Agree Realty Corp S-3ASR, filed May 27, 2020
Agree Realty Corp (ADC)
As filed with the Securities and Exchange Commission on May 27, 2020
Registration No. 333-
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AGREE REALTY CORPORATION
AGREE LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
| Maryland (Agree Realty Corporation) Delaware (Agree Limited Partnership) |
38-3148187 38-3170055 |
|
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
70 East Long Lake Road
Bloomfield Hills, MI 48304
(248) 737-4190
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Joel Agree
President and Chief Executive Officer
Agree Realty Corporation
70 East Long Lake Road
Bloomfield Hills, MI 48304
(248) 737-4190
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copy To:
Donald J. Kunz, Esq.
Gabrielle Sims White, Esq.
Honigman LLP
2290 First National Building
660 Woodward Avenue
Detroit, MI 48226-3506
(313) 465-7454 (telephone)
(313) 465-7455 (facsimile)
Approximate date of commencement of proposed sale to the public: From time to time after the effective date of the Registration Statement.
If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. ¨
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box x
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. x
If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Agree Realty Corporation:
| Large accelerated filer | x | Accelerated Filer | ¨ |
| Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
| Emerging growth company | ¨ |
Agree Limited Partnership:
| Large accelerated filer | ¨ | Accelerated Filer | ¨ |
| Non-accelerated filer | x | Smaller reporting company | ¨ |
| Emerging growth company | ¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act.
| Agree Realty Corporation | ¨ |
| Agree Limited Partnership | ¨ |
CALCULATION OF REGISTRATION FEE
| Title of Each Class of Securities to be Registered (1) | Amount to be Registered (2)(3) | Proposed Maximum Offering Price Per Share (2)(3) | Proposed Maximum Aggregate Offering Price (2)(3) | Amount of Registration Fee (4) | ||||
| Agree Realty Corp: | ||||||||
| Common Stock, par value $0.0001 | ||||||||
| Preferred Stock | ||||||||
| Depositary Shares (5) | ||||||||
| Warrants | ||||||||
| Guarantees of debt securities (6) | ||||||||
| Agree Limited Partnership: | ||||||||
| Debt Securities | ||||||||
| TOTAL |
| (1) | This registration statement registers an unspecified amount of securities of each identified class. The securities registered hereunder may be sold together or as units with other securities registered hereunder. |
| (2) | Omitted pursuant to Form S-3 General Instruction II.E. |
| (3) | An indeterminate aggregate initial offering price, principal amount or number of the securities of each identified class is being registered as may from time to time be issued at indeterminate prices or upon conversion, exchange or exercise of securities registered hereunder to the extent any such securities are, by their terms, convertible into, or exchangeable or exercisable for, such securities, including as a result of share splits, anti-dilution adjustments, share distributions, or similar transactions. |
| (4) | In accordance with Rule 456(b) and Rule 457(r) under the Securities Act of 1933, as amended (the "Securities Act"), the registrants are deferring payment of all of the registration fee. |
| (5) | Each depositary share will be issued under a deposit agreement and will be evidenced by a depositary receipt. Depository shares will represent an interest in a fractional share of preferred stock or multiple shares of preferred stock. |
| (6) | We are also registering an indeterminate amount of guarantees by Agree Realty Corporation and certain of our subsidiaries, of debt securities of Agree Limited Partnership. Pursuant to Rule 457(n) under the Securities Act, no separate registration fee will be paid in respect of any such guarantees. |
PROSPECTUS
AGREE REALTY CORPORATION
Common Stock
Preferred Stock
Depositary Shares
Warrants
Guarantees of Debt Securities of Agree Limited Partnership
AGREE LIMITED PARTNERSHIP
Debt Securities
Agree Realty Corporation may offer and sell from time to time the following securities described in this prospectus, in each case on terms to be determined at the time of the offering:
| · | Common Stock | |
| · | Preferred Stock | |
| · | Depositary Shares | |
| · | Warrants | |
| · | Guarantees of Debt Securities of Agree Limited Partnership |
Agree Limited Partnership may offer from time to time debt securities in one or more series.
This prospectus describes some of the general terms that apply to the securities. We will provide specific terms of any securities we may offer in supplements to this prospectus. You should read this prospectus and any applicable prospectus supplement carefully before you invest. We also may authorize one or more free writing prospectuses to be provided to you in connection with the offering. The prospectus supplement and any free writing prospectus also may add, update or change information contained or incorporated in this prospectus.
We may offer and sell these securities to or through one or more underwriters, dealers or agents, or directly to purchasers on a continuous or delayed basis. The prospectus supplement for each offering of securities will describe the plan of distribution for that offering. For general information about the distribution of securities offered, see “Plan of Distribution” in this prospectus. The prospectus supplement also will set forth the price to the public of the securities and the net proceeds that we expect to receive from the sale of such securities.
Agree Realty Corporation’s common stock (the “common stock”) is traded on the New York Stock Exchange (“NYSE”) under the symbol “ADC.” On May 26, 2020 the last reported sales price of the common stock on the NYSE was $64.69 per share.
We impose certain restrictions on the ownership and transfer of our capital stock. You should read the information under the section entitled “Description of Common Stock — Restrictions on Ownership and Transfer” in this prospectus for a description of these restrictions.
Investing in our securities involves risks. You should carefully read and consider “Risk Factors” included in our most recent Annual Report on Form 10-K, in the other documents incorporated by reference into this prospectus, on page 2 of this prospectus and in the applicable prospectus supplement before investing in our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is May 27, 2020.
Table of Contents
We have not authorized anyone to give any information or to make any representation other than those contained or incorporated by reference into this prospectus and the accompanying supplement to this prospectus. You must not rely upon any information or representation not contained or incorporated by reference into this prospectus or the accompanying prospectus supplement. This prospectus and the accompanying supplement to this prospectus do not constitute an offer to sell or the solicitation of an offer to buy any securities other than the registered securities to which they relate, nor do this prospectus and the accompanying supplement to this prospectus constitute an offer to sell or the solicitation of an offer to buy securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in such jurisdiction. You should not assume that the information in this prospectus or a prospectus supplement is accurate as of any date other than the date on the front of the document or that any information we have incorporated by reference is accurate on any date subsequent to the date of the document incorporated by reference, even though this prospectus or any prospectus supplement is delivered or securities are sold on a later date. When we deliver this prospectus or a supplement or make a sale pursuant to this prospectus or a supplement, we are not implying that the information is current as of the date of the delivery or sale.
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ABOUT THIS PROSPECTUS
This prospectus is part of an automatic shelf registration statement that we have filed with the Securities and Exchange Commission (the “SEC”) as a “well-known seasoned issuer” as defined in Rule 405 under the Securities Act. Under the automatic shelf registration process, we may, over time sell any combination of the securities described in this prospectus or in any applicable prospectus supplement in one or more offerings. The exhibits to our registration statement contain the full text of certain contracts and other important documents we have summarized in this prospectus. Since these summaries may not contain all the information that you may find important in deciding whether to purchase the securities we offer, you should review the full text of these documents. The registration statement and the exhibits can be obtained from the SEC as indicated under the sections entitled “Where You Can Find More Information” and “Incorporation of Certain Documents by Reference.” This prospectus only provides you with a general description of the securities we may offer. As allowed by SEC rules, this prospectus does not contain all of the information you can find in the registration statement or the exhibits to the registration statement. Each time we sell securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering, including the specific amounts, prices and terms of the securities offered. A prospectus supplement may also add, update or change information contained in this prospectus or in documents we have incorporated by reference. Accordingly, to the extent there is an inconsistency between the information in this prospectus and any prospectus supplement, you should rely on the information in the prospectus supplement. You should carefully read both this prospectus and any prospectus supplement together with the additional information described below under the sections entitled “Where You Can Find More Information” and “Incorporation of Certain Documents by Reference.”
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This summary only highlights the more detailed information appearing elsewhere in this prospectus or incorporated by reference into this prospectus. It may not contain all of the information that is important to you. You should carefully read the entire prospectus and the documents incorporated by reference into this prospectus before deciding whether to invest in our securities.
Unless otherwise indicated or the context requires otherwise, in this prospectus and any prospectus supplement hereto references to the “Company” refer to Agree Realty Corporation, a Maryland corporation, and references to the “Operating Partnership” refer to Agree Limited Partnership, a Delaware limited partnership. In this prospectus and any prospectus supplement, the terms “we,” “us,” and “our” refer to the Company, the Operating Partnership and the direct and indirect subsidiaries of the Operating Partnership on a consolidated basis, unless otherwise indicated.
Our Company
The Company is a fully integrated real estate investment trust (“REIT”) primarily focused on the ownership, acquisition, development and management of retail properties net leased to industry leading tenants. The Company was founded in 1971 by its current Executive Chairman, Richard Agree, and the Company’s common stock was listed on the NYSE in 1994.
The Company’s assets are held by, and all of its operations are conducted through, directly or indirectly, the Operating Partnership, of which the Company is the sole general partner and in which the Company held a 99.3% interest as of March 31, 2020. Under the partnership agreement of the Operating Partnership, the Company, as the sole general partner, has exclusive responsibility and discretion in the management and control of the Operating Partnership.
As of March 31, 2020, our portfolio consisted of 868 properties located in 46 states totaling approximately 16.3 million square feet of gross leasable area.
As of March 31, 2020, our portfolio was approximately 99.3% leased and had a weighted average remaining lease term of approximately 9.8 years. A significant majority of our properties are leased to national tenants, and as of March 31, 2020, approximately 59.6% of our annualized base rent was derived from tenants, or parent entities thereof, with an investment grade credit rating from S&P Global Ratings (acting through Standard & Poor’s Financial Services LLC), Moody’s Investors Service, Inc., Fitch Ratings, Inc. or the National Association of Insurance Commissioners. Substantially all of our tenants are subject to net lease agreements. A net lease typically requires the tenant to be responsible for minimum monthly rent and property operating expenses including property taxes, insurance and maintenance.
The Company was incorporated in December 1993 under the laws of the State of Maryland. The Company believes that it has operated, and it intends to continue to operate, in such a manner to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”). In order to maintain its qualification as a REIT, the Company must, among other things, distribute at least 90% of its REIT taxable income each year and meet asset and income tests. Additionally, the Company’s charter (the “Charter”) limits ownership of the Company, directly or constructively, by any single person to 9.8% of the value or number of shares, whichever is more restrictive, of the Company’s outstanding common stock and 9.8% of the value of the aggregate of all of the Company’s outstanding stock, subject to certain exceptions. As a REIT, the Company is not subject to federal income tax with respect to that portion of the Company’s income that is distributed currently to Company stockholders. The requirements to maintain the Company’s qualification as a REIT for federal income tax purposes are discussed in greater detail in the “Description of Common Stock” and “Material Federal Income Tax Considerations” sections of this prospectus.
Our headquarters are located at 70 E. Long Lake Road, Bloomfield Hills, MI 48304 and our telephone number is (248) 737-4190. Our website is www.agreerealty.com. However, the information located on, or accessible from, our website is not, and should not be deemed to be, part of this prospectus or any free writing prospectus or incorporated into any other filing that we submit to the SEC.
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Investing in our securities involves risks. Before purchasing the securities offered by this prospectus you should carefully consider the risk factors incorporated by reference into this prospectus from our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, as well as the risks, uncertainties and additional information set forth in documents that we file with the SEC after the date of this prospectus and which are deemed incorporated by reference into this prospectus, and the information contained or incorporated by reference into any applicable prospectus supplement. For a description of these reports and documents, and for information about where you can find them, see “Where You Can Find More Information” and “Incorporation of Certain Documents by Reference”. The risks and uncertainties we discuss in this prospectus and any applicable prospectus supplement and in the documents incorporated by reference into this prospectus are those that we currently believe may materially affect us. Additional risks not presently known or that are currently deemed immaterial could also materially and adversely affect our financial condition, liquidity, results of operations, business and prospects.
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Agree Realty Corporation and certain of our subsidiaries may guarantee debt securities of Agree Limited Partnership as described in “Description of Debt Securities and Related Guarantees.” Any such guarantees by Agree Realty Corporation will be full, irrevocable, unconditional and absolute joint and several guarantees to the holders of each series of such outstanding guaranteed debt securities.
In March 2020, the SEC adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 of Regulation S-X to simplify disclosure requirements related to certain registered securities. The rule is effective January 4, 2021 but earlier compliance is permitted. As a result of the amendments to Rule 3-10 of Regulation S-X, subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that the subsidiary obligor is consolidated into the parent company’s consolidated financial statements, the parent guarantee is “full and unconditional” and, subject to certain exceptions, the alternative disclosure required by Rule 13-01 of Regulation S-X is provided, which includes narrative disclosure and summarized financial information. Accordingly, separate consolidated financial statements of Agree Limited Partnership have not been presented.
Furthermore, as permitted under Rule 13-01(a)(4)(vi)(A) of Regulation S-X, the Company has excluded the summarized financial information for Agree Limited Partnership and anticipated subsidiary guarantors, if any, because the assets, liabilities and results of operations of Agree Limited Partnership, Agree Realty Corporation and the subsidiaries that we would expect to guarantee any debt securities are not materially different than the corresponding amounts in Agree Realty Corporation’s consolidated financial statements, and management believes such summarized financial information would be repetitive and would not provide incremental value to investors.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, any accompanying prospectus supplement and the documents we incorporate by reference each contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions. Also, documents we subsequently file with the SEC and incorporate by reference may contain forward-looking statements. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” “may,” “will,” “seek,” “could,” “project” or similar expressions. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect our results of operations, financial condition, cash flows, performance or future achievements or events. Currently, one of the most significant factors, however, is the potential adverse effect of the current pandemic of the novel coronavirus, or COVID-19, on the financial condition, results of operations, cash flows and performance of the Company and its tenants, the real estate market and the global economy and financial markets. The extent to which COVID-19 impacts us and our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, investors are cautioned to interpret many of the risks identified in the risk factors discussed in this prospectus and incorporated by reference into this prospectus from our Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, as well as the risks set forth below, as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19. Additional factors which may cause actual results to differ materially from current expectations include, but are not limited to:
| · |
the factors included in our Annual Report on Form 10-K for the year ended December 31, 2019, including those set forth under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; | |
| · | the factors included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020; |
| · | global and national economic conditions and changes in general economic, financial and real estate market conditions; |
| · | the financial failure of, or other default in payment by, tenants under their leases and the potential resulting vacancies; |
| · | our concentration with certain tenants and in certain markets, which may make us more susceptible to adverse events; |
| · | changes in our business strategy; |
| · | risks that our acquisition and development projects will fail to perform as expected; |
| · | adverse changes and disruption in the retail sector and the financing stability of our tenants, which could impact our tenants’ ability to pay rent and expense reimbursement; |
| · | our ability to pay dividends; |
| · | risks relating to information technology and cybersecurity attacks, loss of confidential information and other related business disruptions; |
| · | loss of key management personnel; |
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| · | the potential need to fund improvements or other capital expenditures out of operating cash flow; |
| · | financing risks, such as the inability to obtain debt or equity financing on favorable terms or at all; | |
| · | the level and volatility of interest rates; |
| · | our ability to renew or re-lease space as leases expire; |
| · | limitations in our tenants’ leases on real estate tax, insurance and operating cost reimbursement obligations; |
| · | loss or bankruptcy of one or more of our major tenants, and bankruptcy laws that may limit our remedies if a tenant becomes bankrupt and rejects its leases; |
| · | potential liability for environmental contamination, which could result in substantial costs; |
| · | our level of indebtedness, which could reduce funds available for other business purposes and reduce our operational flexibility; |
| · | covenants in our credit agreements, which could limit our flexibility and adversely affect our financial condition; |
| · | credit market developments that may reduce availability under our revolving credit facility; |
| · | an increase in market interest rates which could raise our interest costs on existing and future debt; |
| · | a decrease in interest rates, which may lead to additional competition for the acquisition of real estate or adversely affect our results of operations; |
| · | our hedging strategies, which may not be successful in mitigating our risks associated with interest rates; |
| · | legislative or regulatory changes, including changes to laws governing REITs; |
| · | our ability to maintain our qualification as a REIT for federal income tax purposes and the limitations imposed on our business by our status as a REIT; and |
| · | our failure to qualify as a REIT for federal income tax purposes, which could adversely affect our operations and ability to make distributions. |
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. Accordingly, investors should use caution in relying on past forward-looking statements, which were based on results and trends at the time they were made, to anticipate future results or trends. For a further discussion of these and other factors that could impact our future results, performance or transactions, see the section above titled “Risk Factors” and the risk factors incorporated therein from our most recent Annual Report on Form 10-K for the year ended December 31, 2019 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, as well as the risks, uncertainties and additional information set forth in documents that we file with the SEC after the date of this prospectus and which are deemed incorporated by reference into this prospectus, and the information contained or incorporated by reference into any applicable prospectus supplement.
Unless we specify otherwise in an accompanying prospectus supplement, we intend to use the net proceeds from the sale of the securities by us to provide additional funds for general corporate purposes, including funding our investment activity, the repayment or refinancing of outstanding indebtedness, working capital and other general purposes. Any specific allocation of the net proceeds of an offering of securities to a specific purpose will be determined at the time of such offering and will be described in the related supplement to this prospectus.
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The following description of the common stock of Agree Realty Corporation is only a summary and sets forth certain general terms and provisions of the common stock to which any prospectus supplement may relate, including a prospectus supplement providing that common stock will be issuable upon conversion of the Company’s preferred stock or upon the exercise of common stock warrants issued by the Company. The statements below describing the common stock are in all respects subject to and qualified in their entirety by reference to the applicable provisions of the Charter and the Amended and Restated Bylaws of the Company, as amended (the “Bylaws”), and the applicable provisions of the Maryland General Corporation Law (the “MGCL”).
General
The Company has the authority under the Charter to issue 94,000,000 shares of capital stock, par value $.0001 per share, of which 90,000,000 shares are classified as shares of common stock, par value $.0001 per share, and 4,000,000 shares are classified as shares of preferred stock, par value $.0001 per share. As of May 26, 2020, the Company had outstanding 53,851,092 shares of common stock and no shares of preferred stock.
Dividends
Subject to preferential rights with respect to any outstanding preferred stock, holders of the common stock will be entitled to receive dividends when, as and if authorized by the Company’s board of directors (the “Board”) and declared by the Company, out of assets legally available therefor. Upon the Company’s liquidation, dissolution or winding up, holders of common stock will be entitled to share equally and ratably in any assets available for distribution to them, after payment or provision for payment of the Company’s debts and other liabilities and the preferential amounts owing with respect to any of the Company’s outstanding preferred stock.
Voting Rights
The common stock will possess voting rights in the election of directors and in respect of certain other corporate matters, with each share entitling the holder thereof to one vote. Holders of shares of common stock will not have cumulative voting rights in the election of directors.
Other Rights
The common stock will, when issued in exchange for the consideration therefor, be fully paid and nonassessable. Holders of shares of the common stock generally have no preference, conversion, exchange, sinking fund or appraisal rights and have no preemptive rights to subscribe for any of the Company’s securities. Subject to the provisions of the Charter regarding restrictions on ownership and transfer of the Company’s stock, shares of the common stock will each have equal distribution, liquidation and other rights.
Restrictions on Ownership and Transfer
For the Company to qualify as a REIT under the Code, not more than 50% of the value of the Company’s issued and outstanding Equity Stock (as defined below) may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year, and the Equity Stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year. In addition, certain percentages of the Company’s gross income must be from particular activities. The Charter contains restrictions on the ownership and transfer of shares of Equity Stock to enable the Company to qualify as a REIT.
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Subject to certain exceptions specified in the Charter, the Charter provides that no holder, other than an excepted holder, may beneficially own, or be deemed to own by virtue of the attribution provisions of the Code, more than 9.8% (in value or in number of shares, whichever is more restrictive) of the outstanding shares of the common stock, or more than 9.8% (in value) of the aggregate of the outstanding shares of all classes and series of the Company’s stock (collectively, the “Equity Stock”). Each of these restrictions is referred to as an “Ownership Limit” and collectively as the “Ownership Limits.” The Board may, in its sole and absolute discretion, prospectively or retroactively, waive either or both of the Ownership Limits with respect to a particular stockholder or establish a different limit on ownership (an “excepted holder limit”), which excepted holder limit is subject to adjustment from time to time, if the Board makes certain determinations set forth in the Charter. As a condition of any such exemption, the Board may require a ruling from the Internal Revenue Service (“IRS”) or an opinion of counsel satisfactory to the Board in its sole and absolute discretion, as specified in the Charter, in order to determine or ensure its status as a REIT, or such representations and/or undertakings from the person requesting the waiver as the Board may require in its sole and absolute discretion to make such determinations. Notwithstanding the receipt of any such ruling or opinion, the Board may impose such conditions or restrictions as it deems appropriate in connection with granting such an exception. Subject to the provisions of the Charter, the Charter provides that an underwriter or placement agent that participates in a public offering or a private placement of the Equity Stock, or an initial purchaser of the Equity Stock in a transaction reliant upon Rule 144A, may beneficially own or constructively own shares of Equity Stock in excess of the Ownership Limits, but only to the extent necessary to facilitate such public offering, private placement or Rule 144A transaction. The foregoing restrictions on transferability and ownership will not apply if the Board determines that it is no longer in the Company’s best interests to continue to qualify as a REIT. In addition, the Charter provides that no person may beneficially or constructively own shares of Equity Stock to the extent that such ownership would result in the Company being closely held within the meaning of Section 856(h) of the Code or which would otherwise result in the Company failing to qualify as a REIT. If shares of Equity Stock which would cause the Company to be beneficially owned by less than 100 persons are issued or transferred to any person, the Charter provides that such issuance or transfer shall be void ab initio, and the intended transferee would acquire no rights to the stock; however, the Board may waive this transfer restriction if it determines that such transfer would not adversely affect the Company’s ability to continue to qualify as a REIT. The Charter provides that shares transferred in excess of the Ownership Limits and shares transferred that would cause the Company to be closely held or otherwise fail to qualify as a REIT will be automatically transferred to one or more trusts for the exclusive benefit of one or more charitable beneficiaries. Such transfer will be deemed to be effective as of the close of business on the business day prior to the purported transfer. The Charter further provides that the Prohibited Owner (as defined herein) will have no rights in the shares held by the trustee and will not benefit economically from ownership of any such shares held in trust by the trustee, will have no rights to dividends or other distributions and will not possess any rights to vote or other rights attributable to such shares held in trust. While these shares are held in trust, the trustee will be entitled to vote and to share in any dividends or other distributions with respect to shares of Equity Stock held in trust, which rights will be exercised for the exclusive benefit of the charitable beneficiary. Within 20 days of receiving notice from the Company that shares of Equity Stock have been transferred to the trust, the trustee will sell the shares to any person who may hold such shares without violating the limitations on ownership and transfer set forth in the Charter. Upon such sale, the interest of the charitable beneficiary in the shares sold will terminate, and the trustee will distribute the net proceeds of the sale to the person who owned the shares of Equity Stock in violation of the Ownership Limits or the other ownership restrictions described above (the “Prohibited Owner”), who will receive the lesser of (1) the price paid by the Prohibited Owner for the shares or, if the Prohibited Owner did not give value for the shares in connection with the event causing the shares to be held in the trust, the market price of the shares on the day of the event causing the shares to be held in the trust and (2) the price per share received by the trustee from the sale or other disposition of the shares held in the trust. The trustee will reduce the amount payable to the Prohibited Owner by the amount of dividends and other distributions that have been paid to the Prohibited Owner and are owed by the Prohibited Owner to the trustee and will pay any net sales proceeds in excess of the amount payable to the Prohibited Owner to the charitable beneficiary. In addition, such shares of Equity Stock held in trust are purchasable by the Company until the trustee has sold the shares at a price equal to the lesser of the price paid for the stock in the transaction that resulted in such transfer to the trust and the market price for the stock on the date the Company determines to purchase the stock.
All certificates representing shares of Equity Stock will bear a legend referring to the restrictions described above.
In order for the Company to comply with its recordkeeping requirements, the Charter requires that each beneficial or constructive owner of Equity Stock and each person (including stockholders of record) who holds stock for a beneficial or constructive owner, shall provide to the Company such information as the Company may request in order to determine its status as a REIT and to ensure compliance with the Ownership Limits. The Charter also requires each owner of a specified percentage of Equity Stock to provide, no later than January 30 of each year, written notice to the Company stating the name and address of such owner, the number of shares of Equity Stock beneficially owned, and a description of how such shares are held. In addition, each such stockholder must provide such additional information as the Company may request in order to determine the effect of such stockholder’s beneficial ownership of Equity Stock on the Company’s status as a REIT and to ensure compliance with the Ownership Limits.
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These Ownership Limits may have the effect of precluding acquisition of control of the Company by a third party unless the Board determines that maintenance of REIT status is no longer in the Company’s best interest. No restrictions on transfer will preclude the settlement of transactions entered into through the facilities of the NYSE.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Computershare Trust Company, N.A.
Listing
The common stock is listed on the NYSE under the symbol “ADC.”
Additional Classes and Series of Stock
The Board is authorized to establish one or more classes and series of stock, including series of preferred stock, from time to time, and to establish the number of shares in each class or series and to fix the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of such class or series, without any further vote or action by the stockholders, unless such action is required by applicable law or the rules of any stock exchange or automated quotation system on which the Company’s securities may be listed or traded. As of the date hereof, no shares of preferred stock or any class or series of capital stock other than the common stock were issued or outstanding.
The issuance of additional classes or series of capital stock may have the effect of delaying, deferring or preventing a change in control of the Company without further action of the stockholders. The issuance of additional classes or series of capital stock with voting and conversion rights may adversely affect the voting power of the holders of the Company’s capital stock, including the loss of voting control to others. The ability of the Board to authorize the issuance of additional classes or series of capital stock, while providing flexibility in connection with possible acquisitions or other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, a majority of the Company’s outstanding voting stock, even where such an acquisition may be beneficial to the Company or the Company’s stockholders. The issuance of additional classes or series of capital stock could also result in the reduction of the amount otherwise available for payments of dividends on the common stock; restrict the payment of dividends or making of distributions on, or the purchase or redemption of, the common stock; and restrict the rights of holders of the common stock to share in the Company’s assets upon liquidation until satisfaction of any liquidation preference granted to the holders of other classes or series of capital stock. The Board may not classify or reclassify any authorized but unissued shares of the common stock into shares of the Company’s preferred stock or any class or series thereof.
Certain Provisions of Maryland Law and the Charter and Bylaws
The following summary of certain provisions of the MGCL and of the Charter and Bylaws does not purport to be complete and is subject to and qualified in its entirety by reference to the MGCL and the Charter and Bylaws.
Classification of Board of Directors, Vacancies and Removal of Directors
The Board is divided into three classes of directors, serving staggered three year terms. At each annual meeting of stockholders, the class of directors to be elected at the meeting generally will be elected for a three-year term and the directors in the other two classes will continue in office. Subject to the rights of any class or series to elect directors, a director may only be removed for cause by the affirmative vote of the holders of 80% of the outstanding shares of common stock entitled to vote generally in the election of directors, voting together as a single class. The Company believes that the classified board will help to assure the continuity and stability of the Board and the Company’s business strategies and policies as determined by the Board. The use of a staggered board may delay or defer a change in control of the Company or the removal of incumbent management.
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The Charter and Bylaws provide that, subject to any rights of holders of preferred stock, and unless the Board otherwise determines, any vacancies may be filled by a vote of the stockholders or a majority of the remaining directors, though less than a quorum, except vacancies created by the increase in the number of directors, which only may be filled by a vote of the stockholders or a majority of the entire Board. In addition, the Charter and Bylaws provide that, subject to any rights of holders of preferred stock to elect additional directors under specified circumstances, only a majority of the Board may increase or decrease the number of persons serving on the Board. These provisions could temporarily prevent stockholders from enlarging the Board and from filling the vacancies created by such removal with their own nominees.
Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals
The Charter and Bylaws establish an advance notice procedure for stockholders to make nominations of candidates for director or bring other business before an annual meeting of stockholders.
The Bylaws provide that (i) only persons who are nominated by, or at the direction of, the Board, or by a stockholder who has given timely written notice containing specified information to the Company’s secretary prior to the meeting at which directors are to be elected, will be eligible for election as directors and (ii) at an annual meeting, only such business may be conducted as has been brought before the meeting by, or at the direction of, the Board or by a stockholder who has given timely written notice to the Company’s secretary of such stockholder’s intention to bring such business before such meeting. In general, for notice of stockholder nominations or proposed business (other than business to be included in the Company’s proxy statement under SEC Rule 14a-8) to be conducted at an annual meeting to be timely, such notice must be received by the Company not less than 120 days nor more than 150 days prior to the first anniversary of the date of mailing of the notice for the previous year’s annual meeting. The Bylaws also establish similar advance notice procedures for stockholders to make nominations of candidates for director at a special meeting of stockholders at which directors are to be elected.
The purpose of requiring stockholders to give the Company advance notice of nominations and other business is to afford the Board a meaningful opportunity to consider the qualifications of the proposed nominees or the advisability of the other proposed business and, to the extent deemed necessary or desirable by the Board, to inform stockholders and make recommendations about such nominees or business, as well as to ensure an orderly procedure for conducting meetings of stockholders. Although the Charter and Bylaws do not give the Board power to block stockholder nominations for the election of directors or proposal for action, they may have the effect of discouraging a stockholder from proposing nominees or business, precluding a contest for the election of directors or the consideration of stockholder proposals if procedural requirements are not met and deterring third parties from soliciting proxies for a non-management slate of directors or proposal, without regard to the merits of such slate or proposal.
Relevant Factors to be Considered by the Board of Directors
The Charter provides that, in determining what is in the Company’s best interest in a business combination or certain change of control events, each of the Company’s directors shall consider the interests of the Company’s stockholders and, in his or her discretion, also may consider all relevant factors, including but not limited to (i) the interests of the Company’s employees, suppliers, creditors and tenants; and (ii) both the long-term and short-term interests of the Company and Company stockholders, including the possibility that these interests may be best served by the continued independence of the Company. Pursuant to this provision, the Board may consider subjective factors affecting a proposal, including certain nonfinancial matters, and on the basis of these considerations may oppose a business combination or other transaction which, evaluated only in terms of its financial merits, might be attractive to some, or a majority, of the Company’s stockholders.
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Business Combinations
Maryland law prohibits “business combinations” between the Company and an interested stockholder or an affiliate of an interested stockholder for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or transfer of equity securities, liquidation plan or reclassification of equity securities. Maryland law defines an interested stockholder as:
| · | any person or entity who beneficially owns 10% or more of the voting power of the Company’s stock; or |
| · | an affiliate or associate of the Company who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the Company’s then outstanding voting stock. |
A person is not an interested stockholder if the Board approves in advance the transaction by which the person otherwise would have become an interested stockholder. However, in approving a transaction, the Board may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the Board.
After the five-year prohibition, any business combination between the Company and an interested stockholder or an affiliate of an interested stockholder generally must be recommended by the Board and approved by the affirmative vote of at least:
| · | 80% of the votes entitled to be cast by holders of the Company’s then-outstanding shares of voting stock; and |
| · | two-thirds of the votes entitled to be cast by holders of the Company’s voting stock other than stock held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or stock held by an affiliate or associate of the interested stockholder. |
These super-majority vote requirements do not apply if the common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its stock.
The statute permits various exemptions from its provisions, including business combinations that are approved or exempted by the Board before the time that the interested stockholder becomes an interested stockholder. The Board has exempted from these provisions of the MGCL any business combination with Mr. Richard Agree or any other person acting in concert or as a group with Mr. Richard Agree.
Control Share Acquisitions
Maryland law provides that holders of “control shares” of a Maryland corporation acquired in a “control share acquisition” have no voting rights with respect to the control shares, except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquiror or by officers or by directors who are our employees are excluded from the shares entitled to vote on the matter. Control shares are voting shares of stock that, if aggregated with all other shares of stock currently owned by the acquiring person, or in respect of which the acquiring person is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiring person to exercise voting power in electing directors within one of the following ranges of voting power:
| · | one-tenth or more but less than one-third; |
| · | one-third or more but less than a majority; or |
| · | a majority or more of all voting power. |
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Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A “control share acquisition” means the acquisition of control shares, subject to certain exceptions. A person who has made or proposes to make a control share acquisition may compel the Board to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. The right to compel the calling of a special meeting is subject to the satisfaction of certain conditions, including an undertaking to pay the expenses of the meeting. If no request for a meeting is made, the Company may present the question at any stockholders meeting.
If voting rights are not approved at the stockholders meeting or if the acquiring person does not deliver the statement required by Maryland law, then, subject to certain conditions and limitations, the Company may redeem any or all of the control shares, except those for which voting rights have previously been approved, for fair value. Fair value is determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquiror or of any meeting of stockholders at which the voting rights of the shares were considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquiror becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares for purposes of these appraisal rights may not be less than the highest price per share paid by the acquiror in the control share acquisition. The control share acquisition statute does not apply to shares acquired in a merger, consolidation or share exchange if the Company is a party to the transaction, nor does it apply to acquisitions approved by or exempted by the Charter or Bylaws.
The Bylaws contain a provision exempting from the control share acquisition statute any member of the Agree-Rosenberg Group, as defined therein, the Company’s officers, the Company’s employees, any of the associates or affiliates of the foregoing and any other person acting in concert or as a group with any of the foregoing and any other person, as determined by the Board.
Maryland Unsolicited Takeovers Act
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:
| · | a classified board; |
| · | a two-thirds vote requirement for removing a director; |
| · | a requirement that the number of directors be fixed only by vote of directors; |
| · | a requirement that a vacancy on the Board be filled only by the remaining directors and for the remainder of the full term of the directorship in which the vacancy occurred; and |
| · | a majority requirement for the calling of a special meeting of stockholders. |
Through provisions in the Charter and Bylaws unrelated to Subtitle 8, the Company (1) has a classified board, (2) requires an 80% vote for the removal of any director from the Board, (3) vests in the Board the exclusive power to fix the number of directorships and (4) provides that unless called by the Company’s chairman of the Board, the Company’s president or the Board, a special meeting of stockholders may only be called by the Company’s secretary upon the written request of the stockholders entitled to cast not less than a majority of all the votes entitled to be cast at the meeting who comply with the stockholder requested meeting provisions set forth in the Bylaws.
Limitation of Liability and Indemnification
The MGCL permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages, except for liability resulting from:
| · | actual receipt of an improper benefit or profit in money, property or services; or |
| · | active and deliberate dishonesty established by a final judgment and which is material to the cause of action. |
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The Charter contains such a provision that eliminates directors’ and officers’ liability to the maximum extent permitted by Maryland law. These limitations of liability do not apply to liabilities arising under the federal securities laws and do not generally affect the availability of equitable remedies such as injunctive relief or rescission.
The Company’s present and former officers and directors are and will be indemnified under Maryland law and the Charter and Bylaws against certain liabilities. The Charter and Bylaws require the Company to indemnify the Company’s directors and officers, and, without requiring a preliminary determination of the ultimate entitlement to indemnification, to pay to the Company’s directors and officers or reimburse reasonable expenses of the Company’s directors and officers in advance of the final disposition of a proceeding, in each case to the fullest extent permitted from time to time by the laws of the State of Maryland. The Company may, with the approval of the Board, provide such indemnification and advance for expenses to a person who served a predecessor of the Company as a director or officer and any employee or agent of the Company or of a predecessor of the Company.
Maryland law requires a corporation (unless its charter provides otherwise, which the Charter does not) to indemnify a director or officer who has been successful in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service in that capacity. Maryland law permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made, or threatened to be made, a party by reason of their service in those or other capacities unless it is established that:
| · | 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. |
However, under Maryland law, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the basis of that personal benefit was improperly received, unless in either case a court orders indemnification and then only for expenses. In addition, Maryland law permits a corporation to advance reasonable expenses to a director or officer upon the corporation’s 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 the corporation; and |
| · | a written undertaking by him or her on his or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the standard of conduct was not met. |
The Company maintains liability insurance for each director and officer for certain losses arising from claims or charges made against them while acting in their capacities as the Company’s directors or officers.
Insofar as the foregoing provisions permit indemnification of directors, executive officers or persons controlling the Company for liability arising under the Securities Act, the Company has 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.
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DESCRIPTION OF PREFERRED STOCK
The following description of the preferred stock of Agree Realty Corporation is only a summary and sets forth certain general terms and provisions of the Company’s 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 the Charter, including the applicable articles supplementary, and Bylaws and the applicable provisions of the MGCL.
The Company has the authority under the Charter to issue 4,000,000 shares of preferred stock, par value $.0001 per share. As of the date hereof, no shares of preferred stock were issued or outstanding. Subject to limitations prescribed by Maryland law and the Charter, the Board is authorized to establish one or more classes or series of preferred stock and to fix the number of shares constituting each class or series of preferred stock and the designations and powers, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof, including those provisions as may be desired concerning voting, redemption, dividends, dissolution or the distribution of assets, conversion or exchange, and those other subjects or matters as may be fixed by resolution of the Board or duly authorized committee thereof. The preferred stock will, when issued in exchange for the consideration therefor, be fully paid and nonassessable and, except as may be determined by the Board and set forth in the articles supplementary setting forth the terms of any class or series of preferred stock, will not have, or be subject to, any preemptive or similar rights.
