MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material U.S. federal income
tax consequences to holders of our common stock of the acquisition, ownership,
and disposition, expiration or exercise of the rights distributed pursuant to
the rights offering and the acquisition, ownership and disposition of shares of
our common stock acquired through exercise of the rights. We have received the
opinion of Baker Botts L.L.P., counsel to our company, that the following
discussion, insofar as it relates to statements of United States law or legal
conclusions, is accurate in all material respects. This opinion is included as
an exhibit to the registration statement of which this prospectus forms a part.
The opinion of Baker Botts L.L.P. is conditioned upon the accuracy of the
statements, representations and assumptions upon which the opinion is based,
including, without limitation, the representation by us that, at the time of the
distribution, the exercise price of all of our outstanding stock options will be
adjusted so that the distribution of rights will not result in an increase in
our shareholders' proportionate interest in our assets or earnings and profits.
This summary is based on the Internal Revenue Code of 1986, as amended
(the Code), Treasury regulations promulgated thereunder, administrative
pronouncements and judicial decisions as of the date hereof, all of which are
subject to change or differing interpretations at any time, possibly with
retroactive effect. This summary assumes that holders of our common stock hold
all such stock as capital assets within the meaning of the Code (generally
property held for investment) and will hold all stock acquired on exercise of
rights as capital assets. We have not obtained and do not intend to obtain a
ruling from the Internal Revenue Service (the IRS) with respect to any of the
tax consequences discussed below, and there is no assurance that the IRS will
not successfully challenge certain of the conclusions.
This summary does not address all aspects of U.S. federal income taxation
that may be applicable to you in light of your particular circumstances and does
not address special classes of holders of our common stock or rights that may be
subject to special treatment under the Code, such as:
dealers in securities;
partnerships and other pass-through entities (or investors holding interests
in partnerships or pass-through entities) that hold our common stock or
rights;
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banks, thrifts, insurance companies, regulated investment companies or other
financial institutions;
tax-exempt organizations;
certain expatriates and former long-term residents of the United States;
persons holding our stock or rights as part of a hedge, constructive sale,
wash sale, straddle or conversion transaction;
persons whose "functional currency" is not the U.S. dollar; and
persons who acquired our common stock pursuant to the exercise of
compensatory stock options or otherwise as compensation.
This summary also does not address the effect of any state, local or foreign tax
laws that may apply or the application of the U.S. federal estate and gift tax
or the alternative minimum tax. Except as otherwise indicated, references to
"tax" mean U.S. federal income tax.
As used herein, a "U.S. Holder" is a beneficial owner of our common stock
that is, for U.S. federal income tax purposes:
a citizen or resident of the United States;
a corporation, or other entity taxable as a corporation, that is organized
under the laws of the United States or any political subdivision thereof;
an estate, the income of which is subject to U.S. federal income tax without
regard to its source; or
a trust, if (1) 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, or (2) such
trust has a valid election in effect under applicable Treasury Regulations
to be treated as a U.S. person.
A "Non-U.S. Holder" is a beneficial owner of our common stock that is not a
U.S. Holder.
Except as otherwise indicated, the following discussion assumes that we
will not terminate the rights offering.
YOU SHOULD CONSULT YOUR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE
U.S. FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION, AS WELL AS THE
APPLICABILITY OF ANY FEDERAL ESTATE AND GIFT, STATE, LOCAL OR FOREIGN TAX LAWS
TO WHICH YOU MAY BE SUBJECT.
Taxation of U.S. Holders
Distribution of Rights
You will not be required to recognize taxable income upon the
distribution of rights to you.
Basis and Holding Period of Rights
If, on the distribution date, the fair market value of rights which we
distribute to you is less than 15% of the fair market value of your shares of
our common stock with respect to which the rights were distributed, your basis
in those rights generally will be zero. You may elect, however, to allocate the
basis in your shares of our common stock between that stock and the rights in
proportion to their relative fair market values on the distribution date. This
election may be made pursuant to Section 307 of the Code and the Treasury
regulations thereunder and will be irrevocable once made.
If, on the distribution date, the fair market value of rights which we
distribute to you is 15% or more of the fair market value of your shares of our
common stock with respect to which the rights were
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distributed, you will be required to allocate the basis in your shares of our
common stock between that stock and the rights in proportion to their relative
fair market values on the distribution date.
In either case, your holding period for the rights that we distribute to
you will include the holding period of your shares of our common stock with
respect to which the rights were distributed.
If you purchase rights from a third party, your basis in the rights
generally will be the purchase price of such rights. Your holding period for the
purchased rights will begin on the day following the date you purchase the
rights.
