SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIDELITY DIVIDEND CAPITAL, INC.
(Exact Name of registrant as specified in governing instruments)
SUITE 52-A SMOKE RIDGE RD, QUEENSBURY, NEW YORK 12804
TELEPHONE (518) 743-9681
(Address, including zip code, and telephone number,
including area code of registrant's
Principle Executive Offices)
Dennis P. Sweenor
52-A Smoke Ridge Road
Queensbury, New York 12804
Telephone (518) 743-9681
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of all communications to:
Richard S. Lane
One Old Country Road
Suite 347
Carle Place, New York 11514
(516) 248-0858
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the registration statement becomes effective.
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, check the following box. [X]
CALCULATION OF REGISTRATION FEE
Title of Each Proposed Proposed
Class of Maximum Maximum
Securities to be Amount to be Offering Price Aggregate Amount of
Registered Registered Per Share Offering Price Registration
- --------------------------------------------------------------------------------
Per Share Fee
Common Stock,
$.001 Par 29,000,000 $ 10.00 $290,000,000 $ 36,743.00
Value(1)
Common Stock,
$.001 Par 1,000,000 $ 12.00 $ 12,000,000 $ 1,520.00
Value(2)
Soliciting Dealer
Warrants(3) 1,000,000 $ .001 $ 1,000 $ 12.70
Total $302,001,000 $ 38,275.70
- --------------------------------------------------------------------------------
(1) Includes 4,000,000 shares issuable pursuant to the Company's dividend
reinvestment plan.
(2) Represents shares issuable upon exercise of warrants to be issued to
____________ _______, or its assigns pursuant to the Warrant Purchase
agreement with the Registrant. Pursuant to Rule 416, includes such
indeterminate number of additional shares of Common Stock as may be
required for issuance on exercise of the Soliciting dealer Warrants as
a result of any adjustment in the number of shares of Common Stock
issuable on such exercise by reason of the anti- dilution provisions of
the Soliciting Dealer Warrants.
(3) Consists of Warrants to purchase up to 1,000,000 shares pursuant to the
warrant Purchase Agreement.
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 the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said section 8(a),
may determine.
25,000,000 SHARES
FIDELITY DIVIDEND
CAPITAL INC.
[LOGO]
COMMON STOCK
Fidelity Dividend Capital Inc. ("Fidelity Dividend Capital") was
formed to invest in commercial real estate properties, consisting primarily of
high quality commercial and industrial buildings triple-net leased to
creditworthy corporate tenants. We intend to qualify as a real estate investment
trust (REIT) for federal tax purposes commencing with our taxable year ending
December 31, 2006. However, we have not yet qualified as a REIT. Fidelity
Dividend Capital was formed as a Maryland corporation in August 2003 and has no
operating history.
Of the 30,000,000 shares of common stock we have registered, we are
offering 25,000,000 shares to the public on a best-efforts basis at a price of
$10 per share. The minimum number of shares that we will sell in this offering
is 200,000 shares for gross proceeds of $2,000,000. We are also offering up to
4,000,000 shares to participants in our Dividend Reinvestment Plan and up to
1,000,000 shares upon the exercise of certain warrants that may be issued to
broker-dealers participating in this offering. Subject to certain exceptions
described in this prospectus, you must purchase at least 200 shares for $2,000.
Fidelity Dividend Capital Advisors LLC (the "Advisor"), which is an
affiliate of Fidelity Dividend Capital, will be responsible for managing our
day-to-day activities. The Advisor is beneficially owned and or controlled by
the Company's President and Executive Vice-President. See the "Conflicts of
Interest" section of this Prospectus for a discussion of the relationship
between Fidelity Dividend Capital, the Advisor and other affiliates.
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN OUR SHARES. In particular, you
should carefully consider the following risks:
o The Company has no operating history and currently has no properties
identified for acquisition
o Lack of a public trading market for the shares
o Reliance on Fidelity Dividend Capital Advisors LLC, the Advisor, to
select properties and conduct our operations
o Payment of substantial fees to the Advisor and its affiliates
o Borrowing -- which increases the risk of loss of our investments
o Conflicts of interest between Fidelity Dividend Capital and certain
affiliates, which will be compensated for their services, Including
the Advisor, and Fidelity Dividend Capital Property Management LLC
(our property manager.)
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER STATE
SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THE USE OF FORECASTS IN THIS OFFERING IS
PROHIBITED. ANY REPRESENTATION TO THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR
ORAL, AS TO THE AMOUNT OR CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFITS OR
TAX CONSEQUENCES WHICH MAY FLOW FROM YOUR INVESTMENT IS NOT PERMITTED.
PRICE TO SELLING PROCEEDS TO
PUBLIC COMMISSION (1) THE COMPANY(2)
--------------------------------------------
Per Share ......................... $ 10 $ 0.70 $ 9.30
Total Minimum (200,000 shares) .... $ 2,000,000 $ 140,000 $ 1,860,000
Total Maximum (25,000,000 shares) . $250,000,000 $ 17,500,000 $232,500,000
(1) We will pay a sales commission of 7% to participating broker-dealers and pay
a dealer manager fee of 2.5%. We will also issue, for nominal consideration,
soliciting dealer warrants to participating broker-dealers to purchase one share
of common stock at a price of $12 per share for each 25 shares sold in this
offering. See the "Plan of Distribution" section of this prospectus for a
complete description of the amount and terms of such fees and expense
reimbursement.
(2) Proceeds are calculated before deducting certain organization and offering
expenses (excluding the dealer manager fee and selling commissions) payable by
us in an amount equal to up to 3% of the total proceeds. Such expenses are
estimated to be approximately $7,500,000 if 25,000,000 shares are sold. See
"Management -- Management Compensation."
FIDELITY DIVIDEND CAPITAL INC
The date of this prospectus is , 2004
TABLE OF CONTENTS
PAGE
QUESTIONS AND ANSWERS ABOUT THIS OFFERING ................................. 1
PROSPECTUS SUMMARY ........................................................ 7
Fidelity Dividend Capital Inc. ............................................ 7
Our REIT Status ........................................................... 7
Summary Risk Factors ...................................................... 7
Description of Properties ................................................. 8
Estimated Use of Proceeds of Offering ..................................... 8
Investment Objectives ..................................................... 8
Conflicts of Interest ..................................................... 9
The Offering .............................................................. 10
Terms of the Offering ..................................................... 10
Compensation to the Advisor ............................................... 10
Dividend Policy ........................................................... 11
Listing ................................................................... 11
Dividend Reinvestment Plan ................................................ 11
Share Redemption Program .................................................. 12
Fidelity Dividend Capital Operating Partnership ........................... 12
ERISA Considerations ...................................................... 12
Description of Securities ................................................. 12
RISK FACTORS .............................................................. 14
Investment Risks .......................................................... 14
Real Estate Risks ......................................................... 17
Federal Income Tax Risks .................................................. 20
i
TABLE OF CONTENTS
(CONTINUED)
PAGE
Retirement Plan Risks ..................................................... 21
SUITABILITY STANDARDS ..................................................... 22
ESTIMATED USE OF PROCEEDS ................................................. 24
MANAGEMENT ................................................................ 26
GENERAL ................................................................... 26
Committees of the Board of Directors ...................................... 27
Directors and Executive Officers .......................................... 28
Independent Directors ..................................................... 29
Compensation of Directors ................................................. 31
Independent Director Stock Option Plan .................................... 31
Employee Stock Option Plan ................................................ 32
Limited Liability and Indemnification of Directors, Officers and Others ... 32
The Advisor ............................................................... 34
The Advisory Agreement .................................................... 34
Holdings of Shares and Partnership Units .................................. 36
Affiliated Companies ...................................................... 36
Management Decisions ...................................................... 37
Management Compensation ................................................... 37
Organizational and Offering Stage ......................................... 37
Acquisition and Development Stage ......................................... 38
Operational Stage ......................................................... 39
Stock Ownership and Ownership of Partnership Interests .................... 40
CONFLICTS OF INTEREST ..................................................... 41
ii
TABLE OF CONTENTS
(CONTINUED)
PAGE
Interest in Other Real Estate Programs .................................... 41
Competition ............................................................... 41
Affiliated Property Manager ............................................... 41
Lack of Separate Representation ........................................... 41
Joint Ventures with Affiliates of the Advisor ............................. 42
Fees and Other Compensation to the Advisor ................................ 42
Certain Conflict Resolution Procedure ..................................... 42
INVESTMENT OBJECTIVES AND CRITERIA ........................................ 44
GENERAL
Acquisition and Investment Policies ....................................... 44
Development and Construction of Properties ................................ 46
Acquisition of Properties from the Advisor ................................ 46
Terms of Leases and Tenant Creditworthiness ............................... 46
Joint Venture Investments ................................................. 47
Borrowing Policies ........................................................ 47
Disposition Policies ...................................................... 48
Investment Limitations .................................................... 48
Change in Investment Objectives and Limitations ........................... 50
FEDERAL INCOME TAX CONSIDERATIONS ......................................... 51
GENERAL ................................................................... 51
Requirements for Qualification as a REIT .................................. 52
Failure to Qualify as a REIT .............................................. 57
Sale-Leaseback Transactions ............................................... 57
Taxation of Taxable U.S. Shareholders ..................................... 57
iii
TABLE OF CONTENTS
(CONTINUED)
PAGE
Treatment of Tax-Exempt Shareholders ...................................... 59
Special Tax Considerations for Non-U.S. Shareholders ...................... 59
Statement of Stock Ownership .............................................. 61
State and Local Taxation .................................................. 61
Federal Income Tax Aspects of Our Operating Partnership ................... 62
ERISA Considerations ...................................................... 65
Plan Asset Considerations ................................................. 66
Other Prohibited Transactions ............................................. 67
Annual Valuation .......................................................... 67
DESCRIPTION OF SECURITIES ................................................. 69
Common Stock .............................................................. 69
Preferred Stock ........................................................... 69
Soliciting Dealer Warrants ................................................ 69
Meetings, Special Voting Requirements and Access to Records ............... 70
Restriction on Ownership of Shares ........................................ 70
Dividends ................................................................. 71
Distribution Reinvestment Plan ............................................ 71
Share Redemption Program .................................................. 72
Restrictions on Roll-Up Transactions ...................................... 72
Business Combinations ..................................................... 74
Control Share Acquisitions ................................................ 75
THE OPERATING PARTNERSHIP AGREEMENT ....................................... 76
GENERAL ................................................................... 76
Capital Contributions ..................................................... 76
iv
TABLE OF CONTENTS
(CONTINUED)
PAGE
Operations ................................................................ 76
Exchange Rights ........................................................... 77
Transferability of Interests .............................................. 78
PLAN OF DISTRIBUTION ...................................................... 79
Supplemental Sales Material ............................................... 83
LEGAL OPINIONS ............................................................
APPENDIX A SUBSCRIPTION AGREEMENT .........................................
APPENDIX B DIVIDEND REINVESTMENT PLAN .....................................
v
QUESTIONS AND ANSWERS ABOUT THIS OFFERING
Set forth below is some of the more frequently asked questions and answers
relating to an offering of this type. Please see the "Prospectus Summary" and
the remainder of this prospectus for more detailed information about this
offering.
Q: WHAT IS A REIT?
A: In general, a REIT is a company that:
o Pays dividends to investors of at least 90% of its taxable income
for each year;
o Avoids the federal "double taxation" treatment of income that
generally results from investments in a corporation because a
REIT is not generally subject to federal corporate income taxes
on its net income, provided certain income tax requirements are
satisfied;
o Combines the capital of many investors to acquire or provide
financing for real estate properties; and
o Offers the benefit of a diversified real estate portfolio under
professional management.
Q: WHAT IS FIDELITY DIVIDEND CAPITAL INC.?
A: Fidelity Dividend Capital Inc was formed in August 2003 as a Maryland
corporation to acquire high quality industrial properties and other
commercial real estate and lease them primarily on a triple-net basis
to creditworthy corporate tenants. Fidelity Dividend Capital is not yet
qualified as a REIT. However, we intend to operate in a manner that
will allow Fidelity Dividend Capital to qualify as a REIT under the
Internal Revenue Code commencing with our first taxable year ending
December 31, 2006.
Q: WHO WILL CHOOSE WHICH REAL ESTATE PROPERTIES TO INVEST IN?
A: Fidelity Dividend Capital Advisors LLC (the "Advisor") is our advisor
and it makes recommendations on all property acquisitions to our board
of directors. Our board of directors must approve all of our
acquisitions.
Q: WHAT IS FIDELITY DIVIDEND CAPITAL ADVISORS?
A: Fidelity Dividend Capital Advisors LLC ("the Advisor") is a Delaware
limited liability company formed in March 2004, to serve as Advisor for
Fidelity Dividend Capital. We sometimes refer to Fidelity Dividend
Capital Advisors, LLC in this prospectus as "the Advisor".
Q: WILL THE ADVISOR USE ANY SPECIFIC CRITERIA WHEN SELECTING A POTENTIAL
PROPERTY ACQUISITION?
A: Yes. The Advisor generally will seek to invest in properties that will
satisfy the primary objective of providing quarterly dividend
distributions to shareholders. We will acquire properties for
investment with an expectation of holding properties for an extended
period. The Advisor will also seek to protect our investors' capital
contributions to realize capital appreciation upon the sale of
properties.
We will attempt to accomplish these objectives by acquiring
high-quality industrial and commercial properties, which are newly
constructed, under construction, or which have been previously
constructed and have operating histories. The Advisor intends to focus
on properties, which have been leased or pre-leased on a triple-net
basis to one or more creditworthy corporate tenants.
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Q. WHY DO YOU PLAN ON FOCUSING YOUR ACQUISITIONS ON COMMERCIAL AND
INDUSTRIAL PROPERTIES?
A. Ownership of commercial and industrial properties may have certain
potential advantages. Commercial tenants tend to be more stable than
tenants of office or residential properties, resulting in greater
revenue stability. Because commercial properties are typically leased
on a triple-net basis, the owner has limited management
responsibilities. The cost on capital improvements are also generally
lower for commercial properties. Commercial properties generally have a
shorter development period than other real estate classes, in which
allowing owners to respond more quickly to changes in demand.
Although we believe there are certain advantages to investing in
commercial properties, by focusing on commercial properties we will not
have the advantage of a portfolio of properties that is diversified
across different property types. As a result, we will be exposed to
risks or trends that have a greater impact on the market for commercial
properties. These risks or trends may include the population movement
of changes in land use or zoning regulations, which restrict the
availability of suitable commercial properties and other economic
trends or events, which would cause commercial properties to
under-perform other property types.
Q: WHAT ARE SOME OF THE RISKS TO INVESTING IN THIS OFFERING?
A: We have summarized certain risks in the "Risk Factors" section of this
prospectus. These include, among others, our lack of an operating
history, the absence of any properties identified for acquisition,
reliance on the Advisor and our board of directors for the selection of
properties and the application of offering proceeds, the payment of
significant fees to the Advisor and its affiliates, and the potential
for conflicts of interest involving the Advisor and its affiliates.
Q: WHY MAY YOU ACQUIRE CERTAIN PROPERTIES IN JOINT VENTURES?
A: We may acquire some of our properties in joint ventures, some of which
may be entered into with affiliates of the Advisor. Joint ventures may
allow us to acquire an interest in a property without requiring that we
fund the entire purchase price. In addition, certain properties may be
available to us only through joint ventures. As a result, joint
ventures may allow us to diversify our portfolio of properties in terms
of geographic region, property type and commercial group of our
tenants.
Q: WHAT STEPS DO YOU INTEND TO TAKE TO MAKE SURE YOU PURCHASE
ENVIRONMENTALLY COMPLIANT PROPERTY?
A: We intend to obtain a Phase I environmental assessment of each property
purchased. In addition, we generally intend to obtain a representation
from the seller that, to its knowledge, the property is not
contaminated with hazardous materials. Although these steps may reduce
certain environmental risks, Fidelity Dividend Capital may nevertheless
be liable for the costs related to removal or redemption of hazardous
materials found on any properties we acquire.
Q: WHAT ARE THE PROPOSED TERMS OF THE LEASES YOU EXPECT TO ENTER INTO?
A: We will seek primarily to enter into "triple-net" leases, the majority
of which we expect will have terms of fifteen to twenty five years, and
many of which will have renewal options for additional periods.
"Triple-net" means that the tenant is responsible for repairs,
maintenance, property taxes, utilities, insurance and other operating
costs. We expect that certain of our leases will provide that we have
responsibility for replacement of specific structural components of a
property such as the roof of the building or the parking lot.
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Q: HOW WILL FIDELITY DIVIDEND CAPITAL OWN ITS REAL ESTATE PROPERTIES?
A: We expect to own all of our real estate properties through an operating
partnership called Fidelity Dividend Capital Operating Partnership LP
(which we refer to in this prospectus as the Partnership) or
subsidiaries of the Partnership. The Partnership has been organized to
own and lease real properties on our behalf. Fidelity Dividend Capital
is the sole general partner of the Partnership. Fidelity Dividend
Capital Advisors, LLC is currently the only limited partner of the
Partnership. As described below, the Partnership may issue additional
limited partnership interests in connection with certain property
acquisitions.
Q: WHAT IS AN "UPREIT"?
A: UPREIT stands for "Umbrella Partnership Real Estate Investment Trust".
An UPREIT is a REIT that holds all or substantially all of its
properties through a partnership in which the REIT holds an interest.
We use this structure because a sale of property directly to the REIT
is generally a taxable transaction to the selling property owner. In an
UPREIT structure, a seller of a property who desires to defer taxable
gain on the sale of his property may transfer the property to the
partnership in exchange for limited partnership units in the
partnership and defer taxation of gain until the seller later sells the
partnership units or exchanges his partnership units normally on a
one-for-one basis for REIT shares. If the REIT shares are publicly
traded, the former property owner will achieve liquidity for his
investment. Using an UPREIT structure gives us an advantage in
acquiring desired properties from persons who may not otherwise sell
their properties because of unfavorable tax results.
Q: IF I BUY SHARES, WILL I RECEIVE DISTRIBUTIONS AND HOW OFTEN?
A: We intend on making distributions on a quarterly basis to our
shareholders. The amount of each distribution will be determined by the
board of directors and will typically depend on the amount of
distributable funds, current and projected cash requirements, tax
considerations and other factors. However, in order to remain qualified
as a REIT, we must make distributions of at least 90% of its REIT
taxable income for each year.
Q: HOW DO YOU CALCULATE THE PAYMENT OF DIVIDENDS TO SHAREHOLDERS?
A: We will calculate our quarterly dividends using daily record and
declaration dates so your dividend benefits will begin to accrue
immediately upon becoming a shareholder.
Q: MAY I REINVEST THE DIVIDENDS I MAY RECEIVE IN SHARES OF FIDELITY
DIVIDEND CAPITAL?
A: Yes. You may participate in our dividend reinvestment plan by checking
the appropriate box on the Subscription Agreement or by filling out an
enrollment form we will provide to you at your request. As part of this
offering we have registered 4,000,000 shares to be sold under the
dividend reinvestment plan, all of which will be offered at a price
equal to the fair market value per share on the applicable distribution
date, including applicable fees and commissions. Until there is more
than a de minimis amount of trading in its shares, the fair market
value will be deemed to be the same as the price of a share in this
offering. Dividends will begin to accrue after we have closed on the
sale of at least 200,000 shares in this offering. See "Description of
Securities -Dividend Reinvestment Plan".
Q: WILL THE DISTRIBUTIONS I RECEIVE BE TAXABLE AS ORDINARY INCOME?
A: Yes and No. Generally, distributions that you receive, including
distributions that are reinvested pursuant to our dividend reinvestment
plan, will be taxed as ordinary dividend income to the extent they are
from current or accumulated earnings and profits. We expect that some
portion of your distributions may not be subject to tax in the year
received due to the fact that depreciation expenses reduce earnings and
profits but do not reduce cash available
-3-
for distribution. Amounts distributed to you in excess of our earnings
and profits will reduce the tax basis of your investment and
distributions in excess of tax basis will be taxable as an amount
realized from the sale of your shares of our common stock. This, in
effect, would defer a portion of your tax until your investment is sold
or Fidelity Dividend Capital Inc is liquidated, at which time you may
be taxed at capital gains rates. However, because each investor's tax
considerations are different, we suggest that you consult with your tax
advisor. You should also review the section of the prospectus entitled
"Federal Income Tax Considerations."
Q: WHAT WILL YOU DO WITH THE MONEY RAISED IN THIS OFFERING?
A: We will use your investment proceeds to purchase high-quality
commercial and industrial real estate properties. We intend to invest a
minimum of 84% of the proceeds from this offering to acquire such
properties. The remaining proceeds will be used to pay fees and
expenses of this offering and expenses related to the acquisition of
properties.
Q: WILL THE FEES AND EXPENSES REDUCE MY INVESTED CAPITAL?
A: The payment of these fees and expenses will not reduce your invested
capital. Your initial invested capital amount will remain $10 per
share, and your dividend yield will be based on your $10 per share
investment. However, the payment of fees and expenses will reduce the
funds available for investment in real estate as well as the book value
of the shares. Until we invest the proceeds of this offering in real
estate, we may invest in short-term, highly liquid investments. These
short-term investments may earn a lower return than we expect to earn
on our real estate investments, and we cannot guarantee how long it
will take to fully invest the proceeds in real estate.
Q: WHAT KIND OF OFFERING IS THIS?
A: We are offering the public up to 25,000,000 shares of common stock on a
"best efforts" basis. We have also registered 4,000,000 shares to be
offered under our distribution reinvestment plan and 1,000,000 shares
to be issued upon the exercise of warrants that may be issued to
broker-dealers participating in this offering.
Q: HOW DOES A "BEST EFFORTS" OFFERING WORK?
A: When shares are offered to the public on a "best efforts" basis, the
brokers participating in the offering are only required to use their
best efforts to sell the shares. Brokers do not have a firm commitment
or obligation to purchase any of the shares.
Q: HOW LONG WILL THIS OFFERING LAST?
A: The offering will not last beyond ______, 2006 (two years from the date
of this prospectus). However, in certain states, including Arizona and
Iowa, the offering may continue for just one year unless we renew the
offering for up to one additional year.
Q: WHO CAN BUY SHARES?
A: You can buy shares pursuant to this prospectus provided that you have
either (1) a net worth of at least $45,000 and an annual gross income
of at least $45,000, or (2) a net worth of at least $150,000. For this
purpose, net worth does not include your home, home furnishings and
personal automobiles. These minimum levels may be higher in certain
states, so you should carefully read the more detailed description in
the "Suitability Standards" section of this prospectus.
-4-
Q: MAY PERSONS AFILIATED WITH FIDELITY DIVIDEND CAPITAL INC PURCHASE
SHARES IN THIS OFFERING?
A: Yes. Officers and directors of Fidelity Dividend Capital Inc, as well
as officers and employees of the Advisor or other affiliated entities,
may purchase shares at a price of $8.90 per share. The reduced offering
price reflects a $.15 reduction in acquisition and advisory fees and
elimination of the $.70 sales commission and the $0.25 dealer manager
fee that would otherwise be paid on each share. Notwithstanding the
discounted sale price, the net proceeds received by Fidelity Dividend
Capital will be the same on all shares sold in the offering. The
purchase of shares by its affiliates will not count toward satisfying
our minimum offering of 200,000 shares.
Q: IS THERE ANY MINIMUM INVESTMENT REQUIRED?
A: Yes. Generally, you must invest at least $2,000. These minimum
investment levels may be higher in certain states, so you should
carefully read the more detailed description of the minimum investment
requirements appearing later in the "Suitability Standards" section of
this prospectus.
Q: HOW DO I SUBSCRIBE FOR SHARES?
A: If you choose to purchase shares in this offering, you will need to
complete a Subscription Agreement in the form attached to this
prospectus as Appendix A for a specific number of shares. You must pay
for the shares at the time you subscribe. Until we have closed on the
sale of the first 200,000 shares from at least 100 subscribers who are
independent of Fidelity Dividend Capital Inc and of each other, your
funds will be placed into an escrow account with ________________, N.A.
where your funds will be held, along with those of other subscribers.
Upon our acceptance of subscriptions for at least 200,000 shares, funds
held in escrow will be released to us and will be available for the
acquisition of properties and the payment of expenses. Thereafter,
proceeds from the sale of shares will be released to us on an ongoing
basis at the time we accept each Subscription Agreement.
Q: IF I BUY SHARES IN THIS OFFERING, HOW MAY I LATER SELL THEM?
A: At the time you purchase the shares, they will not be listed for
trading on any national securities exchange or over-the-counter market.
In fact, we believe it is unlikely that we would apply to have the
shares listed for trading in any public market for at least the first
three years following this offering. After that time, we plan to
consider opportunities to list our shares for trading based on a number
of factors, such as the public market for REITS generally, the amount
of capital we have been able to raise and the economic performance of
the properties we have acquired.
As discussed in the following paragraph, the absence of a public market
may continue for an extended period of time after the initial closing
under this offering. As a result, you may find it difficult to find a
buyer for your shares and realize a return on your investment. See
"Description of Securities -- Restriction on Ownership of Shares."
In addition, after you have held your shares for at least one year, you
may be able to have your shares repurchased by Fidelity Dividend
Capital pursuant to our share redemption program. See the "Description
of Securities --Share Redemption Program" section of the prospectus. If
we have not listed the shares on a national securities exchange or
over-the-counter market within 5 years after the initial closing under
this offering, our articles of incorporation require us to begin
selling our properties and other assets and return the net proceeds
from these sales to our shareholders through distributions.
-5-
Q: WHAT IS THE EXPERIENCE OF YOUR OFFICERS AND DIRECTORS?
A: The key members of our management team are currently comprised of
Dennis P. Sweenor and William T. Frattalone each of whom is an
executive officer and director of Fidelity Dividend Capital Inc. See
the "Management -- Executive Officers and Directors" section of this
prospectus for a more detailed description of the background and
experience of each of our directors.
Q: WILL I BE NOTIFIED OF HOW MY INVESTMENT IS DOING?
A: You will receive periodic updates on the performance of your investment
with us, including:
o Three quarterly financial reports;
o An annual report; and
o An annual IRS Form 1099.
Q: WHEN WILL I GET MY DETAILED TAX INFORMATION?
A: We intend to mail your Form 1099 tax information by January 31 of each
year.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have more questions about the offering or if you would like
additional copies of this prospectus, you should contact your
registered representative or contact:
Dennis P. Sweenor
Fidelity Dividend Capital Inc.
Suite 52-A Smoke Ridge Rd,
Queensbury, N.Y. 12804
Telephone: (518) 743-9681
Fax: (518) 743-9992
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PROSPECTUS SUMMARY
THIS PROSPECTUS SUMMARY SUMMARIZES INFORMATION CONTAINED ELSEWHERE IN
THIS PROSPECTUS. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE
"RISK FACTORS" SECTION.
FIDELITY DIVIDEND CAPITAL INC.
Fidelity Dividend Capital Inc was formed in order to acquire commercial
real estate properties, consisting primarily of high quality commercial and
industrial properties leased to creditworthy corporate tenants. Our office is
located at Suite 52-A Smoke Ridge Rd, Queensbury, N.Y. 12804 and our telephone
number is (518) 743-9681.
Our advisor is Fidelity Dividend Capital Advisors LLC, which is
responsible for managing our affairs on a day-to-day basis and for identifying
and making acquisitions on our behalf. We refer to Fidelity Dividend Capital
Advisors, LLC as the Advisor or as Advisors in this prospectus. Our board of
directors must approve each real property acquisition proposed by the Advisor,
as well as certain other matters set forth in our articles of incorporation. We
have six members on our board of directors. Four of the directors are
independent of our Advisor and have responsibility for reviewing its
performance. Our Directors are elected for a term of three years and Independent
Directors are elected annually by the shareholders.
OUR REIT STATUS
We intend to qualify as a Real Estate Investment Trust (REIT) under
federal tax laws commencing with our first taxable year ending December 31,
2006. As a REIT, we generally will not be subject to federal income tax on
income that we distribute to our shareholders. Under the Internal Revenue Code,
REITs are subject to numerous organizational and operational requirements,
including a requirement that they distribute at least 90% of their taxable
income. If we fail to qualify for taxation as a REIT in any year, our income
will be taxed at regular corporate rates, we will not be allowed a deduction for
distributions to our shareholders in computing our taxable income and we may be
precluded from qualifying for treatment as a REIT for the four-year period
following the year of our failure to qualify. Even if we qualify as a REIT for
federal income tax purposes, we may still be subject to state and local taxes on
our income and property and to federal income and excise taxes on our
undistributed income.
SUMMARY RISK FACTORS
Following are the most significant risks relating to your investment:
o There is no public trading market for the shares, and we cannot
assure you that one will ever develop. Until the shares are
publicly traded, you will have a difficult time selling your
shares. The absence of a public market increases the likelihood
that a sale of shares could occur at a loss.
o We must rely on our Advisor for the day-to-day management of our
business and the identification of real estate properties, which
we may acquire.
o If for any reason we fail to qualify as a REIT for federal income
tax purposes, we would be subject to tax on income at corporate
rates. That would reduce the amount of funds available for
investment or distribution to our shareholders because of the
additional tax liability for the years involved.
o You will not have preemptive rights as a shareholder, so any
additional shares issued in the future may dilute your interest
in Fidelity Dividend Capital Inc.
o We will pay significant fees to the Advisor and its affiliates.
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o Real estate investments are subject to cyclical trends, which is
beyond our control.
o If you invest before we have completed any property acquisitions,
then you will not have an opportunity to evaluate any of the
properties that will be in our portfolio.
o Loans we obtain will be secured by some of our properties, which
will put those properties at risk of forfeiture if we were unable
to pay those loans.
o Our investment in vacant land to be developed may create risks
relating to the builder's ability to control construction costs,
failure to perform or failure to build in conformity with plans,
specifications and timetables.
o If we do not obtain listing of the shares on a national exchange
or over-the-counter market within five years of our initial
closing under this offering, our articles of incorporation
provide that we must begin to sell all of our properties and
distribute the net proceeds to our shareholders.
o Our Advisor will face various conflicts of interest resulting
from its activities with affiliated entities.
Before you invest in Fidelity Dividend Capital Inc, you should see the
complete discussion of "Risk Factors" section of this prospectus.
DESCRIPTION OF PROPERTIES
When we either acquire a significant property or believe that there is
a reasonable probability that we will acquire a significant property, we will
provide a supplement to this prospectus to describe the property. You should not
assume that we will actually acquire any property that we describe in a
supplement as a probable acquisition because one or more contingencies to the
purchase may prevent the acquisition.
ESTIMATED USE OF PROCEEDS OF OFFERING
We anticipate that we will invest at least 84% of the proceeds of this
offering in real estate properties. We will use the remainder of the offering
proceeds to pay selling commissions, fees and expenses relating to the selection
and acquisition of properties and the costs of the offering and operating
expenses.
INVESTMENT OBJECTIVES
Our investment objectives are:
o To maximize quarterly cash dividends paid to our investors;
o To manage risk in order to preserve, protect and return our
investors' capital contributions;
o To realize capital appreciation upon our ultimate sale of our
properties; and
o To ultimately list our shares on a National Securities Exchange
or an over-the-counter market, complete a sale or merger of
Fidelity Dividend Capital in a transaction which provides our
investors with securities of a publicly-traded company or, if we
do not complete such a transaction or obtain listing of the
shares within five years after our initial closing, we must begin
selling our properties and other assets and distributing the net
proceeds to our investors.
-8-
We may only change these investment objectives upon a majority vote of
the shareholders. See the "Investment Objectives and Criteria" section of this
prospectus for a more complete description of its business and objectives.
CONFLICTS OF INTEREST
Our Advisor will experience conflicts of interest in connection with
the management of our business affairs, including the following:
o The principals of the Advisor will have to allocate their time
between Fidelity Dividend Capital and other real estate projects
and business activities in which they may be involved;
o The Advisor must determine whether any related entities should
enter into joint ventures with Fidelity Dividend Capital for the
acquisition and operation of specific properties. The terms of
any joint ventures proposed by the Advisor may not be the result
of arm's-length negotiations;
o The Advisor will present to Fidelity Dividend Capital all
investment opportunities, which the Advisor determines are
suitable for Fidelity Dividend Capital given our investment
objectives and certain other considerations. Opportunities, which
the Advisor determines are not suitable for us, may be pursued by
affiliates of the Advisor. As a result, the Advisor may be
subject to certain conflicts of interest in evaluating the
suitability of investment opportunities and making
recommendations to our board of directors;
o The Advisor and its affiliates will receive fees or distributions
with respect to their limited partnership interests in the
Partnership in connection with transactions involving the
purchase, management and sale of our properties regardless of the
quality of the property acquired or the services provided to us;
and
o Fidelity Dividend Capital Property Management LLC (the Property
Manager) will perform certain property management and leasing
services with respect to the properties, which we acquire. The
Property Manager is presently beneficially owned and controlled
by the Company's President and Executive Vice-President each of
whom is a director of Fidelity Dividend Capital Inc. and a
principal of the Advisor. As a result, conflicts of interest may
exist with respect to certain transactions between Fidelity
Dividend Capital and the Property Manager. See the "Management"
and "Conflicts of Interest" sections of this prospectus for a
more detailed discussion of these relationships and certain
conflicts of interest.