You should refer to the prospectus supplement and the applicable articles supplementary relating to the class or series of preferred stock offered thereby for specific terms, including:
| (1) | The class or series, title and stated value of that preferred stock; |
| (2) | The number of shares of that preferred stock offered, the liquidation preference per share and the offering price of that preferred stock; |
| (3) | The dividend rate(s), period(s) and/or payment date(s) or method(s) of calculation thereof applicable to that preferred stock; |
| (4) | Whether dividends on that preferred stock shall be cumulative or not and, if cumulative, the date from which dividends on that preferred stock shall accumulate; |
| (5) | The procedures for any auction and remarketing, if any, for that preferred stock; |
| (6) | Provisions for a sinking fund, if any, for that preferred stock; |
| (7) | Provisions for redemption, if applicable, of that preferred stock; |
| (8) | Any listing of that preferred stock on any securities exchange; |
| (9) | The terms and conditions, if applicable, upon which that preferred stock will be convertible into common stock, including the conversion price (or manner of calculation thereof); |
| (10) | Whether interests in that preferred stock will be represented by the Company’s depositary shares; |
| (11) | The relative ranking and preference of the preferred stock as to distribution rights and rights upon the Company’s liquidation, dissolution or winding up if other than as described in this prospectus; |
| (12) | Any limitations on issuance of any other series of preferred stock ranking senior to or on a parity with the preferred stock as to distribution rights and rights upon the Company’s liquidation, dissolution or winding up; |
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| (13) | A discussion of certain federal income tax considerations applicable to that preferred stock; |
| (14) | Any limitations on actual, beneficial or constructive ownership and restrictions on transfer of that preferred stock and, if convertible, the related common stock, in each case as may be appropriate to preserve the Company’s status as a REIT; and |
| (15) | Any other material terms, preferences, rights (including voting rights), limitations or restrictions of that preferred stock. |
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DESCRIPTION OF DEPOSITARY SHARES
General
The Company may offer depositary shares, each of which would represent a fractional interest of a share of a particular class or series of preferred stock. The Company will deposit shares of preferred stock represented by depositary shares under a separate deposit agreement among the Company, a preferred stock depositary and the holders of the depositary shares. Subject to the terms of the deposit agreement, each owner of a depositary share will possess, in proportion to the fractional interest of a share of preferred stock represented by the depositary share, all the rights and preferences of the preferred stock represented by the depositary shares.
Depositary receipts will evidence the depositary shares issued pursuant to the deposit agreement. Immediately after the Company issues and delivers shares of preferred stock to a preferred stock depositary, the preferred stock depositary will issue the depositary receipts. The following summary is not complete and is subject to, and qualified in its entirety by the provisions of, the applicable deposit agreement and the applicable depositary receipt.
Dividends and Other Distributions
The depositary will distribute all cash dividends on the preferred stock to the record holders of the depositary shares. Holders of depositary shares generally must file proofs, certificates and other information and pay charges and expenses of the depositary in connection with distributions.
If a distribution on the preferred stock is other than in cash and it is feasible for the depositary to distribute the property it receives, the depositary will distribute the property to the record holders of the depositary shares. If such a distribution is not feasible and the Company approves, the depositary may sell the property and distribute the net proceeds from the sale to the holders of the depositary shares.
Withdrawal of Stock
Unless the Company has previously called the underlying preferred stock for redemption or the holder of the depositary shares has converted such shares, a holder of depositary shares may surrender them at the corporate trust office of the depositary in exchange for whole or fractional shares of the underlying preferred stock together with any money or other property represented by the depositary shares. Once a holder has exchanged the depositary shares, the holder may not redeposit the preferred stock and receive depositary shares again. If a depositary receipt presented for exchange into preferred stock represents more shares of preferred stock than the number to be withdrawn, the depositary will deliver a new depositary receipt for the excess number of depositary shares.
Redemption of Depositary Shares
Whenever the Company redeems shares of preferred stock held by a depositary, the depositary will redeem the corresponding amount of depositary shares. The redemption price per depositary share will be equal to the applicable fraction of the redemption price and any other amounts payable with respect to the preferred stock. If the Company intends to redeem less than all of the underlying preferred stock, the Company and the depositary will select the depositary shares to be redeemed as nearly pro rata as practicable without creating fractional depositary shares or by any other equitable method determined by the Company that preserves the Company’s REIT status.
On the redemption date:
| · | all dividends relating to the shares of preferred stock called for redemption will cease to accrue; |
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| · | the Company and the depositary will no longer deem the depositary shares called for redemption to be outstanding; and |
| · | all rights of the holders of the depositary shares called for redemption will cease, except the right to receive any money payable upon the redemption and any money or other property to which the holders of the depositary shares are entitled upon redemption. |
Voting of the Preferred Stock
When a depositary receives notice regarding a meeting at which the holders of the underlying preferred stock have the right to vote, it will mail that information to the holders of the depositary shares. Each record holder of depositary shares on the record date may then instruct the depositary to exercise its voting rights for the amount of preferred stock represented by that holder’s depositary shares. The depositary will vote in accordance with these instructions. The depositary will abstain from voting to the extent it does not receive specific instructions from the holders of depositary shares. A depositary will not be responsible for any failure to carry out any instruction to vote, or for the manner or effect of any vote, as long as any action or non-action is in good faith and does not result from negligence or willful misconduct of the depositary.
Liquidation Preference
In the event of the Company’s liquidation, dissolution or winding up, a holder of depositary shares will receive the fraction of the liquidation preference accorded each share of underlying preferred stock represented by the depositary share.
Conversion of Preferred Stock
Depositary shares will not themselves be convertible into common stock or any other securities or property of the Company. However, if the underlying preferred stock is convertible, holders of depositary shares may surrender them to the depositary with written instructions to convert the preferred stock represented by their depositary shares into whole shares of common stock, other shares of the Company’s preferred stock or other shares of stock, as applicable. Upon receipt of these instructions and any amounts payable in connection with a conversion, the Company will convert the preferred stock using the same procedures as those provided for delivery of preferred stock. If a holder of depositary shares converts only part of its depositary shares, the depositary will issue a new depositary receipt for any depositary shares not converted. The Company will not issue fractional shares of common stock upon conversion. If a conversion will result in the issuance of a fractional share, the Company will pay an amount in cash equal to the value of the fractional interest based upon the closing price of the common stock on the last business day prior to the conversion.
Amendment and Termination of a Deposit Agreement
The Company and the depositary may amend any form of depositary receipt evidencing depositary shares and any provision of a deposit agreement. However, unless the existing holders of at least two-thirds of the applicable depositary shares then outstanding have approved the amendment, the Company may not make any amendment that:
| · | would materially and adversely alter the rights of the holders of depositary shares; or |
| · | would be materially and adversely inconsistent with the rights granted to the holders of the underlying preferred stock. |
Subject to exceptions in the deposit agreement and except in order to comply with the law, no amendment may impair the right of any holders of depositary shares to surrender their depositary shares with instructions to deliver the underlying preferred stock and all money and other property represented by the depositary shares. Every holder of outstanding depositary shares at the time any amendment becomes effective who continues to hold the depositary shares will be deemed to consent and agree to the amendment and to be bound by the amended deposit agreement.
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The Company may terminate a deposit agreement upon not less than 30 days’ prior written notice to the depositary if:
| · | the termination is necessary to preserve the Company’s REIT status; or |
| · | a majority of each series of preferred stock affected by the termination consents to the termination. |
Upon a termination of a deposit agreement, holders of the depositary shares may surrender their depositary shares and receive in exchange the number of whole or fractional shares of preferred stock and any other property represented by the depositary shares. If the Company terminates a deposit agreement to preserve the Company’s status as a REIT, then the Company will use its best efforts to list the preferred stock issued upon surrender of the related depositary shares on a national securities exchange.
In addition, a deposit agreement will automatically terminate if:
| · | the Company has redeemed all underlying preferred stock subject to the agreement; |
| · | a final distribution of the underlying preferred stock in connection with any liquidation, dissolution or winding up has occurred, and the depositary has distributed the distribution to the holders of the depositary shares; or |
| · | each share of the underlying preferred stock has been converted into other capital stock of the Company not represented by depositary shares. |
Charges of a Preferred Stock Depositary
The Company will pay all transfer and other taxes and governmental charges arising in connection with a deposit agreement. In addition, the Company will generally pay the fees and expenses of a depositary in connection with the performance of its duties. However, holders of depositary shares will pay the fees and expenses of a depositary for any duties requested by the holders that the deposit agreement does not expressly require the depositary to perform.
Resignation and Removal of Depositary
A depositary may resign at any time by delivering to the Company notice of its election to resign. The Company may also remove a depositary at any time. Any resignation or removal will take effect upon the appointment of a successor depositary. The Company will appoint a successor depositary within 60 days after delivery of the notice of resignation or removal. The successor must be a bank or trust company with its principal office in the United States and have a combined capital and surplus of at least $50 million.
Miscellaneous
The depositary will forward to the holders of depositary shares any reports and communications from the Company with respect to the underlying preferred stock.
Neither the depositary nor the Company will be liable if any law or any circumstances beyond their control prevent or delay them from performing their obligations under a deposit agreement. The obligations of the Company and a depositary under a deposit agreement will be limited to performing the Company’s duties in good faith and without negligence in regard to voting of preferred stock, gross negligence or willful misconduct. Neither the Company nor a depositary must prosecute or defend any legal proceeding with respect to any depositary shares or the underlying preferred stock unless they are furnished with satisfactory indemnity.
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The Company and any depositary may rely on the written advice of counsel or accountants, or information provided by persons presenting shares of preferred stock for deposit, holders of depositary shares or other persons they believe in good faith to be competent, and on documents they believe in good faith to be genuine and signed by a proper party.
In the event a depositary receives conflicting claims, requests or instructions from the Company and any holders of depositary shares, the depositary will be entitled to act on the claims, requests or instructions received from the Company.
Depositary
The prospectus supplement will identify the depositary for the depositary shares.
Listing of the Depositary Shares
The prospectus supplement will specify whether or not the depositary shares will be listed on any securities exchange.
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The Company may issue warrants for the purchase of shares of the common stock, preferred stock or debt securities. Warrants may be issued independently or together with any of the other securities offered by this prospectus that are offered by any prospectus supplement and may be attached to or separate from the securities offered by this prospectus. Each series of warrants will be issued under a separate warrant agreement to be entered into between the Company and a warrant agent specified in the applicable prospectus supplement. The warrant agent will act solely as the Company’s agent in connection with the warrants of such series and will not assume any obligation or relationship of agency or trust for or with any holders or beneficial owners of warrants. The following summary is not complete and is subject to, and qualified in its entirety by the provisions of, the applicable warrant agreement and any applicable warrant certificates relating to each series of warrants.
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:
| (1) | the title of the warrants; |
| (2) | the aggregate number of the warrants; |
| (3) | the price or prices at which the warrants will be issued; |
| (4) | the designation, number and terms of the securities purchasable upon exercise of the warrants; |
| (5) | the designation and terms of the other securities offered by this prospectus with which the warrants are issued and the number of the warrants issued with each security offered by this prospectus; |
| (6) | the date, if any, on and after which the warrants and the related securities will be separately transferable; |
| (7) | the price or prices at which the securities purchasable upon exercise of the warrants may be purchased; |
| (8) | the date on which the right to exercise the warrants shall commence and the date on which that right shall expire; |
| (9) | the minimum or maximum amount of the warrants which may be exercised at any one time; |
| (10) | information with respect to book-entry procedures, if any; |
| (11) | a discussion of certain federal income tax considerations applicable to warrants; and |
| (12) | any other material terms of the warrants, including terms, procedures and limitations relating to the exchange and exercise of the warrants. |
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DESCRIPTION OF DEBT SECURITIES AND RELATED GUARANTEES
As used in this section only, references to “we,” “our” and “us” refer to Agree Limited Partnership, as the issuer of the applicable series of debt securities and not to any subsidiaries. The following description, together with the additional information we include in any applicable prospectus supplement, summarizes certain general terms and provisions of the debt securities that we may offer under this prospectus. When we offer to sell a particular series of debt securities, we will describe the specific terms of the series in a supplement to this prospectus, including the terms of any additional guarantees by any of our subsidiaries. We will also indicate in the supplement to what extent the general terms and provisions described in this prospectus apply to a particular series 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. Debt securities may be our senior, senior subordinated or subordinated obligations and, unless otherwise specified in a supplement to this prospectus, the debt securities will be our direct, unsecured obligations and may be issued in one or more series.
Unless otherwise specified in a prospectus supplement, the debt securities will be issued under an indenture among us, Agree Realty Corporation, as guarantor, and U.S. Bank National Association, as trustee. We have summarized select portions of the indenture below. The summary is not complete. The form of the indenture has been filed as an exhibit to the registration statement and you should read the indenture for provisions that may be important to you. In the summary below, we have included references to certain section numbers of the indenture so that you can easily locate these provisions. Capitalized terms used in the summary and not defined herein have the meanings specified in the indenture.
General
The terms of each series of debt securities will be established by or pursuant to a resolution of the Board and set forth or determined in the manner provided in such resolution, supplemental indenture or officer’s certificate. (Section 2.2) The particular terms of each series of debt securities will be described in a prospectus supplement relating to such series (including any pricing supplement or term sheet).
We can issue an unlimited amount of debt securities under the indenture that may be in one or more series, which series may differ in respect of any matters, provided that all series of securities shall be equally and ratably entitled to the benefits of the indenture. (Section 2.1) We will set forth in a prospectus supplement (including any pricing supplement or term sheet) relating to any series of debt securities being offered, the aggregate principal amount and the following terms of the debt securities, if applicable:
| · | the title (which shall distinguish the debt securities of that particular series from the debt securities of any other series except to the extent that additional securities of an existing series are being issued); | |
| · | the price or prices (expressed as a percentage of the principal amount) at which we will sell the debt securities; | |
| · | any limit on the aggregate principal amount of the debt securities; | |
| · | the date or dates on which the principal of the securities of the series is payable; | |
| · | the rate or rates (which may be fixed or variable) per annum or, if applicable, the method used to determine the rate or rates (including any commodity, commodity index, stock exchange index or financial index) at which the debt securities will bear interest, the date or dates from which interest will accrue, the date or dates on which interest will commence and be payable and any regular record date for the interest payable on any interest payment date; | |
| · | whether such interest will be payable in cash or additional securities of the same series or will accrue and increase the aggregate principal amount outstanding of such securities of the series; |
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| · | the place or places where principal of, and premium and interest, if any, on the debt securities will be payable (and the method of such payment), where the securities of such series may be surrendered for registration of transfer or exchange, and where notices and demands to us in respect of the debt securities may be delivered and the method of payment; | |
| · | the period or periods within which, the price or prices at which and the terms and conditions upon which we may redeem the debt securities; | |
| · | any obligation we have to redeem or purchase the debt securities pursuant to any sinking fund or analogous provisions or at the option of a holder of debt securities and the period or periods within which, the price or prices at which and in the terms and conditions upon which securities of the series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; | |
| · | the dates on which and the price or prices at which we will repurchase debt securities at the option of the holders of debt securities and other detailed terms and provisions of these repurchase obligations; | |
| · | the denominations in which the debt securities will be issued, if other than denominations of $1,000 and any integral multiple thereof; | |
| · | whether the debt securities will be issued in the form of certificated debt securities or global debt securities; | |
| · | the portion of principal amount of the debt securities payable upon declaration of acceleration of the maturity date, if other than the principal amount; | |
| · | any provisions relating to any security provided for the debt securities; | |
| · | any addition to, deletion of or change in the Events of Default described in this prospectus or in the indenture with respect to the debt securities and any change in the acceleration provisions described in this prospectus or in the indenture with respect to the debt securities; | |
| · | any addition to, deletion of or change in the covenants described in this prospectus or in the indenture with respect to the debt securities; | |
| · | any depositaries, interest rate calculation agents, exchange rate calculation agents or other agents with respect to the debt securities; | |
| · | the provisions, if any, relating to conversion or exchange of any debt securities of such series, including if applicable, the conversion or exchange price and period, provisions as to whether conversion or exchange will be mandatory, the events requiring an adjustment of the conversion or exchange price and provisions affecting conversion or exchange; | |
| · | whether the securities of such series will be senior or subordinated debt securities and, if applicable, the subordination provisions; | |
| · | any guarantor of the securities of such series in addition to Agree Realty Corporation, as guarantor, including the form and terms of the guarantees (including provisions relating to seniority or subordination of such guarantees and the release of any guarantor), if any, of any payment or other obligations on such securities and any additions or changes to the Indenture to permit or facilitate guarantees of the securities; | |
| · | any addition to or change in the provisions relating to satisfaction and discharge or covenant defeasance or legal defeasance applicable to the debt securities of that series; | |
| · | whether the debt securities of that series are to be issued at a discount; and | |
| · | any other terms of the debt securities, which may supplement, modify or delete any provision of the indenture as it applies to that series, including any terms that may be required under applicable law or regulations or advisable in connection with the marketing of the securities. (Section 2.2) |
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Transfer and Exchange
Resolutions of the Board, a supplemental indenture or an officer’s certificate shall establish whether the debt securities of a series will be issued in the form of one or more global securities and as book-entry securities that will be deposited with, or on behalf of, the depositary for such global securities as named by us and identified in the applicable prospectus supplement (the “Depositary”).
Any holder of a beneficial interest in a global security shall agree that transfers of beneficial interests shall be effected only through the book-entry system. (Section 2.14)
If the securities are not issued in the form of one or more global securities, you may transfer or exchange certificated debt securities at any office or agency we maintain for this purpose in accordance with the terms of the indenture. (Section 2.4) Upon presentation to the registrar, subject to the terms of the indenture, and upon a request to the registrar, the registrar will register the transfer or make an exchange of securities for an equal principal amount of securities of the same series. No service charge will be made for any transfer or exchange of certificated debt securities, but we may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection with certain transfers or exchanges. (Section 2.7)
Covenants
We will set forth in the applicable prospectus supplement any restrictive covenants applicable to any issue of debt securities that supplement or modify the covenants in the indenture. (Article IV)
No Protection in the Event of a Change of Control
Unless we state otherwise in the applicable prospectus supplement, the debt securities will not contain any provisions which may afford holders of the debt securities protection in the event we have a change in control or in the event of a highly leveraged transaction (whether or not such transaction results in a change in control) which could adversely affect holders of debt securities.
Consolidation, Merger and Sale of Assets
Unless otherwise stated in the applicable prospectus supplement, neither Agree Limited Partnership nor Agree Realty Corporation may consolidate with or merge with or into, or convey, transfer or lease all or substantially all of its respective properties and assets to any person unless:
| · | the person formed by such consolidation or merger (if other than Agree Limited Partnership or Agree Realty Corporation, as applicable) or the person which acquires by conveyance or transfer, or which leases all or substantially all of the properties and assets of Agree Limited Partnership or Agree Realty Corporation, as applicable, shall be a corporation organized and validly existing under the laws of any U.S. domestic jurisdiction (the “successor person”) and shall expressly assume, by a supplemental indenture: |
| · | in the case of a successor person to Agree Limited Partnership, the due and punctual payment of the principal of and interest on the securities and the performance or observance of every covenant of the Indenture on the part of Agree Limited Partnership; | ||
| · | in the case of a successor person to Agree Limited Corporation, all of the obligations of Agree Limited Corporation under the guarantee of Agree Limited Corporation and the performance or observance of every covenant of the indenture on the part of Agree Realty Corporation to be performed or observed by Agree Realty Corporation; | ||
| · | immediately after giving effect to the transaction, no Event of Default, shall have occurred and be continuing; and | ||
| · | Agree Limited Partnership or Agree Realty Corporation, as applicable, has delivered to the trustee an officer’s certificate and opinion of counsel stating that such consolidation, merger, conveyance, sale, transfer or lease and such supplemental indenture, if any, complies with the indenture and that all conditions precedent provided for in the indenture relating to such transaction and the supplemental indenture in respect thereto have been complied with. |
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Notwithstanding the above, any of our subsidiaries may consolidate with, merge into or transfer all or part of its properties to us or to any other guarantor. (Section 5.1)
Guarantees
The debt securities issued by Agree Limited Partnership will be fully and unconditionally guaranteed by Agree Realty Corporation. If a series of debt securities is guaranteed by any of our subsidiaries, a supplemental indenture will be executed by the guarantor. These guarantees will be joint and several obligations of Agree Realty Corporation and by such other guarantors. The obligations of the guarantor under the guarantee will be limited as necessary to prevent that guarantee from constituting a fraudulent conveyance under applicable law.
Any guarantee other than the guarantee of Agree Realty Corporation shall be automatically and unconditionally released: (i) upon the sale or other disposition (including by way of consolidation or merger), in one transaction or a series of related transactions, of a majority of the total voting power of the capital stock or other interests of such guarantor (other than to us or one of our affiliates); or (ii) upon the sale or disposition of all or substantially all the property of such guarantor (other than to any affiliate of ours). A guarantee also shall be released with respect to a series of debt securities as provided in resolutions of the Board, a supplemental indenture or an officer’s certificate.
Any guarantee also will be released if we exercises its legal defeasance or its covenant defeasance option with respect to such series as set forth in the indenture, or if our obligations under this indenture with respect to such series are discharged as set forth in the indenture. (Article X)
Events of Default
“Event of Default” means with respect to any series of debt securities, any of the following:
| · | default in the payment of any interest upon any debt security of that series when it becomes due and payable, and continuance of such default for a period of 60 days (unless the entire amount of the payment is deposited by us with the trustee or with a paying agent prior to the expiration of the 60-day period); | |
| · | default in the payment of principal of any security of that series at its maturity; | |
| · | default in the performance or breach of any other covenant or warranty by Agree Limited Partnership, Agree Realty Corporation, or in the case of any guaranteed securities, by the guarantor of such guaranteed series of securities, in the indenture (other than a covenant or warranty that has been included in the indenture solely for the benefit of a series of debt securities other than that series), which default continues uncured for a period of 60 consecutive days after we receive written notice from the trustee or we and the trustee receive written notice from the holders of not less than 25% in principal amount of the outstanding debt securities of that series as provided in the indenture; | |
| · | certain voluntary or involuntary events of bankruptcy, insolvency or reorganization of Agree Limited Partnership, Agree Realty Corporation, or any other guarantor; | |
| · | the guarantee of any guarantor required to guarantee the securities ceases to be in full force and effect or is denied or disaffirmed by such entity; or | |
| · | any other Event of Default provided with respect to debt securities of that series that is described in the applicable prospectus supplement. (Section 6.1) |
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No Event of Default with respect to a particular series of debt securities (except as to certain events of bankruptcy, insolvency or reorganization) necessarily constitutes an Event of Default with respect to any other series of debt securities if specified otherwise in resolutions of the Board, a supplemental indenture or an officer’s certificate. (Section 6.1) The occurrence of certain Events of Default or an acceleration under the indenture may constitute an Event of Default under certain indebtedness of ours or our subsidiaries outstanding from time to time.
We will provide the trustee written notice of any default or Event of Default within 30 days of becoming aware of the occurrence of such default or Event of Default, which notice will describe in reasonable detail the status of such default or Event of Default and what action we are taking or propose to take in respect thereof. Except in the case of payment default, the trustee may withhold the notice if and so long as the trustee in good faith determines that withholding the notice is in the interests of the holders. (Section 6.1)
If an Event of Default with respect to debt securities of any series at the time outstanding occurs and is continuing (except as described below), then the trustee or the holders of not less than 25% in principal amount of the outstanding debt securities of that series may, by a notice in writing to us (and to the trustee if given by the holders) specifying the Event of Default, declare to be due and payable immediately the principal of (or, if the debt securities of that series are discount securities, that portion of the principal amount as may be specified in the terms of that series) and accrued and unpaid interest to but not including the date of acceleration, if any, on all debt securities of that series. In the case of an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization, the principal (or such specified amount) of and accrued and unpaid interest, if any, on all outstanding debt securities will become and be immediately due and payable without any declaration or other act on the part of the trustee or any holder of outstanding debt securities. At any time after a declaration of acceleration with respect to debt securities of any series has been made, but before a judgment or decree for payment of the money due has been obtained by the trustee, the holders of a majority in principal amount of the outstanding debt securities of that series may rescind and annul the acceleration if all Events of Default, other than the non-payment of accelerated principal and interest, if any, with respect to debt securities of that series, have been cured or waived as provided in the indenture. (Section 6.2) We refer you to the prospectus supplement relating to any series of debt securities that are discount securities for the particular provisions relating to acceleration of a portion of the principal amount of such discount securities upon the occurrence of an Event of Default.
The indenture provides that the trustee may refuse to perform any duty or exercise any of its rights or powers under the indenture unless the trustee receives indemnity satisfactory to it against any cost, liability or expense which might be incurred by it in performing such duty or exercising such right or power. (Section 7.1(e)) Subject to certain rights of the trustee, the holders of a majority in principal amount of the outstanding debt securities of any series will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred on the trustee with respect to the debt securities of that series. (Section 6.12)
No holder of any debt security of any series will have any right to institute any proceeding, judicial or otherwise, with respect to the indenture or for the appointment of a receiver or trustee, or for any remedy under the indenture, unless:
| · | that holder has previously given to the trustee written notice of a continuing Event of Default with respect to debt securities of that series; and | |
| · | the holders of not less than 50% in principal amount of the outstanding debt securities of that series have made written request, and offered indemnity or security satisfactory to the trustee, to the trustee to institute the proceeding as trustee, and the trustee has not received from the holders of not less than a majority in principal amount of the outstanding debt securities of that series a direction inconsistent with that request and has failed to institute the proceeding within 60 days. (Section 6.7) |
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Notwithstanding any other provision in the indenture, the holder of any debt security will have an absolute and unconditional right to receive payment of the principal of, and any interest on that debt security on or after the due dates expressed in that debt security and to institute suit for the enforcement of payment. (Section 6.8)
The indenture requires us, within 120 days after the end of our fiscal year, to furnish an officer’s certificate to the trustee stating that a review of us and the guarantors during the preceding fiscal year has been made under the supervision of the signing officers in their duties as officers of Agree Realty Corporation, and to the best knowledge of such officers of Agree Realty Corporation, such review did not disclose that a default or Event of Default has occurred and is continuing (or if a default or Event of Default has occurred and is continuing, the steps to be taken to cure such defaults or Events of Default). (Section 4.3) If a default or Event of Default occurs and is continuing with respect to the securities of any series and if it is known to a responsible officer of the trustee, the trustee shall mail to each securityholder of the securities of that series a notice of a default or Event of Default within 90 days after a responsible officer of the trustee has knowledge of such default or Event of Default. The indenture provides that the trustee may withhold notice to the holders of debt securities of any series of any default or Event of Default (except in payment on any debt securities of that series) with respect to debt securities of that series if the trustee determines in good faith that withholding notice is in the interest of the holders of those debt securities. (Section 7.5)
Modification and Waiver
Agree Limited Partnership, Agree Realty Corporation and the trustee may amend or supplement the indenture or the debt securities of any series without the consent of any holder of any debt security:
| · | to cure any ambiguity, defect or inconsistency; | |
| · | to comply with covenants in the indenture described above under the heading “Company and General Partner May Consolidate, Etc, on Certain Terms”; | |
| · | to provide for uncertificated securities in addition to or in place of certificated securities; | |
| · | add guarantees with respect to debt securities of any series or secure debt securities of any series; | |
| · | to surrender any of our rights or powers under the indenture; | |
| · | to add covenants or events of default for the benefit of the holders of debt securities of any series; | |
| · | to comply with the applicable procedures of the applicable depositary; | |
| · | to make any change that does not adversely affect the rights of any holder of debt securities; | |
| · | to provide for the issuance of and establish the form and terms and conditions of debt securities of any series as permitted by the indenture; | |
| · | to effect the appointment of a successor trustee with respect to the debt securities of any series and to add to or change any of the provisions of the indenture to provide for or facilitate administration by more than one trustee; | |
| · | to comply with requirements of the SEC in order to effect or maintain the qualification of the indenture under the Trust Indenture Act; or | |
| · | to supplement provisions of the indenture to facilitate defeasance and discharge the debt securities of any series; provided that the action shall not adversely affect the interests of the holders of any debt securities of any series. (Section 9.1) |
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We may also modify and amend the indenture with the consent of the holders of at least a majority in principal amount of the outstanding debt securities of each series affected by the modifications or amendments (including consents obtained in connection with a tender offer or exchange offer for debt securities of such affected series). We may not make any modification or amendment without the consent of the holders of each affected debt security then outstanding if that amendment will:
| · | reduce the principal amount of debt securities whose holders must consent to an amendment, supplement or waiver; | |
| · | reduce the rate of or extend the time for payment of interest (including default interest) on any debt security; | |
| · | reduce the principal of or change the fixed maturity of any debt security or reduce the amount of, or postpone the date fixed for, the payment of any sinking fund or analogous obligation with respect to any series of debt securities; | |
| · | reduce the principal amount of discount securities payable upon acceleration of maturity; | |
| · | make the principal of or interest on any debt security payable in currency other than that stated in the debt security; | |
| · | make any change to certain provisions of the indenture relating to, among other things, the right of holders of debt securities to receive payment of the principal of and interest on those debt securities and to institute suit for the enforcement of any such payment and to waivers or amendments; or | |
| · | waive a redemption payment with respect to any debt security if the redemption is not made at our option. (Section 9.3) |
Except for certain specified provisions, the holders of at least a majority in principal amount of the outstanding debt securities of any series may on behalf of the holders of all debt securities of that series waive our compliance with provisions of the indenture. (Section 9.2) The holders of a majority in principal amount of the outstanding debt securities of any series may on behalf of the holders of all the debt securities of such series waive any past default under the indenture with respect to that series and its consequences, except a default in the payment of the principal of or any interest on any debt security of that series; provided, however, that the holders of a majority in principal amount of the outstanding debt securities of any series may rescind an acceleration and its consequences, including any related payment default that resulted from the acceleration. (Section 6.13)
Defeasance of Debt Securities and Certain Covenants in Certain Circumstances
Legal Defeasance. The indenture provides that, unless otherwise provided by the terms of the applicable series of debt securities, we may be discharged from any and all obligations in respect of the debt securities of any series (subject to certain exceptions). We will be so discharged upon the deposit with the trustee, in trust, of money and/or U.S. government obligations or that, through the payment of interest and principal in accordance with their terms, will provide money or U.S. government obligations in an amount sufficient in the opinion of a nationally recognized firm of independent public accountants or investment bank to pay and discharge each installment of principal and interest on and any mandatory sinking fund payments in respect of the debt securities of that series on the dates such payments are due in accordance with the terms of the indenture and those debt securities.
This discharge may occur only if, among other things, we have delivered to the trustee an opinion of counsel stating that we have received from, or there has been published by, the United States Internal Revenue Service a ruling or, since the date of execution of the indenture, there has been a change in the applicable United States federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the holders of the debt securities of that series will not recognize income, gain or loss for United States federal income tax purposes as a result of the deposit, defeasance and discharge and will be subject to United States federal income tax on the same amounts and in the same manner and at the same times as would have been the case if the deposit, defeasance and discharge had not occurred. (Section 8.3)
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Defeasance of Certain Covenants. The indenture provides that, unless otherwise provided by the terms of the applicable series of debt securities, upon compliance with certain conditions:
| · | we may omit to comply with the covenant described under the heading “Company and General Partner May Consolidate, Etc., on Certain Terms” and certain other covenants set forth in the indenture, as well as any additional covenants which may be set forth in the applicable prospectus supplement; and | |
| · | any omission to comply with those covenants will not constitute a default or an Event of Default with respect to the debt securities of that series (“covenant defeasance”). |
The conditions include:
| · | depositing with the trustee cash and/or U.S. government obligations that, through the payment of interest and principal in accordance with their terms, will provide an amount sufficient in the opinion of a nationally recognized firm of independent public accountants or investment bank to pay and discharge each installment of principal of and interest on and any mandatory sinking fund payments in respect of the debt securities of that series on the dates such payments are due in accordance with the terms of the indenture and those debt securities; and | |
| · | delivering to the trustee an opinion of counsel to the effect that the holders of the debt securities of that series will not recognize income, gain or loss for United States federal income tax purposes as a result of the deposit and related covenant defeasance and will be subject to United States federal income tax on the same amounts and in the same manner and at the same times as would have been the case if the deposit and related covenant defeasance had not occurred. (Section 8.4) |
No Personal Liability of Directors, Officers, Employees or Stockholders
None of our or any guarantor’s respective past, present or future directors, officers, employees or stockholders, as such, will have any liability for any of our obligations under the debt securities or the indenture or for any claim based on, or in respect or by reason of, such obligations or their creation. By accepting a debt security, each holder waives and releases all such liability. (Section 11.8) This waiver and release is part of the consideration for the issue of the debt securities. However, this waiver and release may not be effective to waive liabilities under U.S. federal securities laws, and it is the view of the SEC that such a waiver is against public policy.
Concerning our Relationship with the Trustee
We have and may continue to have banking and other business relationships with U.S. Bank, or any subsequent trustee, in the ordinary course of business. In December 2019, the Company entered into a Second Amended and Restated Revolving Credit and Term Loan Agreement, which provides for a $500.0 million unsecured revolving credit facility, a $65.0 million unsecured term loan facility and a $35.0 million unsecured term loan facility. As of March 31, 2020, the principal amount outstanding under our revolving credit facility was $242 million with a weighted average interest rate of approximately 2.43%. An affiliate of U.S. Bank is a lender under our revolving credit facility.
Governing Law
The indenture and the debt securities, including any claim or controversy arising out of or relating to the indenture or the securities, will be governed by the laws of the State of New York. (Section 11.10)
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material federal income tax consequences and considerations relating to the acquisition, holding, and disposition of the Company’s securities or the Operating Partnership’s debt securities. For purposes of this discussion under the heading “Material Federal Income Tax Considerations,” the “Company” refers to Agree Realty Corporation, but excluding all its subsidiaries and affiliated entities, and the “Operating Partnership” refers to Agree Limited Partnership. This summary is based upon the Code, the regulations promulgated by the U.S. Treasury Department (which are referred to in this section as “Treasury Regulations”), rulings and other administrative pronouncements issued by the IRS, 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 description of the tax consequences summarized below. No advance ruling has been or will be sought from the IRS regarding any matter discussed in this prospectus. This summary is also based upon the assumption that the Company, and each of its subsidiaries and affiliated entities, will act in accordance with any applicable organizational documents or partnership or limited liability company operating agreement. This summary is for general information only, and does not purport to discuss all aspects of federal income taxation that may be important to a particular investor in light of its investment or tax circumstances, or to investors subject to special tax rules, such as:
| · | financial institutions; |
| · | insurance companies; |
| · | broker-dealers; |
| · | persons who mark-to-market the Company’s securities or the Operating Partnership’s debt securities; |
| · | subchapter S corporations; |
| · | U.S. holders (as defined below) whose functional currency is not the U.S. dollar; |
| · | regulated investment companies and REITs; |
| · | trusts and estates; |
| · | holders who receive the Company’s securities through the exercise of employee stock options or otherwise as compensation; |
| · | persons holding the Company’s securities or the Operating Partnership’s debt securities as part of a “straddle,” “hedge,” “conversion transaction,” “synthetic security” or other integrated investment; |
| · | persons subject to the alternative minimum tax provisions of the Code; |
| · | persons holding the Company’s securities or the Operating Partnership’s debt securities through a partnership or similar pass-through entity; |
| · | persons subject to special tax accounting rules as a result of any item of gross income with respect to the Company’s securities or the Operating Partnership’s debt securities; |
| · | except to the extent discussed below, tax-exempt organizations; and |
| · | except to the extent discussed below, foreign investors. |
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In addition, certain U.S. expatriates, including certain individuals who have lost U.S. citizenship and “long-term residents” (within the meaning of Section 877(e)(2) of the Code) who have ceased to be lawful permanent residents of the United States, are subject to special rules not discussed herein.
This summary assumes that investors will hold their securities as capital assets within the meaning of Section 1221 of the Code, which generally means assets held for investment.
The federal income tax treatment of holders of the Company’s securities or the Operating Partnership’s debt securities depends in some instances on determinations of fact and interpretations of complex provisions of federal income tax law for which no clear precedent or authority may be available. In addition, the tax consequences of holding the Company’s securities or the Operating Partnership’s debt securities to any particular holder will depend on the holder’s particular tax circumstances. You are urged to consult your own tax advisor regarding the federal, state, local, and foreign income and other tax consequences to you (in light of your particular investment or tax circumstances) of acquiring, holding, exchanging, or otherwise disposing of the Company’s securities or the Operating Partnership’s debt securities.