Sale, Exchange or Other Disposition of Rights
Upon the sale, exchange or other disposition of your rights, you
generally will recognize capital gain or loss equal to the difference between
the amount realized and your basis in the rights. Such gain or loss will be
long-term capital gain or loss if your holding period in the rights is more than
one year on the date of the sale, exchange or other disposition. Long-term
capital gains of certain non-corporate taxpayers generally are taxed at lower
rates than items of ordinary income. The deductibility of capital losses is
subject to limitations.
Expiration of Rights
If you receive rights in a distribution from us and you allow the rights
to expire (i.e., you retain but do not exercise the rights), then you will not
be permitted to recognize a taxable loss. If your basis in your shares of our
common stock with respect to which the rights were distributed was allocated
between that stock and the rights, your basis in the expired rights will be
reallocated to that stock.
If you purchased rights from a third party and allow the rights to
expire, then, in general, you will recognize a capital loss in the year of such
expiration in the amount of your basis in the rights. Your loss on the rights
should be short-term capital loss. The deductibility of capital losses is
subject to limitations.
Exercise of Rights; Basis and Holding Period of Acquired Shares
You will not recognize gain or loss upon the exercise of the rights. Your
basis in the common stock you acquire through exercise of the rights will equal
the sum of (1) the subscription price you paid to acquire such common stock and
(2) your basis in the rights which you exercised. Your holding period in the
acquired common stock will begin on the day you exercise the rights.
Sale, Exchange or Other Disposition of Acquired Shares
Upon the sale, exchange or other disposition of our common stock acquired
upon exercise of the rights, you generally will recognize gain or loss equal to
the difference between the amount realized and your basis in such stock. Such
gain or loss will be capital gain or loss and will be long-term capital gain or
loss if your holding period for the common stock exceeds one year at the time of
the sale, exchange or other disposition. Long-term capital gains of certain
non-corporate taxpayers generally are taxed at lower rates than items of
ordinary income. The deductibility of capital losses is subject to limitations.
Termination of Rights Offering
If you receive rights in a distribution from us and retain such rights,
then, upon a termination of the rights offering by us, (1) you will not
recognize income, gain or loss as a result of the distribution or ownership of
the rights, and (2) your basis in your shares of our common stock with respect
to which the rights were distributed will not be affected by the rights
offering.
If you receive rights in a distribution from us, and you sell, exchange
or otherwise dispose of such rights, then, while the matter is not entirely free
from doubt, upon a termination of the rights offering by us: (1) you should not
recognize income or gain as a result of the prior distribution of the rights to
you, (2) your basis in the common stock with respect to which the rights were
distributed and your basis and
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holding period in the rights should be determined as described above under
"-Taxation of U.S. Holders-Basis and Holding Period of Rights," and (3) you
should recognize capital gain or loss equal to the difference between the amount
realized and your basis, if any, in the rights. Such gain or loss will be
long-term capital gain or loss if your holding period for the rights exceeds one
year at the time of the sale, exchange or other disposition.
If you purchase rights from a third party, and we terminate the rights
offering, then you should recognize a capital loss in the taxable year of such
termination in the amount of your basis in the rights. In such case, your loss
on the rights should be short-term capital loss. The deductibility of capital
losses is subject to limitations.
Information Reporting and Backup Withholding
Your sale, exchange or other disposition of rights or acquired common
stock may be subject to information reporting to the IRS and to backup
withholding. Backup withholding (currently 28%) may apply to "reportable
payments" if a U.S. Holder fails to provide a correct taxpayer identification
number and certain other information, fails to provide a certification of exempt
status or fails to report the holder's full dividend and interest income. You
are not subject to backup withholding if you (1) are a corporation or fall
within certain other exempt categories and, when required, demonstrate that
fact; or (2) provide a correct taxpayer identification number, certify under
penalties of perjury that you are not subject to backup withholding, and
otherwise comply with the applicable requirements of the backup withholding
rules.
Backup withholding is not an additional tax; any amounts withheld under
the backup withholding rules will be allowed as a refund or credit against your
U.S. federal income tax liability provided the required information is furnished
to the IRS. The information reporting requirements may apply regardless of
whether backup withholding is required.
