Filed Pursuant to Rule 424(b)(5)
Registration No. 333-215229
CALCULATION OF REGISTRATION FEE
|
|
|
|
|
|
|
|
|
|
Title of each class of
securities to be registered
|
|
Amounts
to be
registered
|
|
Maximum
offering
price per
unit
|
|
Proposed
maximum
aggregate
offering price
|
|
Amount of
registration fee(1)
|
4.125% Convertible Senior Notes due 2022
|
|
$150,000,000
|
|
99.5%
|
|
$149,250,000
|
|
$17,299
|
Common Stock, $0.01 par value per share
|
|
(2)
|
|
(2)
|
|
(2)
|
|
(2)
|
|
|
(1)
|
Calculated in accordance with Rule 457(o), based on the proposed maximum aggregate offering price, and Rule 457(r) under the Securities Act of 1933, as amended.
|
(2)
|
There are also being registered hereby an indeterminate number of shares of our common stock into which the notes may be converted. Pursuant to Rule 457(i) under the Securities Act of 1933, as amended, no separate
registration fee is payable where convertible securities and the securities into which conversion is offered are registered at the same time and no additional consideration is to be received in connection with the exercise of the conversion
privilege.
|
PROSPECTUS SUPPLEMENT
(To prospectus dated August 4, 2017)
$135,000,000
HANNON ARMSTRONG SUSTAINABLE
INFRASTRUCTURE CAPITAL, INC.
4.125% Convertible Senior Notes due 2022
We are offering
$135,000,000 aggregate principal amount of our 4.125% Convertible Senior Notes due 2022, or the notes, under this prospectus supplement. The notes will bear interest at a rate equal to 4.125% per year, payable semi-annually in arrears on March 1 and
September 1 of each year, beginning on March 1, 2018. The notes will mature on September 1, 2022.
Holders may convert their notes into
shares of our common stock, $0.01 par value per share, at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, unless the notes have been previously redeemed or repurchased. The
conversion rate will initially equal 36.7107 shares of common stock per $1,000 principal amount of notes (equivalent to a conversion price of approximately $27.24 per share of common stock). The conversion rate will be subject to adjustment
upon the occurrence of certain events, but will not be adjusted for any accrued and unpaid interest. In addition, following the occurrence of a make-whole fundamental change, we will, in certain circumstances, increase the conversion rate for a
holder that converts its notes in connection with such make-whole fundamental change.
We may not redeem the notes prior to March 1, 2022
except to the extent our board of directors determines such redemption is reasonably necessary to preserve our qualification as a real estate investment trust, or REIT, for U.S. federal income tax purposes, as further described in this prospectus
supplement. If we determine that redeeming the notes is necessary to preserve our qualification as a REIT, then we may at any time prior to maturity redeem all or part of the notes at a cash redemption price equal to the principal amount of the
notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. On or after March 1, 2022, we may redeem the notes for cash, in whole or from time to time in part, at our option at a redemption price equal to
the sum of (i) 100% of the principal amount of the notes to be redeemed, (ii) accrued and unpaid interest (including additional interest, if any) to, but excluding, the redemption date and (iii) the make-whole premium. We will give
notice of any redemption not less than 15 nor more than 30 calendar days before the redemption date to holders of the notes. No sinking fund will be provided for the notes.
Upon the occurrence of a fundamental change, holders may require us to purchase the notes in whole or in part for cash at a fundamental change
purchase price equal to 100% of the principal amount of the notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date.
The notes will be our senior unsecured obligations and will rank senior in right of payment to any future indebtedness that is expressly
subordinated in right of payment to the notes, equal in right of payment to our existing and future unsecured indebtedness that is not so subordinated, effectively junior to any secured indebtedness to the extent of the value of the assets securing
such indebtedness and structurally junior to all existing and future indebtedness (including trade payables) and any future preferred equity interests of our subsidiaries as well as to any of our existing or future indebtedness that may be
guaranteed by any of our subsidiaries (to the extent of any such guarantee), except for the future unsecured and unsubordinated indebtedness of our operating partnership with which the notes will rank equal in right of payment, including but not
limited to the Mirror Note, as described under Description of the NotesGeneralRanking.
We do not intend to apply
for listing of the notes on any securities exchange. Our common stock is listed on The New York Stock Exchange, or NYSE, under the symbol HASI. On August 16, 2017, the last reported sales price of our common stock on the NYSE was
$22.70 per share.
We have elected to be taxed as a REIT for U.S. federal income tax purposes. In order to protect us against the risk of
losing our qualification as a REIT due to concentration of ownership of our outstanding stock, our charter generally prohibits any single stockholder, or any group of affiliated stockholders, from beneficially owning more than 9.8% of the
outstanding shares of any class of our stock, unless our board of directors waives or modifies this ownership limit. See Description of the NotesGeneralOwnership Limit, and Description of SecuritiesRestrictions on
Ownership and Transfer in the accompanying prospectus.
Investing in the
notes involves risks. See
Risk Factors
beginning on S-8 of this prospectus supplement and page 3 of the accompanying prospectus. You should also read carefully the risk factors described in our
Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, before investing in the notes.
Neither the Securities and Exchange Commission, or the SEC, nor any state securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the accompanying prospectus are truthful or complete. Any representation to the contrary is a criminal offense.
|
|
|
|
|
|
|
|
|
Per Note
|
|
Total
|
|
Public offering price
|
|
99.5%
|
|
|
$134,325,000
|
|
Underwriting discount
|
|
2.25%
|
|
|
$ 3,037,500
|
|
Proceeds to us, before expenses
|
|
97.25%
|
|
|
$131,287,500
|
|
The offering price set forth above does not include accrued interest, if any. Interest on the notes will accrue
from the date of original issuance, expected to be August 22, 2017.
The underwriters will have the option to purchase within 30 days from
the date of this prospectus supplement up to an additional $15,000,000 principal amount of notes from us at the public offering price less the underwriting discount to cover over-allotments, if any.
The underwriters expect to deliver the notes in book-entry form only through the facilities of The Depository Trust Company on or about August
22, 2017.
Joint Book-Running Managers
|
|
|
|
|
Deutsche Bank Securities
|
|
BofA Merrill Lynch
|
|
J.P. Morgan
|
Co-Managers
The date of this prospectus supplement is August 16, 2017.
TABLE OF CONTENTS
PROSPECTUS
S-i
ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is the prospectus supplement, which describes the specific terms of this offering and also
updates information contained in the accompanying prospectus and the documents incorporated by reference into the prospectus. The second part is the accompanying prospectus, which gives more general information, some of which may not apply to this
offering. To the extent there is a conflict between the information contained in this prospectus supplement and the information contained in the accompanying prospectus, the information in this prospectus supplement shall control. In addition, any
statement in a filing we make with the SEC that adds to, updates or changes information contained in an earlier filing we made with the SEC shall be deemed to modify and supersede such information in the earlier filing.
You should read this document together with additional information described under the heading Where You Can Find More Information
and Incorporation by Reference in this prospectus supplement. You should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. Neither we nor the underwriters have
authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. You should assume that the information in this prospectus supplement and the accompanying
prospectus, as well as the information we have previously filed with the SEC and incorporated by reference in this document, is accurate only as of its date or the dates which are specified in those documents, as applicable, regardless of the time
of delivery of this prospectus supplement and the accompanying prospectus or any sale of the notes.
S-ii
PROSPECTUS SUPPLEMENT SUMMARY
This summary highlights some of the information in this prospectus supplement and the accompanying prospectus. It does not contain all of
the information that you should consider before investing in the notes. Before making an investment decision, you should read this entire prospectus supplement and the accompanying prospectus and the documents incorporated by reference herein and
therein, including the financial statements and related notes as well as the Risk Factors section in our Annual Report on Form 10-K as supplemented by the Form 10-K/A for the year ended December 31, 2016, or collectively our
2016 10-K, as updated by our subsequent filings under the Securities Exchange Act of 1934, as amended, or the Exchange Act. References in this prospectus supplement to we, our, us and our company refer
to Hannon Armstrong Sustainable Infrastructure Capital, Inc., a Maryland corporation, Hannon Armstrong Sustainable Infrastructure, L.P., and any of our other subsidiaries. Hannon Armstrong Sustainable Infrastructure, L.P. is a Delaware limited
partnership of which we are the sole general partner and to which we refer in this prospectus supplement as our operating partnership.
Company
Overview
We are an internally managed real estate investment trust, or REIT, that makes debt and equity investments in sustainable
infrastructure, including energy efficiency and renewable energy projects, that provide cleaner energy sources, positively impact the environment or make more efficient use of natural resources.
We have elected to be taxed as a REIT for U.S. federal income tax purposes, commencing with our taxable year ended December 31, 2013.
S-1
THE OFFERING
The following is a brief summary of the terms of this offering and the notes. We provide the following summary solely for your convenience.
This summary is not a complete description of this offering or the notes. You should read the full text and more specific details contained elsewhere in this prospectus supplement and the accompanying prospectus. With respect to the discussion of
the terms of the notes on the cover page, in this section and in the section entitled Description of the Notes, the words we, our, us and our company refer only to Hannon Armstrong
Sustainable Infrastructure Capital, Inc. and not to any of its subsidiaries. For a more detailed description of the notes, see Description of the Notes in this prospectus supplement and Description of Debt Securities in the
accompanying prospectus.
Issuer
|
Hannon Armstrong Sustainable Infrastructure Capital, Inc., a Maryland corporation.
|
Securities offered
|
$135,000,000 principal amount of 4.125% Convertible Senior Notes due 2022 (plus up to an additional $15,000,000 principal amount if the underwriters exercise their over-allotment option to purchase additional notes, if any).
|
Maturity date
|
September 1, 2022 unless earlier converted, redeemed or repurchased.
|
Interest
|
4.125% per year. Interest will accrue from the date of issuance (which is scheduled for August 22, 2017) or from the most recent date to which interest has been paid or duly provided for, and will be payable semi-annually in arrears on March 1
and September 1 of each year, beginning on March 1, 2018.
|
|
We will also be required to pay additional interest on the notes under the circumstances described under Description of the NotesEvents of Default.
|
Conversion rights
|
Holders may convert their notes at their option prior to the close of business on the second scheduled trading day prior to the maturity date, unless the notes have been previously redeemed or repurchased by us. Any conversions of notes into
shares of our common stock will be subject to certain ownership limitations more fully described in Description of the NotesGeneralOwnership Limit.
|
|
The conversion rate will initially equal 36.7107 shares of common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $27.24 per share of common stock), subject to
adjustment as described in this prospectus supplement.
|
|
In addition, following the occurrence of a make-whole fundamental change, we will, in certain circumstances, increase the
conversion rate for a holder that converts its notes in connection with such make-whole fundamental change. See Description of the NotesAdjustment to Conversion Rate Upon Conversion in Connection with a Make-Whole Fundamental
Change. However, if the price paid (or
|
S-2
|
deemed paid) for our common stock in such make-whole fundamental change is greater than $40.00 per share or less than $22.70 per share (in each case, subject to adjustment in accordance
with the indenture), then we will not be required to adjust the conversion rate if a holder converts its notes in connection with such make-whole fundamental change.
|
|
You will not receive any additional cash payment representing accrued and unpaid interest, if any, upon conversion of a note, except in limited circumstances. Instead, interest will be deemed paid by our delivery of the
shares of our common stock into which your note is convertible. See Description of the NotesConversion Rights General.
|
Settlement upon conversion
|
Upon conversion of the notes, a holder will receive, on or prior to the third trading day following the conversion date, a number of shares of our common stock equal to the product of (1) the aggregate principal amount of notes to be converted,
divided by $1,000, and (2) the applicable conversion rate, plus cash in lieu of fractional shares. See Description of the NotesConversion RightsSettlement Upon Conversion;
provided
,
however
, that with respect to
any conversion date that occurs on or after the regular record date for the final payment of interest on the notes (i.e., August 15, 2022), we will deliver such shares and cash on the maturity date.
|
Redemption of notes to preserve REIT status
|
We may not redeem the notes prior to March 1, 2022 except to the extent our board of directors determines such redemption is reasonably necessary to preserve our qualification as a REIT. If we determine that redeeming the notes is necessary to
preserve our qualification as a REIT, then we may at any time prior to maturity redeem all or part (in a principal amount that is an integral multiple of $1,000) of the notes at a cash redemption price equal to the principal amount of the notes to
be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
|
Redemption during final six month term of the notes; no sinking fund
|
On or after March 1, 2022, we may redeem the notes for cash, in whole or from time to time in part, at our option, at a redemption price equal to the sum of (i) 100% of the principal amount of the notes to be redeemed, (ii) accrued and unpaid
interest (including additional interest, if any) thereon to, but excluding, the redemption date and (iii) the make-whole premium. We will give notice of any redemption not less than 15 nor more than 30 calendar days before the redemption date to
holders of the notes. See Description of the NotesOptional RedemptionRedemption During Final Six Month Term of the Notes. No sinking fund will be provided for the notes.
|
Fundamental change
|
Upon the occurrence of a fundamental change (as defined under Description of the NotesFundamental Change Permits Holders to
|
S-3
|
Require Us to Purchase Notes), subject to certain conditions, you may require us to purchase for cash all or part of your notes. The fundamental change purchase price will equal 100% of the
principal amount of the notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date.
|
Ranking
|
The notes will be our senior unsecured obligations and will rank:
|
|
|
|
senior in right of payment to any future indebtedness we may have that is expressly subordinated in right of payment to the notes;
|
|
|
|
equal in right of payment to our future unsecured indebtedness that is not so subordinated;
|
|
|
|
effectively junior in right of payment to any of our existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness; and
|
|
|
|
structurally subordinated to all existing and future indebtedness (including trade payables) and any future preferred equity interests of our subsidiaries as well as to any of our existing or future indebtedness that
may be guaranteed by any of our subsidiaries (to the extent of any such guarantee), except for the future unsecured and unsubordinated indebtedness of our operating partnership with which the notes will rank equal in right of payment, including but
not limited to the Mirror Note (as defined below).
|
|
Our subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due on the notes or to make any funds available to us for payment on the notes, whether by
dividends, loans or other payments, except that we intend to contribute the net proceeds from this offering to our operating partnership in exchange for the issuance by our operating partnership of a senior unsecured note, or the Mirror Note, with
terms that are substantially equivalent to the terms of the notes offered through this prospectus supplement. As a result, our operating partnership will be obligated to pay us amounts due and payable under the Mirror Note, which will rank equal in
right of payment with all of the future unsecured and unsubordinated indebtedness of our operating partnership.
|
|
As of June 30, 2017, on a consolidated basis, we had approximately $290 million outstanding under our senior secured
revolving credit facility, or our Existing Credit Facility, approximately $102 million outstanding under a recourse credit facility, or our Recourse Credit Facility (and together with our Existing Credit Facility we collectively refer to as our
Credit Facilities), and approximately $922 million outstanding in asset-backed nonrecourse debt and bank loans. As of June 30, 2017, our total consolidated indebtedness (excluding
|
S-4
|
trade payables and unfunded commitments) was $1.31 billion (including non-recourse debt), all of which was indebtedness secured by assets of our subsidiaries to third parties to which the notes
would have been structurally subordinated. As of June 30, 2017, our subsidiaries had no preferred equity interests outstanding.
|
|
The indenture governing the notes will not limit the amount of debt that we or our subsidiaries may incur and will not include any financial covenants, including covenants restricting us from paying dividends or issuing
or repurchasing our other securities.
|
Events of default
|
Except as described under Description of the NotesEvents of Default, if an event of default with respect to the notes occurs, holders may, upon satisfaction of certain conditions, accelerate the principal amount of the notes
plus accrued and unpaid interest. In addition, the principal amount of the notes plus accrued and unpaid interest will automatically become due and payable in the case of certain types of bankruptcy or insolvency events of default involving us.
|
Ownership limit
|
To assist us in complying with the limitations on the concentration of ownership of a REIT imposed by the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, among other purposes, our charter generally prohibits, among other
prohibitions, any stockholder from beneficially or constructively owning more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of our common stock, the outstanding shares of any class or series of our
preferred stock or the outstanding shares of our capital stock of all classes and series and contains certain other restrictions on the ownership and transfer of our stock. See Description of SecuritiesRestrictions on Ownership and
Transfer in the accompanying prospectus. Notwithstanding any other provision of the notes, no holder of notes will be entitled to receive our common stock following conversion of such notes to the extent that receipt of such common stock would
cause such holder (after application of certain constructive ownership rules) to exceed the ownership limit or other restrictions on ownership and transfer of our stock contained in our charter.
|
|
Any purported delivery of shares of common stock upon conversion of notes shall be void and have no effect to the extent (but only to the extent) that such delivery would result in the converting holder violating the
charter limitations described above. See Description of SecuritiesRestrictions on Ownership and Transfer in the accompanying prospectus.
|
Book-entry form
|
The notes will be issued in book-entry form and will be represented by one or more permanent global certificates deposited with, or on behalf of, The
Depository Trust Company, or DTC, and registered in the name of a nominee of DTC. Beneficial interests in any of the
|
S-5
|
notes will be shown on, and transfers will be effected only through, records maintained by DTC or its nominee and any such interest may not be exchanged for certificated securities, except in
limited circumstances.
|
Absence of a public market for the notes
|
The notes are a new issue of securities with no established trading market and we do not intend to list the notes on any national securities exchange. If no active trading market develops, you may not be able to resell your notes at their fair
market value or at all. Future trading prices of the notes will depend on many factors, including the market price of our common stock, prevailing interest rates, our operating results and the market for similar securities. We have been informed by
certain of the underwriters that they currently intend to make a market in the notes after this offering is completed. However, these underwriters are not obligated to do so, and may cease their market-making at any time and without notice.
|
No listing
|
We do not intend to apply for listing of the notes on any securities exchange. Our common stock is listed on the NYSE under the symbol HASI.
|
Material U.S. federal income tax considerations
|
For certain material U.S. federal income tax considerations relating to the purchase, ownership and disposition of the notes and the shares of our common stock, if any, into which the notes are convertible, see Additional U.S. Federal
Income Tax Considerations in this prospectus supplement and U.S. Federal Income Tax Considerations in the accompanying prospectus.
|
Trustee, paying agent and conversion agent
|
U.S. Bank National Association.
|
Use of proceeds
|
The net proceeds from this offering will be approximately $130.9 million (or approximately $145.5 million if the underwriters exercise their
over-allotment option to purchase additional notes in full), after deducting underwriting discounts and estimated offering expenses payable by us. We intend to contribute the net proceeds from this offering to our Operating Partnership in exchange
for the issuance by the Operating Partnership of the Mirror Note with terms that are substantially equivalent to the terms of the notes offered through this prospectus supplement. Our Operating Partnership intends to use the majority of such
proceeds to repay outstanding borrowings under one or both of our Credit Facilities or for general corporate purposes. As of June 30, 2017, we had approximately $290 million outstanding under our Existing Credit Facility, with Bank of America, N.A.,
an affiliate of one of the underwriters in this offering, and approximately $102 million under our Recourse Credit Facility, with Deutsche Bank AG, New York Branch and Deutsche Bank Trust Company Americas, affiliates of one of the underwriters in
this offering. Following any such repayment, our operating partnership
|
S-6
|
will use any remaining net proceeds, together with the available borrowing capacity under our Existing Credit Facility, to acquire our target assets subject to our investment strategy and to the
extent consistent with maintaining our REIT qualification and our exception from registration under the 1940 Act and for general corporate purposes. Prior to the full investment of such remaining net proceeds, we intend to invest such remaining net
proceeds in interest-bearing accounts and short-term, interest-bearing securities which are consistent with our intention to qualify for taxation as a REIT. See Use of Proceeds.
|
Risk factors
|
Investing in the notes involves a high degree of risk. You should carefully read the information contained under the caption Risk Factors in this prospectus supplement and page 3 of the accompanying prospectus, and the risks set
forth under the caption Item 1A. Risk Factors included in our 2016 10-K and our other filings under the Exchange Act for risks that you should consider before deciding to invest in the notes.
|
Regulatory
|
We have elected to qualify, and operate our business so as to qualify, to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, commencing with our taxable year ended December 31, 2013.
|
|
We also intend to continue to operate our business in a manner that will permit us to maintain our exception from registration as an investment company under the 1940 Act.
|
Our Corporate Information
Our principal
executive offices are located at 1906 Towne Centre Blvd, Suite 370, Annapolis, Maryland 21401. Our telephone number is (410) 571-9860. Our website is www.hannonarmstrong.com. The information on our website is not intended to form a part of or
be incorporated by reference into this prospectus supplement or the accompanying prospectus.
S-7
RISK FACTORS
Investing in the notes being offered by this prospectus supplement and the accompanying prospectus involves a high degree of risk. Before
making an investment decision, you should carefully consider the risk factors described below and the risks described beginning on page 3 of the accompanying prospectus and in the section Risk Factors contained in our 2016 10-K, which is
incorporated herein by reference, together with all of the other information included or incorporated by reference in this prospectus supplement and the accompanying prospectus. Any of these risks could materially adversely affect our business,
financial condition, results of operations, tax status or ability to make distributions to our stockholders. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely
affect our business operations. If this were to happen, you could lose a part or all of your investment.
Risks Related to the Notes and to this
Offering
We expect that the trading price of the notes will be significantly affected by changes in the market price of our common
stock, the interest rate environment and our credit quality, each of which could change substantially at any time.
We expect that the
trading price of the notes will depend on a variety of factors, including, without limitation, the market price of our common stock, the interest rate environment and our credit quality. Each of these factors may be volatile and may or may not be
within our control.
The market price of our common stock may be volatile and be subject to wide fluctuations. Fluctuations in our stock
price may not reflect our historical financial performance and condition and prospects. Our stock price may fluctuate as a result of factors that are beyond our control or unrelated to our historical financial performance and condition and
prospects. We cannot assure you that the market price of our common stock will not be volatile or fluctuate or decline significantly in the future. In addition, the stock market in general can experience considerable price and volume fluctuations
that may be unrelated to our historical performance and condition and prospects.
Likewise, if interest rates, or expected future interest
rates, rise during the term of the notes, the present value of the coupons and principal repayment associated with the notes will likely decrease, but the value of the conversion right embedded in the notes will likely increase. Because interest
rates and interest rate expectations are influenced by a wide variety of factors, many of which are beyond our control, we cannot assure you that changes in interest rates or interest rate expectations will not adversely affect the trading price of
the notes.
Furthermore, the trading price of the notes will likely be significantly affected by any change in our credit quality. Because
our credit quality is influenced by a variety of factors, some of which are beyond our control, we cannot guarantee that we will maintain or improve our credit quality during the term of the notes. In addition, because we may choose to take actions
that adversely affect our credit quality, such as incurring additional debt, there can be no guarantee that our credit quality will not decline during the term of the notes, which would likely negatively impact the trading price of the notes.
The claims of any holders of the notes will be structurally subordinated to claims of any creditors of our subsidiaries because our
subsidiaries will not guarantee the notes. In addition, we are a holding company with minimal independent operations. Our ability to repay our debt, including the notes, depends on the performance of our subsidiaries and their ability to make
distributions to us.
The notes will not be guaranteed by any of our subsidiaries. Accordingly, none of our subsidiaries is currently,
and may not become, obligated to pay any amounts due pursuant to the notes, or to make any funds available therefor, except that we intend to contribute the net proceeds from this offering to our operating partnership in exchange for the issuance by
our operating partnership of the Mirror Note with terms that are
S-8
substantially equivalent to the terms of the notes offered through this prospectus supplement. As a result, our operating partnership will be obligated to pay us amounts due and payable under the
Mirror Note, which will rank equal in right of payment with all of the future unsecured and unsubordinated indebtedness of our operating partnership. Claims of holders of the notes will be structurally subordinated to the claims of any creditors of
our subsidiaries (except for the creditors of the future unsecured and unsubordinated indebtedness of our operating partnership), including trade creditors as well as to any of our existing or future indebtedness that may be guaranteed by any of our
subsidiaries (to the extent of any such guarantee). As a result, in the event of a bankruptcy, liquidation or reorganization of any of our subsidiaries, such subsidiaries will pay the holders of their debt and their trade creditors before they will
be able to distribute any of their assets to us.
As a holding company, substantially all of our business is conducted through our
subsidiaries, which are separate and distinct legal entities. Therefore, our ability to service our indebtedness, including the notes, is dependent on the earnings and the distribution of funds (whether by dividend, distribution or loan) from our
subsidiaries. None of our subsidiaries is obligated to make funds available to us for payment on the notes, except that we intend to contribute the net proceeds from this offering to our operating partnership in exchange for the issuance by our
operating partnership of the Mirror Note with terms that are substantially equivalent to the terms of the notes offered hereby. We cannot assure you that the agreements governing the existing and future indebtedness of our subsidiaries will permit
our subsidiaries to provide us with sufficient dividends, distributions or loans to fund payments on the notes when due. In addition, any payment of dividends, distributions or loans to us by our subsidiaries could be subject to restrictions on
dividends or repatriation of earnings under applicable local law in the jurisdictions in which our subsidiaries operate. Furthermore, we guaranty many of the obligations of our subsidiaries, including certain indebtedness of our subsidiaries, and
such guarantees may require us to provide substantial funds or assets to our subsidiaries, or their creditors at a time when we need liquidity to fund our own obligations, such as the notes.
As of June 30, 2017, our total consolidated indebtedness (excluding trade payables and unfunded commitments) was $1.31 billion (including
non-recourse debt), all of which was indebtedness secured by assets of our subsidiaries to third parties to which the notes would have been structurally subordinated.
Our substantial indebtedness could adversely affect our business, financial condition or results of operations and prevent us from
fulfilling our obligations under the notes.
We currently have and, after this offering, will continue to have a significant amount of
indebtedness. This substantial level of indebtedness increases the risk that we may be unable to generate enough cash to pay amounts due in respect of our indebtedness, including the notes.
Our substantial indebtedness could have important consequences to you and significant effects on our business. For example, it could:
|
|
|
make it more difficult for us to satisfy our obligations with respect to the notes;
|
|
|
|
increase our vulnerability to general adverse economic and industry conditions;
|
|
|
|
require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, our
strategic growth initiatives and development efforts and other general corporate purposes;
|
|
|
|
limit our flexibility in reacting to changes in our business and the industry in which we operate;
|
|
|
|
restrict us from exploiting business opportunities;
|
S-9
|
|
|
place us at a competitive disadvantage compared to our competitors that have less indebtedness; and
|
|
|
|
limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions, debt service requirements, execution of our business strategy or other general corporate purposes.
|
In addition, the agreements that govern our current indebtedness contain, and the agreements that may govern any future indebtedness that we
may incur may contain, financial and other restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interests.
Our failure to comply with those covenants could result in an event of default that, if not cured or waived, could result in the acceleration
of some or all of our debt.
Despite our substantial current indebtedness, we and our subsidiaries may still be able to incur
substantially more indebtedness. This could further exacerbate the risks associated with our substantial leverage.
We and our
subsidiaries may be able to incur substantial additional indebtedness in the future, including pursuant to a capital markets transaction such as a notes offering as well as secured indebtedness that will be structurally senior to the notes.
Furthermore, the indenture establishing the terms of the notes will not limit the amount of debt that we or our subsidiaries may issue. Adding new indebtedness to current debt levels could make it more difficult for us to satisfy our obligations
with respect to the notes.
The notes are not protected by restrictive covenants, which in turn may allow us to engage in a variety of
transactions that may impair our ability to fulfill our obligations under the notes.
The indenture governing the notes will not
contain any financial covenants and will not restrict us from paying dividends, incurring debt or issuing or repurchasing our other securities. Because the indenture will not contain any covenants or other provisions designed to afford holders of
the notes protection in the event of a highly leveraged transaction involving us or in the event of a decline in any credit rating for the notes for any reason, including as a result of a takeover, recapitalization, highly leveraged transaction or
similar restructuring involving us, except to the extent described under Description of the NotesFundamental Change Permits Holders to Require Us to Purchase Notes, Description of the NotesConsolidation, Merger and Sale
of Assets and Description of the NotesAdjustment to Conversion Rate Upon Conversion In Connection With a Make-Whole Fundamental Change, we may engage in transactions that may impair our ability to fulfill our obligations
under the notes. Other than the repurchase right, the restrictions provided by the merger covenant and our obligation to increase the conversion rate with respect to the notes in certain circumstances upon the occurrence of certain events, we
generally have no duty to consider the interests of holders of the notes in determining whether to engage in such transactions.
Recent regulatory
actions may adversely affect the trading price and liquidity of the notes.
We expect that many investors in, and potential purchasers
of, the notes will employ, or seek to employ, a convertible arbitrage strategy with respect to the notes. Investors would typically implement this strategy by selling short the common stock underlying the notes and dynamically adjusting their short
position while they hold the notes. Investors may also implement this strategy by entering into swaps on our common stock in lieu of or in addition to short selling our common stock.
The SEC and other regulatory and self-regulatory authorities have implemented various rules and may adopt additional rules in the future that
may impact those engaging in short selling activity involving equity securities (including our common stock), including Rule 201 of SEC Regulation SHO, the Financial Industry Regulatory Authoritys, or FINRAs, Limit Up-Limit
Down program, market-wide circuit breaker systems that
S-10
halt trading of securities for certain periods following specific market declines, and rules stemming from the enactment and implementation of the Dodd-Frank Wall Street Reform and Consumer
Protection Act. Past regulatory actions, including emergency actions or regulations, have had a significant impact on the trading prices and liquidity of equity-linked instruments. Any governmental action that similarly restricts the ability of
investors in, or potential purchasers of, the notes to effect short sales of our common stock or enter into swaps on our common stock could similarly adversely affect the trading price and the liquidity of the notes.
In addition, if investors and potential purchasers seeking to employ a convertible arbitrage strategy are unable to borrow or enter into swaps
on our common stock, in each case on commercially reasonable terms, the trading price and liquidity of the notes may be adversely effected.
Some significant restructuring transactions that may adversely affect you may not constitute a fundamental change under the
indenture, in which case we would not be obligated to offer to repurchase the notes.
Upon the occurrence of a fundamental
change (as defined under Description of the NotesFundamental Change Permits Holders to Require Us to Purchase Notes), you have the right, at your option, to require us to repurchase your notes for cash. However, the
definition of fundamental change contained in the indenture is limited to certain enumerated transactions. As a result, the fundamental change provision of the indenture will not afford protection to holders of notes in the event of other
transactions that could adversely affect the notes or our common stock. For example, certain transactions such as leveraged recapitalizations, refinancings, significant distributions of our capital stock or assets, restructurings, spin-offs or
acquisitions involving us may not constitute a fundamental change requiring us to repurchase the notes. In the event of any such transactions, holders of the notes would not have the right to require us to repurchase their notes, even though each of
these transactions could increase the amount of our indebtedness, or otherwise adversely affect our capital structure or any credit ratings, thereby adversely affecting the holders of notes.
The adjustment to the conversion rate for notes converted in connection with a make-whole fundamental change may not adequately compensate
you for any lost option value of your notes as a result of such transaction. In addition, the definition of a make-whole fundamental change is limited and may not protect you from losing some of the option value of your notes in the event of a
variety of transactions that do not constitute a make-whole fundamental change.
Upon the occurrence of a make-whole fundamental
change, we will, in certain circumstances, increase the conversion rate for a holder that converts its notes in connection with such make-whole fundamental change. The increase in the conversion rate will be determined based on the date on which the
make-whole fundamental change becomes effective and the price paid (or deemed paid) per share of our common stock in such make-whole fundamental change, all as described below under Description of the NotesAdjustment to Conversion Rate
Upon Conversion in Connection with a Make-Whole Fundamental Change.
Although the adjustment to the conversion rate for notes
converted in connection with a make-whole fundamental change is designed to compensate you for the option value of your notes that you lose as a result of a make-whole fundamental change, it is only an estimate of such value and may not adequately
compensate you for such lost option value. In addition, if the price paid (or deemed paid) for our common stock in the make-whole fundamental change is greater than $40.00 per share or less than $22.70 per share (in each case, subject to
adjustment in accordance with the indenture), then we will not be required to adjust the conversion rate if you convert your notes in connection with such make-whole fundamental change. Moreover, in no event will we increase the conversion rate
solely because of such an adjustment to a rate that exceeds shares of our common stock per $1,000 principal amount of notes, subject to adjustments in accordance with the indenture.
Furthermore, the definition of make-whole fundamental change contained in the indenture is limited to certain enumerated transactions. As a
result, the make-whole fundamental change provisions of the indenture will
S-11
not afford protection to holders of the notes in the event that other transactions occur that could adversely affect the option value of the notes. For example, transactions, such as leveraged
recapitalizations, refinancings, restructurings or acquisitions, could significantly affect the trading characteristics of our common stock and thereby reduce the option value embedded in the notes without triggering a make-whole fundamental change.
In addition, our obligation to increase the conversion rate upon the occurrence of a make-whole fundamental change could be considered a
penalty, in which case the enforceability thereof could be subject to general equity principles such as the reasonableness of economic remedies.
Adjustments to the conversion rate do not cover all dilutive events that may adversely affect the value of the notes.
The conversion rate of the notes is subject to adjustment for certain events, including, but not limited to, the issuance of stock dividends
above a specified threshold on our common stock, the issuance of certain rights, options or warrants, subdivisions, combinations, distributions of our capital stock, indebtedness, or assets, cash dividends and certain issuer tender or exchange
offers as described under Description of the Notes Conversion RightsConversion Rate Adjustments. However, the conversion rate will not be adjusted for other events, such as a third-party tender or exchange offer or an
issuance of our common stock for cash or in connection with an acquisition, that may adversely affect the trading price of the notes or our common stock. An event that adversely affects the value of the notes may occur and that event may not result
in an adjustment to the conversion rate.
We may not have the ability to raise funds necessary to purchase the notes upon a fundamental
change.
If a fundamental change occurs, you will have the right, at your option, to require us to purchase for cash any or all of
your notes. The fundamental change purchase price will equal 100% of the principal amount of the notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date. However, we may not have
sufficient funds at the time we are required to purchase the notes, and we may not be able to arrange necessary financing on acceptable terms, if at all. In addition, our ability to purchase the notes may be limited by law, by regulatory authority
or by the agreements governing our other indebtedness outstanding at the time. If we fail to pay the fundamental change purchase price when due, we will be in default under the indenture governing the notes. A default under the indenture or the
fundamental change itself could also constitute a default under the agreements governing our other existing and future indebtedness which would further restrict our ability to make required payments under the notes.
If an active trading market does not develop for the notes, you may not be able to resell them.
Prior to this offering, there was no public market for the notes, and we do not currently plan to list the notes on any securities exchange.
If no active trading market develops, you may not be able to resell your notes at their fair market value or at all. The liquidity of the trading market in the notes and future trading prices of the notes will depend on many factors, including
prevailing interest rates, our operating results and the market for similar securities. We have been informed by certain of the underwriters that they currently intend to make a market in the notes after this offering is completed. However, such
underwriters are not obligated to do so, and may cease their market-making at any time and without notice.
A downgrade, suspension or
withdrawal of the rating assigned by a rating agency to us or the notes, if any, could cause the liquidity or market value of the notes to decline significantly.
Our credit ratings, if any, are an assessment by rating agencies of our ability to pay our debts when due. Consequently, real or anticipated
changes in our credit ratings will generally affect the market value of the notes. These credit ratings may not reflect the potential impact of risks relating to the structure or marketing of the
S-12
notes. Credit ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing organization in its sole discretion. We do not
undertake any obligation to maintain our rating, if any, or to advise holders of notes of any changes in ratings.
Sales of our common
stock, preferred stock, warrants or debt securities convertible into or exercisable or exchangeable for common stock, including issuances of our common stock upon conversion of the notes, may depress the price of our common stock and be dilutive to
holders of our common stock, including holders of any shares issued upon conversion of the notes offered hereby.
We cannot predict
the effect, if any, that future issuances or sales of our common stock, preferred stock, warrants or debt securities convertible into or exercisable or exchangeable for common stock, including issuances of our common stock upon conversion of the
notes, or the availability of our securities for future issuance or sale, will have on the market price of shares of our common stock. Issuances or sales of substantial amounts of our common stock, preferred stock, warrants or debt securities
convertible into or exercisable or exchangeable for common stock, including issuances of our common stock upon conversion of the notes, or the perception that such issuances or sales might occur, could negatively impact the market price of our
common stock and the terms upon which we may obtain additional equity financing in the future. Preferred stock we issue will generally be senior to our common stock with respect to dividends and liquidation rights. The issuance of any additional
shares of our common stock or securities convertible into or exchangeable for common stock or that represent the right to receive common stock, or the exercise of such securities, could be substantially dilutive to holders of our common stock,
including holders of any shares issued upon conversion of the notes offered hereby. The vesting of any restricted stock granted to directors, executive officers and other employees, and other issuances of our common stock could have an adverse
effect on the market price of our common stock, and the existence of our common stock reserved for issuance under our 2013 Equity Incentive Plan, as amended, may adversely affect the terms upon which we may be able to obtain additional capital
through the sale of securities.
Holders of notes will not be entitled to any rights with respect to our common stock, but will be
subject to all changes made with respect to our common stock.
Holders of notes will not be entitled to any rights with respect to our
common stock (including, without limitation, voting rights and rights to receive any dividends or other distributions on our common stock), until the time at which they become record holders of our common stock, which will be the close of business
on the conversion date, but will be subject to all changes affecting our common stock. For example, if an amendment is proposed to our charter or bylaws requiring stockholder approval and the record date for determining the stockholders of record
entitled to vote on the amendment occurs prior to the date you are a record holder of our common stock, you generally will not be entitled to vote on the amendment, although you will nevertheless be subject to any changes affecting our common stock.
Certain provisions in the notes and the indenture could delay or prevent an otherwise beneficial takeover or takeover attempt of us
and, therefore, the ability of holders to exercise their rights associated with a potential fundamental change or a make-whole fundamental change.
Certain provisions in the notes and the indenture could make it more difficult or more expensive for a third party to acquire us. For example,
if an acquisition event constitutes a fundamental change, holders of the notes will have the right to require us to purchase their notes in cash. In addition, if an acquisition event constitutes a make-whole fundamental change, we may be required to
increase the conversion rate for holders who convert their notes in connection with such make-whole fundamental change. Our obligations under the notes and the indenture could increase the cost of acquiring us or otherwise discourage a third party
from acquiring us or removing incumbent management.
S-13
We cannot assure you of our ability to make distributions in the future. If our portfolio of
assets fails to generate sufficient income and cash flow, we could be required to sell assets, borrow funds or make a portion of our distributions in the form of a taxable stock distribution or distribution of debt securities.
We are generally required to distribute to our stockholders at least 90% of our REIT taxable income (without regard to the deduction for
dividends paid and excluding net capital gains) each year for us to qualify, and maintain our qualification, as a REIT under the Internal Revenue Code. Our current policy is to pay quarterly distributions, which on an annual basis will equal or
exceed substantially all of our REIT taxable income. In the event that our board of directors authorizes distributions in excess of the income or cash flow generated from our assets, we may make such distributions from the proceeds of future
offerings of equity or debt securities or other forms of debt financing or the sale of assets.
Our ability to make distributions may be
adversely affected by a number of factors. Therefore, although we anticipate making quarterly distributions to our stockholders, our board of directors has the sole discretion to determine the timing, form and amount of any distributions to our
stockholders. If our portfolio of assets fails to generate sufficient income and cash flow, we could be required to sell assets, borrow funds or make a portion of our distributions in the form of a taxable stock distribution or distribution of debt
securities. To the extent that we are required to sell assets in adverse market conditions or borrow funds at unfavorable rates, our results of operations could be materially and adversely affected. Our board of directors will make determinations
regarding distributions based upon various factors, including our earnings, our financial condition, our liquidity, our debt and preferred stock covenants, maintenance of our REIT qualification, applicable provisions of the Maryland General
Corporation Law and other factors as our board of directors may deem relevant from time to time. We believe that a change in any one of the following factors could adversely affect our results of operations and impair our ability to make
distributions to our stockholders:
|
|
|
our ability to make profitable investments and loans;
|
|
|
|
margin calls or other expenses that reduce our cash flow;
|
|
|
|
defaults in our asset portfolio or decreases in the value of our portfolio; and
|
|
|
|
the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from estimates.
|
As a result, no assurance can be given that we will be able to make distributions to our stockholders at any time in the future or that the
level of any distributions we do make to our stockholders will achieve a market yield or increase or even be maintained over time, any of which could materially and adversely affect us.
In addition, distributions that we make to our stockholders will generally be taxable to our stockholders as ordinary income. However, a
portion of our distributions may be designated by us as long-term capital gains to the extent that they are attributable to capital gain income recognized by us or may constitute a return of capital to the extent that they exceed our earnings and
profits as determined for tax purposes. A return of capital is not taxable, but has the effect of reducing the basis of a stockholders investment in shares of our common stock, and will adjust the ultimate amount of capital gain/loss, if any,
the stockholder may recognize in the future.
Ownership limitations in our charter may impair the ability of holders to convert notes
into our common stock.
In order to assist us in maintaining our qualification as a REIT for U.S. federal income tax purposes, our
charter restricts any person from owning (directly or as a result of certain constructive ownership rules) more than 9.8% by value or number of shares, whichever is more restrictive, of the outstanding shares of our common stock, the outstanding
shares of any class or series of our preferred stock or the outstanding shares of our capital
S-14
stock of all classes and series, subject to certain exceptions, and contains certain other restrictions on the ownership and transfer of our stock. Notwithstanding any other provision of the
notes, no holder of notes will be entitled to receive our common stock following conversion of such notes to the extent that receipt of such common stock would violate the ownership limit or violate the other restrictions on ownership and transfer
of our stock contained in our charter. See Description of Securities in the accompanying prospectus. Any purported delivery of shares of common stock upon conversion of notes shall be void and have no effect to the extent (but only to
the extent) that such delivery would result in the converting holder violating the restrictions on ownership and transfer of our stock contained in our charter. See Restrictions on Ownership and Transfer in the accompanying prospectus
for additional information about these restrictions.
You may be deemed to receive a taxable distribution without the receipt of any
cash or property.
The conversion rate of the notes will be adjusted in certain circumstances. Adjustments (or failures to make
adjustments) to the conversion rate of the notes that have the effect of increasing your proportionate interest in our assets or earnings may, in some circumstances, result in a taxable constructive distribution to you for U.S. federal income tax
purposes, notwithstanding the fact that you do not receive an actual distribution of cash or property. If a make-whole fundamental change adjustment event occurs prior to the maturity date of the notes, then, under some circumstances, we will
increase the conversion rate for notes converted in connection with such make-whole fundamental change. Such increase may also be treated as a distribution subject to U.S. federal income tax as a dividend. In addition, you may be subject to U.S.
federal withholding taxes in connection with such a constructive distribution. If we pay withholding taxes on your behalf as a result of an adjustment to the conversion rate of the notes, we may, at our option and pursuant to certain provisions of
the indenture, set off such payments against payments of cash and common stock on the notes. You are urged to consult your tax advisors with respect to the U.S. federal income tax consequences resulting from an adjustment to the conversion rate of
the notes. See the discussions under the heading Additional U.S. Federal Income Tax Considerations.
S-15
FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this prospectus supplement within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act that are subject to risks and uncertainties. For these statements, we claim the protections of the safe harbor for forward-looking statements contained in such Sections. These forward-looking statements include
information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. When we use the words believe, expect, anticipate,
estimate, plan, continue, intend, should, may or similar expressions, we intend to identify forward-looking statements.