Taxation of the Company
The Company has elected to be a REIT for federal income tax purposes under Sections 856 through 860 of the Code and applicable provisions of the Treasury Regulations, which set forth the requirements for qualifying as a REIT. The Company’s policy has been and is to operate in such a manner as to qualify as a REIT for federal income tax purposes. If the Company so qualifies, then it will generally not be subject to federal income tax on income it currently distributes to its shareholders. For any year in which the Company does not meet the requirements for qualification as a REIT, it will be taxed as a corporation. See “— Failure to Qualify” below.
The company has received an opinion from Honigman LLP, its tax counsel, to the effect that since the commencement of the Company’s taxable year that began January 1, 2016 through December 31, 2019, it has qualified to be taxed as a REIT under the Code, and the Company’s current and proposed method of operation will enable it to continue to qualify as a REIT under the Code. A copy of this opinion is filed as an exhibit to the registration statement of which this prospectus is a part. It must be emphasized that the opinion of Honigman LLP is based on various assumptions relating to the Company’s organization and operation, and is conditioned upon representations and covenants made by the Company’s management regarding its assets and the past, present, and future conduct of its business operations. While the Company intends to operate so that it will 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 the Company’s circumstances, no assurance can be given by Honigman LLP or by the Company that it will so qualify for any particular year. The opinion was expressed as of the date issued and will not cover subsequent periods. Honigman LLP will have no obligation to advise the Company or the holders of its securities or the Operating Partnership’s debt securities 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 or any court, and no assurance can be given that the IRS will not challenge, or a court will not rule contrary to, the conclusions set forth in such opinions.
The Company’s qualification and taxation as a REIT depend upon its ability to meet on a continuing basis, through actual operating results, distribution levels, and diversity of stock ownership, various qualification requirements imposed upon REITs by the Code, its compliance with which has not been, and will not be, reviewed by Honigman LLP on a continuing basis. In addition, the Company’s ability to qualify as a REIT depends in part upon the operating results, organizational structure and entity classification for federal income tax purposes of certain of its affiliated entities, which may not have been reviewed by Honigman LLP. Accordingly, no assurance can be given that the actual results of the Company’s operations for any taxable year satisfy such requirements for qualification and taxation as a REIT.
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Taxation of REITs in General
As indicated above, the Company’s qualification and taxation as a REIT depend upon its ability to meet, on a continuing basis, various qualification requirements imposed upon REITs by the Code. The material qualification requirements are summarized below under “— Requirements for Qualification — General.”
While the Company intends to operate so that it qualifies as a REIT, no assurance can be given that the IRS will not challenge the Company’s REIT status, or that it will be able to operate in accordance with the REIT requirements in the future.
As a REIT, the Company will generally be entitled to a deduction for dividends that it pays, and therefore will not be subject to federal corporate income tax on its net income that is currently distributed to its shareholders. This treatment substantially eliminates the “double taxation” at the corporate and shareholder levels that results from investment in a corporation or an entity treated as a corporation for federal income tax purposes. Rather, income generated by a REIT generally is taxed only at the shareholder level upon a distribution of dividends by the REIT. Net operating losses, foreign tax credits and other tax attributes of a REIT do not pass through to the shareholders of the REIT, subject to special rules for certain items such as capital gains recognized by REITs. See “Federal Income Taxation of U.S. Holders” and “Federal Income Taxation of Non-U.S. Holders” below.
As a REIT, the Company will nonetheless be subject to federal tax in the following circumstances:
| · | The Company will be taxed at regular corporate rates on any undistributed income, including undistributed net capital gains. |
| · | If the Company has net income from “prohibited transactions,” which are, in general, sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business, such income will be subject to a 100% excise tax. See “—Income Tests— Prohibited Transactions” and “—Income Tests— Foreclosure Property” below. |
| · | If the Company elects to treat property that it acquires in connection with a foreclosure of a mortgage loan or certain leasehold terminations as “foreclosure property,” it may thereby avoid the 100% excise tax on gain from a resale of that property (if the sale would otherwise constitute a prohibited transaction), but the income from the sale or operation of the property may be subject to corporate income tax. |
| · | The Company will be subject to a 100% penalty tax on any redetermined rents, redetermined deductions, excess interest, or redetermined TRS service income. In general, redetermined rents are rents from real property that are overstated as a result of services furnished by a “taxable REIT subsidiary” (“TRS”) of the Company to any of its tenants. Redetermined deductions and excess interest represent amounts that are deducted by a TRS of the Company for amounts paid to it that are in excess of the amounts that would have been charged based on arm’s-length negotiations. Redetermined TRS service income is income of a TRS attributable to services provided to, or on behalf of, the Company (other than services furnished or rendered to a tenant of the Company) to the extent such income is lower than the income the TRS would have earned based on arm’s length negotiations. See “— Income Tests—Redetermined Rents, Redetermined Deductions, Excess Interest and Redetermined TRS Service Income” below. |
| · | If the Company should fail to satisfy the 75% gross income test or the 95% gross income test discussed below, due to reasonable cause and not due to willful neglect, and the Company maintains its qualification as a REIT as a result of specified cure provisions, the Company will be subject to a 100% tax on an amount equal to (1) the amount by which it fails the 75% gross income test or the amount by which it fails the 95% gross income test (whichever is greater), multiplied by (2) a fraction intended to reflect the Company’s profitability. |
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| · | If the Company fails to satisfy any of the REIT asset tests (other than a de minimis failure of the 5% and 10% asset tests) described below, due to reasonable cause and not due to willful neglect, and the Company maintains its REIT qualification as a result of specified cure provisions, the Company will be required to pay a tax equal to the greater of $50,000 or the highest federal income tax rate then applicable to U.S. corporations multiplied by the net income generated by the nonqualifying assets that caused it to fail such test. |
| · | If the Company fails to satisfy any requirement of the Code for qualifying as a REIT, other than a failure to satisfy the REIT gross income tests or asset tests, and the failure is due to reasonable cause and not due to willful neglect, the Company may retain its REIT qualification but it will be required to pay a penalty of $50,000 for each such failure. |
| · | If the Company should fail to distribute during each calendar year at least the sum of (1) 85% of its “REIT ordinary income” (i.e., “REIT taxable income” excluding capital gain and without regard to the dividends paid deduction) for such year, (2) 95% of its REIT capital gain net income for such year, and (3) any undistributed taxable income from prior periods, the Company would be subject to a 4% excise tax on the excess of such sum over the aggregate of amounts actually distributed and retained amounts on which income tax is paid at the corporate level. |
| · | The Company may be required to pay monetary penalties to the IRS in certain circumstances, including if it fails to meet certain record keeping requirements intended to monitor its compliance with rules relating to the composition of a REIT’s shareholders, as described below in “— Requirements for Qualification — General.” |
| · | If the Company acquires any asset from a subchapter C corporation in a transaction in which gain or loss is not recognized, and it subsequently recognizes gain on the disposition of any such asset during the five-year period (which is referred to in this section as the “Recognition Period”) beginning on the date on which the Company acquires the asset, then the excess of (1) the fair market value of the asset as of the beginning of the Recognition Period, over (2) the Company’s adjusted basis in such asset as of the beginning of such Recognition Period (which is referred to in this section as “Built-in Gain”) will generally be (with certain adjustments) subject to tax at the highest corporate income tax rate. Similar rules would apply if within the five-year period beginning on the first day of a taxable year for which the Company re-qualifies as a REIT after being subject to tax as a corporation under subchapter C of the Code for more than two years it were to dispose of any assets that it held on such first day. |
| · | Certain of the Company’s subsidiaries, including its TRSs, are taxable as corporations and their earnings are subject to corporate income tax. |
In addition, notwithstanding its qualification as a REIT, the Company and its subsidiaries may be subject to a variety of taxes, including payroll taxes, and state and local income, property and other taxes on their assets and operations. The Company could also be subject to tax in situations and on transactions not currently contemplated.
Requirements for Qualification — General
The 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 Code provisions applicable to REITs; |
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| (4) | that is neither a financial institution nor an insurance company subject to certain provisions of the Code; |
| (5) | the beneficial ownership of which is held by 100 or more persons; |
| (6) | not more than 50% in value of the outstanding stock of which is owned, directly or indirectly through the application of certain attribution rules, by five or fewer individuals (as defined in the Code to include certain tax-exempt entities) during the last half of each taxable year; and |
| (7) | that meets other tests described below, including tests with respect to the nature of its income and assets and the amount of its distributions. |
The Code provides that conditions (1) through (4) must be met during the entire taxable year and 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 taxable year of less than 12 months. The Company believes that it has been organized and operated in a manner that has allowed it to satisfy the requirements set forth in (1) through (7) above. In addition, the Charter currently includes certain restrictions regarding transfer of the Company’s shares of capital stock that are intended (among other things) to assist the Company in continuing to satisfy the share ownership requirements described in (5) and (6) above.
To monitor compliance with the share ownership requirements, the Company is required to maintain records regarding the actual ownership of its shares. To do so, the Company must demand written statements each year from the record holders of significant percentages of its shares in which the record holders are to disclose the actual owners of such shares (that is, the persons required to include in gross income the dividends paid by the Company). A list of those persons failing or refusing to comply with this demand must be maintained as part of the Company’s records. The Company’s failure to comply with these record-keeping requirements could subject it to monetary penalties. A shareholder that fails or refuses to comply with the demand is required by Treasury Regulations to submit a statement with its tax return disclosing the actual ownership of the shares and other information.
In addition, the Company may not elect to become a REIT unless its taxable year is the calendar year. The Company satisfies this requirement.
Effect of Subsidiary Entities
Ownership of Partnership Interests. In the case of a REIT that is a partner in a partnership (treating, as a partner of a partnership for this purpose, a member of a limited liability company that is classified as a partnership for federal income tax purposes), Treasury Regulations provide that the REIT will be deemed to own its proportionate share of the assets of the partnership, and the REIT will be deemed to be entitled to the income of the partnership attributable to such share. The character of the assets and gross income of the partnership (determined at the level of the partnership) are the same in the hands of the REIT for purposes of Section 856 of the Code, including satisfying the gross income and asset tests described below. Accordingly, the Company’s proportionate share of the assets, liabilities, and items of income of the Operating Partnership and any of its other subsidiaries that are partnerships (provided that the subsidiary partnerships are not taxable as corporations for federal income tax purposes) is treated as the Company’s assets, liabilities and items of income for purposes of applying the requirements described in this summary (including the gross income and asset tests described below). One exception to the rule described above is that, for purposes of the prohibition against holding securities having a value greater than 10% of the total value of the outstanding securities of any one issuer discussed under “— Asset Tests” below, a REIT’s proportionate share of any securities held by a partnership is not based solely on its capital interest in the partnership but also includes its interest (as a creditor) in certain debt securities of the partnership (excluding “straight debt” and certain other securities described under “— Asset Tests” below). A summary of certain rules governing the federal income taxation of partnerships and their partners is provided below in “Tax Aspects of Investment in the Operating Partnership.”
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Disregarded Subsidiaries. If a REIT owns a corporate subsidiary that is a “qualified REIT subsidiary,” that subsidiary is disregarded for federal income tax purposes, and all assets, liabilities and items of income, deduction and credit of the subsidiary are treated as assets, liabilities and items of income, deduction and credit of the REIT itself, including for purposes of applying the gross income and asset tests applicable to REITs summarized below. A qualified REIT subsidiary is any corporation, other than a TRS (described below), that is wholly-owned by a REIT, or by other disregarded subsidiaries, or by a combination of the two. Other entities the Company wholly owns, including single member limited liability companies, are also generally disregarded as separate entities for federal income tax purposes, including for purposes of applying the REIT income and asset tests described below. Disregarded subsidiaries, along with the Company’s subsidiary partnerships, are sometimes referred to as “pass-through subsidiaries.” In the event that any of the Company’s disregarded subsidiaries ceases to be wholly-owned by it (for example, if any equity interest in the subsidiary is acquired by a person other than the Company or one of its other disregarded subsidiaries), the subsidiary’s separate existence would no longer be disregarded for 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 the Company’s ability to satisfy the various asset and gross income requirements applicable to REITs, including the requirement that REITs generally may not own, directly or indirectly, more than 10% (as measured by either voting power or value) of the securities of any one issuer. See “— Income Tests” and “— Asset Tests” below.
Taxable Subsidiaries. A REIT may jointly elect with a subsidiary corporation, whether or not wholly-owned, to treat the subsidiary corporation as a TRS of the REIT. In addition, a corporation (other than a REIT or qualified REIT subsidiary) is treated as a TRS if a TRS of a REIT owns directly or indirectly securities possessing more than 35% of the total voting power, or having more than 35% of the total value, of the outstanding securities of the corporation. The Company has interests in several corporations treated as TRSs. The separate existence of a TRS or other taxable corporation, unlike a disregarded subsidiary as discussed above, is not ignored for federal income tax purposes. Accordingly, the Company’s TRSs are subject to corporate income tax on their earnings, and this may reduce the aggregate cash flow that the Company and its subsidiaries generate and thus the Company’s ability to make distributions to its shareholders.
A parent REIT is not treated as holding the assets of a taxable subsidiary corporation or as receiving any undistributed income that the subsidiary earns. Rather, the stock issued by the subsidiary is an asset in the hands of the parent REIT, and the REIT recognizes, as income, any dividends that it receives from the subsidiary. This treatment can affect the income and asset test calculations that apply to the REIT. Because a parent REIT does not include the assets and undistributed income of taxable subsidiary corporations in determining the parent’s compliance with the REIT requirements, these entities may be used by the parent REIT indirectly to undertake activities that the applicable rules might otherwise preclude the parent REIT from doing directly or through pass-through subsidiaries (for example, activities that give rise to certain categories of income, such as management fees, that do not qualify under the 75% and 95% gross income tests described below).
In addition, certain sections of the Code that are intended to ensure that transactions between a parent REIT and its TRS occur at arm’s length and on commercially reasonably terms may prevent a TRS from deducting interest on debt funded directly or indirectly by its parent REIT if certain tests regarding the TRS’s debt to equity ratio and interest expense are not satisfied. Overall limitations on the deductibility of net interest expense by businesses could also apply to any TRS.
Income Tests
To maintain its qualification as a REIT, the Company must annually satisfy two gross income requirements. First, at least 75% of the Company’s gross income for each taxable year, excluding gross income from sales of inventory or dealer property in “prohibited transactions,” must derive from (1) investments in real property or mortgages on real property, including “rents from real property,” dividends received from other REITs, interest income derived from mortgage loans secured by real property (including certain types of mortgage-backed securities), interest income derived from mortgage loans secured by both real and personal property if the fair market value of such personal property does not exceed 15% of the total fair market value of all property securing the loans, and gains from the sale of real estate assets, or (2) certain kinds of temporary investment of new capital. Although a debt instrument issued by a “publicly offered REIT” (i.e., a REIT that is required to file annual and periodic reports with the SEC under the Exchange Act) is treated as a “real estate asset” for purposes of the asset tests described below, neither interest on, nor gain from the sale of, such debt instruments is treated as qualifying income for purposes of the 75% gross income test unless the debt instrument is secured by real property or an interest in real property.
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Second, at least 95% of the Company’s gross income in each taxable year, excluding gross income from prohibited transactions, must derive from some combination of such income from investments in real property and temporary investment of new capital (that is, income that qualifies under the 75% gross 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. Income from debt instruments issued by publicly offered REITs is qualifying income for purposes of the 95% gross income test. Gross income from the Company’s sale of property that it holds primarily for sale to customers in the ordinary course of business (as described in “—Prohibited Transactions” below) is excluded from both the numerator and the denominator in both gross income tests. In addition, income and gain from “hedging transactions” (as defined in “—Hedging Transactions” below) that the Company enters into to hedge indebtedness incurred or to be incurred to acquire or carry real estate assets and that are clearly and timely identified as such will be excluded from both the numerator and the denominator for purposes of the 75% and 95% gross income tests. Certain foreign currency gains will also be excluded from gross income for purposes of one or both of the gross income tests. See “— Foreign Currency Gain” below. Finally, gross income attributable to cancellation of indebtedness income will be excluded from both the numerator and denominator for purposes of both of the gross income tests.
Rents from Real Property. For purposes of satisfying the 75% and 95% gross income tests, “rents from real property” generally include rents from interests in real property, charges for services customarily furnished or rendered in connection with the rental of real property (whether or not such charges are separately stated), and rent attributable to personal property that is leased under, or in connection with, a lease of real property. However, the inclusion of these items as rents from real property is subject to the conditions described immediately below.
| · | Any amount received or accrued, directly or indirectly, with respect to any real or personal property cannot be based in whole or in part on the income or profits of any person from such property. However, an amount received or accrued generally will not be excluded from rents from real property solely by reason of being based on a fixed percentage or percentages of receipts or sales. In addition, amounts received or accrued based on income or profits do not include amounts received from a tenant based on the tenant’s income from the property if the tenant derives substantially all of its income with respect to such property from leasing or subleasing substantially all of such property, provided that the tenant receives from subtenants only amounts that would be treated as rents from real property if received directly by the REIT. |
| · | Amounts received from a tenant generally will not qualify as rents from real property in satisfying the gross income tests if the REIT directly, indirectly, or constructively owns (1) in the case of a tenant that is a corporation, 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 a tenant that is not a corporation, an interest of 10% or more in the assets or net profits of such tenant (such a tenant is referred to in this section as a “Related Party Tenant”). Rents that the Company receives from a Related Party Tenant that is also a TRS of the Company, however, will not be excluded from the definition of “rents from real property” if at least 90% of the space at the property to which the rents relate is leased to third parties, and the rents paid by the TRS are substantially comparable to rents paid by the Company’s other tenants for comparable space. Whether rents paid by the Company’s TRS are substantially comparable to rents paid by its other tenants is determined at the time the lease with the TRS is entered into, extended, and modified, if such modification increases the rents due under such lease. Notwithstanding the foregoing, however, if a lease with a “controlled” TRS is modified and such modification results in an increase in the rents payable by such TRS, any such increase will not qualify as rents from real property. For purposes of this rule, a “controlled” TRS is a TRS in which the Company owns stock possessing more than 50% of the voting power or more than 50% of the total value. |
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| · | 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 the lease, then the portion of rent attributable to such personal property will not qualify as rents from real property. The determination of whether more than 15% of the rents received by a REIT from a property is attributable to personal property is based upon a comparison of the fair market value of the personal property leased by the tenant to the fair market value of all the property leased by the tenant. |
| · | Rents from real property do not include any amount received or accrued directly or indirectly by a REIT for services furnished or rendered to tenants of a property or for managing or operating a property, unless the services furnished or rendered, or management or operations provided, are of a type that a tax-exempt organization can provide to its tenants without causing its rental income to be unrelated business taxable income under the Code (that is, unless they are of a type “usually or customarily rendered in connection with the rental of space for occupancy only” or are not considered “primarily for the tenant’s convenience”). Services, management, or operations which, if provided by a tax-exempt organization, would give rise to unrelated business taxable income (referred to in this section as “Impermissible Tenant Services”) will not be treated as provided by the REIT if provided by either an “independent contractor” (as defined in the Code) who is adequately compensated and from whom the REIT does not derive any income, or by a TRS. If an amount received or accrued by a REIT for providing Impermissible Tenant Services to tenants of a property exceeds 1% of all amounts received or accrued by the REIT with respect to such property in any year, none of such amounts will constitute rents from real property. For purposes of this test, the income received from Impermissible Tenant Services is deemed to be at least 150% of the direct cost of providing the services. If the 1% threshold is not exceeded, only the amounts received for providing Impermissible Tenant Services will not constitute rents from real property. |
Substantially all of the Company’s income derives from the Operating Partnership. The Operating Partnership’s income derives largely from rent attributable to the Company’s properties (which properties are referred to in this section as the “Properties”). The Operating Partnership also derives income from its TRSs insofar as they pay dividends on shares owned by the Operating Partnership. The Operating Partnership does not, and is not expected to, charge rent that is based in whole or in part on the income or profits of any person (but does charge rent based on a fixed percentage or percentages of receipts or sales). The Operating Partnership does not, and is not anticipated to, derive rent attributable to personal property leased in connection with real property that exceeds 15% of the total rent for such property.
In addition, the Company does not believe that it derives (through the Operating Partnership) rent from a Related Party Tenant. However, the determination of whether the Company owns 10% or more (as measured by either voting power or value) of any tenant is made after the application of complex attribution rules under which the Company will be treated as owning interests in tenants that are owned by its “Ten Percent Shareholders.” In identifying the Company’s Ten Percent Shareholders, each individual or entity will be treated as owning shares held by related individuals and entities. Accordingly, the Company cannot be absolutely certain whether all Related Party Tenants have been or will be identified. Although rent derived from a Related Party Tenant will not qualify as rents from real property and, therefore, will not be qualifying income under the 75% or 95% gross income test, the Company believes that the aggregate amount of any such rental income (together with any other nonqualifying income) in any taxable year will not cause it to exceed the limits on nonqualifying income under such gross income tests.
The Operating Partnership provides certain services with respect to the Properties (and expects to provide such services with respect to any newly acquired properties) through certain TRSs. Because the services are provided through the Company’s TRSs, the provision of such services will not cause the amounts received by the Company (through its ownership interest in the Operating Partnership) with respect to the Properties to fail to qualify as rents from real property for purposes of the 75% and 95% gross income tests.
Dividends. The Company may (through one or more pass-through subsidiaries) indirectly receive distributions from TRSs or other corporations that are neither REITs nor qualified REIT subsidiaries. These distributions will be classified as dividend income to the extent of the earnings and profits of the distributing corporation. Such distributions will generally constitute qualifying income for purposes of the 95% gross income test, but not for purposes of the 75% gross income test.
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Hedging Transactions. From time to time, the Company enters into transactions, such as interest rate swaps, that hedge its risk with respect to one or more of its assets or liabilities. Income from “hedging transactions” that are clearly identified in the manner specified by the Code will not constitute gross income, and will not be counted, for purposes of the 75% or 95% gross income test. The term “hedging transaction,” as used above, generally means (i) any transaction entered into in the normal course of a trade or business primarily to manage risk of interest rate or price changes or currency fluctuations with respect to borrowings made or to be made to acquire or carry real estate assets, (ii) any transaction entered into primarily to manage the risk of currency fluctuations with respect to any item of income or gain (or property which generates income or gain) that would be qualifying income under the 75% or 95% gross income test or (iii) any transaction entered into after December 31, 2015 to “offset” transactions described in (i) or (ii) if a portion of the hedged indebtedness is extinguished or the related property is disposed of. The Company is required to clearly identify any such hedging transaction before the close of the day on which it was acquired, originated, or entered into and to satisfy other identification requirements. The Company intends to structure its hedging activities in a manner that does not jeopardize its status as a REIT.
Prohibited Transactions. Net income derived from a “prohibited transaction” is subject to a 100% excise tax. The term “prohibited transaction” includes a sale or other disposition of property (other than foreclosure property) that is held primarily for sale to customers in the ordinary course of a trade or business. The Operating Partnership owns interests in real property that is situated on the periphery of certain of the Properties. The Company and the Operating Partnership believe that this peripheral property is not held primarily for sale to customers and that the sale of such peripheral property will not be in the ordinary course of the Operating Partnership’s business. The Company intends to conduct its operations so that no asset owned by it or its pass-through subsidiaries will be held primarily for sale to customers, and that a sale of any such asset will not be a prohibited transaction subject to the 100% excise tax. Whether property is held primarily for sale to customers in the ordinary course of the Company’s business depends, however, on the facts and circumstances as they exist from time to time, including those relating to a particular property. As a result, no assurance can be given that the IRS will not recharacterize property the Operating Partnership owns as property held primarily for sale to customers in the ordinary course of its business, or that it can comply with certain safe-harbor provisions of the Code that would prevent such treatment. In the event the Company determines that a property, the ultimate sale of which is expected to result in taxable gain, will be regarded as held primarily for sale to customers in the ordinary course of trade or business, The Company intends to cause such property to be acquired by or transferred to a TRS so that gain from such sale will be subject to regular corporate income tax as discussed above under “— Effect of Subsidiary Entities — Taxable Subsidiaries.”
Foreclosure Property. Foreclosure property is real property and any personal property incident to such real property (1) that is acquired by a REIT as the result of the REIT’s having bid in 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 on a mortgage loan held by the REIT and secured by the property, (2) the loan or lease related to which was acquired by the REIT at a time when default was not imminent or anticipated, and (3) that such REIT makes a proper election to treat as foreclosure property. REITs are subject to tax at the maximum corporate tax rate 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% excise tax on gains from prohibited transactions described above, even if the property would otherwise constitute dealer property (i.e., property held primarily for sale to customers in the ordinary course of business) in the hands of the selling REIT. A TRS may operate property on which a REIT has made a foreclosure property election without loss of foreclosure property status.
Redetermined Rents, Redetermined Deductions, Excess Interest, and Redetermined TRS Service Income. Any redetermined rents, redetermined deductions, or excess interest the Company generates will be subject to a 100% penalty tax. In general, redetermined rents are rents from real property that are overstated as a result of services furnished by a TRS to any of the Company’s tenants, and redetermined deductions and excess interest represent amounts that are deducted by a TRS for amounts paid to the Company that are in excess of the amounts that would have been charged based on arm’s length negotiations. Under “safe harbor” provisions of the Code, rents the Company receives from tenants of a property will not constitute redetermined rents (by reason of the performance of services by any TRS to such tenants) if:
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| · | So much of such amounts as constitutes impermissible tenant service income does not exceed 1% of all amounts received or accrued during the year with respect to the property; |
| · | The TRS renders a significant amount of similar services to unrelated parties and the charges for such services are substantially comparable; |
| · | Rents paid by tenants leasing at least 25% of the net leasable space in the property who are not receiving services from the TRS are substantially comparable to the rents paid by tenants leasing comparable space who are receiving such services from the TRS and the charge for the services is separately stated; or |
| · | The TRS’s gross income from the service is not less than 150% of the subsidiary’s direct cost in furnishing the service. |
Any redetermined TRS service income will also be subject to a 100% penalty tax. Redetermined TRS service income is income of a TRS attributable to services provided to, or on behalf of, the Company (other than services furnished or rendered to a tenant of the Company) to the extent such income is lower than the income the TRS would have earned based on arm’s length negotiations.
Foreign Currency Gain. Certain foreign currency gains will be excluded from gross income for purposes of one or both of the gross income tests. “Real estate foreign exchange gain” will be excluded from gross income for purposes of the 75% and 95% gross income tests. Real estate foreign exchange gain generally includes foreign currency gain attributable to any item of income or gain that is qualifying income for purposes of the 75% gross income test, foreign currency gain attributable to the acquisition or ownership of (or becoming or being the obligor under) obligations secured by mortgages on real property or an interest in real property and certain foreign currency gain attributable to certain “qualified business units” of a REIT that would satisfy the 75% gross income test and 75% asset test (discussed below) on a stand-alone basis. “Passive foreign exchange gain” will be excluded from gross income for purposes of the 95% gross income test. Passive foreign exchange gain generally includes real estate foreign exchange gain as described above, and also includes foreign currency gain attributable to any item of income or gain that is qualifying income for purposes of the 95% gross income test and foreign currency gain attributable to the acquisition or ownership of (or becoming or being the obligor under) obligations. These exclusions for real estate foreign exchange gain and passive foreign exchange gain do not apply to foreign currency gain derived from dealing, or engaging in substantial and regular trading, in securities. Such gain is treated as non-qualifying income for purposes of both the 75% and 95% gross income tests.
In sum, the Company’s
investment in real properties through the Operating Partnership and the provision of services with respect to those properties
through TRSs, gives and will give rise mostly to rental income qualifying under the 75% and 95% gross income tests. Gains on sales
of such properties, or of the Company’s interest in such properties or in the Operating Partnership, will generally qualify
under the 75% and 95% gross income tests.
The Company anticipates that income on its other investments will not result in the Company failing the 75% or 95% gross income
test for any year.
Failure to Satisfy Gross Income Tests. If the Company fails to satisfy one or both of the 75% and 95% gross income tests for any taxable year, it may nevertheless qualify as a REIT for such year if it is entitled to relief under certain provisions of the Code. The Company may avail itself of the relief provisions if: (1) following its identification of the failure to meet the 75% or 95% gross income test for any taxable year, the Company files a schedule with the IRS setting forth each item of its gross income for purposes of the 75% or 95% gross income test for such taxable year in accordance with Treasury Regulations prescribed by the Secretary of the U.S. Treasury; and (2) its failure to meet the test was due to reasonable cause and not due to willful neglect. It is not possible, however, to state whether in all circumstances the Company would be entitled to the benefit of these relief provisions. As discussed above in “— Taxation of REITs in General,” even if these relief provisions apply, a tax would be imposed with respect to the excess nonqualifying gross income.
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Asset Tests
At the close of each calendar quarter of its taxable year, the Company must also satisfy the following five tests relating to the nature of its assets. For purposes of each of these tests, the Company’s assets are deemed to include the assets of any disregarded subsidiary and its share of the assets of any subsidiary partnership, such as the Operating Partnership.
| · | At least 75% of the value of the Company’s total assets must be represented by some combination of “real estate assets,” cash or cash items, including certain receivables and, in certain circumstances, foreign currencies, U.S. government securities, and, under some circumstances, stock or debt instruments purchased with new capital. For this purpose, “real estate assets” include interests in real property, such as land, buildings, leasehold interests in real property, stock of corporations that qualify as REITs, some kinds of mortgage-backed securities and mortgage loans, and debt instruments issued by publicly offered REITs, personal property leased in connection with a lease of real property to the extent that rent attributable to such personal property meets the 15% test described under “— Income Tests” above to qualify as “rents from real property” for purposes of the 75% gross income test, and debt secured by a mortgage on both real and personal property if the fair market value of the personal property securing the debt does not exceed 15% of the total fair market value of all property securing the debt. |
| · | The aggregate value of all securities of TRSs the Company holds may not exceed 20% of the value of its total assets. |
| · | The aggregate value of all debt instruments the Company holds of publicly offered REITs, to the extent such debt instruments are not secured by real property or interests in real property (and, therefore, would not qualify as “real estate assets” but for having been issued by publicly offered REITs), may not exceed more than 25% of the value of its total assets. |
| · | The value of any one issuer’s securities owned by the Company may not exceed 5% of the value of its assets. This asset test does not apply to securities of TRSs or to any security that qualifies as a “real estate asset.” |
| · | The Company may not own more than 10% of any one issuer’s outstanding securities, as measured by either voting power or value. This asset test does not apply to securities of TRSs or to any security that qualifies as a “real estate asset.” In addition, solely for purposes of the 10% value test, certain types of securities, including certain “straight debt” securities, are disregarded. |
No securities issued by a corporation or partnership will qualify as “straight debt” if the Company owns (or a TRS in which the Company owns a greater than 50% interest, as measured by vote or value, owns) other securities of such issuer that represent more than 1% of the total value of all securities of such issuer.
Debt instruments issued by a partnership that do not qualify as “straight debt” are (1) not subject to the 10% value test to the extent of the Company’s interest as a partner in that partnership and (2) completely excluded from the 10% value test if at least 75% of the partnership’s gross income (excluding income from “prohibited transactions”) consists of income qualifying under the 75% gross income test. In addition, the 10% value test does not apply to (1) any loan made to an individual or an estate, (2) certain rental agreements in which one or more payments are to be made in subsequent years (other than agreements between the Company and certain persons related to it), (3) any obligation to pay rents from real property, (4) securities issued by governmental entities that are not dependent in whole or in part on the profits of (or payments made by) a non-governmental entity, and (5) any security issued by another REIT.
The Company is deemed to own, for purposes of the 10% value test, the securities held by a partnership based on its proportionate interest in any securities issued by the partnership (excluding “straight debt” and the securities described in the last sentence of the preceding paragraph). Thus, the Company’s proportionate share is not based solely on its capital interest in the partnership but also includes its interest in certain debt securities issued by the partnership.
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After meeting the asset tests at the close of any quarter, the Company will not lose its status 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 the failure to satisfy the asset tests results from an acquisition of securities or other property during a quarter, the failure can be cured by a disposition of sufficient nonqualifying assets within 30 days after the close of that quarter. The Company believes that it maintains adequate records with respect to the nature and value of its assets to enable the Company to comply with the asset tests and to enable it to take such action within 30 days after the close of any quarter as may be required to cure any noncompliance. There can be no assurance, however, that the Company will always successfully take such action.
Certain relief provisions may be available to the Company if it discovers a failure to satisfy the asset tests described above after the 30-day cure period. Under these provisions, the Company will be deemed to have met the 5% and 10% asset tests if (1) the value of its nonqualifying assets does not exceed the lesser of (a) 1% of the total value of its assets at the end of the applicable quarter or (b) $10,000,000 and (2) it disposes of the nonqualifying assets or otherwise satisfies such tests within (a) six months after the last day of the quarter in which the failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury Regulations to be issued. For violations of any asset tests due to reasonable cause and not due to willful neglect and that are, in the case of the 5% and 10% asset tests, in excess of the de minimis exception described in the preceding sentence, the Company may avoid disqualification as a REIT after the 30-day cure period by taking steps including (1) the disposition of sufficient nonqualifying assets or the taking of other actions that allow it to meet the asset tests within (a) six months after the last day of the quarter in which the failure to satisfy the asset tests is discovered or (b) the period of time prescribed by Treasury Regulations to be issued, (2) paying a tax equal to the greater of (a) $50,000 or (b) the highest corporate tax rate multiplied by the net income generated by the nonqualifying assets, and (3) disclosing certain information to the IRS. Although the Company believes that it has satisfied the asset tests described above and plans to take steps to ensure that it satisfies such tests for any calendar quarter with respect to which re-testing is to occur, there can be no assurance that the Company will always be successful or that a reduction in its overall interest in an issuer (including a TRS) will not be required. If the Company fails to cure any noncompliance with the asset tests in a timely manner and the relief provisions described above are not available, the Company would cease to qualify as a REIT. See “— Failure to Qualify” below.
The Company believes that its holdings of securities and other assets have complied and will continue to comply with the foregoing REIT asset requirements, and the Company intends to monitor compliance on an ongoing basis. No independent appraisals have been obtained, however, to support the Company’s conclusions as to the value of its total assets, or the value of any particular security or securities. Moreover, values of some assets may not be susceptible to a precise determination, and values are subject to change in the future. Accordingly, there can be no assurance that the IRS will not contend that the Company fails to meet the REIT asset requirements by reason of its interests in its subsidiaries or in the securities of other issuers or for some other reason.
Annual Distribution Requirement
To maintain its qualification as a REIT, the Company is required to distribute dividends (other than capital gain dividends) to its shareholders each year in an amount at least equal to: (1) the sum of (a) 90% of its “REIT taxable income” (which is the Company’s taxable income exclusive of net income from foreclosure property, and with certain other adjustments) but computed without regard to the dividends paid deduction and its net capital gain, and (b) 90% of the excess of its net income, if any, from “foreclosure property” (described above) over the tax imposed on that income; minus (2) the sum of certain items of non-cash income.
These distributions must be paid in the taxable year to which they relate, or in the following taxable year if the distributions are declared before the Company timely files its tax return for the taxable year to which they relate, the distributions are paid on or before the first regular dividend payment after such declaration, and the Company makes an election to treat the distributions as relating to the prior taxable year. In addition, any dividend the Company declares in October, November, or December of any year that is payable to a shareholder of record on a specified date in any such month will be treated as both paid by it and received by the shareholder on December 31 of such year, provided that the Company actually pays the dividend before the end of January of the following calendar year.
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The Company is a “publicly offered REIT.” If the Company ceases to be a publicly offered REIT, then in order for its distributions to be counted as satisfying the annual distribution requirement for REITs and to provide it with the REIT-level tax deduction, such distributions must not have been “preferential dividends.” A distribution is not a preferential dividend if that distribution is (i) pro rata among all outstanding shares within a particular class of stock and (ii) in accordance with the preferences among different classes of stock as set forth in the Charter.
To the extent that the Company distributes at least 90%, but less than 100%, of its “REIT taxable income” (computed without regard to the dividends paid deduction and with certain adjustments), it will be subject to tax at ordinary corporate rates on the retained portion. The Company may elect to retain, rather than distribute, its net long-term capital gains and pay tax on such gains. In this case, the Company could elect to have its shareholders include their proportionate share of such undistributed long-term capital gains in income, and to receive a corresponding credit for their share of the tax paid by the Company. The Company’s shareholders would then increase the adjusted basis of their shares by the difference between the designated amounts included in their long-term capital gains and the tax deemed paid with respect to their shares.
Net operating losses that the Company is allowed to carry forward from prior tax years may reduce the amount of distributions that it must make in order to comply with the REIT distribution requirements. Such losses, however, will generally not affect the character, in the hands of the shareholders, of any distributions that are actually made by the Company, which are generally taxable to the shareholders as dividends to the extent that the Company has current or accumulated earnings and profits. See “Federal Income Taxation of U.S. Holders — Distributions on Capital Stock” below.