Fidelity Dividend Capital Property Management, LLC and Fidelity
Dividend Capital Advisors, LLC are presently each 100% owned by the Company's
President and Executive Vice-President. Fidelity Dividend Capital Advisors, LLC
and Fidelity Dividend Capital Property Management, LLC may each issue their
equity securities in the future to certain of their employees, consultants or
other parties. However, any such transactions are not expected to result in a
change in control of these entities.
The Advisor has invested $20,000 in the Operating Partnership in
exchange for an approximately 99% regular limited partner interest and Fidelity
Dividend Capital has invested $2,000 in the Partnership in exchange for an
approximately 1% general partner interest. Except as described above, the
Advisor and the Property Manager do not have any ownership interest in Fidelity
Dividend Capital or the Operating Partnership.
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THE OFFERING
We are offering up to 25,000,000 shares to the public at $10 per share.
We are also offering up to 4,000,000 shares pursuant to our dividend
reinvestment plan at an amount per share equal to the fair market value of the
shares on the applicable distribution date including applicable fees and
commissions, and up to 1,000,000 shares to broker-dealers pursuant to warrants
whereby participating broker-dealers will have the right to purchase one share
for every 25 shares they sell in this offering. The exercise price for shares
purchased pursuant to the warrants is $12 per share.
TERMS OF THE OFFERING
We will begin selling shares in this offering upon the effective date
of this prospectus, and this offering will terminate on or before______, 2006
(two years after the date of this prospectus). However, we may terminate this
offering at any time prior to such termination date. Investment proceeds will be
held in an escrow account at ___________ N.A. until we close on the sale of at
least 200,000 shares to at least 100 investors who are independent of Fidelity
Dividend Capital Inc and of each other. Thereafter, your investment proceeds
will be released to us and available for the acquisition of properties or the
payment of fees and expenses as soon as we accept your Subscription Agreement.
We generally intend to admit shareholders to Fidelity Dividend Capital on a
daily basis.
COMPENSATION TO THE ADVISOR
The Advisor and its affiliates will receive compensation and fees for
services relating to this offering and the investment and management of our
assets .The most significant items of compensation are included in the following
table:
OFFERING STAGE
o Sales Commissions: Up to 7.0% of gross
offering proceeds (all or
substantially all of which
is expected to be paid to
participating
broker-dealers).
o Dealer Manager Fee: Up to 2.5% of gross
offering proceeds.
o Offering Expenses: Up to 3.0% of gross
offering proceeds.
ACQUISITION AND DEVELOPMENT STAGE
o Acquisition and Advisory Fees: Up to 3% of the aggregate
purchase price of all
properties we acquire.
o Acquisition Expenses: Up to 0.5% of the aggregate
purchase price of all
properties we acquire.
OPERATIONAL STAGE
o Property Management and Leasing Fees: normally expected to be
4.5% of gross revenues with
respect to each Property.
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o Initial Lease-Up Fee for Newly
Constructed Property: Competitive fee for
geographic location of
property based on a survey
of brokers and agents
(customarily equal to the
first month's rent).
o Real Estate Commission: 3.0% of contract price for
properties sold. Payment of
any Real Estate Commission
is deferred until investors
receive a return of capital
plus a 7% cumulative
non-compounded annual
return on their net capital
contributions (calculated
from the closing date of
each respective
shareholder's investment
without deduction of any
organization, offering or
other expenses).
There are many conditions and restrictions on the amount of
compensation the Advisor and its affiliates may receive. There are also some
smaller items of compensation and expense reimbursements that the Advisor may
receive. For a more detailed explanation of these fees and expenses payable to
the Advisor and its affiliates, please see the "Management Compensation" section
of this prospectus.
DIVIDEND POLICY
In order to remain qualified as a REIT, we are required to distribute
90% of our annual taxable income to our shareholders. We have paid no dividends
to date. However, we intend to accrue and pay dividends (out of funds legally
available therefore, of which there can be no assurance) on a quarterly basis
commencing with the calendar quarter in which the initial closing under this
offering occurs. We will calculate our dividends based upon daily record and
dividend declaration dates so investors will be entitled to earn dividends
immediately upon purchasing shares. (see "The availability and timing of cash
dividends in uncertain" under "Risk factors" in this prospectus)
LISTING
We presently intend to pursue the listing of our common stock on a
National Securities Exchange or an over-the-counter market within five years
after the date of the initial closing under this offering. In the event we do
not obtain listing prior to that date, or it has not completed a sale or merger
of Fidelity Dividend Capital Inc. in a transaction which provides our investors
with securities of a publicly-traded company, our articles of incorporation
require us to begin the sale of our properties and liquidation of our assets and
to distribute the net proceeds to our shareholders.
DIVIDEND REINVESTMENT PLAN
You may participate in our dividend reinvestment plan pursuant to which
you may have the cash distributions you receive reinvested in shares of Fidelity
Dividend Capital Inc. If you participate, you will be taxed on an amount equal
to the fair market value, on the relevant distribution date, of the shares of
our common stock purchased with reinvested distributions even though you will
not receive the cash from those distributions. As a result, you may have a tax
liability without receiving cash to pay such liability. We may terminate the
dividend reinvestment plan in our discretion at any time upon 10 days notice to
you. Following any termination of the dividend reinvestment plan, all subsequent
distributions to shareholders would be made in cash. Any such termination may
limit our ability to fund the share redemptions discussed below. (See
"Description of Securities -- Dividend Reinvestment Plan.")
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SHARE REDEMPTION PROGRAM
We may use proceeds received from the sale of shares pursuant to our
distribution reinvestment plan to fund share redemptions. After you have held
your shares for a minimum of one year, our share redemption program may provide
a limited opportunity for you to redeem your shares, subject to certain
restrictions and limitations, for the lesser of (1) $10 per share, or (2) the
price you actually paid for your shares. We currently expect that our
distribution reinvestment plan will be the primary source of funds used to
redeem shares. The board of directors reserves the right to use other sources of
funds to redeem shares, to reject any request for redemption of shares for any
reason or no reason or to amend or terminate the share redemption program at any
time. You will have no right to request redemption of your shares after the
shares are listed on a national exchange. (See "Description of Securities --
Share Redemption Program.")
FIDELITY DIVIDEND CAPITAL OPERATING PARTNERSHIP
We intend to own all of our real estate properties through Fidelity
Dividend Capital Operating Partnership LP (the Partnership), our operating
partnership, or its subsidiaries. We are the sole general partners of the
Partnership. The Advisor is currently the only limited partner for which it made
initial contributions of $20,000. Our ownership of properties in the Partnership
allows us to acquire real estate properties in exchange for limited partnership
units in the Partnership. This structure will also allow sellers of properties
to transfer their properties to the Partnership in exchange for units of the
Partnership and defer recognition of taxable gain that would have been
recognized if the properties had instead been sold to us. The holders of units
in the Partnership may have their units redeemed under certain circumstances.
(See "The Operating Partnership Agreement.")
ERISA CONSIDERATIONS
The section of this prospectus entitled "ERISA Considerations"
describes the effect the purchase of shares will have on individual retirement
accounts (IRAs) and retirement plans subject to the Employee Retirement Income
Security Act of 1974, as amended (ERISA), and/or the Internal Revenue Code.
ERISA is a federal law that regulates the operation of certain tax-advantaged
retirement plans. Any retirement plan trustee or individual considering
purchasing shares for a retirement plan or an IRA should read this section of
the prospectus very carefully.
DESCRIPTION OF SECURITIES
GENERAL
Your investment will be recorded on our books and stock certificates
will be issued by our registrar and transfer agent.
SHAREHOLDER VOTING RIGHTS AND LIMITATIONS
We will hold annual meetings of our shareholders for the purpose of
electing our Independent Directors and conducting other business matters that
may be presented at such meetings. We may also call a special meeting of
shareholders from time to time for the purpose of conducting certain matters.
You are entitled to one vote for each share you own at any of these meetings.
RESTRICTION ON SHARE OWNERSHIP
In order for us to qualify as a REIT, beginning in 2006 not more than
50% in value of our outstanding shares may be owned, directly or indirectly
through the application of certain attribution rules under the Internal Revenue
Code, by any five or fewer individuals, as defined in the Internal Revenue Code
to include specified entities, during the last half of any taxable year. (See
"Description of Securities -- Restriction on Ownership of Shares.") These
restrictions, as well as other share
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ownership and transfer restrictions contained in the articles of incorporation,
are designed to enable us to comply with share accumulation and other
restrictions imposed on REITs by the Internal Revenue Code. For a more complete
description of the shares, including restrictions on the ownership of shares,
please see the "Description of Securities" section of this prospectus.
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RISK FACTORS
Your purchase of shares involves a number of risks. In addition to
other risks discussed in this prospectus, you should specifically consider the
following:
INVESTMENT RISKS
THERE IS NO PUBLIC TRADING MARKET FOR YOUR SHARES.
There is no current public market for the shares and we have no
obligation or immediate plans to apply for quotation or listing in any public
securities market. Although in the future, we will consider opportunities to
establish a public market for our shares, there can be no assurance that a
public market will ever exist. It will therefore be very difficult for you to
sell your shares promptly. Even if you are able to sell your shares, the absence
of a public market may cause the price received for any shares sold to be less
than the proportionate value of the real estate we own. Therefore, you should
purchase the shares only as a long-term investment. See "Description of
Securities - Share Redemption Program" for a description of our share redemption
program.
WE DO NOT HAVE AN OPERATING HISTORY OR AN EXISTING PORTFOLIO OF
PROPERTIES.
Fidelity Dividend Capital Inc was formed in August 2003 in order to
invest in commercial real estate properties. As of the date of this prospectus,
we have engaged only in certain organizational and offering activities. We have
not acquired any properties or identified any properties for acquisition. As a
result, we do not have a history of operations or a portfolio of existing
properties, which you are able to evaluate in making a decision to invest in our
shares of common stock.
WE MUST RELY ON THE ADVISOR FOR SELECTION OF PROPERTIES AND ON OUR
BOARD OF DIRECTORS FOR THE INVESTMENT OF OFFERING PROCEEDS.
Our ability to pay dividends and achieve our other investment
objectives is partially dependent upon the performance of the Advisor in the
acquisition of real estate properties, the selection of tenants and the
determination of any financing arrangements. We currently do not own any
properties, and except for any investments that may be described in supplements
to this prospectus, you will have no opportunity to evaluate the terms of
transactions or other economic or financial data concerning our investments. Our
board of directors, which must approve all property acquisitions, will have
broad discretion to determine the manner in which the net proceeds from this
offering are invested. As a result, you must rely entirely on the management
ability of the Advisor in identifying properties and proposing transactions and
the oversight of the board of directors in approving the application of our
offering proceeds.
FAILURE TO QUALIFY AS A REIT COULD ADVERSELY AFFECT OUR OPERATIONS AND
THE ABILITY TO MAKE DISTRIBUTIONS.
We intend to qualify as a Real Estate Investment Trust or "REIT" for
federal income tax purposes. However, we have not yet qualified as a REIT. If we
fail to qualify as a REIT in any taxable year, then we would be subject to
federal income tax on our taxable income at corporate rates. This would reduce
our net earnings available for investment in properties or for distribution to
shareholders because of the additional tax liability, and we would no longer be
required to make distributions. The risks of failing to qualify as a REIT are
discussed in greater detail under the "Federal Income Tax Risks" .
WE DEPEND ON KEY PERSONNEL.
Our success depends to a significant degree upon the continued
contributions of certain key personnel, including Dennis P. Sweenor and William
T. Frattalone, each of whom would be difficult to replace. We currently do not
have key man life insurance on any person. If any of our key personnel were to
cease employment with us, our operating results could suffer. We also believe
that the future success depends, in large part, upon our ability to hire and
retain highly skilled managerial, operational and marketing personnel.
Competition for such personnel is intense, and we cannot assure that the company
will be successful in attracting and retaining such skilled personnel.
-14-
THE ADVISOR WILL FACE CONFLICTS OF INTEREST RELATING TIME MANAGEMENT.
The Advisor presently has no other business activities. However,
principals of the Advisor may be engaged in other real estate activities,
including acquisition and development of commercial and residential real estate
in the United States and Canada. We are not able to estimate the amount of time
that principals of the Advisor will devote to our business. As a result,
principals of the Advisor may have conflicts of interest in allocating their
time between our business and these other activities. During times of intense
activity in other programs and ventures, the time they devote to our business
may decline and be less than we would require. We expect that as our real estate
activities expand, the Advisor may attempt to hire additional employees who
would devote substantially all of their time to the business of Fidelity
Dividend Capital and its affiliates. However, there can be no assurance that the
Advisor will devote adequate time to our business activities. See "Conflicts of
Interest" section of this Prospectus for a discussion of the other activities
and real estate interests of the Advisor's affiliates.
THE ADVISOR MAY FACE CONFLICTS OF INTEREST RELATING TO THE PURCHASE AND
LEASING OF PROPERTIES.
We may be buying properties at the same time as other entities that are
affiliated with the Advisor whom may be buying properties. There is a risk that
the Advisor will choose a property that provides lower returns to us than a
property purchased by another entity affiliated with the Advisor. We may acquire
properties in geographic areas where other affiliates of the Advisor may own
properties. If one of the entities affiliated with the Advisor attracts a tenant
that we are competing for, we could suffer a loss of revenue due to delays in
locating another suitable tenant. (See "Conflicts of Interest.")
THE ADVISOR MAY FACE CONFLICTS OF INTEREST RELATING TO JOINT VENTURES
WITH AFFILIATES.
We may enter into joint ventures with third parties, including entities
that are affiliated with the Advisor, for the acquisition, development and
improvement of properties. We may also purchase and develop properties in joint
ventures or in partnerships, co-tenancies or other co-ownership arrangements
with the sellers of the properties, affiliates of the sellers, developers or
other persons. Such investments may involve risks not otherwise present with a
direct investment in real estate, including, for example:
The possibility that our venture partner, co-tenant or partner in an
investment might become bankrupt;
That such venture partner, co-tenant or partner may at any time have
economic or business interests or goals which are or which become inconsistent
with our business interests or goals; or
That such venture partner co-tenant or partner may be in a position to
take action contrary to the instructions or requests or contrary to our policies
or objectives.
Actions by such a venture partner or co-tenant might have the result of
subjecting the property to liabilities in excess of those contemplated and may
have the effect of reducing returns.
Under certain joint venture arrangements, neither venture partner may
have the power to control the venture, nor an impasse could be reached, which
might have a negative influence on the joint venture and decrease potential
returns to you. In the event that a venture partner has a right of first refusal
to buy out the other partner, it may be unable to finance such buy-out at that
time. It may also be difficult for us to sell our interest in any such joint
venture or partnership or as a co-tenant in property. In addition, to the extent
that our venture partner or co-tenant is an affiliate of the Advisor, certain
conflicts of interest will exist. (See "Conflicts of Interest -- Joint Ventures
with Affiliates of the Advisor.")
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THE DEALER MANAGER
The Dealer Manager of this offering will attempt to enter into
agreements with participating broker-dealers pursuant to which those firms will
sell our shares in this offering. Should the Dealer Manager be unable to
establish a significant group of participating broker-dealers, then we may be
unable to sell a significant number of shares. If the minimum number of shares
is not sold in this offering, then subscribers who deliver their funds into
escrow will not have access to those funds until the offering terminates. If the
offering closes (but on a limited number of shares), then we will likely acquire
a limited number of properties and will not achieve significant diversification
of our property holdings.
YOU ARE LIMITED IN YOUR ABILITY TO SELL YOUR SHARES PURSUANT TO THE
SHARE REDEMPTION PROGRAM.
Our Share Redemption Program may provide you with a limited opportunity
to redeem your shares for $10 per share (or the price you paid for the shares,
if lower than $10) after you have held them for a period of one year. However,
our share redemption program contains certain restrictions and limitations.
Shares may be redeemed on a first-come, first-served basis and will be limited
to the lesser of (1) during any calendar year, three percent (3%) of the
weighted average number of shares outstanding during the prior calendar year, or
(2) the proceeds we receive from the sale of shares under our dividend
reinvestment plan. In either case, the aggregate amount of redemptions under our
share redemption program may not exceed aggregate proceeds received from the
sale of shares pursuant to our dividend reinvestment plan. In addition, the
board of directors reserves the right to reject any request for any reason or no
reason for redemption or to amend or terminate the share redemption program at
any time. Therefore, in making a decision to purchase shares of Fidelity
Dividend Capital, you should not assume that you would be able to sell any of
your shares back to us pursuant to the Share Redemption Program. (See
"Description of Securities - Share Redemption Program.")
WE ESTABLISHED THE OFFERING PRICE ON AN ARBITRARY BASIS.
As of the commencement of this offering we own no properties. As a
result, our board of directors has arbitrarily determined the selling price of
the shares and such price bears no relationship to property appraisals or to any
established criteria for valuing issued or outstanding shares.
YOUR INTEREST IN FIDELITY DIVIDEND CAPITAL INC MAY BE DILUTED IF WE
ISSUE ADDITIONAL SHARES.
Existing shareholders and potential investors in this offering do not
have preemptive rights to any shares issued by Fidelity Dividend Capital in the
future. Therefore, in the event that we (1) sell shares in this offering or sell
additional shares in the future, including those issued pursuant to the dividend
reinvestment plan, (2) sell securities that are convertible into shares, (3)
issue shares in a private offering of securities to institutional investors, (4)
issue shares of common stock upon the exercise of the options granted to our
independent directors or employees of the Advisor and Fidelity Dividend Capital
Property Management or the warrants to be issued to participating
broker-dealers, or (5) issue shares to sellers of properties acquired by us in
connection with an exchange of limited partnership units from the Partnership,
existing shareholders and investors purchasing shares in this offering will
experience dilution of their percentage ownership in Fidelity Dividend Capital
Inc. Depending on the terms of such transactions and the value of our
properties, existing shareholders might also experience a dilution in the book
value per share of their investment in Fidelity Dividend Capital.
PAYMENT OF FEES TO THE ADVISOR AND ITS AFFILIATES WILL REDUCE CASH
AVAILABLE FOR INVESTMENT AND DISTRIBUTION.
The Advisor and its affiliates will perform services for us in
connection with the offer and sale of the shares, the selection and acquisition
of our properties, and the management and leasing of our properties. They will
be paid substantial fees for these services, which will reduce the amount of
cash available for investment in properties or distribution to shareholders.
(See "Management Compensation.")
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THE AVAILABILITY AND TIMING OF CASH DIVIDENDS IS UNCERTAIN.
We expect to pay quarterly dividends to our shareholders. However, we
bear all expenses incurred in our operations, which are deducted from cash funds
generated by operations prior to computing the amount of cash dividends to be
distributed to the shareholders. In addition, our board of directors, in its
discretion, may retain any portion of such funds for working capital. We cannot
assure you that sufficient cash will be available to pay dividends to you.
Should we fail for any reason to distribute at least 90% of our real estate
investment trust taxable income, then we would not qualify for the favorable tax
treatment accorded to REITs.
WE ARE UNCERTAIN OF OUR SOURCES FOR FUNDING OUR FUTURE CAPITAL NEEDS.
Substantially all of the gross proceeds of the offering will be used
for investment in properties and for payment of various fees and expenses. (See
"Estimated Use of Proceeds.") In addition, we do not anticipate that we will
maintain any permanent working capital reserves. Accordingly, in the event that
we develop a need for additional capital in the future for the improvement of
our properties or for any other reason, we cannot assure you that such sources
of funding will be available to us.
REAL ESTATE RISKS
GENERAL REAL ESTATE RISKS
We will be subject to risks generally incident to the ownership of real
estate, including:
o Changes in general economic or local conditions;
o Changes in supply of or demand for similar or competing
properties in an area;
o Bankruptcies, financial difficulties or lease defaults by our
tenants;
o Changes in interest rates and availability of permanent mortgage
funds, which may render the sale of a property difficult or
unattractive;
o Changes in the cost or availability of insurance, particularly
after terrorist attacks of September 11, 2001
o Changes in tax, real estate, environmental and zoning laws; and
o Periods of high interest rates and tight money supply.
For these and other reasons, we cannot assure you that we will be
profitable or that we will realize growth in the value of our real estate
properties.
A PROPERTY THAT INCURS A VACANCY COULD BE DIFFICULT TO SELL OR
RE-LEASE.
A property may incur a vacancy either by the continued default of a
tenant under its lease or the expiration of one of its leases. Certain of our
properties may be specifically suited to the particular needs of a tenant.
Therefore, we may have difficulty obtaining a new tenant for any vacant space we
have in our properties. If the vacancy continues for a long period of time, we
may suffer reduced revenues resulting in less cash dividends to be distributed
to shareholders. In addition, the resale value of the property could be
diminished because the market value of a particular property will depend
principally upon the value of the leases of such property.
-17-
WE ARE DEPENDENT ON TENANTS FOR OUR REVENUE.
A single tenant may occupy certain of our properties. As a result, the
success of those properties will depend on the financial stability of a single
tenant. Lease payment defaults by tenants could cause a reduction in the amount
of distributions to shareholders. A default by a tenant on its lease payments
could force us to find an alternative source of revenue to pay any mortgage loan
on the property. In the event of a tenant default, we may experience delays in
enforcing our rights as landlord and may incur substantial costs in protecting
our investment and re-leasing the property. If a lease is terminated, we may be
unable to lease the property for the rent previously received or sell the
property without incurring a loss.
WE MAY NOT HAVE FUNDING FOR FUTURE TENANT IMPROVEMENTS.
When a tenant at one of our properties does not renew its lease or
otherwise vacates its space in one of our buildings, it is likely that, in order
to attract one or more new tenants, we will be required to expend substantial
funds to construct new tenant improvements in the vacated space. Substantially
all of our net offering proceeds will be invested in real estate properties, and
we do not anticipate that we will maintain permanent working capital reserves.
We also have no identified funding source to provide funds which may be required
in the future for tenant improvements and tenant refurbishments in order to
attract new tenants. We cannot assure you that we will have any sources of
funding available to us for such purposes in the future.
UNINSURED LOSSES RELATING TO REAL PROPERTY MAY ADVERSELY AFFECT
SHAREHOLDER RETURNS.
The Advisor will attempt to ensure that all of our properties are
adequately insured to cover casualty losses. However, changes in the cost or
availability of insurance, particularly after the terrorist attacks of September
11, 2001 could expose us to uninsured casualty losses. In the event that any of
our properties incurs a casualty loss, which is not fully covered by insurance,
the value of our assets will be reduced by any such uninsured loss. In addition,
we have no source of funding to repair or reconstruct the damaged property, and
we cannot assure you that any such sources of funding will be available to us
for such purposes in the future.
DEVELOPMENT AND CONSTRUCTION OF PROPERTIES MAY RESULT IN DELAYS AND
INCREASE COSTS AND RISKS.
We may invest some of the proceeds available for investment in the
acquisition of raw land upon which we will develop and construct improvements at
a fixed contract price. In any such projects we will be subject to risks
relating to the builder's ability to control construction costs or to build in
conformity with plans, specifications and timetables. The builder's failure to
perform may result in legal action by us to rescind the purchase or construction
contract or to enforce the builder's obligations. Performance may also be
affected or delayed by conditions beyond the builder's control. Delays in
completion of construction could also give tenants the right to terminate
pre-construction leases for space at a newly developed project. We may incur
additional risks when we make periodic progress payments or other advances to
such builders prior to completion of construction. Each of those factors could
result in increased costs of a project or loss of our investment. In addition,
we will be subject to normal lease-up risks relating to newly constructed
projects. Furthermore, the price paid for the property will be based on
projections of rental income and expenses and estimates of the fair market value
of property upon completion of construction. If the projections are inaccurate,
we may pay too much for a property.
COMPETITION FOR INVESTMENT MAY INCREASE COST AND REDUCE RETURNS.
We will compete for real property investments with individuals,
corporations, and bank and insurance company investment accounts, as well as
other real estate investment trusts, real estate limited partnerships, and other
entities engaged in real estate investment activities which may have much
greater assets than the Company. Thus, there can be no assurance of our success
in acquiring other suitable properties. Competition for investments may have the
effect of increasing costs and reducing your returns.
-18-
DELAYS IN ACQUISITION OF PROPERTIES MAY HAVE ADVERSE EFFECTS ON YOUR
INVESTMENT.
Delays we encounter in the selection, acquisition and development of
properties could adversely affect your returns. Where properties are acquired
prior to the start of construction or during the early stages of construction,
it will typically take several months to complete construction and rent
available space. Therefore, you could suffer delays in the distribution of cash
dividends attributable to those particular properties.
UNCERTAIN MARKET CONDITIONS AND THE BROAD DISCRETION OF THE ADVISOR
RELATING TO THE FUTURE DISPOSITION OF PROPERTIES COULD ADVERSELY AFFECT
THE RETURN ON INVESTMENTS.
We expect to hold the various real properties in which we invest until
such time as the Advisor decides that a sale or other disposition is appropriate
given our investment objectives. The Advisor, subject to approval of the board,
may exercise its discretion as to whether and when to sell a property, and we
will have no obligation to sell properties at any particular time, except upon a
liquidation of Fidelity Dividend Capital, if we do not list the shares within
five years after the initial closing under this offering. We cannot predict
various market conditions affecting real estate investments, which may exist at
any particular time in the future. Due to the uncertainty of market conditions,
which may affect the future disposition of the properties, we cannot assure you
that we will be able to sell our properties at a profit in the future.
Accordingly, the extent to which you will receive cash distributions and realize
potential appreciation on our real estate investments will be dependent upon
fluctuating market conditions.
DISCOVERY OF PREVIOUSLY UNDETECTED ENVIRONMENTALLY HAZARDOUS CONDITIONS
MAY ADVERSELY AFFECT OUR OPERATING RESULTS.
Under various federal, state and local environmental laws, a current or
previous owner or operator of real property may be liable for the cost of
removing or remediating hazardous or toxic substances on such property. Such
laws often impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances.
Environmental laws also may impose restrictions on the manner in which property
may be used or businesses may be operated. A property owner who violates
environmental laws may be subject to sanctions, which may be enforced by
governmental agencies or, in certain circumstances, by private parties. In
connection with the acquisition and ownership of our properties, we may be
exposed to such costs. The cost of defending against environmental claims, of
compliance with environmental regulatory requirements or of remediating any
contaminated property could materially adversely affect the business, assets or
results of operations of Fidelity Dividend Capital Inc and, consequently,
amounts available for distribution to our shareholders.
IF WE FAIL TO MAKE DEBT PAYMENTS, WE COULD LOSE THE INVESTMENT IN A
PROPERTY.
Loans obtained to fund property acquisitions will generally be secured
by first mortgages on those properties. If we are unable to make our debt
service payments as required, a lender could foreclose on the property or
properties securing its debt. This could cause us to lose part or all of our
investment, which in turn could cause the value of the shares and the dividends
payable to shareholders to be reduced. (See "Description of Properties -- Real
Estate Loans.")
LENDERS MAY REQUIRE US TO ENTER INTO RESTRICTIVE COVENANTS RELATING TO
OUR OPERATIONS.
In connection with obtaining certain financing, a lender may impose
restrictions on us, which affects our ability to incur additional debt and our
ability to make distributions to our shareholders. Loan documents we enter into
may contain negative covenants, which limit our ability to further mortgage the
property, replace the Advisor as our advisor or impose other limitations.
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IF WE ENTER INTO FINANCING ARRANGEMENTS INVOLVING BALLOON PAYMENT
OBLIGATIONS, IT MAY ADVERSELY AFFECT OUR ABILITY TO PAY DIVIDENDS.
Some of our financing arrangements may require us to make a lump sum or
"balloon" payment at maturity. Our ability to make a balloon payment at maturity
is uncertain and may depend upon our ability to obtain additional financing or
our ability to sell the property. At the time the balloon payment is due, we may
or may not be able to refinance the balloon payment on terms as favorable as the
original loan or sell the property at a price sufficient to make the balloon
payment. The effect of a refinancing or sale could affect the rate of return to
shareholders and the projected time of disposition of our assets. In addition,
payments of principal and interest made to service our debts may leave us with
insufficient cash to pay the distributions that we are required to be paid to
maintain our qualification as a REIT.
FEDERAL INCOME TAX RISKS
FAILURE TO QUALIFY AS A REIT COULD ADVERSELY AFFECT OUR OPERATIONS AND
OUR ABILITY TO MAKE DISTRIBUTIONS.
We intend to operate in a manner designed to permit us to qualify as a
real estate investment trust, or REIT, for federal income tax purposes.
Qualification as a REIT involves the application of highly technical and complex
provisions of the Internal Revenue Code, for which there are only limited
judicial or administrative interpretations. The determination of various factual
matters and circumstances not entirely within our control may affect our ability
to qualify as a REIT. The complexity of these provisions and of the applicable
income tax regulations that have been promulgated under the Internal Revenue
Code is greater in the case of a REIT that holds its assets through a
partnership, such as we will. Moreover, no assurance can be given that
legislation, new regulations, administrative interpretations or court decisions
will not change the tax laws with respect to qualification as a REIT or the
federal income tax consequences of that qualification. See "Federal Income Tax
Considerations - REIT Qualification."
If we fail to qualify as a REIT for any taxable year, we will be
subject to federal income tax on our taxable income at corporate rates. In
addition, we would generally be disqualified from treatment as a REIT for the
four taxable years following the year of losing our REIT status. Losing our REIT
status would reduce our net earnings available for investment or distribution to
shareholders because of the additional tax liability. In addition, distributions
to shareholders would no longer be deductible in computing our taxable income
and we would no longer be required to make distributions. To the extent that
distributions had been made in anticipation of our qualifying as a REIT, we
might be required to borrow funds or liquidate some investments in order to pay
the applicable corporate income tax. In addition, although we intend to operate
in a manner designed to qualify as a REIT, it is possible that future economic,
market, legal, tax or other considerations may cause our board to recommend that
we revoke our REIT election.
We believe that the Partnership will be treated for federal income tax
purposes as a partnership and not as an association or as a publicly traded
partnership taxable as a corporation. If the Internal Revenue Service were
successfully to determine that the Partnership were properly treated as a
corporation, the Partnership would be required to pay federal income tax at
corporate rates on its net income, its partners would be treated as shareholders
of the Partnership and distributions to partners would constitute dividends that
would not be deductible in computing the Partnership's taxable income. In
addition, we would fail to qualify as a REIT, with the resulting consequences
described above. See "Federal Income Tax Considerations - Federal Income Tax
Aspects of our Operating Partnership - Classification as a Partnership."
TO QUALIFY AS A REIT, WE MUST MEET ANNUAL DISTRIBUTION REQUIREMENTS.
To obtain the favorable tax treatment accorded to REITs, we normally
will be required each year to distribute to our shareholders at least 90% of our
real estate investment trust taxable income, determined without regard to the
deduction for dividends paid and by excluding net capital gains. We will be
subject to federal income tax on our undistributed taxable income and net
capital gain and to a 4% nondeductible excise tax on any amount by which
distributions we pay with respect to any calendar year are less than the sum of
85% of our ordinary income, 95% of our capital gain net income and 100% of our
undistributed income from prior years. These requirements could cause us to
distribute amounts that otherwise would be spent on acquisitions of properties
and it is possible that we might be required to borrow funds or sell assets to
fund these
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distributions. Although we intend to make distributions sufficient to meet the
annual distribution requirements and to avoid corporate income taxation on the
earnings that we distribute, it is possible that we might not always be able to
do so.
LEGISLATIVE OR REGULATORY ACTION COULD ADVERSELY AFFECT INVESTORS.
In recent years, numerous legislative, judicial and administrative
changes have been made to the federal income tax laws applicable to investments
in REITs and similar entities. Additional changes to tax laws are likely to
continue to occur in the future, and we cannot assure you that any such changes
will not adversely affect the taxation of a shareholder. Any such changes could
have an adverse effect on an investment in our shares. You are urged to consult
with your own tax advisor with respect to the status of legislative, regulatory
or administrative developments and proposals and their potential effect on an
investment in shares.
RETIREMENT PLAN RISKS
THERE ARE SPECIAL CONSIDERATIONS THAT APPLY TO PENSION OR PROFIT
SHARING TRUSTS OR IRAS INVESTING IN SHARES.
If you are investing the assets of an IRA, pension, profit sharing,
401(k), Keogh or other qualified retirement plan, you should satisfy yourself
that:
o Your investment is consistent with your fiduciary obligations
under ERISA and the Internal Revenue Code;
o Your investment is made in accordance with the documents and
instruments governing your plan or IRA, including your plan's
investment policy;
o Your investment satisfies the prudence and diversification
requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA;
o Your investment will not impair the liquidity of the plan or IRA;
o Your investment will not produce "unrelated business taxable
income" for the plan or IRA;
o You will be able to value the assets of the plan annually in
accordance with ERISA requirements; and
o Your investment will not constitute a prohibited transaction
under Section 406 of ERISA or Section 4975 of the Internal
Revenue Code.
