Shares of beneficial interest of SFT in exchange for
4,568,944 units in APMT Limited Partnership on March 18, 1998.
On March 18, 1998, Starwood Opportunity Fund IV, L.P., the sole member
of SOFI-IV SMT was paid $324.3 million in cash and SOFI-IV SMT was issued
41,179,131 Class A Shares of beneficial interest of SFT at a price of $15.00 per
share in exchange for certain assets.
PLAN OF DISTRIBUTION
We are registering the securities on behalf of the Participating
Securityholders and we will bear all costs, expenses and fees in connection with
the registration of the securities. As used herein, "Participating
Securityholder" includes donees and pledgees selling securities received from a
named Participating Securityholder after the date of this prospectus. Brokerage
commissions and similar selling expenses, if any, attributable to the sale of
securities will be borne by the Participating Securityholders. Except as may be
set forth in any prospectus supplement, the Participating Securityholders have
advised us that they have not entered into any agreements, understandings or
arrangements with any underwriters or broker-dealers regarding the sale of their
securities, nor is there an underwriter or coordinating broker acting in
connection with the proposed sale of securities by the Participating
Securityholders.
The Participating Securityholders may effect such transactions by
selling securities directly to purchasers or to or through broker-dealers, which
may act as agents or principals. Such broker-dealers may receive compensation in
the form of discounts, concessions, or commissions from the Participating
Securityholders and/or the purchasers of securities for whom such broker-dealers
may act as agents or to whom they sell as principals, or both (which
compensation as to a particular broker-dealer might be in excess of customary
commissions).
The Participating Securityholders and any broker-dealers that act in
connection with the sale of securities might be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, and any commissions
received by such broker-dealers and any profit on the resale of the securities
sold by them while acting as principals might be deemed to be underwriting
discounts or commissions under the Securities Act. We have agreed to indemnify
each Participating Securityholder against certain liabilities, including
liabilities arising under the Securities Act. The Participating Securityholders
may agree to indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of the securities against certain liabilities,
including liabilities arising under the Securities Act. Brokers' commissions and
dealers' discounts, taxes and other selling expenses to be borne by the
Participating Securityholders are not expected to exceed normal selling
expenses.
Because Participating Securityholders may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, the
Participating Securityholders will be subject to the prospectus delivery
requirements of the Securities Act, which may include delivery through the
facilities of the NYSE pursuant to Rule 153 under the Securities Act. We have
informed the Participating Securityholders that the anti- manipulative
provisions of Regulation M promulgated under the Exchange Act may apply to their
sales in the
-18-
market. The registration of the securities under the Securities Act shall not be
deemed an admission by the Participating Securityholders or the Company that the
Participating Securityholders are underwriters for purposes of the Securities
Act of any securities offered pursuant to this Prospectus.
Upon the Company being notified by a Participating Securityholder that
any material arrangement has been entered into with a broker-dealer for the sale
of securities through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
prospectus will be filed, if required, pursuant to Rule 424(b) under the Act,
disclosing: (1) the name of each such participating securityholder and of the
participating broker-dealer(s); (2) the number of securities involved; (3) the
price at which such securities were sold; (4) the commissions paid or discounts
or concessions allowed to such broker-dealer(s), where applicable; (5) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in this prospectus; and (6) other facts
material to the transaction. In addition, upon the Company being notified by a
Participating Securityholder that a donee or pledgee intends to sell more than
500 shares of common stock or warrants, a supplement to this prospectus will be
filed.
The securities may be sold or distributed in a variety of ways,
including:
1. Block trades (which may involve crosses) in which the broker or
dealer so engaged will attempt to sell the securities as agent
but may position and resell a portion of the block as principal
to facilitate the transaction.
2. Purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus.
3. Exchange distributions and/or secondary distributions in
accordance with the rules of the NYSE.
4. Ordinary brokerage transactions and transactions in which the
broker solicits purchasers.
5. Sales in the over-the-counter market.
6. Through short sales of securities.
7. Pro rata distributions in the ordinary course of business or as
part of the liquidation and winding up of the affairs of the
Participating Securityholders.
8. Privately negotiated transactions.
The Participating Securityholders may from time to time deliver all or
a portion of the securities to cover a short sale or sales or upon the exercise,
settlement or closing of a call equivalent position or a put equivalent
position.
Under the Exchange Act and the regulations thereunder, any person
engaged in a distribution of the securities offered by this Prospectus may not
simultaneously engage in market making activities with respect to the securities
during any applicable "cooling off" periods prior to the commencement of such
distribution. In addition, and without limiting the foregoing, the Participating
Securityholders will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder including, without limitation, Rules 101,
102, 103 and 104, which provisions may limit the timing of purchases and sales
of securities by the Participating Securityholders.
-19-
Securities that qualify for sale pursuant to Rule 144 may be sold under
Rule 144 rather than pursuant to this prospectus. In addition, a Participating
Securityholder may devise, gift or otherwise transfer the securities by means
not described herein, in which event such transfer will not be pursuant to this
prospectus.
DESCRIPTION OF SECURITIES TO BE REGISTERED
COMMON STOCK
We have 200,000,000 authorized shares of common stock, 87,336,421 of
which (including shares that may have been repurchased) were issued and
outstanding on February 29, 2000. All shares of our common stock currently
outstanding are validly issued, fully paid and non-assessable. All shares of
common stock issuable upon the exercise of warrants and options, when issued and
paid for upon such exercise, will be validly issued, fully paid and
non-assessable.
Voting Rights
Each share of common stock entitles the holder thereof to one vote,
either in person or by proxy, at meetings of the stockholders. Our board of
directors consists of two classes, each of which serves for a term of two years.
At each annual meeting of the stockholders the directors in only one class will
be elected. The holders are not permitted to vote their shares of common stock
cumulatively. Accordingly, the holders of more than 50% of the outstanding
shares of common stock can elect all of the directors standing for election at a
stockholders' meeting.
Dividend Policy
All shares of our common stock are entitled to participate ratably in
dividends when and as declared by our board of directors out of the funds
legally available therefor. Any such dividends may be paid in cash, additional
shares of our common stock or shares of another class of our stock. We have paid
dividends to our shareholders in each of the last seven quarters. See "Price
Range of Shares and Distributions".
Miscellaneous Rights and Provisions
Holders of our common stock have no preemptive or other subscription
rights, conversion rights, redemption or sinking fund provisions. In the event
of the liquidation or dissolution, whether voluntary or involuntary, each share
of common stock is entitled to share ratably in any assets available for
distribution to holders of our equity after satisfaction of all liabilities.
DESCRIPTION OF WARRANTS
The following is a brief summary of certain provisions of the warrants.
This summary is not complete and is qualified in all respects by reference to
the warrants. Copies of the warrants have been filed as exhibits to the
registration statement. We have 6,000,000 warrants issued and outstanding. The
warrants expire December 15, 2005 and are not redeemable, in whole or in part.
Exercise Price and Terms
The warrants entitle the registered holders thereof to purchase an
aggregate of 6,113,165 shares of common stock at an aggregate exercise price of
$210 million subject to adjustment in accordance with the anti-dilution and
other provisions referred to below. The holder of any warrant may exercise such
warrant by surrendering the certificate representing the warrant to our
Secretary, with the subscription form on the warrant
-20-
properly completed and executed, together with payment of the exercise price.
The warrants may be exercised at any time in whole or in part at the exercise
price then in effect until expiration of the warrants. The warrants expire
December 15, 2005. No fractional shares of common stock will be issued upon the
exercise of the warrants. The exercise price of the warrants bears no
relationship to any objective criteria of future value. Accordingly, such
exercise price should in no event be regarded as an indication of any future
trading price.
Adjustments
The exercise price and the number of shares of common stock purchasable
upon the exercise of the warrants are subject to adjustment upon the occurrence
of certain events, including:
1. Stock dividends.
2. Stock splits.
3. Combinations or reclassifications of the common stock.
4. Mergers or reorganizations.
Pursuant to a one million share dividend issued to our shareholders on
November 3, 1999, the warrants have been adjusted and are now exercisable for
6,113,165 shares of common stock. There have been no other events requiring an
adjustment to the warrants.
Transfer, Exchange and Exercise
The warrants are in registered form and may be presented to us for
transfer, exchange or exercise at any time on or prior to their expiration date,
at which time the warrants become wholly void and of no value. If a market for
the warrants develops, the holder may sell the warrants instead of exercising
them. There can be no assurance, however, that a market for the warrants will
develop or continue.
Warrant Holder Not a Stockholder
The warrants do not confer upon holders any voting, dividend or other
rights as stockholders.
FEDERAL INCOME TAX CONSIDERATIONS
We intend to operate in a manner that permits us to satisfy the
requirements for taxation as a real estate investment trust under the applicable
provisions of the Internal Revenue Code. No assurance can be given, however,
that such requirements will be met. The following is a summary of the federal
income tax consequences for the Company and our shareholders with respect to our
treatment as a real estate investment trust. The information set forth below, to
the extent that it constitutes matters of law or legal conclusions, is based on
the opinion of Mayer, Brown & Platt, our counsel.
Based upon the matters described below, including an Internal Revenue
Service closing agreement dated March 10, 1998, discussed below, in the opinion
of Mayer, Brown & Platt, our counsel, our existing legal organization and our
actual and proposed method of operation described in this Prospectus, as set
forth in our organizational documents and as represented by us to Mayer, Brown &
Platt, enable us to satisfy the requirements for qualification as a real estate
investment trust under the Internal Revenue Code in the ordinary course of our
operations. This opinion of our counsel is based on certain assumptions relating
to our organization and our operation, including that we will be operated in the
manner described in our applicable organizational documents and in this
Prospectus and that all terms and provisions of such documents will be complied
with by all parties thereto. Our counsel's opinion is also based upon, and to
that extent limited, the opinion of another law firm delivered to us last year.
That law firm's opinion stated that our proposed method of operation from and
after the earlier of the date of the merger with SFT and the TriNet merger,
taking into
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account the effects of the merger with SFT and the TriNet merger, will enable us
to continue to meet the requirements for qualification and taxation as a real
estate investment trust under the Internal Revenue Code. We note that such law
firm's opinion relies on, among other items, the opinion of another law firm
regarding the qualification and taxation of TriNet as a REIT through the
effective time of the TriNet merger. We have received the consent of the law
firm opining on the Company's ability, taking into account the effects of the
merger with SFT and the TriNet merger, to continue to meet the requirements for
qualification and taxation as a REIT under the Internal Revenue Code, and have
assumed that the opinion of the other law firm regarding the qualification and
taxation of TriNet as a REIT through the effective time of the TriNet merger
remains in effect as of the date such opinion was rendered. Our counsel's
opinion is also conditioned upon certain representations made by us as to
certain factual matters relating to our organization and intended or expected
manner of operation. In addition, our counsel's opinion is based on the law
existing and in effect on the date hereof and our qualification and taxation as
a real estate investment trust will depend on compliance with such law existing
and in effect on the date hereof and as the same may be hereafter amended. Our
qualification and taxation as a real estate investment trust will further depend
upon our ability to meet, on a continuing basis through actual operating
results, asset composition, distribution levels diversity of share ownership and
the various qualification tests imposed under the Internal Revenue Code
discussed below. Counsel will not review compliance with these tests on a
continuing basis, and thus, no assurance can be given that we will satisfy such
tests on a continuing basis.
In brief, a corporation that invests primarily in real estate
interests, including interests in mortgages on real property, and that otherwise
would be treated for federal income tax purposes as a corporation can, if it
meets the real estate investment trust provisions of the Internal Revenue Code
described below, claim a tax deduction for the dividends it pays to its
shareholders. Consequently, such a corporation is generally not taxed on its
"real estate investment trust taxable income" to the extent it is currently
distributed to shareholders, thereby substantially eliminating the "double
taxation," at both the corporate and shareholder levels, that otherwise
generally results from an investment in a corporation. However, as discussed in
greater detail below, such an entity remains subject to tax in certain
circumstances even if it qualifies as a real estate investment trust. Further,
if the entity were to fail to qualify as a real estate investment trust in any
year, it would not be able to deduct any portion of the dividends paid to its
shareholders and would be subject to full federal income taxation on its
earnings, thereby significantly reducing or eliminating the cash available for
distribution to its shareholders. See "-- Taxation of the Company -- General"
and "--Taxation of the Company -- Failure to Qualify."
Our Board of Directors believes that we have operated in a manner that
permitted us to elect, and that we timely and effectively elected, real estate
investment trust status for our taxable year ending December 31, 1998, and in
each taxable year thereafter. As noted, there can be no assurance, however, that
this belief or expectation will be fulfilled, since qualification as a real
estate investment trust depends on our continuing ability to satisfy the
numerous asset, income and distribution tests, as described below, which in turn
will be dependent in part on our operating results.
The following summary, based on existing law, is not exhaustive of all
possible tax considerations and does not give a detailed discussion of any
state, local or foreign tax considerations, nor does it discuss all of the
aspects of federal income taxation that may be relevant to a shareholder in
light of his or her particular circumstances or to certain types of
shareholders, including insurance companies, financial institutions and
broker-dealers, foreign corporations and persons who are not the citizens or
residents of the United States, who are subject to special treatment under the
federal income taxation laws.