Forward-looking statements are subject to significant risks and uncertainties. Investors are cautioned against placing undue reliance on such
statements. Actual results may differ materially from those set forth in the forward-looking statements. Factors that could cause actual results to differ materially from those described in the forward-looking statements are contained in our 2016
10-K that was filed with the SEC, and include risks discussed in other periodic reports that we file with the SEC. Statements regarding the following subjects, among others, may be forward-looking:
|
|
|
our expected returns and performance of our investments;
|
|
|
|
the state of government legislation, regulation and policies that support or enhance the economic feasibility of sustainable infrastructure projects, including energy efficiency and renewable energy projects and the
general market demands for such projects;
|
|
|
|
market trends in our industry, energy markets, commodity prices, interest rates, the debt and lending markets or the general economy;
|
|
|
|
our business and investment strategy;
|
|
|
|
availability of opportunities to invest in sustainable infrastructure projects, including energy efficiency and renewable energy projects and our ability to complete potential new opportunities in our pipeline;
|
|
|
|
our relationships with originators, investors, market intermediaries and professional advisers;
|
|
|
|
competition from other providers of capital;
|
|
|
|
our or any other companies projected operating results;
|
|
|
|
actions and initiatives of the federal, state and local governments and changes to federal, state and local government policies, regulations, tax laws and rates and the execution and impact of these actions, initiatives
and policies;
|
|
|
|
the state of the U.S. economy generally or in specific geographic regions, states or municipalities; economic trends and economic recoveries;
|
|
|
|
our ability to obtain and maintain financing arrangements on favorable terms, including securitizations;
|
|
|
|
general volatility of the securities markets in which we participate;
|
|
|
|
changes in the value of our assets, our portfolio of assets and our investment and underwriting process;
|
S-16
|
|
|
rates of default or decreased recovery rates on our assets;
|
|
|
|
interest rate and maturity mismatches between our assets and any borrowings used to fund such assets;
|
|
|
|
changes in interest rates and the market value of our assets and target assets;
|
|
|
|
changes in commodity prices;
|
|
|
|
effects of hedging instruments on our assets or liabilities;
|
|
|
|
the degree to which our hedging strategies may or may not protect us from interest rate volatility;
|
|
|
|
impact of and changes in accounting guidance and similar matters;
|
|
|
|
our ability to maintain our qualification as a REIT;
|
|
|
|
our ability to maintain our exception from registration under the 1940 Act;
|
|
|
|
availability of qualified personnel;
|
|
|
|
estimates relating to our ability to make distributions to our stockholders in the future; and
|
|
|
|
our understanding of our competition.
|
Forward-looking statements are based on beliefs,
assumptions and expectations as of the date of this prospectus supplement or the date of the documents incorporated by reference herein. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise
over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
The risks included here are not exhaustive. Other sections of this prospectus supplement or the
accompanying prospectus and the documents incorporated by reference herein and therein may include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing
environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual
results.
S-17
USE OF PROCEEDS
The net proceeds from this offering will be approximately $130.9 million (or approximately $145.5 million if the underwriters
exercise their over-allotment option to purchase additional notes in full), after deducting underwriting discounts and estimated offering expenses payable by us.
We intend to contribute the net proceeds from this offering to our Operating Partnership in exchange for the issuance by the Operating
Partnership of the Mirror Note with terms that are substantially equivalent to the terms of the notes offered through this prospectus supplement. Our Operating Partnership intends to use the majority of such proceeds to repay outstanding borrowings
under one or both of our Credit Facilities or for general corporate purposes. As of June 30, 2017, we had approximately $290 million outstanding under our Existing Credit Facility, with Bank of America, N.A., an affiliate of one of the
underwriters in this offering, and approximately $102 million under our Recourse Credit Facility, with Deutsche Bank AG, New York Branch and Deutsche Bank Trust Company Americas, affiliates of one of the underwriters in this offering. Following any
such repayment, our operating partnership will use any remaining net proceeds, together with the available borrowing capacity under our Existing Credit Facility, to acquire our target assets subject to our investment strategy and to the extent
consistent with maintaining our REIT qualification and our exception from registration under the 1940 Act and for general corporate purposes. Prior to the full investment of such remaining net proceeds, we intend to invest such remaining net
proceeds in interest-bearing accounts and short-term, interest-bearing securities which are consistent with our intention to qualify for taxation as a REIT.
Our Existing Credit Facility consists of two components, the G&I Facility and the PF Facility. The G&I Facility can be
used to leverage certain qualifying government and institutional financings entered into by us and the PF Facility can be used to leverage certain qualifying project financings entered into by us. Loans under the G&I Facility bear
interest at a rate equal to the London Interbank Offered Rate (LIBOR) plus 1.5% or, under certain circumstances, 1.5% plus the Base Rate. Loans under the PF Facility bear interest at a rate equal to LIBOR plus 2.5% or, under certain
circumstances, 2.5% plus the Base Rate or as mutually agreed. The Base Rate is defined as the highest of (i) the Federal Funds Rate plus 0.5%, (ii) the rate of interest publicly announced by Bank of America from time to time as its
prime rate, (iii) LIBOR plus 1.0% and (iv) zero. Under the PF Facility, we also have the option to borrow at a fixed rate of interest until the expiration of the credit facility in July 2019. The fixed rate is determined by
agreement with the Administrative Agent and is based on the prevailing US SWAP rate of an equivalent term to the average-life of the fixed rate portion of the borrowing plus an agreed upon margin. As of June 30, 2017, the weighted average
interest rate on the Existing Credit Facility was 2.9% per annum.
Our Recourse Credit Facility matures on September 20, 2017.
The credit facility can be repaid at any time. Our Recourse Credit Facility bears interest at a rate of three month LIBOR plus 200 basis points through September 1, 2017, increasing to three month LIBOR plus 275 basis points on
September 2, 2017.
For further information about our objectives and strategies, please see BusinessInvestment
Strategy, included in our 2016 10-K, which is incorporated by reference into this prospectus supplement.
S-18
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for the periods indicated. The ratio of earnings to fixed charges was
computed by dividing earnings by our fixed charges. For purposes of calculating this ratio, earnings include net income/(loss) plus the sum of fixed charges and distributions received from equity investments. Fixed charges
consists of investment interest expense, other interest expenses and the estimated interest component of rental expense. This ratio is calculated in accordance with generally accepted accounting principles.
Hannon Armstrong Capital, LLC, a Maryland limited liability company, the entity that operated our historical business prior to the
consummation of our initial public offering on April 23, 2013, or our IPO, and which we refer to as the Predecessor, became our subsidiary upon consummation of our IPO. To the extent any of the financial data included in the below
table is as of a date or from a period prior to the consummation of our IPO, such financial data is that of the Predecessor. The financial data for the Predecessor for such periods do not reflect the material changes to the business as a result of
the capital raised in the IPO including the broadened types of projects undertaken, the enhanced financial structuring flexibility and the ability to retain a larger share of the economics from the origination activities. Accordingly, the financial
data for the Predecessor is not necessarily indicative of our financial position following the completion of the IPO.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
six months
ended
June 30,
2017
|
|
|
For the
fiscal year
ended
December 31,
2016
|
|
|
For the
fiscal year
ended
December 31,
2015
|
|
|
For the
fiscal year
ended
December 31,
2014
|
|
|
For the
fiscal year
ended
December 31,
2013
|
|
|
For the
three months
ended
December 31,
2012
|
|
|
For the
fiscal year
ended
September 30,
2012
|
|
Ratio of Earnings to Fixed
Charges
(1)
|
|
|
2.6
|
|
|
|
2.4
|
|
|
|
2.3
|
|
|
|
1.6
|
|
|
|
*
|
|
|
|
1.8
|
|
|
|
2.9
|
|
*
|
Earnings were insufficient to cover fixed charges by $2.9 million for the fiscal year ended December 31, 2013.
|
(1)
|
We had no preferred stock outstanding for any of the periods. Accordingly, the ratios of earnings to combined fixed charges and preferred stock dividends are not presented because they are identical to the ratios
of earnings to fixed charges for each of the periods.
|
S-19
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2017 (1) on an actual basis and (2) on an as adjusted basis to
reflect the sales of the notes in this offering, assuming the underwriters do not exercise their over-allotment option to purchase additional notes and after deducting the underwriting discount and our estimated offering expenses, and the use of the
net proceeds as described in Use of Proceeds, as if they had occurred on June 30, 2017. You should read this table together with Managements Discussion and Analysis of Financial Condition and Results of Operations
and our consolidated financial statements and related notes incorporated by reference into this prospectus supplement and the accompanying prospectus.
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
|
|
Actual
|
|
|
As Adjusted
|
|
|
|
(In thousands, except for share and per
share data)
|
|
Cash and cash equivalents
|
|
$
|
41,696
|
|
|
$
|
51,696
|
|
|
|
|
|
|
|
|
|
|
Liabilities
:
|
|
|
|
|
|
|
|
|
4.125% convertible senior notes due 2022 offered hereby
|
|
|
|
|
|
|
130,888
|
|
Credit facilities
(1)
|
|
|
392,482
|
|
|
|
271,594
|
|
Nonrecourse debt
|
|
|
921,780
|
|
|
|
921,780
|
|
Other liabilities
|
|
|
311,006
|
|
|
|
311,006
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
1,625,268
|
|
|
|
1,635,268
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value per share, 50,000,000 shares authorized, no shares issued and
outstanding on an actual basis; 50,000,000 shares authorized, no shares issued and outstanding on an as adjusted basis
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value per share, 450,000,000 shares authorized, 51,655,406 shares issued
and outstanding on an actual basis; 450,000,000 shares authorized, 51,655,406 shares issued and outstanding on an as adjusted basis
|
|
|
517
|
|
|
|
517
|
|
Additional paid in capital
|
|
|
766,894
|
|
|
|
766,894
|
|
Accumulated deficit
|
|
|
(107,263
|
)
|
|
|
(107,263
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(575
|
)
|
|
|
(575
|
)
|
Non-controlling interests
(2)
|
|
|
3,690
|
|
|
|
3,690
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
663,263
|
|
|
|
663,263
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
2,288,531
|
|
|
$
|
2,298,531
|
|
|
|
|
|
|
|
|
|
|
(1)
|
As of June 30, 2017, we had approximately $290 million outstanding under our Existing Credit Facility. As of June 30, 2017, we had approximately $102 million outstanding under our Recourse Credit Facility.
|
(2)
|
As of June 30, 2017, we owned over 99% of our operating partnership and less than 1% was owned by other limited partners. The outstanding OP units held by outside limited partners are redeemable for cash, or at our
option, for a like number of shares of our common stock.
|
S-20
DESCRIPTION OF THE NOTES
We will issue the notes under an indenture, or the base indenture, which is expected to be dated as of the date of initial issuance of the
notes, between us and U.S. Bank National Association, as trustee, or the trustee, as supplemented by a supplemental indenture with respect to the notes, to be dated as of the date of initial issuance of the notes, or the supplemental indenture. We
refer to the base indenture and the supplemental indenture, collectively, as the indenture. The terms of the notes include those expressly set forth in the indenture and those made part of the indenture by reference to the Trust Indenture Act.
You may request a copy of the indenture from us as described below under Where You Can Find More Information and Incorporation by
Reference.
The following description is a summary of the material provisions of the notes and the indenture and does not purport to
be complete. This summary is subject to, and is qualified by reference to all the provisions of, the notes and the indenture, including the definitions of certain terms used in the indenture. We urge you to read these documents because they, and not
this description, define your rights as a holder of the notes.
This description of the notes supplements and, to the extent it is
inconsistent with, replaces the description of the general provisions of the notes and the base indenture in the accompanying prospectus. For purposes of this description, references to we, our, us and
Hannon Armstrong refer only to Hannon Armstrong Sustainable Infrastructure Capital, Inc. and not to its subsidiaries.
General
The notes:
|
|
|
will be our general unsecured, senior obligations;
|
|
|
|
will initially be limited to an aggregate principal amount of $135,000,000 (or $150,000,000 if the underwriters exercise their option to purchase additional notes to cover over-allotments in full);
|
|
|
|
will bear cash interest from the date of issuance (which is scheduled for August 22, 2017) at an annual rate of 4.125% payable on March 1 and September 1 of each year, beginning on March 1, 2018;
|
|
|
|
will be redeemable prior to September 1, 2022 to the extent our board of directors determines such redemption is reasonably necessary to preserve our qualification as a REIT;
|
|
|
|
will be redeemable on or after March 1, 2022 for cash, in whole or from time to time in part, at our option at a redemption price equal to the sum of (i) 100% of the principal amount of the notes to be redeemed,
(ii) accrued and unpaid interest (including additional interest, if any) to, but excluding, the redemption date and (iii) the make-whole premium. We will give notice of any redemption not less than 15 nor more than 30 calendar days before
the redemption date to holders of the notes;
|
|
|
|
will be subject to purchase by us at the option of the holders following a fundamental change (as defined below under Fundamental Change Permits Holders to Require Us to Purchase Notes), at a price
equal to 100% of the principal amount of the notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date;
|
|
|
|
will mature on September 1, 2022, unless earlier converted, redeemed or repurchased;
|
|
|
|
will be issued in denominations of $1,000 and integral multiples of $1,000 in excess thereof; and
|
S-21
|
|
|
will be represented by one or more registered notes in global form, but in certain limited circumstances may be represented by notes in definitive form. See Book-Entry, Settlement and Clearance.
|
The notes may be converted into shares of our common stock at a conversion rate initially equal to 36.7107 shares of our
common stock per $1,000 principal amount of notes (equivalent to a conversion price of approximately $27.24 per share of our common stock) at any time prior to the close of business on the second scheduled trading day prior to the maturity date,
unless the notes have been previously redeemed or repurchased. The conversion rate is subject to adjustment if certain events occur. See Conversion RightsConversion Rate Adjustments. Holders will not receive any additional
cash payment for interest or additional interest, if any, accrued and unpaid to the conversion date except under the circumstances described below under Conversion RightsGeneral. Notwithstanding any other provision of the
notes, no holder of notes will be entitled to receive our common stock following conversion of such notes to the extent that receipt of such common stock would cause such holder (either directly or after application of certain constructive ownership
rules) to exceed the ownership limit or violate other restrictions on ownership and transfer of our stock contained in our charter. See Ownership Limit.
The indenture does not limit the amount of debt which may be issued by us or our subsidiaries under the indenture or otherwise. The indenture,
as it relates to the notes, will not contain any financial covenants and will not restrict us from paying dividends or issuing or repurchasing our other securities. Other than the restrictions described under Consolidation, Merger and
Sale of Assets below and except for the provisions set forth under Fundamental Change Permits Holders to Require Us to Purchase Notes and Adjustment to Conversion Rate Upon Conversion In Connection With a
Make-Whole Fundamental Change, the indenture does not contain any covenants or other provisions designed to afford holders of the notes protection in the event we subsequently increase our borrowings substantially or engage in a transaction
that substantially increases our debt to equity ratio (each of which would be an example of a highly leveraged transaction) or in the event of a decline in any credit rating for the notes for any reason, including as a result of a takeover,
recapitalization, highly leveraged transaction or similar restructuring involving us that could adversely affect such holders.
We may,
without notice to or the consent of the holders, issue additional notes under the indenture with the same terms and with the same CUSIP number as the notes offered hereby in an unlimited aggregate principal amount; provided that such additional
notes must be part of the same issue (and part of the same series) as the notes offered hereby for federal income tax purposes. We may also from time to time repurchase notes in open market purchases or negotiated transactions at the same or
differing prices without giving prior notice to holders. Any notes purchased by us will be retired and no longer outstanding under the indenture.
We do not intend to list the notes on any securities exchange or an interdealer quotation system. The notes will not have the benefit of a
sinking fund.
Except to the extent the context otherwise requires, we use the term notes in this prospectus supplement to refer to each
$1,000 principal amount of notes. We use the term common stock in this prospectus supplement to refer to our common stock, par value $0.01 per share. References in this prospectus supplement to a holder or holders
of notes that are held through DTC are references to owners of beneficial interests in such notes, unless the context otherwise requires. However, we and the trustee will treat the person in whose name the notes are registered (Cede & Co.,
in the case of notes held through DTC) as the owner of such notes for all purposes.
Payments on the Notes; Paying Agent and Registrar; Transfer and
Exchange
We will pay principal of and interest on notes in global form registered in the name of or held by DTC or its nominee in
immediately available funds to DTC or its nominee, as the case may be, as the registered holder of such global note. We will pay principal of certificated notes, if any, at the office or agency designated by us
S-22
for that purpose. We will pay interest on any certificated note by check mailed to the address of the registered holder of such note; provided, however, that we will pay interest to any holder of
more than $2,000,000 aggregate principal amount of certificated notes by wire transfer in immediately available funds to an account within the United States designated by such holder in a written application delivered by such person to the trustee
and the paying agent not later than the record date for the relevant interest payment, which application will remain in effect until such holder notifies the trustee and paying agent, in writing, to the contrary.
We have initially designated the trustee as our paying agent and registrar and its agency in New York, New York as a place where notes may be
presented for payment or for registration of transfer. We may, however, change the paying agent or registrar without prior notice to the holders of the notes, and we may act as paying agent or registrar. A holder of notes in global form may transfer
its notes in accordance with the applicable procedures of the depositary and the indenture. A holder of certificated notes may transfer or exchange notes at the office of the registrar in accordance with the indenture. The registrar and the trustee
may require a holder, among other things, to furnish appropriate endorsements and transfer documents. No service charge will be imposed by us, the trustee or the registrar for any registration of transfer or exchange of notes, but we may require a
holder to pay a sum sufficient to cover any transfer tax or other similar governmental charge required by law or permitted by the indenture. We are not required to transfer or exchange any note surrendered for conversion or repurchase upon a
fundamental change.
Interest
The notes will bear cash interest at a rate of 4.125% per year until maturity. Interest on the notes will accrue from the most recent date on
which interest has been paid or duly provided for, or if no interest has been paid or duly provided for, the date of issuance (which is scheduled for August 22, 2017). Interest will be payable semi-annually in arrears on March 1 and September 1 of
each year, beginning on March 1, 2018.
Interest will be paid to the person in whose name a note is registered at the close of business on
the February 15 or August 15, as the case may be, immediately preceding the relevant interest payment date. Interest on the notes will be computed on the basis of a 360-day year composed of twelve 30-day months.
If any interest payment date, the maturity date or any fundamental change purchase date of a note falls on a day that is not a business day,
the required payment will be made on the next succeeding business day and no interest on such payment will accrue in respect of the delay. The term business day means any day other than a Saturday, a Sunday or a day on which the Federal
Reserve Bank of New York is authorized or required by law, regulation or executive order to close or be closed.
Unless the context
otherwise requires, all references to interest in this prospectus supplement include additional interest, if any, payable at our election as the sole remedy relating to the failure to comply with our reporting obligations as described under
Events of Default.
Ranking
The notes will be our direct unsecured obligations and will not be guaranteed by any of our subsidiaries. The notes will rank equal in right
of payment with all of our other existing and future unsecured and unsubordinated indebtedness. The notes will be effectively subordinated to any of our existing and future secured indebtedness, to the extent of the value of our assets that secure
such indebtedness. The notes will also be structurally subordinated to all existing and future indebtedness (including trade payables) and any future preferred equity interests of our subsidiaries and to any of our existing and future indebtedness
that may be guaranteed by our subsidiaries to the extent of any such guarantees, except for the future unsecured and unsubordinated indebtedness of our operating partnership with which the notes will rank equal in right of payment, including but not
limited to the Mirror Note.
S-23
As of June 30, 2017, our total consolidated indebtedness (excluding trade payables and
unfunded commitments) was $1.31 billion (including non-recourse debt), all of which was indebtedness secured by assets of our subsidiaries to third parties to which the notes would have been structurally subordinated. As of June 30, 2017, our
subsidiaries had no preferred equity interests outstanding
Ownership Limit
Subject to certain exceptions, our charter restricts any person from owning (directly or as a result of certain constructive ownership rules)
more than 9.8% by value or number of shares, whichever is more restrictive, of the outstanding shares of our common stock, the outstanding shares of any class or series of our preferred stock or the outstanding shares of our capital stock of all
classes and series and contains other restrictions on the ownership and transfer of our stock in order to assist us in qualifying as a REIT for U.S. federal income tax purposes. Notwithstanding any other provision of the notes, no holder of notes
will be entitled to receive our common stock following conversion of such notes to the extent that receipt of such common stock would violate the restrictions on ownership or transfer of our stock contained in our charter.
Any purported delivery of shares of common stock upon conversion of notes shall be void and have no effect to the extent (but only to the
extent) that such delivery would result in the converting holder violating the restrictions on ownership and transfer of our stock contained in our charter. Any attempted conversion of notes that would result in the issuance of our common shares in
violation of these charter restrictions shall be void to the extent of the number of shares that would cause such violation, and the related notes or portion thereof shall be returned to the holder as promptly as practical. We will not have any
further obligation to the holder with respect to such voided conversion and such notes will be treated as if they have not been submitted for conversion.
Conversion Rights
General
Holders may convert any of their notes into shares of our common stock at the applicable conversion rate at any time prior to the close of
business on the second scheduled trading day immediately preceding the maturity date, unless the notes have been previously redeemed or repurchased by us. Any conversions of notes into shares of our common stock will be subject to certain ownership
limitations more fully described in Description of the NotesGeneralOwnership Limit.
The conversion rate will
initially equal 36.7107 shares of our common stock per $1,000 principal amount of notes (equivalent to a conversion price of approximately $27.24 per share of our common stock). Upon conversion of a note, we will satisfy our conversion
obligation by delivering a number of shares of our common stock, together with cash in lieu thereof in respect of any fractional shares, as set forth under Settlement Upon Conversion. The trustee will initially act as the
conversion agent.
The conversion rate and the equivalent conversion price in effect at any given time are referred to as the
applicable conversion rate and the applicable conversion price, respectively, and will be subject to adjustment as described below. A holder may convert less than the entire principal amount of its notes so long as the
principal amount that remains outstanding of each note that is not converted in full equals $1,000 or an integral multiple of $1,000 in excess thereof.
If a holder of notes has submitted notes for purchase upon a fundamental change, the holder may convert those notes only if that holder first
withdraws its purchase notice.
Upon conversion, you will not receive any separate cash payment for accrued and unpaid interest, if any
(or dividends, if we declare any), except as described below. We will not issue fractional shares of our common
S-24
stock upon conversion of notes. Instead, we will pay cash in lieu of fractional shares as described under Settlement Upon Conversion. Our delivery to you of the shares of our
common stock, together with any cash payment for any fractional share into which your note is convertible, will be deemed to satisfy in full our obligation to pay:
|
|
|
the principal amount of the note; and
|
|
|
|
accrued and unpaid interest, if any, on the note, to, but not including, the conversion date. As a result, accrued and unpaid interest, if any, to, but not including, the conversion date will be deemed to be paid in
full rather than cancelled, extinguished or forfeited.
|
Notwithstanding the preceding paragraph, if notes are converted
after 5:00 p.m., New York City time, on a record date for the payment of interest, holders of such notes at 5:00 p.m., New York City time, on such record date will receive the interest payable on such notes on the corresponding interest payment date
notwithstanding the conversion. Notes, upon surrender for conversion during the period from 5:00 p.m., New York City time, on any record date to 9:00 a.m., New York City time, on the immediately following interest payment date must be accompanied by
funds equal to the amount of interest payable on the notes so converted; provided that no such payment need be made:
|
|
|
for conversions following the record date immediately preceding the maturity date;
|
|
|
|
if we have specified a redemption date that is after a record date and on or prior to the corresponding interest payment date;
|
|
|
|
if we have specified a fundamental change purchase date that is after a record date and on or prior to the corresponding interest payment date; or
|
|
|
|
to the extent of any overdue interest, if any overdue interest exists at the time of conversion with respect to such note.
|
If a holder converts notes, we will pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of our common stock
upon the conversion, unless the tax is due because the holder requests any shares to be issued in a name other than the holders name, in which case the holder will pay that tax.
Conversion Procedures
If you
hold a beneficial interest in a global note, to convert you must comply with DTCs procedures for converting a beneficial interest in a global note and, if required, pay funds equal to interest payable on the next interest payment date to which
you are not entitled and, if required, pay all taxes or duties, if any. As such, if you are a beneficial owner of the notes, you must allow for sufficient time to comply with DTCs procedures if you wish to exercise your conversion rights.
If you hold a certificated note, to convert you must:
|
|
|
complete and manually sign the conversion notice on the back of the note, or a facsimile of the conversion notice;
|
|
|
|
deliver the conversion notice, which is irrevocable, and the note to the conversion agent;
|
|
|
|
if required, furnish appropriate endorsements and transfer documents;
|
|
|
|
if required, pay all transfer or similar taxes; and
|
S-25
|
|
|
if required, pay funds equal to interest payable on the next interest payment date to which you are not entitled.
|
We refer to the date you comply with the relevant procedures for conversion described above and any other procedures for conversion set forth
in the indenture as the conversion date.
If a holder has already delivered a purchase notice as described under
Fundamental Change Permits Holders to Require Us to Purchase Notes with respect to a note, the holder may not surrender that note for conversion until the holder has withdrawn the purchase notice in accordance with the indenture,
except to the extent that a portion of the holders note is not subject to such purchase notice.
Settlement Upon Conversion
Upon conversion, we will deliver to the converting holder, on or prior to the third trading day following the conversion date, a number of
shares of our common stock equal to (1) (i) the aggregate principal amount of notes to be converted divided by (ii) $1,000, multiplied by (2) the applicable conversion rate on the date the converting holder becomes a record owner
of our common stock. Notwithstanding the foregoing, we will not issue fractional shares of our common stock upon conversion of notes. Instead, we will pay cash in lieu of fractional shares based on the last reported sale price of our common stock on
the relevant conversion date (or, if the conversion date is not a trading day, the next following trading day). With respect to any conversion date that occurs on or after the regular record date for the final payment of interest on the notes (i.e.,
August 15, 2022), we will deliver such shares and cash on the maturity date.
The last reported sale price of our common
stock on any trading day means the closing sale price per share (or if no closing sale price is reported, the average of the last bid and last ask prices or, if more than one in either case, the average of the average last bid and the average last
ask prices) on that trading day as reported in composite transactions for the principal U.S. national or regional securities exchange on which our common stock is traded. If our common stock is not listed for trading on a U.S. national or regional
securities exchange on the relevant trading day, the last reported sale price will be the last quoted bid price for our common stock in the over-the-counter market on the relevant date as reported by OTC Markets Group Inc. or a similar
organization. If our common stock is not so quoted, the last reported sale price will be the average of the midpoint of the last bid and last ask prices for our common stock on the relevant trading day from each of at least three
nationally recognized independent investment banking firms selected by us for this purpose, which may include the underwriters. Any such determination will be conclusive absent manifest error.
Trading day means a day during which trading in our common stock generally occurs on the primary exchange or quotation system on
which our common stock then trades or is quoted and there is no market disruption event. If our common stock is not so traded or quoted, trading day means a business day.
Market disruption event means (1) a failure by the primary exchange or quotation system on which our common stock trades or
is quoted to open for trading during its regular trading session or (2) the occurrence or existence, prior to 1:00 p.m., New York City time, on any trading day for our common stock, of an aggregate one half-hour period of any suspension or
limitation imposed on trading (by reason of movements in price exceeding limits permitted by the stock exchange or otherwise) in our common stock or in any options, contracts or future contracts relating to our common stock.
Scheduled trading day means any day that is scheduled to be a trading day.
A converting holder will be treated as the holder of record of the shares of our common stock deliverable upon conversion as of the close of
business on the conversion date.
S-26
Conversion Rate Adjustments
The conversion rate will be adjusted as described below, except that we will not make any adjustments to the conversion rate if holders of the
notes participate (other than in the case of a share split or share combination), at the same time and upon the same terms as holders of our common stock and as a result of holding the notes, in any of the transactions described below without having
to convert their notes as if they held a number of shares of common stock equal to the applicable conversion rate, multiplied by the principal amount (expressed in thousands) of notes held by such holder.
|
(1)
|
If we exclusively issue shares of our common stock as a dividend or distribution on all or substantially all outstanding shares of our common stock, or if we effect a share split or share combination, the conversion
rate will be adjusted based on the following formula:
|
where,
|
|
|
CR
0
=
|
|
the conversion rate in effect immediately prior to the close of business on the record date of such dividend or distribution, or immediately prior to the open of business on the effective date of such share split or combination,
as applicable;
|
|
|
CR
1
=
|
|
the conversion rate in effect immediately after the close of business on such record date or immediately after the open of business on such effective date;
|
|
|
OS
0
=
|
|
the number of shares of our common stock outstanding immediately prior to the close of business on such record date or immediately prior to the open of business on such effective date, as applicable, before giving effect to such
dividend, distribution, share split or share combination; and
|
|
|
OS
1
=
|
|
the number of shares of our common stock outstanding immediately after giving effect to such dividend, distribution, share split or share combination, as applicable.
|
Any adjustment made under this clause (1) shall become effective immediately after the close of
business on the record date for such dividend or distribution, or immediately after the open of business on the effective date for such share split or share combination. If any dividend or distribution of the type described in this clause
(1) is declared but not so paid or made, the conversion rate shall be immediately readjusted, effective as of the date our board of directors, or a committee thereof, determines not to pay such dividend or distribution to the conversion rate
that would then be in effect if such dividend or distribution had not been declared.
|
(2)
|
If we issue to all or substantially all holders of our outstanding common stock any rights, options or warrants entitling them, for a period of not more than 45 calendar days after the record date of such issuance, to
subscribe for or purchase shares of our common stock, at a price per share less than the average of the last reported sale prices of our common stock for the 10 consecutive trading-day period ending on, and including, the trading day immediately
preceding the date of announcement of such issuance, the conversion rate will be increased based on the following formula:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CR
1
|
|
=
|
|
CR
0
|
|
x
|
|
OS
0
+ X
|
|
|
|
|
|
|
|
|
OS
0
+ Y
|
|
|
S-27
where,
|
|
|
CR
0
=
|
|
the conversion rate in effect immediately prior to the close of business on the record date for such issuance;
|
|
|
CR
1
=
|
|
the conversion rate in effect immediately after the close of business on such record date;
|
|
|
OS
0
=
|
|
the number of shares of our common stock outstanding immediately prior to the close of business on such record date;
|
|
|
X =
|
|
the total number of shares of our common stock issuable pursuant to such rights, options or warrants; and
|
|
|
Y =
|
|
the number of shares of our common stock equal to the aggregate price payable to exercise such rights, options or warrants divided by the average of the last reported sale prices of our common stock over the 10 consecutive
trading-day period ending on the trading day immediately preceding the date of announcement of the issuance of such rights, options or warrants.
|
Any increase made under this clause (2) will be made successively whenever any such rights, options
or warrants are issued and shall become effective immediately after the open of business on the record date for such issuance. To the extent that such rights, options or warrants are not exercised prior to their expiration or shares of our common
stock are not delivered upon the expiration of such rights, options or warrants, the conversion rate shall be readjusted to the conversion rate that would then be in effect had the increase with respect to the issuance of such rights, options or
warrants been made on the basis of delivery of only the number of shares of our common stock actually delivered. If such rights, options or warrants are not so issued, or if no such rights, options or warrants are exercised prior to their
expiration, the conversion rate shall be decreased to be the conversion rate that would then be in effect if such record date for such issuance had not occurred.
For purposes of this clause (2), in determining whether any rights, options or warrants entitle the holders to subscribe for or purchase
shares of our common stock at a price per share less than such average of the last reported sale prices of our common stock for the 10 consecutive trading day period ending on the trading day immediately preceding the date of announcement for such
issuance, and in determining the aggregate offering price of such shares of our common stock, there shall be taken into account any consideration received by us for such rights, options or warrants and any amount payable on exercise or conversion
thereof, the value of such consideration, if other than cash, to be determined by our board of directors, or a committee thereof.
|
(3)
|
If we distribute shares of our capital stock, evidences of our indebtedness, other assets or property of ours or rights, options or warrants to acquire our capital stock or other securities, to all or substantially all
holders of our outstanding common stock, excluding:
|
|
|
|
dividends, distributions, rights, options or warrants as to which an adjustment was effected pursuant to clause (1) or (2) above;
|
|
|
|
dividends or distributions paid exclusively in cash; and
|
|
|
|
spin-offs described below in this clause (3);
|
then the conversion rate will be increased based on the
following formula:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CR
1
|
|
=
|
|
CR
0
|
|
x
|
|
SP
0
|
|
|
|
|
|
|
|
|
SP
0
- FMV
|
|
|
S-28
|
|
|
CR
0
=
|
|
the conversion rate in effect immediately prior to the close of business on the record date for such distribution;
|
|
|
CR
1
=
|
|
the conversion rate in effect immediately after the close of business on such record date;
|
|
|
SP
0
=
|
|
the average of the last reported sale prices of our common stock over the 10 consecutive trading day period ending on, and including, the trading day immediately preceding the ex-dividend date for such distribution; and
|
|
|
FMV =
|
|
the fair market value (as determined by our board of directors, or a committee thereof) of the shares of capital stock, evidences of indebtedness, other assets, or property of ours or rights, options or warrants to acquire our
capital stock or other securities distributed with respect to each outstanding share of our common stock on the ex-dividend date for such distribution.
|
If FMV (as defined above) is equal to or greater than the SP
0
(as defined above), in lieu of the foregoing increase, each holder of a note shall receive, in respect of each $1,000 principal amount of notes it holds, at the same time and upon the same
terms as holders of our common stock, the amount and kind of our capital stock, evidences of our indebtedness, other assets or property of ours or rights, options or warrants to acquire our capital stock or other securities that such holder would
have received as if such holder owned a number of shares of our common stock equal to the conversion rate in effect on the record date for the distribution.
Any increase made under the portion of this clause (3) above will become effective immediately after the close of business on the record
date for such distribution. If such distribution is not so paid or made, the conversion rate shall be decreased to be the conversion rate that would then be in effect if such dividend or distribution had not been declared.
With respect to an adjustment pursuant to this clause (3) where there has been a payment of a dividend or other distribution on our
common stock of shares of capital stock of any class or series, or similar equity interest, of or relating to our subsidiary or other business unit, and such capital stock or similar equity interest is listed or quoted (or will be listed or quoted
upon the consummation of the distribution) on a United States national securities exchange, or a spin-off, the conversion rate will be increased based on the following formula:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CR
1
|
|
=
|
|
CR
0
|
|
x
|
|
FMV
0
+ MP
0
|
|
|
|
|
|
|
|
|
MP
0
|
|
|
where,
|
|
|
CR
0
=
|
|
the conversion rate in effect immediately prior to the close of business on the record date for such spin-off;
|
|
|
CR
1
=
|
|
the conversion rate in effect immediately after the close of business on the record date for such spin-off;
|
|
|
FMV
0
=
|
|
the average of the last reported sale prices of the capital stock or similar equity interest distributed to holders of our outstanding common stock applicable to one share of our common stock over the first ten consecutive
trading-day period after, and including, the ex-dividend date of the spin-off (the valuation period); and
|
|
|
MP
0
=
|
|
the average of the last reported sale prices of our common stock over the valuation period.
|
S-29
The adjustment to the applicable conversion rate under the preceding paragraph of this clause
(3) will be made immediately after the open of business on the day after the last day of the valuation period, but will be given effect as of the open of business on the record date for the spin-off. For purposes of determining the applicable
conversion rate, in respect of any conversion during the ten trading days commencing on the record date for any spinoff, references within the portion of this clause (3) related to spin-offs to ten trading days shall be deemed
replaced with such lesser number of trading days as have elapsed from, and including, the record date for such spin-off to, and including, the relevant conversion date.
|
(4)
|
If any cash dividend or distribution is made to all or substantially all holders of our outstanding common stock to the extent that the aggregate of all such cash dividends or distributions paid in any quarter exceeds
the dividend threshold amount (as defined below) for such quarter, the conversion rate will be adjusted based on the following formula:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CR
1
|
|
=
|
|
CR
0
|
|
x
|
|
SP
0
- DTA
|
|
|
|
|
|
|
|
|
SP
0
- C
|
|
|
where,
|
|
|
CR
0
=
|
|
the conversion rate in effect immediately prior to the close of business on the record date for such dividend or distribution;
|
|
|
CR
1
=
|
|
the conversion rate in effect immediately after the close of business on the record date for such dividend or distribution;
|
|
|
SP
0
=
|
|
the last reported sale price of our common stock on the trading day immediately preceding the ex-dividend date for such dividend or distribution;
|
|
|
DTA =
|
|
the dividend threshold amount, which shall initially be $0.33 per quarter; provided, however, that the DTA with respect to any date shall be reduced by the aggregate per share cash dividends or distributions that were paid to all or
substantially all holders of our outstanding common stock during the applicable dividend period prior to such payment and provided further that if the result of such reduction is a negative number, the DTA shall be deemed to be
zero; and
|
|
|
C =
|
|
the amount in cash per share that we distribute to holders of our outstanding common stock.
|
The DTA is subject to adjustment on an inversely proportional basis whenever the conversion rate is
adjusted other than adjustments made pursuant to this clause (4).
If C (as defined above) is equal to or greater than
SP
0
(as defined above), in lieu of the foregoing increase, each holder of a note shall receive, for each $1,000 principal amount of notes it holds, at the same time and upon the
same terms as holders of shares of our outstanding common stock, the amount of cash that such holder would have received as if such holder owned a number of shares of our common stock equal to the conversion rate on the record date for such cash
dividend or distribution.
Such increase shall become effective immediately after the close of business on the record date for such
dividend or distribution. If such dividend or distribution is not so paid, the conversion rate shall be decreased to be the conversion rate that would then be in effect if such dividend or distribution had not been declared.
|
(5)
|
If we or any of our subsidiaries make a payment in respect of a tender offer or exchange offer for our common
stock, to the extent that the cash and value of any other consideration included in the payment per share of our common stock exceeds the last reported sale price of our common stock
|
S-30
|
on the trading day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer (the expiration date), the conversion rate will be
increased based on the following formula:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CR
1
|
|
=
|
|
CR
0
|
|
x
|
|
AC + (SP
1
x OS
1
)
|
|
|
|
|
|
|
|
|
OS
0
x SP
1
|
|
|
where,
|
|
|
CR
0
=
|
|
the conversion rate in effect immediately prior to the close of business on the expiration date;
|
|
|
CR
1
=
|
|
the conversion rate in effect immediately after the close of business on the expiration date;
|
|
|
AC =
|
|
the aggregate value of all cash and any other consideration (as determined by our board of directors, or a committee thereof) paid or payable for shares purchased in such tender or exchange offer;
|
|
|
OS
0
=
|
|
the number of shares of our common stock outstanding immediately prior to the expiration time of the tender or exchange offer on the expiration date (prior to giving effect to the purchase of all shares accepted for purchase or
exchange in such tender offer or exchange offer);
|
|
|
OS
1
=
|
|
the number of shares of our common stock outstanding immediately after the expiration time of the tender or exchange offer on the expiration date (after giving effect to the purchase of all shares accepted for purchase or exchange
in such tender or exchange offer); and
|
|
|
SP
1
=
|
|
the average of the last reported sale prices of our common stock over the ten consecutive trading-day period commencing on the trading day next succeeding the expiration date (the averaging period).
|
The adjustment to the applicable conversion rate under the preceding paragraph of this clause
(5) will be given effect at the open of business on the trading day next succeeding the expiration date. For purposes of determining the applicable conversion rate, in respect of any conversion during the ten trading days commencing on the
trading day next succeeding the expiration date, references within this clause (5) to ten trading days shall be deemed replaced with such lesser number of trading days as have elapsed from, and including, the trading day next succeeding the
expiration date to, and including, the relevant conversion date.
Except as stated herein, we will not adjust the conversion rate for the
issuance of shares of our common stock or any securities convertible into or exchangeable for shares of our common stock or the right to purchase shares of our common stock or such convertible or exchangeable securities. If, however, the application
of the foregoing formulas would result in a decrease in the conversion rate, except to the extent of any readjustment to the conversion rate, no adjustment to the conversion rate will be made (other than as a result of a reverse share split, share
combination or readjustment).
Ex-dividend date means the first date on which the shares of our common stock trade on the
applicable exchange or in the applicable market, regular way, without the right to receive the issuance, dividend or distribution in question.
To the extent permitted by applicable law and the rules of the New York Stock Exchange or any other securities exchange or market on which our
common stock is then listed, we are permitted to increase the conversion rate of the notes by any amount for a period of at least 20 business days if our board of directors, or a committee thereof, determines that such increase would be in our best
interest. We may also (but are not required to) increase the conversion rate to avoid or diminish income tax to holders of our common stock or rights to purchase shares of our common stock in connection with a dividend or distribution of shares (or
rights to acquire shares) or similar event.
S-31
A holder may, in some circumstances, including a distribution of cash dividends to holders of our
shares of our common stock, be deemed to have received a distribution subject to United States federal income tax as a result of an adjustment or the nonoccurrence of an adjustment to the conversion rate. For a discussion of the United States income
tax treatment of an adjustment to the conversion rate, see Additional U.S. Federal Income Tax Considerations.
We do not
currently have a rights plan in effect. If you convert a note, to the extent that we have a rights plan in effect, you will receive, in addition to the shares of our common stock received in connection with such conversion, the rights under the
rights plan unless, prior to conversion, the rights have expired, terminated or been redeemed or unless the rights have separated from our common stock, in which case, and only in such case, the conversion rate will be adjusted at the time of
separation (and not at the time of issuance of the rights) as if we distributed to all holders of our common stock, shares of our capital stock, evidences of indebtedness, assets, property, rights, options or warrants as described in clause
(3) above, subject to readjustment in the event of the expiration, termination or redemption of such rights.
Notwithstanding any of
the foregoing, the applicable conversion rate will not be adjusted:
|
|
|
on account of stock repurchases that are not tender offers referred to in clause (5) above, including structured or derivative transactions, or transactions pursuant to a stock repurchase program approved by our
board of directors, or a committee thereof, or otherwise;
|
|
|
|
upon the issuance of any shares of our common stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on our securities and the investment of additional optional
amounts in shares of our common stock under any plan;
|
|
|
|
upon the issuance of any shares of our common stock or options or rights to purchase those shares pursuant to any present or future employee, director or consultant benefit plan, program or agreement of or assumed by us
or any of our subsidiaries;
|
|
|
|
upon the issuance of any shares of our common stock pursuant to any option, warrant, right or exercisable, exchangeable or convertible security not described in the preceding bullet and outstanding as of the date the
notes were first issued;
|
|
|
|
for a change in the par value of our common stock;
|
|
|
|
for accrued and unpaid interest, if any; or
|
|
|
|
for an event otherwise requiring an adjustment, as described herein, if such event is not consummated.
|
Adjustments to the applicable conversion rate will be calculated to the nearest 1/10,000th of a share.
Tax Effect
A holder may, in some
circumstances, including the distribution of certain cash dividends to holders of shares of our common stock, be deemed to have received a distribution subject to U.S. federal income or withholding tax as a result of an adjustment or the
non-occurrence of an adjustment to the conversion rate. Because a deemed distribution would not give rise to any cash from which any applicable withholding could be satisfied, if we pay withholding taxes on behalf of a holder, we may, at our option,
set off any such payment against payments of cash and common stock payable on the notes (or, in some circumstances, against any payments on the common stock). See Additional U.S. Federal Income Tax Considerations.