If the Company fails to distribute during each calendar year at least the sum of: (1) 85% of its “REIT ordinary income” (i.e., “REIT taxable income” excluding capital gain and without regard to the dividends paid deduction) for that year; (2) 95% of its REIT capital gain net income for that year; and (3) any undistributed taxable income from prior periods, the Company would be subject to a 4% excise tax on the excess of such sum over the aggregate of amounts actually distributed and retained amounts on which income tax is paid at the corporate level. The Company believes that it has made, and intends to continue to make, distributions in such a manner so as not to be subject to the 4% excise tax.
The Company intends to make timely distributions sufficient to satisfy the annual distribution requirement. In this regard, the partnership agreement of the Operating Partnership provides that the Company, as general partner, must use its best efforts to cause the Operating Partnership to distribute to its partners amounts sufficient to permit the Company to meet this distribution requirement. It is possible that, from time to time, the Company may not have sufficient cash or other liquid assets to meet the 90% distribution requirement, as a result of timing differences between the actual receipt of cash (including distributions from the Operating Partnership) and actual payment of expenses on the one hand, and the inclusion of such income and deduction of such expenses in computing the Company’s “REIT taxable income” on the other hand. To avoid any failure to comply with the 90% distribution requirement, the Company will closely monitor the relationship between its “REIT taxable income” and cash flow, and if necessary, will borrow funds (or cause the Operating Partnership or other affiliates to borrow funds) in order to satisfy the distribution requirement.
The Company may satisfy the 90% distribution requirement with taxable distributions of its stock or debt securities. The IRS has issued a revenue procedure authorizing publicly offered REITs to treat certain distributions that are paid partly in cash and partly in stock as dividends that would satisfy the REIT annual distribution requirement and qualify for the dividends paid deduction for federal income tax purposes. The Company currently does not intend to pay taxable dividends payable in cash and stock.
Under certain circumstances, the Company may be able to cure a failure to meet the distribution requirement for a year by paying “deficiency dividends” to shareholders in a later year, which may be included in the Company’s deduction for dividends paid for the earlier year. Thus, the Company may be able to avoid both losing its REIT status and being taxed on amounts distributed as deficiency dividends. The Company will be required to pay interest, however, based upon the amount of any deduction taken for deficiency dividends.
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Failure to Qualify
Specified cure provisions are available to the Company in the event that it violates a provision of the Code that would otherwise result in its failure to qualify as a REIT. Except with respect to violations of the REIT income tests and asset tests (for which the cure provisions are described above), and provided the violation is due to reasonable cause and not due to willful neglect, these cure provisions impose a $50,000 penalty for each violation in lieu of a loss of REIT status. If the Company fails to qualify for taxation as a REIT in any taxable year, and the relief provisions do not apply, the Company will be subject to tax on its taxable income at the applicable corporate tax rate. Distributions to shareholders in any year in which the Company fails to qualify will not be deductible by the Company, nor will they be required to be made. In such event, to the extent of current and accumulated earnings and profits, all distributions to shareholders will be taxable as dividends and, subject to certain limitations in the Code, corporate distributees may be eligible for the dividends received deduction. Unless entitled to relief under specific statutory provisions, the Company will also be disqualified from taxation as a REIT for the four taxable years following the year of termination of its REIT status. It is not possible to state whether in all circumstances the Company would be entitled to this statutory relief.
Tax Aspects of Investment in the Operating Partnership
General
The Company holds a direct interest in the Operating Partnership, which is classified as a partnership for federal income tax purposes. The Operating Partnership, together with any entities treated as partnerships for federal income tax purposes that the Company holds an interest in, are referred to as the “Partnerships.” In general, partnerships are “pass-through” entities that are not subject to 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 potentially subject to tax thereon, without regard to whether the partners receive a distribution from the partnership. The Company will include its proportionate share of the foregoing partnership items in computing its “REIT taxable income.” See “Taxation of the Company — Income Tests” above. Any resultant increase in the Company’s “REIT taxable income” will increase the amount it must distribute to satisfy the REIT distribution requirement (see “Taxation of the Company — Annual Distribution Requirement” above) but will generally not be subject to federal income tax in the Company’s hands provided that it distributes such income to its shareholders.
Entity Classification
The Company’s interests in the Partnerships involve special tax considerations, including the possibility of a challenge by the IRS to the status of the Operating Partnership or any other partnership as a partnership (as opposed to an association taxable as a corporation) for federal income tax purposes. In general, under certain Treasury Regulations that became effective January 1, 1997 (referred to in this section as the “Check-the-Box Regulations”), an unincorporated entity with at least two members may elect to be classified either as a corporation or as a partnership for federal income tax purposes. If such an entity does not make an election, it generally will be treated as a partnership for federal income tax purposes. For such an entity that was in existence prior to January 1, 1997, such as the Operating Partnership, the entity will have the same classification (unless it elects otherwise) that it claimed under the rules in effect prior to the Check-the-Box Regulations. In addition, the federal income tax classification of an entity that was in existence prior to January 1, 1997 will be respected for all periods prior to January 1, 1997 if (1) the entity had a reasonable basis for its claimed classification, (2) the entity and all members of the entity recognized the federal income tax consequences of any changes in the entity’s classification within the 60 months prior to January 1, 1997, and (3) neither the entity nor any member of the entity was notified in writing by a taxing authority on or before May 8, 1996 that the classification of the entity was under examination. The Company believes that the Operating Partnership and any other partnerships in which it previously directly or indirectly held an interest that existed prior to January 1, 1997 reasonably claimed partnership classification under the Treasury Regulations relating to entity classification in effect prior to January 1, 1997, and such classification should be respected for federal income tax purposes. Each of them intends to continue to be classified as a partnership for federal income tax purposes, and none of them intends to elect to be treated as an association taxable as a corporation under the Check-the-Box Regulations.
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If the Operating Partnership or any of the other partnerships were to be treated as an association, it would be taxable as a corporation and therefore subject to an entity-level tax on its income. In such a situation, the character of the Company’s assets and items of gross income would change, which would likely preclude it from satisfying the asset tests and possibly the income tests (see “Taxation of the Company — Income Tests” and “Taxation of the Company — Asset Tests” above), and in turn would prevent the Company from qualifying as a REIT, unless it were eligible for relief under the relief provisions described above. See “Taxation of the Company — Failure to Qualify” above for discussion of the effect of the Company’s failure to satisfy the REIT tests for a taxable year. In addition, any change in the status of any of the Partnerships for federal income tax purposes might be treated as a taxable event, in which case the Company could have taxable income that is subject to the REIT distribution requirement without receiving any cash.
Tax Allocations with Respect to the Properties
Pursuant to Section 704(c) of the Code and applicable 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 (such as the Properties contributed to the Operating Partnership by the limited partners of the Operating Partnership) must be allocated in such a manner that the contributing partner is charged with, or benefits from, the unrealized gain or unrealized loss, respectively, associated with the property at the time of the contribution. The amount of such unrealized gain or unrealized loss is equal to the difference between the fair market value of the contributed property at the time of contribution and the adjusted tax basis of such property at the time of contribution (referred to in this section as the “Book-Tax Difference”). Such allocations are solely for federal income tax purposes and do not affect the book capital accounts or other economic or legal arrangements among the partners. The Operating Partnership was formed with contributions of appreciated property (including the Properties contributed by the limited partners of the Operating Partnership). Consequently, the Operating Partnership’s partnership agreement requires allocations to be made in a manner consistent with Section 704(c) of the Code and the applicable Treasury Regulations. If a partner contributes cash to a partnership at a time when the partnership holds appreciated (or depreciated) property, the applicable Treasury Regulations provide for a similar allocation of these items to the other (that is, the pre-existing) partners. These rules may apply to any contribution by the Company to the Partnerships of cash proceeds received from offerings of its securities, including any offering of securities contemplated by this prospectus.
In general, the partners that contributed appreciated Properties to the Operating Partnership will be allocated less depreciation, and increased taxable gain on sale, of such Properties. This will tend to eliminate the Book-Tax Difference. However, the special allocation rules of Section 704(c) and the applicable Treasury Regulations do not always rectify the Book-Tax Difference on an annual basis or with respect to a specific taxable transaction such as a sale. Under the applicable Treasury Regulations, special allocations of income and gain and depreciation deductions must be made on a property-by-property basis. Depreciation deductions resulting from the carryover basis of a contributed property are used to eliminate the Book-Tax Difference by allocating such deductions to the non-contributing partners (for example, to the Company) up to the amount of their share of book depreciation. Any remaining tax depreciation for the contributed property would be allocated to the partners who contributed the property. The Operating Partnership has generally elected the “traditional method” of rectifying the Book-Tax Difference under the applicable Treasury Regulations, pursuant to which if depreciation deductions are less than the non-contributing partners’ share of book depreciation, then the non-contributing partners lose the benefit of the tax deductions to the extent of the difference. When the property is sold, the resulting tax gain is used to the extent possible to eliminate any remaining Book-Tax Difference. Under the traditional method, it is possible that the carryover basis of the contributed assets in the hands of a Partnership may cause the Company to be allocated less depreciation and other deductions than would otherwise be allocated to it. This may cause the Company to recognize taxable income in excess of cash proceeds, which might adversely affect its ability to comply with the REIT distribution requirement. See “Taxation of the Company — Annual Distribution Requirement” above.
With respect to property purchased by (and not contributed to) a Partnership, such property will initially have a tax basis equal to its fair market value, and Section 704(c) of the Code and the applicable Treasury Regulations will not apply unless such property is subsequently revalued for capital accounting purposes under applicable Treasury Regulations.
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Sale of the Properties
The Operating Partnership intends to hold the Properties for investment with a view to long-term appreciation, to engage in the business of acquiring, developing, owning, and operating the Properties and to make such occasional sales of the Properties as are consistent with the Company’s investment objectives. The Company does not currently hold any Properties through any partnerships other than the Operating Partnership. Based primarily on such investment objectives, the Company believes that the Properties should not be considered dealer property (i.e., property held for sale to customers in the ordinary course of business). Whether property is dealer property is a question of fact that depends on the particular facts and circumstances with respect to the particular transaction. No assurance can be given that any property sold by the Company or any of its Partnerships will not be dealer property, or that the Company can comply with certain safe-harbor provisions of the Code that would prevent such treatment. The Company’s share of any gain realized by the Operating Partnership or any other partnerships on the sale of any dealer property generally will be treated as income from a prohibited transaction that is subject to a 100% penalty tax. See “Taxation of the Company — Income Tests—Prohibited Transactions” above. In the event the Company determines that a property, the ultimate sale of which is expected to result in taxable gain, will be held primarily for sale to customers in the ordinary course of a trade or business, the Company intends to cause such property to be acquired by or transferred to a TRS so that gain from such sale will be subject to regular corporate income tax as discussed above under “Taxation of the Company— Effect of Subsidiary Entities — Taxable Subsidiaries.”
Partnership Audit Rules
Pursuant to the Bipartisan Budget Act of 2015, for tax years beginning after December 31, 2017, if the IRS makes audit adjustments to the income tax returns of the Operating Partnership or any other partnership, it may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustment directly from the Operating Partnership or such other partnership. The Operating Partnership or any other partnership may elect to have its partners take such audit adjustment into account in accordance with their interests in the Operating Partnership or such other partnership during the tax year under audit, but there can be no assurance that such election will be effective in all circumstances. If, as a result of any such audit adjustment, the Operating Partnership or any other partnership is required to make payments of taxes, penalties and interest, the cash available for distribution to its partners might be substantially reduced. Prospective investors should consult with their own tax advisors with respect to these changes and their potential impact on their investment in the Company’s securities or the Operating Partnership’s debt securities.
Federal Income Taxation of U.S. Holders
As used herein, a “U.S. holder” means a beneficial owner of the Company’s securities or the Operating Partnership’s debt securities who is, for federal income tax purposes:
| · | a citizen or individual resident of the United States as defined in Section 7701(b) of the Code; |
| · | a corporation (or other entity treated as a corporation for federal income tax purposes) created or organized in or under the laws of the United States or any state thereof or the District of Columbia; |
| · | an estate the income of which is subject federal income taxation regardless of its source; or |
| · | a trust if it (a) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) was in existence on August 20, 1996 and has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. |
If a partnership, including for this purpose any entity treated as a partnership for federal income tax purposes, holds the Company’s securities or the Operating Partnership’s debt securities, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership.
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This summary assumes that investors will hold the Company’s securities and the Operating Partnership’s debt securities as capital assets, which generally means assets held for investment.
Distributions on Capital Stock
As a result of the Company’s status as a REIT, distributions made to its U.S. holders out of current or accumulated earnings and profits, and not designated as capital gain dividends, will generally be taken into account by them as ordinary income and will not be eligible for the dividends received deduction for corporations. However, for taxable years prior to 2026, individual U.S. holders are generally allowed to deduct 20% of the aggregate amount of ordinary dividends distributed by the Company, subject to certain limitations, which would reduce the maximum marginal effective tax rate for individuals on the receipt of such ordinary dividends to 29.6%. The maximum federal income tax rate applicable to ordinary income of individuals for taxable years prior to 2026 is 37%.
The maximum individual rate of tax on qualified dividends and long-term capital gains is generally 20%. Because the Company is not generally subject to federal income tax on the portion of its REIT taxable income or capital gains distributed to its shareholders, the Company’s dividends are generally not qualified dividends eligible for this 20% tax rate. As a result, the Company’s ordinary REIT dividends will continue to be taxed at the higher tax rates applicable to ordinary income. However, the 20% tax rate will generally apply to:
| · | the Company’s dividends attributable to dividends received by it from non-REIT corporations, such as TRSs; |
| · | the Company’s dividends attributable to its REIT taxable income in the prior taxable year on which it was subject to corporate level income tax (net of the amount of such tax); and |
| · | the Company’s dividends attributable to income in the prior taxable year from the sale of appreciated (i.e., Built-in Gain) property acquired by it from “C” corporations in carryover basis transactions or held by it on the first day of a taxable year for which the Company first re-qualified as a REIT after being subject to tax as a “C” corporation for more than two years (net of the amount of corporate tax on such income). |
Distributions that are designated as capital gain dividends will be taxed to U.S. holders as long-term capital gains, to the extent that they do not exceed the Company’s actual net capital gain for the taxable year, without regard to the period for which such holder has held its shares. A similar treatment will apply to long-term capital gains the Company retains, to the extent that it elects the application of provisions of the Code that treat shareholders of a REIT as having received, for federal income tax purposes, undistributed capital gains of the REIT, while passing through to shareholders a corresponding credit for taxes paid by the REIT on such retained capital gains. The aggregate amount of dividends that the Company may designate as qualified dividend income or as capital gain dividends cannot exceed the dividends actually paid by it during such year. In addition, the Secretary of the Treasury is authorized to prescribe regulations or other guidance requiring proportionality of the designation of particular types of dividends. Corporate U.S. holders may be required to treat up to 20% of some capital gain dividends as ordinary income. Long-term capital gains are generally taxable at maximum federal rate of 20% in the case of U.S. holders that are individuals, and regular corporate rates for U.S. holders that are corporations. Capital gains attributable to the sale of depreciable real property held for more than 12 months are subject to a 25% maximum federal income tax rate for U.S. holders that are individuals, to the extent of previously claimed depreciation deductions.
Distributions in excess of current and accumulated earnings and profits will not be taxable to a U.S. holder to the extent that they do not exceed the adjusted basis of such holder’s shares of capital stock in respect of which the distributions were made, but rather, will reduce the adjusted basis of those shares of capital stock. To the extent that such distributions exceed the adjusted basis of a U.S. holder’s shares, they will be included in income as long-term capital gain, or short-term capital gain if the shares have been held for one year or less. In addition, any dividend the Company declares in October, November or December of any year and payable to a shareholder of record on a specified date in any such month will be treated both as paid by the Company and received by the shareholder on December 31 of such year, provided that the Company actually pays the dividend before the end of January of the following calendar year.
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The Company may make distributions to shareholders paid in shares of its capital stock that are intended to be treated as dividends for federal income tax purposes. In that event, U.S. holders would generally have taxable income with respect to such distributions of shares of the Company’s capital stock and may have tax liability by reason of such distributions in excess of the cash (if any) that is received by them.
In determining the extent to which a distribution with respect to its shares constitutes a dividend for tax purposes, the Company’s earnings and profits will be allocated first to distributions with respect to its preferred stock and then to the common stock. In addition, the IRS has taken the position in published guidance that if a REIT has two classes of shares, the amount of any particular type of income (including net capital gain) allocated to each class in any year cannot exceed such class’s proportionate share of such income based on the total dividends paid to each class for such year. Consequently, if both common stock and preferred stock are outstanding, particular types of income will be allocated in accordance with the classes’ proportionate shares of such income. Thus, net capital gain will be allocated between holders of common stock and holders of preferred stock, if any, in proportion to the total dividends paid to each class during the taxable year, or otherwise as required by applicable law.
Net operating losses and capital losses that the Company is allowed to carry forward from prior tax years may reduce the amount of distributions that it must make in order to comply with the REIT distribution requirements. See “Taxation of the Company — Annual Distribution Requirement” above. Such losses, however, are not passed through to the Company’s shareholders and do not offset income of shareholders from other sources, nor do they affect the character of any distributions that the Company actually makes, which are generally taxable to its shareholders as dividends to the extent that the Company has current or accumulated earnings and profits.
The Company will be treated as having sufficient earnings and profits for a year to treat as a dividend any distribution it makes for such year up to the amount required to be distributed in order to avoid imposition of the 4% federal excise tax discussed in “Taxation of the Company — Taxation of REITs in General” above. As a result, U.S. holders may be required to treat certain distributions as taxable dividends even though the Company may have no overall accumulated earnings and profits. Moreover, any “deficiency dividend,” which is a dividend to the Company’s current shareholders that is permitted to relate back to a year for which the IRS determines a deficiency in order to satisfy the distribution requirement for that year, will be treated as a dividend (an ordinary dividend or a capital gain dividend, as the case may be) regardless of the Company’s earnings and profits for the year in which it pays the deficiency dividend.
Certain non-corporate U.S. holders may also be subject to an additional tax of 3.8% with respect to dividends on shares of the Company’s capital stock. See “Other Tax Considerations— Medicare Tax” below.
Disposition of Capital Stock
In general, capital gains recognized by individuals and other non-corporate U.S. holders upon the sale or disposition of shares of the Company’s capital stock will be subject to a maximum federal income tax rate of 20% (applicable to long-term capital gains) if the shares are held for more than 12 months, and will be taxed at rates of up to 37% (applicable to short-term capital gains) if the shares are held for 12 months or less. Gains recognized by U.S. holders that are corporations are subject to federal income tax at regular corporate rates, whether or not classified as long-term capital gains. Capital losses recognized by a U.S. holder upon the disposition of shares held for more than one year at the time of disposition will be considered long-term capital losses, which are generally available first to offset long-term capital gain (which is taxed at capital gain rates) and then short-term capital gain (which is taxed at ordinary income rates) of such holder, but not ordinary income of such holder (except in the case of individuals, who may offset up to $3,000 of ordinary income each year). Capital losses recognized by a U.S. holder upon the disposition of shares held for not more than one year are considered short-term capital losses and are generally available first to offset short-term capital gain and then long-term capital gain of such holder, but not ordinary income of such holder (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 by a U.S. holder that has held the shares for six months or less, after applying certain holding period rules, will be treated as long-term capital loss to the extent of distributions received from the Company that are required to be treated by such holder as long-term capital gain.
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If a holder of shares of the Company’s capital stock recognizes a loss upon a disposition of those shares in an amount that exceeds a prescribed threshold, it is possible that the provisions of certain Treasury Regulations involving “reportable transactions” could apply to require a disclosure filing with the IRS concerning the loss-generating transaction. While these regulations are directed toward “tax shelters,” they are quite broad, and apply to transactions that would not typically be considered tax shelters. The Code imposes significant penalties for failure to comply with these requirements. Prospective shareholders should consult their tax advisors concerning any possible disclosure obligation with respect to the receipt or disposition of shares of capital stock, or transactions that might be undertaken directly or indirectly by the Company. Moreover, prospective shareholders should be aware that the Company and other participants in the transactions involving the Company (including their advisors) might be subject to disclosure or other requirements pursuant to these regulations.
Passive Activity Loss and Investment Interest Limitations. Taxable dividends that the Company distributes and gain from the disposition of shares of the Company’s capital stock will not be treated as passive activity income and, therefore, U.S. holders subject to the limitation on the use of “passive losses” will not be able to apply passive losses against such income. U.S. holders may elect to treat capital gain dividends, capital gains from the disposition of shares and qualified dividend income as investment income for purposes of computing the limitation on the deductibility of investment interest, but in such case the U.S. holder will be taxed at ordinary income rates on those amounts. Other distributions made by the Company, to the extent they do not constitute a return of capital, will generally be treated as investment income for purposes of computing the investment interest limitation.
Conversion of Preferred Stock
Except as provided below, (i) a U.S. holder generally will not recognize gain or loss upon the conversion of preferred stock into common stock, and (ii) a U.S. holder’s basis and holding period in the common stock received upon conversion generally will be the same as those of the converted preferred stock (but the basis will be reduced by the portion of adjusted tax basis allocated to any fractional share exchanged for cash). Any of the Company’s shares of common stock received in a conversion that are attributable to accumulated and unpaid dividends on the converted preferred stock will be treated as a distribution that is potentially taxable as a dividend. Cash received upon conversion in lieu of a fractional share generally will be treated as a payment in a taxable exchange for such fractional share, and gain or loss will be recognized on the receipt of cash in an amount equal to the difference between the amount of cash received and the adjusted tax basis allocable to the fractional share deemed exchanged. This gain or loss will be long-term capital gain or loss if the U.S. holder has held the preferred stock for more than one year at the time of conversion. U.S. holders are urged to consult with their tax advisors regarding the federal income tax consequences of any transaction by which such holder exchanges shares of the common stock received on a conversion of preferred stock for cash or other property.
Redemption of Preferred Stock
A redemption of preferred stock will be treated under Section 302 of the Code as a distribution that is taxable as dividend income (to the extent of the Company’s current or accumulated earnings and profits), unless the redemption satisfies certain tests set forth in Section 302(b) of the Code enabling the redemption to be treated as a sale of the preferred stock (in which case the redemption will be treated in the same manner as a sale described above in “—Disposition of Capital Stock”). The redemption will satisfy such tests if it (i) is “substantially disproportionate” with respect to the U.S. holder’s interest in the Company’s stock, (ii) results in a “complete termination” of the U.S. holder’s interest in all of the Company’s classes of stock or (iii) is “not essentially equivalent to a dividend” with respect to the U.S. holder, all within the meaning of Section 302(b) of the Code. In determining whether any of these tests have been met, stock considered to be owned by the U.S. holder by reason of certain constructive ownership rules set forth in the Code, as well as stock actually owned, generally must be taken into account. Because the determination as to whether any of the three alternative tests of Section 302(b) of the Code described above will be satisfied with respect to any particular U.S. holder upon a redemption of preferred stock depends upon the facts and circumstances at the time that the determination must be made, prospective investors are urged to consult their tax advisors to determine such tax treatment. If a redemption of preferred stock does not meet any of the three tests described above, the redemption proceeds will be taxable as a dividend, as described above in “—Distributions on Capital Stock.” In that case, a U.S. holder’s adjusted tax basis in the redeemed preferred stock will be transferred to such holder’s remaining share holdings in the Company. If the U.S. holder does not retain any of the Company’s stock, such basis could be transferred to a related person that holds the Company’s stock or it may be lost.
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Federal Income Taxation of Non-U.S. Holders
The following is a summary of certain federal income tax consequences of the ownership and disposition of the company’s capital stock applicable to “non-U.S. holders.” As used herein, a non-U.S. holder is any beneficial owner of the Company’s securities or the Operating Partnership’s debt securities who is a “foreign person.” For the purposes of this summary, a foreign person is any person that is not a U.S. holder, tax-exempt entity (which are addressed below), or an entity treated as a partnership for federal income tax purposes.
The following summary is based on current law and is for general information only. The rules governing the federal income taxation of non-U.S. holders are complex. The summary addresses only selected and not all aspects of federal income taxation. Prospective non-U.S. holders should consult with their own tax advisors to determine the impact of U.S. federal, state, and local income tax and estate tax laws with regard to an investment in the Company’s securities or the Operating Partnership’s debt securities, including any reporting requirements.
Distributions on Capital Stock
Ordinary Dividends. The portion of dividends received by non-U.S. holders payable out of the Company’s earnings and profits that are not attributable to the Company’s capital gains and that are not effectively connected with a U.S. trade or business of the non-U.S. holder will be subject to U.S. withholding tax at the rate of 30%, unless reduced by treaty.
In general, non-U.S. holders will not be considered to be engaged in a U.S. trade or business solely as a result of their ownership of the Company’s capital stock. In cases where the dividend income from a non-U.S. holder’s investment in the Company’s capital stock is, or is treated as, effectively connected with the non-U.S. holder’s conduct of a U.S. trade or business, the non-U.S. holder generally will be subject to U.S. income tax at graduated rates, in the same manner as U.S. holders are taxed with respect to such dividends, and such income generally must be reported on a federal income tax return filed by or on behalf of the non-U.S. holder. Such income may also be subject to the 30% branch profits tax (or lower tax treaty rate, if applicable) in the case of a non-U.S. holder that is a corporation.
As described above, the Company may make distributions paid in shares of its capital stock that are intended to be treated as dividends for federal income tax purposes. If the Company is required to withhold an amount in excess of any cash that is distributed to non-U.S. holders along with the shares of capital stock, it may retain and sell some of the shares that would otherwise be distributed in order to satisfy any withholding tax imposed on the distribution.
Non-Dividend Distributions. Unless shares of the Company’s capital stock constitute a U.S. real property interest (referred to in this section as a “USRPI”), distributions by the Company that are not dividends out of its earnings and profits will generally not be subject to 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 entire distribution will be subject to withholding at the rate applicable to dividends. However, the non-U.S. holder 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 the Company’s current and accumulated earnings and profits. If shares of the Company’s capital stock constitute a USRPI, as discussed below under “— Dispositions of Capital Stock,” then distributions by the Company in excess of the sum of its earnings and profits plus the non-U.S. holder’s basis in its shares will be taxed under the Foreign Investment in Real Property Tax Act of 1980 (which is referred to in this section as “FIRPTA”) at the rate of tax, including any applicable capital gains rates, that would apply to a U.S. holder of the same type (that is, 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 non-U.S. holder’s share of the Company’s earnings and profits. As discussed below under “— FIRPTA Exception for Qualified Shareholders of REITs” the Company’s shares will not be treated as USRPIs when held directly or indirectly by a “qualified shareholder.” Additionally, as discussed below under “— FIRPTA Exception for Interests Held by Foreign Retirement or Pension Funds,” “qualified foreign pension funds” will not be subject to FIRPTA withholding.
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Capital Gain Dividends. Distributions that are attributable to gains from dispositions of USRPIs held by the Company directly or through pass-through subsidiaries (referred to in this section as “USRPI capital gains”) that are paid with respect to any class of shares that is regularly traded on an established securities market located in the United States and that are made to a non-U.S. holder that does not own more than 10% of the class of shares at any time during the one-year period ending on the date of distribution will be treated as a regular distribution by the Company, and these distributions will be treated as ordinary dividend distributions. A distribution of USRPI capital gains made by the Company to non-U.S. holders owning more than 10% of the class of shares in respect of which the distribution is made will be considered effectively connected with a U.S. trade or business of the non-U.S. holder and will be subject to U.S. income tax at the rates applicable to U.S. individuals or corporations, as the case may be (subject to applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals), without regard to whether the distribution is designated as a capital gain dividend. In the case of such a greater than 10% non-U.S. holder, the Company will be required to withhold tax equal to the maximum corporate tax rate of the amount of dividends to the extent the dividends constitute USRPI capital gains. Distributions subject to FIRPTA may also be subject to a 30% branch profits tax (or lower tax treaty rate, if applicable) in the hands of a non-U.S. holder that is a corporation.
Distributions to a non-U.S. holder that the Company properly designates as capital gain dividends, other than those arising from the disposition of a USRPI, generally should not be subject to federal income taxation unless: (1) the investment in the Company’s shares is treated as effectively connected with the non-U.S. holder’s U.S. trade or business, in which case the non-U.S. holder will be subject to the same treatment as a U.S. holder with respect to such gain, except that a non-U.S. holder that is a foreign corporation may also be subject to the 30% branch profits tax (or lower tax treaty rate, if applicable), or (2) the non-U.S. holder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year and certain other conditions are satisfied, in which case the nonresident alien individual will be subject to a 30% tax on the individual’s capital gains (unless a lower tax treaty rate applies).
Retained Net Capital Gains. Although the law is not clear on the matter, it appears that amounts designated by the Company as retained capital gains in respect of its shares held by non-U.S. holders generally should be treated in the same manner as the Company’s actual distributions of capital gain dividends. Under this approach, a non-U.S. holder would be able to claim as a credit against its federal income tax liability, its proportionate share of the tax paid by the Company on the retained capital gains, and to obtain from the IRS a refund to the extent its proportionate share of the tax paid by the Company exceeds its actual federal income tax liability.
Dispositions of Capital Stock
Unless shares of the Company’s capital stock constitute a USRPI, a sale of such shares by a non-U.S. holder generally will not be subject to U.S. taxation under FIRPTA. The shares will not constitute a USRPI if the Company is a “domestically-controlled REIT.”
A REIT is a “domestically-controlled REIT” if throughout the applicable testing period less than 50% of its stock was held directly or indirectly by non-U.S. persons. In the case of a publicly traded REIT, a person holding less than 5% of a publicly traded class of stock at all times during the testing period is treated as a U.S. person unless the REIT has actual knowledge that such person is not a U.S. person. The Company is a publicly traded REIT. In the case of REIT stock held by a publicly traded REIT or certain publicly traded or open-ended registered investment companies, the REIT or registered investment company will be treated as a U.S. person if the REIT or registered investment company is domestically controlled and will be treated as a non-U.S. person otherwise. In the case of REIT stock held by a REIT or registered investment company not described in the previous rule, the REIT or registered investment company is treated as a U.S. person or a non-U.S. person on a look-through basis. The Company believes that it is, and it expects to continue to be, a domestically-controlled REIT and, therefore, the sale of the Company’s capital stock by non-U.S. holders is not expected to be subject to taxation under FIRPTA. Because the Company’s shares are publicly traded, however, no assurance can be given that it is or will be a domestically-controlled REIT.
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In the event that the Company does not constitute a domestically-controlled REIT, a non-U.S. holder’s shares of the Company’s capital stock nonetheless will not constitute a USRPI and accordingly would not be subject to tax under FIRPTA as a sale of a USRPI, provided that (1) the shares are of a class that are “regularly traded” as defined by applicable Treasury Regulations, on an established securities market, and (2) the selling non-U.S. holder held 10% or less of such class of shares at all times during a prescribed testing period. The Company believes that the common stock is, and expects it to continue to be, “regularly traded” on an established securities market.
If gain on the sale of shares of the Company’s capital stock were subject to taxation under FIRPTA, the non-U.S. holder would be subject to the same treatment as a U.S. holder 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 shares could, unless the shares are of a class that are “regularly traded” (as defined by applicable Treasury Regulations) on an established securities market, be required to withhold 15% of the purchase price and remit such amount to the IRS.
Gain from the sale of shares of the Company’s capital stock that would not be subject to FIRPTA will nonetheless be taxable in the United States to a non-U.S. holder in two cases: (1) if the gain is effectively connected with a U.S. trade or business conducted by such non-U.S. holder and, where a treaty applies, such trade or business is conducted through a permanent establishment in the U.S., then the non-U.S. holder will be subject to the same treatment as a U.S. holder with respect to such gain, except that the non-U.S. holder may also be subject to the 30% branch profits tax (or lower tax treaty rate, if applicable) if it is a foreign corporation, or (2) if the non-U.S. holder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and certain other conditions are satisfied, the nonresident alien individual will be subject to tax on the individual’s capital gain at a 30% rate (or lower tax treaty rate, if applicable).
Conversion of Preferred Stock
The conversion of the Company’s preferred stock into common stock may be a taxable exchange for a non-U.S. holder if the Company’s preferred stock constitutes a USRPI. Even if the Company’s preferred stock constitutes a USRPI, provided the common stock also constitutes a USRPI, a non-U.S. holder generally will not recognize gain or loss upon a conversion of preferred stock into common stock so long as certain FIRPTA-related reporting requirements are satisfied. If the Company’s preferred stock constitutes a USRPI and such requirements are not satisfied, however, a conversion will be treated as a taxable exchange of preferred stock for common stock. Such a deemed taxable exchange will be subject to tax under FIRPTA at the rate of tax, including any applicable capital gains rates, that would apply to a U.S. holder of the same type (e.g., a corporate or non-corporate shareholder, as the case may be) on the excess, if any, of the fair market value of such non-U.S. holder’s common stock received over such non-U.S. holder’s adjusted tax basis in its preferred stock. Collection of such tax will be enforced by a refundable withholding tax at a rate of 15% of the value of the common stock.
Non-U.S. holders are urged to consult with their tax advisors regarding the federal income tax consequences of any transaction by which such non-U.S. holder exchanges common stock received on a conversion of preferred stock for cash or other property.
Redemption of Preferred Stock
For a discussion of the treatment of a redemption of preferred stock, see “Federal Income Taxation of U.S. Holders—Redemption of Preferred Stock.”
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FIRPTA Exception for Qualified Shareholders of REITs
Stock of a REIT held (directly or through one or more partnerships) by a “qualified shareholder” will not be a USRPI, and neither gain on sale of such stock nor capital gain dividends from such a REIT will be treated as gain from the sale of a USRPI, unless a person (other than a qualified shareholder) that holds an interest (other than an interest solely as a creditor) in such qualified shareholder owns, taking into account applicable constructive ownership rules, more than 10% of the stock of the REIT (an “applicable investor”). If the qualified shareholder has such an applicable investor, gains and REIT distributions allocable to the portion of REIT stock held by the qualified shareholder indirectly owned through the qualified shareholder by the applicable investor will be treated as gains from the sale of USRPIs. For these purposes, a “qualified shareholder” is a foreign person that is in a treaty jurisdiction and satisfies certain publicly traded requirements, is a “qualified collective investment vehicle,” and maintains records on the identity of certain 5% owners. A “qualified collective investment vehicle” is a foreign person that is eligible for a reduced withholding rate with respect to ordinary REIT dividends even if such person holds more than 10% of the REIT’s stock, a publicly traded partnership that is a withholding foreign partnership that would be a United States real property holding corporation if it were a United States corporation, or is designated as a qualified collective investment vehicle by the Secretary of the Treasury and is either fiscally transparent within the meaning of the Code or required to include dividends in its gross income but entitled to a deduction for distributions to its investors. Finally, capital gain dividends and non-dividend redemption and liquidating distributions to a qualified shareholder that are not allocable to an applicable investor will be treated as ordinary dividends. The rules applicable to qualified shareholders are complex and investors who believe that they may be qualified shareholders should consult with their own tax advisor to find out if these rules are applicable to them.
FIRPTA Exception for Interests Held by Foreign Retirement or Pension Funds
“Qualified foreign pension funds” and entities that are wholly owned by a qualified foreign pension fund are exempted from FIRPTA and FIRPTA withholding. For these purposes, a “qualified foreign pension fund” is any trust, corporation, or other organization or arrangement if (i) it was created or organized under foreign law, (ii) it was established to provide retirement or pension benefits to participants or beneficiaries that are current or former employees (or persons designated by such employees) of one or more employers in consideration for services rendered, (iii) it does not have a single participant or beneficiary with a right to more than 5% of its assets or income, (iv) it is subject to government regulation and provides annual information reporting about its beneficiaries to the applicable tax authorities in the country in which it is established or operates, and (v) under the laws of the country in which it is established or operates, either contributions to such fund which would otherwise be subject to tax under such laws are deductible or excluded from the gross income of such fund or taxed at a reduced rate, or taxation of any investment income of such fund is deferred or such income is taxed at a reduced rate. The rules applicable to qualified foreign pension funds are complex and investors who believe that they may be qualified foreign pension funds should consult with their own tax advisor to find out if these rules are applicable to them.
No “Cleansed” REITs
The so-called FIRPTA “cleansing rule” (which applies to corporations that no longer have any USRPIs and have recognized all gain on their USRPIs) will not apply to a REIT or a registered investment company or a corporation if the corporation or any predecessor was a REIT or a registered investment company during the applicable testing period.
Federal Taxation of Tax-Exempt Shareholders
Tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts, generally are exempt from federal income taxation. However, they are subject to taxation on their unrelated business taxable income (which is referred to in this section as “UBTI”). While many investments in real estate generate UBTI, the IRS has ruled that dividend distributions from a REIT to an exempt employee pension trust do not constitute UBTI. Based on that ruling, and provided that (1) a tax-exempt shareholder has not held its shares of the Company’s capital stock as “debt financed property” within the meaning of the Code (that is, property the acquisition of which is financed through a borrowing by the tax-exempt shareholder), and (2) the shares are not otherwise used in an unrelated trade or business, the Company believes that its distributions and income from the sale of its shares should not give rise to UBTI to a tax-exempt shareholder.