Taxation of Non-U.S. Holders
Scope of Discussion
In this discussion of taxation of Non-U.S. Holders, it is assumed that no
income, gain or loss of the Non-U.S. Holder from the acquisition, ownership, and
disposition, expiration or exercise of the rights distributed pursuant to the
rights offering and the acquisition, ownership and disposition of shares of our
common stock acquired through exercise of the rights will be effectively
connected with the conduct by the Non-U.S. Holder of a trade or business in the
United States. Non-U.S. Holders for which any such income, gain or loss might
represent income that is effectively connected with the conduct of a U.S. trade
or business should consult their own tax advisors, including as to the
availability of an exemption from U.S. federal withholding tax and, in the case
of a Non-U.S. Holder which is a corporation, the applicability of the "branch
profits tax."
Distribution of Rights
Non-U.S. Holders will not be subject to U.S. federal income or
withholding tax upon the distribution of rights.
Exercise of Rights
A Non-U.S. Holder will not be subject to U.S. federal income or
withholding tax upon exercise of the rights.
Expiration of Rights
The expiration of rights held by a Non-U.S. Holder generally will not
have tax consequences to the Non-U.S. Holder unless such holder would have been
subject to tax upon the sale, exchange, or other disposition of the rights or
common stock acquired on exercise of the rights, as described below.
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Sale, Exchange or Other Disposition of Rights or Acquired Shares
Generally, a Non-U.S. Holder will not be subject to U.S. federal income
or withholding tax on any gain realized upon the sale, exchange or other
disposition of rights or any acquired common stock unless (1) the
Non-U.S. Holder is an individual that is present in the United States for
183 days or more in the taxable year of the sale, exchange or other disposition
and certain other conditions are met, or (2) we are or have previously been a
"U.S. real property holding corporation" for U.S. federal income tax purposes.
We do not believe that we are currently or at any relevant time have previously
been a "U.S. real property holding corporation" or that we will become one in
the future.
Termination of Rights Offering
If a Non-U.S. Holder receives rights in a distribution from us and
retains such rights, then, upon a termination of the rights offering by us, the
Non-U.S. Holder should not be subject to U.S. federal income or withholding tax
as a result of the distribution, ownership or expiration of the rights.
If a Non-U.S. Holder receives rights in a distribution from us, and such
holder sells, exchanges or otherwise disposes of such rights, then, while the
matter is not entirely free from doubt, upon a termination of the rights
offering by us: (1) the Non-U.S. Holder should not be subject to U.S. federal
income or withholding tax as a result of the prior distribution of the rights,
(2) the Non-U.S. Holder should be treated as selling rights that have a basis
determined as described above under "-Taxation of U.S. Holders-Basis and Holding
Period of Rights," and (3) the Non-U.S. Holder should not be subject to
U.S. federal income or withholding tax upon the sale, exchange or other
disposition of rights except as described above under "-Taxation of
Non-U.S. Holders-Sale, Exchange or Other Disposition of Rights or Acquired
Shares."
If a Non-U.S. Holder has purchased rights, then our termination of the
rights offering generally will not have tax consequences to the Non-U.S. Holder
unless such holder would have been subject to tax upon the sale, exchange, or
other disposition of the rights as described above under "-Taxation of
Non-U.S. Holders-Sale, Exchange or Other Disposition of Rights or Acquired
Shares."
Information Reporting and Backup Withholding
A Non-U.S. Holder's sale, exchange or other disposition of rights or
acquired common stock may be subject to information reporting to the IRS. Copies
of these information returns also may be made available under the provisions of
a specific treaty or agreement to the tax authorities of the country in which
the Non-U.S. Holder resides. Backup withholding (currently 28%) may apply to
"reportable payments" if a Non-U.S. Holder fails to provide a correct taxpayer
identification number and certain other information, fails to provide a
certification of exempt status or fails to report the holder's full dividend and
interest income.
Payment of the proceeds of the disposition of our rights or acquired
common stock to or through the U.S. office of any broker, U.S. or foreign,
generally will be subject to information reporting and backup withholding unless
the Non-U.S. Holder certifies as to the holder's non-U.S. status under penalties
of perjury or otherwise establishes that the holder qualifies for an exemption,
provided that the broker does not have actual knowledge, or reason to know, that
the holder is a U.S. Holder or that the conditions of any other exemption are
not in fact satisfied. Payment of the proceeds of the disposition of our rights
or acquired common stock to or through a foreign office of a broker generally
will not be subject to information reporting or backup withholding; however, if
such broker has certain connections to the United States, then information
reporting, but not backup withholding, will apply unless the holder establishes
its non-U.S. status.
Backup withholding is not an additional tax; any amounts withheld under
the backup withholding rules will be allowed as a refund or credit against the
Non-U.S. Holder's U.S. federal income tax liability provided the required
information is furnished to the IRS.
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