S-32
Recapitalizations, Reclassifications and Changes of Our Common Stock
In the case of:
|
|
|
any recapitalization, reclassification or change of our outstanding common stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a split,
subdivision or combination for which an adjustment is made pursuant to (1) above under Conversion RightsConversion Rate Adjustments);
|
|
|
|
any consolidation, merger or combination involving us;
|
|
|
|
any sale, lease or other transfer to a third party of the consolidated assets of ours and our subsidiaries substantially as an entirety; or
|
|
|
|
any statutory share exchange;
|
and, in each case, as a result of which our outstanding common stock would be
converted into, or exchanged for, stock, other securities, other property or assets (including cash or any combination thereof), then, at the effective time of the transaction, the right to convert each $1,000 principal amount of notes into a number
of shares of our common stock equal to the conversion rate will be changed into a right to convert such principal amount of notes into the kind and amount of shares of stock, other securities or other property or assets (including cash or any
combination thereof), which stock, other securities or other property or assets we refer to as the reference property, that a holder of a number of shares of our common stock equal to the conversion rate immediately prior to such transaction would
have owned or been entitled to receive upon such transaction. If the transaction causes outstanding shares of our common stock to be converted into, or exchanged for, the right to receive more than a single type of consideration (determined based in
part upon any form of stockholder election), the amount and type of reference property that a holder of one or more shares would have been entitled to receive in such transaction (and into which the notes will be convertible) will be deemed to be
based on the weighted average of the types and amounts of consideration received by the holders of our common stock that affirmatively make such an election. We will notify holders of the weighted average as soon as practicable after such
determination is made. We will agree in the indenture not to become a party to any such transaction unless its terms are consistent with the foregoing.
Adjustments of Prices
Whenever any
provision of the indenture requires us to calculate the last reported sale prices or any function thereof over a span of multiple days, we will make appropriate adjustments to each to account for any adjustment to the conversion rate that becomes
effective, or any event requiring an adjustment to the conversion rate where the effective date, record date or expiration date of the event occurs, at any time during the period when the last reported sale prices or functions thereof are to be
calculated.
Adjustment to Conversion Rate Upon Conversion In Connection With a Make-Whole Fundamental Change
If an event occurs that (i) is a fundamental change (as defined below and determined after giving effect to any exceptions or exclusions
to such definition) or (ii) would be a fundamental change, but for the exclusion in section (x)(i) of clause (2) of the definition thereof (any such event, a make-whole fundamental change), and a holder elects to convert its
notes in connection with such make-whole fundamental change, we will, under certain circumstances, increase the conversion rate for the notes so surrendered for conversion by a number of additional shares of our common stock, or additional shares,
as described below. A conversion of notes will be deemed for these purposes to be in connection with a make-whole fundamental change if the notice of conversion of the notes is received by the conversion agent from, and including, the
effective date of the fundamental change up to,
S-33
and including, the close of business on the business day immediately prior to the related fundamental change purchase date, or, if such make-whole fundamental change is not also a fundamental
change, the 35th business day immediately following the effective date for such make-whole fundamental change.
The number of additional
shares, if any, by which the conversion rate will be increased will be determined by reference to the table below, based on the date on which the make-whole fundamental change occurs or becomes effective, or the effective date, and the price, or the
stock price, paid (or deemed paid) per share of our common stock in the make-whole fundamental change. If the holders of our common stock receive only cash in a make-whole fundamental change described in clause (2) of the definition of
fundamental change, the stock price shall be the cash amount paid per share. Otherwise, the stock price shall be the average of the last reported sale prices of our common stock over the ten trading day period ending on, and including, the trading
day immediately preceding the effective date of the make-whole fundamental change.
The stock prices set forth in the column headings of
the table below will be adjusted as of any date on which the conversion rate of the notes is otherwise required to be adjusted. The adjusted stock prices will equal the stock prices immediately prior to such adjustment, multiplied by a fraction, the
numerator of which is the conversion rate immediately prior to the adjustment giving rise to the stock price adjustment and the denominator of which is the conversion rate as so adjusted. The number of additional shares will be adjusted in the same
manner and at the same time as the conversion rate is required to be adjusted as set forth under Conversion RightsConversion Rate Adjustments.
The following table sets forth the number of additional shares by which we will increase the conversion rate for a holder that converts its
notes in connection with a make-whole fundamental change having the stock price and effective date set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hannon Armstrong Common Stock Price
|
|
Date
|
|
$
|
22.70
|
|
|
$
|
23.00
|
|
|
$
|
24.00
|
|
|
$
|
25.00
|
|
|
$
|
27.24
|
|
|
$
|
30.00
|
|
|
$
|
32.50
|
|
|
$
|
35.00
|
|
|
$
|
40.00
|
|
August 22, 2017
|
|
|
7.3421
|
|
|
|
6.8722
|
|
|
|
5.6351
|
|
|
|
4.5832
|
|
|
|
2.7846
|
|
|
|
1.3862
|
|
|
|
0.6556
|
|
|
|
0.2529
|
|
|
|
0.0000
|
|
September 1, 2018
|
|
|
7.3421
|
|
|
|
6.8023
|
|
|
|
5.5261
|
|
|
|
4.4427
|
|
|
|
2.6052
|
|
|
|
1.2059
|
|
|
|
0.5020
|
|
|
|
0.1443
|
|
|
|
0.0000
|
|
September 1, 2019
|
|
|
7.3421
|
|
|
|
6.6663
|
|
|
|
5.3417
|
|
|
|
4.2230
|
|
|
|
2.3514
|
|
|
|
0.9808
|
|
|
|
0.3398
|
|
|
|
0.0642
|
|
|
|
0.0000
|
|
September 1, 2020
|
|
|
7.3421
|
|
|
|
6.4508
|
|
|
|
5.0499
|
|
|
|
3.8730
|
|
|
|
1.9520
|
|
|
|
0.6497
|
|
|
|
0.1417
|
|
|
|
0.0059
|
|
|
|
0.0000
|
|
September 1, 2021
|
|
|
7.3421
|
|
|
|
6.0708
|
|
|
|
4.5102
|
|
|
|
3.1846
|
|
|
|
1.0826
|
|
|
|
0.0808
|
|
|
|
0.0000
|
|
|
|
0.0000
|
|
|
|
0.0000
|
|
September 1, 2022
|
|
|
7.3421
|
|
|
|
6.0500
|
|
|
|
4.1583
|
|
|
|
3.1020
|
|
|
|
0.0000
|
|
|
|
0.0000
|
|
|
|
0.0000
|
|
|
|
0.0000
|
|
|
|
0.0000
|
|
The exact stock prices and effective dates may not be set forth in the table above, in which case:
|
|
|
if the stock price is between two stock prices in the table or the effective date is between two effective dates in the table, the number of additional shares will be determined by a straight-line interpolation between
the number of additional shares set forth for the higher and lower stock prices and the earlier and later effective dates, as applicable, based on a 365-day year;
|
|
|
|
if the stock price is greater than $40.00 per share (subject to adjustment in the same manner as the stock prices set forth in the column headings of the table above), no additional shares will be added to the
conversion rate; or
|
|
|
|
if the stock price is less than 22.70 per share (subject to adjustment in the same manner as the stock prices set forth in the column headings of the table above), no additional shares will be added to the conversion
rate.
|
Notwithstanding the foregoing, in no event will the conversion rate be increased on account of a make-whole
fundamental change to exceed 44.0528 shares of our common stock per $1,000 principal amount of notes, subject to adjustment in the same manner as the conversion rate is required to be adjusted as set forth under Conversion
RightsConversion Rate Adjustments.
S-34
Our obligation to satisfy the additional shares requirement could be considered a penalty, in
which case the enforceability thereof could be subject to general equity principles including principles of reasonableness and equitable remedies.
Fundamental Change Permits Holders to Require Us to Purchase Notes
If a fundamental change (as defined below in this section) occurs at any time, you will have the right, at your option, to require
us to purchase for cash any or all of your notes, or any portion thereof such that the principal amount that remains outstanding of each note that is not purchased in full equals $1,000 or an integral multiple of $1,000 in excess thereof. The price
we are required to pay, or the fundamental change purchase price, will be equal to 100% of the principal amount of the notes to be purchased plus accrued and unpaid interest, if any, to but excluding the fundamental change purchase date (unless the
fundamental change purchase date is after a record date and on or prior to the interest payment date to which such record date relates, in which case we will instead pay the full amount of accrued and unpaid interest to the holder of record on such
record date and the fundamental change purchase price will be equal to 100% of the principal amount of the notes to be purchased). The fundamental change purchase date will be a date specified by us that is not less than 20 or more than 35 calendar
days following the date of our fundamental change notice as described below. Any notes purchased by us will be paid for in cash. A fundamental change will be deemed to have occurred at the time after the notes are originally issued if
any of the following occurs:
|
(1)
|
any person or group (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, or the Exchange Act), other than us or our subsidiaries, files a Schedule TO or any schedule,
form or report under the Exchange Act disclosing that such person or group has become the direct or indirect ultimate beneficial owner, as defined in Rule 13d-3 under the Exchange Act, of common equity representing more than 50% of the
voting power of our common equity;
|
|
(2)
|
the consummation of (x) any consolidation, merger, amalgamation, scheme of arrangement or other binding share exchange or reclassification or similar transaction between us and another person (other than our
subsidiaries), in each case pursuant to which the outstanding shares of our common stock is converted into cash, securities or other property, other than a transaction (i) that results in the holders of all classes of our common equity
immediately prior to such transaction owning, directly or indirectly, as a result of such transaction, more than 50% of the surviving corporation or transferee or the parent thereof immediately after such event or (ii) effected solely to change
our jurisdiction of incorporation or to form a holding company for us and that results in a share exchange or reclassification or similar exchange of the outstanding common stock solely into common shares of the surviving entity or (y) any sale
or other disposition in one transaction or a series of transactions of all or substantially all of our assets and our subsidiaries, on a consolidated basis, to another person (other than any of our subsidiaries);
|
|
(3)
|
continuing directors (as defined below) cease to constitute at least a majority of our board of directors;
|
|
(4)
|
our stockholders approve any plan or proposal for the liquidation or dissolution of us (other than in a transaction described in clause (2) above); or
|
|
(5)
|
our common stock ceases to be listed on the New York Stock Exchange, the NASDAQ Global Select Market or the NASDAQ Global Market (or any of their respective successors);
|
provided, however
, that in the case of a transaction or event described in clause (1) or (2) above, if at least 90% of the consideration
received or to be received by holders of our common stock (excluding cash payments for fractional shares) in the transaction or transactions that would otherwise constitute a fundamental change consists of shares of common stock or
common equity interests that are traded on the New York Stock Exchange,
S-35
the NASDAQ Global Select Market or the NASDAQ Global Market (or any of their respective successors) or that will be so traded when issued or exchanged in connection with the transaction that
would otherwise constitute a fundamental change under clause (1) or (2) of the definition thereof, or publicly traded securities, and as a result of such transaction or transactions, the notes become convertible into or by reference to
such publicly traded securities, excluding cash payments for fractional shares (subject to settlement in accordance with the provisions of Conversion RightsSettlement Upon Conversion), such event shall not be a fundamental
change.
Continuing director means a director who either was a member of our board of directors on the date of this
prospectus supplement or who becomes a member of our board of directors subsequent to that date and whose election, appointment or nomination for election by our stockholders is duly approved by a majority of the continuing directors on our board of
directors at the time of such approval, either by a specific vote or by approval of the proxy statement issued by us on behalf of our entire board of directors in which such individual is named as nominee for election as a director, and whose
election is recommended by our board of directors.
On or before the 20th day after the occurrence of a fundamental change, we will
provide to all holders of the notes and the trustee and paying agent a notice of the occurrence of the fundamental change and of the resulting purchase right. Such notice shall state, among other things:
|
|
|
the events causing a fundamental change;
|
|
|
|
the date of the fundamental change;
|
|
|
|
the last date on which a holder may exercise the purchase right;
|
|
|
|
the fundamental change purchase price;
|
|
|
|
the fundamental change purchase date;
|
|
|
|
if applicable, the name and address of the paying agent and the conversion agent;
|
|
|
|
if applicable, the applicable conversion rate and any adjustments to the applicable conversion rate;
|
|
|
|
if applicable, that the notes with respect to which a fundamental change purchase notice has been delivered by a holder may be converted only if the holder withdraws the fundamental change purchase notice in accordance
with the terms of the indenture; and
|
|
|
|
the procedures that holders must follow to require us to purchase their notes.
|
Simultaneously
with providing such notice, we will publish a notice containing this information in a newspaper of general circulation in The City of New York or publish the information on our website or through such other public medium as we may use at that time.
To exercise the fundamental change purchase right, you must deliver, on or before the business day immediately preceding the fundamental
change purchase date, the notes to be purchased, duly endorsed for transfer, together with a written purchase notice and the form entitled Form of Fundamental Change Purchase Notice on the reverse side of the notes duly completed, to the
paying agent if the notes are certificated. If the notes are not in certificated form, you must comply with DTCs procedures for tendering interests in global notes. Your purchase notice must state:
|
|
|
if certificated, the certificate numbers of your notes to be delivered for purchase;
|
S-36
|
|
|
the portion of the principal amount of notes to be purchased, which must be such that the principal amount that remains outstanding of each note that is not to be purchased in full equals $1,000 or an integral multiple
of $1,000 in excess thereof; and
|
|
|
|
that the notes are to be purchased by us pursuant to the applicable provisions of the notes and the indenture.
|
You may withdraw any purchase notice (in whole or in part) by a written notice of withdrawal delivered to the paying agent prior to the close
of business on the business day immediately preceding the fundamental change purchase date. The notice of withdrawal shall state:
|
|
|
the principal amount of the withdrawn notes;
|
|
|
|
if certificated notes have been issued, the certificate numbers of the withdrawn notes, or if not certificated, your notice must comply with appropriate DTC procedures; and
|
|
|
|
the principal amount, if any, of each note that remains subject to the purchase notice, which must be such that the principal amount not to be purchased equals $1,000 or an integral multiple of $1,000 in excess thereof.
|
We will be required to purchase the notes on the fundamental change purchase date, subject to extensions to comply with
applicable law. You will receive payment of the fundamental change purchase price on the later of (i) the fundamental change purchase date or (ii) the time of book-entry transfer or the delivery of the notes. If the paying agent holds
money sufficient to pay the fundamental change purchase price of the notes on the fundamental change purchase date, then:
|
|
|
the notes will cease to be outstanding and interest will cease to accrue (whether or not book-entry transfer of the notes is made or whether or not the notes are delivered to the paying agent); and
|
|
|
|
all other rights of the holder will terminate (other than the right to receive the fundamental change purchase price and previously accrued and unpaid interest upon delivery or transfer of the notes).
|
In connection with any purchase offer pursuant to a fundamental change purchase notice, we will, if required:
|
|
|
comply with the provisions of the tender offer rules under the Exchange Act that may then be applicable, including filing a Schedule TO or any other required schedule under the Exchange Act; and
|
|
|
|
comply with any other U.S. federal or state securities laws applicable to us in connection with such repurchase offer.
|
No notes may be purchased at the option of holders upon a fundamental change if the principal amount of the notes has been accelerated, and
such acceleration has not been rescinded, on or prior to such date (except in the case of an acceleration resulting from a default by us in the payment of the fundamental change purchase price with respect to such notes).
The purchase rights of the holders could discourage a potential acquirer of us. The fundamental change purchase feature, however, is not the
result of managements knowledge of any specific effort to obtain control of us by any means or part of a plan by management to adopt a series of anti-takeover provisions.
S-37
The term fundamental change is limited to specified transactions and may not include other events
that might adversely affect our financial condition. In addition, the requirement that we offer to purchase the notes upon a fundamental change may not protect holders in the event of a highly leveraged transaction, reorganization, merger or similar
transaction involving us.
The definition of fundamental change includes a phrase relating to the conveyance, transfer, sale, lease or
disposition of all or substantially all of our consolidated assets. There is no precise, established definition of the phrase substantially all under applicable law. Accordingly, the ability of a holder of the notes to
require us to purchase its notes as a result of the conveyance, transfer, sale, lease or other disposition of less than all of our assets may be uncertain.
We will not be required to make an offer to purchase the notes upon a fundamental change if a third party makes such an offer to purchase in
the manner, at the times and otherwise in compliance with the requirements set forth in the indenture applicable to an offer to purchase made by us and such third party purchases all notes properly tendered and not validly withdrawn under such
offer.
If a fundamental change were to occur, we may not have enough funds to pay the fundamental change purchase price. Our ability to
repurchase the notes for cash may be limited by restrictions on our ability to obtain funds for such repurchase through dividends from our subsidiaries, the terms of our then existing borrowing arrangements or otherwise. See Risk
FactorsRisks Related to the Notes and to this OfferingWe may not have the ability to raise funds necessary to settle conversions of the notes or to purchase the notes upon a fundamental change. If we fail to purchase the notes when
required following a fundamental change, we will be in default under the indenture.
Optional Redemption
Preservation of REIT Status
We
may not redeem the notes prior to March 1, 2022 except to the extent our board of directors determines such redemption is reasonably necessary to preserve our qualification as a REIT. If we determine that redeeming the notes is necessary to preserve
our qualification as a REIT, then we may at any time prior to maturity redeem all or part (in a principal amount that is an integral multiple of $1,000) of the notes at a cash redemption price equal to the principal amount of the notes to be
redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
Redemption During Final Six Month Term of the Notes
Except as set forth under Preservation of REIT Status, we may not redeem the notes prior to March 1, 2022.
On or after March 1, 2022, we may redeem the notes for cash, in whole or from time to time in part, at our option at a redemption price equal to the sum of (i) 100% of the principal amount of the notes to be redeemed, (ii) accrued and
unpaid interest thereon to, but excluding, the redemption date and (iii) an amount equal to the present value of the interest that would accrue on such notes from, and including, the redemption date until the maturity date, with such present
value computed by us using a discount rate equal to the yield to maturity of United States Treasury securities with six months of remaining maturity (as determined in a commercially reasonable manner by us prior to providing the applicable notice of
redemption) plus 50 basis points (such present value, the make-whole premium).
General terms applicable to optional redemption
In the case of any optional redemption, we will pay a cash redemption price equal to the principal amount of the notes to be redeemed, plus
accrued and unpaid interest, if any, to, but excluding, the redemption date and, in the case of a redemption occurring on or after March 1, 2022, the make-whole premium. However, if
S-38
the redemption date for a note is after a regular record date for the payment of interest and on or prior to the corresponding interest payment date, then (i) we will pay, on or before such
interest payment date, the full amount of accrued and unpaid interest payable on such note on such interest payment date to the holder of record of such note at the close of business on such regular record date; and (ii) the redemption price
will not include such accrued and unpaid interest.
In the case of any optional redemption, we will provide not less than 15 nor more than
30 calendar days notice before the redemption date to each holder of the notes. The redemption date must be a business day.
If you
elect to convert your notes following a notice of redemption issued in accordance with the provisions under Redemption During Final Six Month Term of the Notes, but prior to the redemption date, and if the conversion date falls
prior to the regular record date immediately preceding the maturity date, a holder shall receive, in addition to any consideration due upon conversion and any accrued and unpaid interest to, but excluding the conversion date, the make-whole premium.
If you elect to convert your notes following a notice of redemption, but prior to the redemption date, you will not receive any separate
cash payment for accrued and unpaid interest except as described in this paragraph. If notes are converted after 5:00 p.m., New York City time, on a record date for the payment of interest, holders of such notes at 5:00 p.m., New York City time, on
such record date will receive the interest payable on such notes on the corresponding interest payment date notwithstanding the conversion. Notes, upon surrender for conversion during the period from 5:00 p.m., New York City time, on any record date
to 9:00 a.m., New York City time, on the immediately following interest payment date must be accompanied by funds equal to the amount of interest payable on the notes so converted;
provided
that no such payment need be made:
|
|
|
for conversions following the record date immediately preceding the maturity date;
|
|
|
|
if we have specified a redemption date that is after a record date and on or prior to the corresponding interest payment date;
|
|
|
|
if we have specified a fundamental change purchase date that is after a record date and on or prior to the corresponding interest payment date; or
|
|
|
|
to the extent of any overdue interest, if any overdue interest exists at the time of conversion with respect to such note.
|
If you surrender your notes for conversion following the date we deliver a redemption notice and prior to the related redemption date,
interest will continue to accrue until the date on which we deliver the conversion consideration in respect of any notes that you convert, and will be payable to you together with the conversion consideration (without duplication of any interest you
are otherwise entitled to by virtue of being the holder of record of the notes on an applicable record date).
If we decide to redeem
fewer than all of the outstanding notes, the notes shall be selected to be redeemed (in principal amounts of $1,000 or multiples thereof) in accordance with the applicable procedures of DTC, in the case of global notes, and by lot, in the case of
certificated notes. If a portion of your note is selected for partial redemption and you convert a portion of the same note, the converted portion will be deemed to be from the portion selected for redemption. In the event of any redemption in part,
we will not be required to register the transfer of or exchange any note so selected for redemption, in whole or in part, except the unredeemed portion of any note being redeemed in part.
No notes may be redeemed if the principal amount of the notes has been accelerated, and such acceleration has not been rescinded, on or prior
to the redemption date (except in the case of an acceleration resulting from a default by us in the payment of the redemption price with respect to such notes).
S-39
Consolidation, Merger and Sale of Assets
Notwithstanding anything to the contrary set forth under Description of Debt SecuritiesMergers and Other Transactions in the
accompanying prospectus, the indenture provides that we shall not amalgamate or consolidate with, merge with or into, or convey, transfer or lease our properties and assets substantially as an entirety to another person, unless (i) we are the
surviving person or the resulting, surviving or transferee person (if not us) is organized and existing under the laws of the United States of America, any State thereof or the District of Columbia, and such person (if not us) shall expressly
assume, by supplemental indenture, executed and delivered to the trustee, in form satisfactory to the trustee, all of our obligations under the notes and the indenture; and (ii) immediately after giving effect to such transaction, no default or
event of default has occurred and is continuing under the indenture with respect to the notes. Upon any such amalgamation, consolidation, merger, conveyance, transfer or lease, the resulting, surviving or transferee person (if not us) shall succeed
to, and may exercise every right and power of ours under the indenture, and we shall be discharged from our obligations under the notes and the indenture except in the case of any such lease.
Although these types of transactions are permitted under the indenture, certain of the foregoing transactions could constitute a fundamental
change permitting each holder to require us to purchase the notes of such holder as described above.
Events of Default
The following description replaces the description set forth under Description of Debt SecuritiesEvents of Default and
Remedies in the accompanying prospectus in its entirety.
Each of the following is an event of default with respect to the notes:
|
(1)
|
default in any payment of interest on any note when due and payable, and the default continues for a period of 30 days;
|
|
(2)
|
default in the payment of principal of any note (including the fundamental change purchase price) when due and payable on the maturity date, upon required repurchase, upon declaration of acceleration or otherwise;
|
|
(3)
|
failure by us to comply with our obligation to convert the notes into shares of our common stock in accordance with the indenture upon exercise of a holders conversion right, which failure continues for three
business days;
|
|
(4)
|
failure by us to comply with our obligations under Consolidation, Merger and Sale of Assets above;
|
|
(5)
|
failure by us to issue a notice in accordance with the provisions of Fundamental Change Permits Holders to Require Us to Purchase Notes above when due;
|
|
(6)
|
failure by us for 60 days after written notice from the trustee or the holders of at least 25% in principal amount of the notes then outstanding (a copy of which notice, if given by holders, must also be given to the
trustee) has been received by us to comply with any of our agreements contained in the notes or the indenture (other than a covenant or warranty a default in whose performance or whose breach is elsewhere in this section specifically provided for or
which does not apply to the notes), which notice shall state that it is a Notice of Default under the indenture;
|
|
(7)
|
default following the failure by us to pay beyond any applicable grace period, or resulting in the acceleration of, indebtedness (other than Non-Recourse Indebtedness) of ours or any of our subsidiaries where the
aggregate principal amount with respect to which the default has occurred is greater than $10,000,000 (or its foreign currency equivalent at the time); or
|
S-40
|
(8)
|
certain events of bankruptcy, insolvency, or reorganization of us or any significant subsidiary (as defined in Article 1, Rule 1-02 of Regulation S-X) of ours.
|
If an event of default other than an event of default arising under clause (8) above with respect to us or any significant subsidiary
occurs and is continuing, the trustee by notice to us, or the holders of at least 25% in principal amount of then outstanding notes by notice to us and the trustee, may, and the trustee at the request of such holders shall, declare 100% of the
principal of, and accrued and unpaid interest, if any, on, all then outstanding notes to be due and payable.
In addition, upon an event
of default arising under clause (8) above with respect to us, 100% of the principal of and accrued and unpaid interest on the notes will automatically become due and payable. Upon any such acceleration, the principal of and accrued and unpaid
interest, if any, on the notes will be due and payable immediately.
Non-Recourse Indebtedness means indebtedness of a
subsidiary of ours, with respect to which (a) recourse for payment is limited to assets of such subsidiary encumbered by a lien securing such indebtedness and/or the general credit of such subsidiary but for which recourse shall not extend to
our general credit or the general credit of any of our other subsidiaries, it being understood that the instruments governing such indebtedness may include customary carve-outs to such limited recourse such as, for example, personal recourse to us
or our subsidiaries for breach of representations, fraud, misapplication or misappropriation of cash, voluntary or involuntary bankruptcy filings, violation of loan document prohibitions against transfer of assets or ownership interests therein,
environmental liabilities, tax indemnities and liabilities and other circumstances customarily excluded by lenders from exculpation provisions and/or included in separate indemnification and/or guaranty agreements in project financing transactions.
The holders of a majority in principal amount of the outstanding notes may waive (including, by way of consents obtained in connection
with a repurchase of, or tender or exchange offer for, the notes) all past defaults (except with respect to nonpayment of principal or interest, the failure to deliver the consideration due upon conversion or any other provision that requires the
consent of each affected holder to amend), and rescind any acceleration with respect to the notes and its consequences if (i) rescission would not conflict with any judgment or decree of a court of competent jurisdiction and (ii) all
existing events of default, other than the nonpayment of the principal of and interest on the notes that have become due solely by such declaration of acceleration, have been cured or waived.
Notwithstanding the foregoing, the indenture will provide that, to the extent we elect, the sole remedy for an event of default relating to
(i) our failure to file with the trustee pursuant to Section 314(a)(1) of the Trust Indenture Act any documents or reports that we are required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act or (ii) our
failure to comply with our obligations as set forth under Reports below, will, for the first 180 days after the occurrence of such an event of default, consist exclusively of the right to receive additional interest on the notes at
a rate equal to 0.50% per annum of the principal amount of the notes outstanding for each day during the 180-day period beginning on, and including, the day on which such an event of default occurs during which such event of default is
continuing (and neither waived nor cured). If we so elect, such additional interest will be payable in the same manner and on the same dates as the stated interest payable on the notes. On the 181st day after such event of default (if the event of
default relating to the reporting obligations is not cured or waived prior to such 181st day), the notes will be subject to acceleration as provided above. The provisions of the indenture described in this paragraph will not affect the rights of
holders of notes in the event of the occurrence of any other event of default. In the event we do not elect to pay the additional interest following an event of default in accordance with this paragraph or we elected to make such payment but do not
pay the additional interest when due, the notes will be immediately subject to acceleration as provided above.
In order to elect to pay
the additional interest as the sole remedy during the first 180 days after the occurrence of an event of default relating to the failure to comply with the reporting obligations in accordance
S-41
with the immediately preceding paragraph, we must notify all holders of notes, the trustee and the paying agent of such election prior to the beginning of such 180-day period. Upon our failure to
timely give such notice, the notes will be immediately subject to acceleration as provided above.
If any portion of the amount payable on
the notes upon acceleration is considered by a court to be unearned interest (through the allocation of the value of the instrument to the embedded warrant or otherwise), the court could disallow recovery of any such portion.
Subject to the provisions of the indenture relating to the duties of the trustee, if an event of default occurs and is continuing, the trustee
will be under no obligation to exercise any of the rights or powers under the indenture at the request or direction of any of the holders unless such holders have offered to the trustee indemnity and/or security satisfactory to it against any loss,
liability or expense. In addition, except to enforce the right to receive payment of the principal of, or interest on, or fundamental change purchase price with respect to, its notes when due, or the right to receive payment or delivery of the
consideration due upon conversion of its notes, no holder may pursue any remedy with respect to the indenture or the notes unless:
|
(1)
|
such holder has previously given the trustee notice that an event of default is continuing;
|
|
(2)
|
holders of at least 25% in principal amount of then outstanding notes have requested the trustee to pursue the remedy;
|
|
(3)
|
such holders have offered the trustee indemnity and/or security satisfactory to it against any loss, liability or expense;
|
|
(4)
|
the trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity; and
|
|
(5)
|
the holders of a majority in principal amount of the outstanding notes have not given the trustee a direction that is inconsistent with such request within such 60-day period.
|
However, each holder shall have the right, which is absolute and unconditional, to receive the principal of, interest on, fundamental change
purchase price with respect to, and the shares of our common stock due upon conversion of its notes and to institute suit for the enforcement of any such payment or delivery, as the case may be, and such rights shall not be impaired without the
consent of such holder. In addition, subject to certain restrictions, the holders of a majority in principal amount of the outstanding notes are given the right to direct the time, method and place of conducting any proceeding for any remedy
available to the trustee or of exercising any trust or power conferred on the trustee.
The indenture provides that in the event an event
of default has occurred and is continuing, the trustee will be required in the exercise of its powers to use the degree of care that a prudent person would use in the conduct of its own affairs. The trustee, however, may refuse to follow any
direction that conflicts with law or the indenture or that the trustee determines is unduly prejudicial (it being understood that the trustee does not have an affirmative duty to ascertain whether or not any such directions are unduly prejudicial)
to the rights of any other holder or that would involve the trustee in personal liability. Prior to taking any action under the indenture, the trustee will be entitled to indemnification satisfactory to it against all losses and expenses caused by
taking or not taking such action.
If a default occurs and is continuing and is known to the trustee, the trustee must transmit notice of
the default to each holder within 90 days after it occurs. Except in the case of a default in the payment of principal (including the fundamental change purchase price) of or interest on any note or a default in the delivery of the consideration due
upon conversion, the trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or responsible officers of the
S-42
trustee in good faith determines that the withholding of such notice is in the interests of the holders of the notes. In addition, we are required to deliver to the trustee, within 120 days after
the end of each fiscal year, an officers certificate, stating whether or not to the knowledge of the signers thereof we are in default in the performance and observance of any of the terms, provisions and conditions of the indenture (without
regard to any period of grace or requirement of notice provided under the indenture) and, if we are in default, specifying all such defaults and the nature and the status thereof of which they may have knowledge. We also are required to deliver to
the trustee, as soon as possible, and in any event within 30 days after we become aware of the occurrence of any default or event of default, an officers certificate setting forth such defaults or events of default, as applicable, their status
and what action we are taking or propose to take in respect thereof.
Modification and Amendment
The following description replaces the description set forth under Description of Debt SecuritiesModification of the
Indentures in the accompanying prospectus in its entirety.
Subject to certain exceptions, the indenture or the notes may be
amended, and compliance with any provisions of the indenture may be waived, with the consent of the holders of a majority of the principal amount of the notes then outstanding (including, in each case, without limitation, consents obtained in
connection with a repurchase of, or tender or exchange offer for, notes). However, without the consent of each holder of a then outstanding note affected, no amendment may, among other things:
|
(1)
|
reduce the percentage in aggregate principal amount of notes outstanding necessary to waive any past default or event of default;
|
|
(2)
|
reduce the rate of interest on any note or change the time for payment of interest on any note;
|
|
(3)
|
reduce the principal of any note or change the maturity date of any note;
|
|
(4)
|
change the place or currency of payment on any note;
|
|
(5)
|
make any change that impairs or adversely affects the conversion rights of any notes;
|
|
(6)
|
reduce the fundamental change purchase price or the redemption price of any note or amend or modify in any manner adverse to the rights of the holders of the notes our obligation to pay the fundamental change purchase
price or the redemption price, whether through an amendment or waiver of provisions in the covenants, definitions or otherwise;
|
|
(7)
|
impair the right of any holder to receive payment of principal of and interest, if any, on, its notes, or the right to receive the shares of our common stock due upon conversion of its notes on or after the due date
therefor or to institute suit for the enforcement of any such payment or delivery, as the case may be, with respect to such holders notes;
|
|
(8)
|
modify the ranking provisions of the indenture in a manner that is adverse to the rights of the holders of the notes; or
|
|
(9)
|
make any change in the provisions described in this Modification and Amendment section that requires each holders consent or in the waiver provisions if such change is adverse to the rights of the
holders of the notes.
|
Without the consent of any holder of the notes, we and the trustee may amend the indenture or the
notes:
|
(1)
|
to conform the terms of the indenture or the notes to the description thereof in the preliminary prospectus supplement, as supplemented by the issuer free writing prospectus related to the offering of the notes;
|
S-43
|
(2)
|
to evidence the succession by a successor corporation and to provide for the assumption by a successor corporation of our obligations under the indenture;
|
|
(3)
|
to add guarantees with respect to the notes;
|
|
(5)
|
to issue additional notes as described under General;
|
|
(6)
|
to add to our covenants such further covenants, restrictions or conditions for the benefit of the holders or to surrender any right or power conferred upon us;
|
|
(7)
|
to cure any ambiguity, defect or inconsistency in the indenture or the notes, including to eliminate any conflict with the terms of the Trust Indenture Act or to make any other change that does not adversely affect the
rights of any holder of the notes in any material respect;
|
|
(8)
|
to provide for a successor trustee;
|
|
(9)
|
to comply with the applicable procedures of the depositary; or
|
|
(10)
|
to comply with any requirements of the SEC in connection with the qualification of the indenture under the Trust Indenture Act.
|
Holders do not need to approve the particular form of any proposed amendment. It will be sufficient if such holders approve the substance of
the proposed amendment. After an amendment under the indenture becomes effective, we are required to mail to the holders a notice briefly describing such amendment. However, the failure to give such notice to all the holders, or any defect in the
notice, will not impair or affect the validity of the amendment.
Discharge
We may satisfy and discharge our obligations under the indenture by delivering to the securities registrar for cancellation all outstanding
notes or by depositing with the trustee or delivering to the holders, as applicable, after the notes have become due and payable, whether at the maturity date, any fundamental change purchase date, upon conversion or otherwise, cash or cash and
shares of our common stock, if any (solely to satisfy outstanding conversions, if applicable), sufficient to pay all of the outstanding notes and paying all other sums payable under the indenture by us. Such discharge is subject to terms contained
in the indenture.
Calculations in Respect of Notes
Except as otherwise provided above, we will be responsible for making all calculations called for under the notes. These calculations include,
but are not limited to, determinations of the last reported sale prices of our common stock, accrued interest payable on the notes and the conversion rate of the notes (including any adjustments thereto). We will make all these calculations in good
faith and, absent manifest error, our calculations will be final and binding on holders of notes. We will provide a schedule of our calculations to each of the trustee and the conversion agent, and each of the trustee and the conversion agent is
entitled to rely conclusively upon the accuracy of our calculations without independent verification. The trustee will forward our calculations to any holder of notes upon the request of that holder.
Reports
The indenture requires us to
file with the trustee, within 15 days after we are required to file the same with the SEC, copies of the quarterly and annual reports and of the information, documents and other reports, if
S-44
any, that we are required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, and to otherwise comply with Section 314(a) of the Trust Indenture Act. Any such
report, information or document that we file with the SEC through the EDGAR system (or any successor thereto) will be deemed to be delivered to the trustee for the purposes of this covenant at the time of such filing through the EDGAR system (or
such successor thereto).
Delivery of any such reports, information and documents to the trustee shall be for informational purposes only,
and the trustees receipt of such reports, information and documents shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including our compliance with any of our
covenants hereunder.
Trustee
U.S.
Bank National Association will be the trustee, security registrar, paying agent, and conversion agent. U.S. Bank National Association, in each of its capacities, including without limitation as trustee, security registrar, paying agent and
conversion agent, assumes no responsibility for the accuracy or completeness of the information concerning us or our affiliates or any other party contained in this document or the related documents or for any failure by us or any other party to
disclose events that may have occurred and may affect the significance or accuracy of such information.
Governing Law
The indenture provides that it and the notes will be governed by, and construed in accordance with, the internal laws of the State of New
York, including without limitation, sections 5-1401 and 5-1402 of the New York General Obligations Law and New York Civil Practice Laws and Rules 327(b).
Book-Entry, Settlement and Clearance
The Global
Notes
The notes will be initially issued in the form of one or more registered notes in global form, without interest coupons, or
the global notes. Upon issuance, each of the global notes will be deposited with the trustee as custodian for DTC, which will serve as the initial securities depositary, and registered in the name of Cede & Co., as nominee of DTC.
Ownership of beneficial interests in a global note will be limited to persons who have accounts with DTC, or DTC participants, or persons who
hold interests through DTC participants. We expect that under procedures established by DTC:
|
|
|
upon deposit of a global note with DTCs custodian, DTC will credit portions of the principal amount of the global note to the accounts of the DTC participants designated by the underwriters; and
|
|
|
|
ownership of beneficial interests in a global note will be shown on, and transfer of ownership of those interests will be effected only through, records maintained by DTC (with respect to interests of DTC participants)
and the records of DTC participants (with respect to other owners of beneficial interests in the global note).
|
Beneficial
interests in global notes may not be exchanged for notes in physical, fully-registered certificated form except in the limited circumstances described below. We may not issue the notes in bearer form.
S-45
Book-Entry Procedures for the Global Notes
All interests in the global notes will be subject to the operations and procedures of DTC and, therefore, you must allow for sufficient time
in order to comply with these procedures if you wish to exercise any of your rights with respect to the notes. We provide the following summary of those operations and procedures solely for the convenience of investors. The operations and procedures
of DTC are controlled by that settlement system and may be changed at any time. Neither we nor the underwriters are responsible for those operations or procedures.
DTC has advised us that it is:
|
|
|
a limited purpose trust company organized under the laws of the State of New York;
|
|
|
|
a banking organization within the meaning of the New York State banking law;
|
|
|
|
a member of the Federal Reserve System;
|
|
|
|
a clearing corporation within the meaning of the Uniform Commercial Code; and
|
|
|
|
a clearing agency registered under Section 17A of the Exchange Act.
|
DTC was
created to hold securities for its participants and to facilitate the clearance and settlement of securities transactions between its participants through electronic book-entry changes to the accounts of its participants. DTCs participants
include securities brokers and dealers, including the underwriters; banks and trust companies; clearing corporations and other organizations. Indirect access to DTCs system is also available to others such as banks, brokers, dealers and trust
companies; these indirect participants clear through or maintain a custodial relationship with a DTC participant, either directly or indirectly. Investors who are not DTC participants may beneficially own securities held by or on behalf of DTC only
through DTC participants or indirect participants in DTC.
So long as DTCs nominee is the registered owner of a global note, that
nominee will be considered the sole owner or holder of the notes represented by that global note for all purposes under the indenture. Except as provided below, owners of beneficial interests in a global note:
|
|
|
will not be entitled to have notes represented by the global note registered in their names;
|
|
|
|
will not receive or be entitled to receive physical, certificated notes; and
|
|
|
|
will not be considered the owners or holders of the notes under the indenture for any purpose, including with respect to the giving of any direction, instruction or approval to the trustee under the indenture.
|
As a result, each investor who owns a beneficial interest in a global note must rely on the procedures of DTC to exercise
any rights of a holder of notes under the indenture (and, if the investor is not a participant or an indirect participant in DTC, on the procedures of the DTC participant through which the investor owns its interest).
Payments of principal and interest with respect to the notes represented by a global note will be made by the trustee to DTCs nominee as
the registered holder of the global note. Neither we nor the trustee will have any responsibility or liability for the payment of amounts to owners of beneficial interests in a global note, for any aspect of the records relating to or payments made
on account of those interests by DTC, or for maintaining, supervising or reviewing any records of DTC relating to those interests.
S-46
Payments by participants and indirect participants in DTC to the owners of beneficial interests
in a global note will be governed by standing instructions and customary industry practice and will be the responsibility of those participants or indirect participants and DTC.
Transfers between participants in DTC will be effected under DTCs procedures and will be settled in same-day funds.
Certificated Notes
Notes in
physical, fully-registered certificated form will be issued and delivered to each person that the depositary identifies as a beneficial owner of the related notes only if:
|
|
|
the depositary notifies us that it is unwilling, unable or no longer permitted under applicable law to continue as depositary for that global note and we do not appoint another institution to act as depositary within 90
days;
|
|
|
|
we notify the trustee that we wish to terminate that global note (or reduce the principal amount of that global note) and the beneficial owners of the majority of the principal amount of that global note (or of the
majority of the principal amount of that global note to be reduced) consent to such termination; or
|
|
|
|
an event of default has occurred with regard to the notes represented by the relevant global note, such event of default has not been cured or waived and a beneficial owner of the global note requests that its notes be
issued in physical, certificated form.
|
S-47
ADDITIONAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following section is a summary of certain material U.S. federal income tax considerations relating to the ownership and disposition of the
notes and any shares of our common stock into which the notes may be converted. This section supplements and, where applicable, supersedes the discussion under U.S. Federal Income Tax Considerations in the accompanying prospectus, and
should be read together with such discussion. This summary does not provide a complete analysis of all potential tax considerations. This section is based upon the Internal Revenue Code, the regulations promulgated by the U.S. Treasury Department
under the Internal Revenue Code, or the Treasury Regulations, current administrative interpretations and practices of the Internal Revenue Service, or the IRS, (including administrative interpretations and practices expressed in private letter
rulings which are binding on the IRS only with respect to the particular taxpayers who requested and received those rulings) and judicial decisions, all as currently in effect and all of which are subject to differing interpretations or to change,
possibly with retroactive effect. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below. No advance ruling has been or is expected to be sought
from the IRS regarding any matter discussed in this summary. The summary generally applies only to beneficial owners of the notes that purchase their notes in this offering for an amount equal to the issue price of the notes, which is the first
price at which a substantial amount of the notes is sold for money to the public (not including sales to bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, initial purchasers, placement agents or
wholesalers), and that hold the notes and common stock as capital assets (generally, for investment). This discussion does not purport to deal with all aspects of U.S. federal income taxation that may be relevant to a particular
beneficial owner in light of the beneficial owners circumstances or to a beneficial owner subject to special tax rules, such as:
|
|
|
Dealers in securities or traders in securities who elect to use a mark-to-market method of accounting;
|
|
|
|
subchapter S corporations;
|
|
|
|
U.S. holders (as defined below) whose functional currency is not the U.S. dollar;
|
|
|
|
financial institutions;
|
|
|
|
regulated investment companies;
|
|
|
|
persons who hold the notes or our common stock on behalf of another person as nominees;
|
|
|
|
holders who receive our common stock through the exercise of employee stock options or otherwise as compensation;
|
|
|
|
persons holding the notes or our common stock as part of a straddle, hedge, conversion transaction, synthetic security or other integrated investment;
|
|
|
|
persons subject to the alternative minimum tax provisions of the Internal Revenue Code;
|
S-48
|
|
|
persons holding the notes or our common stock through a partnership or similar pass-through entity;
|
|
|
|
persons holding a 10% or more (by vote or value) beneficial interest in our company;
|
|
|
|
tax exempt organizations;
|
|
|
|
non-U.S. holders (as defined below), except to the extent discussed below under Non-U.S. Holders; and
|
|
|
|
persons deemed to sell notes or common stock under the constructive sale provisions of the Internal Revenue Code.
|
Finally, the summary does not address the potential application of the Medicare contribution tax, the effects of the U.S. federal estate and
gift tax laws or the effects of any applicable foreign, state or local laws.