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TAXATION OF THE COMPANY
Closing Agreement
On March 10, 1998, we received an Internal Revenue Service closing
agreement, a written agreement from the Internal Revenue Service confirming its
agreement on a material issue, under which we were eligible to make an election
under Section 856(c)(1) of the Internal Revenue Code to be taxed as a real
estate investment trust for our taxable year ending December 31, 1998. After
determining that we may have violated certain real estate investment trust asset
requirements in the years prior to 1998, we sought the March 10, 1998 Internal
Revenue Service Closing Agreement by voluntarily disclosing to the Commissioner
of Internal Revenue that we may have violated certain real estate investment
trust asset requirements set forth in Section 856(c) of the Internal Revenue
Code for our taxable years 1993 through 1996.
While it is a condition of real estate investment trust status that
prior non-REIT corporate earnings and profits must be eliminated, the Board of
Directors believes that we did not generate significant earnings and profits in
taxable years during which we may not have qualified as a real estate investment
trust. In addition, if we had any net unrealized built-in gain with respect to
any asset held by us on January 1, 1998, and we were to recognize gain on the
disposition of such asset during the ensuing 10-year period, then the built-in
gain on January 1, 1998 will be subject to tax at the corporate tax rate.
General
In any year in which we qualify as a real estate investment trust, in
general we will not be subject to federal income tax on that portion of our real
estate investment trust taxable income or capital gain which is distributed to
shareholders. We may, however, be subject to tax at normal corporate rates on
any taxable income or capital gain that is not so distributed. To the extent
that we elect to retain and pay income tax on our net long-term capital gain,
shareholders are required to include their proportionate share of our
undistributed long-term capital gain in income but will receive a credit for
their share of any pro-rata taxes paid by us on such gain.
Notwithstanding our qualification as a real estate investment trust, we
may also be subject to taxation in certain other circumstances. If we fail to
satisfy either the 75% or the 95% gross income test, each as discussed below,
and nonetheless maintain our qualification as a real estate investment trust
because certain other requirements are met, we will be subject to a 100% tax on
the greater of the amount by which we fail either the 75% or the 95% test,
multiplied by a fraction intended to reflect our profitability. We will also be
subject to a tax of 100% on net income from any "prohibited transaction," as
described below. If we have: (1) net income from the sale or other disposition
of "foreclosure property" which is held primarily for sale to customers in the
ordinary course of business; or (2) other non-qualifying income from foreclosure
property, we will also be subject to tax on such income from foreclosure
property at the highest corporate tax rate. In addition, if we fail to
distribute during each calendar year at least the sum of :
(1) 85% of our real estate investment trust ordinary income for such
year;
(2) 95% of our real estate investment trust capital gain net income
for such year; and
(3) any undistributed taxable income from prior years,
we will be subject to a 4% excise tax on the excess of such sum over the amounts
actually distributed. To the extent that we elect to retain and pay income tax
on our long-term capital gain, such retained amounts will be treated as having
been distributed for purposes of the 4% excise tax. We also may be subject to
the corporate
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alternative minimum tax, as well as to tax in certain situations not presently
contemplated. We use the calendar year both for federal income tax purposes and
for financial reporting purposes.
We may also recognize other taxable income, as described below, in
excess of cash flow from REMIC residual interests or our retained interests from
non-REMIC securitization transactions. In addition, we may have income without
the receipt of cash to the extent of the market discount attributable to debt
securities held by a REMIC in which we hold a residual interest. We will be
subject to tax at the highest marginal corporate rate on the portion of any
Excess Inclusion income derived by us from a REMIC residual interest that is
allocable to our stock held by "Disqualified Organizations," as defined below.
See "--Taxation of the Shareholders--Taxation of Tax-Exempt Shareholders" below.
Any such tax on the portion of any Excess Inclusion allocable to our stock held
by Disqualified Organizations will reduce the cash available for distribution to
our shareholders.
In order to qualify as a real estate investment trust, we must meet,
among others, the following requirements:
Share Ownership Tests
Our shares must be held by a minimum of 100 persons for at least 335
days in each taxable year, or a proportional number of days in any short taxable
year. In addition, at all times during the second half of each taxable year, no
more than 50% in value of our outstanding shares may be owned, directly or
indirectly and including the effects of certain constructive ownership rules, by
five or fewer individuals, which for this purpose includes certain tax-exempt
entities. However, for purposes of this test, any shares held by a qualified
domestic pension or other retirement trust will be treated as held directly by
its beneficiaries in proportion to their actuarial interest in such trust rather
than by such trust. These share ownership requirements need not be met until our
second taxable year for which a real estate investment trust election is made.
As we have represented to our counsel, we have satisfied and will continue to
satisfy these requirements.
In order to comply with the foregoing share ownership tests, we have
placed certain restrictions on the transfer of our stock to prevent additional
concentration of stock ownership. Moreover, to evidence compliance with these
requirements, Treasury regulations require that we maintain records which
disclose the actual ownership of our outstanding stock. In fulfilling our
obligations to maintain records, we must and will demand written statements each
year from the record holders of designated percentages of our stock disclosing
the actual owners of such stock, as prescribed by Treasury regulations. A list
of those persons failing or refusing to comply with such demand must be
maintained as part of our records. A shareholder failing or refusing to comply
with our written demand must submit with his tax return a similar statement
disclosing the actual ownership of our stock and certain other information. In
addition, our Amended and Restated Charter provides restrictions regarding the
ownership and transfer of our stock that are intended to assist us in continuing
to satisfy the share ownership requirements.
Asset Tests
At the close of each quarter of our taxable year, we must satisfy two
tests relating to the nature of our assets, with "assets" being determined in
accordance with generally accepted accounting principles. First, at least 75% of
the value of our total assets must be represented by interests in real property,
interests in mortgages on real property, shares in other real estate investment
trusts, cash, cash items, government securities, qualified temporary investments
and regular or residual interests in a REMIC, except that, if less than 95% of
the assets of a REMIC are "real estate assets" as determined under the Internal
Revenue Code, we shall be treated as holding directly our proportionate share of
the assets of the REMIC. Second, although the remaining 25% of our assets
generally may be invested without restriction, securities in this class may not
exceed: (1) in the case of securities of any one non-government issuer, 5% of
the value of our total assets;
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and (2) 10% of the outstanding voting securities of any one such issuer. Based
on existing facts, the Board of Directors intends that we will meet these tests
at the applicable times in the future. If, however, we were unable to satisfy
the foregoing asset tests at the applicable time, we would be required to take
preventive steps by disposing of certain assets or otherwise risk a loss of real
estate investment trust status.
Currently, we own approximately 96% on the non-voting shares of TriNet
Management Operating Company, Inc., 100% of the non-voting shares of Starwood
Operating, Inc., and Starwood Financial Preferred, Inc. and indirectly 50% of
the non-voting shares of FMAC Starfund Preferred, Inc., and not more than 10% of
its voting shares of these corporations. Therefore, we believe that we do not
own more than 10% of the voting securities of these corporations and that any of
these corporations' shares do not represent more that 5% of the total value of
our gross assets. However, there can be no assurance that the Internal Revenue
Service will not contend that the value of the shares of any of these
corporations exceeds the 5% limitations. In rendering its opinion, our counsel
will rely on our conclusions with regard to the value of TriNet Management
Operating Company, Inc., Starwood Operating, Inc., Starwood Financial Preferred,
Inc. and FMAC Starfund Preferred, Inc. In addition, for taxable years beginning
after December 31, 2000, unless we and any of these corporations jointly elect
to treat each of these corporations as taxable REIT subsidiaries, such
corporations' future activities and growth may be limited. "--Possible
Legislative or Other Actions Affecting Tax Consequences."
Gross Income Tests
There are three separate percentage tests relating to the sources of
our gross income which must have been satisfied for our 1997 taxable year and
two separate percentage tests thereafter. For taxable years beginning on January
1, 1998, the 30% gross income test has been repealed. For the purposes of these
tests, where we invest in a partnership, we will be treated as receiving our
share of the income and loss of the partnership, and the gross income of the
partnership will retain the same character in our hands as it has in the hands
of the partnership. The two tests are separately described below:
The 75% Test. At least 75% of our gross income for the taxable year
must be "qualifying income." Qualifying income generally includes:
1. Rents from real property, except as modified below.
2. Interest on obligations secured by mortgages on, or interests in,
real property including amounts included in gross income with
respect to a regular or residual interest in a REMIC, except
that, if less than 95% of the assets of a REMIC are "real estate
assets" as determined under the Internal Revenue Code, we will be
treated as holding directly our proportionate share of assets of
such REMIC.
3. Gains from the sale or other disposition of interests in real
property and real estate mortgages, other than gain from property
held primarily for sale to customers in the ordinary course of
our trade or business ("dealer property").
4. Dividends or other distributions on shares in other real estate
investment trusts, as well as gain from the sale of such shares.
5. Abatements and refunds of real property taxes.
6. Income from the operation, and gain from the sale, of property
acquired at or in lieu of a foreclosure of the mortgage secured
by such property ("foreclosure property").
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7. Commitment fees received for agreeing to make loans secured by
mortgages on real property or to purchase or lease real property.
8. Certain qualified temporary investment income attributable to the
investment of new capital received by us in exchange for our
stock or specified debt securities during the one-year period
following the receipt of such capital.
Rents received from a tenant will not, however, qualify as rents from
real property in satisfying the 75% gross income test or the 95% gross income
test described below if we own, directly or constructively, 10% or more of the
tenant. If the portion of any rent attributable to personal property leased in
connection with a lease of real property is greater than 15% of the total rent
received under the lease, the portion of the rent will not qualify as rents from
real property. Moreover, an amount received or accrued will not qualify as rents
from real property or as interest income, as discussed below, for the 75% and
95% gross income tests, if based, in whole or in part, on the income or profits
of any person. However, an amount received or accrued generally will not be
excluded from "rents from real property" solely by reason of being based on a
fixed percentage, or percentages, of gross receipts or gross sales. Finally, for
rents received to qualify as rents from real property for the 75% and 95% gross
income tests, we generally must not operate or manage the property, or furnish
or render services to customers other than through an "independent contractor"
from whom we derive no income, except that the "independent contractor"
requirement does not apply to the extent that the services provided by us are
"usually or customarily rendered" in connection with the rental of space for
occupancy only, or are not otherwise considered "rendered to the occupant for
his convenience," or the amounts received with respect to the services do not
exceed 1% of all amounts received or accrued, directly or indirectly, by us
during the taxable year with respect to the property.
We monitor our operations in the context of these standards so as to
satisfy the 75% and 95% gross income tests and have represented to our counsel
that we have and will satisfy these tests for the applicable periods.
The 95% Test. In addition to deriving 75% of our gross income from the
sources listed above, at least 95% of our gross income for the taxable year must
be derived from the above described qualifying income, or from dividends,
interests, or gains from the sale or other disposition of stock or other
securities that are not dealer property. Dividends and interest on any
obligations not collateralized by an interest in real property, including a
mortgage, are included for purposes of the 95% gross income test, but not for
the purposes of the 75% gross income test. In addition, payments to a real
estate investment trust under an interest rate swap, cap agreement, option,
futures contract, forward rate agreement or any similar financial instrument
entered into by the real estate investment trust to hedge its indebtedness
incurred or to be incurred, and any gain from the sale or other disposition of
these instruments, are treated as qualifying income for purposes of the 95%
gross income test, but not for purposes of the 75% gross income test. We closely
monitor our non-qualifying income and anticipate that non-qualifying income from
other activities will not result in our failing to satisfy either the 75% or 95%
gross income test.
For purposes of determining whether we comply with the 75% and the 95%
gross income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property, excluding
foreclosure property; however, it does not include a sale of our investments if
such investments are held by us for at least four years and certain other
requirements, relating to the number of investments sold in a year, their tax
bases, and the cost of improvements made thereto, are satisfied. See "--Taxation
of the Company -- General."
In order to comply with the 75% and 95% gross income tests described
above, the Board of Directors will monitor the investments made by us with the
intent of maintaining our status as a real estate investment trust. As a result,
the Board of Directors may limit and/or closely scrutinize certain types of
investments made
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by us, including, among others, loans that provide for interest amounts that are
dependent in whole or in part on the income or profits of a borrower, loans that
contain interest payment provisions relating to appreciation of the underlying
property, loans that are secured by assets other than mortgages on real property
or interests in real property, and certain hedging transactions.
Under the real estate investment trust rules, any amount received or
accrued, directly or indirectly, with respect to any obligation is generally not
includible as qualifying "interest" for purposes of the 75% and 95% gross income
tests if the determination of the amount depends in whole or in part on the
income or profits of any person, whether or not derived from property secured by
the obligation. However, an amount received or accrued generally will not fail
to qualify as "interest" solely by reason of being based on a fixed percentage
or percentages of gross receipts or gross sales. In addition, an amount received
or accrued generally not will fail to qualify as "interest" solely by reason of
being based on the income or profits of a debtor if the debtor derives
substantially all of its gross income from the related property through the
leasing of substantially all of its interests in the property, to the extent the
amounts received from the debtor are attributable to amounts that would be
characterized as qualified rents from real property under the real estate
investment trust rules. Furthermore, to the extent interest under a loan is
based on the cash proceeds realized upon the sale of the property securing the
loan and constitutes a "shared appreciation provision," as described below,
income attributable to such participation feature will be treated as gain from
sale of the secured property, which generally is treated as qualifying income
for purposes of the 75% and 95% gross income tests, except as noted below.