Tax-exempt shareholders that are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans exempt from federal income taxation under Sections 501(c)(7), (9), (17) and (20) of the Code, respectively, are subject to different UBTI rules, which generally will require them to characterize distributions from the Company as UBTI.
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A pension trust that owns more than 10% of the value of the Company’s shares could be required to treat a percentage of the dividends from the Company as UBTI if it is a “pension-held REIT.” The Company will not be a pension-held REIT unless either (1) one pension trust owns more than 25% of the value of its shares, or (2) a group of pension trusts, each individually holding more than 10% of the value of its shares, collectively owns more than 50% of the value of its shares. The Company believes that it currently is not a pension-held REIT. Because the Company’s shares are publicly traded, however, no assurance can be given that is not (or will not be) a pension-held REIT.
Tax-exempt shareholders are urged to consult their tax advisors regarding the federal, state, local and foreign tax consequences of an investment in the Company’s capital stock.
Taxation of Holders of the Operating Partnership’s Debt Securities
The following summary describes the material federal income tax consequences of acquiring, owning, and disposing of the Operating Partnership’s debt securities. This discussion assumes the debt securities will be issued with less than a statutory de minimis amount of original issue discount for federal income tax purposes. In addition, this discussion is limited to persons purchasing the debt securities for cash at original issue and at their original “issue price” within the meaning of Section 1273 of the Code (i.e., the first price at which a substantial amount of the debt securities is sold to the public for cash).
U.S. Holders
Payments of Interest. Interest on a debt security generally will be taxable to a U.S. holder as ordinary income at the time such interest is received or accrued, in accordance with such U.S. holder’s method of accounting for federal income tax purposes.
Sale or Other Taxable Disposition. A U.S. holder will recognize gain or loss on the sale, exchange, redemption, retirement, or other taxable disposition of a debt security. The amount of such gain or loss generally will be equal to the difference between the amount received for the debt security in cash or other property valued at fair market value (less amounts attributable to any accrued but unpaid interest, which will be taxable as interest to the extent not previously included in income) and the U.S. holder’s adjusted tax basis in the debt security. A U.S. holder’s adjusted tax basis in a debt security generally will be equal to the amount the U.S. holder paid for the debt security. Any gain or loss generally will be capital gain or loss, and will be long-term capital gain or loss if the U.S. holder has held the debt security for more than one year at the time of such sale or other taxable disposition. Otherwise, such gain or loss will be short-term capital gain or loss. Long-term capital gains recognized by certain non-corporate U.S. holders, including individuals, generally will be taxable at reduced rates. The deductibility of capital losses is subject to limitations.
Non-U.S. Holders
Payments of Interest. Interest paid on a debt security to a non-U.S. holder that is not effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States generally will not be subject to federal income tax or withholding, provided that:
| · | the non-U.S. holder does not, actually or constructively, own 10% or more of the Operating Partnership’s capital or profits; |
| · | the non-U.S. holder is not a controlled foreign corporation related to the Operating Partnership, through actual or constructive stock ownership; and |
| · | either: (1) the non-U.S. holder certifies in a statement provided to the applicable withholding agent under penalties of perjury that it is not a United States person and provides its name and address; (2) a securities clearing organization, bank or other financial institution that holds customers’ securities in the ordinary course of its trade or business and holds the debt security on behalf of the non-U.S. holder certifies to the applicable withholding agent under penalties of perjury that it, or the financial institution between it and the non-U.S. holder, has received from the non-U.S. holder a statement under penalties of perjury that such holder is not a United States person and provides the applicable withholding agent with a copy of such statement; or (3) the non-U.S. holder holds its debt security directly through a “qualified intermediary” (within the meaning of the applicable Treasury Regulations) and certain conditions are satisfied. |
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If a non-U.S. holder does not satisfy the requirements above, such non-U.S. holder will be subject to withholding tax of 30%, subject to a reduction in or an exemption from withholding on such interest as a result of an applicable tax treaty. To claim such entitlement, the non-U.S. holder must provide the applicable withholding agent with a properly executed IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) claiming a reduction in or exemption from withholding tax under the benefit of an income tax treaty between the United States and the country in which the non-U.S. holder resides or is established.
If interest paid to a non-U.S. holder is effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such interest is attributable), the non-U.S. holder will be exempt from the U.S. federal withholding tax described above. To claim the exemption, the non-U.S. holder must furnish to the applicable withholding agent a valid IRS Form W-8ECI, certifying that interest paid on a debt security is not subject to withholding tax because it is effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States.
Any such effectively connected interest generally will be subject to federal income tax at the regular graduated rates. A non-U.S. holder that is a corporation may also be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected interest, as adjusted for certain items.
The certifications described above must be provided to the applicable withholding agent prior to the payment of interest and must be updated periodically. Non-U.S. holders that do not timely provide the applicable withholding agent with the required certification, but that qualify for a reduced rate under 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. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under any applicable income tax treaty.
Sale or Other Taxable Disposition. A non-U.S. holder will not be subject to federal income tax on any gain realized upon the sale, exchange, redemption, retirement, or other taxable disposition of a debt security (such amount excludes any amount allocable to accrued and unpaid interest, which generally will be treated as interest and may be subject to the rules discussed above in “—Non-U.S. Holders—Payments of Interest”) unless:
| · | the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to which such gain is attributable); or |
| · | the non-U.S. holder is a nonresident alien individual present in the United States for 183 days or more during the taxable year of the disposition and certain other requirements are met. |
Gain described in the first bullet point above generally will be subject to federal income tax on a net income basis at the regular graduated rates. A non-U.S. holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.
Gain described in the second bullet point above will be subject to federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty), which may be offset by U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a resident of the United States), provided the non-U.S. holder has timely filed federal income tax returns with respect to such losses.
Non-U.S. holders should consult their tax advisors regarding any applicable income tax treaties that may provide for different rules.
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Other Tax Considerations
Information Reporting Requirements and Backup Withholding Tax
Under certain circumstances, U.S. holders of the Company’s securities and the Operating Partnership’s debt securities may be subject to backup withholding at a rate of 24% (through 2025 and then at 28% thereafter) on payments made with respect to, or cash proceeds of a sale or other taxable disposition of, such securities (including a redemption or retirement of a debt security). Backup withholding will apply only if the U.S. holder (1) fails to furnish its taxpayer identification number, referred to in this section as a “TIN” (which, for an individual, would be his or her social security number), (2) furnishes an incorrect TIN, (3) is notified by the IRS that it has failed to properly report payments of interest and dividends, or (4) under certain circumstances, fails to certify, under penalty of perjury, that it has not been notified by the IRS that it is subject to backup withholding for failure to report interest and dividend payments. Backup withholding will not apply with respect to payments made to certain exempt recipients, such as corporations and tax-exempt organizations. Prospective investors should consult their own tax advisors regarding their qualification for exemption from backup withholding and the procedure for obtaining such an exemption. Backup withholding is not an additional tax. Rather, the amount of any backup withholding with respect to a payment to a U.S. holder of the Company’s securities or the Operating Partnership’s debt securities will be allowed as a credit against such holder’s federal income tax liability and may entitle such holder to a refund, provided that the required information is furnished to the IRS. In addition, the Company may be required to withhold a portion of capital gain distributions to, or gross proceeds from its redemption of shares from, any holders who fail to certify their non-foreign status, if applicable.
Additional issues may arise pertaining to information reporting and backup withholding with respect to non-U.S. holders, and non-U.S. holders should consult their tax advisors with respect to any such information reporting and backup withholding requirements. Backup withholding with respect to non-U.S. holders is not an additional tax. Rather, the amount of any backup withholding with respect to a payment to a non-U.S. holder will be allowed as a credit against any federal income tax liability of such non-U.S. Holder. If withholding results in an overpayment of taxes, a refund may be obtained, provided that the required information is furnished to the IRS.
Medicare Tax
Certain U.S. holders who are individuals, estates or trusts will be required to pay a 3.8% Medicare tax with respect to, inter alia, dividends on the Company’s capital stock, interest on debt securities, and capital gains from the sale or other disposition of the Company’s securities or the Operating Partnership’s debt securities, subject to certain exceptions. Prospective U.S. holders should consult their tax advisors regarding the applicability of this tax to any income and gains in respect of an investment in the Company’s securities or the Operating Partnership’s debt securities.
Additional Federal Income Tax Withholding Rules — Reporting and Withholding on Foreign Financial Accounts
Withholding taxes may be imposed under Sections 1471 to 1474 of the Code (such sections commonly referred to as the Foreign Account Tax Compliance Act, or FATCA) on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Currently, certain foreign financial institutions and non-financial foreign entities are subject to a 30% U.S. federal withholding tax on dividends on the Company’s capital stock and interest on the Operating Partnership’s debt securities unless (i) in the case of a foreign financial institution, such institution enters into an agreement with the U.S. government (or complies with applicable alternative procedures pursuant to an applicable intergovernmental agreement between the United States and the relevant foreign government) to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners), and (ii) in the case of a non-financial foreign entity, such entity provides the withholding agent with a certification identifying the direct and indirect U.S. owners of the entity and complies with certain other applicable reporting obligations. Under certain circumstances, a non-U.S. holder might be eligible for refunds or credits of such taxes. Prospective investors should consult their tax advisors regarding the possible implications of these withholding provisions in light of their individual circumstances. Neither the Company nor the Operating Partnership will pay any additional amounts in respect of any amounts withheld.
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Legislative or Other Actions Affecting REITs
The present federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or administrative action at any time, which could affect the federal income tax treatment of an investment in the Company. The REIT rules are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department, which may result in statutory changes as well as revisions to Treasury Regulations and interpretations. Changes to the U.S. federal tax laws and interpretations thereof could adversely affect an investment in the Company’s securities or the Operating Partnership’s debt securities. The Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, significantly changed the U.S. federal income tax laws. Additional technical corrections or other administrative guidance interpreting the Tax Cuts and Jobs Act may be forthcoming at any time.
Any such changes to the tax laws or interpretations thereof, with or without retroactive application, could materially and adversely affect holders of the Company’s securities, holders of the Operating Partnership’s debt securities, or the Company. The Company cannot predict how changes in the tax laws might affect holders of its securities, holders of the Operating Partnership’s debt securities, or the Company. New legislation, Treasury Regulations, administrative interpretations or court decisions could significantly and negatively affect the Company’s ability to continue to qualify as a REIT, or the federal income tax consequences to holders of the Company’s securities, holders of the Operating Partnership’s debt securities, and the Company of such qualification, or could have other adverse consequences, including with respect to ownership of the Company’s securities or the Operating Partnership’s debt securities. Investors are urged to consult their tax advisors with respect to the status of legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in the Company’s securities or the Operating Partnership’s debt securities.
State and Local Taxes
The Company is subject to state, local, or other taxation in various state, local, or other jurisdictions, including those in which it transacts business or owns property. In addition, a holder of the Company’s securities or the Operating Partnership’s debt securities may be subject to state, local, or other taxation on distributions with respect to such securities in various state, local, or other jurisdictions, including the jurisdiction in which the holder resides. The tax treatment in such jurisdictions may differ from the federal income tax consequences discussed above. Consequently, prospective investors should consult their own tax advisors regarding the effect of state, local, and other tax laws on their investment in the Company’s securities and the Operating Partnership’s debt securities.
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We may sell the securities offered by this prospectus from time to time in one or more transactions, including without limitation:
| · | through underwriters or dealers; |
| · | directly to purchasers; |
| · | in a rights offering; |
| · | in “at the market” offerings, 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; |
| · | through agents; |
| · | in block trades; |
| · | through forward or other derivative transactions relating to the shares of common stock or other securities being registered hereunder; |
| · | through a combination of any of these methods; or |
| · | through any other method permitted by applicable law and described in a prospectus supplement. |
In addition, we may issue the securities as a dividend or distribution to our existing stockholders or other securityholders.
The prospectus supplement with respect to any offering of securities will include the following information to the extent applicable:
| · | the terms of the offering; |
| · | the names of any underwriters or agents; |
| · | the name or names of any managing underwriter or underwriters; |
| · | the purchase price or initial public offering price of the securities; |
| · | the net proceeds from the sale of the securities; |
| · | any delayed delivery arrangements; |
| · | any underwriting discounts, commissions and other items constituting underwriters’ compensation; |
| · | any discounts or concessions allowed or reallowed or paid to dealers; |
| · | any commissions paid to agents; and |
| · | any securities exchange on which the securities may be listed. |
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Sale through Underwriters or Dealers
If underwriters are used in the sale, the underwriters may resell the securities from time to time in one or more transactions, including negotiated transactions, at a fixed public offering price or at varying prices determined at the time of sale. Underwriters may offer securities to the public either through underwriting syndicates represented by one or more managing underwriters or directly by one or more firms acting as underwriters. Unless we inform you otherwise in the applicable prospectus supplement, the obligations of the underwriters to purchase the securities will be subject to certain conditions, and the underwriters will be obligated to purchase all of the offered securities if they purchase any of them. The underwriters may change from time to time any initial public offering price and any discounts or concessions allowed or reallowed or paid to dealers.
We will describe the name or names of any underwriters, dealers or agents and the purchase price of the securities in a prospectus supplement relating to the securities.
In connection with the sale of the securities, underwriters may receive compensation from us or from purchasers of the securities, for whom they may act as agents, in the form of discounts, concessions or commissions. Underwriters may sell the securities to or through dealers, and these dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agents, which is not expected to exceed that customary in the types of transactions involved. Underwriters, dealers and agents that participate in the distribution of the securities may be deemed to be underwriters, and any discounts or commissions they receive from us, and any profit on the resale of the securities they realize may be deemed to be underwriting discounts and commissions, under the Securities Act. The prospectus supplement will identify any underwriter or agent and will describe any compensation they receive from us.
Underwriters could make sales in privately negotiated transactions and/or any other method permitted by law, including sales deemed to be an “at-the-market” offering, sales made directly on the NYSE, the existing trading market for our shares of common stock, or sales made to or through a market maker other than on an exchange. The name of any such underwriter or agent involved in the offer and sale of our securities, the amounts underwritten, and the nature of its obligations to take our securities will be described in the applicable prospectus supplement.
To facilitate the offering of securities, certain persons participating in the offering may engage in transactions that stabilize, maintain, or otherwise affect the price of the securities. This may include over-allotments or short sales of the securities, which involve the sale by persons participating in the offering of more securities than we sold to them. In these circumstances, these persons would cover such over-allotments or short positions by making purchases in the open market or by exercising their over-allotment option, if any. In addition, these persons may stabilize or maintain the price of the securities by bidding for or purchasing securities in the open market or by imposing penalty bids, whereby selling concessions allowed to dealers participating in the offering may be reclaimed if securities sold by them are repurchased in connection with stabilization transactions. The effect of these transactions may be to stabilize or maintain the market price of the securities at a level above that which might otherwise prevail in the open market. These transactions may be discontinued at any time.
From time to time, we may engage in transactions with these underwriters, dealers, and agents in the ordinary course of business.
Direct Sales and Sales through Agents
We may sell the securities directly. In this case, no underwriters or agents would be involved. We may also sell the securities through agents designated by us from time to time. In the applicable prospectus supplement, we will name any agent involved in the offer or sale of the offered securities, and we will describe any commissions payable to the agent. Unless we inform you otherwise in the applicable prospectus supplement, any agent will agree to use its reasonable best efforts to solicit purchases for the period of its appointment.
We may sell the securities directly to institutional investors or others who may be deemed to be underwriters within the meaning of the Securities Act with respect to any sale of those securities. We will describe the terms of any sales of these securities in the applicable prospectus supplement.
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Remarketing Arrangements
Securities may also be offered and sold, if so indicated in the applicable prospectus supplement, in connection with a remarketing upon their purchase, in accordance with a redemption or repayment pursuant to their terms, or otherwise, by one or more remarketing firms, acting as principals for their own accounts or as agents for us. Any remarketing firm will be identified and the terms of its agreements, if any, with us and its compensation will be described in the applicable prospectus supplement.
Delayed Delivery Contracts
If we so indicate in the applicable prospectus supplement, we may authorize agents, underwriters or dealers to solicit offers from certain types of institutions to purchase securities from us at the public offering price under delayed delivery contracts. These contracts would provide for payment and delivery on a specified date in the future. The contracts would be subject only to those conditions described in the applicable prospectus supplement. The applicable prospectus supplement will describe the commission payable for solicitation of those contracts.
General Information
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.
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WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. The Company’s SEC filings are available to the public over the Internet at the SEC’s website at www.sec.gov. The Company’s SEC filings are also available on our website at www.agreerealty.com. However, information located on or accessible from our website is not a part of this prospectus, other than documents that the Company files with the SEC that are incorporated or deemed to be incorporated by reference into this prospectus.
Statements contained in this prospectus as to the contents of any contract or other document are not necessarily complete, and in each instance reference is made to the copy of that contract or other document filed as an exhibit to the registration statement, each such statement being qualified in all respects by that reference and the exhibits and schedules thereto. For further information about us and the securities offered by this prospectus, you should refer to the registration statement and such exhibits and schedules which may be obtained from the SEC, free of charge, on its website at www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company under the Exchange Act with the SEC and are incorporated by reference into this prospectus:
| · | The Company’s Annual Report on Form 10-K for the year ended December 31, 2019; |
| · | The information specifically incorporated by reference into the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 from the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on March 23, 2020; |
| · | The Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020; | |
| · | The Company’s Current Reports on Form 8-K filed on January 6, 2020, March 24, 2020, March 30, 2020, April 1, 2020, April 2, 2020, April 22, 2020, and May 6, 2020; and |
| · | The description of the common stock in the Company’s registration statement on Form 8-A filed on March 18, 1994, including any amendments and reports filed for the purpose of updating such description. |
All documents that we file (but not those that we furnish) with the SEC 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 securities covered by this prospectus and the accompanying prospectus supplement shall be deemed to be incorporated by reference into this prospectus and will automatically update and supersede the information in this prospectus, the accompanying prospectus supplement and any previously filed documents.
This means that important information about us appears or will appear in these documents and will be regarded as appearing in this prospectus. To the extent that information appearing in a document filed later is inconsistent with prior information, the later statement will control and the prior information, except as modified or superseded, will no longer be a part of this prospectus.
Copies of all documents which are incorporated by reference into this prospectus and the applicable prospectus supplement (not including the exhibits to such information, unless such exhibits are specifically incorporated by reference) will be provided without charge to each person, including any beneficial owner of the securities offered by this prospectus, to whom this prospectus or the applicable prospectus supplement is delivered, upon written or oral request. Requests should be directed to our Secretary, 70 E. Long Lake Road, Bloomfield Hills, Michigan 48304 (telephone number: (248) 737-4190). You may also obtain copies of these filings, at no cost, by accessing our website at www.agreerealty.com; however, except as expressly stated herein, the information located on or accessible from, our website is not, and should not be deemed to be, part of this prospectus, any accompanying prospectus supplement or any free writing prospectus or incorporated by reference into any other filing that we submit to the SEC.
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The audited financial statements and management’s assessment of the effectiveness of internal control over financial reporting incorporated by reference into this prospectus and elsewhere in the registration statement have been so incorporated by reference in reliance upon the reports of Grant Thornton LLP, independent registered public accountants, upon the authority of said firm as experts in accounting and auditing.
Unless otherwise indicated in the applicable prospectus supplement, certain legal matters with respect to the validity of any shares of common stock or preferred stock of Agree Realty Corporation offered by means of this prospectus and certain other legal matters relating to Maryland law will be passed upon for us by Ballard Spahr LLP, Baltimore, Maryland, and certain legal matters with respect to the validity of any securities issued by Agree Limited Partnership offered by means of this prospectus, certain other legal matters and certain tax matters will be passed upon for us by Honigman LLP, Detroit, Michigan.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item. 14. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses in connection with the distribution of the securities being registered. All amounts shown below are estimates:
| Securities and Exchange Commission registration fee | $ | * | ||
| Accountants’ fees and expenses | $ | ** | ||
| Legal fees and expenses | $ | ** | ||
| Printing expenses | $ | ** | ||
| Miscellaneous | $ | ** | ||
| Total | $ | ** |
| * | Deferred pursuant to Rule 456(b) and Rule 457(r). |
| ** | These fees are based on the number and size of issuances and accordingly cannot be estimated at this time. |
Item 15. Indemnification of Directors and Officers.
Set forth below is a description of certain provisions of the organizational documents for each registrant, as applicable, and a description of the applicable state law for each registrant, respectively.
Insofar as the foregoing provisions permit indemnification of directors, executive 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 it’s therefore unenforceable.
Agree Realty Corporation
The MGCL permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages, except for liability resulting from:
| · | actual receipt of an improper benefit or profit in money, property or services; or |
| · | active and deliberate dishonesty established by a final judgment and which is material to the cause of action. |
The Charter contains such a provision that eliminates directors’ and officers’ liability to the maximum extent permitted by Maryland law. These limitations of liability do not apply to liabilities arising under the federal securities laws and do not generally affect the availability of equitable remedies such as injunctive relief or rescission.
The Company’s officers and directors are and will be indemnified under Maryland law and the Charter and Bylaws against certain liabilities. The Charter and Bylaws require it to indemnify its directors and officers to the fullest extent permitted from time to time by the laws of the State of Maryland.
Maryland law requires a corporation (unless its charter provides otherwise, which the Charter does not) to indemnify a director or officer who has been successful in the defense of any proceeding to which he or she is made, or threatened to be made, a party by reason of his or her service in that capacity. Maryland law permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made, or threatened to be made, a party by reason of their service in those or other capacities unless it is established that:
| · | 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. |
However, under Maryland law, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the basis of that personal benefit was improperly received, unless in either case a court orders indemnification and then only for expenses. In addition, Maryland law permits a corporation to advance reasonable expenses to a director or officer upon the corporation’s 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 the corporation; and |
| · | a written undertaking by him or her on his or her behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the standard of conduct was not met. |
The Company maintains liability insurance for each director and officer for certain losses arising from claims or charges made against them while acting in their capacities as the Company’s directors or officers.
Agree Limited Partnership
Section 17-108 of the Delaware Revised Uniform Limited Partnership Act empowers a Delaware limited partnership to indemnify and hold harmless any partner or other persons from and against all claims and demands whatsoever, subject to such standards and restrictions set forth in the partnership agreement.
The limited partnership agreement of Agree Limited Partnership provides that Agree Realty Corporation, its directors and officers and any other persons that Agree Realty Corporation may designate are indemnified to the fullest extent permitted by applicable law, but that Agree Limited Partnership shall not indemnify any indemnitee (i) if the act or omission of the indemnitee was material to the matter giving rise to the proceeding and either was committed (or omitted) in bad faith or was the result of active and deliberate dishonesty; (ii) for any loss resulting from any transaction for which such indemnitee actually received an improper personal benefit in money, property or services; or (iii) in the case of any criminal proceeding, if the indemnitee had reasonable cause to believe that the act or omission was unlawful.
Item 16. Exhibits.
The Exhibits to this registration statement are listed in the Exhibit Index and are incorporated by reference herein.
Item 17. Undertakings.
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this registration statement. Notwithstanding the foregoing, any increase or decrease in the volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii) To include any material information with respect to the plan of distribution not previously disclosed in this registration statement or any material change to such information in this registration statement;
Provided, however, that paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the SEC by the registrants pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) that are incorporated by reference into the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act to any purchaser:
(i) Each prospectus filed by the registrants pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(ii) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or (x), for the purpose of providing the information required by Section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is a part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date.
(5) That, for the purpose of determining liability of the registrants under the Securities Act to any purchaser in the initial distribution of the securities:
The undersigned registrants undertake that in a primary offering of securities of the undersigned registrants pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrants will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrants relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrants or used or referred to by the undersigned registrants;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrants or its securities provided by or on behalf of the undersigned registrants; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrants to the purchaser.
(b) The undersigned registrants hereby undertakes that, for the purposes of determining any liability under the Securities Act, each filing of the registrants’ annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference into the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrants pursuant to the foregoing provisions, or otherwise, the registrants have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrants of expenses incurred or paid by a director, officer or controlling person of the registrants in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrants will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(d) The undersigned registrants hereby undertake to file an application for the purpose of determining the eligibility of the trustee to act under subsection (a) of section 310 of the Trust Indenture Act (“Act”) in accordance with the rules and regulations prescribed by the Commission under section 305(b)(2) of the Act.
EXHIBIT INDEX
| 4.16 | Form of certificate representing shares of preferred stock* | |
| 4.17 | Form of Deposit Agreement* | |
| 4.18 | Form of Depositary Receipt* | |
| 4.19 | Form of Warrant* | |
| 4.20 | Form of Warrant Agreement and Warrant Certificate* | |
| 4.21 | Form of Indenture for Debt Securities of Agree Limited Partnership | |
| 4.22 | Form of Supplemental Indenture* | |
| 4.23 | Form of Debt Security* | |
| 5.1 | Opinion of Ballard Spahr LLP | |
| 5.2 | Opinion of Honigman LLP | |
| 8.1 | Opinion of Honigman LLP as to certain tax matters | |
| 23.1 | Consent of Grant Thornton LLP | |
| 23.2 | Consent of Ballard Spahr LLP (included in Exhibit 5.1) | |
| 23.3 | Consent of Honigman LLP (included in Exhibit 5.1 and Exhibit 8.1) | |
| 24.1 | Power of Attorney for Agree Realty Corporation (included on signature page) | |
| 24.2 | Power of Attorney for Agree Limited Partnership (included on signature page) | |
| 25.1 | Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 |
| * | To be filed by amendment of the Registration Statement or as an exhibit to a Current Report on Form 8-K and incorporated herein in connection with the offering of a particular class of securities. |
AGREE REALTY CORPORATION SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Bloomfield Hills, State of Michigan, on May 27, 2020.
| AGREE REALTY CORPORATION | |||
| By: | /s/ JOEL N. AGREE | ||
| Name: | Joel N. Agree | ||
| Title: | President and Chief Executive Officer | ||
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors of Agree Realty Corporation, hereby severally constitute Joel N. Agree, Clayton Thelen and Danielle Spehar and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, any amendment to this Registration Statement, including post-effective amendments, and any subsequent registration statement filed pursuant to 462(b) under the Securities Act of 1933 and to file the same, with exhibits thereto, and other documents in connection therewith, making such changes in this Registration Statement as the Registrant deems appropriate; and we hereby ratify and confirm all that said attorney and agent shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the date indicated
| Signature | Title | Date | ||
| /s/ RICHARD AGREE | Executive Chairman | May 27, 2020 | ||
| Richard Agree | ||||
| /s/ JOEL N. AGREE | President, Chief Executive Officer and Director | May 27, 2020 | ||
| Joel N. Agree | (Principal Executive Officer) | |||
| /s/ CLAYTON THELEN | Chief Financial Officer and Secretary | May 27, 2020 | ||
| Clayton Thelen | (Principal Financial Officer) | |||
| /s/ DAVID WOLFF | Chief Accounting Officer | May 27, 2020 | ||
| David Wolff | (Principal Accounting Officer) | |||
| /s/ CRAIG ERLICH | Director | May 27, 2020 | ||
| Craig Erlich | ||||
| /s/ MERRIE S. FRANKEL | Director | May 27, 2020 | ||
| Merrie S. Frankel | ||||
| /s/ FARRIS G. KALIL | Director | May 27, 2020 | ||
| Farris G. Kalil | ||||
| /s/ GREG LEHMKUHL | Director | May 27, 2020 | ||
| Greg Lehmkuhl | ||||
| /s/ SIMON LEOPOLD | Director | May 27, 2020 | ||
| Simon Leopold | ||||
| /s/ JEROME ROSSI | Director | May 27, 2020 | ||
| Jerome Rossi | ||||
| /s/ WILLIAM S. RUBENFAER | Director | May 27, 2020 | ||
| William S. Rubenfaer |
AGREE LIMITED PARTNERSHIP SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Bloomfield Hills, State of Michigan, on May 27, 2020.
| AGREE LIMITED PARTNERSHIP | |||
| By: AGREE REALTY CORPORATION, its General Partner | |||
| By: | /s/ JOEL N. AGREE | ||
| Name: | Joel N. Agree | ||
| Title: | President and Chief Executive Officer | ||
| By: | /s/ CLAYTON THELEN | ||
| Name: | Clayton Thelen | ||
| Title: | Secretary and Chief Financial Officer | ||
| By: | /s/ DAVID WOLFF | ||
| Name: | David Wolff | ||
| Title: | Chief Accounting Officer | ||
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and directors of the General Partner of Agree Limited Partnership, hereby severally constitute Joel N. Agree, Clayton Thelen and Danielle Spehar and each of them singly, our true and lawful attorneys with full power to them, and each of them singly, to sign for us and in our names in the capacities indicated below, any amendment to this Registration Statement, including post-effective amendments, and any subsequent registration statement filed pursuant to 462(b) under the Securities Act of 1933 and to file the same, with exhibits thereto, and other documents in connection therewith, making such changes in this Registration Statement as the Registrant deems appropriate; and we hereby ratify and confirm all that said attorney and agent shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the date indicated
| Signature | Title | Date | ||
| /s/ RICHARD AGREE | Executive Chairman of the General Partner | May 27, 2020 | ||
| Richard Agree | ||||
| /s/ JOEL N. AGREE | President, Chief Executive Officer and Director of the General Partner | May 27, 2020 | ||
| Joel N. Agree | (Principal Executive Officer) | |||
| /s/ CLAYTON THELEN | Chief Financial Officer and Secretary of the General Partner | May 27, 2020 | ||
| Clayton Thelen | (Principal Financial Officer) | |||
| /s/ DAVID WOLFF | Chief Accounting Officer of the General Partner | May 27, 2020 | ||
| David Wolff | (Principal Accounting Officer) | |||
| /s/ CRAIG ERLICH | Director of the General Partner | May 27, 2020 | ||
| Craig Erlich | ||||
| /s/ MERRIE S. FRANKEL | Director of the General Partner | May 27, 2020 | ||
| Merrie S. Frankel | ||||
| /s/ FARRIS G. KALIL | Director of the General Partner | May 27, 2020 | ||
| Farris G. Kalil | ||||
| /s/ GREG LEHMKUHL | Director of the General Partner | May 27, 2020 | ||
| Greg Lehmkuhl | ||||
| /s/ SIMON LEOPOLD | Director of the General Partner | May 27, 2020 | ||
| Simon Leopold | ||||
| /s/ JEROME ROSSI | Director of the General Partner | May 27, 2020 | ||
| Jerome Rossi | ||||
| /s/ WILLIAM S. RUBENFAER | Director of the General Partner | May 27, 2020 | ||
| William S. Rubenfaer |
Exhibit 4.8
STATE OF DELAWARE
CERTIFICATE
OF LIMITED PARTNERSHIP
OF
AGREE LIMITED PARTNERSHIP
The undersigned, for the purpose of forming a Limited Partnership pursuant to Section 17-201 of the Delaware Revised Uniform Limited Partnership Act ("Act"), hereby certifies as follows:
FIRST. The name of this Limited Partnership shall be:
Agree Limited Partnership
SECOND. The address of the registered office of the Limited Partnership and the name and address of the registered agent for service of process upon the Limited Partnership required to be maintained by Section 17-104 of the Act is:
|
Registered Office: |
c/o The Prentice-Hall Dover, Delaware 19901 |
|
Name and Address of |
The Prentice-Hall Dover, Delaware 19901 |
THIRD. The General Partner of the Limited Partnership is Agree Realty Corporation and its mailing address is: 31850 Northwestern Highway, Farmington Hills, Michigan 48334.
IN WITNESS WHEREOF, the undersigned, being the general partner herein before named, has executed this Certificate of Limited Partnership this 4th day of April, 1994.
| AGREE REALTY CORPORATION, | |||
| General Partner | |||
| By: | /s/ Richard Agree | ||
| Name: Richard Agree | |||
| Title: President | |||
CERTIFICATE
OF AMENDMENT
TO THE
CERTIFICATE OF LIMITED PARTNERSHIP
OF
AGREE LIMITED PARTNERSHIP
The undersigned, desiring to amend the Certificate of Limited Partnership of Agree Limited Partnership pursuant to the provisions of Section 17-202 of the Revised Uniform Limited Partnership Act of the State of Delaware, does hereby certify as follows:
FIRST: The name of the Limited Partnership is Agree Limited Partnership
SECOND: Article II of the Certificate of Limited Partnership shall be amended as follows:
The address of the Partnership's registered office in the Stale of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware, 19801. The name of the Partnership's registered agent for service of process in the State of Delaware at such address is The Corporation Trust Company.