As used herein, the term U.S. holder means a
beneficial owner of the notes or the common stock into which the notes may be converted that, for U.S. federal income tax purposes, is:
|
|
|
a citizen or resident of the United States;
|
|
|
|
a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any state of the United States (including the District
of Columbia);
|
|
|
|
an estate whose income is subject to U.S. federal income taxation regardless of its source; or
|
|
|
|
any trust if (i) a U.S. court is able to exercise primary supervision over the administration of such trust and one of more U.S. persons have the authority to control all substantial decisions of the trust or
(ii) it has a valid election to be treated as a U.S. person.
|
A non-U.S. holder is a beneficial owner of
the notes or the common stock into which the notes may be converted (other than a partnership or an entity or arrangement treated as a partnership for U.S. federal income tax purposes) that is not a U.S. holder. If a partnership (including an entity
or arrangement, domestic or foreign, treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of a note or shares of our common stock acquired upon conversion of a note, the tax treatment of a partner in the partnership
will depend upon the status of the partner and the activities of the partnership. A beneficial owner of a note or shares of our common stock acquired upon conversion of a note that is a partnership, and partners in such a partnership, should consult
their own tax advisors about the U.S. federal income tax consequences of owning and disposing of the notes and the shares of our common stock into which the notes may be converted.
THE U.S. FEDERAL INCOME TAX TREATMENT OF HOLDERS OF THE NOTES OR OUR COMMON STOCK DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND
INTERPRETATIONS OF COMPLEX PROVISIONS OF U.S. FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. IN ADDITION, THE TAX CONSEQUENCES OF HOLDING THE NOTES OR OUR COMMON STOCK TO ANY PARTICULAR HOLDER WILL DEPEND ON THE
HOLDERS PARTICULAR TAX CIRCUMSTANCES. YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES TO YOU, IN LIGHT OF YOUR PARTICULAR INVESTMENT OR TAX CIRCUMSTANCES, OF
ACQUIRING, HOLDING, AND DISPOSING OF THE NOTES OR OUR COMMON STOCK.
S-49
U.S. Holders
The following discussion is limited to the U.S. federal income tax consequences relevant to a U.S. holder (as defined above).
Taxation of Interest
U.S.
holders will be required to recognize as ordinary income the stated interest paid or accrued on the notes, in accordance with their regular method of tax accounting. In general, if the stated principal amount of a debt instrument exceeds its issue
price by at least a statutorily defined de minimis amount (generally 0.25% of the stated redemption price at maturity multiplied by the number of complete years from the issue date to maturity), the U.S. holder will be required to include such
excess in income as original issue discount, or OID, over the term of the instrument on a constant yield basis, irrespective of its regular method of tax accounting. We anticipate that the notes will be issued with no more than a de
minimis amount of original issue discount for U.S. federal income tax purposes.
In general, a payment of stated interest on a note will
be taxable to a U.S. holder as ordinary interest income at the time it is accrued or is paid in accordance with the U.S. holders method of accounting for U.S. federal income tax purposes.
Sale, Exchange, Redemption or Other Taxable Disposition of Notes
A U.S. holder generally will recognize capital gain or loss if the U.S. holder disposes of a note in a sale, exchange, redemption or other
taxable disposition (other than conversion of a note, the U.S. federal income tax consequences of which are described under U.S. HoldersConversion of Notes below). The U.S. holders gain or loss generally will equal the
difference between the proceeds received by the U.S. holder (other than amounts attributable to accrued but unpaid interest) and the U.S. holders tax basis in the note. The U.S. holders tax basis in the note generally will equal the
amount the U.S. holder paid for the note increased by OID included in income by the U.S. holder with respect to the note, if any. The portion of any proceeds that is attributable to accrued interest will not be taken into account in computing the
U.S. holders capital gain or loss. Instead, that portion will be recognized as ordinary interest income to the extent that the U.S. holder has not previously included the accrued interest in income, as described under U.S.
HoldersTaxation of Interest. The gain or loss recognized by the U.S. holder on the disposition of the note will be long-term capital gain or loss if the U.S. holder has held the note for more than one year, or short-term capital gain or
loss if the U.S. holder has held the note for one year or less, at the time of the disposition. Long-term capital gains of non-corporate taxpayers currently are taxed at reduced rates. Short-term capital gains are taxed at ordinary income rates. The
deductibility of capital losses is subject to significant limitations.
Conversion of Notes
If we settle a conversion solely in shares of our common stock, a U.S. holder of a note will not recognize any income, gain or loss except to
the extent of cash received in lieu of a fractional share of common stock, and except that the fair market value of common stock received with respect to accrued interest will be taxable as such. The tax basis of the shares of common stock received
upon such a conversion (including any fractional share for which cash is paid but excluding common stock received with respect to accrued interest) will equal the adjusted tax basis of the note that was converted. A U.S. holders holding period
for shares of common stock received upon such a conversion (other than shares attributable to accrued and unpaid interest) will include the period during which the U.S. holder held the notes.
If a U.S. holder receives cash in lieu of a fractional share of common stock, the U.S. holder will be treated as if a fractional share was
issued to the U.S. holder and then the fractional share were immediately redeemed for cash. Accordingly, the U.S. holder will recognize gain or loss equal to the difference between the cash received for the fractional share and that portion of the
U.S. holders tax basis in the common stock
S-50
allocable to the fractional share. A U.S. holders tax basis in a fractional share will be determined by allocating the holders tax basis in the common stock between the common stock
received upon conversion and the fractional share, in accordance with their respective fair market values.
Any cash and the value of any
portion of our common stock that is attributable to accrued and unpaid interest on notes not yet included in income by a U.S. holder will be treated as interest income, as described above. A U.S. holders tax basis in the common stock received
with respect to accrued interest will equal the fair market value of such stock, and a U.S. holders holding period with respect to such shares will commence on the day after the receipt of such stock.
Possible Effect of a Change in Conversion Consideration
In the event we undergo certain of the events described under Description of the NotesConversion RightsRecapitalizations,
Reclassifications and Changes of Our Common Stock, the conversion rate and the related conversion consideration may be adjusted such that you would be entitled to convert your notes into the stock (other than our common stock), other
securities or other property or assets described in such section. Depending on the facts and circumstances at the time of such event, such adjustment may result in a deemed exchange of the outstanding notes, which may be a taxable event for U.S.
federal income tax purposes. You should consult your tax advisor regarding the U.S. federal income tax consequences of such an adjustment.
Constructive Distributions
As
discussed under Description of the NotesConversion RightsConversion Rate Adjustments and Adjustment To Conversion Rate Upon Conversion In Connection With a Make-Whole Fundamental Change, the terms of the notes allow for
changes in the conversion rate of the notes under certain circumstances. A change in conversion rate that allows beneficial owners of notes to receive more shares of common stock on conversion may increase such beneficial owners proportionate
interests in our earnings and profits or assets. In that case, the beneficial owners of notes may be treated as though they received a taxable distribution in the form of our common stock or additional rights to acquire our common stock. A taxable
constructive distribution would result, for example, if the conversion rate is adjusted to compensate beneficial owners of notes for distributions of cash or property to our stockholders. If an event occurs that dilutes the interests of stockholders
or increases the interests of beneficial owners of the notes and the conversion rate of the notes is not adjusted (or not adequately adjusted), this also could be treated as a taxable distribution to beneficial owners of the notes. Conversely, if an
event occurs that dilutes the interests of beneficial owners of the notes and the conversion rate is not adjusted (or not adequately adjusted), the resulting increase in the proportionate interests of our stockholders in our earnings and profits or
assets could be treated as a taxable distribution to the stockholders. Not all changes in the conversion rate that result in beneficial owners of notes receiving more common stock on conversion, however, increase such beneficial owners
proportionate interests in us. For instance, a change in conversion rate could simply prevent the dilution of the beneficial owners interests upon a stock split or other change in capital structure. Changes of this type, if made pursuant to a
bona fide reasonable adjustment formula, are not treated as constructive distributions. Any taxable constructive distribution resulting from a change to, or failure to change, the conversion rate would be treated for U.S. federal income tax purposes
in the same manner as a distribution on our common stock paid in cash or other property. It would result in a taxable dividend to the beneficial owner to the extent of our current or accumulated earnings and profits (with the beneficial owners
tax basis in its note or common stock (as the case may be) being increased by the amount of such dividend), with any excess treated first as a tax-free return of the beneficial owners tax basis in its note or common stock (as the case may be)
and then as capital gain. It is unclear whether a constructive dividend deemed paid to a non-corporate U.S. holder would be eligible for the preferential rates on qualified dividend income, although so long as we qualify as a REIT, distributions,
including a constructive dividend, generally will not be eligible for these preferential rates, as described under Material U.S. Federal Income Tax ConsiderationsTaxation of Taxable U.S. StockholdersDistributions in the
accompanying prospectus. U.S. holders should consult their tax advisors regarding the potential tax consequences of a constructive distributions on the notes.
S-51
Under the current regulations, we are generally required to report the amount of any deemed
distributions on our website or to the Internal Revenue Service (IRS) and to holders of notes not exempt from reporting. On April 12, 2016, the IRS proposed regulations addressing the amount and timing of deemed distributions, as
well as obligations of withholding agents and filing and notice obligations of issuers in respect of such deemed distributions. If adopted as proposed, the regulations would generally provide that (i) the amount of a deemed distribution is the
excess of the fair market value of the right to acquire stock immediately after the conversion rate adjustment over the fair market value of the right to acquire stock (after the conversion rate adjustment) without the adjustment, (ii) the
deemed distribution occurs at the earlier of the date the adjustment occurs under the terms of the note and the date of the actual distribution of cash or property that results in the deemed distribution and (iii) we are required to report the
amount of any deemed distributions on our website or to the IRS and to all holders of notes (including holders of notes that would otherwise be exempt from reporting). The proposed regulations would be effective for deemed distributions occurring on
or after the date of adoption, but holders of notes and withholding agents may rely on them prior to that date under certain circumstances.
Ownership and Disposition of Shares Received Upon Conversion
The tax consequences of owning and disposing of common stock received upon conversion of the notes are described in the accompanying
prospectus under U.S. Federal Income Tax ConsiderationsTaxation of Taxable U.S. Stockholders.
Non-U.S. Holders
The following discussion is limited to the U.S. federal income tax consequences relevant to a non-U.S. holder (as defined above).
Taxation of Interest
Under
current U.S. federal income tax law, and subject to the discussion below, U.S. federal withholding tax generally will not apply to payments by us or our paying agent (in its capacity as such) of principal of and interest on a non-U.S. holders
notes under the portfolio interest exception of the Internal Revenue Code, provided that in the case of interest:
|
|
|
the non-U.S. holder does not, directly or indirectly, actually or constructively, own 10% or more of our outstanding voting stock within the meaning of section 871(h)(3) of the Internal Revenue Code and the related
Treasury Regulations;
|
|
|
|
the non-U.S. holder is not a controlled foreign corporation for U.S. federal income tax purposes that is related, directly or indirectly, to us through sufficient stock ownership (as provided in the Internal Revenue
Code);
|
|
|
|
the non-U.S. holder is not a bank receiving interest described in section 881(c)(3)(A) of the Internal Revenue Code;
|
|
|
|
such interest is not effectively connected with the non-U.S. holders conduct of a United States trade or business; and
|
|
|
|
the non-U.S. holder provides a properly executed IRS Form W-8BEN, W-8BEN-E, or other applicable form.
|
The applicable Treasury Regulations provide alternative methods for satisfying the certification requirement described in this section. In
addition, under these Treasury Regulations, special rules apply to pass-through entities and this certification requirement may also apply to beneficial owners of pass-through entities.
S-52
If a non-U.S. holder cannot satisfy the requirements described above, payments of interest will
generally be subject to the 30% U.S. federal withholding tax, unless the non-U.S. holder provides the applicable withholding agent with a properly executed (1) IRS Form W-8BEN or IRS Form W-8BEN-E (or other applicable form) claiming an
exemption from or reduction in withholding under an applicable income tax treaty or (2) IRS Form W-8ECI (or other applicable form) stating that interest paid on the notes is not subject to U.S. federal withholding tax because it is effectively
connected with the conduct by such Non-U.S. holder of a trade or business in the United States (as discussed below under Interest or Gain Effectively Connected with a U.S. Trade or Business).
Sale, Exchange, Certain Redemptions, Conversion or Other Disposition of Notes
Subject to the discussion below under Backup Withholding and Information Reporting, Foreign Accounts, and
Income or Gains Effectively Connected with a U.S. Trade or Business, non-U.S. holders generally will not be subject to U.S. federal income or withholding tax on any gain realized on the sale, exchange, certain redemptions,
conversion or other disposition of notes (other than with respect to payments attributable to accrued interest, which will be taxed as described under Non-U.S. HoldersTaxation of Interest above). This general rule, however,
is subject to several exceptions. For example, the gain will be subject to U.S. federal income tax if:
|
|
|
the gain is effectively connected with the conduct by the non-U.S. holder of a U.S. trade or business (and, generally, if an income tax treaty applies, the gain is attributable to a U.S. permanent establishment or fixed
base maintained by the non-U.S. holder), in which case the gain will be subject to tax as described below under Non-U.S. HoldersIncome or Gains Effectively Connected with a U.S. Trade or Business;
|
|
|
|
the non-U.S. holder is an individual who is present in the United States for 183 days or more in the year of disposition and certain other conditions apply, in which case, except as otherwise provided by an applicable
income tax treaty, the gain, which may be offset by certain U.S. source capital losses, will be subject to a flat 30% tax, even though the individual is not considered a resident of the United States; or
|
|
|
|
the rules of the Foreign Investment in Real Property Tax Act, or FIRPTA, (described below) treat the gain as effectively connected with a U.S. trade or business.
|
The FIRPTA rules may apply to a sale, exchange, certain redemptions, conversion or other disposition of notes by a non-U.S. holder if we
currently are, or were at any time within five years before the sale, exchange, redemption, conversion or other disposition (or, if shorter, the non-U.S. holders holding period for the notes disposed of), a U.S. real property holding
corporation, or USRPHC, for U.S. federal income tax purposes. In general, we would be a USRPHC if the fair market value of interests in U.S. real estate constituted at least 50% of the fair market value of our worldwide real property interests
and assets used or held for use in a trade or business.
Even if we were a USRPHC, a non-U.S. holder generally would not incur tax under
FIRPTA on gain from the sale of our shares of common stock if we were a domestically controlled qualified investment entity. A domestically controlled qualified investment entity includes a REIT in which, at all times during a specified
testing period, less than 50% in value of its shares are held directly or indirectly by non-U.S. persons. We may be a domestically controlled qualified investment entity, in which case the sale of our common stock would not be subject to taxation
under FIRPTA. However, because our stock is expected to be widely held, we cannot assure investors that we will be a domestically controlled qualified investment entity.
Furthermore, even if we were treated as a USRPHC and were not a domestically controlled qualified investment entity, so long as
our common stock is regularly traded on an established securities market, you will
S-53
not be subject to U.S. federal income tax on the disposition of the notes unless you recognize gain on a disposition of the notes and actually or constructively own, at any time within the time
period described above, (i) more than 10% of the notes, if the notes themselves are considered to be regularly traded on an established securities market, or (ii) notes with a value greater than 10% of our common stock as of any date such
notes were acquired, if the notes are not considered to be regularly traded on an established securities market. We do not expect that the notes will be considered to be regularly traded on an established securities market. If the gain from any
disposition is subject to tax under FIRPTA, it will be taxed as if you were a U.S. holder as described in Income or Gains Effectively Connected with a U.S. Trade or Business below. In addition, in certain circumstances, the gross
proceeds from a disposition may be subject to withholding at a rate of 15%.
Constructive Dividends
Subject to the discussion below under Backup Withholding and Information Reporting, Foreign Accounts, and
Income or Gains Effectively Connected with a U.S. Trade or Business, taxable constructive stock dividends resulting from certain adjustments (or failures to make adjustments) to the number of shares of common stock to be issued on
conversion (as described under U.S. HoldersConstructive Distributions above) generally will be subject to U.S. withholding tax at a 30% rate. The withholding tax on taxable constructive stock dividends, however, may be
reduced under the terms of an applicable income tax treaty between the United States and the non-U.S. holders country of residence. A non-U.S. holder should demonstrate its eligibility for a reduced rate of withholding under an applicable
income tax treaty by timely delivering a properly executed IRS Form W-8BEN or W-8BEN-E or appropriate substitute form. A non-U.S. holder that is eligible for a reduced rate of withholding under the terms of an applicable income tax treaty may obtain
a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Because constructive stock dividends will not give rise to any cash from which any applicable U.S. federal withholding tax can be satisfied, the
indenture provides that we may set off any withholding tax that we are required to collect with respect to any such constructive stock dividends against cash payments of interest or from cash or common stock otherwise deliverable to a holder upon a
conversion of notes or a redemption or repurchase of a note (as applicable). Until such time as judicial, legislative, or regulatory guidance becomes available that would, in our reasonable determination, permit us to treat such deemed distributions
as other than deemed dividend distributions treated as ordinary income, in general we intend to withhold on such distributions at a 30% rate or whatever treaty rate is applicable to ordinary income dividends from REITs. Taxable constructive stock
dividends that are effectively connected with a non-U.S. holders conduct of a U.S. trade or business are discussed below under Non-U.S. HoldersIncome or Gains Effectively Connected with a U.S. Trade or Business.
Income or Gains Effectively Connected with a U.S. Trade or Business
The preceding discussion of the U.S. federal income and withholding tax considerations of the ownership or disposition of notes by a non-U.S.
holder assumes that the non-U.S. holder is not engaged in a U.S. trade or business, which interest on a note or gain recognized from the sale, exchange, redemption, conversion or other taxable disposition of a note is effectively connected with. If
any interest on the notes, taxable constructive stock dividends, or gain from the sale, exchange, redemption, conversion or other disposition of the notes or shares of our common stock is effectively connected with a U.S. trade or business conducted
by the non-U.S. holder, then the income or gain will be subject to U.S. federal income tax on a net-income basis at the regular graduated rates and generally in the same manner applicable to U.S. holders (but not the 30% U.S. federal withholding tax
if the non-U.S. holder provides an IRS Form W-8ECI with respect to interest, as described above). If the non-U.S. holder is eligible for the benefits of a tax treaty between the United States and the non-U.S. holders country of residence, any
effectively connected income or gain generally will be subject to U.S. federal income tax on a net-income basis only if it is also attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United
States. Payments of interest or taxable constructive stock dividends that are effectively connected with a U.S. trade or business (and, if a tax treaty applies, attributable to a permanent establishment or fixed base), and therefore included in the
gross income of a non-U.S. holder, will not
S-54
be subject to 30% withholding, provided that the non-U.S. holder claims exemption from withholding by timely filing a properly completed and executed IRS Form W-8ECI or properly completed and
executed IRS Form W-8BEN or W-8BEN-E (in the case of a treaty), or any successor form as the IRS designates, as applicable, prior to payment. If the non-U.S. holder is a corporation (including for this purpose any entity treated as a corporation for
U.S. federal income tax purposes), that portion of its earnings and profits that is effectively connected with its U.S. trade or business generally also would be subject to a branch profits tax. The branch profits tax rate is generally
30%, although an applicable income tax treaty might provide for a lower rate.
Ownership and Disposition of Shares Received Upon Conversion
The tax consequences of owning and disposing of common stock received upon conversion of the notes are described in the
accompanying prospectus under Material U.S. Federal Income Tax ConsiderationsTaxation of Non-U.S. Stockholders.
Backup Withholding
and Information Reporting
In general, information reporting requirements and backup withholding at the applicable rate will apply to
payments on a note (including stated interest payments, constructive dividend payments and payments of the proceeds from the sale, exchange, redemption, repurchase, retirement or other disposition of a note) to a U.S. holder, unless the holder of
the note (i) is a corporation or comes within certain exempt categories and, when required, demonstrates that fact or (ii) provides a correct taxpayer identification number, certifies as to its exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding rules. Certain penalties may be imposed by the IRS on a holder that is required to supply information but does not do so in the proper manner.
Backup withholding generally will not apply to payments on a note to a
non-U.S.
holder if the
statement described in
Non-U.S.
Holders of NotesInterest on Notes,
Non-U.S.
Holders of NotesConstructive Dividends or
Non-U.S. Holders of NotesIncome or Gains Effectively Connected with a U.S. Trade or Business is duly provided by such holder, provided that the withholding agent does not have actual knowledge that the holder is a United
States person. However, information returns may be required to be filed with the IRS in connection with any interest paid to the non-U.S. holder, regardless of whether any tax was actually withheld. Information reporting requirements and backup
withholding will not apply to any payment of the proceeds of the sale of a note effected outside the United States by a foreign office of a broker (as defined in applicable Treasury Regulations), unless such broker has certain
relationships with the United States, although information reporting requirements may apply unless such broker has documentary evidence in its records that the beneficial owner is a
Non-U.S.
holder and certain
other conditions are met, or the beneficial owner otherwise establishes an exemption. Payment of the proceeds of any such sale to or through the United States office of a broker is subject to information reporting and backup withholding
requirements, unless the beneficial owner of the note provides the statement described in
Non-U.S.
Holders of NotesInterest on Notes or Non U.S. Holders of NotesIncome
or Gains Effectively Connected with a U.S. Trade or Business or otherwise establishes an exemption. Backup withholding is not an additional tax. Any amount withheld from a payment to a holder of a note under the backup withholding rules is
allowable as a credit against such holders U.S. federal income tax liability (which might entitle such holder to a refund from the IRS), provided that such holder furnishes the required information to the IRS.
Foreign Accounts
Legislation enacted in
2010 (commonly known as foreign account tax compliance act, or FATCA) and existing guidance issued thereunder generally imposes a 30% withholding tax on U.S. source payments, including dividends in respect of common stock and interest and OID in
respect of notes, and, after December 31, 2018, gross proceeds from a disposition of common stock or notes held by or through (1) a foreign financial institution (as that term is defined in Section 1471(d)(4) of the Internal Revenue
Code) unless that foreign
S-55
financial institution enters into an agreement with the U.S. Treasury Department to collect and disclose information regarding U.S. account holders of that foreign financial institution
(including certain account holders that are foreign entities that have U.S. owners) and satisfies other requirements, and (2) specified other non-U.S. entities unless such an entity provides the payor with a certification identifying the direct
and indirect U.S. owners of the entity and complies with other requirements. Accordingly, the entity through which our common stock or notes is held will affect the determination of whether withholding is required. An intergovernmental agreement
between the United States and an applicable foreign country, or future Treasury Regulations or other guidance, may modify these requirements. Holders of our common stock or notes are encouraged to consult with their own tax advisor regarding the
possible implications of this legislation on their particular circumstances.
S-56
UNDERWRITING
Deutsche Bank Securities Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC are acting as
representatives of each of the underwriters named below. Subject to the terms and conditions set forth in an underwriting agreement among the underwriters and us, we have agreed to sell to the underwriters, and each of the underwriters has agreed,
severally and not jointly, to purchase from us, the principal amount of notes set forth opposite its name below.
|
|
|
|
|
Underwriter
|
|
Principal
amount of
notes
|
|
Deutsche Bank Securities Inc.
|
|
$
|
40,500,000
|
|
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
|
|
$
|
40,500,000
|
|
J.P. Morgan Securities LLC
|
|
$
|
40,500,000
|
|
Nomura Securities International, Inc.
|
|
$
|
6,750,000
|
|
Oppenheimer & Co. Inc.
|
|
$
|
6,750,000
|
|
|
|
|
|
|
Total
|
|
$
|
135,000,000
|
|
|
|
|
|
|
The underwriters are offering the notes subject to their acceptance of the notes from us and subject to prior
sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the notes offered by this prospectus supplement are subject to the approval of certain legal matters by their counsel and to
certain other conditions. The underwriters are obligated to take and pay for all of the notes offered by this prospectus supplement if any such notes are taken. However, the underwriters are not required to take or pay for the notes covered by the
underwriters over-allotment option described below. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be
terminated.
After the initial offering of the notes, the offering price and other selling terms may from time to time be varied by the
representatives.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
The expenses of the offering
are estimated at $400,000 and are payable by us.
Option to Purchase Additional Notes
We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus supplement, to purchase up to an
additional $15,000,000 principal amount of the notes at the public offering price listed on the cover page of this prospectus supplement, less underwriting discounts and commissions, solely to cover over-allotments. To the extent the option is
exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the principal amount of additional notes as the principal amount listed next to the underwriters name in the preceding
table bears to the aggregate principal amount of the notes listed next to the names of all underwriters in the preceding table.
S-57
The following table shows the per note and total public offering price, underwriting discounts
and commissions, and proceeds before expenses to us. These amounts are shown assuming both no exercise and full exercise of the underwriters over-allotment option.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
Note
|
|
|
Total
|
|
|
|
|
No Exercise
|
|
|
Full
Exercise
|
|
Public offering price
|
|
|
99.5
|
%
|
|
$
|
134,325,000
|
|
|
$
|
149,250,000
|
|
Underwriting discounts and commissions
|
|
|
2.25
|
%
|
|
$
|
3,037,500
|
|
|
$
|
3,375,000
|
|
Proceeds, before expenses, to us
|
|
|
97.25
|
%
|
|
$
|
131,287,500
|
|
|
$
|
145,875,000
|
|
No Sales of Similar Securities
We, our executive officers and directors have agreed not to sell or transfer any common stock or securities convertible into, exchangeable
for, exercisable for, or repayable with common stock, for 30 days after the date of the underwriting agreement among the underwriters and us without first obtaining the written consent of Deutsche Bank Securities Inc., J.P. Morgan Securities LLC and
Merrill Lynch, Pierce, Fenner & Smith Incorporated. Specifically, we and these other persons have agreed, with certain limited exceptions, not to directly or indirectly
|
|
|
offer, pledge, sell or contract to sell any common stock,
|
|
|
|
sell any option or contract to purchase any common stock,
|
|
|
|
purchase any option or contract to sell any common stock,
|
|
|
|
grant any option, right or warrant for the sale of any common stock,
|
|
|
|
lend or otherwise dispose of or transfer any common stock,
|
|
|
|
request or demand that we file a registration statement related to the common stock, or
|
|
|
|
enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any common stock whether any such swap or transaction is to be settled by delivery of shares or other
securities, in cash or otherwise.
|
This lock-up provision applies to common stock and to securities convertible into or
exchangeable or exercisable for or repayable with common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of
disposition.
However, with respect to our directors and executive officers, the restrictions described above shall not apply (i) to
bona fide gifts or transfers to family members or trusts for the direct or indirect benefit of the director or executive officer or his or her family members or bona fide gifts for charities, provided in each case that the transferee agrees in
writing to be bound by the terms of the lock-up agreement, (ii) for shares sold in certain instances based on withholding taxes for vesting of restricted stock, and (iii) for sales by certain individuals pursuant to 10b5-1 plans.
No Prior Market
The notes are a new
issue of securities with no established trading market. We do not intend to list the notes on any national securities exchange. We have been advised by certain underwriters that they presently
S-58
intend to make a market in the notes after completion of the offering as permitted by the applicable laws and regulations. Such underwriters are not obligated, however, to make a market in the
notes and any such market-making may be discontinued at any time in the sole discretion of the underwriters without any notice. Accordingly, no assurance can be given as to the liquidity of, or development of a trading market for, the notes. If an
active trading market for the notes does not develop, the market price and liquidity of the notes may be adversely affected.
Our common
stock is listed on the NYSE under the symbol HASI.
Price Stabilization, Short Positions and Penalty Bids
In connection with the offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering
transactions, and penalty bids in accordance with Regulation M under the Exchange Act.
|
|
|
Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.
|
|
|
|
Over-allotment involves sales by the underwriters of notes in excess of the aggregate principal amount of the notes the underwriters are obligated to purchase, which creates a syndicate short position. The short
position may be either a covered short position or a naked short position. In a covered short position, the aggregate principal amount of the notes overallotted by the underwriters is not greater than the aggregate principal amount of the notes that
they may purchase in the over-allotment option. In a naked short position, the aggregate principal amount of the notes involved is greater than the aggregate principal amount of the notes in the over-allotment option. The underwriters may close out
any short position by either exercising their over-allotment option and/or purchasing notes in the open market.
|
|
|
|
Syndicate covering transactions involve purchases of the notes in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of notes to close out
the short position, the underwriters will consider, among other things, the price of notes available for purchase in the open market as compared to the price at which they may purchase notes through the over-allotment option. If the underwriters
sell more notes than could be covered by the over-allotment option, a naked short position, that position can only be closed out by buying notes in the open market. A naked short position is more likely to be created if the underwriters are
concerned that there could be downward pressure on the price of the notes in the open market after pricing that could adversely affect investors who purchase in the offering.
|
|
|
|
Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when the notes originally sold by the syndicate member are purchased in a stabilizing or syndicate covering transaction to
cover syndicate short positions.
|
These stabilizing transactions, syndicate covering transactions and penalty bids may have
the effect of raising or maintaining the market price of the notes or preventing or retarding a decline in the market price of the notes. As a result the price of the notes may be higher than the price that might otherwise exist in the open market.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the notes. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these transactions or that these transactions, once commenced, will
not be discontinued without notice
S-59
Electronic Distribution
In connection with the offering, certain of the underwriters or securities dealers may distribute prospectuses by electronic means, such as
e-mail.
Conflict of Interest
Certain of the underwriters and their affiliates have provided and are providing traditional commercial lending to us in one off financings in
the ordinary course of business. An affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated is the lender under our Existing Credit Facility. Affiliates of Deutsche Bank Securities Inc. act as a lender and Administrative Agent under
our Recourse Credit Facility entered into in February 2017 and maturing on September 20, 2017. Some of the underwriters and their affiliates may in the future engage in investment banking and other commercial dealings in the ordinary course of
business with us or our affiliates. Accordingly, they have received, or may in the future receive, customary fees and commissions for these transactions. We have in the past, and may continue in the future, to purchase assets held by affiliates of
one or more of the underwriters.
We may use a portion of the net proceeds of this offering to repay outstanding borrowings under one or
both of our Credit Facilities. Bank of America, N.A., an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, is the lender under our Existing Credit Facility and Bank of America, N.A. may receive proceeds from this offering in
connection with our Existing Credit Facility. Deutsche Bank AG, New York Branch and Deutsche Bank Trust Company Americas, affiliates of Deutsche Bank Securities Inc., act as a lender and Administrative Agent, respectively, under our Recourse Credit
Facility and may receive proceeds from this offering in connection with our Recourse Credit Facility. See Use of Proceeds.
In
addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial
instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates
may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such
securities and instruments.
Notice to Prospective Investors in the Dubai International Financial Centre
This prospectus supplement and the accompanying prospectus relate to an Exempt Offer in accordance with the Offered Securities Rules of the
Dubai Financial Services Authority, or DFSA. This prospectus supplement and the accompanying prospectus are intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or
relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus supplement and the accompanying prospectus nor taken steps to verify
the information set forth herein and has no responsibility for the prospectus supplement and the accompanying prospectus. The notes to which this prospectus supplement and the accompanying prospectus relate may be illiquid and/or subject to
restrictions on their resale. Prospective purchasers of the notes offered should conduct their own due diligence on the notes. If you do not understand the contents of this prospectus supplement and the accompanying prospectus you should consult an
authorized financial advisor.
Notice to Prospective Investors in Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities
and Investments Commission, or ASIC, in relation to the offering.
S-60
This prospectus supplement and the accompanying prospectus do not constitute a prospectus,
product disclosure statement or other disclosure document under the Corporations Act 2001, or the Corporations Act, and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document
under the Corporations Act.
Any offer in Australia of the notes may only be made to persons, or the Exempt Investors, who are
sophisticated investors (within the meaning of section 708(8) of the Corporations Act), professional investors (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions
contained in section 708 of the Corporations Act so that it is lawful to offer the notes without disclosure to investors under Chapter 6D of the Corporations Act.
The notes applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of
allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is
pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring notes must observe such Australian on-sale restrictions.
This prospectus supplement and the accompanying prospectus contain general information only and do not take account of the investment
objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in
this prospectus supplement and the accompanying prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Notice to Prospective Investors in Hong Kong
The notes have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to
professional investors as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a
prospectus as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the notes has been or
may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if
permitted to do so under the securities laws of Hong Kong) other than with respect to notes which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors as defined in the Securities and
Futures Ordinance and any rules made under that Ordinance.
Notice to Prospective Investors in Canada
The notes may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in
National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any
resale of the notes must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this
prospectus supplement (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the
purchasers province or territory. The purchaser should
S-61
refer to any applicable provisions of the securities legislation of the purchasers province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4)
of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
S-62
LEGAL MATTERS
Certain legal matters will be passed upon for us by Clifford Chance US LLP. Certain legal matters relating to this offering will be passed
upon for the underwriters by Freshfields Bruckhaus Deringer US LLP.
S-63
EXPERTS
Ernst & Young LLP, independent registered public accounting firm, has audited our consolidated financial statements included in our
Annual Report on Form 10-K for the year ended December 31, 2016, and the effectiveness of our internal control over financial reporting as of December 31, 2016, as set forth in their reports, which are incorporated by reference in this
prospectus supplement. Our financial statements are incorporated by reference in reliance on Ernst & Young LLPs report, given on their authority as experts in accounting and auditing.
Deloitte & Touche LLP, an independent auditor, has audited the consolidated financial statements, included in our Annual Report on
Form 10-K/A, for the years ended December 31, 2016 and 2015, of Buckeye Wind Energy Class B Holdings LLC and Subsidiaries, as set forth in their report, which is incorporated by reference in this prospectus supplement. Such financial statements
have been incorporated by reference in reliance upon the report of Deloitte & Touche LLP, given on their authority as experts in accounting and auditing.
S-64
WHERE YOU CAN FIND MORE INFORMATION AND INCORPORATION BY
REFERENCE
We have filed a registration statement on Form S-3 with the SEC. In addition, we file annual, quarterly, current
reports, proxy statements and other information with the SEC. You may read and copy the registration statement and any other documents filed by us at the SECs Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the
SEC at 1-800-SEC-0330 for further information on the Public Reference Room. Our SEC filings are also available to the public at the SECs Internet site at
http://www.sec.gov.
Our reference to the SECs Internet site is intended to
be an inactive textual reference only.
This prospectus supplement and the accompanying prospectus do not contain all of the
information included in the registration statement. If a reference is made in this prospectus supplement or the accompanying prospectus to any of our contracts or other documents filed or incorporated by reference as an exhibit to the registration
statement, the reference may not be complete and you should refer to the filed copy of the contract or document.
The SEC allows us to
incorporate by reference into this prospectus supplement the information we file with the SEC, which means that we can disclose important information to you by referring you to those documents. Information incorporated by reference is
part of this prospectus supplement. Later information filed with the SEC will update and supersede this information.
|
|
|
Document
|
|
Period
|
Quarterly Report on Form
10-Q
(File
No. 001-35877)
|
|
Quarter ended June 30, 2017
|
Quarterly Report on Form
10-Q
(File
No. 001-35877)
|
|
Quarter ended March 31, 2017
|
Annual Report on Form 10-K/A (File
No. 001-35877)
|
|
Year ended December 31, 2016
|
Annual Report on Form
10-K
(File
No. 001-35877)
|
|
Year ended December 31, 2016
|
|
|
Document
|
|
Date of Filing of Report
|
Current Report on Form
8-K
(File
No. 001-35877)
|
|
August 4, 2017
|
Current Report on Form
8-K
(File
No. 001-35877)
|
|
June 5, 2017
|
Current Report on Form
8-K
(File
No. 001-35877)
|
|
March 21, 2017
|
Current Report on Form
8-K
(File
No. 001-35877)
|
|
March 10, 2017
|
Current Report on Form
8-K
(File
No. 001-35877)
|
|
March 6, 2017
|
|
|
Document
|
|
Date
|
Definitive Proxy Statement on Schedule 14A (only with respect to information contained in such
Definitive Proxy Statement that is incorporated by reference into Part III of our Annual Report on Form
10-K
for the year ended December 31, 2016) (File
No. 001-35877)
|
|
April 10, 2017
|
|
|
Document
|
|
Date
|
Registration Statement on Form
8-A
(containing the
description of shares of our common stock) (File
No. 001-35877)
|
|
April 15, 2013
|
All documents that we file (but not those that we furnish) pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act on or after the date of this prospectus supplement and until we have sold all of the securities to which this prospectus supplement relates or the offering of any of the securities covered under this prospectus supplement is
otherwise terminated shall be deemed to be incorporated by reference into this prospectus supplement.
S-65
All of the documents that are incorporated by reference are available at the website
maintained by the SEC at
http://www.sec.gov
. In addition, if you request, either orally or in writing, we will provide you with a
copy of any or all documents that are incorporated by reference. Such documents will be provided to you
free of charge, but will not contain any exhibits, unless those exhibits are incorporated by reference into the document. Requests should be addressed to us at 1906 Towne Centre Blvd, Suite 370, Annapolis, Maryland 21401, Attention: Hannon Armstrong
Sustainable Infrastructure Capital, Inc., Investor Relations, or contact our offices at (410) 571-9860.
S-66
PROSPECTUS
HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE CAPITAL, INC.
Common Stock,
Preferred
Stock,
Depositary Shares,
Debt Securities
Warrants
and
Rights
We may offer from time to time, in one or more series or classes, separately or together, and in amounts, at prices and on terms to be set
forth in one or more supplements to this prospectus, the following securities:
|
|
|
shares of our common stock, par value $0.01 per share;
|
|
|
|
shares of our preferred stock, par value $0.01 per share;
|
|
|
|
depositary shares representing entitlement to all rights and preferences of fractions of shares of our preferred stock of a specified class or series and represented by depositary receipts;
|
|
|
|
warrants to purchase our common stock, preferred stock, depositary shares or debt securities; or
|
|
|
|
rights to purchase our common stock or preferred stock.
|
We refer to the common stock,
preferred stock, depositary shares, debt securities, warrants and rights, collectively, as the securities in this prospectus.
This prospectus describes some of the general terms that may apply to these securities and the general manner in which they may be offered. The
specific terms of any securities to be offered, and the specific manner in which they may be offered, will be described in a supplement to this prospectus.
The applicable prospectus supplement will also contain information, where applicable, about certain U.S. federal income tax consequences
relating to, and any listing on a securities exchange of, the securities covered by such prospectus supplement. It is important that you read both this prospectus and the applicable prospectus supplement before you invest.
We may offer the securities directly, through agents, or to or through underwriters. The prospectus supplement will describe the terms of the
plan of distribution and set forth the names of any underwriters involved in the sale of the securities. See Plan of Distribution beginning on page 9 for more information on this topic. No securities may be sold without delivery of this
prospectus and a prospectus supplement describing the method and terms of the offering of those securities.
Our common stock is listed on
the New York Stock Exchange, or the NYSE, under the symbol HASI. On July 31, 2017, the closing sale price of our common stock on the NYSE was $23.25 per share.
Investing in these securities involves risks. You should carefully read the risk factors described in our Securities and Exchange
Commission, or SEC, filings, including those described under
Risk Factors
in our Annual Report on
Form 10-K
as supplemented by the Form
10-K/A
for the year ended December 31, 2016 and in our subsequently filed periodic reports incorporated by reference herein, before investing in our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed
upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The date of this
prospectus is August 4, 2017.
CONTENTS
- i -
ABOUT THIS PROSPECTUS
This prospectus is part of a shelf registration statement. Under this shelf registration statement, we may sell any combination of common
stock, preferred stock, depositary shares, debt securities, warrants and rights. You should rely only on the information provided or incorporated by reference in this prospectus, any applicable prospectus supplement or any free writing prospectus.
We have not authorized anyone to provide you with different or additional information. We are not making an offer to sell these securities in any jurisdiction where the offer or sale of these securities is not permitted. You should not assume that
the information appearing in this prospectus, any applicable prospectus supplement or any free writing prospectus or the documents incorporated by reference herein or therein is accurate as of any date other than their respective dates. Our
business, financial condition, results of operations and prospects may have changed since those dates. You should read carefully the entirety of this prospectus, any applicable prospectus supplement and any free writing prospectus, as well as the
documents incorporated by reference herein or therein, before making an investment decision.
In this prospectus, unless otherwise
specified or the context requires otherwise, we use the terms company, we, us and our to refer to Hannon Armstrong Sustainable Infrastructure Capital, Inc., together with its subsidiaries.
- 1 -
SUMMARY INFORMATION
We are an internally managed real estate investment trust, or REIT, that makes debt and equity investments in sustainable infrastructure,
including energy efficiency and renewable energy, that provide cleaner energy sources, positively impact the environment or make more efficient use of natural resources.
We have elected to be taxed as a REIT for U.S. federal income tax purposes, commencing with our taxable year ended December 31, 2013.
Our principal executive offices are located at 1906 Towne Centre Blvd, Suite 370, Annapolis, Maryland 21401. Our telephone number is
(410)
571-9860.
Our website is
www.hannonarmstrong.com
. The information on our website is not intended to form a part of or be incorporated by reference into this prospectus.
- 2 -
RISK FACTORS
Investing in any securities offered pursuant to this prospectus involves a high degree of risk. Before making an investment decision, you
should carefully consider the risk factors described in the section captioned Risk Factors contained in our Annual Report on
Form 10-K
as supplemented by the Form
10-K/A
for the year ended December 31, 2016, or collectively our 2016
10-K,
and in subsequent periodic reports which we file with the SEC, as well as other information in
this prospectus and any applicable prospectus supplement before purchasing any shares of our common stock. Any of these risks described could materially adversely affect our business, financial condition, results of operations, tax status or ability
to make distributions to our stockholders. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. If this were to happen, the price of
our securities could decline significantly and you could lose a part or all of your investment. Each of the risks described could materially adversely affect our business, financial condition, results of operations, or ability to make distributions
to our stockholders. In such case, you could lose all or a portion of your original investment. See Where You Can Find More Information beginning on page 70 of this prospectus.
- 3 -
FORWARD-LOOKING STATEMENTS
We make forward-looking statements in this prospectus and the documents incorporated by reference in this document within the meaning of
Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. For these statements, we claim the protections of the safe harbor for
forward-looking statements contained in such Sections. Forward-looking statements are subject to substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. These forward-looking statements
include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. When we use the words believe, expect, anticipate,
estimate, plan, continue, intend, should, may or similar expressions, we intend to identify forward-looking statements. Statements regarding the following subjects, among
others, may be forward-looking:
|
|
|
our expected returns and performance of our investments;
|
|
|
|
the state of government legislation, regulation and policies that support or enhance the economic feasibility of sustainable infrastructure projects, including energy efficiency and renewable energy projects and the
general market demands for such projects;
|
|
|
|
market trends in our industry, energy markets, commodity prices, interest rates, the debt and lending markets or the general economy;
|
|
|
|
our business and investment strategy;
|
|
|
|
availability of opportunities to invest in sustainable infrastructure projects, including energy efficiency and renewable energy projects and our ability to complete potential new opportunities in our pipeline;
|
|
|
|
our relationships with originators, investors, market intermediaries and professional advisers;
|
|
|
|
competition from other providers of capital;
|
|
|
|
our or any other companies projected operating results;
|
|
|
|
actions and initiatives of the federal, state and local governments and changes to federal, state and local government policies, regulations, tax laws and rates and the execution and impact of these actions, initiatives
and policies;
|
|
|
|
the state of the U.S. economy generally or in specific geographic regions, states or municipalities; economic trends and economic recoveries;
|
|
|
|
our ability to obtain and maintain financing arrangements on favorable terms, including securitizations;
|
|
|
|
general volatility of the securities markets in which we participate;
|
|
|
|
changes in the value of our assets, our portfolio of assets and our investment and underwriting process;
|
|
|
|
rates of default or decreased recovery rates on our assets;
|
|
|
|
interest rate and maturity mismatches between our assets and any borrowings used to fund such assets;
|
|
|
|
changes in interest rates and the market value of our assets and target assets;
|
|
|
|
changes in commodity prices;
|
|
|
|
effects of hedging instruments on our assets or liabilities;
|
|
|
|
the degree to which our hedging strategies may or may not protect us from interest rate volatility;
|
|
|
|
impact of and changes in accounting guidance and similar matters;
|
|
|
|
our ability to maintain our qualification as a REIT;
|
|
|
|
our ability to maintain our exception from registration under the Investment Company Act of 1940, as amended;
|
- 4 -
|
|
|
availability of qualified personnel;
|
|
|
|
estimates relating to our ability to make distributions to our stockholders in the future; and
|
|
|
|
our understanding of our competition.
|
The risks included here are not exhaustive. Other
sections of this prospectus may include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and
it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially
from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.