In addition, at the time of loan acquisition or origination it might be
determined in certain cases that our investment in a loan may exceed at the time
of loan acquisition or origination the value of the real property securing the
loan or may not be secured by a mortgage on real property, e.g., a loan secured
by a partnership interest, which would result in part or all of the interest
income from such loan constituting qualifying income for purposes of the 95%
gross income test, but not for purposes of the 75% gross income test. It is also
possible that, in some instances, the interest income from a loan may be based
in part on the borrower's profits or net income, which generally will disqualify
the income from the loan for purposes of both the 75% and 95% gross income
tests, except as noted above.
Certain of our investments may contain the right to receive interest
based on appreciation of the underlying real property. In addition, we may
acquire or originate loans in the future that have similar rights. Under the
Internal Revenue Code, a shared appreciation provision in a mortgage is any
provision which is in connection with an obligation held by us and secured by an
interest in real property (the "secured property"), and which entitles us to
receive a specified portion of any gain realized on the sale or exchange of such
property, or of any gain which would be realized if the property were deemed
sold on a specified date.
For purposes of determining whether we meet the 75% income test and 95%
income text and whether we derive any income from prohibited transactions, any
income derived from a shared appreciation mortgage shall be treated as gain
recognized on the sale of the secured property. For purposes of this rule: (1)
we are treated as holding the secured property for the period during which we
held the shared appreciation provision or, if shorter, for the period during
which the secured property was held by the person holding such property; and (2)
the secured property is treated as "dealer property" as defined in Section
1221(1) of the Internal Revenue Code, if it would be treated as "dealer
property" in the hands of the person holding the secured property, or it would
be treated as "dealer property" if held by us.
For our taxable years after 1997, if the secured property is treated as
dealer property, gain from the sale of such property could give rise to the 100%
tax on gain from prohibited transactions. Since substantially all of the loans
previously contributed to us were acquired by purchase or contribution rather
than originated by us, there is no built-in safeguard in the loan documents to
protect us from the risk that the secured property may be treated as "dealer
property." Similarly, in the case of loans that are acquired in the future
rather than
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originated by us, the same issue arises. However, we have and intend to include
built-in safeguards in the loans we originate to minimize any risk that any
secured property will be treated as "dealer property."
We may acquire investments that do not generate qualifying income for
purposes of the 75% and 95% gross income tests because such assets, for example,
generate income dependent in whole or in part on the income or profits of the
applicable borrower. However, based on the Board of Directors' review of all of
our investments, the Board of Directors believes that, for purposes of both the
75% and 95% gross income tests, our investments will permit us to satisfy the
requirements for qualification as a real estate investment trust.
We intend to enter into various hedging transactions with respect to
one or more of our assets or liabilities. While such hedging transactions could
take a variety of forms, only those payments to a real estate investment trust
under the interest rate swap, cap agreement, option, futures contract, forward
rate agreement or any similar financial instrument entered into by the real
estate investment trust to hedge our indebtedness incurred or to be incurred,
and any gain from the sale or other disposition of these instruments are treated
as qualifying income for purposes of the 95% gross income test, but not for
purposes of the 75% gross income test. The provisions of the Internal Revenue
Code regarding our qualification as a real estate investment trust may thus
restrict our ability to enter into certain types of hedging transactions. The
Board of Directors will monitor our compliance with the various real estate
investment trust qualification tests imposed under the Internal Revenue Code
with respect to our various hedging strategies on a continuing basis. However,
no assurance can be given that hedging transactions, together with our other
operations, would permit us to satisfy these tests on an ongoing basis.
Even 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 real estate investment
trust for such year if we are entitled to relief under certain provisions of the
Internal Revenue Code. These relief provisions will generally be available if:
1. Our failure to comply were due to reasonable cause and not to
willful neglect.
2. We report the nature and amount of each item of our income
included in the tests on a schedule attached to our tax returns.
3. Any incorrect information on the schedule is not due to fraud
with intent to evade tax.
If these relief provisions apply, however, we will nonetheless be subject to a
100% tax on the greater of the amount by which we fail either the 75% or 95%
gross income test, multiplied by a fraction intended to reflect our
profitability.
The 30% Test. The 30% gross income test has been repealed and we have
not been required to comply with this test beginning January 1, 1998.
Foreclosure Property Rules. Real estate investment trusts generally are
subject to tax at the maximum corporate rate on any income from foreclosure
property, other than income that would generally be qualifying income for
purposes of the 75% gross income test, less expenses directly connected with the
production of such income. "Foreclosure property" is defined as any real
property, including interests in real property, and any personal property
incident to such real property:
1. That is acquired by a real estate investment trust as the result
of such real estate investment trust having bid on such property
at foreclosure, or having otherwise reduced such property to
ownership or possession by agreement or process of law, after
there was a default, or default was imminent, on a lease of such
property or on an indebtedness owed to the real estate investment
trust that such property secured.
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2. As to which the related loan was made or acquired by the real
estate investment trust at a time when default was not imminent
or anticipated.
3. For which such real estate investment trust makes a proper
election to treat such property as foreclosure property.
Except as provided in the following paragraph, property shall cease to be
foreclosure property as of the close of the third taxable year following the
taxable year in which we acquired such property in foreclosure. If property is
not eligible for the election to be treated as foreclosure property ("ineligible
property") because, for example, the related loan was acquired by us at the time
when default was imminent or anticipated, income received with respect to such
ineligible property may not be qualifying income for purposes of the 75% or 95%
gross income tests.
Any foreclosure property shall cease to be foreclosure property on the
first day, occurring on or after the day on which we acquired the property in
foreclosure, on which:
1. A lease is entered into with respect to such property which, by
its terms, will not give rise to qualifying income for purposes
of the 75% gross income test or any amount is received or
accrued, directly or indirectly, pursuant to a lease entered into
on or after such day which does not generate qualifying income
for purposes of the 75% gross income test.
2. Any construction takes place on such property, other than
completion of a building, or completion of any other improvement,
where more than 10 percent of the construction of such building
or other improvement was completed before default became
imminent.
3. If such day is more than 90 days after the day on which such
property was acquired by us and the property is used in a trade
or business which is conducted by us, other than through an
independent contractor, within the meaning of Section 856(d)(3)
of the Internal Revenue Code, from whom we do not derive or
receive any income.
For example, if we were to acquire a hotel as foreclosure property and operate
the hotel for more than 90 days, we would be required to operate the hotel
through an independent contractor after the 90th day, within the meaning of the
Internal Revenue Code, from whom we did not derive or receive any income, which
might include income from the hotel. Otherwise, after such 90th day, the
property would cease to be foreclosure property.
In the event that a foreclosure with respect to any of our mortgage
investments were to occur, or were anticipated to occur, we intend to manage the
actual or anticipated foreclosure with the intent of assuring qualification
under the real estate investment trust asset and gross income tests including,
if appropriate, the election to treat a foreclosed-upon property as foreclosure
property and to pursue the continued treatment of such property under the
foreclosure property rules.
Annual Distribution Requirements
In order to qualify as a real estate investment trust, we are required
to distribute dividends to our shareholders each year in an amount at least
equal to:
1. The sum of (x) 95%, or 90% for taxable years beginning after
December 31, 2000, of our real estate investment trust taxable
income, computed without regard to the dividends paid deduction
and our net capital gain and (y) 95%, or 90% for taxable years
beginning after December 31, 2000, of the after-tax net income,
if any, from foreclosure property; minus
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2. The sum of certain items of excess non-cash income.
Such distributions must be paid in the taxable year to which they relate, or in
the following taxable year if declared before we timely file our tax return for
such year and if paid on or before the first regular dividend payment after the
declaration. To the extent that we do not distribute all of our net capital gain
or distribute at least 95%, or 90% for taxable years beginning after December
31, 2000, but less than 100%, of our real estate investment trust taxable
income, as adjusted, we will be subject to tax on the undistributed amount at
regular capital gain or ordinary corporate tax rates, as the case may be.
We intend to make timely distributions sufficient to satisfy the annual
distribution requirements described in the first sentence of the preceding
paragraph. It is possible that we may not have sufficient cash or other liquid
assets to meet the 95%, or 90% for taxable years beginning after December 31,
2000, distribution requirement, due to timing differences between the actual
receipt of income and actual payment of expenses on the one hand, and the
inclusion of such income and deduction of such expense in computing our real
estate investment trust taxable income on the other hand; or for other reasons.
We will closely monitor the relationship between our real estate investment
trust taxable income and cash flow and, if necessary, intend to borrow funds in
order to satisfy the distribution requirement. However, there can be no
assurance that such borrowing would be available at such time.
If we fail to meet the 95%, or 90% for taxable years beginning after
December 31, 2000, distribution requirement as a result of an adjustment to our
tax return by the Internal Revenue Service, we may retroactively cure the
failure by paying a "deficiency dividend," plus applicable penalties and
interest, within a specified period.
Failure to Qualify
If we fail to qualify for taxation as a real estate investment trust in
any taxable year and the relief provisions do not apply, we will be subject to
tax, including any applicable alternative minimum tax, on our taxable income at
regular corporate rates. Distributions to shareholders in any year in which we
fail to qualify as a real estate investment trust will not be deductible by us,
and generally they will not be required to be made under the Internal Revenue
Code. In such event, to the extent of current and accumulated earnings and
profits, all distributions to shareholders will be taxable as ordinary income,
and subject to certain limitations in the Internal Revenue Code, corporate
distributees may be eligible for the dividends received deduction. Unless
entitled to relief under specific statutory provisions, we also will be
disqualified from re-electing taxation as a real estate investment trust for the
four taxable years following the year during which qualification was lost.
TAXATION OF SECURITYHOLDERS
Taxation of Taxable Domestic Shareholders. As long as we qualify as a
real estate investment trust, distributions made to our taxable domestic
shareholders out of current or accumulated earnings and profits, and not
designated as capital gain dividends, generally will be taxed to such
shareholders as ordinary dividend income and will not be eligible for the
dividends received deduction for corporations. Distributions of net capital gain
designated by us as capital gain dividends will be taxed to such shareholders as
long-term capital gain, to the extent they do not exceed our actual net capital
gain for the fiscal year, without regard to the period in which the shareholder
has held our shares. However, corporate shareholders may be required to treat up
to 20% of capital gain dividends as ordinary income. To the extent that we make
distributions in excess of current and accumulated earnings and profits, such
distributions will be treated first as a tax-free return of capital to the
shareholder, reducing the tax basis of a shareholder's shares by the amount of
such excess distribution, but not below zero, with distributions in excess of
the shareholder's tax basis being taxed as capital gains, if the shares are held
by the shareholder as a capital asset. In addition, any dividend declared by us
in October, November or December of any year that is payable to a shareholder of
record on a specific
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date in any such month shall be treated as both paid by us and received by the
shareholder on December 31 of such year, provided that the dividend is actually
paid by us during January of the following calendar year. Shareholders may not
include in their individual income tax returns any of our net operating losses
we may have. Federal income tax rules may also require that certain minimum tax
adjustments and preferences be apportioned to our shareholders.
We are permitted under the Internal Revenue Code to elect to retain and
pay income tax on our net capital gain for any taxable year. If we so elect, a
shareholder must include in income such shareholder's proportionate share of our
undistributed capital gain for the taxable year, and will be deemed to have paid
such shareholder's proportionate share of the income tax paid by us with respect
to such undistributed capital gain. Such tax would be credited against the
shareholder's tax liability and subject to normal refund procedures. In
addition, each shareholder's basis in such shareholder's shares would be
increased by the amount of undistributed capital gain, less the tax paid by us,
included in the shareholder's income.
The Internal Revenue Service Restructuring and Reform Act of 1998
provides that gain from the sale or exchange of some investments held by
individuals for more than one year is taxed at a maximum capital gain rate of
20%. Pursuant to Internal Revenue Service guidance, we may classify portions of
our capital gain dividends as eligible for the 20% capital gain rule discussed
above or as unrecaptured Internal Revenue Code Section 1250 gain taxable at a
maximum rate of 25%.
In general, any loss upon a sale or exchange of shares by a shareholder
who has held such shares for six months or less, after applying certain holding
period rules, will be treated as a long-term capital loss, to the extent of
distributions from us required to be treated by such shareholders as long-term
capital gains.
Backup Withholding. We will report to our domestic shareholders and to
the Internal Revenue Service the amount of dividends paid for each calendar
year, and the amount of tax withheld, if any, with respect thereto. Under the
backup withholding rules, a shareholder may be subject to backup withholding at
a rate of 31% with respect to dividends paid unless such shareholder: (1) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact and, when required; (2) provides a taxpayer
identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A shareholder that does not provide us with a correct
taxpayer identification number may also be subject to penalties imposed by the
Internal Revenue Service. Any amount paid as backup withholding is available as
a credit against the shareholder's income tax liability. In addition, we may be
required to enforce withholding of a portion of capital gain distributions made
to any shareholders who fail to certify their non-foreign status to us. See
"--Taxation of the Shareholders--Taxation of Foreign Shareholders" below.
Taxation of Holders of Warrants. The following discussion assumes that
the form of the warrants will be respected for U.S. Federal income tax purposes.
Upon the exercise of the warrant, a holder generally will receive the underlying
shares of our common stock after payment of the exercise price. Upon exercise, a
holder generally should not recognize gain or loss as a result of such holder's
receipt of underlying shares, except with respect to any cash received in lieu
of fractional shares. Upon exercise, a holder's adjusted tax basis in the
underlying shares will be an amount equal to the holder's adjusted tax basis in
the warrants, described below, plus the amount paid to us as the exercise price
for the warrants.