For a more complete discussion of the foregoing issues and other risks
associated with an investment in shares by retirement plans, please see the
"ERISA Considerations" section of this prospectus.
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SUITABILITY STANDARDS
The shares we are offering are suitable only as a long-term investment
for persons of adequate financial means. Initially, we do not expect to have a
public market for the shares, which means that it may be difficult for you to
sell your shares. You should not buy these shares if you need to sell them
immediately or will need to sell them quickly in the future.
The Advisor and the Dealer Manager, in conjunction with participating
broker-dealers, are responsible for making every reasonable effort to determine
that the purchase of shares is a suitable and appropriate investment for each
investor based on information concerning the investor's financial situation and
investment objectives. In consideration of these factors, we have established
suitability standards for initial shareholders and subsequent transferees. These
suitability standards require that a purchaser of shares have either:
o A net worth, excluding the value of a purchaser's home,
furnishings and automobiles, of at least $150,000; or
o A gross annual income of at least $45,000 and a net worth,
excluding the value of a purchaser's home, furnishings and
automobiles, of at least $45,000.
The minimum purchase is 200 shares ($2,000), except in certain states
as described below. In order to satisfy the minimum purchase requirements for
retirement plans, unless otherwise prohibited by state law, a husband and wife
may jointly contribute funds from their separate IRAs, provided that each such
contribution is made in increments of $100. You should note that an investment
in shares of Fidelity Dividend Capital Inc will not, in itself, create a
retirement plan and that, in order to create a retirement plan, you must comply
with all applicable provisions of the Internal Revenue Code.
The minimum purchase for Maine, Minnesota, New York and North Carolina
residents is 250 shares ($2,500), except for IRAs, which must purchase a minimum
of 200 shares ($2,000). The minimum purchase for Minnesota residents is 250
shares ($2,500), except for IRAs and other qualified retirement plans which must
purchase a minimum of 200 shares ($2,000).
Purchases of shares pursuant to the dividend reinvestment plan of
Fidelity Dividend Capital Inc may be in amounts less than set forth above.
Several states have established suitability standards
different from those we have established. Shares will be sold only to investors
in these states who meet the special suitability standards set forth below.
ARIZONA, CALIFORNIA AND NORTH CAROLINA - Investors must have either (1)
a net worth of at least $225,000 or (2) gross annual income of $60,000 and a net
worth of at least $60,000.
IOWA AND OREGON - Investors must have either (1) a net worth of at
least $225,000 or (2) gross annual income of $60,000 and a net worth of at least
$60,000. Tax-exempt investors must make a minimum investment of 250 shares or
$2,500.
MAINE - Investors must have either (1) a net worth of at least
$200,000, or (2) gross annual income of $50,000 and a net worth of at least
$50,000.
MICHIGAN, OHIO, OREGON AND PENNSYLVANIA - In addition to our
suitability requirements, investors must have a net worth of at least ten times
their investment in Fidelity Dividend Capital Inc.
MISSOURI - Investors must have either (1) a net worth of at least
$225,000, or (2) gross annual income of $60,000 and a net worth of at least
$60,000.
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NEW HAMPSHIRE - Investors must have either (1) a net worth of at least
$250,000, or (2) taxable income of $50,000 and a net worth (exclusive of home,
home furnishings and automobiles) of at least $125,000.
PENNSYLVANIA - Because the minimum closing amount is less than
$25,000,000 (10% of the total offering amount), investors are cautioned to
carefully evaluate our ability to fully accomplish our stated objectives and to
inquire as to the current dollar volume of shares subscribed to in this
offering.
TENNESSEE - Investors must have either (1) a net worth (exclusive of
home, home furnishings and automobiles) of at least $250,000 and gross annual
income of $65,000 during the prior tax year with an expectation of gross annual
income of $65,000 in the current tax year or (2) a net worth (exclusive of home,
home furnishings and automobiles) of at least $500,000.
In the case of sales to fiduciary accounts, these suitability standards
must be met by the fiduciary account, by the person who directly or indirectly
supplied the funds for the purchase of the shares or by the beneficiary of the
account. These suitability standards are intended to help ensure that, given the
long-term nature of an investment in our shares, our investment objectives and
the relative illiquidity of our shares, shares of Fidelity Dividend Capital are
an appropriate investment for those of you who become investors. Each
participating broker-dealer must make every reasonable effort to determine that
the purchase of shares is a suitable and appropriate investment for each
shareholder based on information provided by the shareholder in the Subscription
Agreement. Each participating broker-dealer is required to maintain for six
years records of the information used to determine that an investment in the
shares is suitable and appropriate for a shareholder.
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ESTIMATED USE OF PROCEEDS
The following tables sets forth our best estimate of how we intend to
use the proceeds raised in this offering assuming that it sells 200,000 shares,
12,500,000 shares, and 25,000,000 shares, respectively, pursuant to this
offering. We expect that at least 84.0% of the money you invest will be used to
buy real estate, while the remaining proceeds will be used to pay expenses and
fees including the payment of fees to the Dealer Manager, our Advisor, and our
Property Manager. Presently, we have not identified any properties for
acquisition.
200,000 12,500,000 25,000,000
SHARES SHARES SHARES PERCENT
Gross Offering Proceeds (1) $ 2,000,000 $125,000,000 $250,000,000 100%
Less Public Offering Expenses:
Selling Commissions (2) 140,000 8,750,000 17,500,000 7.0%
Dealer Manager Fee (2) 50,000 3,125,000 6,250,000 2.5%
Organization and Offering Expense (3) 60,000 3,750,000 7,500,000 3.0%
----------------------------------------------------
Amount Available for Investment (4) $ 1,750,000 $109,375,000 $218,750,000 87.5%
Acquisition and Development:
Acquisition and Advisory Fees (5) $ 60,000 $ 3,750,000 $ 7,500,000 3.0%
Acquisition Expense (6) 10,000 625,000 1,250,000 0.5%
Initial Working Capital Reserve (7)
----------------------------------------------------
Amount Invested in Properties (4) (8) $ 1,680,000 $105,000,000 $210,000,000 84.0%
- --------------------------------------------------------------------------------
FOOTNOTES TO ESTIMATED USE OF PROCEEDS
(1) The table does not reflect the possible sale of up to
4,000,000 shares under the dividend reinvestment plan or the
sale of up to 1,000,000 shares which may be issued upon
exercise of the soliciting dealer warrants.
(2) Includes selling commissions equal to 7.0% of aggregate gross
offering proceeds which commissions may be reduced under
certain circumstances and a dealer manager fee equal to 2.5%
of aggregate gross offering proceeds, both of which are
payable to the Dealer Manager. The Dealer Manager, in its sole
discretion, may reallow selling commissions of up to 7.0% of
gross offering proceeds to other broker-dealers participating
in this offering attributable to the shares sold by them and
may reallow out of its dealer manager fee up to 1.5% of gross
offering proceeds in marketing fees and due diligence expenses
to broker-dealers participating in this offering based on such
factors as the volume of units sold by such participating
broker-dealers, marketing support provided by such
participating broker-dealers and bona fide conference fees
incurred. The amount of selling commissions may also be
reduced under certain circumstances for volume discounts. See
the" Plan of Distribution" section of this prospectus for a
description of such provisions.
(3) Organization and offering expenses consist of reimbursement of
actual legal, accounting, printing and other accountable
offering expenses, including amounts to reimburse the Advisor
for marketing, salaries and direct expenses of its employees,
employees of its affiliates and others while engaged in
registering and marketing the shares, which shall include
development of marketing materials and marketing
presentations, planning and participating in due diligence and
marketing meetings and coordinating generally the marketing
process for Fidelity Dividend Capital Inc. The Advisor and its
affiliates will be responsible for the payment of organization
and offering expenses, other than selling commissions and the
dealer manager fee, to the extent they exceed 3.0% of gross
offering proceeds on a cumulative basis without recourse
against or reimbursement by Fidelity Dividend Capital Inc.
(4) Until required in connection with the acquisition and
development of properties, substantially all of the net
proceeds of the offering and, thereafter, the working capital
reserves of Fidelity Dividend Capital Inc, may be invested in
short-term, highly-liquid investments including government
obligations, bank certificates of deposit, short-term debt
obligations and interest-bearing accounts. The number of
properties we are able to acquire will depend on several
factors, including the amount of capital raised in this
offering; the extent to which we incur debt or issues limited
partnership interests in the Partnership in order to acquire
properties and the purchase price of the properties we
acquire. We are not able to estimate the number of properties
we may acquire assuming the sale of any particular number of
shares. However, in general we expect that the concentration
risk of our portfolio of properties will be inversely related
to the number of shares sold in this offering.
-24-
(5) Acquisition and advisory fees are defined generally as fees
and commissions paid by any party to any person in connection
with the purchase, development or construction of properties.
We will pay the Advisor acquisition and advisory fees up to a
maximum amount of 3.0% of the aggregate purchase price of all
properties we acquire. In the event we incur debt or issues
new shares of Fidelity Dividend Capital Inc or interests in
the Partnership in order to acquire properties, then the
acquisition and advisory fees (as well as the acquisition
expenses) would exceed the amounts stated above. Acquisition
and advisory fees do not include acquisition expenses.
(6) Acquisition expenses include legal fees and expenses, travel
expenses, costs of appraisals, nonrefundable option payments
on property not acquired, accounting fees and expenses, title
insurance premiums and other closing costs and miscellaneous
expenses relating to the selection, acquisition and
development of real estate properties. We will reimburse the
Advisor for acquisition expenses in an amount up to 5% of the
aggregate purchase price of all properties we acquire. As
described in note (5) above, the use of debt or new securities
to acquire properties would increase acquisition expenses.
(7) Because most of the leases for the properties to be acquired
by Fidelity Dividend Capital Inc. will likely provide for
tenant reimbursement of operating expenses, we do not
anticipate that a permanent reserve for maintenance and
repairs of real estate properties will be established.
However, to the extent that we have insufficient funds for
such purposes, we may apply an amount of up to 1.0% of gross
offering proceeds for maintenance and repairs of real estate
properties. We also may, but is not required to, establish
reserves from gross offering proceeds, out of cash flow
generated by operating properties or out of net sale proceeds
in non-liquidating sale transactions.
(8) Includes amounts anticipated to be invested in properties net
of fees and expenses. We estimate that at least approximately
84.0% of the proceeds received from the sale of shares will be
used to acquire properties. Because our activities will be
managed and carried out primarily by the Advisor and the
Property Manager (subject to supervision by our board of
directors), we do not intend to incur the significant salaries
or related expenses associated with a large internal
management organization.
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MANAGEMENT
GENERAL
We operate under the direction of our Board of Directors, the members
of which are accountable to us and our shareholders as fiduciaries. The board is
responsible for the management and control of our affairs. The board has
retained the Advisor to manage our day-to-day affairs and the acquisition and
disposition of our investments, subject to the board's supervision. The Articles
of Incorporation of Fidelity Dividend Capital Inc are reviewed and ratified by
the Board of Directors at their initial meeting.
Our Articles of Incorporation and Bylaws provide that the number of
directors of Fidelity Dividend Capital may be established by a majority of the
entire Board of Directors but may not be fewer than the minimum required by
Maryland corporate law nor more than 15. We currently have a total of six
Directors. The Articles of Incorporation also provide that a majority of the
Directors must be Independent Directors. An "Independent Director" is a person
who is not an officer or employee of Fidelity Dividend Capital, the Advisor or
their affiliates and has not otherwise been affiliated with such entities for
the previous two years. Of the six current Directors, four of our Directors are
considered Independent Directors.
Each Director will serve for a term of three years and Independent
Directors will serve until the next annual meeting of shareholders or until his
successor has been duly elected and qualified. Although the number of Directors
may be increased or decreased, a decrease shall not have the effect of
shortening the term of any incumbent Director.
Any Director may resign at any time and may be removed with cause by
the shareholders upon the affirmative vote of at least a majority of all the
votes entitled to be cast at a meeting called for the purpose of the proposed
removal. The notice of the meeting shall indicate that the purpose, or one of
the purposes, of the meeting is to determine if the Director shall be removed.
Unless filled by a vote of the shareholders as permitted by Maryland
Corporation Law, a vacancy created by an increase in the number of Directors or
the death, resignation, removal, adjudicated incompetence or other incapacity of
a Director shall be filled by a vote of a majority of the remaining Directors
and,
o In the case of a Director who is not an Independent Director
(Affiliated Director), by a vote of a majority of the remaining
Affiliated Directors, or
o In the case of an Independent Director, by a vote of a majority
of the remaining Independent Directors, unless there is no
remaining Affiliated Directors or Independent Directors, as the
case may be. In such case a majority vote of the remaining
Directors shall be sufficient. If at any time there are no
Independent or Affiliated Directors in office, successor
Directors shall be elected by the shareholders. The Articles of
Incorporation and the Bylaws will bind each Director.
The Directors are not required to devote all of their time to our
business and are only required to devote the time to our affairs, as their
duties require. The Directors will meet quarterly or more frequently if
necessary. We do not expect that the Directors will be required to devote a
substantial portion of their time to discharge their duties as our Directors.
Consequently, in the exercise of their fiduciary responsibilities, the Directors
will be relying heavily on the Advisor. The board is empowered to fix the
compensation of all officers that it selects and may pay compensation to
Directors for services rendered to us in any other capacity.
Our general investment and borrowing policies are set forth in this
prospectus. The Directors may establish further written policies on investments
and borrowings and shall monitor our administrative procedures, investment
operations and performance to ensure that the policies are fulfilled and are in
the best interest of the shareholders. We will follow the policies on
investments and borrowings set forth in this prospectus unless and until they
are modified by the Directors.
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The board is also responsible for reviewing fees and expenses for
Fidelity Dividend Capital on at least an annual basis and with sufficient
frequency to determine that the expenses incurred are in the best interest of
the shareholders. In addition, the Directors will also be responsible for
reviewing the performance of the Advisor and determining that the compensation
to be paid to the Advisor is reasonable in relation to the nature and quality of
services to be performed and that the provisions of the Advisory Agreement are
being carried out. Specifically, the Directors will consider factors such as:
o The amount of fees paid to the Advisor in relation to the size,
composition and performance of the investments;
o The success of the Advisor in generating appropriate investment
opportunities;
o Rates charged to other externally advised REITs and other similar
investors by advisors performing similar services;
o Additional revenues realized by the Advisor and its affiliates
through their relationship with us, whether we pay them or they
are paid by others with whom we do business;
o The quality and extent of service and advice furnished by the
Advisor and the performance of our investment portfolio; and
o The quality of our portfolio relative to the investments
generated by the Advisor or any of its affiliates.
COMMITTEES OF THE BOARD OF DIRECTORS.
Our entire Board of Directors considers all major decisions concerning
our business, including any property acquisitions. However, our board may
establish an Audit Committee and a Compensation Committee so that issues arising
in these areas can be addressed in more depth than may be possible at a full
board meeting.
AUDIT COMMITTEE
The Audit Committee will meet on a regular basis at least annually and
throughout the year as necessary. The Audit Committee's primary function is to
assist the Board of Directors in fulfilling its oversight responsibilities by
reviewing the financial information to be provided to the shareholders and
others, the system of internal controls which management has established, and
the audit and financial reporting process, all in accordance with the Company's
Audit Committee Charter.
COMPENSATION COMMITTEE
The Board of Directors will established a Compensation Committee to
administer the 2005 Employee Stock Option Plan, as described below. The
Compensation Committee will be comprised of three Directors. The primary
function of the Compensation Committee is to administer the granting of stock
options to selected employees of the Advisor and the Property Manager based upon
recommendations from the Advisor, and to set the terms and conditions of such
options in accordance with the 2005 Employee Stock Option Plan.
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DIRECTORS AND EXECUTIVE OFFICERS
The Directors and Executive Officers of the Company, their ages and
their positions and offices are as follows:
NAME Age POSITION
---- --- --------
Dennis P. Sweenor 35 President, Chief
Executive Officer and Director
William T. Frattalone 66 Executive Vice-President,
Secretary, Treasurer
and Director
Eugene B. Artusa 56 Independent Director
Darrell Supak 56 Independent Director
Floyd L. Shearin 68 Independent Director
George L. Williams 64 Independent Director
DENNIS P. SWEENOR, age 35, is the President, Chief Executive Officer
and Director of Fidelity Dividend Capital Inc. Mr. Sweenor is also a manager and
Director of Fidelity Dividend Capital Advisors, our Advisor, and Fidelity
Dividend Capital Property Management, our Property Manager. Mr. Sweenor has been
an Officer and Director of the Company since inception. Mr. Sweenor is
experienced in building and leading high caliber sales marketing and account
management organizations. Has been a Licensed Securities Broker since 2000 with
Corporate Securities Group. Mr. Sweenor developed and managed all sales
activities, including internal and outside sales, account processing, staff and
lead generation. In 2001, Mr. Sweenor developed and managed the corporate
marketing and sales staff; including investment banking and other related areas.
Analyzed and evaluated new and established companies wishing to bring themselves
to the public market place. Mr. Sweenor has extensive experience in: Corporate
Management, Marketing/Sales, Budgets/Manpower, Strategic Planning, Corporate
Development and Advertising. Mr. Sweenor has broad knowledge in Investment
Banking, Merchant Banking and Venture Capital. Mr. Sweenor graduated from
College of Oceaneering and holds degrees in Arts, Science and Marine
Technologies.
WILLIAM T. FRATTALONE, age 66, is the Executive Vice-President,
Treasurer, Secretary and Director of Fidelity Dividend Capital Inc. Mr.
Frattalone is also a manager and director of Fidelity Dividend Capital Advisors,
our Advisor, and Fidelity Dividend Capital Property Management, our Property
Manager. Mr. Frattalone is a professional manager with over thirty years
experience in the real estate industry. Mr. Frattalone recently was associated
with Prudential Florida WCI Reality specializing in the acquisition, sales, and
development of commercial real estate. Mr. Frattalone was President of West
Pacific Holdings Corporation from 1990-1993 specializing in International
Banking and Finance. From 1983-1989 Mr. Frattalone was President, CEO and Chief
Financial Officer of Community Equities Corporation, a NASD Securities
Broker-Dealor. Prior to 1983 Mr Frattalone was involved in all aspects of the
real estate industry, including the ownership and management of large real
estate, title and mortgage companies. Mr. Frattalone attended Emory University
where he took advance studies in Administration and Accounting of the Securities
Industry.
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INDEPENDENT DIRECTORS
EUGENE B. ARTUSA, age 56, is an Independent Director of Fidelity
Dividend Capital Inc. Mr. Artusa has been active in commercial real estate
transactions and title insurance matters since 1996, focusing primarily on the
sale and leasing of industrial, office and commercial properties. He has also
been active in real estate investment and build-to-suite transactions. Mr.
Artusa was the CEO of King Industrial Maintenance Corp. in Newburg, N.Y. from
1972-1995. Mr. Artusa worked with planning and zoning issues with state, county
and local municipalities; familiar with wetland, environmental and future land
use concerns. Mr. Artusa graduated from Westchester College with a degree in
electrical engineering.
DARRELL J. SUPAK, age 56, is an Independent Director of Fidelity
Dividend Capital Inc. Mr. Supak is a Senior Vice President and Chief of Staff of
Granite Associates. Mr. Supak has been active in real estate acquisition,
development and redevelopment activities since 1992. Mr. Supak along with other
affiliates has directed the acquisition, development, redevelopment, financing
and sale of real estate projects with an aggregate value in excess of
approximately fifty million dollars. Since 1996 Mr. Supak was a key organizer of
a private investment company with assets of over one billion dollars and two
not-for-profit foundations with assets in excess of several hundred million
dollars. Mr. Supak provided advice and counsel to the Chairman and acted as an
internal management consultant with Cable Vision Industries; overseeing the
completion of a twenty-seven million dollar headquarters building and several
million dollars worth of construction projects throughout the United States. Mr.
Supak graduated from Sul Ross University with a Masters of Business
Administration.
FLOYD L. SHEARIN, age 68 is an independent Director of Fidelity
Dividend Capital Inc. Mr. Shearin has been active in real estate activities
since 1992. Mr. Shearin has had a great deal of experience in sales/marketing
and leasing of real estate. Mr. Shearin is employed by Prudential Florida WCI
Realty as a Commercial Broker. Mr. Shearin holds an active Florida Real Estate
Brokers License as well as a Mortgage Brokers License. Prior to Mr. Shearin's
real estate employment, he owned and operated a mortgage company providing
residential and commercial real estate financing from 1985 to 1992. Mr.
Shearin's primary career was in commercial banking and finance. His banking
career spanned from 1959 through 1984. During Mr. Shearin's banking career, he
organized and formed a commercial bank in South Florida acting as Chairman,
President and CEO of the bank until his retirement in 1984. Mr. Shearin also
formed a bank holding company and merged the bank into a holding company that he
served as Chairman and President. Mr. Shearin is a strong organizer and was a
leader in the banking industry. He has very strong and successful experience in
leadership, asset/liability management, and development of building facilities,
capital generation, growing the organization and generating profitability. Mr.
Shearin attended the University of Virginia where he was also a graduate of the
School of Banking.
GEORGE L. WILLIAMS, DDS, Age 64, is an independent Director of Fidelity
Dividend Capital Inc. Dr. Williams has been active in the professional practice
of Dentistry in South Florida most of his professional career. His practice is
the Cosmetic Implant Dentistry of Broward County. Dr. Williams' specialty is
Implant Dentistry. He is well known and respected among his peers, colleagues,
patients and the academia for his expertise and professionalism. Dr. Williams'
appointments to professional boards and organizations have been numerous. Dr.
Williams holds licensure in the National, Virginia, and Florida Boards of
Dentistry. Dr. Williams has a lengthy business background as well, which
includes directorships of nearly two dozen professional and business enterprises
including the directorship of a bank. He has extensive experience in real estate
in a number of facets including construction, real estate licensure and
ownership through partnerships or outright owner of real estate projects. Dr.
Williams is a graduate of High Point University, High Point, North Carolina and
the Medical College of University of Virginia where he earned degrees in Doctor
of Dental Science as well as Doctor of Dental Surgery.
-29-
PRINCIPAL SHAREHOLDERS
The following table sets forth information known to the Company, as of
March 31, 2004, regarding the beneficial ownership of the Company's voting
securities by (i) each of the Company's directors and executive officers, and
(ii) all directors and executive officers of the company as a group. Except as
indicated below, management is not aware of any individual or entity that owns
10% or more of the voting stock of the Company.
BENEFICIAL OWNER NUMBER OF COMMON % OF COMMON % OF COMMON
SHARES BENEFICIALLY SHARES SHARES OUTSTANDING
OWNED (1) OUTSTANDING (1,2) ASSUMING SALE TO THE
PUBLIC OF 25,000,00
SHARES(3)
- --------------------------------------------------------------------------------------------
Dennis P. Sweenor 26,000,000 45.61% 31.70%
William T. Frattalone 26,000,000 45.61% 31.70%
Public(3) 25,000,000(3) 30.46%
Directors and officers
as a group 52,000,000 91.22% 63.40%
- --------------------------------------------------------------------------------------------
(1) Based on 82,000,000 shares outstanding as of March 31, 2004.
(2) The table does not reflect the possible sale of up to 4,000,000
shares under the dividend reinvestment plan or the sale of up to
1,000,000 shares which may be issued upon exercise of the soliciting
dealer warrants.
(3) Assuming the sale of 25,000,000 shares to the public.
-30-
COMPENSATION OF DIRECTORS
We pay each of our Independent Directors $1000 per quarter plus $500
for each board meeting attended. In addition, we have reserved 300,000 shares of
common stock for future issuance upon the exercise of stock options granted to
the Independent Directors pursuant to our Independent Director Stock Option
Plan. All Directors receive reimbursement of reasonable out-of-pocket expenses
incurred in connection with attendance at meetings of the Board of Directors. If
a Director also is an officer of Fidelity Dividend Capital, we will not pay
separate compensation for services rendered as a Director.
INDEPENDENT DIRECTOR STOCK OPTION PLAN
We have adopted an Independent Director Stock Option Plan, which we
will use in an effort to attract and retain qualified Independent Directors
(Director Option Plan). We intend to grant non-qualified stock options to
purchase 10,000 shares (Initial Options) to each Independent Director pursuant
to our Director Option Plan upon the sale of at least 200,000 shares in this
offering. In addition, we intend to issue options to purchase 5,000 shares to
each Independent Director then in office on the date of each annual
stockholder's meeting. Options may not be granted under the Independent Director
Stock Option Plan at any time when the grant would cause the total number of
options outstanding under the Independent Director Stock Option Plan and the
Employee Stock Option Plan to exceed 10% of our issued and outstanding shares.
The exercise price for options to be issued under the Director Option Plan shall
be the greater of (1) $12.00 per share or (2) the fair market value of the
shares on the date they are granted. Fair market value is defined generally to
mean:
o If the shares are traded on a national exchange, the average
closing price for the five consecutive trading days ending on
such date;
o If the shares are quoted on NASDAQ, the average of the high bid
and low asked prices;
o If there is a current public offering and no market maker for the
shares, the average of the last 10 sales made pursuant to a
public offering;
o If there is no current public offering, the average of the last
10 purchases (or fewer if less than 10 purchases) under our share
redemption program; or
o The price per share under the distribution reinvestment plan if
there are no purchases under the share redemption program.
A total of 300,000 shares are authorized and reserved for issuance
under the Director Option Plan. If the number of outstanding shares is changed
into a different number or kind of shares or securities through a reorganization
or merger in which Fidelity Dividend Capital Inc. is the surviving entity, or
through a combination, recapitalization or otherwise, an appropriate adjustment
will be made in the number and kind of shares that may be issued pursuant to
exercise of the options. A corresponding adjustment to the exercise price of the
options granted prior to any change will also be made. Any such adjustment,
however, will not change the total payment, if any, applicable to the portion of
the Director options not exercised, but will change only the exercise price for
each share. Options granted under the Director Option Plan shall lapse on the
first to occur of (1) the tenth anniversary of the date we grant them, (2) the
removal of the Independent Director for cause, or (3) three months following the
date the Independent Director ceases to be a Director for any reason other than
death or disability. Options may be exercised by payment of cash or through the
delivery of fully paid common stock. Options granted under the Director Option
Plan are generally exercisable in the case of death or disability for a period
of one year after death or the disabling event. No option may be granted or
exercised if such grant or exercise would jeopardize Fidelity Dividend Capital's
status as a REIT under the Internal Revenue Code or otherwise violate the
ownership and transfer restrictions imposed under the Articles of Incorporation.
The Independent Directors may not sell pledge, assign or transfer their options
other than by will or the laws of descent or distribution.
Upon the dissolution or liquidation of Fidelity Dividend Capital, upon
our reorganization, merger or consolidation with one or more corporations as a
result of which we are not the surviving corporation or upon sale of all or
substantially all of our properties, the Director Option Plan will terminate,
and any outstanding options will terminate and be forfeited. The Board of
Directors may provide in writing in connection with any such transaction for any
or all of the following alternatives:
-31-
o For the assumption by the successor corporation of the options
granted or the replacement of the options with options covering
the stock of the successor corporation, or a parent or subsidiary
of such corporation, with appropriate adjustments as to the
number and kind of shares and exercise prices;
o For the continuance of the Director Option Plan and the options
by such successor corporation under the original terms; or
o For the payment in cash or shares of common stock in lieu of and
in complete satisfaction of such options.
EMPLOYEE STOCK OPTION PLAN
We intend to adopt an Employee Stock Option Plan of Fidelity Dividend
Capital Inc (Employee Option Plan). Our Employee Option Plan will be designed to
enable Fidelity Dividend Capital Inc, the Advisor and the Property Manager to
obtain or retain the services of employees (not to include any person who is a
sponsor or affiliate of Fidelity Dividend Capital Inc) considered essential to
our long-range success and the success of the Advisor and the Property Manager
by offering such employees an opportunity to participate in the growth of
Fidelity Dividend Capital through ownership of our common stock. The Employee
Option Plan will be administered by our directors, who are authorized to grant
"non-qualified" stock options ("Employee Options") to selected employees of the
Advisor and the Property Manager. All grants of Employee Options will be based
upon the recommendation of the Advisor and subject to the absolute discretion of
the directors and applicable limitations of the Employee Option Plan. Options
may not be granted under the Employee Stock Option Plan at any time when the
grant would cause the total number of options under the Employee Stock Option
Plan and the Independent Director Stock Option Plan to exceed 10% of our issued
and outstanding shares. The exercise price for the Employee Options shall be the
greater of (1) $11.00 per share or (2) the fair market value of the shares on
the date the option is granted. A total of 750,000 shares are authorized and
reserved for issuance under the Employee Option Plan. The directors shall set
the term of the Employee Options in its discretion, which shall not exceed ten
years. The directors shall set the period during which the right to exercise an
option vests in the holder of the option. No Employee Option may be issued or
exercised, however, if such issuance or exercise would jeopardize Fidelity
Dividend Capital's status as a REIT under the Internal Revenue Code or otherwise
violate the ownership and transfer restrictions imposed under the Articles of
Incorporation. In addition, no option may be sold, pledged, assigned or
transferred by an employee in any manner other than by will or the laws of
descent or distribution.
In the event that the directors determines that any dividend or other
distribution, recapitalization, stock split, reorganization, merger,
liquidation, dissolution, or sale, transfer, exchange or other disposition of
all or substantially all of Fidelity Dividend Capital's assets, or other similar
corporate transaction or event, affects the shares such that an adjustment is
determined by the directors to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Employee Option Plan or with respect to an Employee Option, then the
directors shall, in such manner as it may deem equitable, adjust the number and
kind of shares or the exercise price with respect to any option.
LIMITED LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
Our organizational documents limit the personal liability of our
Shareholders, Directors and Officers for monetary damages to the fullest extent
permitted under current Maryland Corporation Law. We also may obtain in the
future a Directors and Officers liability insurance policy. Maryland Corporation
Law allows Directors and Officers to be indemnified against judgments,
penalties, fines, settlements and expenses actually incurred in a proceeding
unless the following can be established:
o An act or omission of the Director or Officer was material to the
cause of action adjudicated in the proceeding, and was committed
in bad faith or was the result of active and deliberate
dishonesty;
-32-
o The Director or Officer actually received an improper personal
benefit in money, property or services; or
o With respect to any criminal proceeding, the Director or Officer
had reasonable cause to believe his act or omission was unlawful.
Any indemnification or any agreement to hold harmless is recoverable
only out of our assets and not from the shareholders. Indemnification could
reduce the legal remedies available to us and the shareholders against the
indemnified individuals, however.
This provision does not reduce the exposure of Directors and Officers
to liability under Federal or State securities laws, nor does it limit the
shareholder's ability to obtain injunctive relief or other equitable remedies
for a violation of a Director's or an Officer's duties to us or our
shareholders, although the equitable remedies may not be an effective remedy in
some circumstances.
In spite of the above provisions of Maryland Corporation Law, our
Articles of Incorporation provide that the Directors, the Advisor and its
affiliates will be indemnified by us for losses arising from our operation only
if all of the following conditions are met:
o The Directors, the Advisor or its affiliates have determined, in
good faith, that the course of conduct, which caused the loss or
liability, was in our best interest;
o The Directors, the Advisor or its affiliates were acting on our
behalf or performing services for us;
o In the case of Affiliated Directors, the Advisor or its
affiliates, the liability or loss was not the result of
negligence or misconduct by the party seeking indemnification;
o In the case of Independent Directors, the liability or loss was
not the result of gross negligence or willful misconduct by the
party seeking indemnification; and
o The indemnification or agreement to hold harmless is recoverable
only out of our net assets and not from the shareholders.
We have agreed to indemnify and hold harmless the Advisor and its
affiliates performing services for us from specific claims and liabilities
arising out of the performance of their obligations under the Advisory
Agreement. As a result, we and our shareholders may be entitled to a more
limited right of action than we would otherwise have if these indemnification
rights were not included in the Advisory Agreement.
The general effect to investors of any arrangement under which any of
our controlling persons, directors or officers are insured or indemnified
against liability is a potential reduction in distributions resulting from our
payment of premiums associated with insurance. In addition, indemnification
could reduce the legal remedies available to Fidelity Dividend Capital and our
shareholders against the Officers and Directors.
The Securities and Exchange Commission takes the position that
indemnification against liabilities arising under the Securities Act of 1933 is
against public policy and unenforceable. Indemnification of the Directors,
Officers, the Advisor or its affiliates will not be allowed for liabilities
arising from or out of a violation of State or Federal securities laws, unless
one or more of the following conditions are met:
o There has been a successful adjudication on the merits of each
count involving alleged securities law violations;
-33-
o Such claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction; or
o A court of competent jurisdiction approves a settlement of the
claims against the indemnitee and finds that indemnification of
the settlement and the related costs should be made, and the
court considering the request for indemnification has been
advised of the position of the Securities and Exchange Commission
and of the published position of any state securities regulatory
authority in which the securities were offered as to
indemnification for violations of securities laws.