We do not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to
reflect any change in our expectations or any change in events, conditions or circumstances on which any such statement is based.
The
forward-looking statements contained in this prospectus and the documents incorporated by reference herein reflect our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us.
Forward-looking statements are not predictions of future events. These beliefs, assumptions and expectations are subject to risks and uncertainties and can change as a result of many possible events or factors, not all of which are known to us. Some
of these factors are included in our 2016
10-K
and in subsequent periodic reports that we file with the SEC, each of which is incorporated by reference into this prospectus. If a change occurs, our business,
financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over
time, and it is not possible for us to predict those events or how they may affect us. Such new risks and uncertainties may be included in the documents that we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this prospectus which will be considered to be incorporated by reference into this prospectus. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. You should carefully consider these risks before you make an investment decision with respect to our common stock, preferred stock, depositary shares, debt securities, warrants or rights.
For more information regarding risks that may cause our actual results to differ materially from any forward-looking statements, see
Risk Factors in our 2016
10-K
and in the other documents that we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this prospectus, which will be
considered to be incorporated by reference into this prospectus.
- 5 -
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for the periods indicated. The ratio of earnings to fixed charges was
computed by dividing earnings by our fixed charges. For purposes of calculating this ratio, earnings include net income/(loss) plus the sum of fixed charges and distributions received from equity investments. Fixed charges
consists of investment interest expense, other interest expenses and the estimated interest component of rental expense. This ratio is calculated in accordance with generally accepted accounting principles.
Hannon Armstrong Capital, LLC, a Maryland limited liability company, the entity that operated our historical business prior to the
consummation of our initial public offering on April 23, 2013, or our IPO, and which we refer to as the Predecessor, became our subsidiary upon consummation of our IPO. To the extent any of the financial data included in the below
table is as of a date or from a period prior to the consummation of our IPO, such financial data is that of the Predecessor. The financial data for the Predecessor for such periods do not reflect the material changes to the business as a result of
the capital raised in the IPO including the broadened types of projects undertaken, the enhanced financial structuring flexibility and the ability to retain a larger share of the economics from the origination activities. Accordingly, the financial
data for the Predecessor is not necessarily indicative of our financial position following the completion of the IPO.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six
months ended
June 30,
2017
|
|
|
For the fiscal
year ended
December 31,
2016
|
|
|
For the fiscal
year ended
December 31,
2015
|
|
|
For the fiscal
year ended
December 31,
2014
|
|
|
For the fiscal
year ended
December 31,
2013
|
|
|
For the three
months ended
December 31,
2012
|
|
|
For the fiscal year
ended September 30,
2012
|
|
Ratio of Earnings to Fixed
Charges
(1)
|
|
|
2.6
|
|
|
|
2.4
|
|
|
|
2.3
|
|
|
|
1.6
|
|
|
|
*
|
|
|
|
1.8
|
|
|
|
2.9
|
|
*
|
Earnings were insufficient to cover fixed charges by $2.9 million for the fiscal year ended December 31, 2013.
|
(1)
|
We had no preferred stock outstanding for any of the periods. Accordingly, the ratios of earnings to combined fixed charges and preferred stock dividends are not presented because they are identical to the ratios of
earnings to fixed charges for each of the periods.
|
- 6 -
USE OF PROCEEDS
Unless otherwise specified in the applicable prospectus supplement, we intend to use the net proceeds from the sale of the securities to
acquire our target assets, repay indebtedness or for general corporate purposes. Further details relating to the use of the net proceeds will be set forth in the applicable prospectus supplement.
- 7 -
SELLING SECURITYHOLDERS
If the registration statement of which this prospectus forms a part is used by selling securityholders for the resale of any securities
registered thereunder pursuant to a registration rights agreement to be entered into by us with such selling securityholders or otherwise, information about such selling securityholders, their beneficial ownership of the securities and their
relationship with us will be set forth in a prospectus supplement, in a post-effective amendment, or in filings we make with the SEC under the Exchange Act that are incorporated by reference into such registration statement.
- 8 -
PLAN OF DISTRIBUTION
We may sell the securities to one or more underwriters for public offering and sale by them or may sell the securities to investors directly
or through agents. Any underwriter or agent involved in the offer and sale of the securities will be named in the applicable prospectus supplement. Underwriters and agents in any distribution contemplated hereby may from time to time be designated
on terms to be set forth in the applicable prospectus supplement.
Underwriters or agents could make sales in privately negotiated
transactions and any other method permitted by law. Securities may be sold in one or more of the following transactions: (a) block transactions (which may involve crosses) in which a broker-dealer may sell all or a portion of the securities as
agent but may position and resell all or a portion of the block as principal to facilitate the transaction; (b) purchases by a broker-dealer as principal and resale by the broker-dealer for its own account pursuant to a prospectus supplement;
(c) a special offering, an exchange distribution or a secondary distribution in accordance with applicable NYSE or other stock exchange rules; (d) ordinary brokerage transactions and transactions in which a broker-dealer solicits
purchasers; (e) at the market offerings or sales at the market, within the meaning of Rule 415(a)(4) of the Securities Act, to or through a market maker or into an existing trading market on an exchange or
otherwise; (f) sales in other ways not involving market makers or established trading markets, including direct sales to purchasers; or (g) through a combination of any of these methods. Broker-dealers may also receive compensation from
purchasers of these securities which is not expected to exceed those customary in the types of transactions involved.
Underwriters or
agents may offer and sell the securities at a fixed price or prices, which may be changed in relation to the prevailing market prices at the time of sale or at negotiated prices. We also may, from time to time, authorize underwriters acting as our
agents to offer and sell the securities upon the terms and conditions as are set forth in the applicable prospectus supplement. If indicated in the applicable prospectus supplement, we may authorize underwriters or other agents to solicit offers by
institutions to purchase securities from it pursuant to contracts providing for payment and delivery on a future date. Institutions with which it may make these delayed delivery contracts include commercial and savings banks, insurance companies,
pension funds, investment companies, educational and charitable institutions and others. In connection with the sale of securities, underwriters or agents may be deemed to have received compensation from us in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of securities for whom they may act as agent. Underwriters or agents may sell securities to or through dealers, and the dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters or the agents and/or commissions from the purchasers for whom they may act as agent.
Any
underwriting compensation paid by us to underwriters or agents in connection with the offering of securities, and any discounts, concessions or commissions allowed by underwriters or agents to participating dealers, will be set forth in the
applicable prospectus supplement. Underwriters, dealers and agents participating in the distribution of the securities may be deemed to be underwriters, and any discounts and commissions received by them and any profit realized by them on resale of
the securities may be deemed to be underwriting discounts and commissions, under the Securities Act. Underwriters, dealers and agents may be entitled, under agreements entered into with us to indemnification against and contribution toward civil
liabilities, including liabilities under the Securities Act.
We may have agreements with the underwriters, dealers, agents and
remarketing firms to indemnify them against certain civil liabilities, including liabilities under the Securities Act, or to contribute with respect to payments that the underwriters, dealers, agents or remarketing firms may be required to make.
Underwriters, dealers, agents and remarketing firms may be customers of, engage in transactions with or perform services for us in the ordinary course of their businesses.
In compliance with the guidelines of the Financial Industry Regulatory Authority, or FINRA, the aggregate maximum discount, commission or
agency fees or other items constituting underwriting compensation to be
- 9 -
received by any FINRA member or independent broker-dealer will not exceed 8% of any offering pursuant to this prospectus and any applicable prospectus supplement or pricing supplement, as the
case may be; however, it is anticipated that the maximum commission or discount to be received in any particular offering of securities will be less than this amount.
Any securities issued hereunder (other than common stock) will be new issues of securities with no established trading market. Any
underwriters or agents to or through whom such securities are sold by us for public offering and sale may make a market in such securities, but such underwriters or agents will not be obligated to do so and may discontinue any market making at any
time without notice. We cannot assure you as to the liquidity of the trading market for any such securities.
- 10 -
DESCRIPTION OF SECURITIES
This prospectus contains summary descriptions of the material terms of the common stock, preferred stock, depositary shares, debt
securities, warrants and rights that we may offer and sell from time to time. These summary descriptions are not meant to be complete descriptions of each security. The particular terms of any security will be described in the applicable prospectus
supplement and are subject to and qualified in their entirety by reference to Maryland law and our charter and bylaws. See Where You Can Find More Information.
Our charter provides that we may issue up to 450,000,000 shares of common stock, par value $0.01 per share, and up to
50,000,000 shares of preferred stock, par value $0.01 per share. Our charter authorizes our board of directors to amend our charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or
series that we are authorized to issue with the approval of a majority of our entire board of directors and without common stockholder approval. As of July 31, 2017, 53,072,035 shares of our common stock were issued and outstanding (including
1,416,629 unvested shares of restricted common stock), and no shares of our preferred stock were issued and outstanding. Under Maryland law, our stockholders are not generally liable for our debts or obligations.
Power to Reclassify Our Unissued Shares of Stock
Our charter authorizes our board of directors to classify and reclassify any unissued shares of common or preferred stock into other classes or
series of stock, including one or more classes or series of stock that have priority with respect to voting rights, dividends or upon liquidation over our common stock, and authorizes us to issue the newly-classified shares. Prior to the issuance of
shares of each new class or series, our board of directors is required by Maryland law and by our charter to set, subject to the provisions of our charter regarding the restrictions on ownership and transfer of our stock, the preferences, conversion
and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption for each class or series. Our board of directors may take these actions without stockholder
approval unless stockholder approval is required by the terms of any other class or series of our stock or the rules of any stock exchange or automatic quotation system on which our securities may be listed or traded. Therefore, our board of
directors could authorize the issuance of shares of common or preferred stock with terms and conditions that could have the effect of delaying, deferring or preventing a change in control or other transaction that might involve a premium price for
shares of our common stock or otherwise be in the best interest of our stockholders. No shares of preferred stock are presently outstanding, and we have no present plans to issue any shares of preferred stock.
Power to Increase or Decrease Authorized Shares of Stock and Issue Additional Shares of Stock
We believe that the power of our board of directors to amend our charter to increase or decrease the number of authorized shares of our stock,
to authorize us to issue additional authorized but unissued shares of common or preferred stock and to classify or reclassify unissued shares of common or preferred stock and thereafter to authorize us to issue such classified or reclassified shares
of stock will provide us with increased flexibility in structuring possible future financings and acquisitions and in meeting other needs that might arise. The additional classes or series of stock, as well as the additional shares of common stock,
will be available for issuance without further action by our stockholders, unless such approval is required by the terms of any other class or series of our stock or the rules of any stock exchange or automated quotation system on which our
securities may be listed or traded. Although our board of directors does not intend to do so, it could authorize us to issue a class or series of stock that could, depending upon the terms of the particular class or series, delay, defer or prevent a
change in control or other transaction that might involve a premium price for shares of our common stock or otherwise be in the best interest of our stockholders.
- 11 -
Restrictions on Ownership and Transfer
In order for us to qualify as a REIT under the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, shares of our stock
must be owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other than the first year for which an election to be a REIT has been made) or during a proportionate part of a shorter taxable year. Also, not
more than 50% of the value of the outstanding shares of our stock may be owned, directly or constructively, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of a taxable year
(other than the first year for which an election to be a REIT has been made). To qualify as a REIT, we must satisfy other requirements as well. See U.S. Federal Income Tax ConsiderationsRequirements for Qualification as a REIT.
Our charter contains restrictions on the ownership and transfer of our stock. The relevant sections of our charter provide that, subject
to the exceptions described below, no person or entity may own, or be deemed to own, by virtue of the applicable constructive ownership provisions of the Internal Revenue Code, more than 9.8% in value or number of shares, whichever is more
restrictive, of any of the outstanding shares of our common stock, the outstanding shares of any class or series of our preferred stock or the aggregate of the outstanding shares of all classes and series of our capital stock. We refer to these
limits collectively as the ownership limit. A person or entity that becomes subject to the ownership limit by virtue of a violative transfer that results in a transfer to a trust, as described below, is referred to as a prohibited
owner if, had the violative transfer been effective, the person would beneficially own or constructively own shares of capital stock and, if appropriate in the context, shall also mean any person who would have been the record owner of the
shares that the prohibited owner would have so owned.
The constructive ownership rules under the Internal Revenue Code are complex and
may cause shares of stock owned beneficially or constructively by a group of related individuals and/or entities to be owned beneficially or constructively by one individual or entity. As a result, the acquisition of less than 9.8% in value or
number of shares, whichever is more restrictive, of the outstanding shares of our common stock or any class or series of our preferred stock, or 9.8% in value or number of shares, whichever is more restrictive, of the aggregate outstanding shares of
all classes and series of our capital stock (or the acquisition of an interest in an entity that owns, beneficially or constructively, shares of our stock) by an individual or entity, could, nevertheless, cause that individual or entity, or another
individual or entity, to own beneficially or constructively in excess of the ownership limit.
Our board of directors may, in its sole
discretion, subject to such conditions as it may determine and the receipt of certain representations and undertakings, prospectively or retroactively, waive all or any component of the ownership limit or establish a different limit on ownership, or
excepted holder limit, for a particular stockholder if the stockholders ownership in excess of the ownership limit would not result in our being closely held within the meaning of Section 856(h) of the Internal Revenue Code
(without regard to whether the ownership interest is held during the last half of a taxable year) or otherwise would not result in our failing to qualify as a REIT. As a condition of its waiver or grant of an excepted holder limit, our board of
directors may, but is not required to, require an opinion of counsel or a ruling of the Internal Revenue Service, or the IRS, satisfactory to our board of directors with respect to our qualification as a REIT. Our board of directors has established
exceptions from these ownership limits that permit certain institutional investors and their clients to hold shares of our common stock in excess of these ownership limits.
In connection with granting a waiver of the ownership limit, creating an excepted holder limit or at any other time, our board of directors
may increase or decrease the ownership limit or any component thereof unless, after giving effect to such increase, we would be closely held within the meaning of Section 856(h) of the Internal Revenue Code (without regard to
whether the ownership interest is held during the last half of a taxable year) or we would otherwise fail to qualify as a REIT. Prior to the modification of the ownership limit, our board of directors may require such opinions of counsel,
affidavits, undertakings or agreements as it may deem necessary or advisable in order to determine or ensure our qualification as a REIT. A reduced ownership limit
- 12 -
will not apply to any person or entity whose percentage ownership of our common stock, preferred stock of any class or series, or stock of all classes and series, as applicable, is in excess of
such decreased ownership limit until such time as such persons or entitys percentage ownership of our common stock, preferred stock of any class or series, or stock of all classes and series, as applicable, equals or falls below the
decreased ownership limit, but any further acquisition of shares of our common stock, preferred stock, or stock of any class or series, as applicable, in excess of such percentage ownership of our common stock, preferred stock or stock of all
classes and series will be in violation of the ownership limit.
Our charter also prohibits:
|
|
|
any person from beneficially or constructively owning, applying certain attribution rules of the Internal Revenue Code, shares of our stock that would result in our being closely held under
Section 856(h) of the Internal Revenue Code (without regard to whether the ownership interest is held during the last half of a taxable year) or otherwise cause us to fail to qualify as a REIT; and
|
|
|
|
any person from transferring shares of our stock if such transfer would result in shares of our stock being owned by fewer than 100 persons (determined without reference to any rules of attribution).
|
Any person who acquires or attempts or intends to acquire beneficial or constructive ownership of shares of our stock that will or may violate the ownership
limit or any of the other foregoing restrictions on ownership and transfer of our stock, or who would have owned shares of our stock transferred to the trust as described below, must immediately give written notice to us of such event or, in the
case of an attempted or proposed transaction, must give at least 15 days prior written notice to us and provide us with such other information as we may request in order to determine the effect of such transfer on our qualification as a REIT.
The foregoing restrictions on ownership and transfer of our stock will not apply if our board of directors determines that it is no longer in our best interests to qualify as a REIT or that compliance with the restrictions and limitations on
ownership and transfer of our stock described above is no longer required in order for us to qualify as a REIT.
If any transfer of shares
of our stock would result in shares of our stock being beneficially owned by fewer than 100 persons, such transfer will be void and the intended transferee will acquire no rights in such shares. In addition, if any purported transfer of shares of
our stock or any other event would otherwise result in any person violating the ownership limit or an excepted holder limit established by our board of directors, or in our being closely held under Section 856(h) of the Internal
Revenue Code (without regard to whether the ownership interest is held during the last half of a taxable year) or otherwise failing to qualify as a REIT, then that number of shares (rounded up to the nearest whole share) that would cause us to
violate such restrictions will be automatically transferred to, and held by, a trust for the exclusive benefit of one or more charitable organizations selected by us and the intended transferee will acquire no rights in such shares. The automatic
transfer will be effective as of the close of business on the business day prior to the date of the violative transfer or other event that results in a transfer to the trust. If the transfer to the trust as described above is not automatically
effective, for any reason, to prevent violation of the applicable ownership limit or our being closely held under Section 856(h) of the Internal Revenue Code (without regard to whether the ownership interest is held during the last
half of a taxable year) or otherwise failing to qualify as a REIT, then our charter provides that the transfer of the shares will be void and the intended transferee will acquire no rights in such shares.
Shares of stock transferred to the trustee are deemed offered for sale to us, or our designee, at a price per share equal to the lesser of
(1) the price paid by the prohibited owner for the shares (or, if the event that resulted in the transfer to the trust did not involve a purchase of such shares of stock at market price, the last sales price reported on the NYSE on the day of
the event which resulted in the transfer of such shares of stock to the trust) and (2) the market price on the date we accept, or our designee accepts, such offer. We may reduce the amount payable by the amount of any dividend or other
distribution that we have paid to the prohibited owner before we discovered that the shares had been automatically transferred to the trust and that are then owed to the trustee as described above, and we may pay the amount of any such reduction to
the trustee for the benefit of the charitable beneficiary. We have the right to accept such offer until the trustee has sold the shares of our stock held in the
- 13 -
trust as discussed below. Upon a sale to us, the interest of the charitable beneficiary in the shares sold terminates, the trustee must distribute the net proceeds of the sale to the prohibited
owner and any dividends or other distributions held by the trustee with respect to such shares of stock must be paid to the charitable beneficiary.
If we do not buy the shares, the trustee must, within 20 days of receiving notice from us of the transfer of shares to the trust, sell
the shares to a person or entity designated by the trustee who could own the shares without violating the ownership limit or the other restrictions on ownership and transfer of our stock. After the sale of the shares, the interest of the charitable
beneficiary in the shares transferred to the trust will terminate and the trustee must distribute to the prohibited owner an amount equal to the lesser of (1) the price paid by the prohibited owner for the shares (or, if the event that resulted
in the transfer to the trust did not involve a purchase of such shares at market price, the last sales price reported on the NYSE on the day of the event which resulted in the transfer of such shares of stock to the trust) and (2) the sales
proceeds (net of commissions and other expenses of sale) received by the trustee for the shares. The trustee may reduce the amount payable to the prohibited owner by the amount of any dividend or other distribution that we paid to the prohibited
owner before we discovered that the shares had been automatically transferred to the trust and that are then owed to the trustee as described above. Any net sales proceeds in excess of the amount payable to the prohibited owner must be immediately
paid to the charitable beneficiary of the trust, together with other amounts held by the trustee for the beneficiary of the trust. In addition, if, prior to discovery by us that shares of stock have been transferred to a trust, such shares of stock
are sold by a prohibited owner, then such shares will be deemed to have been sold on behalf of the trust, and to the extent that the prohibited owner received an amount for or in respect of such shares that exceeds the amount that such prohibited
owner was entitled to receive, such excess amount must be paid to the trustee upon demand. The prohibited owner has no rights in the shares held by the trustee.
The trustee will be designated by us and must be unaffiliated with us and with any prohibited owner. Prior to the sale of any shares by the
trust, the trustee will receive, in trust for the charitable beneficiary of the trust, all dividends and other distributions paid by us with respect to the shares held in trust and may also exercise all voting rights with respect to the shares held
in trust. These rights must be exercised for the exclusive benefit of the charitable beneficiary of the trust. Any dividend or other distribution paid prior to our discovery that shares of stock have been transferred to the trust must be paid by the
recipient to the trustee upon demand.
Subject to Maryland law, effective as of the date that the shares have been transferred to the
trust, the trustee will have the authority, at the trustees sole discretion:
|
|
|
to rescind as void any vote cast by a prohibited owner prior to our discovery that the shares have been transferred to the trust; and
|
|
|
|
to recast the vote in accordance with the desires of the trustee acting for the benefit of the beneficiary of the trust.
|
However, if we have already taken irreversible corporate action, then the trustee may not rescind and recast the vote. In addition, if our
board of directors determines that a proposed transfer would violate the restrictions on ownership and transfer of our stock, our board of directors may take such action as it deems advisable to refuse to give effect to or to prevent such transfer,
including, but not limited to, causing us to redeem the shares of stock, refusing to give effect to the transfer on our books or instituting proceedings to enjoin the transfer.
Every owner of 5% or more (or such lower percentage as required by the Internal Revenue Code or the regulations promulgated thereunder) of our
stock, within 30 days after the end of each taxable year, must give us written notice, stating the stockholders name and address, the number of shares of each class and series of our stock that the stockholder beneficially owns and a
description of the manner in which the shares are held. Each such owner must provide us with such additional information as we may request in order to determine the effect, if any, of the stockholders beneficial ownership on our qualification
as a REIT and to ensure compliance with the ownership limit. In addition, each stockholder must provide us with such information as we may request in good faith in order to determine our qualification as a REIT and to comply with the requirements of
any taxing authority or governmental authority or to determine such compliance.
- 14 -
Any certificates representing shares of our stock will bear a legend referring to the
restrictions described above.
These restrictions on ownership and transfer will not apply if our board of directors determines that it is
no longer in our best interests to continue to attempt to qualify, or to continue to qualify, as a REIT, or that compliance with the restrictions and limitations on ownership and transfer of our stock described above is no longer required in order
for us to qualify as a REIT.
These restrictions on ownership and transfer could delay, defer or prevent a transaction or a change in
control that might involve a premium price for our common stock or otherwise be in the best interest of the stockholders.
- 15 -
DESCRIPTION OF COMMON STOCK
The following summary description of our common stock does not purport to be complete and is subject to and qualified in its entirety by
reference to the Maryland General Corporation Law, or MGCL, and to our charter and our bylaws, each as amended and restated. For a more complete understanding of our common stock, we encourage you to read carefully this entire prospectus and the
documents incorporated by reference herein, as well as our charter and our bylaws, copies of which are filed with the SEC and which we incorporate by reference as exhibits to the registration statement of which this prospectus is a part.
Common Stock
All of the shares of our
common stock offered by this prospectus will be duly authorized, validly issued, fully paid and nonassessable. Subject to the preferential rights, if any, of holders of any other class or series of our stock and to the provisions of our charter
regarding the restrictions on ownership and transfer of our stock, holders of outstanding shares of common stock are entitled to receive dividends or other distributions on such shares of common stock out of assets legally available therefor if, as
and when authorized by our board of directors and declared by us, and the holders of outstanding shares of common stock are entitled to share ratably in our assets legally available for distribution to our stockholders in the event of our
liquidation, dissolution or winding up after payment of or adequate provision for all our known debts and liabilities and payment of any liquidation amounts for any issued and outstanding preferred stock.
Subject to the provisions of our charter regarding the restrictions on ownership and transfer of our stock and except as may otherwise be
specified in the terms of any class or series of our stock, each outstanding share of common stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including the election of directors, and, except as provided with
respect to any other class or series of stock, the holders of shares of common stock will possess the exclusive voting power. A plurality of the votes cast in the election of directors is sufficient to elect a director and there is no cumulative
voting in the election of directors, which means that the holders of a majority of the outstanding shares of common stock generally can elect all of the directors then standing for election, and the holders of the remaining shares will not be able
to elect any directors. However, pursuant to our majority vote policy for the election of directors, in an uncontested election, any nominee who receives a greater number of votes withheld from his or her election than votes
for such election is required to tender his or her resignation to our board of directors for its consideration.
Holders of
shares of common stock have no preference, conversion, exchange, sinking fund, redemption or appraisal rights and have no preemptive rights to subscribe for any securities of our company. Subject to the provisions of our charter regarding the
restrictions on ownership and transfer of our stock, holders of shares of common stock will have equal dividend, liquidation and other rights.
Under the MGCL, a Maryland corporation generally cannot dissolve, amend its charter, merge or consolidate with or convert into another entity,
sell all or substantially all of its assets or engage in a statutory share exchange unless the action is advised by its board of directors and approved by the affirmative vote of stockholders entitled to cast at least
two-thirds
of the votes entitled to be cast on the matter, unless a lesser percentage (but not less than a majority of all of the votes entitled to be cast on the matter) is specified in the corporations
charter. Our charter provides that these actions may be approved by a majority of all of the votes entitled to be cast on the matter, except that certain amendments to the provisions of our charter related to the removal of directors and the
restrictions on ownership and transfer of our stock, and the vote required to amend such provisions, must be approved by at least
two-thirds
of the votes entitled to be cast on the amendment. Maryland law also
permits a Maryland corporation, without the approval of the stockholders of the corporation, to transfer all or substantially all of its assets if all of the equity interests of the transferee are owned, directly or indirectly, by the corporation.
Because substantially all of our assets will be held by our operating partnership or its subsidiaries, these subsidiaries may be able to merge or transfer all or substantially all of their assets without the approval of our stockholders.
- 16 -
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC.
- 17 -
DESCRIPTION OF PREFERRED STOCK
General
Our charter provides that we may
issue up to 50,000,000 shares of preferred stock, par value $0.01 per share. As of July 31, 2017, we had no outstanding shares of preferred stock.
We may issue preferred stock. Preferred stock may be issued independently or together with any other securities and may be attached to or
separate from the securities. The following description of the preferred stock sets forth general terms and provisions of the preferred stock to which any prospectus supplement may relate. The statements below describing the preferred stock are in
all respects subject to and qualified in their entirety by reference to the applicable provisions of our charter and bylaws, including any applicable articles supplementary designating and setting forth the terms of a class or series of preferred
stock. The applicable articles supplementary will be filed with the SEC and incorporated by reference as an exhibit to the registration statement of which this prospectus is a part. The issuance of preferred stock could adversely affect the voting
power, dividend rights and other rights of holders of common stock. Our board of directors or a duly authorized committee thereof could establish one or more classes or series of preferred stock, that could, depending on the terms of the class or
series, delay, defer or prevent a transaction or a change in control of our company that might involve a premium price for the common stock or otherwise be in the best interest of the holders thereof.
Terms
Subject to the limitations
prescribed by our charter, our board of directors is authorized to classify any unissued shares of preferred stock and to reclassify any previously classified but unissued shares of common or preferred stock. Prior to the issuance of shares of each
class or series of preferred stock, our board of directors is required by the MGCL and our charter to fix the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications
and terms and conditions for redemption of each class or series.
Reference is made to the prospectus supplement relating to the class or
series of preferred stock offered thereby for the specific terms thereof, including:
|
|
|
the designation of the class or series of preferred stock;
|
|
|
|
the voting rights, if any, of the class or series of preferred stock;
|
|
|
|
the number of shares of the class or series of preferred stock, the liquidation preference per share of the preferred stock and the offering price of the preferred stock;
|
|
|
|
the dividend rate(s), period(s) and/or payment day(s) or method(s) of calculation thereof applicable to the class or series of preferred stock;
|
|
|
|
the date from which dividends on the shares of preferred stock shall accumulate, if applicable;
|
|
|
|
the procedures for any auction and remarketing, if any, for the class or series of preferred stock;
|
|
|
|
the provision for a sinking fund, if any, for the preferred stock;
|
|
|
|
the provisions for, and any restriction on, redemption or repurchase, if applicable, of the preferred stock;
|
|
|
|
any listing of the class or series of preferred stock on any securities exchange;
|
|
|
|
the terms and conditions, if applicable, upon which the class or series of preferred stock may or will be convertible into or exchangeable for our common stock or other securities or property, including the conversion
price or manner of calculation thereof;
|
|
|
|
the relative ranking and preferences of the class or series of preferred stock as to dividend rights and rights upon liquidation, dissolution or winding up of our affairs;
|
- 18 -
|
|
|
whether interests in the shares of preferred stock would be represented by depositary shares;
|
|
|
|
any limitations on ownership and restrictions on transfer of class or series of preferred stock in addition to those described below;
|
|
|
|
any limitations on the classification or issuance of any class or series of preferred stock ranking senior or equal to any class or series of preferred stock being offered as to dividend rights and rights upon
liquidation, dissolution or the winding up of our affairs;
|
|
|
|
a discussion of U.S. federal income tax considerations applicable to shares of preferred stock; and
|
|
|
|
any other specific terms, preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications and terms and conditions of redemption of the class or
series of preferred stock.
|
The terms of each class or series of preferred stock will be described in any prospectus
supplement related to such class or series of preferred stock and will contain a discussion of any material Maryland law or material U.S. federal income tax considerations applicable to the preferred stock.
Restrictions on Ownership and Transfer
In order for us to qualify as a REIT under the Internal Revenue Code, our stock must be beneficially owned by 100 or more persons during at
least 335 days of a taxable year of 12 months (other than the first year for which an election to be a REIT has been made) or during a proportionate part of a shorter taxable year. Also, not more than 50% of the value of the outstanding
shares of our stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities) during the last half of a taxable year (other than the first year for which an election to
be taxed as a REIT has been made). Our charter contains restrictions on the ownership and transfer of shares of our stock, including preferred stock. See Description of SecuritiesRestrictions on Ownership and Transfer for more
detail regarding the restrictions on the ownership and transfer of shares of our stock, including our preferred stock. The articles supplementary for each class or series of preferred stock may contain additional provisions restricting the ownership
and transfer of the class or series of preferred stock. The applicable prospectus supplement will specify any additional ownership limitation relating to a class or series of preferred stock.
Transfer Agent and Registrar
We will
name the registrar and transfer agent for the preferred stock we issue pursuant to this prospectus in the applicable prospectus supplement.
- 19 -
DESCRIPTION OF DEPOSITARY SHARES
We may, at our option, elect to offer depositary shares evidencing fractional interests in shares of preferred stock rather than full shares
of preferred stock. In the event such option is exercised, each of the depositary shares will represent ownership of and entitlement to all rights and preferences of a fraction of a share of preferred stock of a specified class or series (including
dividend, voting, redemption and liquidation rights). The applicable fraction will be specified in a prospectus supplement relating to the offering of such depositary shares. The shares of preferred stock represented by the depositary shares will be
deposited with a depositary named in the applicable prospectus supplement, under a deposit agreement, among our company, the depositary and the holders of the certificates evidencing depositary shares, or depositary receipts. Depositary receipts
will be delivered to those persons purchasing depositary shares in the offering. The depositary will be the transfer agent, registrar and dividend disbursing agent for the depositary shares. Holders of depositary receipts agree to be bound by the
deposit agreement, which requires holders to take certain actions such as filing proof of residence and paying certain charges. The form of the deposit agreement and the form of the depositary receipt will be filed with the SEC and incorporated by
reference as an exhibit to the registration statement of which this prospectus is a part.
The summary of terms of the depositary shares
contained in this prospectus does not purport to be complete and is subject to, and qualified in its entirety by, the provisions of the deposit agreement and the articles supplementary for the applicable class or series of preferred stock. While the
deposit agreement relating to a particular class or series of preferred stock may have provisions applicable solely to that class or series of preferred stock, all deposit agreements relating to preferred stock we issue will include the following
provisions:
Dividends and Other Distributions
Each time we pay a cash dividend or make any other type of cash distribution with regard to preferred stock of a class or series, the
depositary will distribute to the holder of record of each depositary share relating to that class or series of preferred stock an amount equal to the dividend or other distribution per depositary share that the depositary receives. If there is a
distribution of property other than cash, the depositary either will distribute the property to the holders of depositary shares in proportion to the depositary shares held by each of them, or the depositary will, if we approve, sell the property
and distribute the net proceeds to the holders of the depositary shares in proportion to the depositary shares held by them.
Withdrawal of Preferred
Stock
A holder of depositary shares will be entitled to receive, upon surrender of depositary receipts representing depositary shares,
the number of whole or fractional shares of the applicable class or series of preferred stock and any money or other property to which the depositary shares relate.
Redemption of Depositary Shares
Whenever
we redeem shares of preferred stock held by a depositary, the depositary will be required to redeem, on the same redemption date, depositary shares constituting, in total, the number of shares of preferred stock held by the depositary which we
redeem, subject to the depositarys receiving the redemption price of those shares of preferred stock. If fewer than all the depositary shares relating to a class or series of preferred stock are to be redeemed, the depositary shares to be
redeemed will be selected by lot or by another method we determine to be equitable.
Voting
Any time we send a notice of meeting or other materials relating to a meeting to the holders of a class or series of preferred stock to which
depositary shares relate, we will provide the depositary with sufficient copies
- 20 -
of those materials so they can be sent to all holders of record of the applicable depositary shares, and the depositary will send those materials to the holders of record of the depositary shares
on the record date for the meeting. The depositary will solicit voting instructions from holders of depositary shares and will vote or not vote the preferred stock to which the depositary shares relate in accordance with those instructions.
Liquidation Preference
Upon our
liquidation, dissolution or winding up, the holder of each depositary share will be entitled to what the holder of the depositary share would have received if the holder had owned the number of shares (or fraction of a share) of preferred stock
represented by the depositary share.
Conversion
If shares of a class or series of preferred stock are convertible into or exchangeable for common stock or other of our securities or property,
holders of depositary shares relating to that class or series of preferred stock will, if they surrender depositary receipts representing depositary shares and appropriate instructions to convert or exchange them, receive the shares of common stock
or other securities or property into which the number of shares (or fractions of shares) of preferred stock to which the depositary shares relate could at the time be converted or exchanged.
Amendment and Termination of a Deposit Agreement
We and the depositary may amend a deposit agreement, except that an amendment that materially and adversely affects the rights of holders of
depositary shares, or would be materially and adversely inconsistent with the rights granted to the holders of the class or series of preferred stock to which they relate, must be approved by holders of at least
two-thirds
of the outstanding depositary shares. No amendment may impair the right of a holder of depositary shares to surrender the depositary receipts evidencing those depositary shares and receive the
preferred stock to which they relate, except as required to comply with law. We may terminate a deposit agreement with the consent of holders of a majority of the depositary shares to which it relates. Upon termination of a deposit agreement, the
depositary will make the whole or fractional shares of preferred stock to which the depositary shares issued under the deposit agreement relate available to the holders of those depositary shares. A deposit agreement will automatically terminate if:
|
|
|
all outstanding depositary shares to which it relates have been redeemed or converted; or
|
|
|
|
the depositary has made a final distribution to the holders of the depositary shares issued under the deposit agreement upon our liquidation, dissolution or winding up.
|
Miscellaneous
There will be provisions:
(1) requiring the depositary to forward to holders of record of depositary shares any reports or communications from us which the depositary receives with respect to the shares of preferred stock to which the depositary shares relate;
(2) regarding compensation of the depositary; (3) regarding resignation of the depositary; (4) limiting our liability and the liability of the depositary under the deposit agreement (generally limited to failure to act in good faith,
gross negligence or willful misconduct); and (5) indemnifying the depositary against certain possible liabilities.
Reference is made
to the prospectus supplement relating to the depositary shares offered thereby for the specific terms thereof, including, but not limited to, a discussion of U.S. federal income tax considerations applicable to the depositary shares.
- 21 -
DESCRIPTION OF DEBT SECURITIES
We may issue debt securities either separately, or together with, or upon the conversion or exercise of or in exchange for, other securities
described in this prospectus. The debt securities will be issued under an indenture between us and U.S. Bank National Association, as trustee, which we may amend or supplement from time to time, or the indenture. The following description is a
summary of the material provisions of the indenture including references to the applicable section of the indenture. It does not state the indenture in its entirety. We urge you to read the indenture because it, and not this description, defines the
rights of holders of debt securities. Except as otherwise defined herein, terms used in this description but not otherwise defined herein are used as defined in the indenture. When we refer to we, our, and us, in
this section, we are referring to Hannon Armstrong Sustainable Infrastructure Capital, Inc. excluding its subsidiaries, unless the context otherwise requires or as otherwise expressly stated herein. The form of the indenture has been filed with the
SEC as an exhibit to the registration statement of which this prospectus is a part and you may inspect it at the office of the trustee at 225 Asylum Street, 23
rd
Floor, Hartford, CT 06103. The
indenture is subject to, and is governed by, the Trust Indenture Act of 1939, as amended, or the Trust Indenture Act. If we issue the debt securities under a different indenture, we will file it and incorporate it by reference into the registration
statement and describe it in a prospectus supplement.
General
The debt securities will be our direct obligations and may be either senior debt securities or subordinated debt securities and may be either
secured or unsecured. The indenture does not limit the principal amount of debt securities that we may issue. We may issue debt securities in one or more series. A supplemental indenture will set forth specific terms of each series of debt
securities. There will be a prospectus supplement relating to each particular series of debt securities. Reference is made to the prospectus supplement relating to each particular series of debt securities, offered thereby for the specific terms
thereof, including:
|
|
|
the title of the debt securities;
|
|
|
|
any limit upon the aggregate principal amount of a series of debt securities which may be issued;
|
|
|
|
the date or dates on which principal of the debt securities will mature and the amounts to be paid upon maturity of the Securities;
|
|
|
|
the rate or rates (which may be fixed or variable) at which the debt securities will bear interest, if any, as well as the dates from which interest will accrue, the dates on which interest will be payable and the
record date for the interest payable on any payment date;
|
|
|
|
the currency or currencies in which principal, premium, if any, and interest, if any, will be payable;
|
|
|
|
the place or places where principal, premium, if any, and interest, if any, on the debt securities will be payable;
|
|
|
|
any provisions regarding our right to redeem debt securities or of holders to require us to redeem debt securities;
|
|
|
|
the right, if any, of holders of the debt securities to convert them into common stock or other securities, including any provisions intended to prevent dilution of those conversion rights;
|
|
|
|
any provisions requiring or permitting us to make payments to a sinking fund which will be used to redeem debt securities or a purchase fund which will be used to purchase debt securities;
|
|
|
|
the percentage of the principal amount of the debt securities which is payable if maturity of the debt securities is accelerated because of a default;
|
|
|
|
a discussion of U.S. federal income tax considerations applicable to the debt securities; and
|
|
|
|
any other terms of the debt securities.
|
- 22 -
The indenture does not contain any restrictions on the payment of dividends or the
repurchase of our securities or any financial covenants. However, supplemental indentures relating to a particular series of debt securities may contain provisions of that type.
We may issue debt securities at a discount from their stated principal amount. A prospectus supplement may describe the material U.S. federal
income tax considerations and other special considerations applicable to a debt security issued with original issue discount.
If the
principal of, premium, if any, or interest with regard to any series of debt securities is payable in a foreign currency, we will describe in the prospectus supplement relating to those debt securities any restrictions on currency conversions, tax
considerations or other material restrictions with respect to that issue of debt securities.
Form of Debt Securities
We may issue debt securities in certificated or uncertificated form, in registered form with or without coupons or in bearer form with coupons,
if applicable.
We may issue debt securities of a series in the form of one or more global certificates evidencing all or a portion of the
aggregate principal amount of the debt securities of that series. We may deposit the global certificates with depositaries, and the certificates may be subject to restrictions upon transfer or upon exchange for debt securities in individually
certificated form.
Events of Default and Remedies
An event of default with respect to each series of debt securities will include:
|
|
|
our default in payment of the principal of or premium, if any, on any debt securities of any series beyond any applicable grace period;
|
|
|
|
our default for 30 days or a period specified in a supplemental indenture, which may be no period, in payment of any installment of interest due with regard to debt securities of any series;
|
|
|
|
our default for 60 days or a period specified in a supplemental indenture, which may be no period after notice in the observance or performance of any other covenants in the indenture; and
|
|
|
|
certain events involving our bankruptcy, insolvency or reorganization.
|
The indenture provides
that the trustee may withhold notice to the holders of any series of debt securities of any default (except a default in payment of principal, premium, if any, or interest, if any) if the trustee considers it in the interest of the holders of the
series to do so.
The indenture provides that if any event of default has occurred and is continuing, the trustee or the holders of not
less than 25% in principal amount of a series of debt securities then outstanding may declare the principal of and accrued interest, if any, on that series of debt securities to be due and payable immediately by written notice to us. However, if we
cure all defaults (except the failure to pay principal, premium or interest which became due solely because of the acceleration) and certain other conditions are met, that declaration may be annulled and past defaults (except a default in the
payment of interest or premium, if any, on, or the principal of, debt securities of the series or a default in respect of a covenant or a provision that under the indenture cannot be modified or amended without the consent of the holders of all debt
securities of the series then outstanding) may be waived by the holders of a majority in principal amount of the applicable series of debt securities.
The holders of a majority of the outstanding principal amount of a series of debt securities will have the right to direct the time, method
and place of conducting proceedings for any remedy available to the trustee, subject to certain limitations specified in the indenture.
- 23 -
A supplemental indenture relating to a particular series of debt securities may modify these
events of default or include other events of default.
A prospectus supplement will describe any additional or different events of default
which apply to any series of debt securities.
Modification of the Indenture
We and the trustee may:
|
|
|
without the consent of holders of debt securities, modify the indenture to cure errors or clarify ambiguities as evidenced in an officers certificate;
|
|
|
|
with the consent of the holders of not less than a majority in principal amount of the debt securities which are outstanding under the indenture, modify the indenture or the rights of the holders of the debt securities
generally; and
|
|
|
|
with the consent of the holders of not less than a majority in outstanding principal amount of any series of debt securities, modify any supplemental indenture relating solely to that series of debt securities or the
rights of the holders of that series of debt securities.
|
However, we may not:
|
|
|
extend the fixed maturity of any debt securities, reduce the rate or extend the time for payment of interest, if any, on any debt securities, reduce the principal amount of any debt securities or the premium, if any, on
any debt securities, impair or affect the right of a holder to institute suit for the payment of principal, premium, if any, or interest, if any, with regard to any debt securities, change the currency in which any debt securities are payable or
impair the right, if any, to convert any debt securities into common stock or any of our other securities, without the consent of each holder of debt securities who will be affected; or
|
|
|
|
reduce the percentage of holders of debt securities required to consent to an amendment, supplement or waiver, without the consent of the holders of all the then outstanding debt securities or outstanding debt
securities of the series which will be affected.
|
Mergers and Other Transactions
We may not consolidate with or merge into any other entity, or transfer or lease our properties and assets substantially as an entirety to
another person, unless: (1) the entity formed by the consolidation or into which we are merged, or which acquires or leases our properties and assets substantially as an entirety, assumes by a supplemental indenture all our obligations with
regard to outstanding debt securities and our other covenants under the indenture; (2) with regard to each series of debt securities, immediately after giving effect to the transaction, no event of default, with respect to that series of debt
securities, and no event which would become an event of default, will have occurred and be continuing and (3) we deliver to the trustee an officers certificate and opinion of counsel, in each case stating that all conditions precedent
provided for in the indenture with respect to the merger or consolidation have been complied with.