Generally, the holding period of stock acquired upon exercise of a
warrant will not include the period during which the warrant was held. Rather,
the holding period of such stock begins the day the warrant is exercised. A
holder's initial tax basis in a warrant will equal the portion of the price
allocated to such warrant upon the issuance. A holder's tax basis in a warrant
will be increased by the amount, if any, of any constructive distribution with
respect to such warrant, as described below, and decreased by the portion of any
constructive distribution that is treated as a tax-free recovery of basis, as
described below.
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Upon a sale, exchange or other disposition, but not including a
repurchase by us, of a warrant, a holder generally will recognize gain or loss
for Federal income tax purposes in an amount equal to the difference between the
sum of the amount of cash and the fair market value of any property received
upon such sale, exchange or other disposition and the holder's adjusted tax
basis in the warrant being disposed of. Gain or loss recognized upon a sale,
exchange or other disposition of a warrant generally will be capital gain or
loss if the underlying shares would be a capital asset in the hands of the
holder. Such capital gain will be taxed at a maximum rate of 20 percent for a
holder who is not a corporation and who held the warrant for more than one year.
Notwithstanding the foregoing, if we repurchase a warrant, any gain
realized by a holder may not qualify for capital gain or loss treatment because
such a repurchase might be tested under the rules generally applicable to
redemptions of stock. Holders of warrants should consult their own tax advisors
regarding the potential application of the stock redemption rules to the
repurchase of a warrant. Upon the lapse of a warrant, a holder will recognize a
capital loss equal to such holder's adjusted tax basis in the warrant. Such
capital loss will be long-term capital loss if the warrant had been held by a
holder for more than one year at the time of lapse, and short-term capital loss
if held for less than one year.
The exercise ratio of the warrants may be subject to adjustment under
certain circumstances. In that case, under Section 305 of the Internal Revenue
Code and the Treasury regulations issued thereunder, holders of the warrants may
be treated as having received a constructive distribution if, and to the extent
that, an adjustment in the exercise price (an "Adjustment"), including an
adjustment to reflect a taxable dividend to holders of our common stock,
increases the proportionate interest of a holder of a warrant in the fully
diluted common stock, whether or not the holder ever exercises the warrant. The
amount of any such constructive distribution would be the fair market value on
the date of the Adjustment of the number of shares of our common stock which, if
actually distributed to holders of warrants, would produce the same increase in
the proportionate interests of such holders in our assets or our earnings and
profits as that produced by the Adjustment.
Taxation of Tax-Exempt Shareholders. The Internal Revenue Service has
issued a revenue ruling in which it held that amounts distributed by a real
estate investment trust to a tax-exempt employees' pension trust do not
constitute unrelated business taxable income ("UBTI"). In general, subject to
the discussion below regarding a "pension-held REIT" and subject to the
following sentence, based upon such ruling and the statutory framework of the
Internal Revenue Code, distributions by a real estate investment trust to a
shareholder that is a tax-exempt entity should not constitute UBTI, provided
that the tax-exempt entity has not financed the acquisition of its shares with
"acquisition indebtedness" within the meaning of the Internal Revenue Code, that
the shares are not otherwise used in an unrelated trade or business of the
tax-exempt entity, and that the real estate investment trust does do not hold a
residual interest in a REMIC that is an entity or arrangement that satisfies the
standards set forth in Section 860D of the Internal Revenue Code. However,
because we may invest in REMIC residual interests, any dividends received by a
shareholder that is a tax-exempt entity that are allocable to Excess Inclusion
income will be treated as UBTI.
If any pension or other retirement trust that qualifies under Section
401(a) of the Internal Revenue Code (a "qualified pension trust") holds more
than 10% by value of the interests in a "pension-held REIT" at any time during a
taxable year, a portion of the dividends paid to the qualified pension trust by
such real estate investment trust may constitute UBTI. For these purposes, a
"pension-held REIT" is defined as a real estate investment trust: (1) which
would not have qualified as a real estate investment trust but for the
provisions of the Internal Revenue Code which look through such a qualified
pension trust in determining ownership of shares of the real estate investment
trust; and (2) as to which at least one qualified pension trust holds more than
25% by value of the interests of such real estate investment trust or one or
more qualified pension trusts, each owning more than a 10% interest by value in
the real estate investment trust, hold in the aggregate more than 50% by value
of the interests in such real estate investment trust. The Board of Directors
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believes that we currently do not constitute a "pension-held REIT." However,
because our shares are "publicly traded," no assurance can be given that we will
not become a "pension-held REIT" in the future.
Any dividends received by a shareholder that is a tax-exempt entity
that are allocable to Excess Inclusion income from a REMIC residual interest
will be treated as UBTI. Excess Inclusion income for any calendar quarter will
equal the excess of our income from REMIC residual interests over our "daily
accruals" with respect to such REMIC residual interests for the calendar
quarter. Daily accruals for a calendar quarter are computed by allocating to
each day on which we own a REMIC residual interest a ratable portion of the
product of: (1) the "adjusted issue price" of the REMIC residual interest at the
beginning of the quarter; and (2) 120% of the long-term federal interest rate,
adjusted for quarterly compounding, on the date of issuance of the REMIC
residual interest. The adjusted issue price of a REMIC residual interest at the
beginning of a calendar quarter equals the original issue price of the REMIC
residual interest, increased by the amount of daily accruals for prior quarters
and decreased by all prior distributions to us with respect to the REMIC
residual interest. We will be subject to tax at the highest marginal corporate
rate on the portion of any Excess Inclusion income derived by us from a REMIC
residual interest that is allocable to our stock held by the United States, any
state or political subdivision thereof, any foreign government, any
international organization, any agency or instrumentality of any of the
foregoing, any other tax-exempt organization, other than a farmer's cooperative
described in Section 521 of the Internal Revenue Code, that is exempt from
taxation under the UBTI provisions of the Internal Revenue Code, or any rural,
electrical or telephone cooperative (each, a "Disqualified Organization"),
unless such Disqualified Organization is subject to the tax under Section 511 of
the Internal Revenue Code. Any such tax would be deductible by us against our
income that is not Excess Inclusion income.
If we derive Excess Inclusion income from REMIC residual interests, a
tax similar to the tax on us described in the preceding paragraph may be imposed
on shareholders who are: (1) pass-through entities, i.e., partnerships, estates,
trusts, regulated investment companies, real estate investment trusts, common
trust funds, and certain types of cooperatives, including farmers' cooperatives
described in section 521 of the Internal Revenue Code, in which a Disqualified
Organization is a record holder of shares or interests; and (2) nominees who
hold shares on behalf of Disqualified Organizations. Consequently, a brokerage
firm that holds shares in a "street name" account for a Disqualified
Organization may be subject to federal income tax on the income derived from
those shares.
Taxation of Foreign Shareholders. The rules governing United States
federal income taxation of nonresident alien individuals, foreign corporations,
foreign partnerships and other foreign shareholders (collectively, "Foreign
Shareholders") are highly complex and the following is only a summary of such
rules. The following discussion assumes that you are not subject to United
States federal income taxation because, for example, you do not have a U.S.
trade or business generating effectively connected income, or in the case of an
individual, that you were not present in the United States for more than 182
days. Prospective Foreign Shareholders should consult with their own tax
advisors to determine the impact of federal, state and local income tax laws
with regard to an investment in our shares, including any reporting
requirements.
If you are a Foreign Shareholder and you sell our shares, any gain you
realize will generally be subject to federal income tax under the Foreign
Investment in Real Property Tax Act of 1980 ("FIRPTA") even if you are otherwise
not subject to United States federal income taxation. Under FIRPTA, however, any
such gain your realize would not be subject to federal income tax if we were a
"domestically-controlled REIT" or if you owned less than 5% of our publicly
traded shares you disposed. We believe that currently we are a
"domestically-controlled REIT" because less than 50%, measured by value, of our
shares is held by Foreign Shareholders. Under these circumstances, any gain you
realize as a Foreign Shareholder from the sale of our shares generally should
not be subject to federal income tax. Because our shares are publicly traded no
assurance can be given that we will continue to qualify a
"domestically-controlled REIT". A 10% FIRPTA
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withholding tax may be imposed on the proceeds from the disposition of our
shares, unless you establish that such withholding should not apply.
Any distributions to Foreign Shareholders that are attributable to a
sale or exchange of any United States real property interests by us, will be
subject to income and withholding taxes under FIRPTA, and may also be subject to
branch profits tax of 30% in the hands of a corporate Foreign Shareholder not
entitled to treaty relief or exemption. For purposes of the FIRPTA rules, the
term "United States real property interest" is broadly defined as any interest,
other than an interest solely as a creditor, in real property located in the
United States, including any right to share in the appreciation in the value or
in the gross or net proceeds or profits generated by the real property. In
addition, a loan to an individual or entity under the terms of which a holder of
the indebtedness has any direct or indirect right to share in the appreciation
in value of, or the gross or net proceeds or profits generated by, an interest
in real property of the debtor or of a related person is, in its entirety, an
interest in real property. As a result, certain of our real estate-related
assets, including, mezzanine loans, opportunistic loans and participations,
triple net leases, subordinated interests and any foreclosure property, may be
treated as United States real property interests for FIRPTA purposes. Under the
FIRPTA rules, we are required to withhold 35% of any distribution to a Foreign
Shareholder that could be designated by us as a capital gain dividend. This
amount is creditable against the Foreign Shareholder's federal income tax.
Distributions of cash derived from our real estate operations, not
designated by us as a capital gain dividend, that we pay to Foreign Shareholders
will be treated as ordinary dividends. Such ordinary dividends will generally be
subject to United States withholding tax at a rate of 30%, unless reduced by an
applicable tax treaty. To establish eligibility for reduced withholding rates
under an applicable income tax treaty, you must file with us an appropriate
Internal Revenue Service form.
The federal income taxation of foreign persons is a highly complex
matter that may be affected by other considerations. Accordingly, Foreign
Shareholders should consult their own tax advisor regarding the income and
withholding tax considerations with respect to their investments in the Company.
OTHER TAX CONSIDERATIONS
Possible Legislative or Other Actions Affecting Tax Consequences.
Prospective securityholders should recognize that the present federal income tax
treatment of an investment in the Company may be modified by legislative,
judicial or administrative action at any time and that any such action may
affect investments and commitments previously made. The rules dealing with
federal income taxation are constantly in review by persons involved in the
legislative process and by the Internal Revenue Service and the Treasury
Department resulting in revisions of regulations and revised interpretations of
established concepts as well as statutory changes. No assurance can be given as
to the form or content, including with respect to effective dates, of any tax
legislation which may be enacted. Revisions in federal tax laws and
interpretations thereof can adversely affect the tax consequences of an
investment in the Company.
In this connection, Congress has recently passed and the President has
signed the Tax Relief Extension Act of 1999 (the "1999 Act") which contains
several provisions affecting real estate investment trusts. One provision under
the 1999 Act will prohibit a real estate investment trust from holding
securities representing more than 10% of the vote or value of the outstanding
securities of any corporation other than:
1. A qualified REIT subsidiary.
2. Another real estate investment trust.
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3. Certain corporations known as "taxable REIT subsidiaries" (the
"taxable REIT subsidiary provision").
In addition, under the 1999 Act, not more than 20% of the value of a
real estate investment trust's total assets may be represented by shares of one
or more taxable REIT subsidiaries. Taxable REIT subsidiaries will be subject to
full corporate level taxation on their earnings, but will be permitted to engage
in certain types of activities which cannot currently be performed by real
estate investment trusts or their controlled subsidiaries without jeopardizing
real estate investment trust status. Taxable REIT subsidiaries will be subject
to certain limitations on the deductibility of certain payments made to the
associated real estate investment trust which could materially increase the
taxable income of the taxable REIT subsidiary. Similarly, to ensure that taxable
REIT subsidiaries pay market rates for rents, interest and services, a 100%
excise tax will be imposed on a REIT to the extent a taxable REIT subsidiary
pays rent, interest or services to it in excess of a market rate. Moreover,
rents paid by a taxable REIT subsidiary to the associated real estate investment
trust may be excluded from qualification as rents from real property under
certain circumstances.
Under the taxable REIT subsidiary provision, we would be allowed to
jointly elect with corporate subsidiaries to treat such subsidiaries as "taxable
REIT subsidiaries" for taxable years beginning after December 31, 2000, subject
to certain transition rules. Further, although we indirectly own more than 10%
of the value of the outstanding securities of certain subsidiaries which, absent
a taxable REIT subsidiary election, would violate the provisions of the 1999
Act, the taxable REIT subsidiary provision contains certain "grandfather" rules
which would make the limitations on stock ownership described above inapplicable
to our indirect ownership of such subsidiaries, even in the absence of an
election to treat such subsidiaries as "taxable REIT subsidiaries." In such
case, however, the taxable REIT subsidiary provision would terminate our ability
to rely on the grandfather rule if such subsidiaries were either to engage in
new trades or businesses or acquire substantial new assets. Accordingly, in the
absence of such election, the taxable REIT subsidiary provision may limit the
future activities and growth of such subsidiaries.
As noted in " --Taxation of the Company--Annual Distribution
Requirements," another provision under the 1999 Act amends certain real estate
investment trust distribution requirements by reducing the amount required to be
distributed to 90%. These amendments are also effective for taxable years
beginning after December 31, 2000.