Indemnification will be allowed for settlements and related expenses of
lawsuits alleging securities laws violations and for expenses incurred in
successfully defending any lawsuits, provided that a court either:
o Approves the settlement and finds that indemnification of the
settlement and related costs should be made; or
o Dismisses with prejudice or there is a successful adjudication on
the merits of each count involving alleged securities law
violations as to the particular indemnities and a court approves
the indemnification.
THE ADVISOR
Certain of our Officers and Directors manage and direct the business of
the Advisor. The Advisor has certain contractual responsibilities to Fidelity
Dividend Capital and its stockholders pursuant to the Advisory Agreement. The
Advisor is managed by: Dennis P. Sweenor and William T. Frattalone.
Certain information concerning the managers of the Advisor is set forth
above in the "Management-Executive Officers and Directors" section of this
prospectus.
THE ADVISORY AGREEMENT
Many of the services to be performed by the Advisor in managing our
day-to-day activities are summarized below. This summary is provided to
illustrate the material functions, which the Advisor will perform for us as our
advisor and it is not intended to include all of the services, which may be
provided to us by third parties. Under the terms of the Advisory Agreement, the
Advisor undertakes to use its best efforts to present to us investment
opportunities consistent with our investment policies and objectives as adopted
by the Board of Directors. In its performance of this undertaking, the Advisor,
either directly or indirectly by engaging an affiliate other than the Property
Manager, shall, subject to the authority of the Board:
o Find, present and recommend to us real estate investment
opportunities consistent with our investment policies and
objectives;
o Structure the terms and conditions of transactions pursuant to
which acquisitions of properties will be made;
o Acquire properties on our behalf in compliance with our
investment objectives and policies;
o Arrange for financing and refinancing of properties; and
o Enter into leases and service contracts for the properties
acquired.
The term of the current Advisory Agreement ends one year after the
initial closing date under this offering, subject to renewals for an unlimited
number of successive three-year periods. The Advisory Agreement may be
terminated:
-34-
o Immediately by us for "cause," or upon the bankruptcy of the
Advisor, or upon a material breach of the Advisory Agreement by
the Advisor;
o With cause by a majority of the Directors of Fidelity Dividend
Capital upon 60 days' written notice; or
o With "good reason" by the Advisor upon 60 days' written notice.
"Good reason" is defined in the Advisory Agreement to mean either any
failure by us to obtain a satisfactory agreement from our successor to assume
and agree to perform our obligations under the Advisory Agreement or any
material breach of the Advisory Agreement of any nature whatsoever by us.
"Cause" is defined in the Advisory Agreement to mean fraud, criminal conduct,
willful misconduct or willful or negligent breach of fiduciary duty by the
Advisor or a breach of the Advisory Agreement by the Advisor.
The Advisor and its affiliates expect to engage in other business
ventures and, as a result, their resources will not be dedicated exclusively to
our business. However, pursuant to the Advisory Agreement, the Advisor must
devote sufficient resources to our business operations to discharge its
obligations. The Advisor may assign the Advisory Agreement to an affiliate other
than the Property Manager only upon the approval of a majority of our Directors.
The Advisor may not make any acquisition of property or financing of such
acquisition on our behalf without the prior approval of a majority of our
Directors. The actual terms and conditions of transactions involving investments
in properties shall be determined in the sole discretion of the Advisor, subject
at all times to such board approval.
We will reimburse the Advisor for all of the costs it incurs in
connection with the services it provides to us, including, but not limited to:
o Organization and offering expenses in an amount up to 3.0% of
gross offering proceeds, which include actual legal, accounting,
printing and expenses attributable to organizing the Company,
preparing the SEC registration statement, qualification of the
shares for sale in the states and filing fees incurred by the
Advisor, as well as reimbursements for marketing, salaries and
direct expenses of its employees while engaged in registering and
marketing the shares, other than selling commissions and the
dealer manager fee;
o The annual cost of goods and materials used by us and obtained
from entities not affiliated with the Advisor, including
brokerage fees paid in connection with the purchase and sale of
securities;
o Administrative services including personnel costs; provided,
however, that no reimbursement shall be made for costs of
personnel to the extent that personnel are used in transactions
for which the Advisor receives a separate fee; and
o Acquisition expenses, which are defined to include expenses
related to the selection and acquisition of properties, at the
lesser of actual cost or 90% of competitive rates charged by
unaffiliated persons providing similar services.
The Advisor must reimburse us at least annually for reimbursements paid
to the Advisor in any year to the extent that such reimbursements to the Advisor
cause operating expenses to exceed the greater of (1) 2% of our average invested
assets, which generally consists of the average book value of our real estate
properties before reserves for depreciation or bad debts, or (2) 25% of our net
income, which is defined as our total revenues less total expenses for any given
period excluding reserves for depreciation and bad debt. Such operating expenses
do not include amounts payable out of capital contributions which may be
capitalized for tax and/or accounting purposes such as the acquisition and
advisory fees payable to the Advisor. To the extent that operating expenses
payable or reimbursable by us exceed this limit and the Independent Directors
determine that the excess expenses were justified based on unusual and
nonrecurring factors which they deem sufficient, the Advisor may be reimbursed
in future years for the full amount of the excess expenses, or any portion
thereof, but only to the extent the reimbursement would not cause our operating
expenses to exceed the limitation in any year. Within 60 days after the end of
any of our fiscal quarters for which total operating expenses for the 12 months
then ended exceed the limitation, there shall be sent to the shareholders a
written disclosure, together with an explanation of the factors the Independent
Directors considered in arriving at the conclusion that the excess expenses were
justified.
-35-
The Advisor and its affiliates will be paid fees in connection with
services provided to us. (See "Management Compensation.") In the event the
Advisory Agreement is terminated, the Advisor will be paid all accrued and
unpaid fees and expense reimbursements, and any subordinated acquisition fees
earned prior to the termination. We will not reimburse the Advisor or its
affiliates for services for which the Advisor or its affiliates are entitled to
compensation in the form of a separate fee.
HOLDINGS OF SHARES AND PARTNERSHIP UNITS
The Advisor currently owns 20,000 limited partnership units of the
Partnership, our operating partnership, for which it contributed $20,000 and
which constitutes 100% of the regular limited partner units outstanding at this
time. The Advisor may not sell any of these units during the period it serves as
our advisor. Fidelity Dividend Capital Inc., which serves as the General Partner
of the Partnership, currently owns 200 regular partnership units for which it
contributed $2,000. The resale of any shares by our affiliates is subject to the
provisions of Rule 144 promulgated under the Securities Act of 1933, which rule
limits the number of shares that may be sold at any one time and the manner of
such resale. Although the Advisor generally is not prohibited from acquiring our
shares, the Advisor has no options or warrants acquiring any shares and has no
current plans to acquire shares..
AFFILIATED COMPANIES
PROPERTY MANAGER
Our properties will be managed and leased initially by Fidelity
Dividend Capital Property Management LLC (the Property Manager). The Property
Manager is an affiliate of the Advisor. The business of the Property Manager is
currently managed and directed by Dennis P. Sweenor and William T. Frattalone,
(See "Conflicts of Interest."). The backgrounds of Sweenor and Frattalone are
described above in the "Management -- Executive Officers and Directors" section
of this prospectus.
The Property Manager was organized in March 2004 to lease and manage
properties, which we acquire. The Property Manager will commence active
operations at such time as proceeds from the initial closing of this offering
are used to acquire our first property. We will pay the Property Manager
property management and leasing fees not exceeding the lesser of: (A) 4.5% of
gross revenues, or (B) 0.6% of the net asset value of the properties (excluding
vacant properties) owned by us, calculated on an annual basis. For purposes of
this calculation, net asset value shall be defined as (1) the aggregate of the
fair market value of all properties owned by us (excluding vacant properties),
minus (2) our aggregate outstanding debt (excluding debts having maturities of
one year or less). In addition, we may pay the Property Manager a separate fee
for the one-time initial rent-up or leasing-up of newly constructed properties
in an amount not to exceed the fee customarily charged in arm's length
transactions by others rendering similar services in the same geographic area
for similar properties as determined by a survey of brokers and agents in such
area (customarily equal to the first month's rent).
In the event the Property Manager assists a tenant with tenant
improvements, a separate fee may be charged to the tenant and paid by the
tenant. This fee will not exceed 5% of the cost of the tenant improvements. The
Property Manager only will provide these services if the provision of the
services does not cause any of our income from the applicable property to be
treated as other than rents from real property for purposes of the applicable
REIT requirements described under "Federal Income Tax Considerations" below. The
Property Manager will derive all of its income from the property management and
leasing services it performs.
-36-
The Property Manager will hire, direct and establish policies for
employees who will have direct responsibility for the operations of each
property we acquire, which may include but not be limited to on-site managers
and building and maintenance personnel. Certain employees of the Property
Manager may be employed on a part-time basis and may also be employed by our
Advisor, or certain companies affiliated with them.
The Property Manager will also direct the purchase of equipment and
supplies and will supervise all maintenance activity. The management fees to be
paid to the Property Manager will cover, without additional expense to us, all
of the Property Manager's general overhead costs.
The principal office of the Property Manager is located at Suite 52-A
Smoke Ridge Rd. Queensbury, N.Y. 12804.
MANAGEMENT DECISIONS
Dennis P. Sweenor and William T. Frattalone initially will have the
primary responsibility for the management decisions of the Advisor and its
affiliates, including the selection of investment properties to be recommended
to our Board of Directors, the negotiation for these investments, and the
property management and leasing of these investment properties. The Advisor will
attempt to invest in industrial and commercial properties that are expected to
achieve our investment objectives. Our properties are expected to consist
primarily of industrial and commercial properties located in the top 20% of the
nation's 273 commercial and industrial markets which are newly constructed,
under construction, or which have been previously constructed and have operating
histories.
MANAGEMENT COMPENSATION
Fidelity Dividend Capital has not yet paid any compensation to our
executive officers or the Advisor. The following table summarizes and discloses
all of the compensation and fees, including reimbursement of expenses, to be
paid by Fidelity Dividend Capital to the Advisor, the Property Manager and the
Dealer Manager. The estimated maximum dollar amount of each fee assumes the sale
of 25,000,000 shares to the public and the sale of 4,000,000 shares pursuant to
our Dividend Reinvestment Plan.
ORGANIZATIONAL AND OFFERING STAGE
SALES COMMISSIONS
o Payable to Participating Broker Dealers
o Estimated Maximum Amount of $20,300,000
o Up to 7.0% of gross offering proceeds before re-allowance of
commissions earned by participating broker-dealers. The Dealer
Manager generally intends to re-allow 100% of selling commissions
to participating broker-dealers.
DEALER MANAGER FEE
o Payable to The Dealer Manager
o Estimated Maximum Amount of $7,250,000
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o Up to 2.5% of gross offering proceeds. The Dealer Manager, in its
sole discretion, may re-allow a portion of its Dealer Manager fee
of up to 1.5% of the gross offering proceeds to be paid to such
participating broker-dealers as a marketing fee and due diligence
expense reimbursement, based on such factors as the volume of
shares sold by such participating broker-dealers, marketing
support and bonafide conference fees incurred.
REIMBURSEMENT OF ORGANIZATION AND OFFERING EXPENSES
o Payable to the Advisor or its Affiliates
o Estimated Maximum Amount of $8,700,000
o Up to 3.0% of gross offering proceeds. All organization and
offering expenses (excluding selling commissions and the dealer
manager fee) that are advanced by the Advisor or its affiliates
will be reimbursed by Fidelity Dividend Capital up to 3.0% of
gross offering proceeds.
ACQUISITION AND DEVELOPMENT STAGE
ACQUISITION AND ADVISORY FEES
o Payable to the Advisor or its Affiliates
o Estimated Maximum Amount of $14,616,000 (assumes that 29,000,000
shares are sold in this offering, that $243,600,000 of offering
proceeds plus an equal amount of debt financing are used to
purchase properties and that Fidelity Dividend Capital does not
acquire properties by issuing new shares or limited partnership
interests, which would increase the acquisition and advisory
fees).
o Up to 3.0% of the aggregate purchase price of all properties
acquired by us for the review and evaluation of such
acquisitions. Includes the acquisition of a specific property or
the acquisition of a portfolio of properties through a purchase
of assets, merger or similar transaction (subject to the
restriction described below in the "Description of
Securities-Restrictions on Roll-Up Transactions" section of this
prospectus).
REIMBURSEMENT OF ACQUISITION EXPENSES
o Payable to the Advisor or its Affiliates
o Estimated Maximum Amount of $2,436,000(assumes that 29,000,000
shares are sold in this offering, that $243,600,000 in offering
proceeds plus an equal amount of debt financing are used to
purchase properties and that we do not acquire properties by
issuing new shares or limited partnership interests, which would
increase the reimbursement of acquisition expenses).
o Up to 0.5% of the aggregate purchase price of all properties
acquired by us for reimbursement of expenses related to real
property acquisitions, such as legal fees, travel expenses,
property appraisals, title insurance premium expenses and other
closing costs. However, the total of all such acquisition and
advisory fees and acquisition expenses shall not exceed, in the
aggregate, an amount equal to 6.0% of the contract price of all
of the properties, which we will purchase.
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OPERATIONAL STAGE
PROPERTY MANAGEMENT AND LEASING FEE
o Payable to the Property Manager
o Maximum Amount Will Depend on Operations
o For the management and leasing of the properties, we will pay the
Property Manager property management and leasing fees equal to
4.5% of gross revenues with respect to each property (or such
other percentage of gross revenues that we consider reasonable,
taking into account the going rate of compensation for managing
similar properties in the same locality, the services rendered
and other relevant factors); provided, however, that aggregate
property management and leasing fees payable to the Property
Manager may not exceed the lesser of: (A) 4.5% of gross revenues,
or (B) 0.6% of the net asset value of the properties (excluding
vacant properties) owned by Fidelity Dividend Capital ,
calculated on an annual basis. For purposes of this calculation,
net asset value shall be defined as (1) the aggregate of the fair
market value of all properties owned by Fidelity Dividend Capital
(excluding vacant properties), minus (2) the aggregate
outstanding debt of Fidelity Dividend Capital (excluding debts
having maturities of one year or less). In addition, we may pay
the Property Manager a separate fee for the one-time initial
rent-up or leasing-up of newly constructed properties in an
amount not to exceed the fee customarily charged in arm's length
transactions by others rendering similar services in the same
geographic area for similar properties as determined by a survey
of brokers and agents in such area (customarily equal to the
first month's rent).
REAL ESTATE COMMISSIONS
o Payable to the Advisor or its Affiliates
o Maximum amount will depend on property sales
o In connection with the sale of properties (which shall include
the sale of a specific property or the sale of a portfolio of
properties through a sale of assets, merger or similar
transaction), an amount not exceeding the lesser of: (A) 50% of
the reasonable, customary and competitive total real estate
brokerage commissions paid for the sale of a comparable property
in light of the size, type and location of the property, or (B)
3.0% of the contract price of each property sold. The payment of
these fees will be deferred until distributions to investors from
sale proceeds, together with prior distributions to the
investors, equals 100% of their capital contributions plus a 7.0%
cumulative non-compounded annual return on their net capital
contributions.(1)
FIDELITY DIVIDEND CAPITAL MAY NOT REIMBURSE ANY ENTITY FOR OPERATING
EXPENSES OF THE GREATER OF 2% OF OUR AVERAGE INVESTED ASSETS OR 25% OF OUR NET
INCOME FOR THE YEAR. OPERATING EXPENSES FOR THESE PURPOSES INCLUDE AGGREGATE
EXPENSES OF EVERY CHARACTER PAID OR INCURRED BY FIDELITY DIVIDEND CAPITAL OTHER
THAN THE EXPENSES OF RAISING CAPITAL (SUCH AS ORGANIZATIONAL AND OFFERING
EXPENSES), INTEREST PAYMENTS, TAXES NON-CASH EXPENDITURES SUCH AS DEPRECIATION
AND AMORTIZATION, PROPERTY ACQUISITION FEES AND PROPERTY ACQUISITION EXPENSES.
(Footnote to "Management Compensation")
(1) If the Advisory Agreement is terminated, then the properties owned by
Fidelity Dividend Capital will be appraised and any deferred real estate
commissions shall be deemed to have been earned to the extent the
appraised value of the properties plus total distributions paid to
investors exceeds 100% of their capital contributions plus a 7%
cumulative non-compounded annual return on their net capital
contributions. Any such deferred real estate commissions shall be
promptly paid to the Advisor after termination of the Advisory
Agreement.
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If at any time the shares become listed on a national securities
exchange or included for quotation on Nasdaq, we will negotiate in good faith
with the Advisor a fee structure appropriate for an entity with a perpetual
life. A majority of the Independent Directors must approve the new fee structure
negotiated with the Advisor. In negotiating a new fee structure, the Independent
Directors shall consider all of the factors they deem relevant, including but
not limited to:
o The size of the advisory fee in relation to the size, composition
and profitability of our portfolio;
o The success of the Advisor in generating opportunities that meet
our investment objectives;
o The rates charged to other REITs and to investors other than
REITs by advisors performing similar services;
o Additional revenues realized by the Advisor and its affiliates
through its relationship with us;
o The quality and extent of service and advice furnished by the
Advisor;
o The performance of our investment portfolio, including income,
conservation or appreciation of capital, frequency of problem
investments and competence in dealing with distress situations;
and
o The quality of our portfolio in relationship to the investments
generated by the Advisor or its affiliates for the account of
other clients.
The Board, including a majority of the Independent Directors, may not
approve a new fee structure that is, in its judgment, more favorable to the
Advisor than the current fee structure.
The Advisor and its affiliates will also be reimbursed only for the
actual cost of goods, services and materials used for or by Fidelity Dividend
Capital. The Advisor may be reimbursed for the administrative services necessary
to the prudent operation of Fidelity Dividend Capital provided that the
reimbursement shall be at the lower of the Advisor's actual cost or the amount
Fidelity Dividend Capital would be required to pay to independent parties for
comparable administrative services in the same geographic location. We will not
reimburse the Advisor or its affiliates for services for which they are entitled
to compensation by way of a separate fee.
Since the Advisor and its affiliates are entitled to different levels
of compensation for undertaking different transactions on behalf of Fidelity
Dividend Capital (such as the property management fees for operating the
properties and the acquisition and advisory fees), the Advisor has the ability
to affect the nature of the compensation it receives by undertaking different
transactions. However, the Advisor is obligated to exercise good faith and
integrity in all its dealings with respect to our affairs pursuant to the
Advisory Agreement. (See "Management -- The Advisory Agreement.") Because these
fees or expenses are payable only with respect to certain transactions or
services, they may not be recovered by the Advisor or its affiliates by
reclassifying them under a different category.
STOCK OWNERSHIP AND OWNERSHIP OF PARTNERSHIP INTEREST
The Advisor has contributed $20,000 to Fidelity Dividend Capital
Operating Partnership and is currently its sole limited partner. For so long as
it serves as our Advisor, Fidelity Dividend Capital Advisors may not sell its
limited partnership interests in Fidelity Dividend Capital Operating
Partnership.
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CONFLICTS OF INTEREST
We are subject to various conflicts of interest arising out of our
relationship it has with the Advisor and its affiliates, including conflicts
related to the compensation arrangements between the Advisor and its affiliates
and Fidelity Dividend Capital (See "Management Compensation") and conflicts
related to the interests in the Partnership held by the Advisor. (See "The
Operating Partnership Agreement.") The Directors have an obligation to function
on our behalf in all situations in which a conflict of interest may arise and
will have a fiduciary obligation to act on behalf of the shareholders. These
conflicts include, but are not limited to, the following:
INTEREST IN OTHER REAL ESTATE PROGRAMS
Other than its activities related to its status as advisor to Fidelity
Dividend Capital, the Advisor presently has no interest in other real estate
programs. Certain affiliates of the Advisor may presently, and plan in the
future to continue to be, involved with real estate programs and activities
which are unrelated to Fidelity Dividend Capital. Affiliates of the Advisor are
not presently involved in any real estate activities related to the acquisition,
development or management of commercial and industrial properties located in the
United States.
COMPETITION
Conflicts of interest will exist to the extent that we may acquire
properties in the same geographic areas where properties owned by other programs
affiliated with the Advisor are located. In such a case, a conflict could arise
in the leasing of properties in the event that Fidelity Dividend Capital and a
related entity were to compete for the same tenants in negotiating leases, or a
conflict could arise in connection with the resale of properties in the event
that Fidelity Dividend Capital and a related entity were to attempt to sell
similar properties at the same time. (See "Risk Factors -- Investment Risks").
Conflicts of interest may also exist at such time as Fidelity Dividend Capital
or our affiliates managing property on our behalf seek to employ developers,
contractors or building managers. The Advisor will seek to reduce conflicts
relating to the employment of developers, contractors or building managers by
making prospective employees aware of all such properties seeking to employ such
persons. In addition, the Advisor will seek to reduce conflicts, which may arise
with respect to properties available for sale or rent by making prospective
purchasers or tenants aware of all such properties. However, these conflicts
cannot be fully avoided in that the Advisor may establish differing compensation
arrangements for employees at different properties or differing terms for
re-sales or leasing of the various properties.
AFFILIATED PROPERTY MANAGER
We anticipate that properties we acquire will be managed and leased for
us by the property manager. The Property Manager is affiliated with the Advisor
and a number of the members and managers of the Advisor and the Property Manager
may overlap. As a result, we might not always have the benefit of independent
property management to the same extent as if the Advisor and Property Manager
were unaffiliated and did not share any employees or managers. (See "Management
- - -- Affiliated Companies.")
LACK OF SEPARATE REPRESENTATION
Richard S. Lane serves as counsel to Fidelity Dividend Capital, the
Advisor, and the Property Manager in connection with this offering and may in
the future act as counsel for each such company. Richard S. Lane may also serves
as counsel to certain affiliates of the Advisor in matters unrelated to this
offering. Rotenberg & Company, LLP will act as Independent auditor to Fidelity
Dividend Capital in connection with this offering. Richard S. Lane may also
serve as counsel to certain affiliates of the Advisor in matters unrelated to
this offering. There is a possibility that in the future the interests of the
various parties may become adverse. In the event that a dispute were to arise
between Fidelity Dividend Capital and the Advisor, the Property Manager or any
of their affiliates, separate counsel for such parties would be retained as and
when appropriate.
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JOINT VENTURES WITH AFFILIATES OF THE ADVISOR
Subject to approval by the our Board of Directors and the separate
approval of our Independent Directors, we may enter into joint ventures or other
arrangements with third parties, including affiliates of the Advisor, to acquire
and own properties. (See "Investment Objectives and Criteria -- Joint Venture
Investments.") The Advisor and its affiliates may have conflicts of interest in
determining which of such entities should enter into any particular joint
venture agreement. The venture partner may have economic or business interests
or goals which are or which may become inconsistent with our business interests
or goals. In addition, should any such joint venture be consummated, the Advisor
may face a conflict in structuring the terms of the relationship between our
interests and the interest of the affiliated venture partner and in managing the
joint venture. Since the Advisor will make investment decisions on behalf of
Fidelity Dividend Capital, agreements and transactions between the Advisor's
affiliates and us as venture partners with respect to any such joint venture
will not have the benefit of arm's-length negotiation of the type normally
conducted between unrelated parties. (See "Risk Factors -- Investment Risks.")
FEES AND OTHER COMPENSATION TO THE ADVISOR
A transaction involving the purchase and sale of properties may result
in the receipt of commissions, fees and other compensation by the Advisor and
its affiliates and partnership distributions to the Advisor and its affiliates,
including acquisition and advisory fees, the dealer manager fee, property
management and leasing fees, real estate brokerage commissions, and
participation in non-liquidating net sale proceeds. However, certain fees and
distributions (but not expense reimbursements) payable to the Advisor and its
affiliates relating to the sale of properties are subordinated to the return to
the shareholders or partners of the Partnership of their capital contributions
plus cumulative non-compounded annual returns on such capital. Subject to
oversight by the Board of Directors, the Advisor has considerable discretion
with respect to all decisions relating to the terms and timing of all
transactions. Therefore, the Advisor may have conflicts of interest concerning
certain actions taken on behalf of Fidelity Dividend Capital, particularly due
to the fact that such fees and other amounts will generally be payable to the
Advisor and its affiliates regardless of the quality of the properties acquired
or the services provided to Fidelity Dividend Capital (See "Management
Compensation" and "The Operating Partnership Agreement".)
Every transaction we enter into with the Advisor or its affiliates is
subject to an inherent conflict of interest. The board may encounter conflicts
of interest in enforcing our rights against any affiliate in the event of a
default by or disagreement with an affiliate or in invoking powers, rights or
options pursuant to any agreement between us and any affiliate. A majority of
the Independent Directors who are otherwise disinterested in the transaction
must approve each transaction between us and the Advisor or any of its
affiliates as being fair and reasonable to us and on terms and conditions no
less favorable to us than those available from unaffiliated third parties.
CERTAIN CONFLICT RESOLUTION PROCEDURES
In order to reduce or eliminate certain potential conflicts of
interest, our articles of incorporation contain a number of restrictions
relating to (1) transactions we enter into with the Advisor and its affiliates,
(2) certain future offerings, and (3) allocation of properties among affiliated
entities. These restrictions include, among others, the following:
o We will not accept goods or services from the Advisor or its
affiliates or any Directors unless a majority of the Directors
not otherwise interested in the transactions approve such
transactions as fair and reasonable to Fidelity Dividend Capital
and on terms and conditions not less favorable to Fidelity
Dividend Capital than those available from unaffiliated third
parties.
o We will not purchase or lease properties in which the Advisor or
its affiliates has an interest without a determination by a
majority of the Directors not otherwise interested in the
transactions that such transaction is competitive and
commercially reasonable to Fidelity Dividend Capital and at a
price to Fidelity Dividend Capital no greater than the cost of
the property to the Advisor or its affiliates unless there is
substantial justification for any amount that exceeds such cost
and such excess amount is determined to be reasonable. In no
event will we acquire any such property at an amount in excess of
its appraised value. We will not sell or lease properties to the
Advisor or its affiliates or
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to our Directors unless a majority of the Directors not other
wise interested in the transactions (including a majority of the
Independent Directors) determine the transaction is fair and
reasonable to Fidelity Dividend Capital.
o We will not make any loans to the Advisor or its affiliates or to
our Directors. In addition, the Advisor and its affiliates will
not make loans to us or to joint ventures in which we are a
venture partner for the purpose of acquiring properties. Any
loans made to us by the Advisor or its affiliates or to our
Directors for other purposes must be approved by a majority of
the Directors not otherwise interested in the transaction
(including a majority of the Independent Directors), as fair,
competitive and commercially reasonable, and no less favorable to
Fidelity Dividend Capital than comparable loans between
unaffiliated parties. The Advisor and its affiliates shall be
entitled to reimbursement, at cost, for actual expenses incurred
by them on behalf of Fidelity Dividend Capital or joint ventures
in which we are a joint venture partner, subject to the
limitation on reimbursement of operating expenses to the extent
that they exceed the greater of 2% of our average invested assets
or 25% of our net income, as described in the "Management -- The
Advisory Agreement" section of this prospectus.
o In the event that an investment opportunity becomes available
which, in the discretion of the Advisor, is suitable, under all
of the factors considered by the Advisor, for Fidelity Dividend
Capital, then the Advisor shall present the opportunity to the
Board of Directors of Fidelity Dividend Capital. In determining
whether or not an investment opportunity is suitable for more
than one program, the Advisor, subject to approval by the Board
of Directors, shall examine, among others, the following factors
as they relate to Fidelity Dividend Capital and each other
program:
o The cash requirements of each program;
o The effect of the acquisition both on diversification
of each program's investments by type of commercial
property and geographic area, and on diversification of
the tenants of its properties;
o The policy of each program relating to leverage of
properties;
o The anticipated cash flow of each program;
o The income tax effects of the purchase on each program;
o The size of the investment; and
o The amount of funds available to each program and the
length of time such funds have been available for
investment.
If a subsequent development, such as a delay in the closing of a
property or a delay in the construction of a property, causes any such
investment, in the opinion of our Board of Directors and the Advisor, to be more
appropriate for a program other than the program that committed to make the
investment, the Advisor may determine that another program affiliated with the
Advisor or its affiliates may make the investment. Our Board of Directors has a
duty to ensure that the method used by the Advisor for the allocation of the
acquisition of properties by two or more affiliated programs seeking to acquire
similar types of properties shall be reasonable.
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INVESTMENT OBJECTIVES AND CRITERIA
GENERAL
We invest in commercial real estate properties, including properties,
which are under development or construction, are newly constructed or have been
constructed and have operating histories.
Our investment objectives are:
o To maximize quarterly cash dividends paid to our investors;
o To invest conservatively in order to preserve, protect and return
our investors' capital contributions;
o To realize growth in the value of our properties upon the
ultimate sale of such properties; and
o To ultimately list our shares on a national exchange or an
over-the-counter market, complete a sail or merger of Fidelity
Dividend Capital Inc. in a transaction which provides our share
holders with securities of a publicly-traded company or, if we do
not obtain listing of the shares within ten years after the
initial closing under this offering, by selling our properties
and distributing the cash to our investors.
We cannot assure you that we will attain these objectives or that our
capital will not decrease. We may not change our investment objectives, except
upon approval of shareholders holding a majority of the shares. The Advisor,
subject to approval by the Board of Directors, will make decisions relating to
the purchase or sale of properties. See "Management" for a description of the
background and experience of the Directors and Executive Officers.
ACQUISITION AND INVESTMENT POLICIES
We will seek to invest substantially all of the offering proceeds
available for investment after the payment of fees and expenses in the
acquisition of high quality commercial real estate, the majority of which are
anticipated to include industrial buildings and commercial properties located
primarily in the top 20% of the United States' largest commercial and industrial
markets ranked by square footage of commercial property space. We may also
consider investments in certain commercial properties located in Canada and, to
a lesser extent, Mexico. We may acquire buildings which are newly constructed,
under construction, or which have been previously constructed and have operating
histories. Industrial properties generally provide generic storage and work
space suitable for and adaptable to a broad range of tenants and uses. However
we are not limited to such investments. We may also invest in other commercial
properties such as shopping centers and office buildings. We will primarily
attempt to acquire existing commercial properties, the space in which has been
leased or pre-leased to one or more large corporate tenants who satisfy our
standards of creditworthiness. (See "Terms of Leases and Tenant
Creditworthiness.")
We will seek to invest in properties that will satisfy the primary
objective of providing cash dividends to shareholders. However, because a
significant factor in the valuation of income-producing real properties is their
potential for future income, we anticipate that the majority of properties we
acquire will have both the potential for growth in value and providing cash
dividends to shareholders. To the extent feasible, we will attempt to invest in
a diversified portfolio of properties, in terms of geography, type of property
and industry group of our tenants, that will satisfy our investment objectives
of maximizing cash available for payment of dividends, preserving our capital
and realizing growth in value upon the ultimate sale of our properties. However,
there may nevertheless be concentrations in our portfolio based on the
geographic location, type of property and industry group of tenants, which may
expose us to greater risks than, would exist in a more diversified portfolio.
We anticipate that a minimum of 84% of the proceeds from the sale of
shares will be used to acquire real estate properties and the balance will be
used to pay various fees and expenses. (See "Estimated Use of Proceeds.")
We will not invest more than 10% of the net offering proceeds available
for investment in unimproved or non-income producing properties. A property,
which is expected to produce income within two years of its acquisition, will
not be considered a non-income producing property. Our investment in real estate
generally will take the form of holding fee title or a long-term leasehold
estate. We intend to acquire such interests either directly in the Partnership,
indirectly through limited
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liability companies or through investments in joint ventures, general
partnerships, co-tenancies or other co-ownership arrangements with the
developers of the properties, affiliates of the Advisor or other persons. (See
"Joint Venture Investments" below.) In addition, we may purchase properties and
lease them back to the sellers of such properties.
While we will use our best efforts to structure any such sale-leaseback
transaction such that the lease will be characterized as a "true lease" so that
we will be treated as the owner of the property for federal income tax purposes,
we cannot assure you that the Internal Revenue Service will not challenge such
characterization. In the event that any such re-characterization were
successful, deductions for depreciation and cost recovery relating to such
property would be disallowed and it is possible that under some circumstances we
could fail to qualify as a REIT as a result. (See "Federal Income Tax
Considerations -- Sale-Leaseback Transactions.") Although we are not limited as
to the geographic area where we may conduct our operations, we normally intend
to invest in properties located in the United States.
We are not specifically limited in the number or size of properties we
may acquire or on the percentage of net proceeds of this offering, which we may
invest in a single property. The number and mix of properties we acquire will
depend upon real estate and market conditions and other circumstances existing
at the time we are acquiring our properties and the amount of proceeds we raise
in this offering.
In making investment decisions for us, the Advisor will consider
relevant real estate property and financial factors, including the location of
the property, its income-producing capacity, its suitability for any development
contemplated or in progress, the prospects for long-range appreciation, its
liquidity and income tax considerations. In this regard, the Advisor will have
substantial discretion with respect to the selection of specific investments.