Governing Law
The indenture, each supplemental indenture, and the debt securities issued under them is or will be governed by, and construed in accordance
with, the laws of New York.
- 24 -
DESCRIPTION OF WARRANTS
We may issue warrants for the purchase of common stock, preferred stock, depositary shares or debt securities and may issue warrants
independently or together with common stock, preferred stock, depositary shares or debt securities or attached to, or separate from, such securities. We will issue each series of warrants under a separate warrant agreement between us and a bank or
trust company as warrant agent, as specified in the applicable prospectus supplement. The form of warrant agreement and the form of warrant certificate will be filed with the SEC and incorporated by reference as an exhibit to the registration
statement of which this prospectus is a part.
The warrant agent will act solely as our agent in connection with the warrants and will not
act for or on behalf of warrant holders. The following sets forth certain general terms and provisions of the warrants that may be offered under this registration statement. Further terms of the warrants and the applicable warrant agreement will be
set forth in the applicable prospectus supplement.
The applicable prospectus supplement will describe the terms of the warrants in
respect of which this prospectus is being delivered, including, where applicable, the following:
|
|
|
the title of such warrants;
|
|
|
|
the aggregate number of such warrants;
|
|
|
|
the price or prices at which such warrants will be issued;
|
|
|
|
the type and number of securities purchasable upon exercise of such warrants;
|
|
|
|
the designation and terms of the other securities, if any, with which such warrants are issued and the number of such warrants issued with each such offered security;
|
|
|
|
the date, if any, on and after which such warrants and the related securities will be separately transferable;
|
|
|
|
the price at which each security purchasable upon exercise of such warrants may be purchased;
|
|
|
|
the date on which the right to exercise such warrants shall commence and the date on which such right shall expire;
|
|
|
|
the minimum or maximum amount of such warrants that may be exercised at any one time;
|
|
|
|
information with respect to book-entry procedures, if any;
|
|
|
|
any
anti-dilution
protection;
|
|
|
|
a discussion of certain U.S. federal income tax considerations; and
|
|
|
|
any other terms of such warrants, including terms, procedures and limitations relating to the transferability, exercise and exchange of such warrants.
|
Warrant certificates will be exchangeable for new warrant certificates of different denominations and warrants may be exercised at the
corporate trust office of the warrant agent or any other office indicated in the applicable prospectus supplement. Prior to the exercise of their warrants, holders of warrants will not have any of the rights of holders of the securities purchasable
upon such exercise or to any dividend or interest payments or voting rights as to which holders of the shares of common stock or preferred stock purchasable upon such exercise may be entitled.
Each warrant will entitle the holder to purchase for cash such number of shares of common stock, preferred stock, depositary shares or debt
securities at such exercise price as shall, in each case, be set forth in, or be determinable as set forth in, the applicable prospectus supplement relating to the warrants offered thereby. After the expiration date set forth in the applicable
prospectus supplement, unexercised warrants will be void.
- 25 -
Warrants may be exercised as set forth in the applicable prospectus supplement relating to
the warrants. Upon receipt of payment and the warrant certificate properly completed and duly executed at the corporate trust office of the warrant agent or any other office indicated in the applicable prospectus supplement, we will, as soon as
practicable, forward the securities purchasable upon such exercise. If less than all of the warrants are presented for exercise with respect to a warrant certificate, a new warrant certificate will be issued for the remaining amount of warrants.
- 26 -
DESCRIPTION OF RIGHTS
We may issue rights to our stockholders for the purchase of shares of common stock or preferred stock. Each series of rights will be issued
under a separate rights agreement to be entered into between us and a bank or trust company, as rights agent, all as set forth in the prospectus supplement relating to the particular issue of rights. The rights agent will act solely as our agent in
connection with the certificates relating to the rights of such series and will not assume any obligation or relationship of agency or trust for or with any holders of rights certificates or beneficial owners of rights. The form of rights agreement
and rights certificates relating to each series of rights will be filed with the SEC and incorporated by reference as an exhibit to the registration statement of which this prospectus is a part.
The applicable prospectus supplement will describe the terms of the rights to be issued, including the following, where applicable:
|
|
|
the date for determining the stockholders entitled to the rights distribution;
|
|
|
|
the aggregate number of shares of common stock or preferred stock of a specified class and/or series purchasable upon exercise of such rights and the exercise price;
|
|
|
|
the designation and terms of the preferred stock, if any, purchasable upon exercise of such rights;
|
|
|
|
the aggregate number of rights being issued;
|
|
|
|
the date, if any, on and after which such rights may be transferable separately;
|
|
|
|
the date on which the right to exercise such rights shall commence and the date on which such right shall expire;
|
|
|
|
any special U.S. federal income tax consequences; and
|
|
|
|
any other terms of such rights, including terms, procedures and limitations relating to the distribution, exchange and exercise of such rights.
|
- 27 -
CERTAIN PROVISIONS OF THE MARYLAND GENERAL CORPORATION LAW AND
OUR CHARTER AND BYLAWS
The following description of the terms of our stock and of certain provisions of Maryland law is
only a summary. For a complete description, we refer you to the MGCL and to our charter and our bylaws, copies of which are filed with the SEC and which we incorporate by reference as exhibits to the registration statement of which this prospectus
is a part.
Our Board of Directors
Our charter and bylaws provide that the number of directors we have may be established only by our board of directors but may not be fewer than
the minimum number required under the MGCL, which is one, and our bylaws provide that the number of our directors may not be more than 15. Because our board of directors has the power to amend our bylaws, it could modify our bylaws to change that
range. Subject to the terms of any class or series of preferred stock, vacancies on our board of directors may be filled only by a majority of the remaining directors, even if the remaining directors do not constitute a quorum, and, if our board of
directors is classified, any director elected to fill a vacancy will hold office for the remainder of the full term of the directorship in which the vacancy occurred and until his or her successor is duly elected and qualifies.
Except as may be provided with respect to any class or series of our stock, at each annual meeting of our stockholders, each of our directors
will be elected by our stockholders to serve until the next annual meeting of our stockholders and until his or her successor is duly elected and qualifies. A plurality of the votes cast in the election of directors is sufficient to elect a
director, and holders of shares of common stock will have no right to cumulative voting in the election of directors. Consequently, at each annual meeting of stockholders, the holders of a majority of the shares of common stock generally will be
able to elect all of our directors at any annual meeting. However, pursuant to our majority vote policy for the election of directors, in an uncontested election, any nominee who receives a greater number of votes withheld from his or
her election than votes for such election is required to tender his or her resignation to our board of directors for its consideration.
Removal of Directors
Our charter
provides that, subject to the rights of holders of any class or series of our preferred stock to elect or remove one or more directors, a director may be removed with or without cause and only by the affirmative vote of at least
two-thirds
of the votes entitled to be cast generally in the election of directors. This provision, when coupled with the exclusive power of our board of directors to fill vacancies on our board of directors,
precludes stockholders from (1) removing incumbent directors except upon a substantial affirmative vote and (2) filling the vacancies created by such removal with their own nominees.
Business Combinations
Under the MGCL,
certain business combinations (including a merger, consolidation, statutory share exchange or, in certain circumstances, an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and an
interested stockholder (defined generally as any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the corporations outstanding voting stock or 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, directly or indirectly, of 10% or more of the voting power of the then outstanding voting stock of the corporation) or
an affiliate of such an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. Thereafter, any such business combination must generally be recommended by
the board of directors of such corporation and approved by the affirmative vote of at least (1) 80% of the votes entitled to be cast by holders of outstanding voting stock of the corporation and
(2) two-thirds
of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom (or with whose affiliate) the business
- 28 -
combination is to be effected or held by an affiliate or associate of the interested stockholder, unless, among other conditions, the corporations common stockholders receive a minimum
price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its shares. A person is not an interested stockholder under the statute if the board
of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder. A Maryland corporations board of directors may provide that its approval is subject to compliance with any terms and
conditions determined by it.
These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted
by a Maryland corporations board of directors prior to the time that the interested stockholder becomes an interested stockholder. Pursuant to the statute, our board of directors has by resolution exempted business combinations between us and
any other person, provided that such business combination is first approved by our board of directors (including a majority of our directors who are not affiliates or associates of such person). As a result, any person described above may be able to
enter into business combinations with us that may not be in the best interest of our stockholders, without compliance by our company with the supermajority vote requirements and other provisions of the statute. There is no assurance that our board
of directors will not amend or repeal this resolution in the future.
The business combination statute may discourage others from trying
to acquire control of us and increase the difficulty of consummating any offer.
Control Share Acquisitions
The MGCL provides that a holder of control shares of a Maryland corporation acquired in a control share acquisition has
no voting rights with respect to the control shares except to the extent approved by the affirmative vote of at least
two-thirds
of the votes entitled to be cast on the matter, excluding shares of stock in the
corporation in respect of which any of the following persons is entitled to exercise or direct the exercise of the voting power of such shares in the election of directors: (1) a person who makes or proposes to make a control share acquisition;
(2) an officer of the corporation; or (3) a director of the corporation who is also an employee of the corporation. Control shares are voting shares of stock which, if aggregated with all other such shares of stock owned by the
acquirer, or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within one of the
following ranges of voting power:
(1) one-tenth
or more but less than
one-third;
(2) one-third
or more but less than a
majority; or (3) a majority or more of all voting power. Control shares do not include shares that the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval or shares acquired directly from the
corporation. A control share acquisition means the acquisition of issued and outstanding control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions (including an undertaking to
pay expenses and delivering an acquiring person statement as described in the MGCL), may compel the board of directors to call a special meeting of stockholders 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 stockholders meeting.
If voting
rights are not approved at the meeting or if the acquiring person does not deliver an acquiring person statement as required by the statute, then, subject to certain conditions and limitations, the corporation may redeem any or all of
the control shares (except those for which voting rights have previously been approved) for fair value determined, without regard to the absence of voting rights for the control shares, as of the date of any meeting of stockholders at which the
voting rights of such shares are considered and not approved or, if no such meeting is held, as of the date of the last control share acquisition by the acquirer. If voting rights for control shares are approved at a stockholders meeting and the
acquirer becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as
- 29 -
determined for purposes of such appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition.
The control share acquisition statute does not apply to (1) shares acquired in a merger, consolidation or statutory share exchange if the
corporation is a party to the transaction or (2) acquisitions approved or exempted by the charter or bylaws of the corporation.
Our
bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of shares of our stock. There is no assurance that such provision will not be amended or eliminated at any time in the future.
Subtitle 8
Subtitle 8 of
Title 3 of the MGCL permits a Maryland corporation with a class of equity securities registered under the Exchange Act and at least three independent directors to elect to be subject, by provision in its charter or bylaws or a resolution of its
board of directors and notwithstanding any contrary provision in the charter or bylaws, to any or all of five provisions of the MGCL which provide for:
|
|
|
a
two-thirds
vote requirement for removing a director;
|
|
|
|
a requirement that the number of directors be fixed only by vote of the directors;
|
|
|
|
a requirement that a vacancy on the board be filled only by the remaining directors in office and (if the board is classified) for the remainder of the full term of the class of directors in which the vacancy occurred;
and
|
|
|
|
a majority requirement for the calling of a stockholder-requested special meeting of stockholders.
|
Our charter provides that vacancies on our board may be filled only by the remaining directors and (if our board is classified in the future)
for the remainder of the full term of the directorship in which the vacancy occurred. Through provisions in our charter and bylaws unrelated to Subtitle 8, we (1) require the affirmative vote of stockholders entitled to cast not less than
two-thirds
of all of the votes entitled to be cast generally in the election of directors for the removal of any director from the board, with or without cause, (2) vest in the board the exclusive power to fix
the number of directorships and (3) require, unless called by our chairman of the board, our chief executive officer, our president or our board of directors, the written request of stockholders entitled to cast a majority of all votes entitled
to be cast at such a meeting to call a special meeting of our stockholders.
Meetings of Stockholders
Pursuant to our bylaws, a meeting of our stockholders for the election of directors and the transaction of any business will be held annually
on a date and at the time and place set by our board of directors. The chairman of our board of directors, our chief executive officer, our president or our board of directors may call a special meeting of our stockholders. Subject to the provisions
of our bylaws, a special meeting of our stockholders to act on any matter that may properly be brought before a meeting of our stockholders must also be called by our secretary upon the written request of the stockholders entitled to cast a majority
of all the votes entitled to be cast at the meeting on such matter and containing the information required by our bylaws. Our secretary will inform the requesting stockholders of the reasonably estimated cost of preparing and delivering the notice
of meeting (including our proxy materials), and the requesting stockholder must pay such estimated cost before our secretary is required to prepare and deliver the notice of the special meeting. Only the matters set forth in the notice of special
meeting may be considered and acted upon at such meeting.
- 30 -
Amendment to Our Charter and Bylaws
Except for amendments to the provisions of our charter relating to the removal of directors and the restrictions on ownership and transfer of
our stock, and the vote required to amend these provisions (each of which must be advised by our board of directors and approved by the affirmative vote of stockholders entitled to cast not less than
two-thirds
of all the votes entitled to be cast on the matter), our charter generally may be amended only if advised by our board of directors and approved by the affirmative vote of stockholders entitled to
cast a majority of all of the votes entitled to be cast on the matter.
Our board of directors has the exclusive power to adopt, alter or
repeal any provision of our bylaws and to make new bylaws.
Dissolution of Our Company
The dissolution of our company must be advised by a majority of our entire board of directors and approved by the affirmative vote of
stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter.
Advance Notice of Director Nominations and New
Business
Our bylaws provide that, with respect to an annual meeting of stockholders, nominations of individuals for election to our
board of directors and the proposal of other business to be considered by stockholders may be made only (1) pursuant to our notice of the meeting, (2) by or at the direction of our board of directors or (3) by a stockholder who was a
stockholder of record both at the time of giving the notice required by our bylaws and at the time of the meeting, who is entitled to vote at the meeting on such business or in the election of such nominee and who has provided notice to us within
the time period, and containing the information and other materials, specified by the advance notice provisions set forth in our bylaws.
With respect to special meetings of stockholders, only the business specified in our notice of meeting may be brought before the meeting.
Nominations of individuals for election to our board of directors may be made only (1) by or at the direction of our board of directors or (2) provided that the meeting has been called for the purpose of electing directors, by a
stockholder who was a stockholder of record both at the time of giving the notice required by our bylaws and at the time of the special meeting who is entitled to vote at the meeting in the election of such nominee and who has provided notice to us
within the time period, and containing the information and other materials, specified by the advance notice provisions set forth in our bylaws.
Anti-Takeover
Effect of Certain Provisions of Maryland Law and of Our Charter and Bylaws
Our charter
and bylaws and Maryland law contain provisions that may delay, defer or prevent a change in control or other transaction that might involve a premium price for shares of our common stock or otherwise be in the best interests of our stockholders,
including business combination provisions, supermajority vote requirements and advance notice requirements for director nominations and stockholder proposals. Likewise, if the provision in our bylaws opting out of the control share acquisition
provisions of the MGCL were rescinded or if we were to opt in to the classified board or other provisions of Subtitle 8, these provisions of the MGCL could have similar
anti-takeover
effects.
Indemnification and Limitation of Directors and Officers Liability
Maryland law permits a Maryland corporation to include in its charter a provision eliminating the liability of its directors and officers to
the corporation and its stockholders for money damages except for liability resulting from actual receipt of an improper benefit or profit in money, property or services or active and deliberate dishonesty that was established by a final judgment
and was material to the cause of action. Our charter contains a provision that eliminates the liability of our directors and officers to the maximum extent permitted by Maryland law.
- 31 -
The MGCL requires us (unless our charter provides otherwise, which our charter does not) to
indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made a party by reason of his or her service in that capacity. The MGCL permits us to indemnify our present
and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made or threatened to be made a party by
reason of their service in those or other capacities unless it is established that:
|
|
|
the act or omission of the director or officer was material to the matter giving rise to the proceeding and (1) was committed in bad faith or (2) was the result of active and deliberate dishonesty;
|
|
|
|
the director or officer actually received an improper personal benefit in money, property or services; or
|
|
|
|
in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.
|
Under the MGCL, we may not indemnify a director or officer in a suit by us or on our behalf in which the director or officer was adjudged
liable to us or in a suit in which the director or officer was adjudged liable on the basis that personal benefit was improperly received. Nevertheless, a court may order indemnification if it determines that the director or officer is fairly and
reasonably entitled to indemnification, even though the director or officer did not meet the prescribed standard of conduct or was adjudged liable on the basis that personal benefit was improperly received. However, indemnification for an adverse
judgment in a suit by us or on our behalf, or for a judgment of liability on the basis that personal benefit was improperly received, is limited to expenses.
In addition, the MGCL permits us to advance reasonable expenses to a director or officer upon our receipt of:
|
|
|
a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by us; and
|
|
|
|
a written undertaking by the director or officer or on the directors or officers behalf to repay the amount paid or reimbursed by us if it is ultimately determined that the director or officer did not meet
the standard of conduct.
|
Our charter authorizes us to obligate ourselves and our bylaws obligate us, to the fullest extent
permitted by Maryland law in effect from time to time, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of a
proceeding to:
|
|
|
any present or former director or officer who is made or threatened to be made a party to or witness in the proceeding by reason of his or her service in that capacity;
|
|
|
|
any individual who, while a director or officer of our company and at our request, serves or has served as a director, officer, partner, manager, managing member or trustee of another corporation, real estate investment
trust, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to or witness in the proceeding by reason of his or her service in that capacity; or
|
|
|
|
any individual who served any predecessor of our company, including Hannon Armstrong Capital, LLC, in a similar capacity, who is made or threatened to be made a party to or witness in the proceeding by reason of his or
her service in such capacity.
|
Our charter and bylaws also permit us to indemnify and advance expenses to any employee or
agent of our company or a predecessor of our company.
We have entered into indemnification agreements with each of our directors and
executive officers that provide for indemnification to the maximum extent permitted by Maryland law.
- 32 -
Insofar as the foregoing provisions permit indemnification of directors, officers or persons
controlling us for liability arising under the Securities Act, we have been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
REIT Qualification
Our charter provides
that our board of directors may authorize us to revoke or otherwise terminate our REIT election, without approval of our stockholders, if it determines that it is no longer in our best interests to continue to qualify as a REIT. Our charter also
provides that our board of directors may determine that compliance with any restriction or limitation on ownership and transfer of our stock is no longer required for us to qualify as a REIT.
- 33 -
HANNON ARMSTRONG SUSTAINABLE INFRASTRUCTURE, L.P. PARTNERSHIP
AGREEMENT
The following is a summary of material provisions in the partnership agreement of our operating partnership, a copy of
which is filed with the SEC and which we incorporate by reference as an exhibit to the registration statement of which this prospectus is a part.
General
Hannon Armstrong Sustainable
Infrastructure, L.P., our operating partnership, was formed to acquire and own our assets directly or indirectly through its subsidiaries. We are considered to be an UpREIT in which all of our assets are owned in a limited partnership of which we
are the sole general partner. For purposes of satisfying the asset and income tests for qualification as a REIT for U.S. federal income tax purposes, our proportionate share of the assets and income of our operating partnership will be deemed to be
our assets and income.
We are the sole general partner of our operating partnership and are liable for its obligations. As the sole
general partner, we have full, exclusive and complete responsibility and discretion in the management and control of our operating partnership, including the ability to cause our operating partnership to enter into certain major transactions,
including a merger of our operating partnership or a sale of substantially all of its assets. The OP units have no voting rights. Our operating partnership is under no obligation to give priority to the separate interests of the limited partners or
our stockholders in deciding whether to cause our operating partnership to take or decline to take any actions. As the sole general partner of our operating partnership, our consent is required for any amendment to the partnership agreement of our
operating partnership. Additionally, without the consent of the limited partners, we may amend the partnership agreement of our operating partnership in any respect, implement mergers involving our operating partnership or sales of all or
substantially all of its assets. Through the exercise of these powers, we would be authorized, without the consent of limited partners, to implement a transaction such as a merger involving our operating partnership that could result in the
conversion of outstanding OP units into cash, shares of our common stock or other securities. The partnership agreement of our operating partnership only requires that, in such circumstances, limited partners receive cash, shares of our common stock
or other securities having a fair market or net asset value, as the case may be, equal to the net asset value of the OP units being converted as of the month end period immediately prior to such conversion. The limited partners have no power to
remove the general partner without the general partners consent.
Although all of our assets are currently held through the UpREIT
structure, we may in the future elect for various reasons to hold certain of our assets directly rather than through our operating partnership. In the event we elect to hold assets directly, the income of our operating partnership will be allocated
as between us and limited partners so as to take into account the performance of such assets.
Fiduciary Responsibilities
Our directors and officers have duties under applicable Maryland law to manage us in a manner consistent with the best interests of our
company. At the same time, we, as the general partner of our operating partnership, will have fiduciary duties to manage our operating partnership in a manner beneficial to our operating partnership and its partners. Our duties, as the general
partner, to our operating partnership and its limited partners, therefore, may come into conflict with the duties of our directors and officers to us. We will be under no obligation to give priority to the separate interests of the limited partners
of our operating partnership in deciding whether to cause the operating partnership to take or decline to take any actions. The limited partners of our operating partnership have agreed that if there is a conflict in the duties our directors and
officers owe to us under Maryland law and the duties that we, in our capacity as general partner of our operating partnership, owe to such limited partners, we will fulfill our fiduciary duties to such limited partners by acting in the best
interests of our company.
The limited partners of our operating partnership have expressly acknowledged that we are acting for the
benefit of the operating partnership, the limited partners and our company collectively.
- 34 -
Capital Contributions
If our operating partnership requires additional funds at any time in excess of capital contributions made by us or from borrowing, we may
borrow funds from a financial institution or other lender and lend such funds to our operating partnership on the same terms and conditions as are applicable to our borrowing of such funds. In addition, we are authorized to cause our operating
partnership to issue partner interests for less than fair market value if we conclude in good faith that such issuance is in the best interest of our operating partnership and our stockholders.
Operations
The partnership agreement of
our operating partnership provides that our operating partnership is to be operated in a manner that will (1) enable us to satisfy the requirements for qualification as a REIT for U.S. federal income tax purposes, (2) avoid any U.S.
federal income or excise tax liability and (3) ensure that our operating partnership will not be classified as a publicly traded partnership taxable as a corporation for purposes of Section 7704 of the Internal Revenue Code.
Similarly, the partnership agreement of our operating partnership provides that taxable income is allocated to the partners of our
operating partnership in accordance with their relative percentage interests such that a holder of one OP unit will be allocated taxable income for each taxable year in an amount equal to the amount of taxable income to be recognized by a holder of
one share of our common stock, 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 our operating partnership. See U.S. Federal Income Tax ConsiderationsTax Aspects of Ownership of Equity Interests in Partnerships and Other Transparent Entities.
Upon the liquidation of our operating partnership, after payment of debts and obligations, any remaining assets of our operating partnership
will be distributed to partners with positive capital accounts in accordance with their respective positive capital account balances.
In
addition to the administrative and operating costs and expenses incurred by our operating partnership in acquiring and holding our assets, our operating partnership will pay all of our administrative costs and expenses and such expenses will be
treated as expenses of our operating partnership. Such expenses will include:
|
|
|
all expenses relating to our continuity of existence;
|
|
|
|
all expenses relating to any offerings and registrations of securities;
|
|
|
|
all expenses associated with our preparation and filing of any periodic reports under U.S. federal, state or local laws or regulations;
|
|
|
|
all expenses associated with our compliance with applicable laws, rules and regulations; and
|
|
|
|
all other operating or administrative costs of ours incurred in the ordinary course of its business.
|
Exchange of OP Units
Subject to certain
limitations and exceptions, holders of OP units, other than us or our subsidiaries, have the right to cause our operating partnership to purchase their OP units for cash in an amount equal to the market value of an equivalent number of shares of our
common stock. The market value of the common stock for this purpose will be equal to the average of the closing trading price of a share of our common stock on the NYSE for the ten trading days before the day on which the redemption notice is given
to our operating partnership. In lieu of paying cash, we may elect to issue shares of our common stock in exchange for OP units offered for redemption, on a
one-for-one
basis, subject to certain adjustments. We anticipate that we will normally elect to issue common stock in exchange for OP units offered for redemption rather than pay cash. Redemption rights of
- 35 -
OP unit holders 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, (2) result in shares being owned by fewer than 100 persons or (3) result in us being closely held within the meaning of Section 856(h) of the Internal Revenue Code or otherwise cause us to fail to qualify as a
REIT.
Mandatory Redemption Rights
We (and our operating partnership) do not have a mandatory redemption policy. However, as the sole general partner of our operating
partnership, we may, without the consent of the limited partners approve certain amendments to the partnership agreement of our operating partnership, implement mergers involving our operating partnership or sales of all or substantially all of its
assets. Through the exercise of these powers, we would be authorized, without the consent of limited partners, to implement a transaction such as a merger involving our operating partnership, that could result in the conversion of outstanding OP
units (including units issued pursuant to our operating partnerships long-term incentive plan, or LTIP units) into cash, shares of our common stock or other securities. The partnership agreement of our operating partnership only requires that,
in such circumstances, limited partners receive cash, shares of our common stock or other securities having a fair market or net asset value, as the case may be, equal to the net asset value of the OP units being converted as of the month end period
immediately prior to such conversion. See General.
Distributions
The partnership agreement of our operating partnership provides that our operating partnership will distribute cash flow from operations to the
partners of our operating partnership in accordance with their relative percentage interests at such times and in such amounts determined by us as the general partner such that a holder of one OP unit will receive the same amount of annual cash flow
distributions from our operating partnership as the amount of annual distributions paid to the holder of one share of our common stock.
To satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income and excise tax, our current policy is to
cause our operating partnership to pay distributions to holders of OP units and holders of LTIP units which, on an annual basis, will equal all or substantially all of our taxable income. Any distributions we and our operating partnership make will
be at the discretion of our board of directors and will depend upon our earnings and financial condition, maintenance of our REIT qualification, restrictions on making distributions under Maryland law and such other factors as our board of directors
deems relevant. Our earnings and financial condition will be affected by various factors, including the net interest and other income from our portfolio, our operating expenses and any other expenditures.
Transferability of Interests
We are not
able to (1) voluntarily withdraw as the general partner of our operating partnership, or (2) transfer our general partner interest in our operating partnership (except to a wholly-owned subsidiary), unless the transaction in which such
withdrawal 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 redemption
rights immediately prior to such transaction. The limited partners are not able to transfer their OP units, in whole or in part, without our written consent as the general partner of the partnership except where the limited partner becomes
incapacitated.
- 36 -
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material U.S. federal income tax considerations relating to our qualification and taxation as a REIT and the
acquisition, holding, and disposition of our common stock. For purposes of this section, references to we, our, us or our company mean only Hannon Armstrong Sustainable Infrastructure Capital, Inc.,
and not our subsidiaries or other lower-tier entities, except as otherwise indicated. This summary is based upon the Internal Revenue Code, the regulations promulgated by the U.S. Treasury Department, or the Treasury Regulations, current
administrative interpretations and practices of the IRS (including administrative interpretations and practices expressed in private letter rulings which are binding on the IRS only with respect to the particular taxpayers who requested and received
those rulings), and judicial decisions, all as currently in effect and all of which are subject to differing interpretations or to change, possibly with retroactive effect. No assurance can be given that the IRS would not assert, or that a court
would not sustain, a position contrary to any of the tax consequences described below. No advance ruling has been or will be sought from the IRS regarding any matter discussed in this summary, with the exception of those matters specifically
described herein. The summary is also based upon the assumption that the operation of our company, and of its subsidiaries and other lower-tier and affiliated entities will, in each case, be in accordance with its applicable organizational
documents. This summary is for general information only, and does not purport to discuss all aspects of U.S. federal income taxation that may be important to a particular stockholder in light of its investment or tax circumstances or to stockholders
subject to special tax rules, such as:
|
|
|
persons who
mark-to-market
our common stock;
|
|
|
|
subchapter S corporations;
|
|
|
|
U.S. stockholders (as defined below) whose functional currency is not the U.S. dollar;
|
|
|
|
financial institutions;
|
|
|
|
holders who receive our common stock through the exercise of employee stock options or otherwise as compensation;
|
|
|
|
persons holding our common stock as part of a straddle, hedge, conversion transaction, synthetic security or other integrated investment;
|
|
|
|
persons subject to the alternative minimum tax provisions of the Internal Revenue Code;
|
|
|
|
persons holding their interest through a partnership or similar pass-through entity;
|
|
|
|
persons holding a 10% or more (by vote or value) beneficial interest in us; and
|
|
|
|
except to the extent discussed below,
tax-exempt
organizations and
non-U.S.
stockholders (as defined below).
|
This summary assumes that stockholders will hold our common stock as capital assets, which generally means as property held for investment.
THE U.S. FEDERAL INCOME TAX TREATMENT OF US AS A REIT AND HOLDERS OF OUR COMMON STOCK DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT
AND INTERPRETATIONS OF COMPLEX PROVISIONS OF U.S. FEDERAL INCOME TAX LAW FOR WHICH
- 37 -
NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. IN ADDITION, THE TAX CONSEQUENCES OF THE HOLDING AND DISPOSITION OF OUR COMMON STOCK TO ANY PARTICULAR STOCKHOLDER WILL DEPEND ON THE
STOCKHOLDERS PARTICULAR TAX CIRCUMSTANCES. YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES TO YOU, IN LIGHT OF YOUR PARTICULAR INVESTMENT OR TAX CIRCUMSTANCES,
OF ACQUIRING, HOLDING, AND DISPOSING OF OUR COMMON STOCK.
Taxation of Our CompanyGeneral
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code, commencing with our taxable year ended
December 31, 2013. We believe that we have been organized and operated, and we intend to continue to operate, in such a manner so as to qualify for taxation as a REIT under the Internal Revenue Code.
The law firm of Clifford Chance US LLP has acted as our counsel in connection with the preparation and filing of this prospectus. We will
receive the opinion of Clifford Chance US LLP to the effect that, commencing with our taxable year ended December 31, 2013, we have been organized and operated in conformity with the requirements for qualification and taxation as a REIT under
the Internal Revenue Code, and our current and proposed method of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT under the Internal Revenue Code. It must be emphasized that the opinion of
Clifford Chance US LLP will be based on various assumptions relating to our organization and operation, including that all factual representations and statements set forth in all relevant documents, records and instruments are true and correct, all
actions described in this prospectus are completed in a timely fashion and that we will at all times operate in accordance with the method of operation described in our organizational documents and this prospectus. Additionally, the opinion of
Clifford Chance US LLP will be conditioned upon factual representations and covenants made by our management and affiliated entities regarding our organization, assets, present and future conduct of our business operations and other items regarding
our ability to meet the various requirements for qualification as a REIT, and assumes that such representations and covenants are accurate and complete and that they and we will take no action inconsistent with our qualification as a REIT. The
opinion of Clifford Chance US LLP will not foreclose the possibility that we may have to pay an excise or penalty tax, which could be significant in amount, in order to maintain our REIT qualification. In addition, the opinion of Clifford Chance US
LLP will be based in part on the conclusion, which is discussed in more detail below, that the better view is that the scope and nature of the rights we hold in the buildings in which structural components securing our financing receivables have
been installed are sufficient to cause such financing receivables to also be secured by real property interests in such buildings within the meaning of the newly adopted Real Property Regulations (as defined below). However, no assurance can be
provided that the IRS will not challenge this conclusion or that if this conclusion is challenged that this position would be sustained.
While we believe that we are organized and have operated, and we intend to continue to operate, in such a manner so as to qualify as a REIT,
given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations and the possibility of future changes in our circumstances or applicable law, no assurance can be given by Clifford Chance US LLP or us
that we will so qualify for any particular year. Clifford Chance US LLP will have no obligation to advise us or the holders of shares of our common stock of any subsequent change in the matters stated, represented or assumed or of any subsequent
change in the applicable law. You should be aware that opinions of counsel are not binding on the IRS, and no assurance can be given that the IRS will not challenge the conclusions set forth in such opinions.
Qualification and taxation as a REIT depends on our ability to meet, on a continuing basis, through actual results of operations, distribution
levels, diversity of share ownership and various qualification requirements imposed upon REITs by the Internal Revenue Code, the compliance with which will not be reviewed by Clifford Chance US LLP. In addition, our ability to continue to qualify as
a REIT may depend in part upon the operating
- 38 -
results, organizational structure and entity classification for U.S. federal income tax purposes of certain entities in which we invest, which could include entities that have made elections to
be taxed as REITs, the qualification of which will not have been reviewed by Clifford Chance US LLP. Our ability to continue to qualify as a REIT also requires that we satisfy certain asset and income tests, some of which depend upon the fair market
values of assets directly or indirectly owned by us or which serve as security for loans made by us. Such values may not be susceptible to a precise determination. Accordingly, no assurance can be given that the actual results of our operations for
any taxable year will satisfy the requirements for qualification and taxation as a REIT.
Real Property Regulations
As previously disclosed in our reports filed under the Exchange Act, the Treasury Department and the IRS published proposed regulations which
considered revisions to the definition of real property for purposes of the REIT income and asset tests. On August 30, 2016, these regulations, which we refer to as the Real Property Regulations, became final and apply to us with
respect to our taxable years beginning after December 31, 2016. Among other things, the Real Property Regulations provide that an obligation secured by a structural component of a building or other inherently permanent structure qualifies
as a real estate asset for REIT qualification purposes only if such obligation is also secured by a real property interest in the inherently permanent structure served by such structural component. This aspect of the Real Property Regulations has
important implications for our qualification as a REIT since a significant portion of our REIT qualifying assets consists of financing receivables that are secured by liens on installed structural improvements designed to improve the energy
efficiency of buildings and a significant portion of REIT qualifying gross income is interest income earned with respect to such financing receivables.
The structural improvements securing our financing receivables generally qualify as fixtures under local real property law, as
well as under the Uniform Commercial Code, or the UCC, which governs rights and obligations of parties in secured transactions. Although not controlling for REIT purposes, the general rule in the United States is that once improvements are
permanently installed in real properties, such improvements become fixtures and thus take on the character of and are considered to be real property for certain state and local law purposes. In general, in the United States, laws governing fixtures,
including the UCC and real property law, afford lenders who have secured their financings with security interests in fixtures with rights that extend not just to the fixtures that secure their financings, but also to the real properties in which
such fixtures have been installed. By way of example only,
Section 9-604(b)
of the UCC, which has been adopted in all but two states in the United States, permits a lender secured by fixtures, upon a
default, to enforce its rights under the UCC or under applicable real property laws. The opinion of Clifford Chance US LLP to the effect that, commencing with our taxable year ended December 31, 2013, we have been organized and operated in
conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code, and our current and proposed method of operation will enable us to continue to meet the requirements for qualification and taxation as a REIT
under the Internal Revenue Code, is based on its conclusion that, although there is limited authority directly on point, given the nature of, and the extent to which the structural improvements securing our financing receivables are fully integrated
into and serve the related buildings, the better view is that the nature and scope of our rights in such buildings that inure to us as a result of our financing receivables are sufficient to satisfy the requirements of the Real Property Regulations
described above. In addition to the limited authority directly on point, Clifford Chance US LLP has included in its opinion two other important caveats that relate to this conclusion: First, the Real Property Regulations do not define what is
required for an obligation secured by a lien on a structural component to also be secured by a real property interest in the building served by such structural component. However, the initial proposed version of the Real Property Regulations, which
never became effective, included a requirement that the interest in the real property held by a REIT be equivalent to the REITs interest in a structural component held by the REIT in order for the structural component to be treated
as a real estate asset. This requirement was ultimately not included in the final Real Property Regulations, in part in response to comments that such requirement may negatively affect investment in energy efficient and renewable energy assets. We
believe that the deletion of this requirement implies that under the final Real Property Regulations, our rights in the building need not be equivalent to our rights in the structural components serving
- 39 -
the building. Second, real property law is typically relegated to the states and the specific rights available to any lien or mortgage holder, including our rights as a fixture lien holder
described above, may vary between jurisdictions as a result of a range of factors, including the specific local real property law requirements and judicial and regulatory interpretations of such laws, and the competing rights of mortgage and other
lenders. While a number of cases have addressed the rights of fixture lien holders generally, there are limited judicial interpretations in only a few jurisdictions that directly address the rights and remedies available to a fixture lien holder in
the real property in which the fixtures have been installed. Such rights have been addressed in some cases that support the conclusion described above and, in factual circumstances distinguishable from our own, in some cases where the courts have
found these rights to be more limited. The resolution of these issues in many jurisdictions therefore remains uncertain. As a result of the foregoing, the opinion of Clifford Chance US LLP also includes language to the effect that no assurance can
be given that the IRS will not challenge the conclusion that such financing receivables meet the requirements of the Real Property Regulations or that, if challenged, such position would be sustained.
Prior to the issuance of the Real Property Regulations, we received a private letter ruling from the IRS, which we refer to as the Ruling,
which, based on the representations and assumptions contained therein, held that our financing receivables qualify as real estate assets and the income from such financing receivables qualify as interest income from mortgages on real property for
purposes of the REIT requirements. The preamble to the Real Property Regulations provides that, to the extent a private letter ruling issued prior to the issuance of the Real Property Regulations is inconsistent with the Real Property Regulations,
the private letter ruling is revoked prospectively from the applicability date of the Real Property Regulations. We do not believe that the Ruling is inconsistent with the Real Property Regulations because we believe the analysis in the Ruling was
based on similar principles as the relevant portions of the Real Property Regulations, and accordingly we do not believe that the Real Property Regulations impact our ability to rely on the Ruling. However, no assurance can be given that the IRS
would not successfully assert that we are not permitted to rely on the Ruling because the Ruling has been revoked by the Real Property Regulations.
If
the IRS were to assert that a significant portion of our financing receivables do not qualify as real estate assets and do not generate income treated as interest income from mortgages on real property, we would fail to satisfy both the gross income
requirements and asset requirements applicable to REITs. As a result, we could be required to pay one or more penalty taxes, which could be significant in amount, alter our mix of assets or adjust our business strategy, or we could fail to qualify
as a REIT.
Taxation of REITs in General
As indicated above, qualification and taxation as a REIT depends upon our ability to meet, on a continuing basis, various qualification
requirements imposed upon REITs by the Internal Revenue Code. The material qualification requirements are summarized below, under Requirements for Qualification as a REIT. While we intend to operate so that we continue to qualify
as a REIT, no assurance can be given that the IRS will not challenge our qualification as a REIT or that we will be able to continue to operate in accordance with the REIT requirements in the future. See Failure to Qualify.
Provided that we qualify as a REIT, we will generally be entitled to a deduction for dividends that we pay and, therefore, will not be subject
to U.S. federal corporate income tax on our taxable income that is currently distributed to our stockholders. This treatment substantially eliminates the double taxation at the corporate and stockholder levels that results generally from
investment in a corporation. Rather, income generated by a REIT generally is taxed only at the stockholder level, upon a distribution of dividends by the REIT.
Stockholders who are individual U.S. stockholders (as defined below) are generally taxed on corporate dividends from U.S. corporations at a
maximum rate of 20% (the same as long-term capital gains), thereby substantially reducing, though not completely eliminating, the double taxation that has historically applied to corporate dividends. With limited exceptions, dividends received by
individual U.S. stockholders from us or
- 40 -
from other entities that are taxed as REITs will continue to be taxed at rates applicable to ordinary income, and therefore may be subject to a 39.6% maximum rate on ordinary income. Net
operating losses, foreign tax credits and other tax attributes of a REIT generally do not pass through to the stockholders of the REIT, subject to special rules for certain items, such as capital gains, recognized by REITs. See Taxation
of Taxable U.S. Stockholders.
Even if we qualify for taxation as a REIT, we will be subject to U.S. federal income taxation as
follows:
|
|
|
We will be taxed at regular U.S. federal corporate rates on any undistributed income, including undistributed net capital gains.
|
|
|
|
We may be subject to the alternative minimum tax on our items of tax preference, if any.
|
|
|
|
If we have net income from prohibited transactions, which are, in general, sales or other dispositions of property held primarily for sale to customers in the ordinary course of business, other than foreclosure
property, such income will be subject to a 100% tax. See Prohibited Transactions and Foreclosure Property below.
|
|
|
|
If we elect to treat property that we acquire in connection with a foreclosure of a mortgage loan or from certain leasehold terminations as foreclosure property, we may thereby avoid (a) the 100% tax on
gain from a resale of that property (if the sale would otherwise constitute a prohibited transaction) and (b) the inclusion of any income from such property not qualifying for purposes of the REIT gross income tests discussed below, but the
income from the sale or operation of the property may be subject to U.S. federal corporate income tax at the highest applicable rate (currently 35%).
|
|
|
|
If we fail to satisfy the 75% gross income test or the 95% gross income test, as discussed below, but nonetheless maintain our qualification as a REIT because other requirements are met, we will be subject to a 100% tax
on an amount equal to (a) the greater of (1) the amount by which we fail the 75% gross income test or (2) the amount by which we fail the 95% gross income test, as the case may be, multiplied by (b) a fraction intended to reflect
our profitability.
|
|
|
|
If we fail to satisfy any of the REIT asset tests, as described below, other than a failure of the 5% or 10% REIT asset test that does not exceed a statutory
de minimis
amount as described more fully below, but
our failure is due to reasonable cause and not due to willful neglect and we nonetheless maintain our REIT qualification because of specified cure provisions, we will be required to pay a tax equal to the greater of $50,000 or the highest corporate
tax rate (currently 35%) of the net income generated by the nonqualifying assets during the period in which we failed to satisfy the asset tests.
|
|
|
|
If we fail to satisfy any provision of the Internal Revenue Code that would result in our failure to qualify as a REIT (other than a gross income or asset test requirement) and the violation is due to reasonable cause
and not due to wilful neglect, we may retain our REIT qualification but we will be required to pay a penalty of $50,000 for each such failure.
|
|
|
|
If we fail to distribute during each calendar year at least the sum of (a) 85% of our REIT ordinary income for such year, (b) 95% of our REIT capital gain net income for such year and (c) any
undistributed taxable income from prior periods, or the required distribution, we will be subject to a 4% excise tax on the excess of the required distribution over the sum of (1) the amounts actually distributed (taking into account excess
distributions from prior years), plus (2) retained amounts on which income tax is paid at the corporate level.
|
|
|
|
We may be required to pay monetary penalties to the IRS in certain circumstances, including if we fail to meet record-keeping requirements intended to monitor our compliance with rules relating to the composition of our
stockholders, as described below in Requirements for Qualification as a REIT.
|
|
|
|
A 100% excise tax may be imposed on some items of income and expense that are directly or constructively paid between us and any TRSs we may own if and to the extent that the IRS successfully adjusts the reported
amounts of these items.
|
- 41 -
|
|
|
If we acquire appreciated assets from a corporation that is not a REIT in a transaction in which the adjusted tax basis of the assets in our hands is determined by reference to the adjusted tax basis of the assets in
the hands of the
non-REIT
corporation, we will be subject to tax on such appreciation at the highest U.S. federal corporate income tax rate then applicable if we subsequently recognize gain on a disposition of
any such assets during the
10-year
period
(5-year
period for assets acquired before August 8, 2016) following their acquisition from the
non-REIT
corporation. The results described in this paragraph assume that the
non-REIT
corporation will not elect, in lieu of this treatment, to be subject to an immediate tax
when the asset is acquired by us.
|
|
|
|
We will generally be subject to tax on the portion of any excess inclusion income derived from an investment in residual interests in certain loan securitization structures (
i.e.,
a taxable
mortgage pool) to the extent that our common stock is held by specified types of
tax-exempt
organizations known as disqualified organizations that are not subject to tax on unrelated business
taxable income. To the extent that we own a taxable mortgage pool through a TRS, we will not be subject to this tax. See Effect of Subsidiary EntitiesTaxable Mortgage Pools and Excess Inclusion Income.
|
|
|
|
We may elect to retain and pay U.S. federal income tax on our net long-term capital gain. In that case, a stockholder would include its proportionate share of our undistributed long-term capital gain (to the extent we
make a timely designation of such gain to the stockholder) in its income, would be deemed to have paid the tax that we paid on such gain, and would be allowed a credit for its proportionate share of the tax deemed to have been paid, and an
adjustment would be made to increase the stockholders basis in our common stock. Stockholders that are U.S. corporations will also appropriately adjust their earnings and profits for the retained capital gains in accordance with Treasury
Regulations to be promulgated.
|
|
|
|
We will have subsidiaries or own interests in other lower-tier entities that are subchapter C corporations, the earnings of which could be subject to U.S. federal corporate income tax.
|
In addition, we may be subject to a variety of taxes other than U.S. federal income tax, including state, local, and foreign income, franchise
property and other taxes. We could also be subject to tax in situations and on transactions not presently contemplated.