IN WITNESS WHEREOF the under executed this Amendment to the Certificate of Limited Partnership on this 4th day of April, 2005.
| AGREE LIMITED PARTNERSHIP | |||
| By: | /s/ Kenneth R. Howe | ||
| Kenneth R. Howe | |||
| General Partner | |||
Exhibit 4.21
AGREE LIMITED PARTNERSHIP,
as Company,
AGREE REALTY CORPORATION,
as Guarantor,
INDENTURE
Dated as of ___________, 2020
________________________________
as Trustee
TABLE OF CONTENTS
Page
| ARTICLE I. DEFINITIONS AND INCORPORATION BY REFERENCE | 1 | |
| Section 1.1. | Definitions. | 5 |
| Section 1.2. | Other Definitions. | 5 |
| Section 1.3. | Incorporation by Reference of Trust Indenture Act. | 5 |
| Section 1.4. | Rules of Construction. | 6 |
| ARTICLE II. THE SECURITIES | 6 | |
| Section 2.1. | Issuable in Series. | 6 |
| Section 2.2. | Establishment of Terms of Series of Securities. | 7 |
| Section 2.3. | Execution and Authentication. | 9 |
| Section 2.4. | Registrar and Paying Agent. | 10 |
| Section 2.5. | Paying Agent to Hold Money in Trust. | 10 |
| Section 2.6. | Securityholder Lists. | 11 |
| Section 2.7. | Transfer and Exchange. | 11 |
| Section 2.8. | Mutilated, Destroyed, Lost and Stolen Securities. | 11 |
| Section 2.9. | Outstanding Securities. | 12 |
| Section 2.10. | When Securities Disregarded. | 13 |
| Section 2.11. | Temporary Securities. | 13 |
| Section 2.12. | Cancellation. | 13 |
| Section 2.13. | Defaulted Interest. | 14 |
| Section 2.14. | Global Securities. | 14 |
| Section 2.15. | CUSIP Numbers. | 16 |
| ARTICLE III. REDEMPTION | 16 | |
| Section 3.1. | Notice to Trustee. | 16 |
| Section 3.2. | Selection of Securities to be Redeemed. | 16 |
| Section 3.3. | Notice of Redemption. | 17 |
| Section 3.4. | Effect of Notice of Redemption. | 18 |
| Section 3.5. | Deposit of Redemption Price. | 18 |
| Section 3.6. | Securities Redeemed in Part. | 18 |
| ARTICLE IV. COVENANTS | 19 | |
| Section 4.1. | Payment of Principal and Interest. | 19 |
| Section 4.2. | SEC Reports. | 19 |
| Section 4.3. | Compliance Certificate. | 20 |
| Section 4.4. | Stay, Extension and Usury Laws. | 20 |
| Section 4.5. | Existence. | 20 |
| ARTICLE V. SUCCESSORS | 21 | |
| Section 5.1. | Company and General Partner May Consolidate, Etc., on Certain Terms. | 21 |
i
| Section 5.2. | Successor Person Substituted. | 22 |
| ARTICLE VI. DEFAULTS AND REMEDIES | 22 | |
| Section 6.1. | Events of Default. | 22 |
| Section 6.2. | Acceleration of Maturity; Rescission and Annulment. | 24 |
| Section 6.3. | Collection of Indebtedness and Suits for Enforcement by Trustee. | 24 |
| Section 6.4. | Trustee May File Proofs of Claim. | 25 |
| Section 6.5. | Trustee May Enforce Claims Without Possession of Securities. | 26 |
| Section 6.6. | Application of Money Collected. | 26 |
| Section 6.7. | Limitation on Suits. | 26 |
| Section 6.8. | Unconditional Right of Holders to Receive Principal and Interest. | 27 |
| Section 6.9. | Restoration of Rights and Remedies. | 27 |
| Section 6.10. | Rights and Remedies Cumulative. | 27 |
| Section 6.11. | Delay or Omission Not Waiver. | 28 |
| Section 6.12. | Control by Holders. | 28 |
| Section 6.13. | Waiver of Past Defaults. | 28 |
| Section 6.14. | Undertaking for Costs. | 28 |
| ARTICLE VII. TRUSTEE | 29 | |
| Section 7.1. | Duties of Trustee. | 29 |
| Section 7.2. | Rights of Trustee. | 30 |
| Section 7.3. | Individual Rights of Trustee. | 32 |
| Section 7.4. | Trustee’s Disclaimer. | 32 |
| Section 7.5. | Notice of Defaults. | 32 |
| Section 7.6. | Reports by Trustee to Holders. | 32 |
| Section 7.7. | Compensation and Indemnity. | 32 |
| Section 7.8. | Replacement of Trustee. | 33 |
| Section 7.9. | Successor Trustee by Merger, Etc. | 34 |
| Section 7.10. | Eligibility; Disqualification. | 34 |
| Section 7.11. | Preferential Collection of Claims Against Company. | 35 |
| ARTICLE VIII. SATISFACTION AND DISCHARGE; DEFEASANCE | 35 | |
| Section 8.1. | Satisfaction and Discharge of Indenture. | 35 |
| Section 8.2. | Application of Trust Funds; Indemnification. | 36 |
| Section 8.3. | Legal Defeasance of Securities of any Series. | 36 |
| Section 8.4. | Covenant Defeasance. | 38 |
| Section 8.5. | Repayment to Company. | 39 |
| Section 8.6. | Reinstatement. | 39 |
| ARTICLE IX. AMENDMENTS AND WAIVERS | 40 | |
| Section 9.1. | Without Consent of Holders. | 40 |
| Section 9.2. | With Consent of Holders. | 40 |
| Section 9.3. | Limitations. | 41 |
| Section 9.4. | Compliance with Trust Indenture Act. | 42 |
| Section 9.5. | Revocation and Effect of Consents. | 42 |
ii
| Section 9.6. | Notation on or Exchange of Securities. | 42 |
| Section 9.7. | Trustee Protected. | 42 |
| ARTICLE X. GUARANTEES | 43 | |
| Section 10.1. | Guarantee. | 43 |
| Section 10.2. | Limitation of Guarantee. | 44 |
| Section 10.3. | Execution and Delivery of Guarantee Notation. | 45 |
| Section 10.4. | Release of Guarantee. | 45 |
| ARTICLE XI. MISCELLANEOUS | 46 | |
| Section 11.1. | Trust Indenture Act Controls. | 46 |
| Section 11.2. | Notices. | 46 |
| Section 11.3. | Communication by Holders with Other Holders. | 47 |
| Section 11.4. | Certificate and Opinion as to Conditions Precedent. | 47 |
| Section 11.5. | Statements Required in Certificate or Opinion. | 48 |
| Section 11.6. | Rules by Trustee and Agents. | 48 |
| Section 11.7. | Legal Holidays. | 48 |
| Section 11.8. | No Recourse Against Others. | 48 |
| Section 11.9. | Counterparts. | 49 |
| Section 11.10. | Governing Law. | 49 |
| Section 11.11. | No Adverse Interpretation of Other Agreements. | 49 |
| Section 11.12. | Successors. | 49 |
| Section 11.13. | Severability. | 49 |
| Section 11.14. | Table of Contents, Headings, Etc. | 49 |
| Section 11.15. | Force Majeure. | 50 |
| Section 11.16. | U.S.A. Patriot Act. | 50 |
| Section 11.17. | Jury Waiver. | 50 |
| ARTICLE XII. SINKING FUNDS | 50 | |
| Section 12.1. | Applicability of Article. | 50 |
| Section 12.2. | Satisfaction of Sinking Fund Payments with Securities. | 51 |
| Section 12.3. | Redemption of Securities for Sinking Fund. | 51 |
iii
AGREE LIMITED PARTNERSHIP
Reconciliation and tie between Trust Indenture Act of 1939 and
Indenture, dated as of ___________, 2020
| §310(a)(1) | 7.10 | |
| (a)(2) | 7.10 | |
| (a)(3) | Not Applicable | |
| (a)(4) | Not Applicable | |
| (a)(5) | 7.10 | |
| (b) | 7.10 | |
| §311(a) | 7.11 | |
| (b) | 7.11 | |
| (c) | Not Applicable | |
| §312(a) | 2.6 | |
| (b) | 11.3 | |
| (c) | 11.3 | |
| §313(a) | 7.6 | |
| (b)(1) | 7.6 | |
| (b)(2) | 7.6 | |
| (c)(1) | 7.6 | |
| (d) | 7.6 | |
| §314(a) | 4.2, 11.5 | |
| (b) | Not Applicable | |
| (c)(1) | 11.4 | |
| (c)(2) | 11.4 | |
| (c)(3) | Not Applicable | |
| (d) | Not Applicable | |
| (e) | 11.5 | |
| (f) | Not Applicable | |
| §315(a) | 7.1 | |
| (b) | 7.5 | |
| (c) | 7.1 | |
| (d) | 7.1 | |
| (e) | 6.14 | |
| §316(a) | 2.10 | |
| (a)(1)(A) | 6.12 | |
| (a)(1)(B) | 6.13 | |
| (b) | 6.8 | |
| §317(a)(1) | 6.3 | |
| (a)(2) | 6.4 | |
| (b) | 2.5 | |
| §318(a) | 11.1 |
Note: This reconciliation and tie shall not, for any purpose, be deemed to be part of the Indenture.
iv
Indenture dated as of ____________, 2020 among Agree Limited Partnership, a Delaware limited partnership (the “Company”), Agree Realty Corporation, a Maryland corporation operating as a real estate investment trust (the “General Partner”), as Guarantor, and _____________________________ (the “Trustee”).
Each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Securities issued under this Indenture.
ARTICLE I.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1. Definitions.
“Additional Amounts” means any additional amounts which are required hereby or by any Security, under circumstances specified herein or therein, to be paid by the Company in respect of certain taxes imposed on Holders specified herein or therein and which are owing to such Holders.
“Affiliate” of any specified person means any other person directly or indirectly controlling or controlled by or under common control with such specified person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”), as used with respect to any person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such person, whether through the ownership of voting securities or by agreement or otherwise.
“Agent” means any Registrar, Paying Agent or Notice Agent.
“Board of Directors” means the board of directors of the General Partner or any duly authorized committee thereof.
“Board Resolution” means a copy of a resolution certified by the Secretary or an Assistant Secretary of the General Partner to have been adopted by the Board of Directors or pursuant to authorization by the Board of Directors and to be in full force and effect on the date of the certificate and delivered to the Trustee. Where any provision of this Indenture refers to action to be taken pursuant to a Board Resolution (including the establishment of any series of the Securities and the forms and terms thereof), such action may be taken by any committee, officer or employee of the General Partner, authorized to take such action by the Board of Directors, as evidenced by a Board Resolution.
“Business Day” means, unless otherwise provided by Board Resolution, supplemental indenture hereto or Officer’s Certificate delivered pursuant to Section 2.2, any day except a Saturday, Sunday or a legal holiday in The City of New York (or in connection with any payment, the place of payment) on which banking institutions are authorized or required by law, regulation or executive order to close.
“Capital Stock” means (a) in the case of a corporation, corporate stock; (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated and whether or not voting) of corporate stock, including each class of common stock and preferred stock of such person; and (c) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited).
“Company” means the party named as such above until a successor replaces it pursuant to the applicable provisions of this Indenture and thereafter means the successor.
“Company Order” means a written order signed in the name of the Company by an Officer.
“Corporate Trust Office” means the office of the Trustee at which at any particular time its corporate trust business related to this Indenture shall be principally administered.
“CUSIP number” means the alphanumeric designation assigned to a security by Standard & Poor’s, CUSIP Service Bureau.
“Default” means any event which is, or after notice or passage of time or both would be, an Event of Default.
“Depositary” means, with respect to the Securities of any Series issuable or issued in whole or in part in the form of one or more Global Securities, the person designated as Depositary for such Series by the Company and any and all successors thereto appointed as Depositary hereunder and having become such pursuant to the applicable provision of this Indenture, which Depositary shall be a clearing agency registered under the Exchange Act; and if at any time there is more than one such person, “Depositary” as used with respect to the Securities of any Series shall mean the Depositary with respect to the Securities of such Series.
“Discount Security” means any Security that provides for an amount less than the stated principal amount thereof to be due and payable upon declaration of acceleration of the maturity thereof pursuant to Section 6.2.
“Dollars” and “$” means the currency of The United States of America.
“EDGAR” means the SEC’s Electronic Data Gathering, Analysis and Retrieval system.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“GAAP” means accounting principles generally accepted in the United States of America set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect as of the date of determination.
“General Partner” means the party named as such above until a successor replaces it pursuant to the applicable provisions of this Indenture and thereafter means the successor.
2
“Global Security” or “Global Securities” means a Security or Securities, as the case may be, in the form established pursuant to Section 2.2 evidencing all or part of a Series of Securities, issued to the Depositary for such Series or its nominee, and registered in the name of such Depositary or nominee.
“Guarantee” means the full and unconditional guarantee, if any, by a Guarantor of the Company’s obligations with respect to a Series of Securities pursuant to the terms set forth in this Indenture.
“Guaranteed Series of Securities” means a Series of Securities, the obligations of the Company with respect to which are guaranteed by a Guarantor.
“Guarantor” initially means the General Partner and shall include any Subsidiary of the Company that becomes a Guarantor with respect to a particular Series of Securities pursuant to a Board Resolution, supplemental indenture hereto or an Officer’s Certificate delivered pursuant to Section 2.2, and, subject to the provisions of Article 5 hereof, shall include their respective successors and assigns.
“Holder” or “Securityholder” means a person in whose name a Security is registered.
“Indenture” means this Indenture as amended or supplemented from time to time and shall include the form and terms of particular Series of Securities established as contemplated hereunder.
“interest” with respect to any Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity.
“Maturity,” when used with respect to any Security, means the date on which the principal of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise.
“Officer” means the Chief Executive Officer, President, the Chief Financial Officer, the Chief Operating Officer, the Treasurer or any Assistant Treasurer, the Secretary or any Assistant Secretary, and any Vice President of the General Partner.
“Officer’s Certificate” means a certificate signed by any Officer.
“Opinion of Counsel” means a written opinion of legal counsel who is reasonably acceptable to the Trustee. If agreeable to the Trustee in its sole discretion, the counsel may be an employee of or counsel to the Company or the General Partner.
“person” means any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
“principal” of a Security means the principal of the Security plus, when appropriate, the premium, if any, on, and any Additional Amounts in respect of, the Security.
3
“Responsible Officer” means any officer of the Trustee in its Corporate Trust Office having responsibility for administration of this Indenture and also means, with respect to a particular corporate trust matter, any other officer to whom any corporate trust matter is referred because of his or her knowledge of and familiarity with a particular subject.
“SEC” means the Securities and Exchange Commission.
“Securities” means the debentures, notes or other debt instruments of the Company of any Series authenticated and delivered under this Indenture.
“Security Register” means where the Registrar will keep a register of Securities and of their transfer and exchange.
“Series” or “Series of Securities” means each series of debentures, notes or other debt instruments of the Company created pursuant to Sections 2.1 and 2.2 hereof.
“Stated Maturity” when used with respect to any Security, means the date specified in such Security as the fixed date on which the principal of such Security or interest is due and payable.
“Subsidiary” of any specified person means any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such person or one or more of the other Subsidiaries of that person or a combination thereof.
“TIA” means the Trust Indenture Act of 1939 (15 U.S. Code §§ 77aaa-77bbbb) as in effect on the date of this Indenture; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, “TIA” means, to the extent required by any such amendment, the Trust Indenture Act as so amended.
“Trustee” means the person named as the “Trustee” in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter “Trustee” shall mean or include each person who is then a Trustee hereunder, and if at any time there is more than one such person, “Trustee” as used with respect to the Securities of any Series shall mean the Trustee with respect to Securities of that Series.
“Uniform Fraudulent Transfer Act” means the Uniform Fraudulent Transfer Act as adopted by any state with jurisdiction over the Company or any Guarantor and any successor legislation.
“Uniform Voidable Transactions Act” means the Uniform Voidable Transactions Act as adopted by any state with jurisdiction over the Company or any Guarantor and any successor legislation.
“U.S.A. Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Title III of Pub. L. 107-56 (signed into Law October 26, 2001)).
4
“U.S. Government Obligations” means securities which are direct obligations of, or guaranteed by, the United States of America for the payment of which its full faith and credit is pledged and which are not callable or redeemable at the option of the issuer thereof, and shall also include a depositary receipt issued by a bank or trust company as custodian with respect to any such U.S. Government Obligation or a specific payment of interest on or principal of any such U.S. Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the U.S. Government Obligation evidenced by such depositary receipt.
Section 1.2. Other Definitions.
| TERM | DEFINED IN SECTION |
| “Bankruptcy Law” | 6.1 |
| “Custodian” | 6.1 |
| “DTC” | 2.14 |
| “Event of Default” | 6.1 |
| “Legal Holiday” | 11.7 |
| “mandatory sinking fund payment” | 12.1 |
| “Notice Agent” | 2.4 |
| “optional sinking fund payment” | 12.1 |
| “Paying Agent” | 2.4 |
| “Registrar” | 2.4 |
| “Successor Person” | 5.1 |
Section 1.3. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings:
“Commission” means the SEC.
“indenture securities” means the Securities.
“obligor” on the indenture securities means the Company and the Guarantor, respectively, and any successor obligor upon the Securities.
All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA and not otherwise defined herein are used herein as so defined.
5
Section 1.4. Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;
(c) “or” is not exclusive;
(d) words in the singular include the plural, and in the plural include the singular;
(e) provisions apply to successive events and transactions; and
(f) the phrase “in writing” as used herein shall be deemed to include portable document format attachments and other electronic means of transmission, unless otherwise indicated (including any electronic signature covered by the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act, the Electronic Signatures and Records Act or other applicable law, e.g., www.docusign.com).
ARTICLE II.
THE SECURITIES
Section 2.1. Issuable in Series.
The aggregate principal amount of Securities that may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more Series. All Securities of a Series shall be identical except as may be set forth or determined in the manner provided in a Board Resolution, a supplemental indenture or an Officer’s Certificate detailing the adoption of the terms thereof pursuant to authority granted under a Board Resolution. In the case of Securities of a Series to be issued from time to time, the Board Resolution, Officer’s Certificate or supplemental indenture detailing the adoption of the terms thereof pursuant to authority granted under a Board Resolution may provide for the method by which specified terms (such as interest rate, maturity date, record date or date from which interest shall accrue) are to be determined. Securities may differ between Series in respect of any matters, provided that all Series of Securities shall be equally and ratably entitled to the benefits of the Indenture.
Section 2.2. Establishment of Terms of Series of Securities.
At or prior to the issuance of any Securities within a Series, the following shall be established (as to the Series generally, in the case of Subsection 2.2.1 and either as to such Securities within the Series or as to the Series generally in the case of Subsections 2.2.2 through 2.2.23) by or pursuant to a Board Resolution, and set forth or determined in the manner provided in a Board Resolution, supplemental indenture hereto or Officer’s Certificate:
6
2.2.1. the title (which shall distinguish the Securities of that particular Series from the Securities of any other Series except to the extent that additional securities of an existing Series are being issued);
2.2.2. the price or prices (expressed as a percentage of the principal amount thereof) at which the Securities of the Series will be issued;
2.2.3. any limit upon the aggregate principal amount of the Securities of the Series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the Series pursuant to Section 2.7, 2.8, 2.11, 3.6 or 9.6);
2.2.4. the date or dates on which the principal of the Securities of the Series is payable;
2.2.5. the rate or rates (which may be fixed or variable) per annum or, if applicable, the method used to determine such rate or rates (including, but not limited to, any commodity, commodity index, stock exchange index or financial index) at which the Securities of the Series shall bear interest, if any, the date or dates from which such interest, if any, shall accrue, the date or dates on which such interest, if any, shall commence and be payable and any regular record date for the interest payable on any interest payment date;
2.2.6. whether such interest will be payable in cash or additional securities of the same series or will accrue and increase the aggregate principal amount outstanding of such Securities of the Series;
2.2.7. the place or places where the principal of, and premium, if any, and interest, if any, on the Securities of the Series shall be payable, where the Securities of such Series may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities of such Series and this Indenture may be delivered, and the method of such payment, if by wire transfer, mail or other means;
2.2.8. if applicable, the period or periods within which, the price or prices at which and the terms and conditions upon which the Securities of the Series may be redeemed, in whole or in part, at the option of the Company;
2.2.9. the obligation, if any, of the Company to redeem or purchase the Securities of the Series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which, and the other terms and conditions upon which, Securities of the Series shall be redeemed or purchased, in whole or in part, pursuant to such obligation;
2.2.10. the dates, if any, on which and the price or prices at which the Securities of the Series will be repurchased by the Company at the option of the Holders thereof and other detailed terms and provisions of such repurchase obligations;
2.2.11. if other than denominations of $1,000 and any integral multiple thereof, the minimum denominations in which the Securities of the Series shall be issuable;
7
2.2.12. the forms of the Securities of the Series and whether the Securities will be issuable as Global Securities;
2.2.13. if other than the principal amount thereof, the portion of the principal amount of the Securities of the Series that shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 6.2;
2.2.14. the provisions, if any, relating to any security provided for the Securities of the Series;
2.2.15. any addition to, deletion of or change in the Events of Default which applies to any Securities of the Series and any change in the right of the Trustee or the requisite Holders of such Securities to declare the principal amount thereof due and payable pursuant to Section 6.2;
2.2.16. any addition to, deletion of or change in the covenants set forth in Articles IV or V which applies to Securities of the Series;
2.2.17. any Depositaries, interest rate calculation agents, exchange rate calculation agents or other agents with respect to Securities of such Series;
2.2.18. the provisions, if any, relating to conversion or exchange of any Securities of such Series, including if applicable, the conversion or exchange price, the conversion or exchange period, the securities or other property into which the Securities will be convertible, provisions as to whether conversion or exchange will be mandatory, at the option of the Holders thereof or at the option of the Company, the events requiring an adjustment of the conversion price or exchange price and provisions affecting conversion or exchange if such Series of Securities are redeemed;
2.2.19. whether the Securities of such Series will be senior debt securities or subordinated debt securities and, if applicable, the subordination terms thereof;
2.2.20. any guarantor of the Securities of such Series pursuant to Article X in addition to the General Partner, and the form and terms of the Guarantees (including provisions relating to seniority or subordination of such Guarantees and the release of the Guarantor), if any, of any payment or other obligations on such Securities and any additions or changes to this Indenture to permit or facilitate guarantees of such Securities;
2.2.21. any addition to or change in the provisions related to satisfaction and discharge or covenant defeasance or legal defeasance in Article VIII;
2.2.22. whether the Securities of such Series are to be issued as Discount Securities and the amount of discount with which such Securities may be issued; and
2.2.23. any other terms of the Series (which may supplement, modify or delete any provision of this Indenture insofar as it applies to such Series), including any terms that may be required under applicable law or regulations or advisable in connection with the marketing of Securities of that Series.
8
All Securities of any one Series need not be issued at the same time and may be issued from time to time, consistent with the terms of this Indenture, if so provided by or pursuant to the Board Resolution, supplemental indenture hereto or Officer’s Certificate referred to above.
Section 2.3. Execution and Authentication.
An Officer shall sign the Securities for the Company by manual, facsimile, electronic or portable document format signature. Any notation of Guarantee on the Securities shall be executed on behalf of the Guarantor by an Officer by manual, facsimile, electronic or portable document format signature in the name and on behalf of the Guarantor.
If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid.
A Security shall not be valid until authenticated by the manual, facsimile, electronic or portable document format signature of the Trustee or an authenticating agent. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture.
The Trustee shall at any time, and from time to time, authenticate Securities for original issue in the principal amount provided in the Board Resolution, supplemental indenture hereto or Officer’s Certificate delivered pursuant to Section 2.2, upon receipt by the Trustee of a Company Order, Officer’s Certificate and Opinion of Counsel. Such Company Order may authorize authentication and delivery pursuant to electronic instructions from the Company or its duly authorized agent or agents. Each Security shall be dated the date of its authentication.
The aggregate principal amount of Securities of any Series outstanding at any time may not exceed any limit upon the maximum principal amount for such Series set forth in Board Resolution, supplemental indenture hereto or Officer’s Certificate delivered pursuant to Section 2.2, except as provided in Section 2.8.
Prior to the issuance of Securities of any Series, the Trustee shall have received and (subject to Section 7.2) shall be fully protected in relying on: (a) the Board Resolution, supplemental indenture hereto or Officer’s Certificate establishing the form of the Securities of that Series or of Securities within that Series and the terms of the Securities of that Series or of Securities within that Series, (b) an Officer’s Certificate complying with Section 11.4, and (c) an Opinion of Counsel complying with Section 11.4.
The Trustee shall have the right to decline to authenticate and deliver any Securities of such Series: (a) if the Trustee, being advised by counsel, determines that such action may not be taken lawfully; or (b) if the Trustee in good faith determines that such action would expose the Trustee to personal liability.
The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as the Trustee to deal with the Company or an Affiliate of the Company.
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Section 2.4. Registrar and Paying Agent.
The Company shall maintain, with respect to each Series of Securities, at the place or places specified with respect to such Series pursuant to Section 2.2, an office or agency where Securities of such Series may be presented or surrendered for payment (“Paying Agent”), where Securities of such Series may be surrendered for registration of transfer or exchange (“Registrar”) and where notices and demands to or upon the Company in respect of the Securities of such Series and this Indenture may be delivered (“Notice Agent”). The Registrar shall keep a register with respect to each Series of Securities and to their transfer and exchange. The Company will give prompt written notice to the Trustee of the name and address, and any change in the name or address, of each Registrar, Paying Agent or Notice Agent. If at any time the Company shall fail to maintain any such required Registrar, Paying Agent or Notice Agent or shall fail to furnish the Trustee with the name and address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands; provided, however, that any appointment of the Trustee as the Notice Agent shall exclude the appointment of the Trustee or any office of the Trustee as an agent to receive the service of legal process on the Company. The Company may change any Registrar or Paying Agent of a Series without notice to any Holder.
The Company may also from time to time designate one or more co-registrars, additional paying agents or additional notice agents and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligations to maintain a Registrar, Paying Agent and Notice Agent in each place so specified pursuant to Section 2.2 for Securities of any Series for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the name or address of any such co-registrar, additional paying agent or additional notice agent. The term “Registrar” includes any co-registrar; the term “Paying Agent” includes any additional paying agent; and the term “Notice Agent” includes any additional notice agent. The Company or any of its Affiliates may serve as Registrar or Paying Agent.
The Company hereby appoints the Trustee to act as the initial Registrar, Paying Agent and Notice Agent for each Series unless another Registrar, Paying Agent or Notice Agent, as the case may be, is appointed prior to the time Securities of that Series are first issued.
Section 2.5. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust, for the benefit of Securityholders of any Series of Securities, or the Trustee, all money held by the Paying Agent for the payment of principal of or interest on the Series of Securities, and will notify the Trustee in writing of any Default by the Company in making any such payment. While any such Default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed by such Paying Agent. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary of the Company) shall have no further liability for the money. If the Company or a Subsidiary of the Company acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of Securityholders of any Series of Securities all money held by it as Paying Agent. Upon any bankruptcy, reorganization or similar proceeding with respect to the Company, the Trustee shall serve as Paying Agent for the Securities.
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Section 2.6. Securityholder Lists.
The Registrar shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders of each Series of Securities and shall otherwise comply with TIA § 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee and Registrar at least 10 days before each interest payment date and at such other times as the Trustee may request in writing a list, in such form and as of such date as the Trustee may reasonably require, of the names and addresses of Securityholders of each Series of Securities.
Section 2.7. Transfer and Exchange.
Where Securities of a Series are presented to the Registrar or a co-registrar with a request to register a transfer or to exchange them for an equal principal amount of Securities of the same Series, the Registrar shall register the transfer or make the exchange if its requirements for such transactions are met. To permit registrations of transfers and exchanges, the Trustee shall authenticate Securities at the Registrar’s request. No service charge shall be made for any registration of transfer or exchange (except as otherwise expressly permitted herein), but the Company may require payment by the applicable Securityholders of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer tax or similar governmental charge payable upon exchanges pursuant to Sections 2.11, 3.6 or 9.6).
Neither the Company nor the Registrar shall be required (a) to issue, register the transfer of, or exchange Securities of any Series for the period beginning at the opening of business 15 days immediately preceding the sending of a notice of redemption of Securities of that Series selected for redemption and ending at the close of business on the day such notice is sent, or (b) to register the transfer of or exchange of Securities of any Series selected, called or being called for redemption as a whole or the portion being redeemed of any such Securities selected, called or being called for redemption in part.
Section 2.8. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same Series and of like tenor and principal amount and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security and (ii) such security or indemnity bond as may be required by each of them to hold itself and any of its agents harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon receipt of a Company Order the Trustee shall authenticate and make available for delivery, in lieu of any such destroyed, lost or stolen Security, a new Security of the same Series and of like tenor and principal amount and bearing a number not contemporaneously outstanding.
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If, after the delivery of such replacement Security, a bona fide purchaser of the original Security in lieu of which such replacement Security was issued presents for payment or registration such original Security, the Trustee shall be entitled to recover such replacement Security from the Person to whom it was delivered or any Person taking therefrom, except a bona fide purchaser, and, for the avoidance of doubt, the Company, the Trustee and the Agent shall be entitled to recover upon the security or indemnity provided therefor.
In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security of any Series issued pursuant to this Section in lieu of any destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that Series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities.
Section 2.9. Outstanding Securities.
The Securities outstanding at any time are all the Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest on a Global Security effected by the Trustee in accordance with the provisions hereof and those described in this Section as not outstanding. Subject to the foregoing and to Section 2.10, in determining whether the Holders of the requisite principal amount of outstanding Securities have given or concurred in any request, demand, authorization, direction, notice, consent or waiver hereunder (including, without limitation, determinations pursuant to Articles VI and IX hereof), only Securities outstanding at the time of such determination shall be considered in any such determination.
If a Security is replaced pursuant to Section 2.8, it ceases to be outstanding until the Trustee receives proof satisfactory to it that the replaced Security is held by a bona fide purchaser.
If the Paying Agent (other than the Company, a Subsidiary of the Company or an Affiliate of the Company) holds on the Stated Maturity of Securities of a Series money sufficient to pay all amounts payable in respect of such Securities on that date, then on and after that date such Securities of the Series cease to be outstanding and interest on them ceases to accrue.
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The Company or an Affiliate may purchase or otherwise acquire the Securities, whether by open market purchases, negotiated transactions or otherwise. A Security does not cease to be outstanding because the Company or an Affiliate of the Company holds the Security (but see Section 2.10 below).
In determining whether the Holders of the requisite principal amount of outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, the principal amount of a Discount Security that shall be deemed to be outstanding for such purposes shall be the amount of the principal thereof that would be due and payable as of the date of such determination upon a declaration of acceleration of the Stated Maturity thereof pursuant to Section 6.2.
Section 2.10. When Securities Disregarded.
In determining whether the Holders of the required principal amount of Securities of a Series have concurred in any request, demand, authorization, direction, notice, consent or waiver, Securities of a Series owned by the Company or any Affiliate of the Company shall be disregarded, except that for the purposes of determining whether the Trustee shall be protected in relying on any such request, demand, authorization, direction, notice, consent or waiver only Securities of a Series that a Responsible Officer actually knows are so owned shall be so disregarded.
Section 2.11. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Securities upon a Company Order in accordance with the procedures in Section 2.3. Temporary Securities shall be substantially in the form of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and the Trustee upon receipt of a Company Order shall authenticate definitive Securities of the same Series and Stated Maturity in exchange for temporary Securities. Until so exchanged, temporary securities shall have the same rights under this Indenture as the definitive Securities.
Section 2.12. Cancellation.
The Company at any time may deliver Securities to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for registration of transfer, exchange or payment. The Trustee shall cancel all Securities surrendered for transfer, exchange, payment, replacement or cancellation and shall destroy such canceled Securities (subject to the record retention requirement of the Exchange Act and the Trustee) and deliver a certificate of such cancellation to the Company upon written request of the Company. The Company may not issue new Securities to replace Securities that it has paid or delivered to the Trustee for cancellation.
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Section 2.13. Defaulted Interest.
If the Company defaults in a payment of interest on a Series of Securities, it shall pay the defaulted interest, plus, to the extent permitted by law, any interest payable on the defaulted interest, to the persons who are Securityholders of the Series on a subsequent special record date. The Company shall fix the record date and payment date. At least 10 days before the special record date, the Company shall send to the Trustee and to each Securityholder of the Series a notice that states the special record date, the payment date and the amount of interest to be paid. The Company may pay defaulted interest in any other lawful manner.
Section 2.14. Global Securities.
2.14.1. Terms of Securities. A Board Resolution, a supplemental indenture hereto or an Officer’s Certificate delivered pursuant to Section 2.2. shall establish whether the Securities of a Series shall be issued in whole or in part in the form of one or more Global Securities and the Depositary for such Global Security or Securities.
2.14.2. Transfer and Exchange. Notwithstanding any provisions to the contrary contained in Section 2.7 and in addition thereto, any Global Security shall be exchangeable pursuant to Section 2.7 for Securities registered in the names of Holders other than the Depositary for such Security or its nominee only if (i) such Depositary notifies the Company that it is unwilling or unable to continue as Depositary for such Global Security or if at any time such Depositary ceases to be a clearing agency registered under the Exchange Act, and, in either case, the Company fails to appoint a successor Depositary registered as a clearing agency under the Exchange Act within 90 days of such event or (ii) the Company executes and delivers to the Trustee an Officer’s Certificate to the effect that such Global Security shall be so exchangeable. Any Global Security that is exchangeable pursuant to the preceding sentence shall be exchangeable for Securities registered in such names as the Depositary shall direct in writing in an aggregate principal amount equal to the principal amount of the Global Security with like tenor and terms.
Except as provided in this Section 2.14.2, a Global Security may not be transferred except as a whole by the Depositary with respect to such Global Security to a nominee of such Depositary, by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such a successor Depositary.
Any Holder of a beneficial interest in a Global Security shall, by acceptance of such beneficial interest agree that transfers of beneficial interests in such Global Security may be effected only through a book-entry system maintained by (a) the Holder of such Global Security (or its agent) or (b) any Holder of a beneficial interest in such Global Security, and that ownership of a beneficial interest in such Global Security shall be required to be reflected in a book-entry.
2.14.3. Legends. Any Global Security issued hereunder shall bear a legend in substantially the following form:
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“THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF, WHICH MAY BE TREATED BY THE ISSUER, THE TRUSTEE AND ANY AGENT THEREOF AS OWNER AND HOLDER OF THIS SECURITY FOR ALL PURPOSES. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF THE DEPOSITARY OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.”
In addition, if and so long as the Depository Trust Company (“DTC”) is the Depositary, each Global Note registered in the name of DTC or its nominee shall bear a legend in substantially the following form:
“UNLESS THIS GLOBAL NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY GLOBAL NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.”
2.14.4. Acts of Holders. The Depositary, as a Holder, may appoint agents and otherwise authorize participants to give or take any request, demand, authorization, direction, notice, consent, waiver or other action which a Holder is entitled to give or take under the Indenture.
2.14.5. Payments. Notwithstanding the other provisions of this Indenture, unless otherwise specified as contemplated by Section 2.2, payment of the principal of and interest, if any, on any Global Security shall be made to the Holder thereof.
2.14.6. Consents, Declaration and Directions. The Company, the Trustee and any Agent shall treat a person as the Holder of such principal amount of outstanding Securities of such Series represented by a Global Security as shall be specified in a written statement of the Depositary or by the applicable procedures of such Depositary with respect to such Global Security, for purposes of obtaining any consents, declarations, waivers or directions required to be given by the Holders pursuant to this Indenture and neither the Company nor the Trustee shall have any liability or responsibility for any action or inaction of the Depositary or any clearinghouse.
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Section 2.15. CUSIP Numbers.
The Company in issuing the Securities may use “CUSIP” numbers (if then generally in use), and, if so, the Trustee shall use “CUSIP” numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption and that reliance may be placed only on the other elements of identification printed on the Securities, and any such redemption shall not be affected by any defect in or omission of such numbers.
ARTICLE III.
REDEMPTION
Section 3.1. Notice to Trustee.
The Company may, with respect to any Series of Securities, reserve the right to redeem and pay the Series of Securities or may covenant to redeem and pay the Series of Securities or any part thereof prior to the Stated Maturity thereof at such time and on such terms as provided for in such Securities. If a Series of Securities is redeemable and the Company wants or is obligated to redeem prior to the Stated Maturity thereof all or part of the Series of Securities pursuant to the terms of such Securities, it shall notify the Trustee in writing of the redemption date and the principal amount of Series of Securities (identified by CUSIP) to be redeemed. The Company shall give the notice at least 15 days before the redemption date, unless a shorter period is satisfactory to the Trustee.
Section 3.2. Selection of Securities to be Redeemed.
Unless otherwise indicated for a particular Series by a Board Resolution, a supplemental indenture hereto or an Officer’s Certificate delivered pursuant to Section 2.2, if less than all the Securities of a Series are to be redeemed, the Securities of the Series to be redeemed will be selected as follows: (a) if the Securities are in the form of Global Securities, in accordance with the procedures of the Depositary, (b) if the Securities are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange, if any, on which the Securities are listed, or (c) if not otherwise provided for under clause (a) or (b) in the manner that the Trustee deems fair and appropriate, including by lot or other method, unless otherwise required by law or applicable stock exchange requirements, subject, in the case of Global Securities, to the applicable rules and procedures of the Depositary. The Securities to be redeemed shall be selected from Securities of the Series outstanding not previously called for redemption. Portions of the principal of Securities of the Series that have denominations larger than $1,000 may be selected for redemption. Securities of the Series and portions of them selected for redemption shall be in amounts of $1,000 or whole multiples of $1,000 or, with respect to Securities of any Series issuable in other denominations pursuant to Section 2.2.11, the minimum principal denomination for each Series and the authorized integral multiples thereof. Provisions of this Indenture that apply to Securities of a Series called for redemption also apply to portions of Securities of that Series called for redemption. Notices of redemption may be subject to the satisfaction of one or more conditions precedent to the extent so indicated for a particular Series of Securities by a Board Resolution, supplemental indenture or Officer’s Certificate delivered pursuant to Section 2.2; otherwise, a notice of redemption may not be conditional. Subject to the satisfaction of any conditions precedent to such redemption (to the extent so indicated for a particular Series of Securities by a Board Resolution, supplemental indenture hereto or Officer’s Certificate delivered pursuant to Section 2.2), Securities called for redemption become irrevocably due on the date fixed for redemption at the applicable redemption price, plus accrued and unpaid interest to, but not including, the redemption date. On and after the redemption date, unless the Company defaults in paying the applicable redemption price, interest ceases to accrue or accrete on Securities or portions of them called for redemption. If a redemption is subject to the satisfaction of one or more conditions precedent (to the extent so indicated for a particular Series of Securities by a Board Resolution, supplemental indenture hereto or an Officer’s Certificate delivered pursuant to Section 2.2), the redemption date may be delayed by the Company until such time as any or all such conditions shall be satisfied (or waived by the Company in its sole discretion), or such redemption may not occur and such notice may be rescinded in the event that any or all such conditions shall not have been satisfied (or waived by the Company in its sole discretion) by the redemption date, or by the redemption date so delayed. In such case, references herein to “redemption date” mean the original redemption date or the redemption date so delayed.
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Section 3.3. Notice of Redemption.
Unless otherwise indicated for a particular Series by Board Resolution, a supplemental indenture hereto or an Officer’s Certificate delivered pursuant to Section 2.2, at least 15 days but not more than 60 days before a redemption date, the Company shall send or cause to be sent by first-class mail or electronically, in accordance with the procedures of the Depositary, a notice of redemption to each Holder whose Securities are to be redeemed.
The notice shall identify the Securities of the Series to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price, including interest accrued and unpaid to, but not including, the redemption date;
(c) the name and address of the Paying Agent;
(d) if any Securities are being redeemed in part, the portion of the principal amount of such Securities to be redeemed and that, after the redemption date and upon surrender of such Security, a new Security or Securities in principal amount equal to the unredeemed portion of the original Security shall be issued in the name of the Holder thereof upon cancellation of the original Security;
(e) that Securities of the Series called for redemption must be surrendered to the Paying Agent to collect the redemption price;
(f) any conditions precedent to such redemption and, if the Company elects to do so, that the redemption date may be delayed until such time as any or all such conditions shall be satisfied (or waived by the Company in its sole discretion);
(g) that interest on Securities of the Series called for redemption ceases to accrue on and after the redemption date unless the Company defaults in the deposit of the redemption price;
(h) the CUSIP number, if any; and
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(i) any other information as may be required by the terms of the particular Series or the Securities of a Series being redeemed.
At the Company’s request, the Trustee shall give the notice of redemption in the Company’s name and at its expense.
Section 3.4. Effect of Notice of Redemption.
Once notice of redemption is sent as provided in Section 3.3, Securities of a Series called for redemption become due and payable on the redemption date and at the redemption price. Except as otherwise provided in the Board Resolution, supplemental indenture hereto or Officer’s Certificate delivered pursuant to Section 2.2, a notice of redemption may not be conditional. Upon surrender to the Paying Agent, such Securities shall be paid at the redemption price plus accrued interest to the redemption date.
Section 3.5. Deposit of Redemption Price.