Our obligation to close the purchase of any investment will generally be
conditioned upon the delivery and verification of certain documents from the
seller or developer, including, where appropriate:
o Plans and specifications;
o Environmental reports;
o Surveys;
o Evidence of marketable title subject to such liens and
encumbrances as are acceptable to the Advisor;
o Audited financial statements covering recent operations of
properties having operating histories unless such statements are
not required to be filed with the Securities and Exchange
Commission and delivered to shareholders; and
o Title and liability insurance policies.
We will not close the purchase of any property unless and until we
obtain an environmental assessment (generally a minimum of a Phase I review) for
each property purchased and are generally satisfied with the environmental
status of the property.
In determining whether to purchase a particular property, we may, in
accordance with customary practices, obtain an option on such property. The
amount paid for an option, if any, is normally surrendered if the property is
not purchased and is normally credited against the purchase price if the
property is purchased.
In purchasing, leasing and developing real estate properties, we will
be subject to risks generally incident to the ownership of real estate,
including:
o Changes in general economic or local conditions;
o Changes in supply of or demand for similar or competing
properties in an area;
-45-
o Changes in interest rates and availability of permanent mortgage
funds, which may render the sale of a property difficult or
unattractive;
o Changes in tax, real estate, environmental and zoning laws;
o Periods of high interest rates and tight money supply, which may
make the sale of properties more difficult;
o Tenant turnover; and
o General overbuilding or excess supply in the market area.
DEVELOPMENT AND CONSTRUCTION OF PROPERTIES
We may invest a portion of the proceeds available for investment in
properties on which improvements are to be constructed or completed. However, we
may not invest in excess of 10% of the offering proceeds available for
investment in properties, which are not expected to produce income within two
years of their acquisition. To help ensure performance by the builders of
properties, which are under construction, we expect that completion of
properties under construction shall be guaranteed at the price contracted either
by an adequate completion bond or performance bond. The Advisor may rely upon
the substantial net worth of the contractor or developer or a personal guarantee
accompanied by financial statements showing a substantial net worth provided by
an affiliate of the person entering into the construction or development
contract as an alternative to a completion bond or performance bond. Development
of real estate properties is subject to risks relating to a builder's ability to
control construction costs or to build in conformity with plans, specifications
and timetables. (See "Risk Factors -- Real Estate Risks.") The Advisor may elect
to employ one or more project managers (who under some circumstances may be
affiliated with the Advisor or the Property Manager) to plan, supervise and
implement the development of any unimproved properties, which we may acquire.
Such persons would be compensated by Fidelity Dividend Capital.
ACQUISITION OF PROPERTIES FROM THE ADVISOR
We may acquire properties, directly or through joint ventures, from the
Advisor or its affiliates. Any such acquisitions will be approved consistent
with the conflict of interest procedures described above. (See "Conflicts of
Interest - Certain Conflict Resolution Procedures.")
TERMS OF LEASES AND TENANT CREDITWORTHINESS
The terms and conditions of any lease we enter into with our tenants
may vary substantially from those we describe in this prospectus. However, we
expect that a majority of our leases will be what is generally referred to as
"triple net" leases. A "triple net" lease provides that the tenant will be
required to pay or reimburse Fidelity Dividend Capital for all real estate
taxes, sales and use taxes, special assessments, utilities, insurance and
building repairs, and other building operation and management costs, in addition
to making its lease payments.
The Advisor has developed specific standards for determining the
creditworthiness of potential tenants of our properties. While authorized to
enter into leases with any type of tenant, we anticipate that a majority of our
tenants will be large corporations or other entities which have a substantial
net worth, or whose lease obligations are guaranteed by another corporation or
entity with a substantial net worth or who otherwise meet creditworthiness
standards that will be applied by the Advisor.
We anticipate that tenant improvements required to be funded by the
landlord in connection with newly acquired properties will be funded from our
offering proceeds. However, at such time as a tenant at one of our properties
does not renew its lease or otherwise vacates its space in one of our buildings,
it is likely that, in order to attract new tenants, we will be required to
expend substantial funds for tenant improvements and tenant refurbishments to
the vacated space. Since we do
-46-
not anticipate maintaining permanent working capital reserves, we may not have
access to funds required in the future for tenant improvements and tenant
refurbishments in order to attract new tenants to lease vacated space. (See
"Risk Factors -- Real Estate Risks.")
JOINT VENTURE INVESTMENTS
We may enter into joint ventures in the future, including with
affiliated entities, for the acquisition, development or improvement of
properties for the purpose of diversifying our portfolio of assets. We may also
enter into joint ventures, general partnerships, co-tenancies and other
participations with real estate developers, owners and others for the purpose of
developing, owning and leasing real properties. (See "Conflicts of Interest.")
In determining whether to recommend a particular joint venture, the Advisor will
evaluate the real property, which such joint venture owns or is being formed to,
own under the same criteria described elsewhere in this prospectus for the
selection of real estate property investments of Fidelity Dividend Capital. (See
generally "Investment Objectives and Criteria.")
We may enter into joint ventures with affiliates of the Advisor for the
acquisition of properties, but only provided that:
o A majority of our Directors approve the transaction as being fair
and reasonable to Fidelity Dividend Capital; and
o The investment by Fidelity Dividend Capital and such affiliate
are on substantially the same terms and conditions. To the extent
possible, we will attempt to obtain a right of first refusal to
buy if such venture partner elects to sell its interest in the
property held by the joint venture. In the event that the venture
partner were to elect to sell property held in any such joint
venture, however, we may not have sufficient funds to exercise
our right of first refusal to buy the venture partner's interest
in the property held by the joint venture. In the event that any
joint venture with an affiliated entity holds interests in more
than one property, the interest in each such property may be
specially allocated based upon the respective proportion of funds
invested by each co-ventures in each such property. Entering into
joint ventures with affiliates of the Advisor will result in
certain conflicts of interest. (See "Conflicts of Interest --
Joint Ventures with Affiliates of the Advisor.")
BORROWING POLICIES
Our ability to increase our diversification through borrowing could be
adversely impacted by banks and other lending institutions reducing the amount
of funds available for loans secured by real estate. When interest rates on
mortgage loans are high or financing is otherwise unavailable on a timely basis,
we may purchase certain properties for cash with the intention of obtaining a
mortgage loan for a portion of the purchase price at a later time.
There is no limitation on the amount we may invest in any single
improved property. However, under our Articles of Incorporation, we have a
limitation on borrowing which precludes us from borrowing in the aggregate in
excess of 75% of the value of all of our properties.
By operating on a leveraged basis, we will have more funds available
for investment in properties. This will allow us to make more investments than
would otherwise be possible, resulting in a more diversified portfolio. Our use
of leverage increases the risk of default on the mortgage payments and a
resulting foreclosure of a particular property. (See "Risk Factors -- Real
Estate Risks.") To the extent that we do not obtain mortgage loans on our
properties, our ability to acquire additional properties will be restricted. The
Advisor will use its best efforts to obtain financing on the most favorable
terms available to us. Lenders may have recourse to assets not securing the
repayment of the indebtedness. The Advisor will refinance properties during the
term of a loan only in limited circumstances, such as when a decline in interest
rates makes it beneficial to prepay an existing mortgage, when an existing
mortgage matures or if an attractive investment becomes available and the
proceeds from the refinancing can be used to purchase such investment. The
benefits of the refinancing may include an increased cash flow resulting from
reduced debt service requirements, an increase in dividend distributions from
proceeds of the refinancing, if any, and an increase in property ownership if
some refinancing proceeds are reinvested in real estate.
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We may not borrow money from any of our Directors or from the Advisor
or its affiliates for the purpose of acquiring real properties. Any loans by
such parties for other purposes must be approved by a majority of the Directors
not otherwise interested in the transaction (including a majority of the
Independent Directors) as fair, competitive and commercially reasonable and no
less favorable to Fidelity Dividend Capital than comparable loans between
unaffiliated parties.
DISPOSITION POLICIES
We intend to acquire properties for investment with an expectation of
holding each property for an extended period. However, circumstances might arise
which could result in the early sale of some properties. A property may be sold
before the end of the expected holding period if:
o The tenant has involuntarily liquidated;
o In the judgment of the Advisor, the value of a property might
decline;
o An opportunity has arisen to improve other properties;
o We can increase cash flow through the disposition of the
property;
o The tenant is in default under the lease; or
o In the judgment of the Advisor, the sale of the property is in
our best interests.
The determination of whether a particular property should be sold or
otherwise disposed of will be made after consideration of relevant factors,
including prevailing economic conditions, with a view to achieving maximum
capital appreciation. We cannot assure you that this objective will be realized.
The selling price of a property, which is net leased, will be determined in
large part by the amount of rent payable under the lease. If a tenant has a
repurchase option at a formula price, we may be limited in realizing any
appreciation. In connection with our sales of properties we may lend the
purchaser all or a portion of the purchase price. In these instances, our
taxable income may exceed the cash received in the sale. (See "Federal Income
Considerations -- Requirements for Qualification as a REIT - Operational
Requirements - Annual Distribution Requirement.")
The terms of payment will be affected by custom in the area in which
the property being sold is located and the then-prevailing economic conditions.
If our shares are not listed for trading on a national securities exchange or
included for quotation on Nasdaq within five years after the initial closing
under this offering, our Articles of Incorporation require us to sell all of our
properties and distribute the net sale proceeds to our share holders in the
liquidation of Fidelity Dividend Capital. In making the decision to apply for
listing of our shares, the Directors will try to determine whether listing our
shares or liquidating our assets will result in greater value for the
shareholders. It cannot be determined at this time the circumstances, if any,
under which the Directors will agree to list our shares. If our shares are not
listed or included for quotation within five years after the initial closing
under this offering, we will promptly begin to sell our portfolio. We will
continue in existence until all properties are sold and our other assets are
liquidated.
INVESTMENT LIMITATIONS
Our Articles of Incorporation place numerous limitations on us with
respect to the manner in which we may invest our funds. These limitations cannot
be changed unless our Articles of Incorporation are amended, which requires the
approval of the shareholders. Unless the articles are amended, we will not:
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o Invest in commodities or commodity futures contracts, except for
futures contracts the income or gain with respect to which is
qualifying income under the 95% Income Test described below under
"Federal Income Tax Considerations" when used solely for the
purpose of hedging in connection with our ordinary business of
investing in real estate assets and mortgages;
o Invest in real estate contracts of sale, otherwise known as land
sale contracts, unless the contract is in recordable form and is
appropriately recorded in the chain of title;
o Make or invest in mortgage loans except in connection with a sale
or other disposition of a property;
o Make or invest in mortgage loans unless an appraisal is obtained
concerning the underlying property except for those mortgage
loans insured or guaranteed by a government or government agency.
Mortgage debt on any property shall not exceed such property's
appraised value. In cases where a majority of our Independent
Directors determines, and in all cases in which the transaction
is with any of our Directors or the Advisor and its affiliates,
such appraisal shall be obtained from an independent appraiser.
We will maintain such appraisal in our records for at least eight
years after the end of the year in which the loan is repaid,
refinanced or otherwise disposed of by us and will be available
for your inspection and duplication. We will also obtain a
mortgage or owner's title insurance policy as to the priority of
the mortgage;
o Make or invest in mortgage loans that are subordinate to any
mortgage or equity interest of any of our Directors, the Advisor
or its affiliates;
o Make or invest in mortgage loans, including construction loans,
on any one property if the aggregate amount of all mortgage loans
on such property would exceed an amount equal to 85% of the
appraised value of such property as determined by appraisal
unless substantial justification exists because of the presence
of other underwriting criteria;
o Invest in junior debt secured by a mortgage on real property
which is subordinate to the lien of other senior debt except
where the amount of such junior debt plus any senior debt does
not exceed 90% of the appraised value of such property, if after
giving effect thereto, the value of all such mortgage loans of
Fidelity Dividend Capital would not then exceed 25% of our net
assets, which shall mean our total assets less our total
liabilities;
o Borrow in excess of 75% of the aggregate value of all properties
owned by us.
o Make investments in unimproved property or indebtedness secured
by a deed of trust or mortgage loans on unimproved property in
excess of 10% of our total assets;
o Issue equity securities on a deferred payment basis or other
similar arrangement;
o Issue debt securities in the absence of adequate cash flow to
cover debt service;
o Issue equity securities, which are assessable;
o Issue "redeemable securities" as defined in Section 2(a)(32) of
the Investment Company Act of 1940;
o Grant warrants or options to purchase shares to Officers or
Affiliated Directors or to the Advisor or its affiliates except
on the same terms as the options or warrants are sold to the
general public and the amount of the options or warrants does not
exceed an amount equal to 10% of the outstanding shares on the
date of grant of the warrants and options;
o Engage in trading, as compared with investment activities, or
engage in the business of underwriting or the agency distribution
of securities issued by other persons;
o Make any investment which is inconsistent with qualifying as a
REIT; or
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o Lend money to the Advisor or its affiliates.
The Advisor will continually review our investment activity to attempt
to ensure that we do not come within the application of the Investment Company
Act of 1940. Among other things, the Advisor will attempt to monitor the
proportion of our portfolio that is placed in various investments so that we do
not come within the definition of an "investment company" under the act. If at
any time the character of our investments could cause us to be deemed an
investment company for purposes of the Investment Company Act of 1940, we will
take the necessary action to attempt to ensure that we are not deemed to be an
"investment company."
CHANGE IN INVESTMENT OBJECTIVES AND LIMITATIONS
Our Articles of Incorporation require that the Directors review our
investment policies at least annually to determine that the policies we are
following are in the best interest of the shareholders. Each determination and
the basis therefore shall be set forth in our minutes. The methods of
implementing our investment policies also may vary as new investment techniques
are developed. The methods of implementing our investment objectives and
policies, except as otherwise provided in the organizational documents, may be
altered by a majority of the Directors, including a majority of the Independent
Directors, without the approval of the shareholders.
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FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of United States material federal income tax
considerations associated with an investment in our common shares that may be
relevant to you. The statements made in this section of the prospectus are based
upon current provisions of the Internal Revenue Code and Treasury Regulations
promulgated thereunder, as currently applicable, currently published
administrative positions of the Internal Revenue Service and judicial decisions,
all of which are subject to change, either prospectively or retroactively. We
cannot assure you that any changes will not modify the conclusions expressed in
counsel's opinions described herein. This summary does not address all possible
tax considerations that may be material to an investor and does not constitute
legal or tax advice. Moreover, this summary does not deal with all tax aspects
that might be relevant to you, as a prospective shareholder, in light of your
personal circumstances, nor does it deal with particular types of shareholders
that are subject to special treatment under the federal income tax laws, such as
insurance companies, holders whose shares are acquired through the exercise of
stock options or otherwise as compensation, holders whose shares are acquired
through the Dividend Reinvestment Plan or who intend to sell their shares under
the Share Redemption Program, tax-exempt organizations except as provided below,
financial institutions or broker-dealers, or foreign corporations or persons who
are not citizens or residents of the United States except as provided below. The
Internal Revenue Code provisions governing the federal income tax treatment of
REITs and their shareholders are highly technical and complex, and this summary
is qualified in its entirety by the express language of applicable Internal
Revenue Code provisions, Treasury Regulations promulgated thereunder and
administrative and judicial interpretations thereof.
WE URGE YOU, AS A PROSPECTIVE SHAREHOLDER, TO CONSULT YOUR OWN TAX
ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO YOU OF A PURCHASE OF SHARES,
OWNERSHIP AND SALE OF THE SHARES AND OF FIDELITY DIVIDEND CAPITAL'S ELECTION TO
BE TAXED AS A REIT, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
REIT QUALIFICATION
We intend to elect to be taxable as a REIT commencing with our first
short taxable year ending December 31, 2005. We believe that we will operate in
a manner intended to qualify us as a REIT beginning with our first taxable year.
This section of the prospectus discusses the laws governing the tax treatment of
a REIT and its shareholders. These laws are highly technical and complex.
TAXATION OF THE COMPANY
If we qualify for taxation as a REIT, we generally will not be subject
to Federal Corporate Income Taxes on that portion of our ordinary income or
capital gain that we distribute currently to our shareholders, because the REIT
provisions of the Internal Revenue Code generally allow a REIT to deduct
distributions paid to its shareholders. This substantially eliminates the
federal "double taxation" on earnings (taxation at both the corporate level and
shareholder level) that usually results from an investment in a corporation.
Even if we qualify for taxation as a REIT, however, we will be subject to
Federal Income Taxation as follows:
o We will be taxed at regular corporate rates on our undistributed
REIT taxable income, including undistributed net capital gains;
o Under some circumstances, we may be subject to "alternative
minimum tax";
o If we have net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to
customers in the ordinary course of business or other
non-qualifying income from foreclosure property, we will be
subject to tax at the highest corporate rate on that income;
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o If we have net income from prohibited transactions (which are, in
general, sales or other dispositions of property, other than
foreclosure property, held primarily for sale to customers in the
ordinary course of business), the income will be subject to a
100% tax;
o If we fail to satisfy either of the 75% or 95% gross income tests
(discussed below) but have nonetheless maintained our
qualification as a REIT because certain conditions have been met,
we will be subject to a 100% tax on an amount equal to the
greater of the amount by which we fail the 75% or 95% test
multiplied by a fraction calculated to reflect our profitability;
o If we fail to distribute during each year at least the sum of (i)
85% of our REIT ordinary income for the year, (ii) 95% of our
REIT capital gain net income for such year and (iii) any
undistributed taxable income from prior periods, we will be
subject to a 4% excise tax on the excess of the required
distribution over the amounts actually distributed;
o We may elect to retain and pay tax on our net long-term capital
gain. In that case, a United States shareholder would be taxed on
its proportionate share of our undistributed long-term capital
gains and would receive a credit or refund for its proportionate
share of the tax we paid; and
o If we acquire any asset from a C corporation (i.e., a corporation
generally subject to corporate-level tax) in a transaction in
which the C corporation would not normally be required to
recognize any gain or loss on disposition of the asset and we
subsequently recognizes gain on the disposition of the asset
during the ten year period beginning on the date on which we
acquired the asset, then a portion of the gain may be subject to
tax at the highest regular corporate rate, unless the C
corporation made an election to treat the asset as if it were
sold for its fair market value at the time of our acquisition.
REQUIREMENTS FOR QUALIFICATION AS A REIT
In order for us to qualify as a REIT, we must meet and continue to meet
the requirements discussed below relating to our organization, sources of
income, nature of assets and distributions of income to our shareholders.
ORGANIZATIONAL REQUIREMENTS
In order to qualify for taxation as a REIT under the Internal Revenue
Code, we must meet tests regarding our income and assets described below and:
1. Be a corporation, trust or association that would be taxable as a
domestic corporation for the REIT provisions of the Internal
Revenue Code;
2. Elect to be taxed as a REIT and satisfy relevant filing and other
administrative requirements;
3. Be managed by one or more Trustees or Directors;
4. Have our beneficial ownership evidenced by transferable shares;
5. Not be a financial institution or an insurance company subject to
special provisions of the Federal Income Tax laws;
6. Use a calendar year for Federal Income Tax purposes;
7. Have at least 100 shareholders for at least 335 days of each
taxable year of 12 months or during a proportionate part of a
taxable year of less than 12 months; and
8. Not be closely held as defined for purposes of the REIT
provisions of the Internal Revenue Code.
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We would be treated as closely held if, during the last half of any
taxable year, more than 50% in value of our outstanding capital stock is owned,
directly or indirectly through the application of certain attribution rules, by
five or fewer individuals, as defined in the Internal Revenue Code to include
certain entities. Items 7 and 8 above will not apply until after the first
taxable year for which we elect to be taxed as a REIT. If we comply with
Treasury regulations that provide procedures for ascertaining the actual
ownership of our shares for each taxable year and we did not know, and with the
exercise of reasonable diligence could not have known, that we failed to meet
item 8 above for a taxable year, we will be treated as having met item 8 for
that year.
We intend to elect to be taxed as a REIT commencing with our first
taxable year ending December 31, 2005 and we intend to satisfy the other
requirements described in items 1-6 above at all times during each of our
taxable years. We believe that we will have sufficient diversity of share
ownership by the beginning of 2005 to satisfy items 7 and 8 above. In addition,
our Articles of Incorporation contain restrictions regarding ownership and
transfer of shares of our stock that are intended to assist us in continuing to
satisfy the share ownership requirements in items 7 and 8 above. (See
"Description of Securities - Restriction on Ownership of Shares.")
For purposes of the requirements described herein, any corporation that
is a qualified REIT subsidiary of ours will not be treated as a corporation
separate from us and all assets, liabilities, and items of income, deduction and
credit of our qualified REIT subsidiaries will be treated as our assets,
liabilities and items of income, deduction and credit. A qualified REIT
subsidiary is a corporation, other than a taxable REIT subsidiary (as described
below under "Operational Requirements - Asset Tests"), all of the capital stock
of which is owned by a REIT.
In the case of a REIT that is a partner in an entity treated as a
partnership for federal tax purposes, the REIT is treated as owning its
proportionate share of the assets of the partnership and as earning its
allocable share of the gross income of the partnership for purposes of the
requirements described herein. In addition, the character of the assets and
gross income of the partnership will retain the same character in the hands of
the REIT for purposes of the REIT requirements, including the asset and income
tests described below. As a result, our proportionate share of the assets,
liabilities and items of income of the Partnership and of any other partnership,
joint venture, limited liability company or other entity treated as a
partnership for federal tax purposes in which we or the Partnership have an
interest will be treated as our assets, liabilities and items of income.
OPERATIONAL REQUIREMENTS -- GROSS INCOME TESTS
To maintain our qualification as a REIT, we must satisfy annually two
gross income requirements.
o At least 75% of our gross income, excluding gross income from
prohibited transactions, for each taxable year must be derived
directly or indirectly from investments relating to real property
or mortgages on real property and from other specified sources,
including qualified temporary investment income, as described
below. Gross income includes "rents from real property" and, in
some circumstances, interest, but excludes gross income from
dispositions of property held primarily for sale to customers in
the ordinary course of a trade or business. These dispositions
are referred to as "prohibited transactions." This is the 75%
Income Test.
o At least 95% of our gross income, excluding gross income from
prohibited transactions, for each taxable year must be derived
from the real property investments described above and generally
from dividends and interest and gains from the sale or
disposition of stock or securities or from any combination of the
foregoing. This is the 95% Income Test.
o The rents we will receive or deemed as received will qualify as
"rents from real property" for purposes of satisfying the gross
income requirements for a REIT only if the following conditions
are met:
o The amount of rent received from a tenant must not be 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
the term "rents from real property" solely by reason of being
based on a fixed percentage or percentages of gross receipts or
sales;
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o In general, neither we nor an owner of 10% or more of our stock
may directly or constructively own 10% or more of a tenant (a
"Related Party Tenant") or a subtenant of the tenant (in which
case only rent attributable to the subtenant is disqualified);
o Rent attributable to personal property leased in connection with
a lease of real property cannot be greater than 15% of the total
rent received under the lease, as determined based on the average
of the fair market values as of the beginning and end of the
taxable year; and
o We normally must not operate or manage the property or furnish or
render services to tenants, other than through an "independent
contractor" who is adequately compensated and from whom we do not
derive any income. However, a REIT may provide services with
respect to its properties, and the income derived there from will
qualify as "rents from real property," if the services are
"usually or customarily rendered" in connection with the rental
of space only and are not otherwise considered "rendered to the
occupant." Even if the services provided by us with respect to a
property are impermissible tenant services, the income derived
will qualify as "rents from real property" if such income does
not exceed one percent of all amounts received or accrued with
respect to that property.
Prior to the making of investments in properties, we may invest the net
proceeds of the offering in liquid assets such as Government Securities or
Certificates of Deposit. For purposes of the 75% Income Test, income
attributable to a stock or debt instrument purchased with the proceeds received
by a REIT in exchange for stock in the REIT (other than amounts received
pursuant to a Dividend Reinvestment Plan) constitutes qualified temporary
investment income if such income is received or accrued during the one-year
period beginning on the date the REIT receives such new capital. To the extent
that we hold any proceeds of the offering for longer than one year, we may
invest those amounts in less liquid investments such as mortgage-backed
securities, maturing mortgage loans purchased from mortgage lenders or shares in
other REITs in order to satisfy the 75% Income and the 95% Income Tests and the
Asset Tests described below. We expect the bulk of the remainder of our income
to qualify under the 75% Income and 95% Income Tests as rents from real property
in accordance with the requirements described above. In this regard, we
anticipate that most of our leases will be for fixed rentals with annual CPI or
similar adjustments and that none of the rentals under our leases will be based
on the income or profits of any person. In addition, none of our tenants are
expected to be Related Party Tenants and the portion of the rent attributable to
personal property is not expected to exceed 15% of the total rent to be received
under any lease. Finally, we anticipate that the Property Manager will perform
all or most of the services to be performed with respect to our properties and
such services are expected to be those usually or customarily rendered in
connection with the rental of real property and not rendered to the occupant of
such property. However, we can give no assurance that the actual sources of its
gross income will allow it to satisfy the 75% Income and the 95% Income Tests
described above.
Notwithstanding our failure to satisfy one or both of the 75% Income
and the 95% Income Tests for any taxable year, we may still qualify as a REIT
for that year if we are eligible for relief under specific provisions of the
Internal Revenue Code. These relief provisions generally will be available if:
o Our failure to meet these tests was due to reasonable cause and
not due to willful neglect;
o We attach a schedule of our income sources to our Federal Income
Tax return; and
o Any incorrect information on the schedule is not due to fraud
with intent to evade tax.
It is not possible, however, to state whether, in all circumstances, we
would be entitled to the benefit of these relief provisions. In addition, as
discussed above in "Taxation of the Company," even if these relief provisions
apply, a tax would be imposed with respect to the excess net income.
OPERATIONAL REQUIREMENTS -- ASSET TESTS
At the close of each quarter of our taxable year, we also must satisfy
four tests ("Asset Tests") relating to the nature and diversification of our
assets.
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o First, at least 75% of the value of our total assets must be
represented by real estate assets, cash, cash items and
government securities. The term "real estate assets" includes
real property, mortgages on real property, shares in other
qualified REITs, property attributable to the temporary
investment of new capital as described above and a proportionate
share of any real estate assets owned by a partnership in which
we are a partner or of any qualified REIT subsidiary of ours.
o Second, no more than 25% of our total assets may be represented
by securities other than those in the 75% asset class.
o Third, of the investments included in the 25% asset class, the
value of any one issuer's securities that we own may not exceed
5% of the value of our total assets. Additionally, we may not own
more than 10% of the voting power or value of any one issuer's
outstanding securities. For purposes of this Asset Test and the
second Asset Test, securities do not include the equity or debt
securities of a qualified REIT subsidiary of ours or an equity
interest in any entity treated as a partnership for federal tax
purposes. The third Asset Test does not apply in respect of a
taxable REIT subsidiary.
o Fourth, no more than 20% of the value of our total assets may
consist of the securities of one or more taxable REIT
subsidiaries. Subject to certain exceptions, a taxable REIT
subsidiary is any corporation, other than a REIT, in which we
directly or indirectly owns stock and with respect to which a
joint election has been made by us and the corporation to treat
the corporation as a taxable REIT subsidiary of ours and also
includes any corporation, other than a REIT or a qualified REIT
subsidiary, in which a taxable REIT subsidiary of our owns,
directly or indirectly, more than 35 percent of the voting power
or value.
The Asset Tests must generally be met for any quarter in which we
acquire securities or other property. Upon full investment of the net proceeds
from the offering we expect that most of our assets will consist of real
property and we therefore expect to satisfy the Asset Tests.
If we meet the Asset Tests at the close of any quarter, we will not
lose our REIT status for a failure to satisfy the Asset Tests at the end of a
later quarter if such failure occurs solely because of changes in asset values.
If our failure to satisfy the Asset Tests results from an acquisition of
securities or other property during a quarter, we can cure the failure by
disposing of a sufficient amount of non-qualifying assets within 30 days after
the close of that quarter. We intend to maintain adequate records of the value
of our assets to ensure compliance with the Asset Tests and to take other action
within 30 days after the close of any quarter as may be required to cure any
noncompliance.
OPERATIONAL REQUIREMENTS -- ANNUAL DISTRIBUTION REQUIREMENT
In order to be taxed as a REIT, we are required to make dividend
distributions, other than capital gain dividends, to our shareholders each year
in the amount of at least 90% of our REIT taxable income (computed without
regard to the dividends paid deduction and our net capital gains and subject to
certain other potential adjustments) for all tax years. While we must generally
pay dividends in the taxable year to which they relate, we may also pay
dividends in the following taxable year if (1) they are declared before we
timely files our federal income tax return for the taxable year in question, and
if (2) they are paid on or before the first regular dividend payment date after
the declaration.
Even if we satisfy the foregoing dividend distribution requirement and,
accordingly, continue to qualify as a REIT for tax purposes, we will still be
subject to federal income tax on the excess of our net capital gain and our REIT
taxable income, as adjusted, over the amount of dividends distributed to
shareholders.
In addition, if we fail to distribute during each calendar year at
least the sum of:
o 85% of our ordinary income for that year;
o 95% of our capital gain net income other than the capital gain
net income which we elect to retain and pay tax on for that year;
and
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o Any undistributed taxable income from prior periods, we will be
subject to a 4% nondeductible excise tax on the excess of the
amount of the required distributions over amounts actually
distributed during such year.
We intend to make timely distributions sufficient to satisfy this
requirement; however, it is possible that we may experience timing differences
between (1) the actual receipt of income and payment of deductible expenses, and
2) the inclusion of that income and deduction of those expenses for purposes of
computing our taxable income. It is also possible that we be allocated a share
of net capital gain attributable to the sale of depreciated property by the
Partnership that exceeds our allowable share of cash attributable to that sale.
In those circumstances, we may have less cash than is necessary to meet our
annual distribution requirement or to avoid income or excise taxation on
undistributed income. We may find it necessary in those circumstances to arrange
for financing or raise funds through the issuance of additional shares in order
to meet our distribution requirements. If we fail to satisfy the distribution
requirement for any taxable year by reason of a later adjustment to our taxable
income made by the Internal Revenue Service, we may be able to pay "deficiency
dividends" in a later year and include such distributions in our deductions for
dividends paid for the earlier year. In that event, we may be able to avoid
being taxed on amounts distributed as deficiency dividends, but we would be
required in those circumstances to pay interest to the Internal Revenue Service
based upon the amount of any deduction taken for deficiency dividends for the
earlier year.
As noted above, we may also elect to retain, rather than distribute,
our net long-term capital gains. The effect of such an election would be as
follows:
o We would be required to pay the federal income tax on these
gains;
o Taxable U.S. shareholders, while required to include their
proportionate share of the undistributed long- term capital gains
in income, would receive a credit or refund for their share of
the tax paid by the REIT; and
o The basis of the shareholder's shares would be increased by the
amount of our undistributed long-term capital gains (minus its
proportionate share of the amount of capital gains tax we pay)
included in the shareholder's long-term capital gains.
In computing our REIT taxable income, we will use the accrual method of
accounting and intends to depreciate depreciable property under the alternative
depreciation system. We are required to file an annual federal income tax
return, which, like other corporate returns, is subject to examination by the
Internal Revenue Service. Because the tax law requires us to make many judgments
regarding the proper treatment of a transaction or an item of income or
deduction, it is possible that the Internal Revenue Service will challenge
positions we take in computing our REIT taxable income and our distributions.
Issues could arise, for example, with respect to the allocation of the
purchase price of properties between depreciable or amortizable assets and
non-depreciable or non-amortizable assets such as land and the current
deductibility of fees paid to the Advisor or its affiliates. Were the Internal
Revenue Service to successfully challenge our characterization of a transaction
or determination of our REIT taxable income, we could be found to have failed to
satisfy a requirement for qualification as a REIT. If, as a result of a
challenge, we are determined to have failed to satisfy the distribution
requirements for a taxable year, we would be disqualified as a REIT, unless we
were permitted to pay a deficiency dividend to our shareholders and pay interest
thereon to the Internal Revenue Service, as provided by the Internal Revenue
Code. A deficiency dividend cannot be used to satisfy the distribution
requirement, however, if the failure to meet the requirement is not due to a
later adjustment to our income by the Internal Revenue Service.
OPERATIONAL REQUIREMENTS - RECORD KEEPING
In order to continue to qualify as a REIT, we must maintain certain
records as set forth in applicable Treasury Regulations. Further, to avoid a
monetary penalty we must request, on an annual basis, certain information
designed to disclose the ownership of our outstanding shares. We intend to
comply with these requirements.
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FAILURE TO QUALIFY AS A REIT
If we fail to qualify as a REIT for any reason in a taxable year and
applicable 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. We will not be able to deduct dividends paid to our
shareholders in any year in which we fail to qualify as a REIT. We also will be
disqualified for the four taxable years following the year during which
qualification was lost unless we are entitled to relief under specific statutory
provisions.