State and Local Taxes. We and our shareholders may be subject to state
or local taxation, and we may be subject to state or local tax withholding
requirements in various jurisdictions, including those in which we or they
transact business or reside. The state and local tax treatment of the Company
and our shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in shares in the Company.
IT IS STRONGLY ADVISED THAT EACH PROSPECTIVE PURCHASER CONSULT WITH
SUCH PURCHASER'S TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO SUCH
PURCHASER OF THE PURCHASE, OWNERSHIP AND SALE OF SHARES IN AN ENTITY ELECTING TO
BE TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND
ELECTION OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
LEGAL MATTERS
Ballard Spahr Andrews & Ingersoll, LLP will pass upon the validity of
the shares.
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EXPERTS
The financial statements incorporated in this Registration Statement by
reference to the Annual Report on Form 10-K of Starwood Financial Inc. for the
year ended December 31, 1998 have been so incorporated in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
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PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection
with the distribution by the Participating Securityholders of the shares
registered hereby, all of which the Company will pay:
SEC registration fee................................. $ 297,533
Legal fees and expenses*............................. $ 35,000
Accounting fees and expenses*........................ $ 8,000
Miscellaneous*....................................... $ 1,000
Total.............................. $ 341,533
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* Estimated
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
As permitted by the MGCL, Article VII of the Starwood Financial Inc.
Amended and Restated Charter ("Charter") provides for the limitation of the
liability of its directors and officers as follows:
To the fullest extent permitted by Maryland statutory or decisional
law, as amended or interpreted, no Director or officer of the
Corporation shall be personally liable to the Corporation or its
Stockholders for money damages. No amendment of the Charter of the
Corporation or repeal of any of its provisions shall limit or eliminate
the limitation on liability provided to Directors and officers
hereunder with respect to any act or omission occurring prior to such
amendment or repeal. In addition to any Maryland statute limiting the
liability of directors or officers of a Maryland corporation, no
Director or officer of the Corporation shall be liable to the
Corporation or to any Director for any act or omission of any other
Director, Stockholder, officer, or agent of the Corporation or be held
to any personal liability whatsoever in tort, contract or otherwise in
connection with the affairs of this Corporation except only that
arising from his own willful violation of the provisions of this
Charter or of the Bylaws which violation is materially against the
interests of the Stockholders and results in material harm to such
interests, or gross negligence in the performance of his or her duties.
As permitted by MGCL, the Charter provides for indemnification of the
Company's directors and officers as follows:
The Corporation shall indemnify: (1) its Directors and officers,
whether serving the Corporation or, at its request, any other entity,
to the full extent required or permitted by the General Laws of the
State of Maryland now or hereafter in force, including the advance or
reimbursement of reasonable expenses as incurred (including reasonable
attorneys fees) under the procedures and to the full extent permitted
by law; and (2) other employees and agents to such extent as shall be
authorized by the Board or the Corporation's Bylaws and be permitted by
law. The foregoing rights of indemnification shall not be exclusive of
any other rights to which those seeking indemnification may be
entitled. The Board may take such action as is necessary to carry out
these indemnification provisions and is expressly empowered to adopt,
approve and amend from time to time such Bylaws, resolutions or
contracts implementing such provisions or such further indemnification
arrangements as may be
II-1
permitted by law. No amendment of the Charter or repeal of any of its
provisions shall limit or eliminate the right to indemnification
provided hereunder with respect to acts or omissions occurring prior to
such amendment or repeal.
Article XII of the Company's Bylaws implements the indemnification
provisions of the Charter. The Bylaws state that the Company shall forward any
indemnification, payment of expenses or expenses in advance of final disposition
of a proceeding, to each director and officer promptly, and in any event within
60 days of a written request by such party.
Section 2-418 of the MGCL permits the charter of a Maryland corporation
to include a provision limiting the liability of directors and officers to the
corporation and its stockholders for money damages, except when it is
established that: (1) the act or omissions material to the matter giving rise to
the proceeding and either (a) was committed in bad faith, or (b) was the result
of active and deliberate dishonesty; (2) the person actually received an
improper benefit or profit in money, property or services; or (3) in the case of
any criminal proceeding, the director had reasonable cause to believe that the
omission was unlawful.
As permitted under Section 2-418 of the MGCL, the Company has purchased
and maintains insurance on behalf of its directors and officers against any
liability asserted against such directors and officers in their capacities as
such, whether or not the Company would have the power to indemnify such persons
under the provisions of Maryland law governing indemnification.
The Company has also entered into indemnification agreements with each
of its directors and executive officers. The indemnification agreements provide
that the Company will indemnify the directors and executive officers to the
fullest extent permitted under law against certain liabilities (including
settlements) and expenses actually and reasonably incurred by them in connection
with any threatened or pending legal action, proceeding or investigation to
which any of them is, or is threatened to be, made a party by reason of their
status as a director, officer or agent of the Company, or by reason of their
servicing at the Company's request; provided that the director or executive
officer acted in a manner determined in good faith to be within the scope of his
authority and to be in best interest of the Company and so long as the director
or executive officer was not guilty of gross negligence, misconduct or a breach
of his fiduciary obligation in the act or failure to act. The Company will not
indemnify the directors and executive officers to the extent prohibited by the
Charter or the MGCL. If an amendment to the Charter or the MGCL with respect to
removal of limitations on indemnification is approved, the indemnification
agreements will be amended accordingly. The Company is not required to indemnify
any director or executive officer for liabilities: (1) for which he receives
payment under an insurance policy, except for the excess beyond payment under
such insurance, or which could have been claimed under an expired insurance
policy; (2) based upon or attributable to his gaining in fact any personal
profit or advantage to which he was not legally entitled; (3) resulting from an
accounting of profits under Section 16(b) of the Securities Exchange Act of
1934; or (4) brought about or contributed to by his dishonesty, willful
misconduct or bad faith unless a judgment or other final adjudication adverse to
the director or executive officer establishes that he was not guilty of the
claimed conduct and that the conduct was not material to the course of the
action so adjudicated.
II-2
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
Exhibits Description
4.1 Amended and Restated Charter of Starwood Financial Inc.
(incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K dated November 3, 1999).
4.2 Bylaws of Starwood Financial Inc. (incorporated by reference
to Exhibit 4.2 to the Company's Current Report on Form 8-K
dated November 3, 1999).
4.3 Registration Rights Agreement dated March 16, 1998 between
TriNet Corporate Realty Trust, Inc. and Whitehall Street Real
Estate Limited Partnership IX.
4.4 Amended and Restated Registration Rights Agreement dated March
18, 1998 among Starwood Financial Trust, Starwood Mezzanine
Investors, L.P., SAHI Partners and SOFI-IV SMT Holdings,
L.L.C. (incorporated by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997).
4.5 Investor Rights Agreement dated December 15, 1998, among
Starwood Financial Trust, Starwood Mezzanine Investors, L.P.,
SOFI-IV SMT Holdings, L.L.C., B Holdings, L.L.C., Lazard
Freres Real Estate Fund II L.P., Lazard Freres Real Estate
Offshore Fund II L.P. and LF Mortgage REIT (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K dated December 15, 1998).
4.6 Form of warrant certificates dated December 15, 1998
(incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K dated December 15, 1998).
4.7 Agreement and Plan of Merger and Interest Contribution
Agreement, dated as of June 15, 1999, by and between Starwood
Financial Trust, SA Merger Sub, Inc., STW Holdings I, Inc.,
certain stockholders named herein, Starwood Capital Group,
LLC, and to the extent described therein, TriNet Corporate
Realty Trust, Inc. (incorporated by reference to exhibit 10.3
of the Company's Form 8-K, dated June 22, 1999).
5 Opinion of Ballard Spahr Andrews & Ingersoll, LLP as to
legality.
8 Opinion of Mayer, Brown & Platt as to tax matters.
23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in
Exhibit 5).
23.2 Consent of Mayer, Brown & Platt (included in Exhibit 8).
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Powers of Attorney (included on the signature page of the
Registration Statement).
II-3
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
o To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) To include any
prospectus required by section 10(a)(3) of the Shares Act of 1933; (ii) To
reflect in the prospectus any facts or events arising after the effective
date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or decrease in
volume of shares offered (if the total dollar value of shares offered would
not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the SEC pursuant to Rule 424(b) (Section
230-424(b) of 17 C.F.R.) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and (iii) To include any material
information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement; provided, however, that
paragraphs (1)(i) and (1)(ii) do not apply if the registration statement is
on Form S-3 or Form S-8, and the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed with or furnished to the SEC by the registrant pursuant to
Section 13 or Section 15(d) of the Shares Exchange Act of 1934 that are
incorporated by reference in the registration statement.
o That, for the purpose of determining any liability under the Shares Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the shares offered therein, and the
offering of such shares at that time shall be deemed to be the initial bona
fide offering thereof.
o To remove from registration by means of a post-effective amendment any of
the shares being registered which remain unsold at the termination of the
offering. The undersigned registrant hereby further undertakes that, for
purposes of determining any liability under the Shares Act of 1933, each
filing of the registrant's annual reports pursuant to Section 13(a) or
Section 15(d) of the Shares Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to Section
15(d) of the Shares Exchange Act of 1934) that is incorporated by reference
in the registration statement shall be deemed to be a new registration
statement relating to the shares offered therein, and the offering of such
shares at that time shall be deemed to be the initial bona fide offering
thereof.
(b) The undersigned registrant further undertakes that:
o For purposes of determining any liability under the Shares Act of 1933, 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 registrants pursuant to Rule 424(b)(1) or (4) or
497(h) under the Shares Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
o For the purpose of determining any liability under the Shares Act of 1933,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the shares offered
therein, and the offering of such shares at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Shares Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the city of New York, State of New York, on March 21, 2000.
STARWOOD FINANCIAL INC.
By: /s/ JAY SUGARMAN
---------------------------------------
Name: Jay Sugarman
Title: Chief Executive Officer and
President
II-5
POWER OF ATTORNEY
KNOW THAT ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below hereby constitutes and appoints Jay Sugarman, Spencer
Haber and Madison Grose (each with full power to act alone), his or her true and
lawful attorney-in-fact and agent with full power of substitution, in the name
and on behalf of the undersigned, to do any and all acts and things and to
execute any and all instruments which said attorney and agent, may deem
necessary or advisable to enable Starwood Financial Inc. (the "Registrant") to
comply with the Shares Act of 1933, and with the Shares Exchange Act of 1934,
and any rules, regulations and requirements of the Shares and Exchange
Commission in respect thereof in connection with this Registration Statement and
any and all amendments thereto or reports that the Registrant is required to
file pursuant to the requirements of federal or state shares laws or any rules
and regulations thereunder. The authority granted under this Power of Attorney
shall include, but not be limited to, the power and authority to sign the name
of the undersigned in the capacity or capacities set forth below to a
Registration Statement on Form S-3 to be filed with the Shares and Exchange
Commission, to any and all amendments (including post-effective amendments) to
that Registration Statement in respect of the same, and to any and all
instruments filed as a part of or in connection with that Registration
Statement; and each of the undersigned hereby ratifies and confirms all that the
attorney-in-fact and agent, shall lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Shares Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ BARRY S. STERNLICHT Chairman of the Board of March 21, 2000
- ----------------------- Directors
Barry S. Sternlicht
/s/ JAY SUGARMAN Chief Executive Officer and March 21, 2000
- ---------------------- President
Jay Sugarman
/s/ SPENCER B. HABER Chief Financial Officer and March 21, 2000
- ----------------------- Secretary
Spencer B. Haber
/s/ WILLIS ANDERSEN, JR. Director March 21, 2000
- -----------------------
Willis Andersen, Jr.
/s/ JEFFREY G. DISHNER Director March 21, 2000
- -----------------------
Jeffrey G. Dishner
/s/ JONATHAN EILIAN Director March 21, 2000
- -----------------------
Jonathan Eilian
/s/ MADISON F. GROSE Director March 21, 2000
- -----------------------
Madison F. Grose
/S/ROBERT W. HOLMAN, JR. Director March 21, 2000
- -----------------------
Robert W. Holman, Jr.
/s/ ROBIN JOSEPHS Director March 21, 2000
- -----------------------
Robin Josephs
/s/ MERRICK R. KLEEMAN Director March 21, 2000
- -----------------------
Merrick R. Kleeman
/s/ WILLIAM MATTHES Director March 21, 2000
- -----------------------
William Matthes
II-6
Name Title Date
---- ----- ----
/s/ JOHN G. MCDONALD Director March 21, 2000
- --------------------------
John G. McDonald
/s/ MICHAEL G. MEDZIGIAN Director March 21, 2000
- --------------------------
Michael G. Medzigian
/s/ STEPHEN B. ORESMAN Director March 21, 2000
- --------------------------
Stephen B. Oresman
/s/ GEORGE R. PUSKAR Director March 21, 2000
- --------------------------
George R. Puskar
/s/ KNEELAND C. YOUNGBLOOD Director March 21, 2000
- --------------------------
Kneeland C. Youngblood
II-7
INDEX TO EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Exhibits Description
4.1 Amended and Restated Charter of Starwood Financial Inc.
(incorporated by reference to Exhibit 4.1 to the Company's
Current Report on Form 8-K dated November 3, 1999).
4.2 Bylaws of Starwood Financial Inc. (incorporated by reference to
Exhibit 4.2 to the Company's Current Report on Form 8-K dated
November 3, 1999).