On or before 11:00 a.m., New York City time, on the redemption date, the Company shall deposit with the Paying Agent money sufficient to pay the redemption price of and accrued interest, if any, on all Securities to be redeemed on that date, other than Securities or portions of Securities called for redemption that have been delivered by the Company to the Trustee for cancellation. The Trustee or the Paying Agent shall as promptly as practicable return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Securities to be redeemed. If such money is then held by the Company in trust and is not required for such purpose it shall be discharged from such trust.
If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Securities or the portions of the Securities called for redemption. If a Security is redeemed on or after a regular record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the person in whose name such Security was registered at the close of business on such regular record date. If any Security called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and, to the extent lawful, on any interest not paid on such unpaid principal, in each case at the rate provided in the Securities.
Section 3.6. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Trustee shall authenticate for the Holder a new Security of the same Series and the same maturity equal in principal amount to the unredeemed portion of the Security surrendered.
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ARTICLE IV.
COVENANTS
Section 4.1. Payment of Principal and Interest.
The Company covenants and agrees for the benefit of the Holders of each Series of Securities that it will duly and punctually pay the principal of and interest, if any, on the Securities of that Series in accordance with the terms of such Securities and this Indenture. On or before 11:00 a.m., New York City time, on the applicable payment date, the Company shall deposit with the Paying Agent money sufficient to pay the principal of and interest, if any, on the Securities of each Series in accordance with the terms of such Securities and this Indenture.
Section 4.2. SEC Reports.
To the extent any Securities of a Series are outstanding, the Company and the General Partner shall deliver to the Trustee for each Series within 15 days after it files them with the SEC copies of the annual reports, quarterly reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Company or the General Partner is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. The Company and the General Partner also shall comply with the other provisions of TIA § 314(a). If the Company or the General Partner is not subject to the requirements of such Section 13 or 15(d), the Company or the General Partner shall nevertheless continue to (1) file such reports and other documents with the SEC (unless the SEC will not accept such filings) on or prior to the respective dates by which the Company or the General Partner, would have been required so to file such documents if it were so subject, and (2) file with the Trustee for each Series copies of such reports and other documents; provided if the SEC will not accept such filings for any reason, the Company will make the reports referred to in the preceding paragraph available on its website within the required timeframe that would apply if the Company were required to file those reports with the SEC. Reports, information and documents filed with the SEC via the EDGAR system will be deemed to be delivered to the Trustee and the Holders as of the time of such filing via EDGAR for purposes of this Section 4.2. The Trustee shall have no obligation whatsoever to determine whether or not such information, documents or reports have been filed via EDGAR.
The Company and the Guarantor shall also file with the Trustee for each Series, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the TIA at the times and in the manner provided pursuant to such act; provided that any such information, documents or reports required to be filed with the SEC pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is so required to be filed with the SEC. Delivery of reports, information and documents to the Trustee under this Section 4.2 are for informational purposes only and the Trustee’s receipt of the foregoing shall not constitute constructive or actual notice of any information contained therein or determinable from information contained therein, including the Company’s compliance with any of their covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officer’s Certificates). The Trustee shall nave no liability or responsibility for the filing, timeliness or content of any such report.
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Section 4.3. Compliance Certificate.
To the extent any Securities of a Series are outstanding, the Company shall deliver to the Trustee, within 120 days after the end of each fiscal year of the Company, an Officer’s Certificate stating that a review of the Company and the Guarantors during the preceding fiscal year has been made under the supervision of the signing Officers in their duties as Officers of the General Partner and to the best knowledge of such Officers, such review did not disclose that a Default or Event of Default has occurred and is continuing (or, if a Default or Event of Default shall have occurred and is continuing, describing all such Defaults or Events of Default of which the Officer has knowledge and the steps to be taken to cure such Defaults or Events of Default). The Trustee shall have no liability or responsibility for the delivery of, timeliness or content of any such Officer’s Certificate.
Section 4.4. Stay, Extension and Usury Laws.
The Company and the Guarantor covenant (to the extent that they may lawfully do so) that they will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture or the Securities; and the Company and the Guarantor (to the extent they may lawfully do so) hereby expressly waive all benefit or advantage of any such law and covenant that they will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted.
Section 4.5. Existence.
Subject to Article V hereof, each of the Company and the Guarantor will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, that neither the Company nor any Guarantor shall be required to preserve any such right or franchise if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company or of such Guarantor.
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ARTICLE V.
SUCCESSORS
Section 5.1. Company and General Partner May Consolidate, Etc., on Certain Terms.
Unless otherwise indicated for a particular Series of Securities by a Board Resolution, supplemental indenture hereto or Officer’s Certificate delivered pursuant to Section 2.2, neither the Company nor the General Partner shall consolidate or merge with, or merge into, any other person, or convey, transfer or lease all or substantially all of its respective properties and assets to any person unless:
(a) the person formed by such consolidation or merger (if other than the Company or the General Partner, as applicable) or the person which acquires by conveyance or transfer, or which leases all or substantially all of the properties and assets of the Company or the General Partner, as applicable, shall be a corporation organized and validly existing under the laws of any U.S. domestic jurisdiction (the “Successor Person”) and shall expressly assume, by a supplemental indenture in customary and commercially reasonable form, executed and delivered to the Trustee, (1) in the case of a Successor Person to the Company, the due and punctual payment of the principal of and interest on all the Securities of any Series and the performance or observance of every covenant of the Indenture on the part of the Company to be performed or observed by the Company or (2) in the case of a Successor Person to the General Partner, all of the obligations of the General Partner under the Guarantee of the General Partner and the performance or observance of every covenant of the Indenture on the part of the General Partner to be performed or observed by the General Partner; and
(b) immediately after giving effect to such transaction, no Event of Default shall have occurred and be continuing; and
(c) the Company or the General Partner, as applicable, shall have delivered to the Trustee an Officer’s Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, sale, transfer or lease and such supplemental indenture, if any, comply with this Section 5.1 and that all conditions precedent provided for in this Indenture relating to such transaction and the supplemental indenture in respect thereto have been complied with.
Notwithstanding the above, any Subsidiary of the Company may consolidate with, merge into or transfer all or part of its properties to the Company or to any other Guarantor. Neither an Officer’s Certificate nor an Opinion of Counsel shall be required to be delivered in connection therewith if the Company or another Guarantor is the surviving entity.
Section 5.2. Successor Person Substituted.
Upon any consolidation or merger, or any sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company or the Guarantor, as applicable, with or merger of the Company or the Guarantor, as applicable, into, any other person or any conveyance, transfer or lease of all or substantially all of the properties and assets of the Company or the Guarantor, as applicable, to any other person in accordance with Section 5.1, the Successor Person will succeed to, and be substituted for, and may exercise every right and power of, the Company or the Guarantor, as applicable, with respect to each Series of Securities then outstanding under this Indenture with the same effect as if such Successor Person had been named therein as the Company or the Guarantor, as applicable, and thereafter the Company or the Guarantor, as applicable, will be released from all obligations and covenants under this Indenture and the Securities, as the case may be, and may liquidated and dissolve.
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ARTICLE VI.
DEFAULTS AND REMEDIES
Section 6.1. Events of Default.
“Event of Default,” wherever used herein with respect to Securities of any Series, means any one of the following events, unless in the establishing Board Resolution, supplemental indenture hereto or Officer’s Certificate delivered pursuant to Section 2.2, it is provided that such Series shall not have the benefit of said Event of Default:
(a) default in the payment of any interest on any Security of that Series when it becomes due and payable, and continuance of such default for a period of 60 days (unless the entire amount of such payment is deposited by the Company with the Trustee or with a Paying Agent prior to 11:00 a.m., New York City time, on the 60th day of such period); or
(b) default in the payment of principal of any Security of that Series at its Maturity; or
(c) default in the performance or breach of any covenant or warranty by the Company, the General Partner, or in the case of any Guaranteed Series of Securities only, the Guarantor of such Guaranteed Series of Securities, in this Indenture (other than defaults pursuant to paragraphs (a) or (b) above or pursuant to a covenant or warranty that has been included in this Indenture solely for the benefit of Series of Securities other than that Series), which default continues uncured for a period of 60 consecutive days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the outstanding Securities of that Series a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a “Notice of Default” hereunder; or
(d) the Company or in the case of any Guaranteed Series of Securities only, the Guarantor of such Guaranteed Series of Securities, pursuant to or within the meaning of any Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in an involuntary case,
(iii) consents to the appointment of a Custodian of it or for all or substantially all of its property,
(iv) makes a general assignment for the benefit of its creditors, or
(v) generally is unable to pay its debts as the same become due; or
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(e) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(i) is for relief against the Company or in the case of any Guaranteed Series of Securities only, the Guarantor of such Guaranteed Series of Securities, in an involuntary case,
(ii) appoints a Custodian of the Company or in the case of any Guaranteed Series of Securities only, the Guarantor of such Guaranteed Series of Securities, or for all or substantially all of its property, or
(iii) orders the liquidation of the Company or in the case of any Guaranteed Series of Securities only, the Guarantor of such Guaranteed Series of Securities,
and the order or decree remains unstayed and in effect for 60 days; or
(f) the Guarantee of any Guarantor required to guarantee the Securities ceases to be in full force and effect or such Guarantor denies or disaffirms in writing its obligations under the Indenture or its Guarantee; or
(g) any other Event of Default provided with respect to Securities of that Series, which is specified in a Board Resolution, a supplemental indenture hereto or an Officer’s Certificate, in accordance with Section 2.2.15.
The term “Bankruptcy Law” means title 11, U.S. Code or any similar federal or state law for the relief of debtors. The term “Custodian” means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law.
The Company will provide the Trustee written of notice of any Default or Event of Default within 30 days of becoming aware of the occurrence of such Default or Event of Default, which notice will describe in reasonable detail the status of such Default or Event of Default and what action the Company is taking or proposes to take in respect thereof. Except in the case of a Default or Event of Default in payment of principal of or interest on any Security of any Series, the Trustee may withhold the notice if and so long as it in good faith determines that withholding the notice is in the interest of Securityholders of that Series.
Section 6.2. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default with respect to Securities of any Series at the time outstanding occurs and is continuing (other than an Event of Default referred to in Section 6.1(d) or (e)) then in every such case the Trustee or the Holders of not less than 25% in principal amount of the outstanding Securities of that Series may declare the principal amount (or, if any Securities of that Series are Discount Securities, such portion of the principal amount as may be specified in the terms of such Securities) of and accrued and unpaid interest to, but not including, the date of acceleration, if any, on all of the Securities of that Series to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders) specifying the Event of Default, and upon any such declaration such principal amount (or specified amount) and accrued and unpaid interest, if any, shall become immediately due and payable. If an Event of Default specified in Section 6.1(d) or (e) shall occur, the principal amount (or specified amount) of and accrued and unpaid interest, if any, on all outstanding Securities shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder.
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At any time after such a declaration of acceleration with respect to any Series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of a majority in principal amount of the outstanding Securities of that Series, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if all Events of Default with respect to Securities of that Series, other than the non-payment of the principal and interest, if any, of Securities of that Series which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 6.13.
No such rescission shall affect any subsequent Default or impair any right consequent thereon.
Section 6.3. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if
(a) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 60 days, or
(b) default is made in the payment of principal of any Security at the Maturity thereof, or
(c) default is made in the deposit of any sinking fund payment, if any, when and as due by the terms of a Security,
then, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities for principal and interest and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue principal and any overdue interest at the rate or rates prescribed therefor in such Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the compensation, reasonable expenses, disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon such Securities and collect the moneys adjudged or deemed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities, wherever situated.
If an Event of Default with respect to any Securities of any Series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such Series by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.
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Section 6.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal and interest owing and unpaid in respect of the Securities and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the compensation, reasonable expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same,
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the compensation, reasonable expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7.
Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 6.5. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the compensation, reasonable expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered.
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Section 6.6. Application of Money Collected.
Any money or property collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money or property on account of principal or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:
First: To the payment of all amounts due the Trustee or any Agent under Section 7.7; and
Second: To the payment of the amounts then due and unpaid for principal of and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for principal and interest, respectively; and
Third: To the Company or for any Guaranteed Series of Securities, the Guarantor of such Series or to such party as a court of competent jurisdiction shall otherwise direct.
Section 6.7. Limitation on Suits.
No Holder of any Security of any Series shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of that Series;
(b) the Holders of not less than 50% in principal amount of the outstanding Securities of that Series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee indemnity or security satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by the Trustee in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and
(e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the outstanding Securities of that Series;
it being understood, intended and expressly covenanted by the Holder of every Security with every other Holder and the Trustee that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other of such Holders, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders of the applicable Series.
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Section 6.8. Unconditional Right of Holders to Receive Principal and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the principal of and interest, if any, on such Security on the Maturity of such Security, including the Stated Maturity expressed in such Security (or, in the case of redemption, on the redemption date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired without the consent of such Holder.
Section 6.9. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.
Section 6.10. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in Section 2.8, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not, to the extent permitted by law, prevent the concurrent assertion or employment of any other appropriate right or remedy.
Section 6.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee, any Agent or of any Holder of any Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.
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Section 6.12. Control by Holders.
The Holders of a majority in principal amount of the outstanding Securities of any Series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, with respect to the Securities of such Series, provided that
(a) such direction shall not be in conflict with any rule of law or with this Indenture,
(b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction,
(c) subject to the provisions of Section 7.1, the Trustee shall have the right to decline to follow any such direction if the Trustee in good faith shall determine that the proceeding so directed would involve the Trustee in personal liability, and
(d) prior to taking any action as directed under this Section 6.12, the Trustee shall be entitled to indemnity and security satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction.
Section 6.13. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the outstanding Securities of any Series may on behalf of the Holders of all the Securities of such Series, by written notice to the Trustee and the Company, waive any past Default hereunder with respect to such Series and its consequences, except a Default in the payment of the principal of or interest on any Security of such Series (provided, however, that the Holders of a majority in principal amount of the outstanding Securities of any Series may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.
Section 6.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Company, to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of the outstanding Securities of any Series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of or interest on any Security on or after the Maturity of such Security, including the Stated Maturity expressed in such Security (or, in the case of redemption, on the redemption date).
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ARTICLE VII.
TRUSTEE
Section 7.1. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs.
(b) Except during the continuance of an Event of Default:
(i) The Trustee need perform only those duties that are specifically set forth in this Indenture and no others and no implied covenants or obligations shall be read into this Indenture against the Trustee.
(ii) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon Officer’s Certificates or Opinions of Counsel furnished to the Trustee and conforming to the requirements of this Indenture; however, in the case of any such Officer’s Certificates or Opinions of Counsel which by any provisions hereof are specifically required to be furnished to the Trustee, the Trustee shall examine such Officer’s Certificates and Opinions of Counsel to determine whether or not they conform to the form requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that:
(i) This paragraph does not limit the effect of paragraph (b) of this Section.
(ii) The Trustee shall not be liable for any error of judgment made in good faith, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts.
(iii) The Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken by it with respect to Securities of any Series in good faith in accordance with a direction received by it pursuant to Section 6.12 hereof.
(d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraph (a), (b) and (c) of this Section.
(e) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred by it in performing such duty or exercising such right or power.
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(f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to risk its own funds or otherwise incur any financial liability in the performance of any of its duties, or in the exercise of any of its rights or powers, if adequate indemnity against such risk is not assured to the Trustee in its satisfaction.
(h) Each Agent and any authenticating agent shall be entitled to the protections and immunities as are set forth in Article VII with respect to the Trustee.
Section 7.2. Rights of Trustee.
(a) The Trustee may conclusively rely on and shall be protected in acting or refraining from acting upon any document (whether in its original or facsimile form) believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an Officer’s Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officer’s Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. No Depositary shall be deemed an agent of the Trustee and the Trustee shall not be responsible for any act or omission by any Depositary.
(d) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers.
(e) The Trustee may consult with counsel and the advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it in reliance thereon.
(f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders of Securities unless such Holders shall have offered to the Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction.
(g) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney at the sole cost of the Company and shall incur no liability or additional liability of any kind by reason of such inquiry or investigation.
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(h) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer has actual knowledge thereof or unless written notice of any event which is in fact such a default is actually received by the Trustee at the Corporate Trust Office, and such notice references the Securities generally or the Securities of a particular Series and this Indenture.
(i) In no event shall the Trustee be liable to any person for special, punitive, indirect, consequential or incidental loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Trustee has been advised of the likelihood of such loss or damage.
(j) The permissive right of the Trustee to take the actions permitted by this Indenture shall not be construed as an obligation or duty to do so.
(k) Under no circumstances shall the Trustee be liable in its individual capacity, or otherwise, for the obligations evidenced by the Securities.
(l) The Trustee shall have no obligation to undertake any calculation hereunder or have any liability for any calculation performed in connection herewith or the transactions contemplated hereunder.
(m) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder.
(n) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder.
(o) The Trustee may request that the Issuers deliver an Officers’ Certificate setting forth the names of individuals and/or titles of Officers authorized at such time to take specified actions pursuant to this Indenture, which Officers’ Certificate may be signed by any person authorized to sign an Officers’ Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded.
Section 7.3. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or an Affiliate of the Company with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. The Trustee is also subject to Sections 7.10 and 7.11.
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Section 7.4. Trustee’s Disclaimer.
The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company’s use of the proceeds from the Securities, and it shall not be responsible for any statement in the Securities other than its authentication.
Section 7.5. Notice of Defaults.
If a Default or Event of Default occurs and is continuing with respect to the Securities of any Series and if it is actually known to a Responsible Officer, the Trustee shall send to each Securityholder of the Securities of that Series notice of such Default or Event of Default within 90 days after a Responsible Officer has knowledge of such Default or Event of Default. Except in the case of a Default or Event of Default in payment of principal of or interest on any Security of any Series, the Trustee may withhold the notice if and so long as it in good faith determines that withholding the notice is in the interest of Securityholders of that Series.
Section 7.6. Reports by Trustee to Holders.
Within 60 days after each anniversary of the date of this Indenture, the Trustee shall deliver to all Securityholders, as their names and addresses appear on the register kept by the Registrar, a brief report dated as of such anniversary date, in accordance with, and to the extent required under, TIA § 313.
A copy of each report at the time of its mailing to Securityholders of any Series shall be filed with the SEC and each national securities exchange on which the Securities of that Series are listed. The Company shall promptly notify the Trustee when Securities of any Series are listed (or delisted as the case may be) on any national securities exchange.
Section 7.7. Compensation and Indemnity.
The Company shall pay to the Trustee (acting in any capacity hereunder) from time to time compensation for its services as the Company and the Trustee shall from time to time agree upon in writing. The Trustee’s compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out of pocket expenses incurred by it. Such expenses shall include the reasonable compensation and expenses of the Trustee’s agents and counsel.
The Company and each Guarantor shall indemnify each of the Trustee and any predecessor Trustee (including for the cost of defending itself) against any cost, expense or liability, including taxes (other than taxes based upon, measured by or determined by the income of the Trustee) incurred by it except as set forth in the next paragraph in the performance of its duties under this Indenture as Trustee or Agent. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity, although the failure to so notify shall not negate any indemnification obligation hereunder. The Company or the applicable Guarantor shall defend the claim and the Trustee shall cooperate in the defense. The Trustee may have one separate counsel in each applicable jurisdiction and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent will not be unreasonably withheld. This indemnification shall apply to officers, directors, employees, shareholders and agents of the Trustee.
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The Company and any Guarantor need not reimburse any expense or indemnify against any loss or liability incurred by the Trustee or by any officer, director, employee, shareholder or agent of the Trustee through willful misconduct, negligence or bad faith, as determined by a court of competent jurisdiction in a final non-appealable order.
To secure the Company’s and each Guarantor’s payment obligations in this Section, the Trustee shall have a lien prior to the Securities of any Series on all money or property held or collected by the Trustee, except that held in trust to pay principal of and interest on particular Securities of that Series.
When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(d) or (e) occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law.
The provisions of this Section shall survive the termination of this Indenture and the resignation or removal of the Trustee.
Section 7.8. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee’s acceptance of appointment as provided in this Section.
The Trustee may resign with respect to the Securities of one or more Series by so notifying the Company at least 30 days prior to the date of the proposed resignation. The Holders of a majority in principal amount of the outstanding Securities of any Series may remove the Trustee with respect to that Series by so notifying the Trustee and the Company at least 30 days prior. The Company may, upon 30-day notice, remove the Trustee with respect to Securities of one or more Series if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the outstanding Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company.
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If a successor Trustee with respect to the Securities of any one or more Series does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee (at the expense of the Company in the case of a petition by the Trustee), the Company or the Holders of at least a majority in principal amount of the outstanding Securities of the applicable Series may petition any court of competent jurisdiction for the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all property held by it as Trustee to the successor Trustee subject to the lien provided for in Section 7.7, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee with respect to each Series of Securities for which it is acting as Trustee under this Indenture. A successor Trustee shall mail a notice of its succession to each Securityholder of each such Series. Notwithstanding replacement of the Trustee pursuant to this Section 7.8, the Company’s obligations under Section 7.7 hereof shall continue for the benefit of the retiring Trustee with respect to expenses and liabilities incurred by it for actions taken or omitted to be taken in accordance with its rights, powers and duties under this Indenture prior to such replacement. The resigning or removed Trustee shall have no liability or responsibility for the action or inaction of any successor Trustee.
Section 7.9. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee, subject to Section 7.10.
Section 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the requirements of TIA § 310(a)(1), (2) and (5). The Trustee shall always have a combined capital and surplus of at least $25,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA § 310(b).
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA § 311(a), excluding any creditor relationship listed in TIA § 311(b). A Trustee who has resigned or been removed shall be subject to TIA § 311(a) to the extent indicated.
ARTICLE VIII.
SATISFACTION AND DISCHARGE; DEFEASANCE
Section 8.1. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Order be discharged with respect to the Securities of any Series and cease to be of further effect as to all Securities of such Series (except as hereinafter provided in this Section 8.1), and the Trustee, at the expense of the Company, shall execute instruments acknowledging satisfaction and discharge of this Indenture and of the Company and the Guarantor (for any Guaranteed Series of Securities) with respect to such Series of Securities, when
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(a) either
(i) all Securities of such Series theretofore authenticated and delivered (other than Securities that have been destroyed, lost or stolen and that have been replaced or paid) have been delivered to the Trustee for cancellation; or
(ii) all such Securities of such Series not theretofore delivered to the Trustee for cancellation
(1) have become due and payable by reason of sending a notice of redemption or otherwise, or
(2) will become due and payable at their maturity within one year, or
(3) have been called for redemption or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, or
(4) are deemed paid and discharged pursuant to Section 8.3, as applicable;
and the Company, in the case of (1), (2) or (3) above, shall have irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust an amount of money or U.S. Government Obligations, which amount shall be sufficient for the purpose of paying and discharging each installment of principal (including mandatory sinking fund or analogous payments) of and interest on all the Securities of such Series on the dates such installments of principal or interest are due;
(b) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and
(c) the Company shall have delivered to the Trustee an Officer’s Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to the satisfaction and discharge contemplated by this Section have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 7.7, and, if money shall have been deposited with the Trustee pursuant to clause (a) of this Section, the provisions of Sections 2.4, 2.7, 2.8, 8.2 and 8.5 shall survive.
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Section 8.2. Application of Trust Funds; Indemnification.
(a) Subject to the provisions of Section 8.5, all money and U.S. Government Obligations deposited with the Trustee pursuant to Section 8.1, 8.3 or 8.4 and all money received by the Trustee in respect of U.S. Government Obligations deposited with the Trustee pursuant to Section 8.1, 8.3 or 8.4, shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the persons entitled thereto, of the principal and interest for whose payment such money has been deposited with or received by the Trustee or to make mandatory sinking fund payments or analogous payments as contemplated by Sections 8.1, 8.3 or 8.4.
(b) The Company shall pay and shall indemnify the Trustee against any tax, fee or other charge imposed on or assessed against U.S. Government Obligations deposited pursuant to Sections 8.1, 8.3 or 8.4 or the interest and principal received in respect of such obligations other than any payable by or on behalf of Holders.
(c) The Trustee shall deliver or pay to the Company from time to time upon Company Order any U.S. Government Obligations or money held by it as provided in Sections 8.3 or 8.4 which, in the opinion of a nationally recognized firm of independent certified public accountants or investment bank expressed in a written certification thereof delivered to the Trustee, are then in excess of the amount thereof which then would have been required to be deposited for the purpose for which such U.S. Government Obligations or money were deposited or received. This provision shall not authorize the sale by the Trustee of any U.S. Government Obligations held under this Indenture.
Section 8.3. Legal Defeasance of Securities of any Series.
Unless this Section 8.3 is otherwise specified pursuant to Section 2.2 to be inapplicable to Securities of any Series, the Company shall be deemed to have paid and discharged the entire indebtedness on all the outstanding Securities of any Series on the 91st day after the date of the deposit referred to in subparagraph (d) hereof, and the Company and the Guarantor of such Series of Securities shall be deemed to have been discharged from their respective obligations with respect to all outstanding Securities of such Series and all Guarantees (if any) of such Series shall be discharged and the provisions of this Indenture, as it relates to such outstanding Securities of such Series, shall no longer be in effect (and the Trustee, at the expense of the Company, shall, upon receipt of a Company Order, execute instruments acknowledging the same), except as to:
(a) the rights of Holders of Securities of such Series to receive, from the trust funds described in subparagraph (d) hereof, (i) payment of the principal of and each installment of principal of and interest on the outstanding Securities of such Series on the maturity of such principal or installment of principal or interest and (ii) the benefit of any mandatory sinking fund payments applicable to the Securities of such Series on the day on which such payments are due and payable in accordance with the terms of this Indenture and the Securities of such Series;
(b) the provisions of Sections 2.4, 2.5, 2.7, 2.8, 7.7, 8.2, 8.3 and 8.5; and
(c) the rights, powers, trusts and immunities of the Trustee hereunder and the Company’s obligations in connection therewith; provided that, the following conditions shall have been satisfied:
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(d) the Company shall have irrevocably deposited or caused to be deposited (except as provided in Section 8.2(c)) with the Trustee as trust funds specifically pledged as security for and dedicated solely to the benefit of the Holders of such Securities in the case of Securities of such Series denominated in Dollars, cash in Dollars and/or U.S. Government Obligations, not later than one day before the due date of any payment of money, an amount in cash, sufficient, in the opinion of a nationally recognized firm of independent public accountants or investment bank expressed in a written certification thereof delivered to the Trustee, to pay and discharge each installment of principal of and interest, on and any mandatory sinking fund payments in respect of all the Securities of such Series on the dates such installments of principal or interest and such sinking fund payments are due;
(e) such deposit will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound;
(f) no Default or Event of Default with respect to the Securities of such Series shall have occurred and be continuing on the date of such deposit or during the period ending on the 91st day after such date;
(g) the Company shall have delivered to the Trustee an Officer’s Certificate and an Opinion of Counsel to the effect that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of execution of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the Securities of such Series will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred;
(h) the Company shall have delivered to the Trustee an Officer’s Certificate stating that the deposit was not made by the Company with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company; and
(i) the Company shall have delivered to the Trustee an Officer’s Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to the defeasance contemplated by this Section have been complied with.
Section 8.4. Covenant Defeasance.
Unless this Section 8.4 is otherwise specified pursuant to Section 2.2 to be inapplicable to Securities of any Series, the Company may omit to comply with respect to the Securities of any Series with any term, provision or condition set forth under Sections 4.2, 4.3, or 4.5, and 5.1 and, unless otherwise specified therein, any additional covenants specified in a Board Resolution, supplemental indenture hereto or an Officer’s Certificate delivered pursuant to Section 2.2 (and the failure to comply with any such covenants shall not constitute a Default or Event of Default with respect to such Series under Section 6.1) and the occurrence of any event specified in a Board Resolutions, supplemental indenture hereto or an Officer’s Certificate delivered pursuant to Section 2.2.18 and designated as an Event of Default shall not constitute a Default or Event of Default hereunder, with respect to the Securities of such Series, but, except as specified above, the remainder of this Indenture and such Securities will be unaffected thereby; provided that the following conditions shall have been satisfied:
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(a) with reference to this Section 8.4, the Company has irrevocably deposited or caused to be irrevocably deposited (except as provided in Section 8.2(c)) with the Trustee as trust funds in trust for the purpose of making the following payments specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities cash in Dollars and/or U.S. Government Obligations, not later than one day before the due date of any payment of money, an amount sufficient, in the opinion of a nationally recognized firm of independent certified public accountants or investment bank expressed in a written certification thereof delivered to the Trustee, to pay and discharge each installment of principal (including mandatory sinking fund or analogous payments) of and interest on all the Securities of such Series on the dates such installments of principal or interest are due;
(b) such deposit will not result in a breach or violation of, or constitute a default under, this Indenture or any other agreement or instrument to which the Company is a party or by which it is bound;
(c) no Default or Event of Default with respect to the Securities of such Series shall have occurred and be continuing on the date of such deposit;
(d) the Company shall have delivered to the Trustee an Officer’s Certificate and an Opinion of Counsel to the effect that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (ii) since the date of execution of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm, subject to customary exclusions, that the Holders of the Securities of such Series will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, covenant defeasance and discharge and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, covenant defeasance and discharge had not occurred;
(e) The Company shall have delivered to the Trustee an Officer’s Certificate stating the deposit was not made by the Company with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company; and
(f) The Company shall have delivered to the Trustee an Officer’s Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the covenant defeasance contemplated by this Section have been complied with.
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Section 8.5. Repayment to Company.
Subject to applicable abandoned property law, the Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal and interest that remains unclaimed for two years. After that, Securityholders entitled to the money must look to the Company for payment as general creditors unless an applicable abandoned property law designates another person.
Section 8.6. Reinstatement.
If the Trustee or Agent is unable to apply any monies or U.S. Government Obligations in accordance with the provisions of this Article, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company’s and any Guarantor’s obligations under this Indenture and the Securities will be revived and reinstated as though no deposit had occurred until such time as the Trustee or Agent is permitted to apply all such money in accordance with the applicable provisions of this Article, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest on, any Securities following the reinstatement of its obligations, the Company will be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or Paying Agent.
ARTICLE IX.
AMENDMENTS AND WAIVERS
Section 9.1. Without Consent of Holders.
The Company, the Guarantor (in the case of a Guaranteed Series of Securities) and the Trustee may amend or supplement this Indenture or the Securities of one or more Series without the consent of any Securityholder:
(a) to cure any ambiguity, defect or inconsistency;
(b) to comply with Article V;
(c) to provide for uncertificated Securities in addition to or in place of certificated Securities;
(d) to add Guarantees with respect to Securities of any Series or secure Securities of any Series;
(e) to surrender any of the Company’s rights or powers under this Indenture;
(f) to add covenants or events of default for the benefit of the Holders of Securities of any Series;
(g) to comply with the applicable procedures of the applicable depositary;
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(h) to make any change that does not adversely affect the rights of any Securityholder;
(i) to provide for the issuance of and establish the form and terms and conditions of Securities of any Series as permitted by this Indenture;
(j) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more Series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee;
(k) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; or
(l) to supplement any of the provisions of this Indenture to the extent necessary to permit or facilitate defeasance and discharge of any of the Securities of any Series; provided, that the action shall not adversely affect the interests of the Holders of the Securities of any Series.
Section 9.2. With Consent of Holders.
The Company, the Guarantor (in the case of a Guaranteed Series of Securities) and the Trustee may enter into a supplemental indenture with the written consent of the Holders of at least a majority in principal amount of the outstanding Securities of each Series affected by such supplemental indenture (including consents obtained in connection with a tender offer or exchange offer for the Securities of such Series), for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights of the Securityholders of each such Series. Except as provided in Section 6.13, the Holders of at least a majority in principal amount of the outstanding Securities of any Series by notice to the Trustee (including consents obtained in connection with a tender offer or exchange offer for the Securities of such Series) may waive compliance by the Company with any provision of this Indenture or the Securities with respect to such Series.
It shall not be necessary for the consent of the Holders of Securities under this Section 9.2 to approve the particular form of any proposed supplemental indenture or waiver, but it shall be sufficient if such consent approves the substance thereof. After a supplemental indenture or waiver under this section becomes effective, the Company shall send to the Holders of Securities affected thereby, a notice briefly describing the supplemental indenture or waiver. Any failure by the Company to send such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture or waiver.
Section 9.3. Limitations.
Without the consent of each Securityholder affected, an amendment or waiver may not:
(a) reduce the principal amount of Securities whose Holders must consent to an amendment, supplement or waiver;
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(b) reduce the rate of or extend the time for payment of interest (including default interest) on any Security;
(c) reduce the principal or change the Stated Maturity of any Security or reduce the amount of, or postpone the date fixed for, the payment of any sinking fund or analogous obligation;
(d) reduce the principal amount of Discount Securities payable upon acceleration of the maturity thereof;
(e) waive a Default or Event of Default in the payment of the principal of or interest, if any, on any Security (except a rescission of acceleration of the Securities of any Series by the Holders of at least a majority in principal amount of the outstanding Securities of such Series and a waiver of the payment default that resulted from such acceleration);
(f) make the principal of or interest, if any, on any Security payable in any currency other than that stated in the Security;
(g) make any change in Sections 6.8, 6.13 or 9.3 (this sentence); or
(h) waive a redemption payment with respect to any Security, provided that such redemption is not made at the Company’s option.
Section 9.4. Compliance with Trust Indenture Act.
Every amendment to this Indenture or the Securities of one or more Series shall be set forth in a supplemental indenture hereto that complies with the TIA as then in effect.
Section 9.5. Revocation and Effect of Consents.
Until an amendment is set forth in a supplemental indenture or a waiver becomes effective, a consent to it by a Holder of a Security is a continuing consent by the Holder and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder’s Security, even if notation of the consent is not made on any Security. However, any such Holder or subsequent Holder may revoke the consent as to his Security or portion of a Security if the Trustee receives the notice of revocation before the date of the supplemental indenture or the date the waiver becomes effective.
Any amendment or waiver once effective shall bind every Securityholder of each Series affected by such amendment or waiver unless it is of the type described in any of clauses (a) through (h) of Section 9.3. In that case, the amendment or waiver shall bind each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder’s Security.
The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the second immediately preceding paragraph, those persons who were Holders at such record date (or their duly designated proxies), and only those persons, shall be entitled to give such consent or to revoke any consent previously given or take any such action, whether or not such persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date.
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Section 9.6. Notation on or Exchange of Securities.
The Company or the Trustee may place an appropriate notation about an amendment or waiver on any Security of any Series thereafter authenticated. The Company in exchange for Securities of that Series may issue and the Trustee shall authenticate upon receipt of a Company Order in accordance with Section 2.3 new Securities of that Series that reflect the amendment or waiver.
Section 9.7. Trustee Protected.
In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 7.1) shall be fully protected in relying upon, an Officer’s Certificate or an Opinion of Counsel or both. The Trustee shall sign all supplemental indentures upon delivery of such an Officer’s Certificate or Opinion of Counsel or both, except that the Trustee need not sign any supplemental indenture that adversely affects its rights, duties, liabilities or immunities under this Indenture. Each Opinion of Counsel provided in connection with the execution of a supplemental indenture shall also provide that the supplemental indenture is the legal, valid and binding obligation of the Company (and any Guarantor) in accordance with its terms.
ARTICLE X.
GUARANTEES
This Article X shall apply only to a Series of Securities that is indicated in a Board Resolution, supplemental indenture hereto or Officer’s Certificate delivered pursuant to Section 2.2 as having a Guarantee and only for so long as, and to the extent of, such Guarantee.
Section 10.1. Guarantee.
(a) Subject to the other provisions of this Article X, the Guarantor hereby acknowledges and agrees that it receives substantial benefits from the Company and the Guarantor is providing the Guarantee for good and valuable consideration, including, without limitation, such substantial benefits, and unconditionally guarantees to each Holder of a Guaranteed Series of Securities (which Security has been authenticated and delivered by the Trustee), and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Guaranteed Series of Securities, or the obligations of the Company hereunder or thereunder, that:
(1) the principal of and premium, if any, and interest on the Guaranteed Series of Securities will be promptly paid in full when due, whether at Stated Maturity, or by declaration of acceleration, call for redemption or otherwise, and interest on the overdue principal of and interest on the Guaranteed Series of Securities, if any, if lawful, and all other obligations of the Company to the Holders of Guaranteed Series of Securities, or the Trustee hereunder or thereunder, will be promptly paid in full or performed, all in accordance with the terms hereof and thereof;
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(2) in case of any extension of time of payment or renewal of any Guaranteed Series of Securities or any of such other obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at Stated Maturity, or by declaration of acceleration, call for redemption or otherwise; and
(3) in case there shall be more than one Guarantor under any Guaranteed Series of Securities, the obligations of the Guarantors shall be joint and several.
Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantor will be obligated to pay the same immediately. The Guarantor agrees that this is a guarantee of payment and not a guarantee of collection.