SALE-LEASEBACK TRANSACTIONS
Some of our investments may be in the form of sale-leaseback
transactions. We normally intend to treat these transactions as true leases for
federal income tax purposes. However, depending on the terms of any specific
transaction, the Internal Revenue Service might take the position that the
transaction is not a true lease but is more properly treated in some other
manner. If such recharacterization were successful, we would not be entitled to
claim the depreciation deductions available to an owner of the property. In
addition, the recharacterization of one or more of these transactions might
cause us to fail to satisfy the Asset Tests or the Income Tests described above,
based upon the asset, we would be treated as holding or the income we would be
treated as having been earned and such failure could result in our failing to
qualify as a REIT. Alternatively, the amount or timing of income inclusion or
the loss of depreciation deductions resulting from the recharacterization might
cause us to fail to meet the distribution requirement described above for one or
more taxable years absent the availability of the deficiency dividend procedure
or might result in a larger portion of our distributions being treated as
ordinary dividend income to our shareholders.
TAXATION OF TAXABLE U.S. SHAREHOLDERS
DEFINITION
In this section, the phrase "U.S. shareholder" means a holder of our
shares that for federal income tax purposes is:
o A citizen or resident of the United States;
o A corporation, partnership or other entity treated as a
corporation or partnership for U.S. federal income tax purposes
created or organized in or under the laws of the United States or
of any political subdivision thereof;
o An estate, the income of which is subject to U.S. federal income
taxation regardless of its source; or
o A trust if a U.S. court is able to exercise primary supervision
over the administration of the trust and one or more U.S. persons
have the authority to control all substantial decisions of the
trust.
For any taxable year for which we qualify for taxation as a REIT,
amounts distributed to, and gains realized by, taxable U.S. shareholders with
respect to our common shares generally will be taxed as described below. For a
summary of the federal income tax treatment of distributions reinvested in
additional shares of our common stock pursuant to our Dividend Reinvestment
Plan, see "Description of Securities - Dividend Reinvestment Plan." For a
summary of the federal income tax treatment of shares redeemed by Fidelity
Dividend Capital under its Share Redemption Program, see "Description of
Securities - Share Redemption Program."
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DISTRIBUTIONS GENERALLY
Distributions to U.S. shareholders, other than capital gain dividends
discussed below, will constitute dividends up to the amount of our current or
accumulated earnings and profits and will be taxable to the shareholders as
ordinary income. These distributions are not eligible for the dividends received
deduction generally available to corporations. To the extent that we make a
distribution in excess of the current and accumulated earnings and profits, the
distribution will be treated first as a tax-free return of capital, reducing the
tax basis in the U.S. shareholder's shares, and the amount of each distribution
in excess of a U.S. shareholder's tax basis in its shares will be taxable as
gain realized from the sale of its shares. Distributions that we declared in
October, November or December of any year payable to a shareholder of record on
a specified date in any of these months will be treated as both paid by us and
received by the shareholder on December 31 of the year, provided that we
actually pays the distribution during January of the following calendar year.
U.S. shareholders may not include any of our losses on their own federal income
tax returns.
We will be treated as having sufficient earnings and profits to treat
as a dividend any distribution by us up to the amount required to be distributed
in order to avoid imposition of the 4% excise tax discussed above. Moreover, any
"deficiency dividend" will be treated as an ordinary or capital gain dividend,
as the case may be, regardless of our earnings and profits. As a result,
shareholders may be required to treat as taxable some distributions that would
otherwise result in a tax-free return of capital.
CAPITAL GAIN DIVIDENDS
Distributions to U.S. shareholders that we properly designate as
capital gain dividends normally will be treated as long-term capital gains, to
the extent they do not exceed our actual net capital gain, for the taxable year
without regard to the period for which the U.S. shareholder has held his stock.
We will generally designate our capital gain dividends as either 20% or 25% rate
distributions. A corporate U.S. shareholder, however, might be required to treat
up to 20% of some capital gain dividends as ordinary income. See "Operational
Requirements - Annual Distribution Requirement" for the treatment by U.S.
shareholders of net long-term capital gains that we elect to retain and pay tax
on.
PASSIVE ACTIVITY LOSS AND INVESTMENT INTEREST LIMITATIONS
Our distributions and any gain you realize from a disposition of our
common shares will not be treated as passive activity income, and shareholders
may not be able to utilize any of their "passive losses" to offset this income
in their personal tax returns. Our distributions (to the extent they do not
constitute a return of capital) will generally be treated as investment income
for purposes of the limitations on the deduction of investment interest. Net
capital gain from a disposition of shares and capital gain dividends generally
will be included in investment income for purposes of the investment interest
deduction limitations only if, and to the extent, you so elect, in which case
those capital gains will be taxed as ordinary income.
CERTAIN DISPOSITIONS OF OUR COMMON SHARES
In general, any gain or loss realized upon a taxable disposition of our
common shares by a U.S. shareholder who is not a dealer in securities will be
treated as long-term capital gain or loss if the shares have been held for more
than 12 months and as short-term capital gain or loss if the shares have been
held for 12 months or less. If, however, a U.S. shareholder has included in
income any capital gains dividends with respect to the shares, any loss realized
upon a taxable disposition of shares held for six months or less, to the extent
of the capital gains dividends included in income with respect to the shares,
will be treated as long-term capital loss.
INFORMATION REPORTING REQUIREMENT AND BACKUP WITHHOLDING FOR U.S.
SHAREHOLDERS
We will report to U.S. shareholders of our common shares and to the
Internal Revenue Service the amount of distributions made or deemed made during
each calendar year and the amount of tax withheld, if any. Under some
circumstances, U.S. shareholders may be subject to backup withholding on
payments made with respect to, or cash proceeds of a sale or exchange of, our
shares. Backup withholding will apply only if the shareholder:
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o Fails to furnish its taxpayer identification number (which, for
an individual, would be his or her Social Security number);
o Furnishes an incorrect taxpayer identification number;
o Is notified by the Internal Revenue Service that the shareholder
has failed properly to report payments of interest or dividends;
or
o Under some circumstances, fails to certify, under penalties of
perjury, that it has furnished a correct taxpayer identification
number and has not been notified by the Internal Revenue Service
that the shareholder is subject to backup withholding for failure
to report interest and dividend payments or has been notified by
the Internal Revenue Service that the shareholder is no longer
subject to backup withholding for failure to report those
payments.
Backup withholding will not apply with respect to payments made to some
shareholders, such as corporations and tax-exempt organizations. Backup
withholding is not an additional tax. Rather, the amount of any backup
withholding with respect to a payment to a U.S. shareholder will be allowed as a
credit against the U.S. shareholder's United States federal income tax liability
and may entitle the U.S. shareholder to a refund, provided that the required
information is furnished to the Internal Revenue Service. U.S. shareholders
should consult their own tax advisors regarding their qualification for
exemption from backup withholding and the procedure for obtaining an exemption.
TREATMENT OF TAX-EXEMPT SHAREHOLDERS
Tax-exempt entities including employee pension benefit trusts and
individual retirement accounts generally are exempt from United States federal
income taxation. These entities are subject to taxation, however, on any
"unrelated business taxable income" ("UBTI"), as defined in the Internal Revenue
Code. The Internal Revenue Service has issued a published ruling that dividend
distributions from a REIT to a tax-exempt pension trust did not constitute UBTI.
Although rulings are merely interpretations of law by the Internal Revenue
Service and may be revoked or modified, based on this analysis, indebtedness
incurred by us or by the Partnership in connection with the acquisition of a
property should not cause any income derived from the property to be treated as
UBTI upon the distribution of those amounts as dividends to a tax-exempt U.S.
shareholder of our common shares. A tax-exempt entity that incurs indebtedness
to finance its purchase of our common shares, however, will be subject to UBTI
under the debt-financed income rules. However, social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts and qualified
group legal services plans that are exempt from taxation under specified
provisions of the Internal Revenue Code are subject to different UBTI rules,
which generally will require them to treat dividend distributions from Fidelity
Dividend Capital as UBTI. These organizations are urged to consult their own tax
advisor with respect to the treatment of our distributions to them.
In addition, tax-exempt pension and specified other tax-exempt trusts
that hold more than 10 percent by value of the shares of a REIT may be required
to treat a specified percentage of REIT dividends as UBTI. This requirement
applies only if our qualification as a REIT depends upon the application of a
look-through exception to the closely held restriction and we are considered to
be predominantly held by those tax-exempt trusts. It is not anticipated that our
qualification as a REIT will depend upon application of the look-through
exception or that we will be predominantly held by these types of trusts.
SPECIAL TAX CONSIDERATIONS FOR NON-U.S. SHAREHOLDERS
The rules governing United States federal income taxation of
non-resident alien individuals, foreign corporations, foreign partnerships and
other foreign stockholders (collectively, "Non-U.S. shareholders") are complex.
The following discussion is intended only as a summary of these rules. Non-U.S.
shareholders should consult with their own tax advisors to determine the impact
of United States federal, state and local income tax laws on an investment in
our shares, including any reporting requirements as well as the tax treatment of
the investment under the tax laws of their home country.
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INCOME EFFECTIVELY CONNECTED WITH A UNITED STATES TRADE OR BUSINESS
In general, Non-U.S. shareholders will be subject to regular United
States federal income taxation with respect to their investment in our shares,
if the income derived there from is "effectively connected" with the Non-U.S.
shareholder's conduct of a trade or business in the United States. A corporate
Non-U.S. shareholder that receives income that is (or is treated as) effectively
connected with a United States trade or business also may be subject to a branch
profits tax under section 884 of the Internal Revenue Code, which is payable in
addition to the regular United States federal corporate income tax.
The following discussion will apply to Non-U.S. shareholders whose
income derived from ownership of our shares is deemed to be not "effectively
connected" with a United States trade or business.
DISTRIBUTIONS NOT ATTRIBUTABLE TO GAIN FROM THE SALE OR EXCHANGE OF A
UNITED STATES REAL PROPERTY INTEREST
A distribution to a Non-U.S. shareholder that is not attributable to
the gain realized by us from the sale or exchange of a United States real
property interest and that we do not designate as a capital gain dividend will
be treated as an ordinary income dividend to the extent that it is made out of
our current or accumulated earnings and profits. Generally, any ordinary income
dividend will be subject to a United States federal income withholding tax equal
to 30% of the gross amount of the distribution unless this tax is reduced or
eliminated by the provisions of an applicable tax treaty. A distribution in
excess of our earnings and profits will be treated first as a return of capital
that will reduce a Non-U.S. shareholder's basis in our shares (but not below
zero) and then as gain from the disposition of those shares, the tax treatment
of which is described under the rules discussed below with respect to sales of
shares.
We normally intend to withhold United States income tax on these
ordinary dividends at the rate of 30% on the gross amount of any distribution
paid to a Non-U.S. shareholder, unless the shareholder provides us with an
Internal Revenue Service Form W-8BEN evidencing eligibility for a reduced treaty
rate or an Internal Revenue Service Form W-8ECI claiming that such distribution
constitutes effectively connected income.
DISTRIBUTIONS ATTRIBUTABLE TO GAIN FROM THE SALE OR EXCHANGE OF A
UNITED STATES REAL PROPERTY INTEREST
Distributions to a Non-U.S. shareholder that are attributable to gain
from the sale or exchange of a United States real property interest will be
taxed to a Non-U.S. shareholder under Internal Revenue Code provisions enacted
by the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under
FIRPTA, these distributions are taxed to a Non-U.S. shareholder as if the
distributions were gains "effectively connected" with a United States trade or
business. Accordingly, a Non-U.S. shareholder will be taxed at the normal
capital gain rates applicable to a U.S. shareholder (subject to any applicable
alternative minimum tax and a special alternative minimum tax in the case of
non-resident alien individuals). Distributions subject to FIRPTA also may be
subject to a 30% branch profits tax when made to a corporate Non-U.S.
shareholder that is not entitled to a treaty reduction or exemption.
WITHHOLDING OBLIGATIONS WITH RESPECT TO DISTRIBUTIONS TO NON-U.S.
SHAREHOLDERS
Although tax treaties may reduce our withholding obligations, based on
current law, we will generally be required to withhold from distributions to
Non-U.S. shareholders, and remit to the Internal Revenue Service:
o 35% of designated capital gain dividends or, if greater, 35% of
the amount of any distributions that could be designated as
capital gain dividends; and
o 30% of ordinary dividends paid out of our earnings and profits.
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In addition, if we designate prior distributions as capital gain
dividends, subsequent distributions, up to the amount of the prior distributions
not withheld against, will be treated as capital gain dividends for purposes of
withholding. A distribution in excess of our earnings and profits will be
subject to 30% withholding if at the time of the distribution it cannot be
determined whether the distribution will be in an amount in excess of our
current or accumulated earnings and profits. If the amount of tax we withhold
with respect to a distribution to a Non-U.S. shareholder exceeds the
shareholder's United States tax liability with respect to that distribution, the
Non-U.S. shareholder may file a claim with the Internal Revenue Service for a
refund of the excess.
SALE OF FIDELITY DIVIDEND CAPITAL SHARES BY A NON-U.S. SHAREHOLDER
A sale of our shares by a Non-U.S. shareholder will generally not be
subject to United States federal income taxation unless our shares constitute a
"United States real property interest" within the meaning of FIRPTA or the gain
from the sale is effectively connected with the conduct of a United States trade
or business of the Non-U.S. shareholder. Our shares will not constitute a United
States real property interest if we are a "domestically controlled REIT." A
"domestically controlled REIT" is a REIT that at all times during a specified
testing period has less than 50% in value of its shares held directly or
indirectly by Non-U.S. shareholders. We currently anticipate that we will be a
domestically controlled REIT. Therefore, sales of our shares should not be
subject to taxation under FIRPTA. However, we cannot assure you that we will
continue to be a domestically controlled REIT. If we were not a domestically
controlled REIT, whether a Non-U.S. shareholder's sale of our shares would be
subject to tax under FIRPTA as a sale of a United States real property interest
would depend on whether our shares were "regularly traded" on an established
securities market and on the size of the selling shareholder's interest in us .
Our shares currently are not "regularly traded" on an established securities
market.
If the gain on the sale of shares were subject to taxation under
FIRPTA, a Non-U.S. shareholder would be subject to the same treatment as a U.S.
shareholder with respect to the gain, subject to any applicable alternative
minimum tax and a special alternative minimum tax in the case of non-resident
alien individuals. In addition, distributions that are treated as gain from the
disposition of shares and are subject to tax under FIRPTA also may be subject to
a 30% branch profits tax when made to a corporate Non-U.S. shareholder that is
not entitled to a treaty exemption. Under FIRPTA, the purchaser of our shares
may be required to withhold 10% of the purchase price and remit this amount to
the Internal Revenue Service. Even if not subject to FIRPTA, capital gains will
be taxable to a Non-U.S. shareholder if the Non-U. S. shareholder is a
non-resident alien individual who is present in the United States for 183 days
or more during the taxable year and some other conditions apply, in which case
the non-resident alien individual will be subject to a 30% tax on his or her
U.S. source capital gains.
INFORMATION REPORTING REQUIREMENTS AND BACK WITHHOLDING FOR NON-U.S.
SHAREHOLDERS
Non-U.S. shareholders should consult their tax advisors with regard to
U.S. information reporting and backup withholding requirements under the
Internal Revenue Code.
STATEMENT OF STOCK OWNERSHIP
We are required to demand annual written statements from the record
holders of designated percentages of our shares disclosing the actual owners of
the shares. Any record shareholder who, upon our request, does not provide us
with required information concerning actual ownership of the shares is required
to include specified information relating to his shares in his federal income
tax return. We also must maintain, within the Internal Revenue District in which
we are required to file our federal income tax return, permanent records showing
the information we have received about the actual ownership of our shares and a
list of those persons failing or refusing to comply with our demand.
STATE AND LOCAL TAXATION
We and any operating subsidiaries we may form may be subject to state
and local tax in states and localities in which they or we do business or owns
property. The tax treatment of Fidelity Dividend Capital, the Partnership, any
operating subsidiaries, joint ventures or other arrangements we or the
Partnership may form or enter into and the tax treatment of the holders of our
shares in local jurisdictions may differ from the federal income tax treatment
described above. Consequently, prospective shareholders should consult their own
tax advisors regarding the effect of state and local tax laws on their
investment in our common stock.
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FEDERAL INCOME TAX ASPECTS OF OUR OPERATING PARTNERSHIP
The following discussion summarizes certain federal income tax
considerations applicable to our investment in the Partnership, our operating
partnership. The discussion does not cover state or local tax laws or any
federal tax laws other than income tax laws.
CLASSIFICATION AS A PARTNERSHIP
We will be entitled to include in our income a distributive share of
the Partnership's income and to deduct our distributive share of the
Partnership's losses only if the Partnership is classified for federal income
tax purposes as a partnership, rather than as a corporation or an association
taxable as a corporation. Under applicable Treasury Regulations (the
"Check-the-Box-Regulations"), an unincorporated domestic entity with at least
two members may elect to be classified either as an association taxable as a
corporation or as a partnership. If the entity fails to make an election, it
generally will be treated as a partnership for federal income tax purposes. The
Partnership intends to be classified as a partnership for federal income tax
purposes and will not elect to be treated as an association taxable as a
corporation under the Check-the-Box-Regulations.
Even though the Partnership will not elect to be treated as an
association for federal income tax purposes, it may be taxed as a corporation if
it is deemed to be a "publicly traded partnership." A publicly traded
partnership is a partnership whose interests are traded on an established
securities market or are readily tradable on a secondary market or the
substantial equivalent thereof; provided, that even if the foregoing
requirements are met, a publicly traded partnership will not be treated as a
corporation for federal income tax purposes if at least 90% of the partnership's
gross income for each taxable year consists of "qualifying income" under section
7704(d) of the Internal Revenue Code. Qualifying income generally includes any
income that is qualifying income for purposes of the 95% Income Test applicable
to REITs (90% Passive-Type Income Exception). (See "Requirements for
Qualification as a REIT -- Operational Requirements - Gross Income Tests").
Under applicable Treasury Regulations the ("PTP Regulations"), limited
safe harbors from the definition of a publicly traded partnership are provided.
Pursuant to one of those safe harbors (the "Private Placement Exclusion"),
interests in a partnership will not be treated as readily tradable on a
secondary market or the substantial equivalent thereof if (i) all interests in
the partnership were issued in a transaction (or transactions) that were not
required to be registered under the Securities Act of 1933, as amended, and (ii)
the partnership does not have more than 100 partners at any time during the
partnership's taxable year. In determining the number of partners in a
partnership, a person owning an interest in a flow-through entity (including a
partnership, grantor trust or S corporation) that owns an interest in the
partnership is treated as a partner in such partnership only if (a)
substantially all of the value of the owner's interest in the flow-through
entity is attributable to the flow-through entity's direct or indirect interest
in the partnership and (b) a principal purpose of the use of the flow-through
entity is to permit the partnership to satisfy the 100 partner limitation. The
Partnership presently qualifies for the Private Placement Exclusion. Even if the
Partnership were considered a publicly traded partnership under the PTP
Regulations because it was deemed to have more than 100 partners, the
Partnership should not be treated as a corporation because it should be eligible
for the 90% Passive-Type Income Exception described above.
We have not requested, and do not intend to request, a ruling from the
Internal Revenue Service that the Partnership will be classified as a
partnership for federal income tax purposes. If for any reason the Partnership
were taxable as a corporation, rather than a partnership, for federal income tax
purposes, we would not be able to qualify as a REIT. (See Requirements for
Qualification as a REIT -- Operational Requirements - Gross Income Tests" and
"Requirements for Qualification as a REIT - -- Operational Requirements - Asset
Tests.") In addition, any change in the Partnership's status for tax purposes
might be treated as a taxable event, in which case we might incur a tax
liability without any related cash distribution. Further, items of income and
deduction of the Partnership would not pass through to its partners, and its
partners would be treated as shareholders for tax purposes. The Partnership
would be required to pay income tax at corporate tax rates on its net income,
and distributions to its partners would constitute dividends that would not be
deductible in computing the Partnership's taxable income.
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INCOME TAXATION OF FIDELITY DIVIDEND CAPITAL OPERATING PARTNERSHIP AND
ITS PARTNERS
PARTNERS, NOT PARTNERSHIP, SUBJECT TO TAX. A partnership is not a
taxable entity for federal income tax purposes. As a partner in the Partnership,
we will be required to take into account our allowable share of the
Partnership's income, gains, losses, deductions, and credits for any taxable
year of the Partnership ending within or with our taxable year, without regard
to whether we have received or will receive any distributions from the
Partnership.
PARTNERSHIP ALLOCATIONS. Although a partnership agreement generally
determines the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes under section 704(b) of the Internal
Revenue Code if they do not comply with the provisions of section 704(b) of the
Internal Revenue Code and the Treasury Regulations promulgated thereunder. If an
allocation is not recognized for federal income tax purposes, the item subject
to the allocation will be reallocated in accordance with the partner's interests
in the partnership, which will be determined by taking into account all of the
facts and circumstances relating to the economic arrangement of the partners
with respect to such item. The Partnership's allocations of taxable income and
loss are intended to comply with the requirements of section 704(b) of the
Internal Revenue Code and the Treasury Regulations promulgated thereunder.
TAX ALLOCATIONS WITH RESPECT TO CONTRIBUTED PROPERTIES. Pursuant to
section 704(c) of the Internal Revenue Code, income, gain, loss, and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership must be allocated for
federal income tax purposes in a manner such that the contributor is charged
with, or benefits from, the unrealized gain or unrealized loss associated with
the property at the time of the contribution. The amount of unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the adjusted
tax basis of such property at the time of contribution. Under applicable
Treasury Regulations, partnerships are required to use a "reasonable method" for
allocating items subject to section 704(c) of the Internal Revenue Code and
several reasonable allocation methods are described therein.
Under the partnership agreement, subject to exceptions applicable to
the special limited partnership interests, depreciation or amortization
deductions of the Partnership generally will be allocated among the partners in
accordance with their respective interests in the Partnership, except to the
extent that the Partnership is required under section 704(c) to use a different
method for allocating depreciation deductions attributable to its properties. In
addition, gain or loss on the sale of a property that has been contributed to
the Partnership will be specially allocated to the contributing partner to the
extent of any built-in gain or loss with respect to the property for federal
income tax purposes. It is possible that we may (1) be allocated lower amounts
of depreciation deductions for tax purposes with respect to contributed
properties than would be allocated to us if each such property were to have a
tax basis equal to its fair market value at the time of contribution, and (2) be
allocated taxable gain in the event of a sale of such contributed properties in
excess of the economic profit allocated to us as a result of such sale. These
allocations may cause us to recognize taxable income in excess of cash proceeds
received by us, which might adversely affect our ability to comply with the REIT
distribution requirements, although we do not anticipate that this event will
occur. The foregoing principles also will affect the calculation of our earnings
and profits for purposes of determining the portion of our distributions that
are taxable as a dividend. The allocations described in this paragraph may
result in a higher portion of our distributions being taxed as a dividend than
would have occurred had we purchased such properties for cash.
BASIS IN PARTNERSHIP INTEREST. The adjusted tax basis of our
partnership interest in the Partnership generally will be equal to (1) the
amount of cash and the basis of any other property contributed to the
Partnership by us, (2) increased by (A) our allowable share of the Partnership's
income and (B) our allowable share of indebtedness of the Partnership, and (3)
reduced, but not below zero, by (A) its allowable share of the Partnership's
loss and (B) the amount of cash distributed to us, including constructive cash
distributions resulting from a reduction in our share of indebtedness of the
Partnership. If the allocation of our distributive share of the Partnership's
loss would reduce the adjusted tax basis of our partnership interest in the
Partnership below zero, the recognition of the loss will be deferred until such
time as the recognition of the loss would not reduce our adjusted tax basis
below zero. If a distribution from the Partnership or a reduction in our share
of the Partnership's liabilities would reduce our adjusted tax basis below zero,
that distribution, including a constructive distribution, will constitute
taxable income to us. The gain realized by us upon the receipt of any such
distribution or constructive distribution would normally be characterized as
capital gain, and if our partnership interest in the Partnership has been held
for longer than the long-term capital gain holding period (currently one year),
the distribution would constitute long-term capital gain.
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DEPRECIATION DEDUCTIONS AVAILABLE TO THE PARTNERSHIP. The Partnership
will use a portion of contributions made by Fidelity Dividend Capital Inc from
offering proceeds to acquire interests in properties. To the extent that the
Partnership acquires properties for cash, the Partnership's initial basis in
such properties for federal income tax purposes generally will be equal to the
purchase price paid by the Partnership. The Partnership plans to depreciate each
depreciable property for federal income tax purposes under the alternative
depreciation system of depreciation ("ADS"). Under ADS, the Partnership
generally will depreciate buildings and improvements over a 40-year recovery
period using a straight-line method and a mid-month convention and will
depreciate furnishings and equipment over a 12-year recovery period. To the
extent that the Partnership acquires properties in exchange for units of the
Partnership, the Partnership's initial basis in each such property for federal
income tax purposes should be the same as the transferor's basis in that
property on the date of acquisition by the Partnership. Although the law is not
entirely clear, the Partnership generally intends to depreciate such depreciable
property for federal income tax purposes over the same remaining useful lives
and under the same methods used by the transferors.
SALE OF THE OPERATING PARTNERSHIP'S PROPERTY. Generally, any gain
realized by the Partnership on the sale of property held for more than one year
will be long-term capital gain, except for any portion of such gain that is
treated as depreciation or cost recovery recapture. Our share of any gain
realized by the Partnership on the sale of any property held by the Partnership
as inventory or other property held primarily for sale to customers in the
ordinary course of the Partnership's trade or business will be treated as income
from a prohibited transaction that is subject to a 100% penalty tax. We,
however, do not presently intend to acquire or hold or allow the Partnership to
acquire or hold any property that represents inventory or other property held
primarily for sale to customers in the ordinary course of our or the
Partnership's trade or business.
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ERISA CONSIDERATIONS
The following is a summary of some non-tax considerations associated
with an investment in our shares by a qualified employee pension benefit plan or
an IRA. This summary is based on provisions of ERISA and the Internal Revenue
Code, as amended through the date of this prospectus, and relevant regulations
and opinions issued by the Department of Labor and the Internal Revenue Service.
We cannot assure you that adverse tax decisions or legislative, regulatory or
administrative changes, which would significantly modify the statements
expressed herein, will not occur. Any such changes may or may not apply to
transactions entered into prior to the date of their enactment. Each fiduciary
of an employee pension benefit plan subject to ERISA, such as a profit sharing,
section 401(k) or pension plan, or of any other retirement plan or account
subject to Section 4975 of the Internal Revenue Code, such as an IRA
(collectively, Benefit Plans), seeking to invest plan assets in our shares must,
taking into account the facts and circumstances of such Benefit Plan, consider,
among other matters:
o Whether the investment is consistent with the applicable
provisions of ERISA and the Internal Revenue Code;
o Whether, under the facts and circumstances attendant to the
Benefit Plan in question, the fiduciary's responsibility to the
plan has been satisfied;
o Whether the investment will produce UBTI to the Benefit Plan (see
"Federal Income Tax Considerations - - Treatment of Tax-Exempt
Shareholders"); and
o The need to value the assets of the Benefit Plan annually. Under
ERISA, a plan fiduciary's responsibilities include the following
duties:
o To act solely in the interest of plan participants and
beneficiaries and for the exclusive purpose of providing benefits
to them, as well as defraying reasonable expenses of plan
administration;
o To invest plan assets prudently;
o To diversify the investments of the plan unless it is clearly
prudent not to do so;
o To ensure sufficient liquidity for the plan; and
o To consider whether an investment would constitute or give rise
to a prohibited transaction under ERISA or the Internal Revenue
Code.
ERISA also requires that the assets of an employee benefit plan be held
in trust and that the trustee, or a duly authorized named fiduciary or
investment manager, have exclusive authority and discretion to manage and
control the assets of the plan. Section 406 of ERISA and Section 4975 of the
Internal Revenue Code prohibit specified transactions involving the assets of a
Benefit Plan, which are between the plan and any "party in interest" or
"disqualified person" with respect to that Benefit Plan. These transactions are
prohibited regardless of how beneficial they may be for the Benefit Plan.
Prohibited transactions include the sale, exchange or leasing of property, the
lending of money or the extension of credit between a Benefit Plan and a party
in interest or disqualified person, and the transfer to, or use by, or for the
benefit of, a party in interest, or disqualified person, of any assets of a
Benefit Plan. A fiduciary of a Benefit Plan also is prohibited from engaging in
self-dealing, acting for a person who has an interest adverse to the plan or
receiving any consideration for its own account from a party dealing with the
plan in a transaction involving plan assets. Furthermore, Section 408 of the
Internal Revenue Code states that assets of an IRA trust may not be commingled
with other property except in a common trust fund or common investment fund.
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PLAN ASSET CONSIDERATIONS
In order to determine whether an investment in our shares by Benefit
Plans creates or gives rise to the potential for either prohibited transactions
or the commingling of assets referred to above, a fiduciary must consider
whether an investment in our shares will cause our assets to be treated as
assets of the investing Benefit Plans. Neither ERISA nor the Internal Revenue
Code define the term "plan assets," however, U.S. Department of Labor
Regulations provide guidelines as to whether, and under what circumstances, the
underlying assets of an entity will be deemed to constitute assets of a Benefit
Plan when the plan invests in that entity (the Plan Assets Regulation). Under
the Plan Assets Regulation, the assets of corporations, partnerships or other
entities in which a Benefit Plan makes an equity investment will generally be
deemed to be assets of the Benefit Plan unless the entity satisfies one of the
exceptions to this general rule.
In the event that our underlying assets were treated by the Department
of Labor as the assets of investing Benefit Plans, our management would be
treated as fiduciaries with respect to each Benefit Plan shareholder, and an
investment in our shares might constitute an ineffective delegation of fiduciary
responsibility to the Advisor, and expose the fiduciary of the Benefit Plan to
co-fiduciary liability under ERISA for any breach by the Advisor of the
fiduciary duties mandated under ERISA. Further, if our assets are deemed to be
"plan assets," an investment by an IRA in our shares might be deemed to result
in an impermissible commingling of IRA assets with other property.
If our Advisor or affiliates of our Advisor were treated as fiduciaries
with respect to Benefit Plan shareholders, the prohibited transaction
restrictions of ERISA and the Internal Revenue Code would apply to any
transaction involving our assets. These restrictions could, for example, require
that we avoid transactions with entities that are affiliated with us or our
affiliates or restructure our activities in order to obtain an administrative
exemption from the prohibited transaction restrictions. Alternatively, we might
have to provide Benefit Plan shareholders with the opportunity to sell their
shares to us or we might dissolve or terminate. If a prohibited transaction were
to occur, the Internal Revenue Code imposes an excise tax equal to 15% of the
amount involved and authorizes the IRS to impose an additional 100% excise tax
if the prohibited transaction is not "corrected." These taxes would be imposed
on any disqualified person who participates in the prohibited transaction. In
addition, the Advisor and possibly other fiduciaries of Benefit Plan
shareholders subject to ERISA who permitted the prohibited transaction to occur
or who otherwise breached their fiduciary responsibilities, or a non-fiduciary
participating in a prohibited transaction, could be required to restore to the
Benefit Plan any profits they realized as a result of the transaction or breach,
and make good to the Benefit Plan any losses incurred by the Benefit Plan as a
result of the transaction or breach. With respect to an IRA that invests in our
shares, the occurrence of a prohibited transaction involving the individual who
established the IRA, or his or her beneficiary, would cause the IRA to lose its
tax-exempt status under Section 408(e)(2) of the Internal Revenue Code.
The Plan Assets Regulation provides that the underlying assets of REITs
will not be treated as assets of a Benefit Plan investing therein if the
interest the Benefit Plan acquires is a "publicly-offered security." A
publicly-offered security must be:
o Sold as part of a public offering registered under the Securities
Act of 1933, as amended, and be part of a class of securities
registered under the Securities Exchange Act of 1934, as amended,
within 120 days (or such later time as may be allowed by the
Securities and Exchange Commission) after the end of the fiscal
year in which the initial closing under this offering occurs;
o "Widely held," i.e., part of a class of securities that is owned
by 100 or more persons who are independent of the issuer and one
another; and
o "Freely transferable."
Our shares are being sold as part of an offering of securities to the
public pursuant to an effective registration statement under the Securities Act,
and are part of a class registered under the Securities Exchange Act. In
addition, we expect to have over 100 independent shareholders as of the initial
closing under this offering, such that our shares will be "widely held." Whether
a security is "freely transferable" depends upon the particular facts and
circumstances. Our shares are subject to certain restrictions on transferability
intended to ensure that we continue to qualify for federal income tax treatment
as a REIT. The regulation provides, however, that where the minimum investment
in a public offering of securities is $10,000 or less, the presence of a
restriction on transferability intended to prohibit transfers which would result
in a
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termination or reclassification of the entity for state or federal tax purposes
will not ordinarily affect a determination that such securities are freely
transferable. The minimum investment in our shares is less than $10,000; thus,
the restrictions imposed in order to maintain our status as a REIT should not
cause the shares to be deemed not freely transferable.