4.3 Registration Rights Agreement dated March 16, 1998 between TriNet
Corporate Realty Trust, Inc. and Whitehall Street Real Estate
Limited Partnership IX.
4.4 Amended and Restated Registration Rights Agreement dated March
18, 1998 among Starwood Financial Trust, Starwood Mezzanine
Investors, L.P., SAHI Partners and SOFI-IV SMT Holdings, L.L.C.
(incorporated by reference to Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1997).
4.5 Investor Rights Agreement dated December 15, 1998, among Starwood
Financial Trust, Starwood Mezzanine Investors, L.P., SOFI-IV SMT
Holdings, L.L.C., B Holdings, L.L.C., Lazard Freres Real Estate
Fund II L.P., Lazard Freres Real Estate Offshore Fund II L.P. and
LF Mortgage REIT (incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated December 15, 1998).
4.6 Form of warrant certificates dated December 15, 1998
(incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K dated December 15, 1998).
4.7 Agreement and Plan of Merger and Interest Contribution Agreement,
dated as of June 15, 1999, by and between Starwood Financial
Trust, SA Merger Sub, Inc., STW Holdings I, Inc., certain
stockholders named herein, Starwood Capital Group, LLC, and to
the extent described therein, TriNet Corporate Realty Trust, Inc.
(incorporated by reference to exhibit 10.3 of the Company's Form
8-K, dated June 22, 1999).
5 Opinion of Ballard Spahr Andrews & Ingersoll, LLP as to legality.
8 Opinion of Mayer, Brown & Platt as to tax matters.
23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included in
Exhibit 5).
23.2 Consent of Mayer, Brown & Platt (included in Exhibit 8).
23.3 Consent of PricewaterhouseCoopers LLP.
23.4 Powers of Attorney (included on the signature page of the
Registration Statement).
II-8
Exhibit 4.3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into
as of March 16, 1998 by and between TriNet Corporate Realty Trust, Inc., a
Maryland corporation (the "Company"), and Whitehall Street Real Estate Limited
Partnership IX, a Delaware limited partnership ("Whitehall").
WHEREAS, Whitehall is to receive or own units of limited liability
company interests ("Units") in W9/TriNet Poydras, LLC, a Delaware limited
liability company ("Whitehall Poydras"), pursuant to the Limited Liability
Company Operating Agreement of Whitehall Poydras, dated as of March 16, 1998, by
and among TriNet Corporate Partners I, L.P., a Delaware limited partnership, The
Goldman Sachs Group, a Delaware limited partnership, and Whitehall (the "LLC
Agreement") (each capitalized term used but not defined herein shall have the
meaning ascribed to such term in the LLC Agreement);
WHEREAS, pursuant to the Exchange Right (as defined in the LLC
Agreement) and Whitehall's rights under Section 8.2(k)(iii) of the LLC
Agreement, the Whitehall Group may, from time to time, receive shares of the
Company's common stock, $.01 par value per share (the "Common Stock");
WHEREAS, the Company and Whitehall desire to provide for certain
arrangements with respect to the registration of such shares of Common Stock
under the Shares Act of 1933, as amended (the "Shares Act"); and
WHEREAS, it is a condition to the obligation of Whitehall to consummate
the transactions pursuant to which they will receive Units that the Company
enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein and in the LLC Agreement, and for other valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Company and
Whitehall hereby agrees as follows:
1. Registration.
(a) Shelf Registration Covering Issuance of Common Stock. Within
thirty (30) days following the later of (i) the first date on which Whitehall
may exercise the Exchange Right or its rights under Section 8.2(k)(iii) of the
LLC Agreement and (ii) receipt by the Company of a written request (the "Shelf
Registration Request") by Whitehall, the Company shall file a registration
statement on Form S-3 (a "Shelf Registration Statement") under Rule 415 under
the Shares Act relating to the resale by Whitehall of all Registrable Shares (as
defined below). The Company shall use its best efforts to cause such Shelf
Registration Statement to be declared effective by the Shares and Exchange
Commission ("SEC"). For so long as the Company is eligible to file a
registration statement on Form S-3, the Company agrees to use its best efforts
to keep the Shelf Registration Statement continuously effective until the date
(the "Shelf Registration Expiration Date") that is the earliest of: (a) the date
that is the fifth anniversary of the date on which such Shelf Registration
Statement was declared effective by the SEC, (b) the date on which all
Registrable Shares are disposed of by the Whitehall Group and (c) such date on
which it is no longer necessary to keep the Shelf Registration Statement
effective because Whitehall may freely sell its Registrable Shares (without
limitation on volume, timing or manner of sale) pursuant to Rule 144(k)
promulgated under the Shares Act (or any successor rule or regulation). The
Company shall not be required to file and have the SEC declare effective more
than one Shelf Registration Statement pursuant to this Section 1(a).
(b) Piggyback Registration Rights. So long as the Whitehall Group
is holding Registrable Shares, if and at such time that the Company grants
piggyback registration rights to a Person (other than Whitehall) pursuant to a
registration rights agreement with the Company (the "Third Person Registration
Rights Agreement") that allow such Person to sell its shares of Common Stock
together with shares of Common Stock issued by the Company in a primary
underwritten public offering, the Whitehall Group shall receive written notice
from the Company thereof and shall be entitled to receive from the Company
piggyback registration rights, with respect to its Registrable Shares, on the
same terms and conditions as those set forth in the Third Person Registration
Rights Agreement.
(c) Definitions. As used in this Agreement, the term
"Registration Statement" means any registration statement of the Company that
covers the Registrable Shares pursuant to the provisions of this Agreement,
including the prospectus, amendments and supplements to such Registration
Statement, including post-effective amendments, but excluding all exhibits and
all material incorporated by reference in such Registration Statement. As used
in this Agreement, the term "Registrable Shares" means shares of Common Stock
issued or issuable to the Whitehall Group in exchange for outstanding Units
pursuant to the terms of the LLC Agreement, excluding (A) Common Stock for which
a Registration Statement relating to the sale thereof shall have become
effective under the Shares Act and which have been disposed of under such
Registration Statement and (B) Common Stock which is sold or could be sold by
Whitehall without limitation on volume or manner of sale pursuant to Rule 144(k)
under the Shares Act or any successor rule or regulation. For all purposes of
this Agreement, Whitehall shall be entitled to act for and shall be deemed to be
acting for and on behalf of the Whitehall Group with respect to all Registrable
Shares owned by any member of the Whitehall Group.
2. Registration Procedures.
(a) The Company shall notify Whitehall of the effectiveness of a
Registration Statement and shall furnish to Whitehall such number of copies of
such Registration Statement (including any amendments, supplements and
exhibits), the prospectus contained therein, any documents incorporated by
reference in such Registration Statement and such other documents as Whitehall
may reasonably request in order to facilitate its sale of the Registrable Shares
in the manner described in such Registration Statement.
(b) The Company shall prepare and file with the SEC from time to
time such amendments and supplements to the Registration Statement and the
prospectus used in connection therewith as may be necessary to keep the
Registration Statement effective and to comply with the provisions of the Shares
Act with respect to the disposition of all the Registrable Shares until the
Shelf Registration Expiration Date. Upon ten (10) business days' written notice
to the Company by Whitehall, the Company shall file any supplement or
post-effective amendment to the Registration Statement with respect to
Whitehall's interests in or plan of distribution of Registrable Shares that is
reasonably necessary to permit the sale of the Whitehall Group's Registrable
Shares pursuant to the Registration Statement. Such written notice to the
Company must include all information relating to the sellers and the plan of
distribution required to be included in such supplement or post-effective
amendment.
(c) The Company shall promptly notify Whitehall, and confirm in
writing, any request by the SEC for amendments or supplements to a Registration
Statement or the prospectus related thereto or for additional information. In
addition, the Company shall promptly notify Whitehall of, and confirm in
writing, the filing of a Registration Statement, any prospectus supplement
related thereto or any amendment to a Registration Statement and the
effectiveness of any post-effective amendment.
(d) The Company shall immediately notify Whitehall, at any time
when a prospectus relating to a Registration Statement is required to be
delivered under the Shares Act, of the happening of any event as a result of
which a Registration Statement (including the prospectus therein), as then in
effect,
2
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading. In such event and subject to Section 9 of this Agreement, the
Company shall promptly prepare, and furnish to Whitehall a reasonable number of
copies of, a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of Registrable
Shares, such prospectus shall not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they are
made not misleading.
3. State Securities Laws. Subject to the conditions set forth in this
Agreement, the Company shall, promptly upon the filing of the Registration
Statement, file such documents as may be necessary to register or qualify the
Registrable Shares under the shares laws of the states (the "Blue Sky Laws")
that require such registration or qualification as Whitehall may reasonably
request, and the Company shall use its best efforts to cause such filings to
become effective; provided, however, that the Company shall not be obligated to
qualify as a foreign corporation to do business under the laws of any such state
in which it is not then qualified or to file any general consent to service of
process in any such state. The Company shall promptly notify Whitehall of, and
confirm in writing, (i) the effectiveness of any filing under any Blue Sky Laws
(with the date thereof) and (ii) the receipt by the Company of any notification
with respect to the suspension of the qualification of the Registrable Shares
for sale under the Blue Sky Laws of any jurisdiction or initiation or threat of
any proceeding for such purpose.
4. Exchange Act Filings. The Company shall, upon written request of
Whitehall, provide Whitehall with a copy of any filings made by it under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not
such filing is incorporated by reference into the Registration Statement. So
long as the Company is subject to the reporting requirements of the Exchange
Act, the Company shall use its best efforts to make all filings required of it
under the Exchange Act on a timely basis.
5. Listing. The Company will take such action as may be necessary to
cause all Registrable Shares to be listed or otherwise eligible for full trading
privileges on each national securities exchange on which similar securities
issued by the Company are then listed, in each case not later than the date on
which the Registration Statement becomes effective or the Registrable Shares are
issued by the Company to Whitehall, whichever is later. The Company shall make
all other necessary or appropriate filings with each such securities exchange to
continue the listing or trading privilege for all Registrable Shares on each
such exchange. The Company will promptly notify Whitehall of, and confirm in
writing, the delisting of the Company's Common Stock by any securities exchange
or the suspension of or restriction on trading privileges with respect to the
Company's Common Stock through any quotation system.
6. Expenses. Except as provided herein, the Company shall bear all
fees, costs and expenses incurred in connection with the registration of the
Registrable Shares, the legally required qualification of the Registrable Shares
under Blue Sky Laws and the listing of the Registrable Shares as contemplated by
Section 5 of this Agreement. Such expenses shall include, without limitation,
all legal and accounting expenses incurred by the Company and all registration
and filing fees imposed by the SEC, any state securities commission or the New
York Stock Exchange (the "NYSE") or, if the Company Stock is not then listed on
the NYSE, the principal national securities exchange or quotation system on
which the Common Stock is then traded or quoted. Whitehall shall be responsible
for any brokerage or underwriting commissions and transfer taxes with respect to
any disposition, sale or transfer of Registrable Shares and for any legal,
accounting and other expenses incurred by it. The Company shall bear all fees,
costs and expenses incurred by the Company and by Whitehall in connection with
the first amendment to the Registration Statement requested by Whitehall in any
calendar year pursuant to the second sentence of Section 2(b) hereof, and
Whitehall shall bear all fees, costs and expenses incurred by the Company and by
Whitehall in connection with each and every additional amendment to the
Registration Statement requested by Whitehall in such calendar year pursuant to
the second sentence of Section 2(b) hereof.
3
7. Indemnification.
(a) Indemnification by the Company. The Company agrees to
indemnify the Whitehall Group, each person, if any, who controls any selling
holder, and each officer, director, employee, agent, representative, affiliate,
stockholder, member, partner or direct or indirect owner of any of the
foregoing, against any and all losses, claims, damages, actions, liabilities,
costs and expenses (including without limitation reasonable attorneys' fees,
expenses and disbursements documented in writing) arising out of or based upon
any untrue or alleged untrue statement of material fact contained in the
Registration Statement or any prospectus contained therein or in any information
incorporated by reference therein or in any filing with any state securities
commission or agency, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (except insofar as and to the extent that such statement or omission
was made in reliance upon and in conformity with information regarding Whitehall
or its plan of distribution which was furnished to the Company in writing by
Whitehall expressly for use therein), or any violation by the Company of any
rule or regulation under the Securities Act or any state securities laws or
regulations applicable to the Company and relating to any action or inaction
required of the Company in connection with such registration; provided, however,
that the Company shall not be liable to Whitehall in any such case to the extent
that any such loss, claim, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon (i) an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with information furnished to the Company in writing by Whitehall expressly for
use in connection with the Registration Statement or the prospectus contained
therein or (ii) Whitehall's failure to send or give a copy of the final
prospectus furnished to it by the Company at or prior to the time such action is
required by the Securities Act to the purchaser from the Whitehall Group
claiming an untrue statement or alleged untrue statement or omission or alleged
omission if such statement or omission was corrected in such final Prospectus.