Requirements for Qualification
as a REIT
The Internal Revenue Code defines a REIT as a corporation, trust or association:
|
(1)
|
that is managed by one or more trustees or directors;
|
|
(2)
|
the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest;
|
|
(3)
|
that would be taxable as a domestic corporation but for the special Internal Revenue Code provisions applicable to REITs;
|
|
(4)
|
that is neither a financial institution nor an insurance company subject to specific provisions of the Internal Revenue Code;
|
|
(5)
|
the beneficial ownership of which is held by 100 or more persons during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months;
|
|
(6)
|
in which, during the last half of each taxable year, not more than 50% in value of the outstanding stock is owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue
Code to include specified entities);
|
|
(7)
|
that makes an election to be a REIT for the current taxable year or has made such an election for a previous taxable year that has not been terminated or revoked;
|
|
(8)
|
that uses a calendar year for U.S. federal income tax purposes;
|
- 42 -
|
(9)
|
that has no earnings and profits from any
non-REIT
taxable year at the close of any taxable year; and
|
|
(10)
|
which meets other tests, and satisfies all of the relevant filing and other administrative requirements established by the IRS that must be met to elect and maintain REIT qualification described below, including with
respect to the nature of its income and assets and the amount of its distributions.
|
The Internal Revenue Code provides that
conditions (1) through (4) must be met during the entire taxable year, that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a shorter taxable year; and
that conditions (5) and (6) do not need to be satisfied for the first taxable year for which an election to become a REIT has been made. We believe that our common stock has sufficient diversity of ownership to satisfy the requirements
described in conditions (5) and (6) above. Our charter provides restrictions regarding the ownership and transfer of shares of our stock, which are intended, among other purposes, to assist us in satisfying the share ownership requirements
described in conditions (5) and (6) above. For purposes of condition (6), an individual generally includes a supplemental unemployment compensation benefit plan, a private foundation or a portion of a trust permanently set
aside or used exclusively for charitable purposes, but does not include a qualified pension plan or profit sharing trust.
To monitor
compliance with the share ownership requirements, we are generally required to maintain records regarding the actual ownership of shares of our stock. To do so, we must demand written statements each year from the record holders of significant
percentages of shares of our stock, in which the record holders are to disclose the actual owners of the shares (i.e., the persons required to include in gross income the dividends paid by us). A list of those persons failing or refusing to comply
with this demand must be maintained as part of our records. Failure by us to comply with these record-keeping requirements could subject us to monetary penalties. If we satisfy these requirements and after exercising reasonable diligence would not
have known that condition (6) is not satisfied, we will be deemed to have satisfied such condition. A stockholder that fails or refuses to comply with the demand is required by Treasury Regulations to submit a statement with its tax return
disclosing the actual ownership of the shares and other information.
For purposes of condition (8), we have adopted December 31
as our year end, and thereby satisfy this requirement.
Effect of Subsidiary Entities
Ownership of Partnership Interests
In the case of a REIT that is a partner in a partnership, Treasury regulations provide that the REIT is deemed to own its proportionate share
of the partnerships assets and to earn its proportionate share of the partnerships gross income based on its
pro rata
share of capital interests in the partnership for purposes of the asset and gross income tests applicable to
REITs, as described below. However, solely for purposes of the 10% value test, described below, the determination of a REITs interest in partnership assets will be based on the REITs proportionate interest in any securities issued by the
partnership, excluding for these purposes, certain excluded securities as described in the Internal Revenue Code. In addition, the assets and gross income of the partnership generally are deemed to retain the same character in the hands of the REIT.
Thus, our proportionate share of the assets and items of income of our operating partnership and other partnerships in which we own an equity interest (including equity interests in any lower tier partnerships) is treated as assets and items of
income of our company for purposes of applying the REIT requirements described below. Consequently, to the extent that we directly or indirectly hold a preferred or other equity interest in a partnership, the partnerships assets and operations
may affect our ability to qualify as a REIT, even though we may have no control or only limited influence over the partnership.
Disregarded
Subsidiaries
If a REIT owns a corporate subsidiary that is a qualified REIT subsidiary, that subsidiary is disregarded
for U.S. federal income tax purposes, and all assets, liabilities and items of income, deduction and credit of the
- 43 -
subsidiary are treated as assets, liabilities and items of income, deduction and credit of the REIT itself, including for purposes of the gross income and asset tests applicable to REITs, as
summarized below. A qualified REIT subsidiary is any corporation, other than a TRS, that is wholly-owned by a REIT, by other disregarded subsidiaries of a REIT or by a combination of the two. Single member limited liability companies that are
wholly-owned by a REIT are also generally disregarded as separate entities for U.S. federal income tax purposes, including for purposes of the REIT gross income and asset tests. Disregarded subsidiaries, along with partnerships in which we hold an
equity interest, are sometimes referred to herein as pass-through subsidiaries.
In the event that a disregarded subsidiary
ceases to be wholly-owned by us (for example, if any equity interest in the subsidiary is acquired by a person other than us or another disregarded subsidiary of us), the subsidiarys separate existence would no longer be disregarded for U.S.
federal income tax purposes. Instead, it would have multiple owners and would be treated as either a partnership or a taxable corporation. Such an event could, depending on the circumstances, adversely affect our ability to satisfy the various asset
and gross income tests applicable to REITs, including the requirement that REITs generally may not own, directly or indirectly, more than 10% of the value or voting power of the outstanding securities of another corporation. See Asset
Tests and Gross Income Tests.
Taxable REIT Subsidiaries
A REIT, in general, may jointly elect with a subsidiary corporation, whether or not wholly-owned, to treat the subsidiary corporation as a TRS.
We generally may not own more than 10% of the securities of a taxable corporation, as measured by voting power or value, unless we and such corporation elect to treat such corporation as a TRS. The separate existence of a TRS or other taxable
corporation, unlike a disregarded subsidiary as discussed above, is not ignored for U.S. federal income tax purposes. Accordingly, such an entity would generally be subject to U.S. federal corporate income tax on its earnings, which may reduce the
cash flow generated by us and our subsidiaries in the aggregate and our ability to make distributions to our stockholders. We and each of our TRSs have made a TRS election with respect to each of our TRSs, which allows our TRSs to invest in assets
and engage in activities that could not be held or conducted directly by us without jeopardizing our qualification as a REIT.
A REIT is
not treated as holding the assets of a TRS or other taxable subsidiary corporation or as receiving any income that the subsidiary earns. Rather, the stock issued by the subsidiary is an asset in the hands of the REIT, and the REIT generally
recognizes as income the dividends, if any, that it receives from the subsidiary. This treatment can affect the gross income and asset test calculations that apply to the REIT, as described below. Because a parent REIT does not include the assets
and income of such subsidiary corporations in determining the parents compliance with the REIT requirements, such entities may be used by the parent REIT to undertake indirectly activities that the REIT rules might otherwise preclude it from
doing directly or through pass-through subsidiaries or render commercially unfeasible (for example, activities that give rise to certain categories of income such as
non-qualifying
hedging income or inventory
sales). We hold assets in our TRSs, subject to the limitation that securities in TRSs may not represent more than 25% (20% for taxable years beginning after December 31, 2017) of our total assets. To the extent that we acquire loans with an
intention of selling such loans in a manner that might expose us to a 100% tax on prohibited transactions, such loans will be acquired by a TRS. If dividends are paid to us by our TRSs, then a portion of dividends, if any, that we
distribute to stockholders who are taxed at individual rates generally will be eligible for taxation at preferential qualified dividend income tax rates rather than at ordinary income rates. See Taxation of Taxable U.S.
Stockholders and Annual Distribution Requirements.
Certain restrictions imposed on TRSs are intended to ensure
that such entities will be subject to appropriate levels of U.S. federal income taxation. First, if certain tests regarding the TRS
debt-to-equity
ratio are not
satisfied, a TRS may not deduct interest payments made in any year to an affiliated REIT to the extent that such payments exceed, generally, 50% of the TRSs adjusted taxable income for that year (although the TRS may carry forward to, and
deduct in, a succeeding year the disallowed interest amount if the 50% test is satisfied in
- 44 -
that year). In addition, if amounts are paid to a REIT or a TRS or deducted by a TRS due to transactions between a REIT, its tenants and/or the TRS, that exceed the amount that would be paid to a
REIT or deducted by a TRS or are less than the amount that would be paid to a TRS in an
arms-length
transaction, the REIT generally will be subject to an excise tax equal to 100% of such excess. We
intend to scrutinize all of our transactions with any of our subsidiaries that are treated as TRSs in an effort to ensure that we will not become subject to this excise tax; however, we cannot assure you that we will be successful in avoiding this
excise tax.
Taxable Mortgage Pools
An entity, or a portion of an entity, may be classified as a taxable mortgage pool, or TMP, under the Internal Revenue Code if:
|
|
|
substantially all of its assets consist of debt obligations or interests in debt obligations;
|
|
|
|
more than 50% of those debt obligations are real estate mortgages or interests in real estate mortgages as of specified testing dates;
|
|
|
|
the entity has issued debt obligations that have two or more maturities; and
|
|
|
|
the payments required to be made by the entity on its debt obligations bear a relationship to the payments to be received by the entity on the debt obligations that it holds as assets.
|
Under Treasury regulations, if less than 80% of the assets of an entity (or a portion of an entity) consist of debt obligations, these debt
obligations are considered not to comprise substantially all of its assets, and therefore the entity would not be treated as a TMP. We may enter into financing and securitization arrangements that give rise to TMPs. Specifically, we may
securitize certain loans that we hold and such securitizations may result in us owning interests in a TMP. To the extent that we do so, we may enter into such transactions through a qualified REIT subsidiary or a subsidiary REIT. We would be
precluded from selling to outside investors equity interests in securitizations entered into through a qualified REIT subsidiary or from selling any debt securities issued in connection with such securitizations that might be considered equity for
U.S. federal income tax purposes in order to ensure that such entity remains a qualified REIT subsidiary.
A TMP generally is treated as a
corporation for U.S. federal income tax purposes; it cannot be included in any consolidated U.S. federal corporate income tax return. However, special rules apply to a REIT, a portion of a REIT, or a qualified REIT subsidiary that is a taxable
mortgage pool. If a REIT owns directly, or indirectly through one or more qualified REIT subsidiaries or other entities that are disregarded as a separate entity for U.S. federal income tax purposes, 100% of the equity interests in the TMP, the TMP
will be a qualified REIT subsidiary and, therefore, ignored as an entity separate from the REIT for U.S. federal income tax purposes and would not generally affect the tax qualification of the REIT. Rather, the consequences of the taxable mortgage
pool classification would generally, except as described below, be limited to the REITs stockholders. See Excess Inclusion Income.
If we own less than 100% of the ownership interests in a subsidiary that is a TMP, the foregoing rules would not apply unless such subsidiary
is itself a REIT. Rather, the subsidiary would be treated as a corporation for U.S. federal income tax purposes, and would be subject to U.S. federal corporate income tax. In addition, this characterization would alter our REIT income and asset test
calculations and could adversely affect our compliance with those requirements. We do not expect that we would form any subsidiary that would become a TMP, in which we own some, but less than all, of the ownership interests (unless such subsidiary
is a REIT), and we intend to monitor the structure of any TMPs in which we have an interest to ensure that they will not adversely affect our qualification as a REIT.
Gross Income Tests
In order to maintain
our qualification as a REIT, we annually must satisfy two gross income tests. First, at least 75% of our gross income for each taxable year, excluding gross income from sales of inventory or dealer
- 45 -
property in prohibited transactions and certain hedging and foreign currency transactions must be derived from investments relating to real property or mortgages on real property,
including rents from real property, dividends received from and gains from the disposition of other shares of other REITs, interest income derived from loans secured by real property, and gains from the sale of real estate assets (other
than income or gains with respect to debt instruments issued by public REITs that are not otherwise secured by real property), as well as income from certain kinds of temporary investments. Second, at least 95% of our gross income in each taxable
year, excluding gross income from prohibited transactions and certain hedging and foreign currency transactions, must be derived from some combination of income that qualifies under the 75% income test described above, as well as other dividends,
interest, and gain from the sale or disposition of stock or securities, which need not have any relation to real property. We intend to continue to monitor the amount of our
non-qualifying
income and manage
our portfolio of assets to comply with the gross income tests, but we cannot assure you that we will be successful in this effort.
For
purposes of the 75% and 95% gross income tests, a REIT is deemed to have earned a proportionate share of the income earned by any partnership, or any limited liability company treated as a partnership for U.S. federal income tax purposes, in which
it owns an interest, which share is determined by reference to its capital interest in such entity, and is deemed to have earned the income earned by any qualified REIT subsidiary.
Interest Income
Interest income
constitutes qualifying mortgage interest for purposes of the 75% gross income test to the extent that the obligation is secured by a mortgage on real property. If we receive interest income with respect to a loan that is secured by both real
property and other property and the highest principal amount of the loan outstanding during a taxable year exceeds the fair market value of the real property on the date of our binding commitment to make or purchase the mortgage loan, then, subject
to the exception described below, the interest income will be apportioned between the real property and the other property, and our income from the arrangement will qualify for purposes of the 75% gross income test only to the extent that the
interest is allocable to the real property. For taxable years beginning after December 31, 2015, if a loan is secured by both real property and personal property and the fair market value of the personal property does not exceed 15% of the fair
market value of all real and personal property securing the loan, the loan is generally treated as secured solely by real property for purposes of these rules. We invest in loans made for purposes of improving or developing real property, the
interest from which is qualifying income for purposes of the REIT income tests, provided that the loan value of the real property securing the loan is equal to or greater than the highest outstanding principal amount of the loan during any taxable
year, and other requirements are met, or beginning as of 2016, provided the fair market value of the personal property securing the loan does not exceed 15% of the fair market value of the real and personal property securing the loan. With respect
to loans made for purposes of improving or developing real property, the loan value of the real property is the fair market value of the land plus the reasonably estimated cost of the improvements or developments (other than personal property) which
will secure the loan and which are to be constructed from the proceeds of the loan. In particular, we intend to continue to treat the interest income that we receive from loans secured by the financing of real property included in our sustainable
infrastructure projects, which we include in our financing receivables, as interest on obligations secured by mortgages on real property that is qualifying income for purposes of the 75% gross income test. As discussed above under
Taxation of Our CompanyGeneralReal Property Regulations, we received a private letter ruling from the IRS relating to our ability to treat income from certain of our financing receivables as qualifying REIT income to the
extent it falls within the scope of such private letter ruling and to the extent such private letter ruling is not inconsistent with the Real Property Regulations. We are entitled to rely upon this ruling for that income which fits within the scope
of such private letter ruling only to the extent that we have the legal and contractual rights described therein and did not misstate or omit in the ruling request a relevant fact and that we continue to operate in the future in accordance with the
relevant facts described in such request, and no assurance can be given that we will always be able to do so. If we were not able to treat the interest income that we receive as qualifying income for purposes of the REIT gross income tests, we would
be required to restructure the manner in which we receive such income and we may realize significant income that does not qualify for the
- 46 -
REIT gross income tests, which could cause us to fail to qualify as a REIT. Even if a loan is not secured by real property or is undersecured, the income that it generates may nonetheless qualify
for purposes of the 95% gross income test.
In the event that we invest in a financing receivable or other loan that is not fully secured
by real property, is secured by personal property and, beginning as of 2016, if the fair market value of the personal property securing the loan exceeds 15% of the fair market value of the real and personal property securing the loan, we would be
required to apportion our annual interest income to the real property security based on a fraction, the numerator of which is the value of the real property securing the financing receivable or other loan, determined when we commit to acquire the
financing receivable or other loan, and the denominator of which is the highest principal amount of the financing receivable or other loan during the year. The IRS has issued Revenue Procedure
2014-51
addressing a REITs investment in distressed debt, or the Distressed Debt Revenue Procedure. The Distressed Debt Revenue Procedure interprets the principal amount of the loan to be the
face amount of the loan, despite the Internal Revenue Code requiring taxpayers to treat gain attributable to any market discount, that is the difference between the purchase price of the loan and its face amount, for all purposes (other than certain
withholding and information reporting purposes) as interest. Any financing receivable that we invest in that is not fully secured by real property, is secured in part by personal property and, beginning in 2016, is secured by personal property the
fair market value of which exceeds 15% of the fair market value of all real and personal property securing the mortgage loan will therefore be subject to the interest apportionment rules and the position taken in the Distressed Debt Revenue
Procedure, as described above.
In the future, we may hold mezzanine loans secured by equity interests in a pass-through entity that
directly or indirectly owns real property, rather than a direct mortgage on the real property. Revenue Procedure
2003-65
provides a safe harbor pursuant to which a mezzanine loan, if it meets each of the
requirements contained in the Revenue Procedure, will be treated by the IRS as a real estate asset for purposes of the REIT asset tests (described below), and interest derived from it will be treated as qualifying mortgage interest for purposes of
the 75% gross income test. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law. The mezzanine loans that we acquire may not meet all of the requirements for reliance
on this safe harbor. Hence, there can be no assurance that the IRS will not challenge the qualification of such assets as real estate assets for purposes of the REIT asset tests or the interest generated by these loans as qualifying income under the
75% gross income test.
To the extent that we derive interest income from a loan where all or a portion of the amount of interest payable
is contingent, such income generally will qualify for purposes of the gross income tests only if it is based upon the gross receipts or sales and not the net income or profits of any person. This limitation does not apply, however, to a loan where
the borrower derives substantially all of its income from the property from the leasing of substantially all of its interest in the property to tenants, to the extent that the rental income derived by the borrower would qualify as rents from real
property had it been earned directly by us.
To the extent that the terms of a loan provide for contingent interest that is based on the
cash proceeds realized upon the sale of the property securing the loan (or a shared appreciation provision), income attributable to the participation feature will be treated as gain from sale of the underlying property, which generally will be
qualifying income for purposes of both the 75% and 95% gross income tests, provided that the property is not inventory or dealer property in the hands of the borrower or us.
Fee Income
We may receive various
fees in connection with our operations. The fees generally will be qualifying income for purposes of both the 75% and 95% gross income tests if they are received in consideration for entering into an agreement to make a loan secured by real property
and the fees are not determined by income or profits. Other fees are not qualifying income for purposes of either the 75% or 95% gross income test. Any fees earned by a TRS are not included for purposes of the gross income tests.
- 47 -
Dividend Income
We may receive distributions from TRSs or other corporations that are not REITs or qualified REIT subsidiaries. These distributions are
generally classified as dividend income to the extent of the earnings and profits of the distributing corporation. Such distributions generally constitute qualifying income for purposes of the 95% gross income test, but not the 75% gross income
test. Any dividends received by us from a REIT will be qualifying income in our hands for purposes of both the 95% and 75% gross income tests.
Hedging Transactions
We have
entered and may in the future enter into hedging transactions with respect to one or more of our assets or liabilities. Hedging transactions could take a variety of forms, including hedging instruments such as interest rate swap agreements, interest
rate cap agreements, swaptions, and options on such contracts, futures contracts, puts and calls, similar financial instruments or other financial instruments that we deem appropriate. Except to the extent provided by Treasury regulations, any
income from a hedging transaction we enter into (1) in the normal course of our business primarily to manage risk of interest rate or price changes or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations
incurred or to be incurred, to acquire or carry real estate assets, which is clearly identified as specified in Treasury regulations before the close of the day on which it was acquired, originated, or entered into, including gain from the sale or
disposition of such a transaction, (2) primarily to manage risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the 75% or 95% income tests which is clearly identified as such before the
close of the day on which it was acquired, originated, or entered into, and (3) primarily to manage risk with respect to a hedging transaction described in clause (1) or (2) after the extinguishment of such borrowings or disposal of the
asset producing such income that is hedged by the hedging transaction, which is clearly identified as such before the close of the day on which it was acquired, originated or entered into, in each case will not constitute gross income for purposes
of the 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as
non-qualifying
income for purposes of
both of the 75% and 95% gross income tests. We intend to continue to structure any hedging transactions in a manner that does not jeopardize our qualification as a REIT but there can be no assurances we will be successful in this regard.
Phantom Income
Due to the nature
of the assets in which we expect to invest, we may be required to recognize taxable income from those assets in advance of our receipt of cash flow on or proceeds from disposition of such assets, and may be required to report taxable income in early
periods that exceeds the economic income ultimately realized on such assets.
To the extent we acquire debt instruments in the secondary
market for less than their face amount, the amount of such discount generally will be treated as market discount for U.S. federal income tax purposes. We will accrue market discount on the basis of a constant yield to maturity of a debt
instrument. Accrued market discount is reported as income when, and to the extent that, any payment of principal of the debt instrument is made, unless we elect to include accrued market discount in income as it accrues. Principal payments on
certain loans are made monthly, and consequently accrued market discount may have to be included in income each month as if the debt instrument were assured of ultimately being collected in full. If we collect less on the debt instrument than our
purchase price plus the market discount we had previously reported as income, we may not be able to benefit from any offsetting loss deductions in a subsequent taxable year.
Some of the debt instruments that we acquire may have been issued with original issue discount. In general, we will be required to accrue
original issue discount based on the constant yield to maturity of the debt instrument, and to treat it as taxable income in accordance with applicable U.S. federal income tax rules even though smaller or no cash payments are received on such debt
instrument. As in the case of the market discount
- 48 -
discussed in the preceding paragraph, the constant yield in question will be determined and we will be taxed based on the assumption that all future payments due on the debt instrument in
question will be made, with consequences similar to those described in the previous paragraph if all payments on the debt instrument are not made.
Although we do not presently intend to, we may, in the future, acquire debt investments that are subsequently modified by agreement with the
borrower. If the amendments to the outstanding debt are significant modifications under the applicable Treasury regulations, the modified debt may be considered to have been reissued to us in a
debt-for-debt
exchange with the borrower. In that event, we may be required to recognize taxable income to the extent the principal amount of the modified debt exceeds our adjusted tax basis in the unmodified
debt, and would hold the modified loan with a cost basis equal to its principal amount for U.S. federal tax purposes.
In addition, in the
event that any debt instruments acquired by us are delinquent as to mandatory principal and interest payments, or in the event payments with respect to a particular debt instrument are not made when due, we may nonetheless be required to continue to
recognize the unpaid interest as taxable income. Similarly, we may be required to accrue interest income with respect to subordinate mortgage-backed securities at the stated rate regardless of whether corresponding cash payments are received.
Finally, we may be required under the terms of indebtedness that we incur to private lenders to use cash received from interest payments to
make principal payments on that indebtedness, with the effect of recognizing income but not having a corresponding amount of cash available for distribution to our stockholders.
Due to each of these potential timing differences between income recognition and the related cash receipts, there is a significant risk that
we may have substantial taxable income in excess of cash available for distribution. In that event, we may need to borrow funds or take other action to satisfy the REIT distribution requirements for the taxable year in which this phantom
income is recognized. See Annual Distribution Requirements.
Rents from Real Property
Rents that we receive from real property or interests therein that we own or purchase in the future qualify as rents from real
property in satisfying the gross income tests described above, only if several conditions are met, including the following. If rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the
total rent received under any particular lease, then all of the rent attributable to such personal property will not qualify as rents from real property. The determination of whether an item of personal property constitutes real or personal property
under the REIT provisions of the Internal Revenue Code is subject to both legal and factual considerations and is therefore subject to different interpretations. We intend to structure any leases so that the rent payable thereunder will qualify as
rents from real property, but there can be no assurance we will be successful in this regard.
In addition, in order for rents
received by us to qualify as rents from real property, the rent must not be based in whole or in part on the income or profits of any person. However, an amount will not be excluded from rents from real property solely by being based on
a fixed percentage or percentages of sales or if it is based on the net income of a tenant which derives substantially all of its income with respect to such property from subleasing of substantially all of such property, to the extent that the
rents paid by the subtenants would qualify as rents from real property, if earned directly by us. Moreover, for rents received to qualify as rents from real property, we generally must not operate or manage the property or furnish or
render certain services to the tenants of such property, other than through an independent contractor who is adequately compensated and from which we derive no income or through a TRS. We are permitted, however, to perform services that
are usually or customarily rendered in connection with the rental of space for occupancy only and are not otherwise considered rendered to the occupant of the property. In addition, we may directly or indirectly provide
non-customary
services to tenants of our properties without disqualifying all of the rent from the property if the
- 49 -
greater of 150% of our direct cost in furnishing or rendering the services or the payment for such services does not exceed 1% of the total gross income from the property. In such a case, only
the amounts for
non-customary
services are not treated as rents from real property and the provision of the services does not disqualify the related rent.
Rental income will qualify as rents from real property only to the extent that we do not directly or constructively own, (1) in the case
of any tenant which is a corporation, stock possessing 10% or more of the total combined voting power of all classes of stock entitled to vote, or 10% or more of the total value of shares of all classes of stock of such tenant, or (2) in the
case of any tenant which is not a corporation, an interest of 10% or more in the assets or net profits of such tenant.
Failure to Satisfy the Gross
Income Tests
We intend to continue to monitor our sources of income, including any
non-qualifying
income received by us, and manage our assets so as to ensure our compliance with the gross income tests. We cannot assure you, however, that we will be able to satisfy the gross income tests. If
we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may still qualify as a REIT for the year if we are entitled to relief under applicable provisions of the Internal Revenue Code. These relief provisions will
generally be available if the failure of our company to meet these tests was due to reasonable cause and not due to willful neglect and, following the identification of such failure, we set forth a description of each item of our gross income that
satisfies the gross income tests in a schedule for the taxable year filed in accordance with the Treasury regulation. It is not possible to state whether we would be entitled to the benefit of these relief provisions in all circumstances. If these
relief provisions are inapplicable to a particular set of circumstances involving our failure to satisfy the gross income tests, we will not qualify as a REIT. As discussed above under Taxation of REITs in General, even where these
relief provisions apply, a tax would be imposed upon the profit attributable to the amount by which we fail to satisfy the particular gross income test, which could be a significant amount.
Asset Tests
We, at the close of each
calendar quarter, must also satisfy five tests relating to the nature of our assets. First, at least 75% of the value of our total assets must be represented by some combination of real estate assets, cash, cash items, U.S. government
securities and, under some circumstances, stock or debt instruments purchased with new capital. For this purpose, real estate assets include interests in real property, such as land, buildings, certain building improvements, leasehold interests in
real property, stock of other corporations that qualify as REITs, mortgage loans, and beginning in 2016, debt instruments issued by publicly offered REITs and personal property to the extent rents attributable to such personal property are treated
as rents from real property for purposes of the 75% and 95% gross income tests discussed above. Assets that do not qualify for purposes of the 75% test are subject to the additional asset tests described below. Second, the value of any
one issuers securities owned by us may not exceed 5% of the value of our total assets. Third, we may not own more than 10% of any one issuers outstanding securities, as measured by either voting power or value. Fourth, the aggregate
value of all securities of TRSs held by us may not exceed 25% (20% for taxable years beginning after December 31, 2017) of the value of our total assets. Fifth, the aggregate value of debt instruments issued by publicly offered REITs held by us
that are not otherwise secured by real property may not exceed 25% of the value of our total assets.
The 5% and 10% asset tests do not
apply to securities of TRSs and qualified REIT subsidiaries. The 10% value test does not apply to certain straight debt and other excluded securities, as described in the Internal Revenue Code, including but not limited to any loan to an
individual or an estate, any obligation to pay rents from real property and any security issued by a REIT. In addition, (a) a REITs interest as a partner in a partnership is not considered a security for purposes of applying the 10% value
test; (b) any debt instrument issued by a partnership (other than straight debt or other excluded security) will not be considered a security issued by the partnership if at least 75% of the partnerships gross income is derived from
sources that would
- 50 -
qualify for the 75% REIT gross income test; and (c) any debt instrument issued by a partnership (other than straight debt or other excluded security) will not be considered a security issued
by the partnership to the extent of the REITs interest as a partner in the partnership.
For purposes of the 10% value test,
straight debt means a written unconditional promise to pay on demand or on a specified date a sum certain in money if (i) the debt is not convertible, directly or indirectly, into stock, (ii) the interest rate and interest
payment dates are not contingent on profits, the borrowers discretion, or similar factors other than certain contingencies relating to the timing and amount of principal and interest payments, as described in the Internal Revenue Code and
(iii) in the case of an issuer which is a corporation or a partnership, securities that otherwise would be considered straight debt will not be so considered if we, and any of our controlled taxable REIT subsidiaries as defined in
the Internal Revenue Code, hold any securities of the corporate or partnership issuer which (a) are not straight debt or other excluded securities (prior to the application of this rule), and (b) have an aggregate value greater than 1% of
the issuers outstanding securities (including, for the purposes of a partnership issuer, our interest as a partner in the partnership).
We may hold certain mezzanine loans that do not qualify for the safe harbor in Revenue Procedure
2003-65
discussed above pursuant to which certain loans secured by a first priority security interest in equity interests in a pass-through entity that directly or indirectly own real property will be treated
as qualifying assets for purposes of the 75% real estate asset test and therefore not be subject to the 10% vote or value test. In addition such mezzanine loans may not qualify as straight debt securities or for one of the other
exclusions from the definition of securities for purposes of the 10% value test. We intend to make any such investments in such a manner as not to fail the asset tests described above but there can be no assurance that we will be
successful in this regard.
We may hold certain participation interests, including B Notes, in loans secured by real property and
mezzanine loans originated by other lenders. B Notes are interests in underlying loans created by virtue of participations or similar agreements to which the originators of the loans are parties, along with one or more participants. The borrower on
the underlying loan is typically not a party to the participation agreement. The performance of this investment depends upon the performance of the underlying loan and, if the underlying borrower defaults, the participant typically has no recourse
against the originator of the loan. The originator often retains a senior position in the underlying loan and grants junior participations which absorb losses first in the event of a default by the borrower. We generally expect to treat our
participation interests as qualifying real estate assets for purposes of the REIT asset tests and interest that we derive from such investments as qualifying mortgage interest for purposes of the 75% gross income test discussed above. The
appropriate treatment of participation interests for U.S. federal income tax purposes is not entirely certain, however, and no assurance can be given that the IRS will not challenge our treatment of our participation interests. In the event of a
determination that such participation interests do not qualify as real estate assets, or that the income that we derive from such participation interests does not qualify as mortgage interest for purposes of the REIT asset and income tests, we could
be subject to a penalty tax, or could fail to qualify as a REIT.
We intend to continue to treat a portion of our interests in the loans
secured by real property included in our sustainable infrastructure projects, which we include in our financing receivables, as real estate assets that qualify under the 75% asset test. We received a private letter ruling from the IRS
relating to our ability to treat certain of our financing receivables as qualifying REIT assets to the extent they fall within the scope of such private letter ruling (see Taxation of Our CompanyGeneralReal Property
Regulations and Gross Income TestsInterest Income above). We expect that our holdings of TRSs and other assets is, and will continue to be, structured in a manner that will comply with the foregoing REIT asset requirements,
and we intend to continue to monitor compliance on an ongoing basis. There can be no assurance, however, that we will be successful in this effort. In this regard, to determine compliance with these requirements, we will need to estimate the value
of our assets. We do not expect to obtain independent appraisals to support our conclusions as to the total value of our assets or the value of any particular security or other asset. Moreover, values of some assets, including our interests in our
TRSs, may not be susceptible to a precise determination and are subject to change in the future.
- 51 -
Although we will be prudent in making these estimates, there can be no assurance that the IRS will not disagree with these determinations and assert that a different value is applicable, in which
case we might not satisfy the REIT asset tests, and could fail to qualify as a REIT. A financing receivable that we own will generally be treated as a real estate asset for purposes of the 75% asset test if, on the date that we acquire or originate
the financing receivable, the value of the real property securing the loan is equal or greater to the principal amount of the loan. In the event that we invest in a financing receivable or other loan that is secured by both real property and other
property, the Distressed Debt Revenue Procedure may apply to determine what portion of the financing receivable or other loan will be treated as a real estate asset for purposes of the 75% asset test. The interest apportionment rules apply if the
financing receivable or other loan in question is secured by both real property and other property. Pursuant to the Distressed Debt Revenue Procedure, the IRS has announced that it will not challenge a REITs treatment of a financing receivable
or other loan as a real estate asset in its entirety to the extent that the value of the financing receivable or other loan is equal to or less than the value of the real property securing the financing receivable or other loan at the relevant
testing date. However, uncertainties exist regarding the application of Distressed Debt Revenue Procedure, particularly with respect to the proper treatment under the asset tests of financing receivable or other loans acquired at a discount that
increase in value following their acquisition, and no assurance can be given that the IRS would not challenge our treatment of such assets. Furthermore, the proper classification of an instrument as debt or equity for U.S. federal income tax
purposes may be uncertain in some circumstances, which could affect the application of the REIT asset tests.
In addition, we may enter
into repurchase agreements under which we will nominally sell certain of our assets to a counterparty and simultaneously enter into an agreement to repurchase the sold assets. We believe that we will be treated for U.S. federal income tax purposes
as the owner of the assets that are the subject of any repurchase agreement and that the repurchase agreement will be treated as a secured lending transaction notwithstanding that we may transfer record ownership of the assets to the counterparty
during the term of the agreement. It is possible, however, that the IRS could assert that we did not own the assets during the term of the repurchase agreement, in which case we could fail to qualify as a REIT.
Failure to Satisfy the Asset Tests
After initially meeting the asset tests at the close of any quarter, we will not lose our qualification as a REIT for failure to satisfy the
asset tests at the end of a later quarter solely by reason of changes in asset values. If we fail to satisfy the asset tests because we acquire or increase our ownership of assets during a quarter, we can cure this failure by disposing of sufficient
non-qualifying
assets within 30 days after the close of that quarter. If we fail the 5% asset test, or the 10% vote or value asset tests at the end of any quarter and such failure is not cured within
30 days thereafter, we may dispose of sufficient assets (generally within six months after the last day of the quarter in which our identification of the failure to satisfy these asset tests occurred) to cure such a violation that does not
exceed the lesser of 1% of our assets at the end of the relevant quarter or $10.0 million. If we fail any of the other asset tests or our failure of the 5% and 10% asset tests is in excess of the
de minimis
amount described above, as
long as such failure was due to reasonable cause and not willful neglect, we are permitted to avoid disqualification as a REIT, after the 30 day cure period, by taking steps, including the disposition of sufficient assets to meet the asset
tests (generally within six months after the last day of the quarter in which our identification of the failure to satisfy the REIT asset test occurred), and paying a tax equal to the greater of $50,000 or the highest U.S. federal corporate income
tax rate (currently 35%) of the net income generated by the
non-qualifying
assets during the period in which we failed to satisfy the asset test.
- 52 -
Annual Distribution Requirements
In order to qualify as a REIT, we are required to distribute dividends, other than capital gain dividends, to our stockholders in an amount at
least equal to:
|
|
|
90% of our REIT taxable income (computed without regard to our deduction for dividends paid and our net capital gains); and
|
|
|
|
90% of the net income (after tax), if any, from foreclosure property (as described below); minus
|
|
(b)
|
the sum of specified items of
non-cash
income that exceeds a percentage of our income.
|
These distributions must be paid in the taxable year to which they relate or in the following taxable year if such distributions are declared
in October, November or December of the taxable year, are payable to stockholders of record on a specified date in any such month and are actually paid before the end of January of the following year. Such distributions are treated as both paid by
us and received by each stockholder on December 31 of the year in which they are declared. In addition, at our election, a distribution for a taxable year may be declared before we timely file our tax return for the year and be paid with or
before the first regular dividend payment after such declaration, provided that such payment is made during the
12-month
period following the close of such taxable year. These distributions are taxable to our
stockholders in the year in which paid, even though the distributions relate to our prior taxable year for purposes of the 90% distribution requirement.
In order for distributions to be counted towards our distribution requirement and to give rise to a tax deduction by us, they must not be
preferential dividends. A dividend is not a preferential dividend if it is
pro rata
among all outstanding shares of stock within a particular class and is in accordance with the preferences among different classes of stock as
set forth in the organizational documents. This preferential dividend limitation will no longer apply to us during any period after December 31, 2014 that we are treated as a publicly offered REIT, which generally includes a REIT required to
file annually and periodic reports with the SEC.
To the extent that we distribute at least 90%, but less than 100%, of our REIT
taxable income, as adjusted, we will be subject to tax at ordinary U.S. federal corporate tax rates on the retained portion. In addition, we may elect to retain, rather than distribute, our net long-term capital gains and pay tax on such
gains. In this case, we could elect to have our stockholders include their proportionate share of such undistributed long-term capital gains in income and receive a corresponding credit or refund, as the case may be, for their proportionate share of
the tax paid by us. Our stockholders would then increase the adjusted basis of their stock in us by the difference between the designated amounts included in their long-term capital gains and the tax deemed paid with respect to their proportionate
shares. Stockholders that are U.S. corporations would also appropriately adjust their earnings and profits for the retained capital gains in accordance with Treasury Regulations to be promulgated.
If we fail to distribute during each calendar year at least the sum of (a) 85% of our REIT ordinary income for such year, (b) 95% of
our REIT capital gain net income for such year and (c) any undistributed taxable income from prior periods, we will be subject to a 4% excise tax on the excess of such required distribution over the sum of (x) the amounts actually
distributed (taking into account excess distributions from prior periods) and (y) the amounts of income retained on which we have paid U.S. federal corporate income tax. We intend to continue to make timely distributions so that we are not
subject to the 4% excise tax.
It is possible that we, from time to time, may not have sufficient cash to meet the distribution
requirements due to timing differences between (a) the actual receipt of cash, including receipt of distributions from our subsidiaries and (b) the inclusion of items in income by us for U.S. federal income tax purposes. In the event that
such timing differences occur, in order to meet the distribution requirements, it might be necessary to arrange for short-term, or possibly long-term, borrowings, to use cash reserves, to liquidate non cash assets at rates or times
- 53 -
we regard as unfavorable, or to pay dividends in the form of taxable
in-kind
distributions of property including taxable stock dividends. In the case of a
taxable stock dividend, stockholders would be required to include the dividend as income and would be required to satisfy the tax liability associated with the distribution with cash from other sources including sales of our common stock. Both a
taxable stock distribution and sale of common stock resulting from such distribution could adversely affect the price of our common stock. We may be able to rectify a failure to meet the distribution requirements for a year by paying
deficiency dividends to stockholders in a later year, which may be included in our deduction for dividends paid for the earlier year. In this case, we may be able to avoid losing our qualification as a REIT or being taxed on amounts
distributed as deficiency dividends. However, we will be required to pay interest and a penalty based on the amount of any deduction taken for deficiency dividends.
Recordkeeping Requirements
We are
required to maintain records and request on an annual basis information from specified stockholders. These requirements are designed to assist us in determining the actual ownership of our outstanding stock and maintaining our qualification as a
REIT.
Excess Inclusion Income
It is
possible that a portion of our income from a TMP arrangement, which might be
non-cash
accrued income, could be treated as excess inclusion income, although we have no current intention of entering
into TMP arrangements that would give rise to excess inclusion income. A REITs excess inclusion income must be allocated among its stockholders in proportion to dividends paid. We are required to notify stockholders of the amount of
excess inclusion income allocated to them. A stockholders share of excess inclusion income:
|
|
|
cannot be offset by any net operating losses otherwise available to the stockholder,
|
|
|
|
in the case of a stockholder that is a REIT, a RIC, or a common trust fund or other pass through entity, is considered excess inclusion income of such entity,
|
|
|
|
is subject to tax as unrelated business taxable income in the hands of most types of stockholders that are otherwise generally exempt from U.S. federal income tax,
|
|
|
|
results in the application of U.S. federal income tax withholding at the maximum rate (30%), without reduction for any otherwise applicable income tax treaty or other exemption, to the extent allocable to most types of
non-U.S.
stockholders, and
|
|
|
|
is taxable (at the highest U.S. federal corporate tax rate, currently 35%) to the REIT, rather than its stockholders, to the extent allocable to the REITs stock held in record name by disqualified organizations
(generally,
tax-exempt
entities not subject to unrelated business income tax, including governmental organizations).
|
The manner in which excess inclusion income is calculated, or would be allocated to stockholders, including allocations among shares of
different classes of stock, is not clear under current law. As required by IRS guidance, we intend to make such determinations using a reasonable method.
Tax-exempt
investors, RIC or REIT investors,
non-U.S.
investors and taxpayers with net operating losses should carefully consider the tax consequences described above, and are urged to consult their tax advisors with respect to the U.S. federal income tax consequences of an investment in our common
stock.
If a subsidiary partnership of ours that we do not
wholly-own,
directly or through one or
more disregarded entities, were a TMP, the foregoing rules would not apply. Rather, the partnership that is a TMP would be treated as a corporation for U.S. federal income tax purposes, and potentially would be subject to U.S. federal corporate
income tax or withholding tax. In addition, this characterization would alter our income and asset test
- 54 -
calculations, and could adversely affect our compliance with those requirements. We intend to monitor the structure of any TMPs in which we will have an interest to ensure that they will not
adversely affect our qualification as a REIT.
Prohibited Transactions
Net income we derive from a prohibited transaction is subject to a 100% tax. The term prohibited transaction generally includes a
sale or other disposition of property (other than foreclosure property) that is held as inventory or primarily for sale to customers, in the ordinary course of a trade or business by a REIT, by a lower-tier partnership in which the REIT holds an
equity interest or by a borrower that has issued a shared appreciation mortgage or similar debt instrument to the REIT. We intend to continue to conduct our operations so that no asset owned by us or our pass-through subsidiaries will be held as
inventory or primarily for sale to customers, and that a sale of any assets owned by us directly or through a pass-through subsidiary will not be in the ordinary course of business. However, whether property is held as inventory or primarily
for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances. No assurance can be given that any particular asset in which we hold a direct or indirect interest will not be treated as
property held as inventory or primarily for sale to customers or that certain safe harbor provisions of the Internal Revenue Code that prevent such treatment will apply. The 100% tax will not apply to gains from the sale of property that is held
through a TRS or other taxable corporation, although such income will be subject to tax in the hands of the corporation at regular U.S. federal corporate income tax rates.