Assuming that our shares will be "widely held," that no other facts and
circumstances other than those referred to in the preceding paragraph exist that
restrict transferability of our shares and the offering takes place as described
in this prospectus, our shares more likely than not constitute "publicly-offered
securities" and, accordingly, it is more likely than not that our underlying
assets should not be considered "plan assets" under the Plan Assets Regulation.
If our underlying assets are not deemed to be "plan assets," the issues
discussed in the second and third paragraphs of this "Plan Assets
Considerations" section are not expected to arise.
OTHER PROHIBITED TRANSACTIONS
Regardless of whether the shares qualify for the "publicly-offered
security" exception of the Plan Assets Regulation, a prohibited transaction
could occur if Fidelity Dividend Capital Inc, the Advisor, any selected dealer
or any of their affiliates is a fiduciary (within the meaning of Section 3(21)
of ERISA) with respect to any Benefit Plan purchasing the shares. Accordingly,
unless an administrative or statutory exemption applies, a Benefit Plan with
respect to which any of the above persons is a fiduciary should not purchase
shares. A person is a fiduciary with respect to a Benefit Plan under Section
3(21) of ERISA if, among other things, the person has discretionary authority or
control with respect to "plan assets" or provides investment advice for a fee
with respect to "plan assets." Under a regulation issued by the Department of
Labor, a person shall be deemed to be providing investment advice if that person
renders advice as to the advisability of investing in our shares and that person
regularly provides investment advice to the Benefit Plan pursuant to a mutual
agreement or understanding (written or otherwise) (1) that the advice will serve
as the primary basis for investment decisions, and (2) that the advice will be
individualized for the Benefit Plan based on its particular needs.
ANNUAL VALUATION
A fiduciary of an employee benefit plan subject to ERISA is required to
determine annually the fair market value of each asset of the plan as of the end
of the plan's fiscal year and to file a report reflecting that value with the
Department of Labor. When the fair market value of any particular asset is not
available, the fiduciary is required to make a good faith determination of that
asset's "fair market value" assuming an orderly liquidation at the time the
determination is made. In addition, a trustee or custodian of an IRA must
provide an IRA participant with a statement of the value of the IRA each year.
In discharging its obligation to value assets of a plan, a fiduciary
subject to ERISA must act consistently with the relevant provisions of the plan
and the general fiduciary standards of ERISA. Unless and until our shares are
listed on a national securities exchange or are included for quotation on
Nasdaq, it is not expected that a public market for the shares will develop. To
date, neither the Internal Revenue Service nor the Department of Labor has
promulgated regulations specifying how a plan fiduciary should determine the
"fair market value" of the shares, namely when the fair market value of the
shares is not determined in the marketplace. Therefore, to assist fiduciaries in
fulfilling their valuation and annual reporting responsibilities with respect to
ownership of shares, we intend to provide reports of our annual determinations
of the current value of our net assets per outstanding share to those
fiduciaries (including IRA trustees and custodians) who identify themselves to
us and request the reports.
For so long as we are offering shares pursuant to this prospectus at a
price of $10 per share, we intend to use the offering price of shares as the per
share net asset value. Beginning with the year 2005, the value of the properties
and our other assets will be based on a valuation. A person independent of us
and of the Advisor will perform such valuation.
We anticipate that we will provide annual reports of our determination
of value (1) to IRA trustees and custodians not later than January 15 of each
year, and (2) to other Benefit Plan fiduciaries within 75 days after the end of
each calendar year. Each determination may be based upon valuation information
available as of October 31 of the preceding year, up-dated, however, for any
material changes occurring between October 31 and December 31.
We intend to revise these valuation procedures to conform with any
relevant guidelines that the Internal Revenue Service or the Department of Labor
may hereafter issue. Meanwhile, we cannot assure you:
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o That the value determined by us could or will actually be
realized by us or by shareholders upon liquidation (in part
because appraisals or estimated values do not necessarily
indicate the price at which assets could be sold and because no
attempt will be made to estimate the expenses of selling any of
our assets);
o That shareholders could realize this value if they were to
attempt to sell their shares; or
o That the value, or the method used to establish value, would
comply with the ERISA or IRA requirements described above.
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DESCRIPTION OF SECURITIES
The following description of the shares is not complete but is a
summary of portions of our Articles of Incorporation and is qualified in its
entirety by reference to the Articles of Incorporation. Under our Articles of
Incorporation, we have authority to issue a total of 500,000,000 shares of
capital stock. Of the total shares authorized, 350,000,000 shares are designated
as common stock with a par value of $0.001 per share, 50,000,000 shares is
designated as preferred stock and 100,000,000 shares are designated as
shares-in-trust, which would be issued only in the event that there is a
purported transfer of, or other change in or affecting the ownership of, our
shares that would result in a violation of the ownership described below. As of
the date of this prospectus, 57,000,000 shares of Fidelity Dividend Capital
common stock were issued and outstanding, and no shares of preferred stock were
issued and outstanding.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all
matters voted on by shareholders, including election of our Directors. Our
Articles of Incorporation do not provide for cumulative voting in the election
of Directors. Therefore, the holders of a majority of the outstanding common
shares can elect our entire Board of Directors. Subject to any preferential
rights of any outstanding series of preferred stock and to the distribution of
specified amounts upon liquidation with respect to shares-in-trust, the holders
of common stock are entitled to such dividends as may be declared from time to
time by our Board of Directors out of legally available funds and, upon
liquidation, are entitled to receive all assets available for distribution to
shareholders. All shares issued in the offering will be fully paid and
non-assessable shares of common stock. Holders of shares of common stock will
not have preemptive rights, which means that you will not have an automatic
option to purchase any new shares that we issue.
We will issue certificates for our shares. Old Monmouth Stock Transfer
Co. acts as our registrar and as the transfer agent for our shares. Transfers
can be affected simply by mailing a transfer and assignment form, which we will
provide to you at no charge, to:
Old Monmouth Stock Transfer Co., Inc
200 Memorial Parkway
Atlantic Highlands, New Jersey 07716
PREFERRED STOCK
Our Articles of Incorporation authorize our Board of Directors to
designate and issue one or more classes or series of preferred stock without
stockholder approval. The Board of Directors may determine the relative rights,
preferences and privileges of each class or series of preferred stock so issued,
which may be more beneficial than the rights, preferences and privileges
attributable to the common stock. The issuance of preferred stock could have the
effect of delaying or preventing a change in control of Fidelity Dividend
Capital. Our Board of Directors has no present plans to issue preferred stock,
but may do so at any time in the future without shareholder approval.
SOLICITING DEALER WARRANTS
We will issue to the Dealer Manager one soliciting dealer warrant for
every 25 shares sold during the offering period. These warrants, as well as the
shares issuable upon their exercise, have been registered as part of this
offering. The Dealer Manager may retain or reallow these warrants to
broker-dealers participating in the offering, unless such issuance of soliciting
dealer warrants is prohibited by either federal or state securities laws. The
holder of a soliciting dealer warrant will
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be entitled to purchase one share from Fidelity Dividend Capital at a price of
$12 per share during the period beginning on the first anniversary of the
effective date of this offering and ending five years after the effective date
of this offering. Subject to certain exceptions, a soliciting dealer warrant may
not be transferred, assigned, pledged or hypothecated for a period of one year
following the effective date of this offering. Exercise of the soliciting dealer
warrants is governed by the terms and conditions detailed in this prospectus and
in the Warrant Purchase Agreement, which is an exhibit to the Registration
Statement.
MEETINGS, SPECIAL VOTING REQUIREMENTS AND ACCESS TO RECORDS
An annual meeting of the shareholders will be held each year, at least
30 days after delivery of our annual report. Special meetings of shareholders
may be called only upon the request of the Chairman, the President or upon the
written request of shareholders holding at least 10% of the shares. The presence
of a majority of the outstanding shares either in person or by proxy shall
constitute a quorum. Generally, the affirmative vote of a majority of all votes
entitled to be cast is necessary to take shareholder action authorized by our
Articles of Incorporation, except that a majority of the votes represented in
person or by proxy at a meeting at which a quorum is present is sufficient to
elect a Director.
Under Maryland Corporation Law and our Articles of Incorporation,
shareholders are entitled to vote at a duly held meeting at which a quorum is
present on (1) amendment of our Articles of Incorporation, (2) liquidation or
dissolution of Fidelity Dividend Capital, (3) reorganization of Fidelity
Dividend Capital, (4) merger, consolidation or sale or other disposition of
substantially all of Fidelity Dividend Capital assets, and (5) revocation of our
status as a REIT. Shareholders voting against any merger or sale of assets are
permitted under Maryland Corporation Law to petition a court for the appraisal
and payment of the fair value of their shares. In an appraisal proceeding, the
court appoints appraisers who attempt to determine the fair value of the stock
as of the date of the shareholder vote on the merger or sale of assets. After
considering the appraisers' report, the court makes the final determination of
the fair value to be paid to the dissenting shareholder and decides whether to
award interest from the date of the merger or sale of assets and costs of the
proceeding to the dissenting shareholders.
A shareholder may request a copy of the shareholder list in connection
with matters relating to voting rights and the exercise of shareholder rights
under federal proxy laws.. However, a shareholder shall not have the right to
secure the shareholder list or other information for the purpose of selling or
using the list for a commercial purpose not related to the requesting
shareholder's interest in the affairs of the Company.
RESTRICTION ON OWNERSHIP OF SHARES
In order for us to qualify as a REIT, beginning in 2006 not more than
50% in value of our outstanding shares may be owned, directly or indirectly
through the application of certain attribution rules under the Internal Revenue
Code, by any five or fewer individuals, as defined in the Internal Revenue Code
to include specified entities, during the last half of any taxable year. In
addition, 100 or more persons must own the outstanding shares independent of
each other and us during at least 335 days of a 12-month taxable year or during
a proportionate part of a shorter taxable year, excluding our first taxable year
ending December 31, 2006. In addition, we must meet requirements regarding the
nature of our gross income in order to qualify as a REIT. One of these
requirements is that at least 75% of our gross income for each calendar year
must consist of rents from real property and income from other real property
investments. The rents received by the Partnership from any tenant will not
qualify as rents from real property, which could result in the loss of REIT
status, if we own, actually or constructively within the meaning of certain
provisions of the Internal Revenue Code, 10% or more of the ownership interests
in that tenant. In order to assist us in preserving our status as a REIT, our
Articles of Incorporation contain limitations on ownership and transfer of
shares which, prohibit the beneficial ownership of our outstanding shares by
fewer than 100 persons and prohibit any transfer of or other event or
transaction with respect to our shares that would result in the beneficial
ownership of our outstanding shares by fewer than 100 persons. In addition, our
Articles of Incorporation prohibit, from the date of the first closing of this
offering, any transfer of or other event with respect to its shares that would
cause us to violate the Closely Held Test, or that would cause us to own,
actually or constructively, 9.9% or more of the ownership interests in a tenant
of its real property or the real property of the Partnership or any direct or
indirect subsidiary of the Partnership or that would otherwise cause us to fail
to qualify as a REIT.
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DIVIDENDS
It is the Company's present intention to pay dividends (out of funds
legally available therefore) on a quarterly basis. Dividends will be paid to
investors who are shareholders as of the record dates selected by the Directors.
We currently calculates our quarterly dividends based upon daily record and
dividend declaration dates so our investors will be entitled to be paid
dividends beginning with the quarter in which their shares are purchased. We
then make quarterly dividend payments following the end of each calendar
quarter.
We are required to make distributions sufficient to satisfy the
requirements for qualification as a REIT for federal income tax purposes.
Generally, income distributed will not be taxable to us under the Internal
Revenue Code if we distribute at least 90% of our taxable income each year
(computed without regard to the dividends paid deduction and our net capital
gain). (See "Federal Income Tax Considerations -- Requirements for Qualification
as a REIT" - Operational Requirements-Annual Distribution Requirement.")
Dividends will be declared at the discretion of the Board of Directors, in
accordance with our earnings, cash flow and general financial condition. The
Board's discretion will be directed, in substantial part, by its obligation to
cause us to comply with the REIT requirements. Because we may receive income
from interest or rents at various times during our fiscal year, distributions
may not reflect our income earned in that particular distribution period and may
be made in advance of actual receipt of funds in an attempt to make
distributions relatively uniform. We are authorized to borrow money, issue new
securities or sell assets in order to make distributions.
We are not prohibited from distributing our own securities in lieu of
making cash dividends to shareholders, provided that the securities distributed
to shareholders are readily marketable. The receipt of marketable securities in
lieu of cash dividends may cause shareholders to incur transaction expenses in
liquidating the securities.
DIVIDEND REINVESTMENT PLAN
We currently have a dividend reinvestment plan available that allows
you to have cash otherwise distributable to you invested in additional shares of
Fidelity Dividend Capital. You may purchase shares under the Dividend
Reinvestment Plan for an amount per share equal to the fair market value of the
share on the relevant distribution date including applicable fees and
commissions, less any discounts authorized in the "Plan of Distribution" section
of this prospectus, until all of the shares registered as part of this offering
have been sold. However, Ohio residents who purchase shares under the
distribution reinvestment plan will only be charged the actual expenses
associated with administration of the plan, which expenses will not exceed 2%.
Until there is more than a de minimis amount of trading in our shares, the fair
market value of our common stock purchased from us under the Dividend
Reinvestment Plan will be the same as the price of a share in this offering.
After that time, our Board will estimate the fair market value of our shares by
reference to the applicable sales price in respect of the most recent trades
occurring on or prior to the relevant distribution date. After all the shares
registered as part of this offering have been sold, we may purchase shares
either through purchases on the open market, if a market then exists, or through
an additional issuance of shares. In either case, the price per share will be
equal to the then-prevailing market price, which shall equal the price on the
securities exchange or over-the-counter market on which such shares are listed
at the date of purchase if such shares are then listed. A copy of our Dividend
Reinvestment Plan is included as Appendix B to this prospectus. You may elect to
participate in the Dividend Reinvestment Plan by completing the Subscription
Agreement, the enrollment form or by other written notice to the plan
administrator. Participation in the plan will begin with the next distribution
made after receipt of your written notice. We may terminate the Dividend
Reinvestment Plan for any reason at any time upon 10 days' prior written notice
to participants.
Your participation in the plan will also be terminated to the extent
that a reinvestment of your distributions in our shares would cause the share
ownership limitations contained in Fidelity Dividend Capital's Articles of
Incorporation to be violated.
If you elect to participate in the dividend reinvestment plan and are
subject to United States federal income taxation, you will incur a tax liability
on an amount equal to the fair market value on the relevant distribution date of
the shares of our stock purchased with reinvested distributions, even though you
have elected not to receive the distributions used to purchase those shares in
cash. Under present law, the United States federal income tax treatment of that
amount will be as described with respect to distributions under "Federal Income
Tax Considerations - Taxation of Taxable U.S. Shareholders" in the case of a
taxable U.S. shareholder (as defined therein) and as described under "Federal
Income Tax Considerations -
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Special Tax Considerations for Non-U.S. Shareholders" in the case of a Non-U.S.
Shareholder (as defined therein). However, the tax consequences to you of
participating in our Dividend Reinvestment Plan will vary depending upon your
particular circumstances and you are urged to consult your own tax advisor
regarding the specific tax consequences to you of participation in the plan.
SHARE REDEMPTION PROGRAM
Prior to the time that our shares are listed on a national securities
exchange, shareholders of Fidelity Dividend Capital who have held their shares
for at least one year may receive the benefit of limited interim liquidity by
presenting for redemption all or any portion of their shares to us at any time
in accordance with the procedures outlined herein. At that time, we may, subject
to the conditions and limitations described below, redeem the shares presented
for redemption for cash to the extent that we have sufficient funds available to
fund such redemptions.
If you have held your shares for the required one-year period, you may
redeem your shares for a purchase price equal to the lesser of (1) $10 per
share, or (2) the purchase price per share that you actually paid for your
shares of Fidelity Dividend Capital. In the event that you are redeeming all of
your shares, shares purchased pursuant to our dividend reinvestment plan may be
excluded from the foregoing one-year holding period requirement, in the
discretion of the Board of Directors. In addition, for purposes of the one-year
holding period, limited partners of the Partnership who exchange their limited
partnership units for shares in Fidelity Dividend Capital shall be deemed to
have owned their shares as of the date they were issued their limited
partnership units in the Partnership. The Board of Directors reserves the right
in its sole discretion at any time and from time to time to (1) waive the
one-year holding period in the event of the death or bankruptcy of a shareholder
or other exigent circumstances, (2) reject any request for redemption for any
reason or no reason, (3) change the purchase price for redemptions, or (4)
otherwise amend the terms of our share redemption program.
Redemption of shares, when requested, will be made quarterly on a
first-come, first-served basis. Subject to funds being available, we will limit
the number of shares redeemed pursuant to our share redemption program as
follows: (1) during any calendar year, we will not redeem in excess of three
percent (3.0%) of the weighted average number of shares outstanding during the
prior calendar year; and (2) funding for the redemption of shares will come
exclusively from the proceeds we receive from the sale of shares under our
Dividend Reinvestment Plan such that in no event shall the aggregate amount of
redemptions under our Share Redemption Program exceed aggregate proceeds
received from the sale of shares pursuant to our Dividend Reinvestment Plan. The
Board of Directors, in its sole discretion, may choose to terminate the share
redemption program or to reduce the number of shares purchased under the share
redemption program if it determines the funds otherwise available to fund our
share redemption program are needed for other purposes. (See "Risk Factors -
Investment Risks.")
We cannot guarantee that the funds set aside for the share redemption
program will be sufficient to accommodate all requests made in any year. If we
do not have such funds available, at the time when redemption is requested, you
can (1) withdraw your request for redemption, or (2) ask that we honor your
request at such time, if any, when sufficient funds become available. Such
pending requests will be honored on a first-come, first-served basis.
The share redemption program is only intended to provide possible
interim liquidity for shareholders until a secondary market develops for the
shares. No such market presently exists, and we cannot assure you that any
market for your shares will ever develop.
The shares we purchase under the share redemption program will be
cancelled, and will have the status of authorized, but un-issued shares. We will
not reissue such shares unless they are first registered with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933 and
under appropriate state securities laws or otherwise issued in compliance with
such laws. If we terminate, reduce the scope of or otherwise change the share
redemption program, we will disclose the changes in reports filed with the
Commission.
The federal income tax treatment of shareholders whose shares are
redeemed by us under the share redemption program will depend on whether our
redemption is treated as a payment in exchange for the shares. Redemption
normally
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will be treated as an exchange if the redemption results in a complete
termination of the shareholder's interest in our company, qualifies as
"substantially disproportionate" with respect to the shareholder or is treated
as "not essentially equivalent to a dividend" with respect to the shareholder.
In order for the redemption to be substantially disproportionate, the percentage
of our voting shares considered owned by the shareholder immediately after the
redemption must be less than 80 percent of the percentage of our voting shares
considered owned by the shareholder immediately before the redemption. In order
for the redemption to be treated as not essentially equivalent to a dividend
with respect to the shareholder, the redemption must result in a "meaningful
reduction" in the shareholder's interest in our company. The Internal Revenue
Service has indicated in a published ruling that, in the case of a small
minority holder of a publicly held corporation whose relative stock interest is
minimal and who exercises no control over corporate affairs, a reduction in the
holder's proportionate interest in the corporation from .0001118% to .0001081%
would constitute a meaningful reduction. In determining whether any of these
tests have been met, shares considered to be owned by the shareholder by reason
of applicable constructive ownership rules, as well as the shares actually owned
by the shareholder, normally will be taken into account.
In general, if the redemption is treated as an exchange, the United
States federal income tax treatment of the redemption under present law will be
as described under "Federal Income Tax Considerations - Taxation of Taxable U.S.
Shareholders - Certain Dispositions of our Common Shares" in the case of taxable
U.S. shareholder (as defined therein) and as described under "Federal Income Tax
Considerations - Special Tax Considerations for Non-U.S. Shareholders - - Sale
of our Shares by a Non-U.S. Shareholder" in the case of a Non-U.S. shareholder
(as defined therein) whose income derived from the investment in our shares is
not effectively connected with the Non-U.S. shareholder's conduct of a trade or
business in the United States. If the redemption does not qualify as an exchange
of our shares, the United States federal income tax treatment of the redemption
under present law generally will be as described under "Federal Income Tax
Considerations - Taxation of Taxable U.S. Shareholders - Distributions
Generally" in the case of a taxable U.S. shareholder and as described under
"Federal Income Tax Considerations - Special Tax Considerations for Non-U.S.
Shareholders - Distributions Not Attributable to Gain From the Sale or Exchange
of a United States Real Property Interest" in the case of a Non-U.S. shareholder
whose income derived from the investment in our shares is not effectively
connected with the Non-U.S. shareholder's conduct of a trade or business in the
United States. However, the tax consequences to you of participating in our
share redemption program will vary depending upon your particular circumstances
and you are urged to consult your own tax advisor regarding the specific tax
consequences to you of participation in the share redemption program.
RESTRICTIONS ON ROLL-UP TRANSACTIONS
In connection with any proposed transaction considered a "Roll-up
Transaction" involving Fidelity Dividend Capital and the issuance of securities
of an entity (a "Roll-up Entity") that would be created or would survive after
the successful completion of the Roll-up Transaction, an appraisal of all
properties shall be obtained from a competent independent appraiser. If the
appraisal is included in a prospectus used to offer the securities of the
Roll-up Entity, then the appraisal will be filed with the Securities and
Exchange Commission and state securities administrators as an exhibit to the
registration statement covering the offering. The properties shall be appraised
on a consistent basis, and the appraisal shall be based on the evaluation of all
relevant information and shall indicate the value of the properties as of a date
immediately prior to the announcement of the proposed Roll-up Transaction.
The appraisal shall assume an orderly liquidation of properties over a
12-month period. The terms of the engagement of the independent appraiser shall
clearly state that the engagement is for our benefit and the shareholders. A
summary of the appraisal, indicating all material assumptions underlying the
appraisal, shall be included in a report to shareholders in connection with any
proposed Roll-up Transaction. A "Roll-up Transaction" is a transaction involving
the acquisition, merger, conversion or consolidation, directly or indirectly, of
Fidelity Dividend Capital and the issuance of securities of a Roll-up Entity.
This term does not include:
o A transaction involving our securities that have been for at
least 12 months listed on a national securities exchange or
included for quotation on Nasdaq; or
o A transaction involving the conversion to corporate, trust, or
association form of only Fidelity Dividend Capital if, as a
consequence of the transaction, there will be no significant
adverse change in any of the following: shareholder voting
rights; the term of our existence; compensation to the Advisor;
or our investment objectives.
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In connection with a proposed Roll-up Transaction, the person
sponsoring the Roll-up Transaction must offer to shareholders who vote "no" on
the proposal the choice of: (1) accepting the securities of a Roll-up Entity
offered in the proposed Roll-up Transaction; or (2) one of the following: (A)
remaining as shareholders of Fidelity Dividend Capital and preserving their
interests therein on the same terms and conditions as existed previously, or (B)
receiving cash in an amount equal to the shareholder's pro rata share of the
appraised value of our net assets.
We are prohibited from participating in any proposed Roll-up
Transaction:
o Which would result in the shareholders having democracy rights in
a Roll-up Entity that are less than those provided in our bylaws
and described elsewhere in this prospectus, including rights with
respect to the election and removal of Directors, annual reports,
annual and special meetings, amendment of our Articles of
Incorporation, and dissolution of Fidelity Dividend Capital;
o Which includes provisions that would operate to materially impede
or frustrate the accumulation of shares by any purchaser of the
securities of the Roll-up Entity, except to the minimum extent
necessary to reserve the tax status of the Roll-up Entity, or
which would limit the ability of an investor to exercise the
voting rights of its securities of the Roll-up Entity on the
basis of the number of shares held by that investor;
o In which investor's rights to access of records of the Roll-up
Entity will be less than those provided in the section of this
prospectus entitled "Description of Securities -- Meetings and
Special Voting Requirements;" or
o In which any of the costs of the Roll-up Transaction would be
borne by Fidelity Dividend Capital if the shareholders do not
approve the Roll-up Transaction.
BUSINESS COMBINATIONS
Under Maryland Corporation Law, business combinations between a
Maryland corporation and an interested shareholder or the interested
shareholder's affiliate are prohibited for five years after the most recent date
on which the shareholder becomes an interested shareholder. For this purpose,
the term "business combinations" includes mergers, consolidations, share
exchanges, asset transfers and issuances or reclassifications of equity
securities. An "interested shareholder" is defined for this purpose as: (1) any
person who beneficially owns ten percent or more of the voting power of the
corporation's shares; or (2) an affiliate or associate of the corporation who,
at any time within the two-year period prior to the date in question, was the
beneficial owner of ten percent or more of the voting power of the then
outstanding voting shares of the corporation.
After the five-year prohibition, any business combination between the
corporation and an interested shareholder generally must be recommended by the
board of directors of the corporation and approved by the affirmative vote of at
least: (1) 80% of the votes entitled to be cast by holders of outstanding voting
shares of the corporation; and (2) two-thirds of the votes entitled to be cast
by holders of voting shares of the corporation other than shares held by the
interested shareholder or its affiliate with whom the business combination is to
be effected, or held by an affiliate or associate of the interested shareholder
voting together as a single voting group.
These super-majority vote requirements do not apply if the
corporation's common shareholders receive a minimum price, as defined under
Maryland Corporation Law, for their shares in the form of cash or other
consideration in the same form as previously paid by the interested shareholder
for its shares. None of these provisions of the Maryland Corporation Law will
apply, however, to business combinations that are approved or exempted by the
board of directors of the corporation prior to the time that the interested
shareholder becomes an interested shareholder.
The business combination statute may discourage others from trying to
acquire control of Fidelity Dividend Capital and increase the difficulty of
consummating any offer.
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CONTROL SHARE ACQUISITIONS
Maryland Corporation Law provides that control shares of a Maryland
corporation acquired in a control share acquisition have no voting rights except
to the extent approved by a vote of two-thirds of the votes entitled to be cast
on the matter. Shares owned by the acquirers, or by officers or directors who
are employees of the corporation are not entitled to vote on the matter. As
permitted by Maryland Corporation Law, we have provided in its bylaws that the
control share provisions of Maryland Corporation Law will not apply to
transactions involving Fidelity Dividend Capital, but the Board of Directors
retains the discretion to change this provision in the future. "Control shares"
are voting shares which, if aggregated with all other shares owned by the
acquirers or with respect to which the acquirers has the right to vote or to
direct the voting of, other than solely by virtue of revocable proxy, would
entitle the acquirers to exercise voting power in electing directors within one
of the following ranges of voting powers:
o One-fifth or more but less than one-third;
o One-third or more but less than a majority; or
o A majority or more of all voting power.
Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained shareholder approval.
Except as otherwise specified in the statute, a "control share acquisition"
means the acquisition of control shares. Once a person who has made or proposes
to make a control share acquisition has undertaken to pay expenses and has
satisfied other required conditions, the person may compel the board of
directors to call a special meeting of shareholders to be held within 50 days of
demand to consider the voting rights of the shares. If no request for a meeting
is made, the corporation may itself present the question at any shareholders
meeting.
If voting rights are not approved for the control shares at the meeting
or if the acquiring person does not deliver an "acquiring person statement" for
the control shares as required by the statute, the corporation may redeem any or
all of the control shares for their fair value, except for control shares for
which voting rights have previously been approved. Fair value is to be
determined for this purpose without regard to the absence of voting rights for
the control shares, and is to be determined as of the date of the last control
share acquisition or of any meeting of shareholders at which the voting rights
for control shares are considered and not approved.
If voting rights for control shares are approved at a shareholders
meeting and the acquirers becomes entitled to vote a majority of the shares
entitled to vote, all other shareholders may exercise appraisal rights. The fair
value of the shares as determined for purposes of these appraisal rights may not
be less than the highest price per share paid in the control share acquisition.
Some of the limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired
in a merger, consolidation or share exchange if the corporation is a party to
the transaction or to acquisitions approved or exempted by the articles of
incorporation or bylaws of the corporation.
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THE OPERATING PARTNERSHIP AGREEMENT
GENERAL
Fidelity Dividend Capital Operating Partnership LP (the "Partnership")
was formed in April 2004 to acquire, own and lease properties on our behalf. We
utilize this Umbrella Partnership Real Estate Investment Trust ("UPREIT")
structure generally to enable us to acquire real property in exchange for
limited partnership interests in the Partnership from owners who desire to defer
taxable gain that would otherwise normally be recognized by them upon the
disposition of their property or the transfer of their property to us in
exchange for our shares or cash. These owners may also desire to achieve
diversity in their investment and other benefits afforded to owners of stock in
a REIT. For purposes of satisfying the Asset and Income Tests for qualification
as a REIT for federal income tax purposes, the REIT's proportionate share of the
assets and income of the Partnership will be deemed to be assets and income of
the REIT.
The property owner's goals are accomplished because the owner may
contribute property to the Partnership in exchange for limited partnership units
on a tax-free basis. Further, the Partnership is structured to make
distributions with respect to regular limited partnership units, which are
equivalent to the dividend distributions made to shareholders of Fidelity
Dividend Capital. Finally, a limited partner in the Partnership may later
exchange his regular limited partnership units for shares of Fidelity Dividend
Capital (in a taxable transaction) and, if our shares are then listed, achieve
liquidity for his investment.
We intend to hold substantially all of our assets in the Partnership or
in subsidiary entities in which the Partnership owns an interest, and we intend
to make future acquisitions of real properties using the UPREIT structure.
Fidelity Dividend Capital is the sole general partner of the Partnership. The
Advisor has contributed $20,000 to the Partnership and is currently the only
limited partners. As the sole general partner of the Partnership, we have the
exclusive power to manage and conduct the business of the Partnership.
The following is a summary of certain provisions of the partnership
agreement of the Partnership. This summary is not complete and is qualified by
the specific language in the partnership agreement. You should refer to the
actual partnership agreement, a copy of which we have filed as an exhibit to the
registration statement, for more detail.
CAPITAL CONTRIBUTIONS
As we accept subscriptions for shares, we will transfer substantially
all of the net proceeds of the offering to the Partnership as a capital
contribution. However, we will be deemed to have made capital contributions in
the amount of the gross offering proceeds received from investors, and the
Partnership will be deemed to have simultaneously paid the selling commissions
and other costs associated with the offering.
If the Partnership requires additional funds at any time in excess of
capital contributions made by us and the Advisor, we may borrow funds from a
financial institution or other lenders and lend such funds to the Partnership on
the same terms and conditions as are applicable to our borrowing of such funds.
In addition, we are authorized to cause the Partnership to issue partnership
interests for less than fair market value if we conclude in good faith that such
issuance is in the best interest of the Partnership and Fidelity Dividend
Capital.
OPERATIONS
The partnership agreement requires that the Partnership be operated in
a manner that will enable Fidelity Dividend Capital to (1) satisfy the
requirements for being classified as a REIT for federal income tax purposes,
unless we otherwise ceases to qualify as a REIT, (2) avoid any federal income or
excise tax liability, and (3) ensure that the Partnership will not be classified
as a "publicly traded partnership" for purposes of Section 7704 of the Internal
Revenue Code, which classification could result in the Partnership being taxed
as a corporation, rather than as partnership. (See "Federal Income Tax
Considerations - Federal Income Tax Aspects of the Operating Partnership -
Classification as a Partnership.")
The partnership agreement generally provides that the Partnership will
distribute cash flow from operations and, except as provided below, net sales
proceeds from disposition of assets, to the partners of the Partnership in
accordance with their relative percentage interests, on at least a quarterly
basis, in amounts determined by Fidelity Dividend Capital as general
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partner such that a holder of one unit of limited partnership interest in the
Partnership will receive the same amount of annual cash flow distributions from
the Partnership as the amount of annual dividends paid to the holder of one of
Fidelity Dividend Capital shares.
Similarly, the partnership agreement of the Partnership provides that
income of the Partnership from operations and, except as provided below, income
of the Partnership from disposition of assets, normally will be allocated to the
partners of the Partnership in accordance with their relative percentage
interests such that a holder of one unit of limited partnership interest in the
Partnership will be allocated income for each taxable year in an amount equal to
the amount of taxable income allocated to us in respect of a holder of one of
our shares, subject to compliance with the provisions of Sections 704(b) and
704(c) of the Internal Revenue Code and corresponding Treasury Regulations.
Losses, if any, will generally be allocated among the partners in accordance
with their respective percentage interests in the Partnership. Upon the
liquidation of the Partnership, after payment of debts and obligations, any
remaining assets of the Partnership will be distributed in accordance with the
distribution provisions of the partnership agreement to the extent of each
partner's positive capital account balance. If Fidelity Dividend Capital were to
have a negative balance in its capital account following a liquidation, it would
be obligated to contribute cash to the Partnership equal to such negative
balance for distribution to other partners, if any, having positive balances in
their capital accounts.