(b) Indemnification by Whitehall. Whitehall agrees to
indemnify the Company, its officers, directors, employees, agents representative
and affiliates, and each person, if any, who controls the Company within the
meaning of the Securities Act, and each other person, if any, subject to
liability because of his, her or its connection with the Company, against any
and all losses, claims, damages, actions, liabilities, costs and expenses
arising out of or based upon (i) any untrue statement or alleged untrue
statement of material fact contained in either the Registration Statement or the
prospectus, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, if and to
the extent that such statement or omission was made in reliance upon and in
conformity with information regarding Whitehall or its plan of distribution
which was furnished to the Company in writing by Whitehall expressly for use
therein or (ii) the failure by Whitehall or any underwriter, broker, dealer or
agent acting for or on behalf of Whitehall to deliver or cause to be delivered
the prospectus contained in the Registration Statement (as amended or
supplemented, if applicable) furnished by the Company to Whitehall to any
purchaser of the shares covered by the Registration Statement from Whitehall.
(c) Indemnification Procedures. In case any proceeding
(including any governmental investigation) shall be instituted involving any
Person (as defined in the LLC Agreement) in respect of which indemnity may be
sought pursuant to either paragraph (a) or (b) above, such Person (the
"indemnified party") shall promptly notify the Person against whom such
indemnity may be sought (the "indemnifying party") in writing. The indemnifying
party shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceedings and shall pay the fees and disbursements of such
counsel relating to such proceeding. The failure or delay of an indemnified
party to notify the indemnifying party with respect to a particular proceeding
shall not relieve the indemnifying party from any obligation or liability which
it may have pursuant to this Agreement except to
4
the extent that the indemnifying party is prejudiced by such failure or delay.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party; provided, however, that, if (i) the indemnified
party, who is a defendant in any action or proceeding that is also brought
against the indemnifying party, has a legal defense available to it that the
indemnifying party fails to assert after being requested in writing to do so or
(ii) representation of both the indemnified and the indemnifying parties by the
same counsel is inappropriate under the applicable standards of professional
conduct, the indemnified party may retain one separate firm of attorneys, and
the indemnifying party shall be liable for the fees and expenses thereof. The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent. No indemnifying party shall, without the
prior written consent of any indemnified party (which consent shall not be
unreasonably withheld), effect any settlement of any pending or threatened
proceeding in respect of which such indemnified party is a party and indemnity
could have been sought hereunder by such indemnified party from all liability on
all claims that are the subject matter of such proceeding.
8. Covenants of Whitehall. Whitehall hereby agrees (a) to cooperate
with the Company and, in connection with the preparation of the Registration
Statement and any filings with any state securities commissions, to furnish in
writing to the Company (i) all information regarding the Whitehall Group and its
plan of distribution, (ii) such information required to be furnished by the
Securities Act and (iii) such information as the Company may reasonably request,
(b) so long as the Company has met its obligations under Section 2(a) hereof, to
deliver or cause delivery of, to the extent required by all applicable federal
and state securities laws, a copy of the prospectus (as amended or supplement
form time to time) contained in the Registration Statement to any purchaser from
the Whitehall Group of the shares covered by the Registration Statement and (c)
to notify the Company of any sale of Registrable Securities by Whitehall.
9. Suspension of Registration Requirement.
(a) The Company shall promptly notify Whitehall of, and confirm
in writing, the issuance by the SEC of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any proceedings
for that purpose. The Company shall use its best efforts to obtain the
withdrawal of any order suspending the effectiveness of a Registration Statement
at the earliest possible moment.
(b) Notwithstanding anything to the contrary set forth in this
Agreement, the Company's obligation under this Agreement to file a Registration
Statement and cause any filings with any state securities commission to be made
and to use its best efforts to cause a Registration Statement or any such state
securities commission filings to become effective or to amend or supplement a
Registration Statement shall be suspended in the event and during such period
pending negotiations relating to, or consummation of, a transaction or the
occurrence of an event that would require additional disclosure of material
information by the Company in the Registration Statement or such filing, as to
which the Company has a bona fide business purpose for preserving
confidentiality or which renders the Company unable to comply with SEC
requirements (such circumstances being hereinafter referred to as a "Suspension
Event") that would make it impractical or inadvisable to cause the Registration
Statement or such filings to be made or to become effective or to amend or
supplement the Registration Statement, but such suspension shall continue only
for so long as such event or its effect is continuing but in no event will the
total number of days of suspension exceed 90 days in any twelve-month period
(the period of any suspension, a "Suspension Period"). The Company shall
promptly notify Whitehall in writing of the existence of any Suspension Event.
10. Black-Out-Period. Subject to the last sentence of this Section 10,
following the effectiveness of any Registration Statement and the filings with
any state securities commissions, Whitehall agrees it will not effect any sales
of the Registrable Shares pursuant to the Registration Statement or any such
filings at any time after it has received notice (the "Suspension Notice") from
the Company to suspend sales (a) as a result of the occurrence or existence of
any Suspension Event or an offering of the Company's securities, whether
5
or not made pursuant to a registration statement filed with the SEC, or (b) so
that the Company may correct or update the Registration Statement or such filing
pursuant to Sections 2(c) or 2(d) (each, a "Black-out Event"). Whitehall may
recommence effecting sales of the Registrable Shares pursuant to the
Registration Statement or such filings following further notice to such effect
from the Company, which notice shall be given by the Company as soon as
practicable but in no event later than five (5) business days after the
conclusion of any such Black-out Event. The foregoing notwithstanding, in no
event shall Whitehall, during any twelve-month period, be blacked out from
selling Registrable Shares pursuant to a Registration Statement for a period
that exceeds the shorter of (i) the number of days remaining in the Suspension
Period for such twelve-month period and (ii) the shortest black-out period for
any other Person who has received registration rights from the Company.
11. Additional Shares. The Company, at its option, may register, under
the Registration Statement and any filings with any state securities commissions
filed pursuant to this Agreement, any number of unissued shares of Common Stock
or any shares of Common Stock owned by any other shareholder or shareholders of
the Company.
12. Contribution. If the indemnification provided for in Section 7 is
unavailable to an indemnified party with respect to any losses, claims, damages,
actions, liabilities, costs or expenses referred to therein or is insufficient
to hold the indemnified party harmless as contemplated therein, then the
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, actions, liabilities, costs or expenses in such
proportion as is appropriate to reflect the relative fault of the Company, on
the one hand, and Whitehall, on the other hand, in connection with the
statements or omissions which resulted in such losses, claims, damages, actions,
liabilities, costs or expenses as well as any other relevant equitable
considerations. The relative fault of the Company, on the one hand, and of
Whitehall, on the other hand, shall be determined by reference to, among other
factors, whether the untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by Whitehall and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. In no event shall the obligation of any indemnifying
party to contribute under this Section 12 exceed the amount that such
indemnifying party would have been obligated to pay by way of indemnification if
the indemnification provided for under Section 7 hereof had been available under
the circumstances.
The Company and Whitehall agree that it would not be just and equitable
if contribution pursuant to this Section 12 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No indemnified party guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall ben entitled to
contribution from any indemnifying party who was not guilty of such fraudulent
misrepresentation.
13. No Other Obligation to Register. Except as otherwise expressly
provided in this Agreement, the Company shall have no obligation to Whitehall to
register the Registrable Securities.
14. Amendments and Waivers. The provisions of this Agreement may not be
amended, modified or supplemented without the joint prior written consent of the
Company and Whitehall.
15. Notices. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally or sent by facsimile, registered or certified mail
(return receipt requested), postage prepaid or courier or overnight delivery
service to the Company at the following addresses and to Whitehall at the
address set forth on below, with a copy to Sullivan
6
& Cromwell, 125 Broad Street, New York, New York 10004, Attn: Anthony J.
Colletta, Esq., Fax: (212) 558-3588, or at such other address for any party as
shall be specified by like notice, provided that notices of a change of address
shall be effective only upon receipt thereof, and further provided that in case
of directions to amend the Registration Statement pursuant to Section 2(b), such
notice must be confirmed in writing by overnight express delivery with
confirmation of receipt:
If to the Company to: TriNet Corporate Realty Trust, Inc.
Four Embarcadero Center
Suite 3150
San Francisco, CA 94111
Attn: General Counsel
Fax: (415) 391-6259
With a copy to: Day, Berry & Howard
260 Franklin Street
Boston, MA 02110-3179
Attn: Colin H. Buckley, Esq.
Fax: (617) 345-1745
and
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: David W. Watson, P.C.
Fax: (617) 523-1231
If to Whitehall: Whitehall Street Real Estate Limited Partnership IX
85 Broad Street, 19th Floor
New York, New York 10004
Attn: Chief Financial Officer
Fax: (212) 357-5505
In addition to the manner of notice permitted above, notices given pursuant to
Sections 2, 9 and 10 hereof may be effected telephonically and confirmed in
writing thereafter in the manner described above.
16. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the Company, Whitehall and
any other member of the Whitehall Group, including any transferee of the
Registrable Shares who does not purchase the shares covered by the Registration
Statement from the Whitehall Group.
17. Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed wholly within said State.
19. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining
7
provisions contained herein shall not be in any way impaired thereby, it being
intended that all of the rights and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
20. Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and is intended to be the complete statement
of the agreement and understanding of the parties hereto in respect of the
subject matter contained herein. There are no restrictions, promises, warranties
or undertakings, other than those set forth herein, with respect to such subject
matter. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
8
IN WITNESS WHEREOF, this Registration Rights Agreement is executed as
of the date first written above.
TRINET CORPORATE REALTY TRUST, INC.
By: /s/ Elisa F. DiTommaso
-----------------------------------------
Name: Elisa F. DiTommaso
Title: Senior Vice President, Finance
WHITEHALL STREET REAL ESTATE LIMITED
PARTNERSHIP IX
By: WH Advisors, L.L.C. IX, General Partner
By: Whitehall IX/X, Inc., Managing Member
By: /s/ Alan S. Kava
-----------------------------------------
Name: Alan S. Kava
Title: Vice President
Exhibit 5
[LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL, LLP]
FILE NUMBER
877721
March 21, 2000
Starwood Financial Inc.
27th Floor
1114 Avenue of the Americas
New York, New York 10036
Re: Starwood Financial Inc.: Registration
Statement on Form S-3
--------------------------------------
Ladies and Gentlemen:
We have served as Maryland counsel to Starwood Financial Inc., a
Maryland corporation (the "Company"), in connection with certain matters of
Maryland law arising out of the registration of 66,295,152 shares (the "Shares")
of common stock, $.001 par value per share, of the Company ("Common Stock")
covered by the above-referenced Registration Statement, and all amendments
thereto (the "Registration Statement"), filed on or about the date hereof with
the Shares and Exchange Commission (the "Commission") under the Shares Act of
1933, as amended (the "1933 Act"). Capitalized terms used but not defined herein
shall have the meanings given to them in the Registration Statement.
6,113,165 of the Shares (the "Warrant Shares") are issuable upon the
exercise of warrants (the "Warrants"), converted in the Incorporation Merger (as
defined below) from warrants to purchase Class A Shares of Beneficial Interest,
par value $1.00 per share (the "Trust Shares"), of Starwood Financial Trust, a
Maryland real estate investment trust ("Starwood Trust"), into warrants to
purchase Common Stock of the Company pursuant to the Purchase Agreement (as
defined below). 350,746 of the Shares (the "Whitehall Shares") are issuable in
exchange for interests in W/9 TriNet Poydras, LLC pursuant to the Amended and
Restated Operating Agreement of W/9 TriNet Poydras, LLC between TriNet Corporate
Realty Trust, Inc., a Maryland corporation ("TriNet"), W9/Reit Holdings Two,
Inc., Stone Street W9/TriNet Corp., Stone Street Real Estate Fund 1998, L.P. and
Bridge Street Real Estate Fund 1998, L.P. (the "Operating Agreement"), which
Operating Agreement was assumed by the Company in connection with the Merger (as
defined below). 2,453,868 of the Shares (the "Option Shares") are issuable by
the Company upon the exercise of options ("Starwood Options") to purchase shares
of Common Stock that were converted in the Incorporation Merger from options
granted by Starwood Trust (the "Trust Options") to purchase Trust Shares.
3,991,950 of the Shares (the "Advisor Shares") were issued by the Company in
connection with the Advisor Merger (as defined below). 53,385,423 of the Shares
(the "Incorporation Shares") were converted in the Incorporation Merger (as
defined below) from issued and outstanding Trust Shares or Class B Shares of
Beneficial Interest, par value $1.00 per share (the "Trust Class B Shares").
Starwood Financial Inc.