Foreclosure Property
Foreclosure
property is real property and any personal property incident to such real property (1) that is acquired by a REIT as a result of the REIT having bid on the property at foreclosure or having otherwise reduced the property to ownership or
possession by agreement or process of law after there was a default (or default was imminent) on a lease of the property or a mortgage loan held by the REIT and secured by the property, (2) for which the related loan or lease was acquired by
the REIT at a time when default was not imminent or anticipated and (3) for which such REIT makes a proper election to treat the property as foreclosure property. REITs generally are subject to tax at the maximum U.S. federal corporate tax rate
(currently 35%) on any net income from foreclosure property, including any gain from the disposition of the foreclosure property, other than income that would otherwise be qualifying income for purposes of the 75% gross income test. Any gain from
the sale of property for which a foreclosure property election has been made will not be subject to the 100% tax on gains from prohibited transactions described above, even if the property would otherwise constitute inventory or dealer property in
the hands of the selling REIT. We do not anticipate that we will receive any income from foreclosure property that is not qualifying income for purposes of the 75% gross income test, but, if we do receive any such income, we intend to elect to treat
the related property as foreclosure property.
Tax on
Built-In
Gains
If we acquire appreciated assets from a subchapter C corporation in a transaction in which the adjusted tax basis of the assets in our
hands is determined by reference to the adjusted tax basis of the assets in the hands of the subchapter C corporation (a carry-over basis transaction), and if we subsequently dispose of any such assets during the
5-year
period following the acquisition of the assets from the subchapter C corporation, we will be subject to tax at the highest corporate tax rates on any gain from such assets to the extent of the excess of
the fair market value of the assets on the date that they were acquired by us over the basis of such assets on such date, which we refer to as
built-in
gains. However, the
built-in
gains tax will not apply if the subchapter C corporation elects to be subject to an immediate tax when the asset is acquired by us. We do not expect any tax payable by our company that is
attributable to
built-in
gains to be material.
Failure to Qualify
In the event that we violate a provision of the Internal Revenue Code that would result in our failure to qualify as a REIT, we may
nevertheless continue to qualify as a REIT under specified relief provisions available
- 55 -
to us to avoid such disqualification if (1) the violation is due to reasonable cause and not due to willful neglect, (2) we pay a penalty of $50,000 for each failure to satisfy a
requirement for qualification as a REIT and (3) the violation does not include a violation under the gross income or asset tests described above (for which other specified relief provisions are available). This cure provision reduces the
instances that could lead to our disqualification as a REIT for violations due to reasonable cause. If we fail to qualify for taxation as a REIT in any taxable year and none of the relief provisions of the Internal Revenue Code apply, we will be
subject to tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. Distributions to our stockholders in any year in which we are not a REIT will not be deductible by us, nor will they be required to
be made. In this situation, to the extent of current or accumulated earnings and profits, and, subject to limitations of the Internal Revenue Code, distributions to our stockholders will generally be taxable in the case of our stockholders who are
individual U.S. stockholders (as defined below), at a maximum rate of 20%, and dividends in the hands of our corporate U.S. stockholders may be eligible for the dividends received deduction. Unless we are entitled to relief under the specific
statutory provisions, we will also be disqualified from
re-electing
to be taxed as a REIT for the four taxable years following a year during which qualification was lost. It is not possible to state whether,
in all circumstances, we will be entitled to statutory relief.
Tax Aspects of Ownership of Equity Interests in Partnerships and Other Transparent
Entities
General
We hold
our assets through entities that are classified as partnerships and other transparent entities, including trusts, for U.S. federal income tax purposes, including our interest in our operating partnership and any equity interests in lower-tier
partnerships. For a discussion of the tax treatment of transparent pass-through entities in which we hold interests, see Effect of Subsidiary EntitiesDisregarded Subsidiaries. In general, partnerships are
pass-through entities that are not subject to U.S. federal income tax. Rather, partners are allocated their proportionate shares of the items of income, gain, loss, deduction and credit of a partnership, and are subject to tax on these
items without regard to whether the partners receive a distribution from the partnership. We include in our income our proportionate share of these partnership items for purposes of the various REIT income tests, based on our capital interest in
such partnership, and in the computation of our REIT taxable income. Moreover, for purposes of the REIT asset tests, we include our proportionate share of assets held by subsidiary partnerships, based on our capital interest in such partnerships
(other than for purposes of the 10% value test, for which the determination of our interest in partnership assets will be based on our proportionate interest in any securities issued by the partnership excluding, for these purposes, certain excluded
securities as described in the Internal Revenue Code). Consequently, to the extent that we hold an equity interest in a partnership, the partnerships assets and operations may affect our ability to qualify as a REIT, even though we may have no
control, or only limited influence, over the partnership.
Entity Classification
The ownership by us of equity interests in partnerships, including our operating partnership, involves special tax considerations, including
the possibility of a challenge by the IRS of the status of any of our subsidiary partnerships as a partnership, as opposed to an association taxable as a corporation, for U.S. federal income tax purposes. Because it is likely that at least half of
our operating partnerships investments will be loans secured by real property and the operating partnership intends to use leverage to finance the investments, the taxable mortgage pool rules potentially could apply to the operating
partnership. However, we and the operating partnership do not presently intend that the operating partnership will incur any indebtedness, the payments on which bear a relationship to payments (including payments at maturity) received by the
operating partnership from its investments. Accordingly, we and the operating partnership do not believe that the operating partnership will be an obligor under debt obligations with two or more maturities, the payments on which bear a relationship
to payments on the operating partnerships debt investments, and, therefore, we and the operating partnership do not believe that the operating partnership will be classified as a taxable mortgage pool. Furthermore, a partnership that does not
elect to be treated as a corporation nevertheless will be treated as a corporation for U.S.
- 56 -
federal income tax purposes if it is a publicly traded partnership and it does not receive at least 90% of its gross income from certain specified sources of qualifying
income within the meaning of that section. A publicly traded partnership is any partnership (i) the interests in which are traded on an established securities market or (ii) the interests in which are readily tradable on
a secondary market or the substantial equivalent thereof. Although interests in our operating partnership are not traded on an established securities market, there is a significant risk that the right of a holder of such interests to
redeem the interests for cash or, at our option, our common stock, could cause the interests in our operating partnership to be considered readily tradable on the substantial equivalent of a secondary market. Under the relevant Treasury Regulations,
interests in a partnership will not be considered readily tradable on a secondary market or on the substantial equivalent of a secondary market if the partnership qualifies for specified safe harbors, which are based on the specific
facts and circumstances relating to the partnership. We believe that our operating partnership currently satisfies one or more of the applicable safe harbors. However, we cannot provide any assurance that our operating partnership will, in each of
its taxable years, qualify for one of these safe harbors. If our operating partnership or any subsidiary partnership were treated as an association for U.S. federal income tax purposes, it would be taxable as a corporation and, therefore, generally
would be subject to an entity-level tax on its income. In such a situation, the character of our assets and items of our gross income would change and would preclude us from satisfying the REIT asset tests (particularly the tests generally
preventing a REIT from owning more than 10% of the voting securities, or more than 10% of the value of the securities, of a corporation) or the gross income tests as discussed in Asset Tests and Gross Income Tests
above, and in turn would prevent us from qualifying as a REIT. See Failure to Qualify, above, for a discussion of the effect of our failure to meet these tests for a taxable year.
In addition, any change in the status of any of our subsidiary partnerships for tax purposes might be treated as a taxable event, in which
case we could have taxable income that is subject to the REIT distribution requirements without receiving any cash.
Tax Allocations with Respect to
Partnership Properties
The partnership agreement of our operating partnership generally provides that items of operating income
and loss will be allocated to the holders of units in proportion to the number of units held by each holder. If an allocation of partnership income or loss does not comply with the requirements of Section 704(b) of the Internal Revenue Code and
the Treasury Regulations thereunder, the item subject to the allocation will be reallocated in accordance with the partners interests in the partnership. This reallocation 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. Our operating partnerships allocations of income and loss are intended to comply with the requirements of Section 704(b) of the Internal
Revenue Code and the Treasury Regulations promulgated under this section of the Internal Revenue Code. Under the Internal Revenue Code and the Treasury Regulations, 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 tax purposes in a manner such that the contributing partner 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 the unrealized gain or unrealized loss is generally equal to the difference between the fair market value of the contributed property and the adjusted tax basis of such
property at the time of the contribution (a
book-tax
difference). Such allocations are solely for U.S. federal income tax purposes and do not affect partnership capital accounts or other economic
or legal arrangements among the partners.
To the extent that any of our subsidiary partnerships acquires appreciated (or depreciated)
properties by way of capital contributions from its partners, allocations would need to be made in a manner consistent with these requirements. Where a partner contributes cash to a partnership at a time that the partnership holds appreciated or
depreciated property, the Treasury regulations provide for a similar allocation of these items to the other (
i.e.
,
non
-
contributing) partners. These rules apply to the contribution that we
made to our operating partnership of the cash proceeds received in offerings of shares of our common stock. As a result, the partners of our operating
- 57 -
partnership, including us, could be allocated greater or lesser amounts of depreciation and taxable income in respect of the operating partnerships properties than would be the case if all
of the partnerships assets (including any contributed assets) had a tax basis equal to their fair market values at the time of any contributions to that partnership. This could cause us to recognize, over a period of time, taxable income in
excess of cash flow from the operating partnership, which might adversely affect our ability to comply with the REIT distribution requirements discussed above and result in a greater portion of our distributions being taxable as dividends.
Taxation of Taxable U.S. Stockholders
This section summarizes the taxation of U.S. stockholders that are not
tax-exempt
organizations. For
these purposes, a U.S. stockholder is a beneficial owner of our common stock that for U.S. federal income tax purposes is:
|
|
|
a citizen or resident of the U.S.;
|
|
|
|
a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the U.S. or of a political subdivision thereof (including the District of
Columbia);
|
|
|
|
an estate whose income is subject to U.S. federal income taxation regardless of its source; or
|
|
|
|
any trust if (1) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or
(2) it has a valid election in place to be treated as a U.S. person.
|
If an entity or arrangement treated as a
partnership for U.S. federal income tax purposes holds our stock, the U.S. federal income tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. A partner of a partnership holding our
common stock should consult its own tax advisor regarding the U.S. federal income tax consequences to the partner of the acquisition, ownership and disposition of our stock by the partnership.
Distributions
Provided that we
continue to qualify as a REIT, distributions made to our taxable U.S. stockholders out of our current or accumulated earnings and profits, and not designated as capital gain dividends, will generally be taken into account by them as ordinary
dividend income and will not be eligible for the dividends received deduction for corporations. In determining the extent to which a distribution with respect to our common stock constitutes a dividend for U.S. federal income tax purposes, our
earnings and profits will be allocated first to distributions with respect to our preferred stock, if any, and then to our common stock. Dividends received from REITs are generally not eligible to be taxed at the preferential qualified dividend
income rates applicable to individual U.S. stockholders who receive dividends from taxable subchapter C corporations. With limited exceptions, dividends received by individual U.S. stockholders from us that are not designated as capital gain
dividends will continue to be taxed at rates applicable to ordinary income, which are as high as 39.6%.
In addition, distributions from
us that are designated as capital gain dividends will be taxed to U.S. stockholders as long-term capital gains, to the extent that they do not exceed the actual net capital gain of our company for the taxable year, without regard to the period for
which the U.S. stockholder has held its stock. To the extent that we elect under the applicable provisions of the Internal Revenue Code to retain our net capital gains, U.S. stockholders will be treated as having received, for U.S. federal income
tax purposes, our undistributed capital gains as well as a corresponding credit or refund, as the case may be, for taxes paid by us on such retained capital gains. U.S. stockholders will increase their adjusted tax basis in our common stock by the
difference between their allocable share of such retained capital gain and their share of the tax paid by us. Corporate U.S. stockholders may be required to treat up to 20% of some capital gain dividends as ordinary income. Long-term capital gains
are generally taxable at maximum U.S. federal rates of 20% in the case of U.S.
- 58 -
stockholders who are individuals, and 35% for corporations. Capital gains attributable to the sale of depreciable real property held for more than 12 months are subject to a 25% maximum U.S.
federal income tax rate for U.S. stockholders who are individuals, to the extent of previously claimed depreciation deductions.
Distributions in excess of our current and accumulated earnings and profits will not be taxable to a U.S. stockholder to the extent that they
do not exceed the adjusted tax basis of the U.S. stockholders shares of our common stock in respect of which the distributions were made, but rather will reduce the adjusted tax basis of these shares. To the extent that such distributions
exceed the adjusted tax basis of a U.S. stockholders shares of our common stock, they will be included in income as long-term capital gain, or short-term capital gain if the shares have been held for one year or less. In addition, any dividend
declared by us in October, November or December of any year and payable to a U.S. stockholder of record on a specified date in any such month will be treated as both paid by us and received by the U.S. stockholder on December 31 of such year,
provided that the dividend is actually paid by us before the end of January of the following calendar year.
With respect to U.S.
stockholders who are taxed at the rates applicable to individuals, we may elect to designate a portion of our distributions paid to such U.S. stockholders as qualified dividend income. A portion of a distribution that is properly
designated as qualified dividend income is taxable to
non-corporate
U.S. stockholders as capital gain, provided that the U.S. stockholder has held our common stock with respect to which the distribution is
made for more than 60 days during the
121-day
period beginning on the date that is 60 days before the date on which such common stock became
ex-dividend
with
respect to the relevant distribution. The maximum amount of our distributions eligible to be designated as qualified dividend income for a taxable year is equal to the sum of:
|
(a)
|
the qualified dividend income received by us during such taxable year from
non-REIT
C corporations (including any TRS in which we own an interest);
|
|
(b)
|
the excess of any undistributed REIT taxable income recognized during the immediately preceding year over the U.S. federal income tax paid by us with respect to such undistributed REIT taxable income; and
|
|
(c)
|
the excess of any income recognized during the immediately preceding year attributable to the sale of a
built-in-gain
asset that was
acquired in a carry-over basis transaction from a
non-REIT
C corporation over the U.S. federal income tax paid by us with respect to such
built-in
gain.
|
Generally, dividends that we receive will be treated as qualified dividend income for purposes of (a) above if the
dividends are received from a domestic C corporation (other than a REIT or a RIC), any of our TRSs, or a qualified foreign corporation and specified holding period requirements and other requirements are met.
To the extent that we have available net operating losses and capital losses carried forward from prior tax years, such losses may reduce the
amount of distributions that must be made in order to comply with the REIT distribution requirements. See Taxation of our CompanyGeneral and Annual Distribution Requirements. Such losses, however, are not
passed through to U.S. stockholders and do not offset income of U.S. stockholders from other sources, nor do they affect the character of any distributions that are actually made by us, which are generally subject to tax in the hands of U.S.
stockholders to the extent that we have current or accumulated earnings and profits.
If excess inclusion income from a taxable mortgage
pool or REMIC residual interest is allocated to any stockholder, that income will be taxable in the hands of the stockholder and would not be offset by any net operating losses of the stockholder that would otherwise be available. See
Effect of Subsidiary EntitiesTaxable Mortgage Pools and Excess Inclusion Income. As required by IRS guidance, we intend to notify our stockholders if a portion of a dividend paid by us is attributable to
excess inclusion income.
- 59 -
Dispositions of Our Common Stock
In general, a U.S. stockholder will realize gain or loss upon the sale, redemption or other taxable disposition of our common stock in an
amount equal to the difference between the sum of the fair market value of any property and the amount of cash received in such disposition and the U.S. stockholders adjusted tax basis in our common stock at the time of the disposition. In
general, a U.S. stockholders adjusted tax basis will equal the U.S. stockholders acquisition cost, increased by the excess of net capital gains deemed distributed to the U.S. stockholder (discussed above) less tax deemed paid on it and
reduced by returns of capital. In general, capital gains recognized by individuals and other
non-corporate
U.S. stockholders upon the sale or disposition of shares of our common stock will be subject to a
maximum U.S. federal income tax rate of 20%, if our common stock is held for more than 12 months, and will be taxed at ordinary income rates (of up to 39.6%) if our common stock is held for 12 months or less. Gains recognized by U.S.
stockholders that are corporations are subject to U.S. federal income tax at a maximum rate of 35%, whether or not classified as long-term capital gains. The IRS has the authority to prescribe, but has not yet prescribed, regulations that would
apply a capital gain tax rate of 25% (which is generally higher than the long-term capital gain tax rates for
non-corporate
holders) to a portion of capital gain realized by a
non-corporate
holder on the sale of REIT stock or depositary shares that would correspond to the REITs unrecaptured Section 1250 gain.
Holders are advised to consult with their tax advisors with respect to their capital gain tax liability. Capital losses recognized by a U.S.
stockholder upon the disposition of our common stock held for more than one year at the time of disposition will be considered long-term capital losses, and are generally available only to offset capital gain income of the U.S. stockholder but not
ordinary income (except in the case of individuals, who may offset up to $3,000 of ordinary income each year). In addition, any loss upon a sale or exchange of shares of our common stock by a U.S. stockholder who has held the shares for six months
or less, after applying holding period rules, will be treated as a long-term capital loss to the extent of distributions received from us that were required to be treated by the U.S. stockholder as long-term capital gain.
Passive Activity Losses and Investment Interest Limitations
Distributions made by us and gain arising from the sale or exchange by a U.S. stockholder of our common stock will not be treated as passive
activity income. As a result, U.S. stockholders will not be able to apply any passive losses against income or gain relating to our common stock. Distributions made by us, to the extent they do not constitute a return of capital,
generally will be treated as investment income for purposes of computing the investment interest limitation. A U.S. stockholder that elects to treat capital gain dividends, capital gains from the disposition of stock or qualified dividend income as
investment income for purposes of the investment interest limitation will be taxed at ordinary income rates on such amounts.
Medicare Tax on
Unearned Income
Certain U.S. stockholders that are individuals, estates or trusts must pay an additional 3.8% tax on, among other
things, dividends on and capital gains from the sale or other disposition of stock. U.S. stockholders should consult their tax advisors regarding the effect, if any, of this legislation on their ownership and disposition of our common stock.
Foreign Accounts
A 30%
withholding tax may, pursuant to Treasury Regulations and IRS guidance, be imposed on dividends paid after June 30, 2014, and gross proceeds from the sale or other disposition of our common stock occurring after December 31, 2018, to
foreign financial institutions in respect of accounts of U.S. stockholders at such financial institutions. U.S. stockholders should consult their tax advisors regarding the effect, if any, of this withholding provision on their ownership
and disposition of our common stock. See Foreign Accounts below.
- 60 -
Taxation of
Tax-Exempt
U.S. Stockholders
U.S.
tax-exempt
entities, including qualified employee pension and profit sharing trusts and individual
retirement accounts, generally are exempt from U.S. federal income taxation. However, they are subject to taxation on their unrelated business taxable income, which we refer to in this prospectus as UBTI. While many investments in real estate may
generate UBTI, the IRS has ruled that dividend distributions from a REIT to a
tax-exempt
entity do not constitute UBTI. Based on that ruling, and provided that (1) a
tax-exempt
U.S. stockholder has not held our common stock as debt financed property within the meaning of the Internal Revenue Code (
i.e.
,
where the acquisition or holding of the
property is financed through a borrowing by the
tax-exempt
stockholder), (2) our common stock is not otherwise used in an unrelated trade or business and (3) we do not hold an asset that gives rise
to excess inclusion income (see Effect of Subsidiary Entities, and Excess Inclusion Income), distributions from us and income from the sale of our common stock generally should not give rise to UBTI to
a
tax-exempt
U.S. stockholder. As previously noted, we may engage in transactions that would result in a portion of our dividend income being considered excess inclusion income, and accordingly, it
is possible that a portion of our dividends received by a
tax-exempt
stockholder will be treated as UBTI.
Tax-exempt
U.S. stockholders that are social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts, and qualified group legal services plans exempt from U.S. federal income taxation under Sections 501(c)(7), (c)(9), (c) (17) and (c)(20) of the Internal Revenue Code, respectively, are subject to
different UBTI rules, which generally will require them to characterize distributions from us as UBTI, unless they are able to properly exclude certain amounts set aside or placed in reserve for specific purposes so as to offset the income generated
by its investment in our common stock. These prospective investors should consult their tax advisors concerning these set aside and reserve requirements.
In certain circumstances, a pension trust (1) that is described in Section 401(a) of the Internal Revenue Code, (2) is tax
exempt under Section 501(a) of the Internal Revenue Code, and (3) that owns more than 10% of our stock could be required to treat a percentage of the dividends from us as UBTI if we are a pension-held REIT. We will not be a
pension-held REIT unless (1) either (A) one pension trust owns more than 25% of the value of our stock, or (B) a group of pension trusts, each individually holding more than 10% of the value of our stock, collectively owns more than
50% of such stock; and (2) we would not have qualified as a REIT but for the fact that Section 856(h)(3) of the Internal Revenue Code provides that stock owned by such trusts shall be treated, for purposes of the requirement that not more
than 50% of the value of the outstanding stock of a REIT is owned, directly or indirectly, by five or fewer individuals (as defined in the Internal Revenue Code to include certain entities), as owned by the beneficiaries of such trusts.
Certain restrictions on ownership and transfer of our stock should generally prevent a
tax-exempt
entity from owning more than 10% of the value of our stock, or us from becoming a pension-held REIT.
Tax-exempt
U.S. stockholders are urged to consult their tax advisors regarding the U.S. federal,
state, local and foreign tax consequences of owning our stock.
Taxation of
Non-U.S.
Stockholders
The following is a summary of certain U.S. federal income tax consequences of the acquisition, ownership and disposition of our common stock
applicable to
non-U.S.
stockholders of our common stock. For purposes of this summary, a
non-U.S.
stockholder is a beneficial owner of our common stock that is not a
U.S. stockholder or an entity that is treated as a partnership for U.S. federal income tax purposes. The discussion is based on current law and is for general information only. It addresses only selective and not all aspects of U.S. federal income
taxation.
Non-U.S.
stockholders should consult their tax advisors concerning the U.S. federal
estate consequences of ownership of our common stock.
- 61 -
Ordinary Dividends
The portion of dividends received by
non-U.S.
stockholders payable out of our earnings and profits that
are not attributable to gains from sales or exchanges of U.S. real property interests and which are not effectively connected with a U.S. trade or business of the
non-U.S.
stockholder will generally be subject
to U.S. federal withholding tax at the rate of 30%, unless reduced or eliminated by an applicable income tax treaty. Under some treaties, however, lower rates generally applicable to dividends do not apply to dividends from REITs. In addition, any
portion of the dividends paid to
non-U.S.
stockholders that are treated as excess inclusion income will not be eligible for exemption from the 30% withholding tax or a reduced treaty rate. As previously noted,
we may engage in transactions that would result in a portion of our dividends being considered excess inclusion income, and accordingly, it is possible that a portion of our dividend income will not be eligible for exemption from the 30% withholding
rate or a reduced treaty rate. In the case of a taxable stock dividend with respect to which any withholding tax is imposed on a
non-U.S.
stockholder, we may have to withhold or dispose of part of the shares
otherwise distributable in such dividend and use such withheld shares or the proceeds of such disposition to satisfy the withholding tax imposed.
In general,
non-U.S.
stockholders will not be considered to be engaged in a U.S. trade or business
solely as a result of their ownership of our stock. In cases where the dividend income from a
non-U.S.
stockholders investment in our common stock is, or is treated as, effectively connected with the
non-U.S.
stockholders conduct of a U.S. trade or business, the
non-U.S.
stockholder generally will be subject to U.S. federal income tax at graduated rates, in the same
manner as U.S. stockholders are taxed with respect to such dividends, and may also be subject to the 30% branch profits tax on the income after the application of the income tax in the case of a
non-U.S.
stockholder that is a corporation.
Non-Dividend
Distributions
Unless (A) our common stock constitutes a U.S. real property interest, or USRPI, or (B) either (1) the
non-U.S.
stockholders investment in our common stock is effectively connected with a U.S. trade or business conducted by such
non-U.S.
stockholder (in which case the
non-U.S.
stockholder will be subject to the same treatment as U.S. stockholders with respect to such gain) or (2) the
non-U.S.
stockholder is a nonresident alien
individual who was present in the U.S. for 183 days or more during the taxable year and has a tax home in the U.S. (in which case the
non-U.S.
stockholder will be subject to a 30% tax on the
individuals net capital gain for the year), distributions by us which are not dividends out of our earnings and profits will not be subject to U.S. federal income tax. If it cannot be determined at the time at which a distribution is made
whether or not the distribution will exceed current and accumulated earnings and profits, the distribution will be subject to withholding at the rate applicable to dividends. However, the
non-U.S.
stockholder
may seek a refund from the IRS of any amounts withheld if it is subsequently determined that the distribution was, in fact, in excess of our current and accumulated earnings and profits.
If our common stock constitutes a USRPI, as described below, distributions by us in excess of the sum of our earnings and profits plus the
non-U.S.
stockholders adjusted tax basis in our common stock will be taxed under the Foreign Investment in Real Property Tax Act of 1980, or FIRPTA, at the rate of tax, including any applicable capital gains
rates, that would apply to a U.S. stockholder of the same type (
e.g.
,
an individual or a corporation, as the case may be), and the collection of the tax will be enforced by a refundable withholding at a rate of 15% of the amount by
which the distribution exceeds the stockholders share of our earnings and profits.
Non-U.S.
stockholders that are treated as qualified foreign pension funds or that are
non-U.S.
publicly traded investment vehicles meeting certain requirements are exempt from the federal income and withholding taxes applicable under FIRPTA on such distributions by us.
Capital Gain Dividends
Under
FIRPTA, a distribution made by us to a
non-U.S.
stockholder, to the extent attributable to gains from dispositions of USRPIs held by us directly or through pass-through subsidiaries, or USRPI capital gains,
will be
- 62 -
considered effectively connected with a U.S. trade or business of the
non-U.S.
stockholder and will be subject to U.S. federal income tax at the rates
applicable to U.S. stockholders, without regard to whether the distribution is designated as a capital gain dividend. In addition, we will be required to withhold tax equal to 35% of the amount of capital gain dividends to the extent the dividends
constitute USRPI capital gains. Distributions subject to FIRPTA may also be subject to a 30% branch profits tax in the hands of a
non-U.S.
holder that is a corporation. However, the 35% withholding tax will
not apply to any capital gain dividend (i) with respect to any class of our stock which is regularly traded on an established securities market located in the U.S. if the
non-U.S.
stockholder did not own
more than 10% of such class of stock at any time during the
one-year
period ending on the date of such dividend or (ii) received by certain
non-U.S.
publicly traded
investment vehicles meeting certain requirements. Instead, any capital gain dividend received by such a stockholder will be treated as a distribution subject to the rules discussed above under Taxation of
Non-U.S.
StockholdersOrdinary Dividends. Also, the branch profits tax will not apply to such a distribution. In addition,
non-U.S.
stockholders that are
treated as qualified foreign pension funds are exempt from income and withholding taxes applicable under FIRPTA on distributions from us. We believe our common stock is, and will continue to be, regularly traded on an established
securities market in the United States.
A distribution is not a USRPI capital gain if we held the underlying asset solely as a creditor,
although the holding of a shared appreciation mortgage loan would not be solely as a creditor. Capital gain dividends received by a
non-U.S.
stockholder from a REIT that are not USRPI capital gains are
generally not subject to U.S. federal income or withholding tax, unless either (1) the
non-U.S.
stockholders investment in our common stock is effectively connected with a U.S. trade or business
conducted by such
non-U.S.
stockholder (in which case the
non-U.S.
stockholder will be subject to the same treatment as U.S. stockholders with respect to such gain) or
(2) the
non-U.S.
stockholder is a nonresident alien individual who was present in the U.S. for 183 days or more during the taxable year and has a tax home in the U.S. (in which case the
non-U.S.
stockholder will be subject to a 30% tax on the individuals net capital gain for the year).
Dispositions of Our Common Stock
Unless our common stock constitutes a USRPI, a sale of the stock by a
non-U.S.
stockholder generally
will not be subject to U.S. federal income taxation under FIRPTA. Generally, with respect to any particular stockholder, our common stock will constitute a USRPI only if each of the following three statements is true:
|
(a)
|
Fifty percent or more of our assets on any of certain testing dates during a prescribed testing period consist of interests in real property located within the United States, excluding for this purpose, interests in
real property solely in a capacity as creditor;
|
|
(b)
|
We are not a domestically-controlled qualified investment entity. A domestically-controlled qualified entity includes a REIT, less than 50% of value of which is held directly or indirectly by
non-U.S.
stockholders at all times during a specified testing period. For this purpose, effective beginning December 18, 2015, a REIT may generally presume that any class of the REITs stock that is
regularly traded, as defined by the applicable Treasury Regulations, on an established securities market is held by U.S. persons except in the case of holders of 5% or more such class of stock and except to the extent that the REIT has
actual knowledge that such stock is held by
non-U.S.
persons. In addition, effective beginning December 18, 2015, certain look-through and presumption rules apply for this purpose to any stock of a REIT
that is held by a RIC or another REIT. Although we believe that we are, and will continue to be, a domestically-controlled REIT, because our shares are publicly traded we cannot make any assurance that we will remain a domestically-controlled
qualified investment entity; and
|
|
(c)
|
Either (i) our common stock is not regularly traded, as defined by applicable Treasury regulations, on an established securities market; or (ii) our common stock is regularly traded on
an established securities market and the selling
non-U.S.
stockholder has actually or constructively held over 5% of our outstanding common stock any time during the shorter of the five-year period ending on
the date of the sale or the period such selling
non-U.S.
stockholder held our common stock.
|
- 63 -
In addition, even if our common stock is treated as a USRPI,
non-U.S.
stockholders that are treated as qualified foreign pension funds or that are
non-U.S.
publicly traded investment vehicles meeting certain
requirements are exempt from tax under FIRPTA on the sale of our common stock.
Specific wash sales rules applicable to sales of stock in
a domestically-controlled qualified investment entity could result in gain recognition, taxable under FIRPTA, upon the sale of our common stock even if we are a domestically-controlled qualified investment entity. These rules would apply if a
non-U.S.
stockholder (a) disposes of our common stock within a
30-day
period preceding the
ex-dividend
date of a distribution, any
portion of which, but for the disposition, would have been taxable to such
non-U.S.
stockholder as gain from the sale or exchange of a USRPI, and (b) acquires, or enters into a contract or option to
acquire, other shares of our common stock during the
61-day
period that begins 30 days prior to such
ex-dividend
date.
If gain on the sale of our common stock were subject to taxation under FIRPTA, the
non-U.S.
stockholder would be subject to the same treatment as a U.S. stockholder with respect to such gain, subject to applicable alternative minimum tax and a special alternative minimum tax in the case of
non-resident
alien individuals, and the purchaser of the stock could be required to withhold 15% of the purchase price and remit such amount to the IRS.
Gain from the sale of our common stock that would not otherwise be subject to FIRPTA will nonetheless be taxable in the U.S. to a
non-U.S.
stockholder in two cases: (a) if the
non-U.S.
stockholders investment in our common stock is effectively connected with a U.S. trade or business conducted
by such
non-U.S.
stockholder, the
non-U.S.
stockholder will be subject to the same treatment as a U.S. stockholder with respect to such gain, or (b) if the
non-U.S.
stockholder is a nonresident alien individual who was present in the U.S. for 183 days or more during the taxable year and has a tax home in the U.S., the nonresident alien individual will
be subject to a 30% tax on the individuals net capital gain.
Backup Withholding and Information Reporting
We will report to our U.S. stockholders and the IRS the amount of dividends paid during each calendar year and the amount of any tax withheld.
Under the backup withholding rules, a U.S. stockholder may be subject to backup withholding with respect to dividends paid unless the holder comes within an exempt category and, when required, demonstrates this fact or provides a taxpayer
identification number or social security number, certifies as to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. A U.S. stockholder that does not provide his or her
correct taxpayer identification number or social security number may also be subject to penalties imposed by the IRS. Backup withholding is not an additional tax. In addition, we may be required to withhold a portion of capital gain distribution to
any U.S. stockholder who fails to certify their
non-foreign
status.
We must report annually to
the IRS and to each
non-U.S.
stockholder the amount of dividends paid to such holder and the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the
information returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which the
non-U.S.
stockholder resides under the provisions of an applicable
income tax treaty. A
non-U.S.
stockholder may be subject to backup withholding unless applicable certification requirements are met.
Payment of the proceeds of a sale of our common stock within the U.S. is subject to both backup withholding and information reporting unless
the beneficial owner certifies under penalties of perjury that it is a
non-U.S.
stockholder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a U.S. person) or the
holder otherwise establishes an exemption. Payment of the proceeds of a sale of our common stock conducted through certain U.S. related financial intermediaries is subject to information reporting (but not backup withholding) unless the financial
intermediary has documentary evidence in its records that the beneficial owner is a
non-U.S.
stockholder and specified conditions are met or an exemption is otherwise established.
- 64 -
Backup withholding is not an additional tax. Any amounts withheld under the backup
withholding rules may be allowed as a refund or a credit against such holders U.S. federal income tax liability provided the required information is timely furnished to the IRS.
Foreign Accounts
Withholding taxes may
be imposed on certain types of payments made to foreign financial institutions and certain other
non-U.S.
entities under certain circumstances. More specifically, the failure to comply with
additional certification, information reporting and other specified requirements could result in withholding tax being imposed on payments of dividends and sales proceeds to U.S. stockholders (as defined above) who own shares of our common stock
through foreign accounts or foreign intermediaries and to certain
non-U.S.
stockholders. The 30% withholding tax, pursuant to Treasury Regulations and IRS guidance, is generally imposed on payments occurring
after June 30, 2014 with respect to dividends, and after December 31, 2018, with respect to gross proceeds from the sale or other disposition of, our common stock paid to a foreign financial institution or to a foreign entity other than a
financial institution, unless (i) the foreign financial institution undertakes certain diligence and reporting obligations or (ii) the foreign entity that is not a financial institution either certifies it does not have any substantial
United States owners or furnishes identifying information regarding each substantial United States owner. If the payee is a foreign financial institution, it must enter into an agreement with the U.S. Treasury Department requiring, among other
things, that it undertake to identify accounts held by certain United States persons or United States-owned foreign entities, annually report certain information about such accounts, and withhold 30% on payments to account holders whose actions
prevent it from complying with these reporting and other requirements. Prospective investors should consult their tax advisors regarding this legislation.
State, Local and Foreign Taxes
We and
our stockholders may be subject to state, local or foreign taxation in various jurisdictions, including those in which it or they transact business, own property or reside. The state, local or foreign tax treatment of our company and our
stockholders may not conform to the U.S. federal income tax treatment discussed above. Any foreign taxes incurred by us would not pass through to stockholders as a credit against their U.S. federal income tax liability. Prospective stockholders
should consult their tax advisors regarding the application and effect of state, local and foreign income and other tax laws on an investment in our companys common stock.
Legislative or Other Actions Affecting REITs
The rules dealing with U.S. federal income taxation are constantly under review by persons involved in the legislative process and by the IRS
and the U.S. Treasury Department. No assurance can be given as to whether, when, or in what form, U.S. federal income tax laws applicable to us and our stockholders may be enacted. Changes to the U.S. federal income tax laws and interpretations of
U.S. federal income tax laws could adversely affect an investment in shares of our common stock.
- 65 -
BOOK-ENTRY SECURITIES
We may issue the securities offered by means of this prospectus in whole or in part in book-entry form, meaning that beneficial owners of the
securities will not receive certificates representing their ownership interests in the securities, except in the event the book-entry system for the securities is discontinued. If securities are issued in book entry form, they will be represented by
one or more global securities that will be deposited with, or on behalf of, a depositary identified in the applicable prospectus supplement relating to the securities. The Depository Trust Company is expected to serve as depositary. Unless and until
it is exchanged in whole or in part for the individual securities represented thereby, a global security may not be transferred except as a whole by the depositary for the global security to a nominee of such depositary or by a nominee of such
depositary to such depositary or another nominee of such depositary or by the depositary or any nominee of such depositary to a successor depositary or a nominee of such successor. Global securities may be issued in either registered or bearer form
and in either temporary or permanent form. The specific terms of the depositary arrangement with respect to a class or series of securities that differ from the terms described herein will be described in the applicable prospectus supplement.
Unless otherwise indicated in the applicable prospectus supplement, we anticipate that the following provisions will apply to depositary
arrangements.
Upon the issuance of a global security, the depositary for the global security or its nominee will credit on its book-entry
registration and transfer system the respective principal amounts of the individual securities represented by such global security to the accounts of persons that have accounts with such depositary, who are called participants. Such
accounts shall be designated by the underwriters, dealers or agents with respect to the securities or by us if the securities are offered and sold directly by us. Ownership of beneficial interests in a global security will be limited to the
depositarys participants or persons that may hold interests through such participants. Ownership of beneficial interests in the global security will be shown on, and the transfer of that ownership will be effected only through, records
maintained by the applicable depositary or its nominee (with respect to beneficial interests of participants) and records of the participants (with respect to beneficial interests of persons who hold through participants). The laws of some states
require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and laws may impair the ability to own, pledge or transfer beneficial interest in a global security.
So long as the depositary for a global security or its nominee is the registered owner of such global security, such depositary or nominee, as
the case may be, will be considered the sole owner or holder of the securities represented by such global security for all purposes under the applicable instrument defining the rights of a holder of the securities. Except as provided below or in the
applicable prospectus supplement, owners of beneficial interest in a global security will not be entitled to have any of the individual securities of the class or series represented by such global security registered in their names, will not receive
or be entitled to receive physical delivery of any such securities in definitive form and will not be considered the owners or holders thereof under the applicable instrument defining the rights of the holders of the securities.
Payments of amounts payable with respect to individual securities represented by a global security registered in the name of a depositary or
its nominee will be made to the depositary or its nominee, as the case may be, as the registered owner of the global security representing such securities. None of us, our officers and directors or any trustee, paying agent or security registrar for
an individual class or series of securities will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the global security for such securities or for
maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
- 66 -
We expect that the depositary for a class or series of securities offered by means of this
prospectus or its nominee, upon receipt of any payment of principal, premium, interest, dividend or other amount in respect of a permanent global security representing any of such securities, will immediately credit its participants accounts
with payments in amounts proportionate to their respective beneficial interests in the principal amount of such global security for such securities as shown on the records of such depositary or its nominee. We also expect that payments by
participants to owners of beneficial interests in such global security held through such participants will be governed by standing instructions and customary practices, as is the case with securities held for the account of customers in bearer form
or registered in street name. Such payments will be the responsibility of such participants.
- 67 -
LEGAL MATTERS
Certain legal matters will be passed upon for us by Clifford Chance US LLP. In addition, the description of U.S. federal income tax
consequences contained in the section of the prospectus entitled U.S. Federal Income Tax Considerations is based on the opinion of Clifford Chance US LLP. If the validity of any securities is also passed upon by counsel for the
underwriters of an offering of those securities, that counsel will be named in the prospectus supplement relating to that offering.
- 68 -
EXPERTS
Ernst & Young LLP, independent registered public accounting firm, has audited our consolidated financial statements included in our
Annual Report on Form
10-K
for the year ended December 31, 2016, and the effectiveness of our internal control over financial reporting as of December 31, 2016, as set forth in their reports, which
are incorporated by reference in this prospectus and elsewhere in the registration statement. Our financial statements are incorporated by reference in reliance on Ernst & Young LLPs report, given on their authority as experts in
accounting and auditing.
Deloitte & Touche LLP, an independent auditor, has audited the consolidated financial statements,
included in our Annual Report on Form
10-K/A,
for the years ended December 31, 2016 and 2015, of Buckeye Wind Energy Class B Holdings LLC and Subsidiaries, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration statement. Such financial statements have been incorporated by reference in reliance upon the report of Deloitte & Touche LLP, given on their authority as
experts in accounting and auditing.
- 69 -
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act and, in accordance therewith, we file annual, quarterly and current
reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information we file at the SECs public reference room located at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC
at
1-800-SEC-0330
for further information on the public reference room. Our SEC filings are also available to the public from
commercial document retrieval services and at the website maintained by the SEC, containing reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, at
www.sec.gov
.
This prospectus is a part of a registration statement on
Form S-3
that we have filed with the SEC
under the Securities Act covering securities that may be offered under this prospectus. This prospectus does not contain all of the information set forth in the registration statement, certain parts of which are omitted in accordance with the rules
and regulations of the SEC. For further information concerning us and the securities, reference is made to the registration statement. Statements contained in this prospectus as to the contents of any contract or other documents are not necessarily
complete, and in each instance, reference is made to the copy of such contract or documents filed as an exhibit to the registration statement, each such statement being qualified in all respects by such reference.
The SEC allows us to incorporate by reference information into this prospectus, which means that we can disclose important
information to you by referring you to another document filed separately with the SEC. The information incorporated by reference herein is deemed to be part of this prospectus, except for any information superseded by information in this prospectus.
This prospectus incorporates by reference the documents set forth below that we have previously filed with the SEC. These documents contain important information about us, our business and our finances.
|
|
|
Document
|
|
Period
|
Quarterly Report on Form
10-Q
(File
No. 001-35877)
|
|
Quarter ended June 30, 2017
|
Quarterly Report on Form
10-Q
(File
No. 001-35877)
|
|
Quarter ended March 31, 2017
|
Annual Report on Form 10-K/A (File
No. 001-35877)
|
|
Year ended December 31, 2016
|
Annual Report on Form
10-K
(File
No. 001-35877)
|
|
Year ended December 31, 2016
|
|
|
|
Document
|
|
Filed
|
Current Report on Form
8-K
(File
No. 001-35877)
|
|
June 5, 2017
|
Current Report on Form
8-K
(File
No. 001-35877)
|
|
March 21, 2017
|
Current Report on Form
8-K
(File
No. 001-35877)
|
|
March 10, 2017
|
Current Report on Form
8-K
(File
No. 001-35877)
|
|
March 6, 2017
|
|
|
|
Document
|
|
Filed
|
Definitive Proxy Statement on Schedule 14A (only with respect to information contained in such
Definitive Proxy Statement that is incorporated by reference into Part III of our Annual Report on Form
10-K
for the year ended December 31, 2016) (File
No. 001-35877)
|
|
April 10, 2017
|
|
|
|
Document
|
|
Filed
|
Registration Statement on Form
8-A
(containing the
description of shares of our common stock) (File
No. 001-35877)
|
|
April 15, 2013
|
All documents that we file (but not those that we furnish) pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act on or after the date of this prospectus and prior to the termination of the offering of any of the
- 70 -
securities covered under this prospectus shall be deemed to be incorporated by reference into this prospectus and will automatically update and supersede the information in this prospectus, the
applicable prospectus supplement and any previously filed documents.
If you request, either orally or in writing, we will provide you
with a copy of any or all documents that are incorporated by reference. Such documents will be provided to you free of charge, but will not contain any exhibits, unless those exhibits are incorporated by reference into the document. Requests should
be addressed to us at 1906 Towne Centre Blvd, Suite 370, Annapolis, Maryland 21401, Attention: Hannon Armstrong Sustainable Infrastructure Capital, Inc., Investor Relations, or contact our offices at (410)
571-9860.
The documents may also be accessed on our website at
www.hannonarmstrong.com
.
- 71 -
$135,000,000
Hannon Armstrong Sustainable
Infrastructure Capital, Inc.
4.125% Convertible Senior Notes due 2022
P R O S P E C T U
S S U P P L E M E N T
Joint Book-Running Managers
Deutsche Bank Securities
BofA Merrill Lynch
J.P. Morgan
Co-Managers
Nomura
Oppenheimer
& Co.
August 16, 2017
HA Sustainable Infrastru... (NYSE:HASI)
Historical Stock Chart
From Sep 2024 to Oct 2024
HA Sustainable Infrastru... (NYSE:HASI)
Historical Stock Chart
From Oct 2023 to Oct 2024