In addition to the administrative and operating costs and expenses
incurred by the Partnership in acquiring and operating real properties, the
Partnership will pay all administrative costs and expenses of Fidelity Dividend
Capital and such expenses will be treated as expenses of the Partnership. Such
expenses will include:
o All expenses relating to the formation and continuity of
existence of Fidelity Dividend Capital;
o All expenses relating to the public offering and registration of
securities by Fidelity Dividend Capital;
o All expenses associated with the preparation and filing of any
periodic reports by Fidelity Dividend Capital under federal,
state or local laws or regulations;
o All expenses associated with compliance by Fidelity Dividend
Capital with applicable laws, rules and regulations; and
o All other operating or administrative costs of Fidelity Dividend
Capital incurred in the ordinary course of its business on behalf
of the Partnership.
EXCHANGE RIGHTS
The limited partners of the Partnership generally have the right to
cause the Partnership to redeem their limited partnership units for cash equal
to the value of an equivalent number of our shares, or, at our option, we may
purchase their limited partnership units by issuing one share of Fidelity
Dividend Capital for each limited partnership unit redeemed. These exchange
rights may not be exercised, however, if and to the extent that the delivery of
shares upon such exercise would (1) result in any person owning shares in excess
of our ownership limits in our Articles of Incorporation, (2) result in our
shares being owned by fewer than 100 persons, (3) result in Fidelity Dividend
Capital being "closely held" within the meaning of Section 856(h) of the
Internal Revenue Code, (4) cause Fidelity Dividend Capital to own 9.9% or more
of the ownership interests in a tenant of Fidelity Dividend Capital, the
Partnership, or a subsidiary entity's real property within the meaning of
Section 856(d)(2)(B) of the Internal Revenue Code, or (5) cause the acquisition
of shares by a redeemed limited partner to be "integrated" with any other
distribution of our shares for purposes of complying with the Securities Act.
The Units will be redeemed for a specified amount of cash upon the occurrence of
specified termination events under the Advisory Agreement or the listing of our
shares. See "Management - Management Compensation."
Subject to the foregoing, limited partners may exercise their exchange
rights at any time after one year following the date of issuance of their
limited partnership units; provided, however, that a limited partner may not
deliver more than two exchange notices each calendar year and may not exercise
an exchange right for less than 1,000 limited partnership units, unless the
limited partner holds less than 1,000 units, in which case, he must exercise his
exchange right for all of his units.
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TRANSFERABILITY OF INTEREST
Fidelity Dividend Capital may not (1) voluntarily withdraw as the
general partner of the Partnership, (2) engage in any merger, consolidation or
other business combination, or (3) transfer its general partnership interest in
the Partnership (except to a wholly-owned subsidiary), unless the transaction in
which such withdrawal, business combination or transfer occurs results in the
limited partners receiving or having the right to receive an amount of cash,
securities or other property equal in value to the amount they would have
received if they had exercised their exchange rights immediately prior to such
transaction or unless, in the case of a merger or other business combination,
the successor entity contributes substantially all of its assets to the
Partnership in return for an interest in the Partnership and agrees to assume
all obligations of the general partner of the Partnership. Fidelity Dividend
Capital may also enter into a business combination or we may transfer our
general partnership interest upon the receipt of the consent of a
majority-in-interest of the limited partners of the Partnership, other than the
Advisor and its affiliates. With certain exceptions, the limited partners may
not transfer their interests in the Partnership, in whole or in part, without
the written consent of Fidelity Dividend Capital as general partner. In
addition, the Advisor may not transfer its interest in the Partnership as long
as it is acting as the advisor to Fidelity Dividend Capital.
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PLAN OF DISTRIBUTION
We are offering a maximum of 25,000,000 shares to the public through
_________________________, the Dealer Manager, a registered broker-dealer. The
shares are being offered at a price of $10.00 per share on a "best efforts"
basis, which means generally that the Dealer Manager and the participating
broker-dealers described below will be required to use only their best efforts
to sell the shares and they have no firm commitment or obligation to purchase
any of the shares. We are also offering 4,000,000 shares for sale pursuant to
our Dividend Reinvestment Plan. An additional 1,000,000 shares are reserved for
issuance upon exercise of soliciting dealer warrants, which are granted to
participating broker-dealers based upon the number of shares they sell.
Therefore, a total of 30,000,000 shares are being registered in this
offering. Except as provided below, the Dealer Manager will receive selling
commissions of 7.0% of the gross offering proceeds. The Dealer Manager will also
receive 2.5% of the gross offering proceeds in the form of a dealer manager fee
as compensation for acting as the Dealer Manager and for expenses incurred in
connection with coordinating sales efforts, training of personnel and generally
managing the offering of our shares. We will not pay referral or similar fees to
any accountants, attorneys or other persons in connection with the distribution
of the shares. Shareholders who elect to participate in the Dividend
Reinvestment Plan will be charged selling commissions and dealer manager fees on
shares purchased pursuant to the dividend reinvestment plan on the same basis as
shareholders purchasing shares directly in this offering.
We will issue to the Dealer Manager one soliciting dealer warrant for
every 25 shares sold during the offering period. These warrants, as well as the
shares issuable upon their exercise, have been registered as part of this
offering. The Dealer Manager may retain or reallow these warrants to
broker-dealers participating in the offering, unless such issuance of soliciting
dealer warrants is prohibited by either federal or state securities laws. The
holder of a soliciting dealer warrant will be entitled to purchase one share
from Fidelity Dividend Capital at a price of $12 per share during the period
beginning on the first anniversary of the effective date of this offering and
ending five years after the effective date of this offering. Subject to certain
exceptions, a soliciting dealer warrant may not be transferred, assigned,
pledged or hypothecated for a period of one year following the effective date of
this offering. For the life of the soliciting dealer warrants, participating
broker-dealers are given the opportunity to profit from a rise in the market
price for the common stock without assuming the risk of ownership, with a
resulting dilution in the interest of other shareholders upon exercise of such
warrants. In addition, holders of the soliciting dealer warrants would be
expected to exercise such warrants at a time when we could obtain needed capital
by offering new securities on terms more favorable than those provided by the
soliciting dealer warrants. Exercise of the soliciting dealer warrants is
governed by the terms and conditions detailed in this prospectus and in the
Warrant Purchase Agreement, which is an exhibit to the Registration Statement.
The Dealer Manager will authorize certain other broker-dealers who are
members of the NASD to sell shares. In connection with the sale of shares by
such participating broker-dealers, the Dealer Manager may re-allow its
commissions in the amount of up to 7.0% of the gross offering proceeds to such
participating broker-dealers. In addition, the Dealer Manager, in its sole
discretion, may re-allow to broker-dealers participating in the offering a
portion of its dealer manager fee in the aggregate amount of up to 1.5% of gross
offering proceeds to be paid to such participating broker-dealers as marketing
fees and as reimbursement of due diligence expenses based on such factors as the
number of shares sold by such participating broker-dealers, the assistance of
such participating broker-dealers in marketing the offering and bona fide
conference fees incurred. Out of organization and offering expenses, we may also
reimburse actual due diligence expenses incurred by the Dealer Manager or
nonaffiliated broker-dealers in an amount of up to .5% of gross offering
proceeds.
We anticipate that the total underwriting compensation, including sales
commissions, the dealer manager fee and underwriting expense reimbursements,
will not exceed 9.5% of gross offering proceeds, except for the soliciting
dealer warrants and reimbursement of due diligence expenses described above.
We have agreed to indemnify the participating broker-dealers, including
the Dealer Manager, against certain liabilities arising under the Securities Act
of 1933, as amended. The broker-dealers participating in the offering of our
shares are not obligated to obtain any subscriptions on our behalf, and we
cannot assure you that any shares will be sold. Our Executive Officers and
Directors, as well as officers and employees of the Advisor or other affiliates,
may purchase shares offered in this offering at a discount. The Company expects
that a limited number of shares will be sold to such persons. However, except
for certain share ownership and transfer restrictions contained in our Articles
of Incorporation, there is no
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limit on the number of shares that may be sold to such persons. The purchase
price for such shares shall be $8.90 per share reflecting the fact that the
acquisition and advisory fees relating to such shares will be reduced by $0.15
per share and selling commissions in the amount of $0.70 per share and dealer
manager fees in the amount of $0.25 per share will not be payable in connection
with such sales. The net offering proceeds we receive will not be affected by
sales of shares at a discount. The Advisor and its affiliates shall be expected
to hold their shares purchased as shareholders for investment and not with a
view towards distribution. In addition, shares purchased by the Advisor or its
affiliates shall not be entitled to vote on any matter presented to the
shareholders for a vote. Shares purchased by our Executive Officers and
Directors and by officers, employees or other affiliates of the Advisor shall
not count toward the sale of the minimum number of shares required to be sold in
this offering.
You should pay for your shares by check payable to "Fidelity Dividend
Capital Inc" Subscriptions will be effective only upon our acceptance, and we
reserve the right to reject any subscription in whole or in part. We may not
accept a subscription for shares until at least five business days after the
date you receive this prospectus and until you have received a confirmation of
your purchase. After investors have satisfied the minimum purchase requirement,
minimum additional purchases must be in increments of at least 10 shares ($100),
except for purchases made pursuant to our Dividend Reinvestment Plan.
We will place the subscription proceeds in an interest-bearing escrow
account with_____________ N.A. until subscriptions totaling at least $2,000,000
(exclusive of subscriptions by our executive officers and directors, the Advisor
or its affiliates) have been received from at least 100 investors who are
independent of Fidelity Dividend Capital and of each other and accepted by us
(the "Minimum Offering"). Subscription proceeds held in the escrow account will
be invested in obligations of, or obligations guaranteed by, the United States
government or bank money-market accounts or certificates of deposit of national
or state banks. During the period in which we hold subscription proceeds in
escrow, interest earned thereon will be allocated among subscribers on the basis
of the respective amounts of their subscriptions and the number of days that
such amounts were on deposit. We will pay such interest (net of escrow expenses)
to subscribers upon the termination of the escrow period. Subscribers may not
withdraw funds from the escrow account.
If the Minimum Offering has not been received and accepted by July 16,
2006, the Escrow Agent will promptly notify us and this offering will be
terminated. No later than five business days after termination of the offering,
the Escrow Agent will refund and return all monies to subscribers and any
interest earned thereon after deducting escrow expenses, except that in the case
of investors who are residents of Maine, Missouri, New Mexico, North Carolina,
Ohio or Pennsylvania, no escrow expenses will be deducted
Initial subscribers shall be admitted to Fidelity Dividend Capital Inc
and the funds held in escrow shall be transferred to us within 15 days after we
have received and accepted subscriptions for at least $2,000,000, except that
subscribers residing in New York, New Mexico and Pennsylvania may not be
admitted to Fidelity Dividend Capital and the funds representing subscriptions
from New York and Pennsylvania residents will not be released from the escrow
account until subscriptions for at least $2,500,000, $12,500,000 and
$12,500,000, respectively, have been received from investors residing in all
states. However, in certain states, including Arizona and Iowa, the offering may
continue for just one year unless we renew the offering period for up to one
additional year. In the event that other states impose different requirements
than those set forth herein, such additional requirements will be set forth in a
supplement to this prospectus.
After the close of the Minimum Offering, subscriptions will be accepted
or rejected within 30 days of receipt by us, and if rejected, all funds shall be
returned to subscribers within 10 business days. Investors whose subscriptions
are accepted will be deemed admitted as shareholders of Fidelity Dividend
Capital on the day on which their subscriptions are accepted. Our offering will
terminate upon the earlier of June 31, 2006, or the date on which all
$300,000,000 in shares have been sold.
In connection with sales of 50,000 or more shares ($500,000) to a
"purchaser" as defined below, a participating broker-dealer may agree in his
sole discretion to reduce the amount of his selling commissions. Such reduction
will be credited to the purchaser by reducing the total purchase price payable
by such purchaser. The following table illustrates the various discount levels
available:
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DEALER
SALES COMMISSIONS PURCHASE MANAGER NET
DOLLAR VOLUME ------------------ PRICE FEE PER PROCEEDS
SHARES PURCHASED PERCENT PER SHARE PER SHARE SHARE PER SHARE
- --------------------------------------------------------------------------------
Under $500,000 7.0% $0.7000 $10.0000 $0.25 $9.05
$500,000-$999,999 5.0% $0.4895 $ 9.7895 $0.25 $9.05
$1,000,000 and Over 3.0% $0.2876 $ 9.5876 $0.25 $9.05
For example, if an investor purchases 100,000 shares, he could pay as
little as $958,760 rather than $1,000,000 for the shares, in which event the
commission on the sale of such shares would be $28,760 ($0.2876 per share), and,
after payment of the dealer manager fee, Fidelity Dividend Capital would receive
net proceeds of $905,000 ($9.05 per share). The net proceeds to Fidelity
Dividend Capital will not be affected by volume discounts. Because all investors
will be deemed to have contributed the same amount per share to Fidelity
Dividend Capital for purposes of declaring and paying dividends, an investor
qualifying for a volume discount will receive a higher return on his investment
than investors who do not qualify for such discount.
Subscriptions may be combined for the purpose of determining the volume
discounts in the case of subscriptions made by any "purchaser," as that term is
defined below, provided all such shares are purchased through the same
broker-dealer. The volume discount shall be prorated among the separate
subscribers considered to be a single "purchaser." Any request to combine more
than one subscription must be made in writing, and must set forth the basis for
such request. Any such request will be subject to verification by the Advisor
that all of such subscriptions were made by a single "purchaser."
FOR THE PURPOSES OF SUCH VOLUME DISCOUNTS, THE TERM "PURCHASER"
INCLUDES:
o An individual, his or her spouse and their children under the age
of 21 who purchase the units for his, her or their own accounts;
o A corporation, partnership, association, joint-stock company,
trust fund or any organized group of persons, whether
incorporated or not;
o An employees' trust, pension, profit sharing or other employee
benefit plan qualified under Section 401(a) of the Internal
Revenue Code; and
o All commingled trust funds maintained by a given bank.
Notwithstanding the above, in connection with volume sales made to
investors in Fidelity Dividend Capital, the Advisor may, in its sole discretion,
waive the "purchaser" requirements and aggregate subscriptions as part of a
combined order for purposes of determining the number of shares purchased,
provided that any aggregate group of subscriptions must be received from the
same broker-dealer, including the Dealer Manager. Any such reduction in selling
commission will be prorated among the separate subscribers except that, in the
case of purchases through the Dealer Manager, the Dealer Manager may allocate
such reduction among separate subscribers considered to be a single "purchaser"
as it deems appropriate. An investor may reduce the amount of his purchase price
to the net amount shown in the foregoing table, if applicable. Except as
provided in this paragraph, separate subscriptions will not be cumulated,
combined or aggregated.
In order to encourage purchases in amounts of 500,000 or more shares, a
potential purchaser who proposes to purchase at least 500,000 shares may agree
with the Advisor and the Dealer Manager to have the acquisition and advisory
fees payable to the Advisor with respect to the sale of such shares reduced to
0.5%, to have the dealer manager fee payable to the Dealer Manager with respect
to the sale of such shares reduced to 0.5%, and to have the selling commissions
payable with respect to the sale of such shares reduced to 0.5%, in which event
the aggregate fees payable with respect to the sale of such shares would be
reduced by $1.10 per share, and the purchaser of such shares would be required
to pay a total of $8.90 per share purchased, rather than $10.00 per share. The
net proceeds to Fidelity Dividend Capital would not be affected by such fee
reductions. Of the $8.90 paid per share, we anticipate that approximately $8.40
per share would be used to acquire properties and pay related acquisition
expenses.
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In addition, subscribers for shares may agree with their participating
broker-dealers and the Dealer Manager to have selling commissions due with
respect to the purchase of their shares paid over a six-year period pursuant to
a deferred commission arrangement. Shareholders electing the deferred commission
option will be required to pay a total of $9.40 per share purchased upon
subscription (rather than $10.00 per share) with respect to which $0.10 per
share will be payable as the commission due upon subscription. For the period of
six years following the subscription, $0.10 per share will be deducted on an
annual basis from dividends or other cash distributions otherwise payable to the
shareholders and used to pay deferred commissions. The net proceeds to Fidelity
Dividend Capital will not be affected by the election of the deferred commission
option. Under this arrangement, a shareholder electing the deferred commission
option will pay a 1% commission upon subscription, rather than a 7% commission,
and an amount equal to a 1% commission per year thereafter for the next six
years, or longer if required to satisfy outstanding deferred commission
obligations, will be deducted from dividends or other cash distribution
otherwise payable to such shareholder. The foregoing commissions amounts may be
adjusted with approval of the Dealer Manager by application of the volume
discount provisions described above.
Shareholders electing the deferred commission option who are subject to
United States federal income taxation will incur tax liability for dividends or
other cash distributions otherwise payable to them with respect to their shares
even though such dividends or other cash distributions will be withheld and will
instead be paid to satisfy commission obligations.
Investors who wish to elect the deferred commission option should make
the election on their Subscription Agreement Signature Page. Election of the
deferred commission option shall authorize Fidelity Dividend Capital to withhold
dividends or other cash distributions otherwise payable to such shareholder for
the purpose of paying commissions due under the deferred commission option;
provided, however, that in no event may Fidelity Dividend Capital withhold in
excess of $0.60 per share in the aggregate under the deferred commission option.
Such dividends or cash distributions otherwise payable to shareholders may be
pledged by Fidelity Dividend Capital, the Dealer Manager, the Advisor or their
affiliates to secure one or more loans, the proceeds of which would be used to
satisfy sales commission obligations.
In the event that, at any time prior to the satisfaction of our
remaining deferred commission obligations, listing of the shares occurs or is
reasonably anticipated to occur, or we begin a liquidation of our properties,
the remaining commissions due under the deferred commission option may be
accelerated by Fidelity Dividend Capital. In either such event, we shall provide
notice of any such acceleration to shareholders who have elected the deferred
commission option. In the event of listing, the amount of the remaining
commissions due shall be deducted and paid by Fidelity Dividend Capital out of
dividends or other cash distributions otherwise payable to such shareholders
during the time period prior to listing. To the extent that the distributions
during such time period are insufficient to satisfy the remaining commissions
due, the obligations of Fidelity Dividend Capital and our shareholders to make
any further payments of deferred commissions under the deferred commission
option shall terminate, and participating broker-dealers will not be entitled to
receive any further portion of their deferred commissions following listing of
our shares. In the event of a liquidation of our properties, the amount of
remaining commissions shall be deducted and paid by Fidelity Dividend Capital
out of dividends or net sales proceeds otherwise payable to shareholders who are
subject to any such acceleration of their deferred commission obligations. In no
event may Fidelity Dividend Capital withhold in excess of $0.60 per share in the
aggregate for the payment of deferred commissions.
Investors may also agree with the participating broker-dealer selling
them shares (or with the Dealer Manager if no participating broker-dealer is
involved in the transaction) to reduce the amount of selling commission to zero
i) in the event the investor has engaged the services of a registered investment
advisor with whom the investor has agreed to pay a fee for investment advisory
services, or (ii) in the event the investor is investing in a bank trust account
with respect to which the investor has delegated the decision-making authority
for investments made in the account to a bank trust department. The amount of
proceeds to Fidelity Dividend Capital will not be affected by eliminating
commissions payable in connection with sales to investors purchasing through
such registered investment advisors or bank trust department. All such sales
must be made through registered broker-dealers. Neither the Dealer Manager nor
its affiliates will directly or indirectly compensate any person engaged as an
investment advisor or a bank trust department by a potential investor as an
inducement for such investment advisor or bank trust department to advise
favorably for an investment in Fidelity Dividend Capital.
-82-
SUPPLEMENTAL SALES MATERIAL
In addition to this prospectus, we may utilize certain sales material
in connection with the offering of the shares, although only when accompanied by
or preceded by the delivery of this prospectus. In certain jurisdictions, some
or all of such sales material may not be available. This material may include
information relating to this offering, the past performance of the advisor and
its affiliates, property brochures and articles and publications concerning real
estate. In addition, the sales material may contain certain quotes from various
publications without obtaining the consent of the author or the publication for
use of the quoted material in the sales material.
The offering of shares is made only by means of this prospectus.
Although the information contained in such sales material will not conflict with
any of the information contained in this prospectus, such material does not
purport to be complete, and should not be considered a part of this prospectus
or the registration statement of which this prospectus is a part, or as
incorporated by reference in this prospectus or said registration statement or
as forming the basis of the offering of the shares.
-83-
FIDELITY DIVIDEND CAPITAL, INC.
(A DEVELOPMENT STAGE COMPANY)
(A MARYLAND CORPORATION)
QUEENSBURY, NEW YORK
------------------------------
FINANCIAL REPORTS
AT
MARCH 31, 2004
------------------------------
FIDELITY DIVIDEND CAPITAL, INC.
(A DEVELOPMENT STAGE COMPANY)
(A MARYLAND CORPORATION)
QUEENSBURY, NEW YORK
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Independent Auditors' Report F-1
Balance Sheet at March 31, 2004 F-2
Statement of Changes in Stockholders' Equity for the Period from the
Date of Inception (August 13, 2003) to March 31, 2004 F-3
Statement of Operations for the Period from the Date of Inception
(August 13, 2003) to March 31, 2004 F-4
Statement of Cash Flows for the Period from the Date of Inception
(August 13, 2003) to March 31, 2004 F-5
Notes to Financial Statements F-6-8
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders Fidelity
Dividend Capital, Inc. Queensbury, New York
We have audited the accompanying balance sheet of Fidelity Dividend
Capital, Inc. (A Development Stage Company) (A Maryland Corporation) as of March
31, 2004 and the related statements of operations, changes in stockholders'
equity, and cash flows for the period from the date of inception (August 13,
2003) to March 31, 2004. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Fidelity Dividend
Capital, Inc. (A Development Stage Company) (A Maryland Corporation) as of March
31, 2004, and the results of its operations and its cash flows for the period
from the date of inception (August 13, 2003) to March 31, 2004, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming
Fidelity Dividend Capital, Inc. (A Development Stage Company) (A Maryland
Corporation) will continue as a going concern. As discussed in Note E to the
financial statements, the Company has incurred losses that have resulted in an
accumulated deficit. This condition raises substantial doubt about the Company's
ability to continue as a going concern. Management's plans regarding this matter
are described in Note E. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Rochester, New York
April 1, 2004
F-1
FIDELITY DIVIDED CAPITAL INC.
(A DEVELOPMENT STAGE COMPANY)
(A MARYLAND CORPORATION)
QUEENSBURY, NEW YORK
BALANCE SHEET
================================================================================
MARCH 31, 2004
- --------------------------------------------------------------------------------
ASSETS
Cash and Cash Equivalents $ 40,983
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts Payable $ 3,250
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common Stock: $.001 Par; 450,000,000 Shares Authorized
(100,000,000 Shares Reserved in Trust),
57,000,000 Issued and Outstanding as of
March 31, 2004 57,000
Preferred Stock: $.001 Par; 50,000,000 Shares Authorized,
No Shares Issued --
Additional Paid In Capital 308,000
Deficit Accumulated During Development Stage (327,267)
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 37,733
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 40,983
================================================================================
The accompanying notes are an integral part of this financial statement.
F-2
FIDELITY DIVIDED CAPITAL INC.
(A DEVELOPMENT STAGE COMPANY)
(A MARYLAND CORPORATION)
QUEENSBURY, NEW YORK
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM THE DATE OF INCEPTION
(AUGUST 13, 2003) TO MARCH 31, 2004
==============================================================================================
Deficit
Accumulated
Common Stock Additional During Stockholders'
Number Paid-In Development Equity
of Shares Value Capital Stage (Deficit)
- ----------------------------------------------------------------------------------------------
BALANCE - AUGUST 13, 2003 -- $ -- $ -- $ -- $ --
Contribution of Capital -- -- 60,000 -- 60,000
Common Stock Issued in
Exchange of Services 57,000,000 57,000 248,000 -- 305,000
Net Loss for the Period -- -- -- (327,267) (327,267)
- ----------------------------------------------------------------------------------------------
BALANCE - MARCH 31, 2004 57,000,000 $ 57,000 $ 308,000 $ (327,267) $ 37,733
==============================================================================================
The accompanying notes are an integral part of this financial statement.
F-3
FIDELITY DIVIDED CAPITAL INC.
(A DEVELOPMENT STAGE COMPANY)
(A MARYLAND CORPORATION)
QUEENSBURY, NEW YORK
STATEMENT OF OPERATIONS FOR THE PERIOD FROM THE DATE OF
INCEPTION (AUGUST 13, 2003) TO MARCH 31, 2004
================================================================================
INCEPTION TO
MARCH 31,
2004
- --------------------------------------------------------------------------------
REVENUES $ --
- --------------------------------------------------------------------------------
EXPENSES
Filing Fees 1,017
Legal and Professional 20,750
Organizational Costs 300,000
Consulting Fees 5,500
- --------------------------------------------------------------------------------
TOTAL EXPENSES 327,267
- --------------------------------------------------------------------------------
NET LOSS FOR THE PERIOD $ (327,267)
================================================================================
Earnings (Loss) per Share - Basic and Diluted $ (0.01)
================================================================================
Weighted Average Common Shares Outstanding 57,000,000
================================================================================
The accompanying notes are an integral part of this financial statement.
F-4
FIDELITY DIVIDED CAPITAL INC.
(A DEVELOPMENT STAGE COMPANY)
(A MARYLAND CORPORATION)
QUEENSBURY, NEW YORK
STATEMENT OF CASH FLOWS FOR THE PERIOD FROM THE DATE OF
INCEPTION (AUGUST 13, 2003) TO MARCH 31, 2004
================================================================================
INCEPTION TO
MARCH 31,
2004
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss for the Period $(327,267)
NON-CASH ADJUSTMENTS
Organizational Expenses Paid by Stockholders 305,000
CHANGES IN ASSETS AND LIABILITIES:
Accounts Payable 3,250
- --------------------------------------------------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES (19,017)
- --------------------------------------------------------------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES --
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Contribution by Shareholder 60,000
- --------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 60,000
- --------------------------------------------------------------------------------
Net Change in Cash and Cash Equivalents 40,983
Cash and Cash Equivalents - Beginning of Period --
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 40,983
================================================================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Common Stock Issued in Exchange for
Expenses Paid by Stockholders $ 57,000
================================================================================
The accompanying notes are an integral part of this financial statement.
F-5
FIDELITY DIVIDEND CAPITAL, INC.
(A DEVELOPMENT STAGE COMPANY)
(A MARYLAND CORPORATION)
QUEENSBURY, NEW YORK
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE A - THE COMPANY
Fidelity Dividend Capital, Inc. (The "Company") was incorporated under
the laws of the state of Maryland on August 13, 2003. On March 31,
2004, the Articles of Incorporation were amended to increase the total
number of shares authorized to 500,000,000. The number of authorized
shares of common stock is 450,000,000 shares of $.001 par value per
common stock. As of March 31, 2004, the Company has reserved
100,000,000 shares of common stock in the event there is a purported
transfer of, or other change affecting the ownership, the Company's
shares that would result in a violation of the ownership. The number of
authorized shares of preferred stock 50,000,000 shares of $.001 par
value per preferred stock.
NATURE OF OPERATIONS
The Company was formed to invest in commercial real estate properties,
consisting primarily of high quality commercial and industrial
buildings triple-net leased to creditworthy corporate tenants.
At the present time the Company is in the development stage and does
not provide any product or service.
The Company's future success is dependent upon its ability to raise
sufficient capital in order to continue to develop its market for its
services. There is no guarantee that such capital will be available on
acceptable terms, if at all.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
METHOD OF ACCOUNTING
The Company maintains its books and prepares its financial statements
on the accrual basis of accounting.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include time deposits, certificates of
deposit, and all highly liquid debt instruments with original
maturities of three months or less. The Company maintains cash and cash
equivalents at financial institutions which periodically may exceed
federally insured amounts.
DEVELOPMENT STAGE
The Company has operated as a development stage enterprise since its
inception by devoting substantially all of its efforts to financial
planning, raising capital, research and development, and developing
markets for its services. The Company prepares its financial statements
in accordance with the requirements of Statement of Financial
Accounting Standards No. 7, Accounting and Reporting by Development
Stage Enterprises.
EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share is computed in accordance with SFAS
No. 128, "Earnings Per Share," by dividing income available to common
stockholders by weighted average number of common shares outstanding
for each period.
- continued -
F-6
FIDELITY DIVIDEND CAPITAL, INC.
(A DEVELOPMENT STAGE COMPANY)
(A MARYLAND CORPORATION)
QUEENSBURY, NEW YORK
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expense during the reporting period. Actual results can differ from
those estimates.
ORGANIZATIONAL EXPENSES
Organizational expenses represent management, consulting, legal,
accounting, and filing fees incurred to date in the formation of the
corporation. Organizational costs are expensed as incurred pursuant
Statement of Position 98-5 on Reporting on the Costs of Start-Up
Activities.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109
"Accounting for Income Taxes," using the asset and liability approach,
which requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of temporary differences between
the carrying amounts and the tax basis of such assets and liabilities.
This method utilizes enacted statutory tax rates in effect for the year
in which the temporary differences are expected to reverse and gives
immediate effect to changes in the income tax rates upon enactment.
Deferred tax assets are recognized, net of any valuation allowance, for
temporary differences and net operating loss and tax credit
carryforwards. Deferred income tax expense represents the change in net
deferred assets and liability balances. The corporation had no material
deferred tax assets or liabilities for the periods presented.
PROVISION FOR INCOME TAXES
Deferred income taxes result from temporary differences between the
basis of assets and liabilities recognized for differences between the
financial statement and tax basis thereon, and for the expected future
tax benefits to be derived from net operating losses and tax credit
carryforwards. A valuation allowance is recorded to reflect the
likelihood of realization of deferred tax assets.
NOTE C - STOCKHOLDERS' EQUITY
COMMON STOCK
The Company's Securities are not registered under the Securities Act of
1933 and, therefore, no offering may be made which would constitute a
"Public Offering" within the meaning of the United States Securities
Act of 1933, unless the shares are registered pursuant to an effective
registration statement under the Act.
The stockholders may not sell, transfer, pledge or otherwise dispose of
the common shares of the Company in the absence of either an effective
registration statement covering said shares under the 1933 Act and
relevant state securities laws, or an opinion of counsel that
registration is not required under the Act or under the securities laws
of any such state.
- continued -
F-7
FIDELITY DIVIDEND CAPITAL, INC.
(A DEVELOPMENT STAGE COMPANY)
(A MARYLAND CORPORATION)
QUEENSBURY, NEW YORK
NOTES TO FINANCIAL STATEMENTS
================================================================================
NOTE C - STOCKHOLDERS' EQUITY - CONTINUED
PREFERRED STOCK
The Company is authorized to issue 50,000,000 preferred shares of $.001
par value per share. The Company has not issued, and does not currently
intend to issue, preferred shares but may do so in the future at the
discretion of the board of directors.
NOTE D - RELATED PARTY TRANSACTIONS
Fidelity Dividend Capital Advisors, LLC (The "Advisor") is responsible
for managing the Company's affairs on a day-to-day basis and for
identifying and making acquisitions on the Company's behalf. The
Advisor presents the Company with investment opportunities that are
consistent with the Company's investment policies and objectives as
adopted by the Board of Directors. The Advisor also arranges for
financing and refinancing of property transactions.
The Company will be required to pay the Advisor 3% of the total gross
offering proceeds from each property acquisition identified by the
Advisor. The gross offering proceeds also include actual legal,
accounting, printing and other expenses attributable to organizing the
Company.
Fidelity Dividend Capital Property Management, LLC (The "Property
Manager") is responsible for managing and leasing properties acquired
by the Company. The Property Manager will hire, direct and establish
policies for employees who will have direct responsibility for the
operations of each property the Company acquires, which may include but
not be limited to on-site managers and building and maintenance
personnel. Certain employees of the Property Manager may be employed on
a part-time basis and may also be employed by our Advisor, or certain
companies affiliated with them. The Property Manager will also direct
the purchase of equipment and supplies and will supervise all
maintenance activity.
The Company will be required to pay the Property Manager 4 1/2% of
total gross revenues. The management feeS to be paid to the Property
Manager will cover, without additional expense to us, all of the
Property Manager's general overhead costs.
Fidelity Dividend Capital Advisors, LLC and Fidelity Dividend Capital
Property Management, LLC are presently each 100% owned by the Company's
President and Executive Vice-President.
NOTE E - GOING CONCERN
The Company's financial statements have been presented on the basis
that it is a going concern, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. The Company has reported net losses and an accumulated
deficit totaling $327,267 for the period from date of inception (August
13, 2003) through March 31, 2004.
The Company's continued existence is dependent upon its ability to
raise capital or to successfully market and sell its products. The
financial statements do not include any adjustments that might be
necessary should the Company be unable to continue as a going concern.
The Company plans to raise working capital through equity offerings and
future profitable operations. Certain stockholders, although not
obligated to do so, have expressed willingness to advance the Company
funds on a short term basis to the extent necessary.
F-8
Pursuant to the requirements of the Securities Act of 1933, this Form S-11
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
Dennis P. Sweenor President, Secretary and Director April 6, 2004
William T. Frattalone Executive Vice-President, Chief April 6, 2004
Financial Officer and Director