March 21, 2000
Page 2
In connection with our representation of the Company, and as a basis
for the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):
1. The Registration Statement;
2. The charter of the Company (the "Charter"), certified as of a recent date
by the State Department of Assessments and Taxation of Maryland (the
"SDAT"), including Articles of Merger relating to the merger (the
"Incorporation Merger") of Starwood Trust with and into the Company,
pursuant to the Agreement and Plan of Merger, dated as of June 15, 1999, as
amended (the "Incorporation Agreement"), by and between the Company,
Starwood Trust and, to the extent described on the signature page thereto,
TriNet;
3. The Bylaws of the Company, certified as of the date hereof by an officer of
the Company;
4. A certificate of the SDAT as to the good standing of the Company, dated as
of a recent date;
5. Resolutions adopted by the Board of Directors of the Company (the
"Resolutions"), certified as of the date hereof by an officer of the
Company;
6. Articles of Merger relating to the merger (the "Merger") of ST Merger Sub,
Inc., a Maryland corporation and a wholly owned subsidiary of the Company
("ST"), with and into TriNet, pursuant to the Agreement and Plan of Merger,
dated as of June 15, 1999, as amended (the "Merger Agreement"), by and
between Starwood Trust, TriNet and ST;
7. The Merger Agreement, certified as of the date hereof by an officer of the
Company;
8. The Securities Purchase Agreement (the "Purchase Agreement"), dated as of
December 15, 1998, between Starwood Trust, LF Mortgage REIT, a Maryland
real estate investment trust, Lazard Freres Real Estate Fund II L.P., a
Delaware limited partnership, and Lazard Freres Real Estate Offshore Fund
II L.P., a Delaware limited partnership, certified as of the date hereof by
an officer of the Company;
9. The Agreement and Plan of Merger (the "Advisor Agreement"), dated as of
June 15, 1999, among Starwood Trust, SA Merger Sub, Inc., a Delaware
corporation ("New Starwood Sub"), STW Holdings 1, Inc., a Delaware
corporation (the "Advisor"), Starwood Capital Group, LLC, a Connecticut
limited liability company, each of the individual stockholders described on
the signature pages thereto and, to the extent described therein, TriNet,
pursuant to which New Starwood Sub merged with into the Advisor (the
"Advisor Merger"), certified as of the date hereof by an officer of the
Company;
10. The Incorporation Agreement, certified as of the date hereof by an officer
of the Company;
11. A certificate executed by an officer of the Company, dated the date hereof;
and
Starwood Financial Inc.
March 21, 2000
Page 3
12. Such other documents and matters as we have deemed necessary or appropriate
to express the opinion set forth below, subject to the assumptions,
limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed the following:
1. Each individual executing any of the Documents, whether on behalf of such
individual or another person, is legally competent to do so.
2. Each individual executing any of the Documents on behalf of a party (other
than the Company) is duly authorized to do so.
3. Each of the parties (other than the Company) executing any of the Documents
has duly and validly executed and delivered each of the Documents to which
such party is a signatory, and such party's obligations set forth therein
are legal, valid and binding and are enforceable in accordance with all
stated terms.
4. Any Documents submitted to us as originals are authentic. The form and
content of any Documents submitted to us as unexecuted drafts do not differ
in any respect relevant to this opinion from the form and content of such
Documents as executed and delivered. Any Documents submitted to us as
certified or photostatic copies conform to the original documents. All
signatures on all such Documents are genuine. All public records reviewed
or relied upon by us or on our behalf are true and complete. All statements
and information contained in the Documents are true and complete. There has
been no oral or written modification of or amendment to any of the
Documents, and there has been no waiver of any provision of any of the
Documents, by action or omission of the parties or otherwise.
5. Upon issuance of any of the Shares, the total number of shares of Common
Stock issued and outstanding will not exceed the total number of shares of
Common Stock that the Company is then authorized to issue and the Shares
will not be issued or transferred in violation of any restriction or
limitation contained in the Charter.
6. The Incorporation Merger was effected in accordance with the Incorporation
Agreement and Maryland law.
7. The Advisor Merger was effected in accordance with the Advisor Agreement
and Delaware law.
8. The Merger was effected in accordance with the Merger Agreement and
Maryland law.
9. Each Trust Option, Trust Share, Trust Class B Share and Warrant converted
into or exercisable for Shares was duly authorized, validly issued, fully
paid and non-assessable at the time of issuance and immediately prior to
the effective time of the Incorporation Merger and each Starwood Option and
Warrant will be exercised in accordance with its terms, as modified by the
Incorporation Agreement, at the time of any exercise of such Starwood
Options or Warrants into Shares. Immediately prior to the effective time of
the Incorporation
Starwood Financial Inc.
March 21, 2000
Page 4
Merger, the Warrants were exercisable for 6,113,165 Trust Shares and the
Trust Options were exercisable for 2,453,868 Trust Shares under the
Starwood Financial Trust 1996 Long-Term Incentive Plan (as amended by the
Incorporation Agreement, the "Plan").
Based upon the foregoing, and subject to the assumptions, limitations and
qualifications stated herein, it is our opinion that:
1. The Company is a corporation duly incorporated and existing under and by
virtue of the laws of the State of Maryland and is in good standing with
the SDAT.
2. The Warrant Shares have been duly authorized for issuance and, when and if
issued and delivered against payment therefor in accordance with the
Charter, the Resolutions and the Purchase Agreement, will be validly
issued, fully paid and nonassessable.
3. The Whitehall Shares have been duly authorized for issuance and, when and
if issued and delivered against payment therefor in accordance with the
Charter, the Resolutions and the Operating Agreement, will be validly
issued, fully paid and nonassessable.
4. The Option Shares have been duly authorized for issuance and, when and if
issued and delivered against payment therefor in accordance with the
Charter, the Resolutions and the Plan, will be validly issued, fully paid
and nonassessable.
5. The Advisor Shares have been duly authorized for issuance and are validly
issued, fully paid and nonassessable.
6. The Incorporation Shares have been duly authorized for issuance and are
validly issued, fully paid and nonassessable.
The foregoing opinion is limited to the substantive laws of the State of
Maryland and we do not express any opinion herein concerning any other law. We
express no opinion as to compliance with any federal or state securities laws,
including the securities laws of the State of Maryland, or as to federal or
state laws regarding fraudulent transfers. We assume no obligation to supplement
this opinion if any applicable law changes after the date hereof or if we become
aware of any fact that might change the opinion expressed herein after the date
hereof.
This opinion is being furnished to you for submission to the Commission as
an exhibit to the Registration Statement and, accordingly, may not be relied
upon by, quoted in any manner to, or delivered to any other person or entity
(except Mayer, Brown & Platt, counsel to the Company, in connection with any
opinion rendered by it on the date hereof relating to the Shares) without, in
each instance, our prior written consent.
Starwood Financial Inc.
March 21, 2000
Page 5
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein. In giving
this consent, we do not admit that we are within the category of persons whose
consent is required by Section 7 of the 1933 Act.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll, LLP
Exhibit 8
[LETTERHEAD OF MAYER, BROWN & PLATT]
March 21, 2000
Starwood Financial Inc.
1114 Avenue of the Americas
27th Floor
New York, New York 10036
Re: Status as a Real Estate Investment Trust; Information in the
Registration Statement under "FEDERAL INCOME TAX CONSEQUENCES"
--------------------------------------------------------------
Ladies and Gentlemen:
In connection with the offering of Registered Securities1/ of Starwood
Financial Inc., a corporation organized under the laws of the State of Maryland
(the "Company"), pursuant to the Form S-3 Registration Statement filed with the
Securities and Exchange Commission on the date hereof (the "Registration
Statement"), you have requested our opinions concerning (i) the qualification of
the Company as a real estate investment trust ("REIT") for Federal income tax
purposes; and (ii) the information in the Registration Statement under the
heading "FEDERAL INCOME TAX CONSEQUENCES."
In formulating our opinions, we have reviewed and relied upon (i) the
Company's Amended and Restated Charter, as amended through November 3, 1999; and
(ii) such other documents as we have deemed necessary or appropriate for the
purpose of rendering the opinions set forth in this letter (collectively, the
"Organizational and Other Documents"). We have also reviewed and relied upon the
statements set forth in the Registration Statement and such provisions of law as
we have deemed necessary or appropriate with respect to the opinions expressed
herein. In addition, we have relied upon (u) certain representations made by the
Company as to certain factual matters relating to the Company's organization,
its actual and proposed method of operation, and the number, composition and
nature of its shareholders, as set forth in an Officer's Certificate dated the
date hereof; (v) certain representations made by the Company concerning the
issuance and sale by the Company of stock and the subsequent purchase and
disposition by the Company of certain investments it intended to hold
temporarily, as set forth in the Officer's Certificate dated the date hereof
(together with the Officer's Certificate in clause (u) above, the "Officer's
Certificates"); (w) the most recent periodic portfolio summary (the "Portfolio
Summary"), dated January 31, 2000, which has been represented by the Company to
us to be a complete and accurate summary of all Company assets (other than cash
and interest receivables with respect to those assets, real estate owned by the
Company that is subject to one or more leases, loan #1019 referred to as Denver
Place in the periodic portfolio summary, dated January 31, 2000, which has been
reduced by a principal amount of $25,000,000 as a result of a payment received
from the borrower, the Company's limited partnership investment in Oly Hightop
Parent, L.P., a Delaware limited partnership, pursuant to the Fourth Amended and
Restated Limited Partnership Agreement of Oly Hightop Parent, L.P., dated as of
February 29, 2000, and the Company's loan to City Place-Largo, L.L.C. pursuant
to the Loan and Security Agreement, dated as of February 29, 2000, among City
Place-Largo, L.L.C. as
- --------------------------------
1/ Unless otherwise specifically defined herein, all capitalized terms have
the meaning assigned to them in the Registration Statement.
Starwood Financial Inc.
March 21, 2000
Page 2
borrower, Retail Developers, L.L.C. and Retail Development Investors, L.L.C. as
certain of the pledgors, and SFT I, Inc. as lender) as of the date hereof; (x)
the Closing Agreement, dated as of March 10, 1998, between Angeles Participating
Mortgage Trust (the predecessor to the Company) and the Internal Revenue Service
that provides that Angeles Participating Mortgage Trust is eligible to make an
election under Section 856(c)(1) of the Internal Revenue Code of 1986, as
amended (the "Code), to be taxed as a REIT for its taxable year beginning
January 1, 1998 and correspondence submitted to the Internal Revenue Service and
to us in connection therewith; (y) the opinion of Rogers & Wells, LLP, dated
November 4, 1999, that the Company's proposed method of operation from and after
the earlier of the date of the merger of Starwood Financial Trust with and into
the Company (the "Incorporation Merger") and the merger (the "TriNet Merger") of
a newly formed subsidiary of the Company with and into TriNet Corporate Realty
Trust, Inc. ("TriNet"), taking into account the effects of the Incorporation
Merger and the TriNet Merger, will enable the Company to continue to meet the
requirements for qualification and taxation as a real estate investment trust
under the Code; and (z) the opinion of Price Waterhouse LLP, dated March 13,
1998, concerning the Company's eligibility to be treated as a REIT for its
taxable year beginning January 1, 1998.
We note that the opinion of Rogers & Wells, LLP relies on, among other
items, the opinion of Paul, Weiss, Rifkind, Wharton & Garrison, dated November
4, 1999, regarding the qualification and taxation of TriNet as a REIT through
the Effective Time (as defined in the Agreement and Plan of Merger and Interest
Contribution Agreement, dated as of June 15, 1999 and as amended as of September
15, 1999, by and among Starwood Financial Trust, SA Merger Sub, Inc., SFW
Holdings I, Inc., Starwood Capital Group, LLC, and TriNet Corporate Realty
Trust, Inc.) of the TriNet Merger and the treatment of TriNet's subsidiary
entities as partnerships or disregarded entities under the Code. We have
received the consent of Rogers & Wells, LLP to rely on its opinion, and have
assumed that the opinion of Paul, Weiss, Rifkind, Wharton & Garrison and the
other bases for the Rogers & Wells, LLP opinion remain in effect as of the date
such opinion was rendered. For purposes of our opinions, we have not examined
any of TriNet's operations or activities prior to the TriNet Merger or reviewed
any assets acquired by the Company pursuant to the TriNet Merger.
For purposes of our opinions, with your consent, we have not made an
independent investigation of the facts set forth in the Officer's Certificates,
the Portfolio Summary, the Closing Agreement and aforementioned correspondence,
the opinion of Price Waterhouse LLP, the opinion of Rogers & Wells, LLP, the
Organizational and Other Documents, or the Registration Statement. We have,
consequently, relied upon your representations that the information presented in
such documents or otherwise furnished to us accurately and completely describes
all material facts. In rendering these opinions, we have also assumed that all
terms and provisions of the Organizational and Other Documents will be complied
with by all parties thereto and are enforceable under applicable law. No facts
have come to our attention, however, that would cause us to question the
accuracy or completeness of such facts or documents in a material way.
The opinions expressed herein are based on the Code, Treasury regulations
promulgated thereunder, and interpretations of the Code and such regulations by
the courts and the Internal Revenue Service, all as they are in effect and exist
at the date of this letter. It should be noted that statutes, regulations,
judicial decisions, and administrative interpretations are subject to change at
any time and, in some circumstances, with retroactive effect. A material change
that is made after the date hereof in any of the foregoing bases for our
opinions could affect our conclusions.
Starwood Financial Inc.
March 21, 2000
Page 3
The opinions expressed herein are limited to the Federal laws of the United
States. We are not purporting to opine on any matter to the extent that it
involves the laws of any other jurisdiction.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof:
1. The Company's existing legal organization and its actual and proposed
method of operation, as described in the Registration Statement, as set forth in
the Organizational and Other Documents and as represented by the Company, enable
it to satisfy the requirements for qualification as a REIT under the Code.
2. The statements in the Registration Statement under the heading "FEDERAL
INCOME TAX CONSEQUENCES," insofar as such statements constitute matters of law
or legal conclusions, have been reviewed by us and are correct in all material
respects.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein and under
the caption "FEDERAL INCOME TAX CONSEQUENCES" in the Registration Statement.
Very truly yours,
MAYER, BROWN & PLATT
Exhibit 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Registration
Statement on Form S-3 of our report dated March 15, 1999 relating to the
financial statements and financial statement schedules, which appears in
Starwood Financial Inc.'s (formerly Starwood Financial Trust) Annual Report on
Form 10-K for the year ended December 31, 1998. We also consent to the
references to us under the headings "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
New York, NY
March 16, 2000