(b) To the extent permitted under applicable law, the obligations of the Guarantor under the Guaranteed Series of Securities are unconditional, irrespective of the validity, regularity or enforceability of the Guaranteed Series of Securities or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Guaranteed Series of Securities with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of the Guarantor. The Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that the Guaranteed Series of Securities will not be discharged except by complete performance of the obligations contained in the Guaranteed Series of Securities and this Indenture.
(c) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantor or any custodian, trustee, liquidator or other similar official acting in relation to any of the Company or the Guarantor, any amount paid by either to the Trustee or such Holder, the Guarantee, to the extent theretofore discharged, will be reinstated in full force and effect.
(d) The Guarantor agrees that it will not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. The Guarantor further agrees that, to the extent permitted under applicable law, as between the Guarantor, on the one hand, and the Holders of Guaranteed Series of Securities and the Trustee, on the other hand, (i) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article VI hereof for the purposes hereof, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of such obligations as provided in Article VI hereof, such obligations (regardless of whether due and payable) will forthwith become due and payable by the Guarantor for the purpose of the Guarantees.
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Section 10.2. Limitation of Guarantee.
The Guarantor, and by its acceptance of a Guaranteed Series of Securities, each Holder thereof, hereby confirms that it is the intention of all such parties that the Guarantee of the Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law (including pursuant to Sections 547 through and including Section 533 of the Bankruptcy Law), the Uniform Voidable Transactions Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Guarantee. To effectuate the foregoing intention, the Trustee, to the extent permitted under applicable law, the Holders and the Guarantor hereby irrevocably agree that the obligations of the Guarantor will be limited to the maximum amount that will, after giving effect to such maximum amount and all other contingent and fixed liabilities of the Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of the Guarantor in respect of the obligations of the Guarantor under this Article X, result in the obligations of the Guarantor under its Guarantee not constituting a fraudulent transfer or conveyance.
The Guarantor hereby covenants and agrees, to the extent permitted under applicable law, that in the event of the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Company, the Guarantor shall not file (or join in any filing of), or otherwise seek to participate in the filing of, any motion or request seeking to stay or to prohibit (even temporarily) execution on the Guarantee and hereby waives and agrees not to take the benefit of any such stay of execution, whether under Section 362 or 105 of the Bankruptcy Law or otherwise.
Section 10.3. Execution and Delivery of Guarantee Notation.
To evidence its Guarantee set forth in Section 10.1 hereof, the Guarantor hereby agrees that a notation of Guarantee in such form as shall be established by or pursuant to a Board Resolution, supplemental indenture hereto or Officer’s Certificate delivered pursuant to Section 2.2, shall be executed on behalf of the Guarantor by an Officer of the Guarantor on each Guaranteed Series of Securities authenticated and delivered by the Trustee.
The Guarantor hereby agrees that its Guarantee set forth in Section 10.1 hereof will remain in full force and effect notwithstanding any failure to execute a notation of Guarantee on any such Guaranteed Series of Securities.
If an officer whose signature is on such Security or a notation of Guarantee no longer holds that office at the time the Trustee authenticates such Security on which the Guarantee is endorsed, the Guarantee shall be valid nevertheless.
The delivery of any Guaranteed Series of Securities by the Trustee, after the authentication thereof hereunder, will constitute due delivery of the Guarantee of such Guaranteed Series of Securities set forth in this Indenture on behalf of the Guarantor.
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Section 10.4. Release of Guarantee.
Any Guarantee other than the Guarantee of the General Partner shall be automatically and unconditionally released: (i) upon the sale or other disposition (including by way of consolidation or merger), in one transaction or a series of related transactions, of a majority of the total voting power of the capital stock or other interests of such Guarantor (other than to the Company or any Affiliate of the Company); or (ii) upon the sale or disposition of all or substantially all the property of such Guarantor (other than to any Affiliate of the Company). A Guarantee also shall be released with respect to a Guaranteed Series of Securities as provided in the Board Resolution, supplemental indenture or Officer’s Certificate delivered pursuant to Section 2.2. Any Guarantee, with respect to a Guaranteed Series of Securities, also will be released if the Company exercises its legal defeasance or its covenant defeasance option with respect to such Series as set forth in Article VIII, or if the Company’s obligations under this Indenture with respect to such Series are discharged as set forth in Section 8.4. The Company will give written notice as promptly as practicable to the Trustee of the automatic release of any Guarantee pursuant to this Section 10.4. At the Company’s request, the Trustee will execute and deliver any documents, instructions or instruments evidencing any such release upon receipt of an Officer’s Certificate and an Opinion of Counsel (which the Trustee will be fully protected in relying upon) stating that such documents, instructions or instruments are permitted or authorized by this Indenture.
ARTICLE XI.
MISCELLANEOUS
Section 11.1. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies, or conflicts with another provision which is required or deemed to be included in this Indenture by the TIA, such required or deemed provision shall control.
Section 11.2. Notices.
Any notice or communication by the Company, the General Partner or the Trustee to the other, or by a Holder to the Company, the General Partner or the Trustee, is duly given if in writing (including facsimile and .pdf transmissions) and delivered in person or mailed by first-class mail (registered or certified, return receipt requested), email or overnight air courier guaranteeing next day delivery, to the others’ address:
if to the Company or the General Partner:
Agree Limited Partnership
c/o Agree Realty Corporation
70 East Long Lake Road
Bloomfield Hills, MI 48034
Attention: Chief Financial Officer
Telephone: (248) 419-6335
Facsimile: (248) 737-9110
Email: cthelen@agreerealty.com
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with a copy to (which shall not constitute notice):
Honigman LLP
39400 Woodward Avenue, Suite 101
Bloomfield Hills, MI 48304
Attention: Lowell D. Salesin
Telephone: (248) 566-8540
Facsimile: (248) 566-8541
Email: lsalesin@honigman.com
if to the Trustee:
U.S. Bank National Association
Attention: Global Corporate Trust
535 Griswold Street, Suite 550
Detroit, MI 48226
Telephone:
Facsimile: (313) 963-9428
Email:
with a copy to (which shall not constitute notice):
_________________________
_________________________
_________________________
_________________________
Attention:
Telephone:
Facsimile:
Email:
The Company, the General Partner or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications.
Any notice or communication to a Securityholder shall be sent electronically or by first-class mail to his address shown on the register kept by the Registrar, in accordance with the procedures of the Depositary. Failure to send a notice or communication to a Securityholder of any Series or any defect in it shall not affect its sufficiency with respect to other Securityholders of that or any other Series.
If a notice or communication is sent or published in the manner provided above, within the time prescribed, it is duly given, whether or not the Securityholder receives it.
If the Company or the Guarantor sends a notice or communication to Securityholders, it shall send a copy to the Trustee and each Agent at the same time.
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Notwithstanding any other provision of this Indenture or any Security, where this Indenture or any Security provides for notice of any event (including any notice of redemption) to a Holder of a Global Security (whether by mail or otherwise), such notice shall be sufficiently given to the Depositary for such Security (or its designee) pursuant to the customary procedures of such Depositary.
Section 11.3. Communication by Holders with Other Holders.
Securityholders of any Series may communicate pursuant to TIA § 312(b) with other Securityholders of that Series or any other Series with respect to their rights under this Indenture or the Securities of that Series or all Series. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA § 312(c).
Section 11.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company or the Guarantor to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee (and the Trustee will be fully protected in relying upon):
(a) an Officer’s Certificate in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and
(b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee stating that, in the opinion of such counsel, all such conditions precedent have been complied with.
Section 11.5. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA § 314(a)(4)) shall comply with the provisions of TIA § 314(e) and shall include:
(a) a statement that the person making such certificate or opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(d) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with.
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Section 11.6. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or a meeting of Securityholders of one or more Series. Any Agent may make reasonable rules and set reasonable requirements for its functions.
Section 11.7. Legal Holidays.
Unless otherwise provided by Board Resolution, supplemental indenture hereto or Officer’s Certificate delivered pursuant to Section 2.2., a “Legal Holiday” is any day that is not a Business Day. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period.
Section 11.8. No Recourse Against Others.
A director, officer, employee, partner, member, manager or stockholder (past or present), as such, of the Company or the Guarantor shall not have any liability for any obligations of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Securityholder by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Securities.
Section 11.9. Counterparts.
This Indenture may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. The exchange of copies of this Indenture and of signature pages by manual, facsimile, electronic or portable document format signature shall constitute effective execution and delivery of this Indenture as to the parties hereto and may be used in lieu of the original Indenture for all purposes.
Section 11.10. Governing Law.
THIS INDENTURE AND THE SECURITIES, INCLUDING ANY CLAIM OR CONTROVERSY ARISING OUT OF OR RELATING TO THE INDENTURE OR THE SECURITIES, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
Section 11.11. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or a Subsidiary of the Company. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.
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Section 11.12. Successors.
All agreements of the Company and the Guarantor in this Indenture and the Securities shall bind its successor. All agreements of the Trustee in this Indenture shall bind its successor.
Section 11.13. Severability.
In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
Section 11.14. Table of Contents, Headings, Etc.
The Table of Contents, reconciliation and the table, and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof.
Section 11.15. Force Majeure.
In no event shall the Trustee be responsible or liable for any failure or delay in the performance of its obligations hereunder arising out of or caused by, directly or indirectly, forces beyond its control, including, without limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil or military disturbances, nuclear or natural catastrophes or acts of God, and interruptions, loss or malfunctions of utilities, communications or computer (software and hardware) services, it being understood that the Trustee shall use reasonable best efforts which are consistent with accepted practices in the banking industry to resume performance as soon as practicable under the circumstances.
Section 11.16. U.S.A. Patriot Act.
The parties hereto acknowledge that in accordance with Section 326 of the U.S.A. Patriot Act, the Trustee, like all financial institutions and in order to help fight the funding of terrorism and money laundering, is required to obtain, verify, and record information that identifies each person or legal entity that establishes a relationship or opens an account with the Trustee. The parties to this Indenture agree that they will provide the Trustee with such information as it may request in order for the Trustee to satisfy the requirements of the U.S.A. Patriot Act.
Section 11.17. Jury Waiver.
EACH OF THE COMPANY, ANY GUARANTOR, THE SECURITYHOLDERS AND THE TRUSTEE HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE, THE SECURITIES OR THE TRANSACTION CONTEMPLATED HEREBY OR THEREBY.
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ARTICLE XII.
SINKING FUNDS
Section 12.1. Applicability of Article.
The provisions of this Article shall be applicable to any sinking fund for the retirement of the Securities of a Series if so provided by the terms of such Securities pursuant to Section 2.2 and except as otherwise permitted or required by any form of Security of such Series issued pursuant to this Indenture.
The minimum amount of any sinking fund payment provided for by the terms of the Securities of any Series is herein referred to as a “mandatory sinking fund payment” and any other amount provided for by the terms of Securities of such Series is herein referred to as an “optional sinking fund payment.” If provided for by the terms of Securities of any Series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 12.2. Each sinking fund payment shall be applied to the redemption of Securities of any Series as provided for by the terms of the Securities of such Series.
Section 12.2. Satisfaction of Sinking Fund Payments with Securities.
The Company may, in satisfaction of all or any part of any sinking fund payment with respect to the Securities of any Series to be made pursuant to the terms of such Securities (1) deliver outstanding Securities of such Series to which such sinking fund payment is applicable (other than any of such Securities previously called for mandatory sinking fund redemption) and (2) apply as credit Securities of such Series to which such sinking fund payment is applicable and which have been repurchased by the Company or redeemed either at the election of the Company pursuant to the terms of such Series of Securities (except pursuant to any mandatory sinking fund) or through the application of permitted optional sinking fund payments or other optional redemptions pursuant to the terms of such Securities, provided that such Securities have not been previously so credited. Such Securities shall be received by the Trustee, together with an Officer’s Certificate with respect thereto, not later than 15 days prior to the date on which the Trustee begins the process of selecting Securities for redemption, and shall be credited for such purpose by the Trustee at the price specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. If as a result of the delivery or credit of Securities in lieu of cash payments pursuant to this Section 12.2, the principal amount of Securities of such Series to be redeemed in order to exhaust the aforesaid cash payment shall be less than $100,000, the Trustee need not call Securities of such Series for redemption, except upon receipt of a Company Order that such action be taken, and such cash payment shall be held by the Trustee or a Paying Agent and applied to the next succeeding sinking fund payment, provided, however, that the Trustee or such Paying Agent shall from time to time upon receipt of a Company Order pay over and deliver to the Company any cash payment so being held by the Trustee or such Paying Agent upon delivery by the Company to the Trustee of Securities of that Series purchased by the Company having an unpaid principal amount equal to the cash payment required to be released to the Company.
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Section 12.3. Redemption of Securities for Sinking Fund.
Not less than 45 days (unless otherwise indicated in the Board Resolution, supplemental indenture hereto or Officer’s Certificate delivered pursuant to Section 2.2) prior to each sinking fund payment date for any Series of Securities, the Company will deliver to the Trustee an Officer’s Certificate specifying the amount of the next ensuing mandatory sinking fund payment for that Series pursuant to the terms of that Series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting of Securities of that Series pursuant to Section 12.2, and the optional amount, if any, to be added in cash to the next ensuing mandatory sinking fund payment, and the Company shall thereupon be obligated to pay the amount therein specified. Not less than 30 days (unless otherwise indicated in the Board Resolution, supplemental indenture hereto or an Officer’s Certificate delivered pursuant to Section 2.2) before each such sinking fund payment date the Securities to be redeemed upon such sinking fund payment date will be selected in the manner specified in Section 3.2 and the Company shall send or cause to be sent a notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in and in accordance with Section 3.3. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 3.4, 3.5 and 3.6.
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written.
| AGREE LIMITED PARTNERSHIP, a Delaware | ||
| limited partnership | ||
| By: | AGREE REALTY CORPORATION, | |
| Its sole general partner | ||
| By: | ||
| Name: Joel N. Agree | ||
| Its: President and Chief Executive Officer | ||
| AGREE REALTY CORPORATION, | ||
| a Maryland corporation | ||
| By: | ||
| Name: Joel N. Agree | ||
| Its: President and Chief Executive Officer | ||
| , as Trustee |
| By: | ||
| Name: | ||
| Its: |
Exhibit 5.1
 | |
 |
|
May 27, 2020 | |
Agree Realty Corporation
Agree Limited Partnership
70 E. Long Lake Road
Bloomfield Hills, Michigan 48304
| Re: | Agree Realty Corporation, a Maryland corporation (the "Company"), and Agree Limited Partnership, a Delaware limited partnership of which the Company is the general partner (the "Operating Partnership") – Registration Statement on Form S-3 pertaining to the registration of an unspecified amount and an indeterminate aggregate initial offering price, principal amount or number of: (i) shares of common stock of the Company, par value $0.0001 per share ("Common Stock"); (ii) shares of preferred stock of the Company, par value $0.0001 per share ("Preferred Stock"); (iii) depositary shares representing shares of Preferred Stock ("Depositary Shares"); (iv) warrants ("Warrants") to purchase shares of Common Stock, shares of Preferred Stock or Debt Securities (as defined herein); (v) debt securities of the Operating Partnership (the "Debt Securities"); and (vi) guarantees by the Company of the Debt Securities (the "Guarantees") |
Ladies and Gentlemen:
We have acted as Maryland corporate counsel to the Company in connection with (a) the registration by the Company of shares of Common Stock, shares of Preferred Stock, Depositary Shares, Warrants and Guarantees (collectively, the "Company Securities") and (b) the registration by the Operating Partnership of the Debt Securities (together with the Company Securities, collectively, the "Securities"), under the Securities Act of 1933, as amended (the "Act"), on Form S-3 (the "Registration Statement") filed or to be filed by the Company and the Operating Partnership with the United States Securities and Exchange Commission (the "Commission") on or about the date hereof. You have requested our opinion with respect to the matters set forth below.
In our capacity as Maryland corporate counsel to the Company and for the purposes of this opinion, we have examined originals, or copies certified or otherwise identified to our satisfaction, of the following documents (collectively, the "Documents"):
| (i) | the corporate charter of the Company (the "Charter") represented by Articles of Incorporation filed with the State Department of Assessments and Taxation of Maryland (the "Department") on December 15, 1993, Articles of Amendment filed with the Department on April 7, 1994, two Articles Supplementary filed with the Department on December 8, 2008, Articles Supplementary filed with the Department on September 21, 2012, Articles of Amendment filed with the Department on May 8, 2013, two Articles Supplementary filed with the Department on July 31, 2013, Articles of Amendment filed with the Department on May 5, 2015, Articles of Amendment filed with the Department on May 3, 2016, Articles Supplementary filed with the Department on February 26, 2019 and Articles of Amendment filed with the Department on April 25, 2019; |
BALLARD SPAHR LLP
Agree Realty Corporation
Agree Limited Partnershi
May 27, 2020
Page 2
| (ii) | the Bylaws of the Company adopted as of November 8, 2006, as amended and restated by the Amended and Restated Bylaws of the Company, adopted as of May 8, 2013, as amended by the First Amendment to the Amended and Restated Bylaws of the Company, adopted as of February 26, 2019 (the "Bylaws"); |
| (iii) | resolutions adopted by the Board of Directors of the Company (the "Board of Directors") on or as of May 5, 2020 (the "Directors' Resolutions"); |
| (iv) | the First Amended and Restated Agreement of Limited Partnership of the Operating Partnership, as amended (the "Partnership Agreement"); |
| (v) | the Registration Statement and the related form of prospectus included therein (the "Prospectus"), in substantially the form filed or to be filed with the Commission pursuant to the Act; |
| (vi) | a certificate of an officer of the Company, dated as of a recent date (the "Officer's Certificate"), to the effect that, among other things, the Charter, the Bylaws, the Directors' Resolutions and the Partnership Agreement are true, correct and complete, have not been rescinded or modified and are in full force and effect on the date of the Officer's Certificate; |
| (vii) | a status certificate of the Department, dated as of a recent date, to the effect that the Company is duly incorporated and existing under the laws of the State of Maryland and is duly authorized to transact business in the State of Maryland; and |
| (viii) | such other laws, records, documents, certificates, opinions and instruments as we have deemed necessary to render this opinion, subject to the limitations, assumptions and qualifications noted below. |
In reaching the opinion set forth below, we have assumed the following:
| (a) | each person executing any of the Documents on behalf of a party (other than the Company) is duly authorized to do so; |
| (b) | each natural person executing any of the Documents is legally competent to do so; |
| (c) | any of the Documents submitted to us as originals are authentic; the form and content of any Documents submitted to us as unexecuted drafts do not differ in any respect relevant to this opinion from the form and content of such documents as executed and delivered; any of the Documents submitted to us as certified or photostatic copies conform to the original documents; all signatures on all of the Documents are genuine; all public records reviewed or relied upon by us or on our behalf are true and complete; all statements and information contained in the Documents are true and complete; there has been no modification of, or amendment to, any of the Documents, and there has been no waiver of any provision of any of the Documents by action or omission of the parties or otherwise; |
| (d) | the Officer's Certificate and all other certificates submitted to us are true and correct both when made and as of the date hereof; |
BALLARD SPAHR LLP
Agree Realty Corporation
Agree Limited Partnershi
May 27, 2020
Page 3
| (e) | the resolutions to be adopted subsequent to the date hereof, and the actions to be taken subsequent to the date hereof, by the Board of Directors, including, but not limited to, the adoption of all resolutions and the taking of all actions necessary to authorize the issuance and sale (and the execution and delivery, if applicable) of the Company Securities by the Company and the Debt Securities by the Operating Partnership in accordance with the procedures set forth in Paragraphs 2, 3, 4, 5, 6 and 7 below, will occur at duly called meetings at which a quorum of the incumbent directors of the Company is present and acting throughout, or by the unanimous consent of the incumbent directors of the Company given in writing or by electronic transmission, all in accordance with the Charter and Bylaws of the Company and applicable law; |
| (f) | the number of shares of Preferred Stock of each class or series and the number of shares of Common Stock to be offered and sold subsequent to the date hereof as Company Securities under the Registration Statement, together with the number of shares of Preferred Stock of each class or series and the number of shares of Common Stock issuable upon the conversion or exchange (or exercise in the case of Warrants) of any Securities offered and sold subsequent to the date hereof, will not, in the aggregate, exceed the number of shares of Preferred Stock of each class or series, and the number of shares of Common Stock, respectively, authorized in the Charter of the Company, less the number of shares of Preferred Stock of each class or series and the number of shares of Common Stock, respectively, authorized and reserved for issuance and issued and outstanding on the date subsequent to the date hereof on which the Securities are authorized, the date subsequent to the date hereof on which the Securities are issued and delivered, the date subsequent to the date hereof on which any Securities are converted into, or exchanged or exercised for, shares of Common Stock or shares of Preferred Stock, respectively, and the date subsequent to the date hereof on which shares of Preferred Stock and shares of Common Stock, respectively, are issued pursuant to the conversion, exchange or exercise of such Securities; |
| (g) | none of the terms of any of the Securities or any agreements related thereto to be established subsequent to the date hereof, nor the issuance or delivery of any such Securities containing such terms established subsequent to the date hereof, nor the compliance by the Company with the terms of any such Securities or agreements established subsequent to the date hereof will violate any applicable law or will conflict with, or result in a breach or violation of, the Charter or Bylaws of the Company, or any instrument or agreement to which the Company is a party or by which the Company is bound or any order or decree of any court, administrative or governmental body having jurisdiction over the Company; |
| (h) | the form of certificate, receipt or other instrument or document representing the Company Securities approved subsequent to the date hereof will conform in all respects to the requirements applicable under Maryland law; |
| (i) | all Warrants to be offered and sold subsequent to the date hereof will be issued under a valid and legally binding warrant agreement or other similar instrument entered into between the Company and a warrant agent to be named therein, which is enforceable against the parties thereto in accordance with its terms and conforms to the description thereof set forth in the Prospectus and the prospectus supplement relating to such Warrants; |
| (j) | all Depositary Shares to be offered and sold subsequent to the date hereof will be issued under a valid and legally binding deposit agreement or other similar instrument entered into among the Company, a depositary to be named therein and the holders from time to time of the depositary receipts which will evidence the Depositary Shares, which is enforceable against the parties thereto in accordance with its terms and conforms to the description thereof set forth in the Prospectus and the prospectus supplement relating to such Depositary Shares; |
BALLARD SPAHR LLP
Agree Realty Corporation
Agree Limited Partnershi
May 27, 2020
Page 4
| (k) | prior to or contemporaneous with the authorization, execution and delivery of any Guarantees or Warrants by the Company to be issued, executed and delivered subsequent to the date hereof, the issuance, execution and delivery of the Debt Securities to which such Guarantees or Warrants relate by the Operating Partnership will have been duly authorized by all necessary limited partnership action on the part of the Operating Partnership, and such Debt Securities will have been duly issued, executed and delivered by, and will be the valid and legally binding obligation of, the Operating Partnership; |
| (l) | the Operating Partnership has been duly formed and is validly existing as a limited partnership under the laws of the State of Delaware; |
| (m) | none of the Company Securities to be offered and sold subsequent to the date hereof, and none of the shares of Preferred Stock or shares of Common Stock, or any other securities of the Company or the Operating Partnership, issuable upon the conversion or exchange (or exercise in the case of Warrants) of any Securities, will be issued in violation of the provisions of Article Ninth of the Charter of the Company relating to restrictions on ownership and transfer of shares of stock of the Company; and |
| (n) | none of the Company Securities to be offered and sold subsequent to the date hereof, and none of the shares of Preferred Stock or shares of Common Stock, or any other securities of the Company or the Operating Partnership, issuable upon the conversion or exchange (or exercise in the case of Warrants) of any Securities, will be issued and sold to an Interested Stockholder of the Company or an Affiliate thereof, all as defined in Subtitle 6 of Title 3 of the Maryland General Corporation Law (the "MGCL"), in violation of Section 3-602 of the MGCL. |
Based on the foregoing, and subject to the assumptions and qualifications set forth herein, it is our opinion that, as of the date of this letter:
(1) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Maryland.
(2) Upon due authorization by the Board of Directors of a designated number of shares of Common Stock for issuance at a minimum price or value of consideration to be set by the Board of Directors, all necessary corporate action on the part of the Company will have been taken to authorize the issuance and sale of such shares of Common Stock, and when such shares of Common Stock are issued and delivered against payment of the consideration therefor as set by the Board of Directors, such shares of Common Stock will be validly issued, fully paid and non-assessable.
BALLARD SPAHR LLP
Agree Realty Corporation
Agree Limited Partnershi
May 27, 2020
Page 5
(3) Upon: (a) designation by the Board of Directors of one or more classes or series of Preferred Stock to distinguish each such class or series from any other existing class or series of Preferred Stock; (b) setting by the Board of Directors of the number of shares of Preferred Stock to be included in such class or series; (c) establishment by the Board of Directors of the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption of such class or series of Preferred Stock; (d) filing by the Company with the Department of articles supplementary setting forth a description of such class or series of Preferred Stock, including the preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends, qualifications and terms and conditions of redemption as set by the Board of Directors and a statement that such class or series of Preferred Stock has been classified by the Board of Directors under the authority contained in the Charter, and the acceptance for record by the Department of such articles supplementary; (e) due authorization by the Board of Directors of a designated number of shares of such class or series of Preferred Stock for issuance at a minimum price or value of consideration to be set by the Board of Directors; and (f) reservation and due authorization by the Board of Directors of any shares of any other class or series of Preferred Stock and/or any shares of Common Stock issuable upon conversion of such class or series of Preferred Stock in accordance with the procedures set forth in this Paragraph 3 and in Paragraph 2 above, respectively, and/or due authorization of any other securities of the Company or the Operating Partnership issuable upon conversion of such class or series of Preferred Stock in accordance with resolutions to be adopted subsequent to the date hereof, and/or actions to be taken subsequent to the date hereof, by the Board of Directors, at a minimum price or value of consideration to be set by the Board of Directors, all necessary corporate action on the part of the Company will have been taken to authorize the issuance and sale of the shares of such class or series of Preferred Stock and when such shares of such class or series of Preferred Stock are issued and delivered against payment of the consideration therefor as set by the Board of Directors, such shares of such class or series of Preferred Stock will be validly issued, fully paid and non-assessable.
(4) The Company has the corporate power to enter into warrant agreements, and upon: (a) designation and titling by the Board of Directors of the Warrants; (b) due authorization by the Board of Directors of the form, terms, execution and delivery by the Company of a warrant agreement or other similar instrument relating to the Warrants; (c) setting by the Board of Directors of the number of Warrants to be issued; (d) establishment by the Board of Directors of the terms, conditions and provisions of the Warrants; (e) due authorization by the Board of Directors of the Warrants for issuance at a minimum price or value of consideration to be set by the Board of Directors; and (f) reservation and due authorization by the Board of Directors of the shares of Common Stock and/or the shares of Preferred Stock of the Company issuable upon exercise of such Warrants in accordance with the procedures set forth in Paragraphs 2 and 3 above, respectively, and/or due authorization by the Board of Directors of any Debt Securities issuable upon exercise of such Warrants in accordance with the procedures set forth in Paragraph 6 below, at a minimum price or value of consideration to be set by the Board of Directors, all necessary corporate action on the part of the Company will have been taken to authorize the execution, delivery, issuance and sale of the Warrants.
(5) The Company has the corporate power to enter into deposit agreements, and upon completion of the procedures set forth in Paragraph 3 above for the issuance of shares of Preferred Stock of any class or series, and due authorization and approval by the Board of Directors of a deposit agreement and the delivery of Depositary Shares pursuant to such deposit agreement, due execution of such deposit agreement on behalf of the Company, and compliance with the conditions established by the Board of Directors for the delivery of the Depositary Shares, such Depositary Shares will have been duly authorized by all necessary corporate action on the part of the Company and such Depositary Shares may be delivered by or on behalf of the Company, and the Preferred Stock represented by the Depositary Shares will be validly issued, fully paid and non-assessable.
BALLARD SPAHR LLP
Agree Realty Corporation
Agree Limited Partnershi
May 27, 2020
Page 6
(6) Upon: (a) designation and titling by the Board of Directors of the Debt Securities; (b) establishment by the Board of Directors of the terms, conditions and provisions of such Debt Securities; (c) establishment by the Board of Directors of the aggregate principal amount of such Debt Securities and any limit on such aggregate principal amount; (d) due authorization by the Board of Directors of the form, terms, execution and delivery of an indenture or other similar instrument relating to the Debt Securities; (e) due authorization by the Board of Directors of such Debt Securities for issuance at a minimum price or value of consideration to be set by the Board of Directors; and (f) reservation and due authorization by the Board of Directors of the issuance of any shares of Common Stock and/or shares of Preferred Stock issuable upon conversion of, or in exchange for, the Debt Securities in accordance with the procedures set forth in Paragraphs 2 and 3 above, respectively, and/or due authorization by the Board of Directors of any other securities of the Company or the Operating Partnership issuable upon conversion of, or in exchange for, the Debt Securities in accordance with resolutions to be adopted subsequent to the date hereof, and/or actions to be taken subsequent to the date hereof, by the Board of Directors, at a minimum price or value of consideration to be set by the Board of Directors, all necessary corporate action on the part of the Company, in its capacity as general partner of the Operating Partnership on behalf of the Operating Partnership, will have been taken to authorize such Debt Securities.
(7) The Company has the corporate power to enter into Guarantees, and upon: (i) completion by the Company, in its capacity as general partner of the Operating Partnership on behalf of the Operating Partnership, of the procedures set forth in Paragraph 6 above for authorization of the Debt Securities to which such Guarantees relate; (ii) due authorization and approval by the Board of Directors of the Guarantees relating to such Debt Securities; and (iii) compliance with the conditions established by the Board of Directors for delivery of such Guarantees, such Guarantees will have been duly authorized by all necessary corporate action on the part of the Company and may be delivered by or on behalf of the Company.
The foregoing opinion is limited to the substantive laws of the State of Maryland, and we do not express any opinion herein concerning any other law. We express no opinion as to the applicability or effect of any federal or state securities laws, including the securities laws of the State of Maryland, or as to federal or state laws regarding fraudulent transfers, or with respect to the actions required for the Operating Partnership to authorize, execute, deliver or perform its obligations under any document, instrument or agreement. To the extent that any matter as to which our opinion is expressed herein would be governed by the laws of any jurisdiction other than the State of Maryland, we do not express any opinion on such matter.
This opinion letter is issued as of the date hereof and is necessarily limited to laws now in effect and facts and circumstances presently existing and brought to our attention. We assume no obligation to supplement this opinion letter if any applicable laws change after the date hereof, or if we become aware of any facts or circumstances that now exist or that occur or arise in the future and may change the opinions expressed herein after the date hereof.
We consent to your filing this opinion as an exhibit to the Registration Statement and further consent to the filing of this opinion as an exhibit to the applications to securities commissioners for the various states of the United States for registration of the Securities. We also consent to the identification of our firm as Maryland counsel to the Company in the section of the Registration Statement entitled "Legal Matters". In giving this consent, we do not admit that we are within the category of persons whose consent is required by Section 7 of the Act.
Very truly yours,
/s/ BALLARD SPAHR LLP |
Exhibit 5.2
 |
313.465.7000 |
May 27, 2020
|
Agree Realty Corporation Agree Limited Partnership 70 E. Long Lake Road Bloomfield Hills, Michigan 48304 |
| Re: | Registration Statement on Form S-3 |
Ladies and Gentlemen:
We have acted as counsel to Agree Realty Corporation, a Maryland corporation (the “Company” or “Guarantor”), and Agree Limited Partnership, a Delaware limited partnership (the “Operating Partnership”, and together with the Company, the “Opinion Parties”), in connection with a Registration Statement on Form S-3 (the “Registration Statement”) filed by the Opinion Parties with the Securities and Exchange Commission (the “Commission”), for the registration of the Securities (defined below) under the Securities Act of 1933, as amended (the “Securities Act”).
The Registration Statement includes a form of prospectus (the “Prospectus”), which provides that it will be supplemented in the future by one or more supplements to the Prospectus (each, a “Prospectus Supplement”). The Prospectus, as supplemented by one or more Prospectus Supplements, may contemplate the issue and sale of (i) shares of common stock, $0.0001 par value per share, of the Company (the “Common Stock”); (ii) one or more series of shares of preferred stock, $0.0001 par value per share, of the Company (the “Preferred Stock”); (iii) shares of Preferred Stock represented by depositary shares and evidenced by depositary receipts (the “Depositary Shares”), each of which will represent a fractional interest of a share of a particular class or series of preferred stock or multiple shares of Preferred Stock; (iv) warrants to purchase Preferred Stock, Common Stock or Debt Securities (as defined below) (the “Warrants”); and (v) one or more series of debt securities of the Operating Partnership (the “Debt Securities”), which may be guaranteed (the “Guarantees”) by the Guarantor.
Any Debt Securities and Guarantees will be issued under one or more indentures in the form to be filed as an exhibit to the Registration Statement (the “Indenture”) relating to the issuance of Debt Securities by the Operating Partnership. The Depositary Shares may be issued under one or more deposit agreements (each, a “Deposit Agreement”) by and between the Company and a financial institution identified therein as the depositary (each, a “Depositary”). The Warrants may be issued under one or more warrant agreements (each, a “Warrant Agreement”) between the Company and a third party to be identified therein as warrant agent (each, a “Warrant Agent”). The Indenture, the Deposit Agreements and the Warrant Agreements are herein collectively referred to as the “Agreements.” The Debt Securities, Guarantees, Depositary Shares and Warrants are herein collectively referred to as the “Securities.”
In connection with this opinion letter, we have examined and relied upon originals or copies of such records, instruments, certificates, opinions, memoranda and other documents as in our judgment are necessary or appropriate to enable us to render the opinions expressed below. As to certain factual matters, we have relied upon a certificate of officers of the Opinion Parties and have not independently sought to verify such matters. In rendering the opinions in this opinion letter, we have assumed the genuineness and authenticity of all signatures on original documents; the authenticity of all documents submitted to us as originals; the conformity to originals of all documents submitted to us as copies; the accuracy, completeness and authenticity of certificates of public officials; and the due authorization, execution and delivery of all documents where authorization, execution and delivery are prerequisites to the legal effectiveness of such documents.
| Honigman LLP • 2290 First National Building • 660 Woodward Avenue • Detroit, Michigan 48226-3506 |
May 27, 2020
Page 2
With respect to our opinions as to the Depositary Shares, we have assumed that any Depositary Shares offered under the Registration Statement will be issued under a valid and legally binding Deposit Agreement or other similar instrument entered into among the Company, a Depositary and the holders from time to time of the depositary receipts which will evidence the Depositary Shares, which is enforceable against the parties thereto in accordance with its terms and conforms to the description thereof provided in the applicable Prospectus Supplement and be executed in the forms filed as exhibits to the Registration Statement or any required post-effective amendment thereto or incorporated by reference therein.
With your consent, we have also assumed (i) that each of the Agreements will be governed by the internal laws of the State of New York, (ii) that each of the Agreements has been or will be duly authorized, executed and delivered by the parties thereto (other than with respect to the Operating Partnership), (iii) that each of the Agreements constitutes or will constitute legally valid and binding obligations of the parties thereto other than the Opinion Parties, enforceable against each of them in accordance with their respective terms and (iv) that the status of each of the Agreements as legally valid and binding obligations of the parties will not be affected by any (a) breaches of, or defaults under, agreements or instruments, (b) violations of statutes, rules, regulations or court or governmental orders, or (c) failures to obtain required consents, approvals or authorizations from, or to make required registrations, declarations or filings with, governmental authorities.
Our opinions herein are expressed solely with respect to (i) the internal laws of the State of New York; (ii) the Delaware Revised Uniform Limited Partnership Act, as amended; and (iii) the federal laws of the United States, and we express no opinion with respect to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction or, in the case of Delaware, any other laws, or as to any matters of municipal law or the laws of any local agencies within any state. Various matters concerning laws of the State of Maryland are addressed in the opinion of Ballard Spahr LLP, separately provided to you. We express no opinion with respect to those matters, and to the extent elements of those opinions are necessary to the conclusions expressed herein, we have, with your consent, assumed such matters. Our opinions are based on these laws as in effect on the date hereof. We are not rendering any opinion as to compliance with any federal or state antifraud law, rule or regulation relating to securities, or to the sale or issuance thereof. It is understood that this opinion letter is to be used only in connection with the offer and sale of the Securities while the Registration Statement is in effect and only speaks as of the date of this opinion letter.
On the basis of the foregoing and in reliance thereon, and subject to the qualifications herein stated, it is our opinion that:
| 1. | When (i) the specific terms of the Guarantees of a particular Debt Security and such Debt Security have been duly established in accordance with the Indenture, (ii) all necessary corporate action has been taken by the Company to approve the creation, the terms and the issuance of the Guarantees and all necessary limited partnership action has been taken by the Operating Partnership to approve the creation, the terms and the issuance of such Debt Securities, (iii) the Guarantees have been duly executed, issued and delivered in accordance with the Indenture and in the manner contemplated by the Registration Statement and any required post-effective amendment thereto, the related prospectus and the applicable Prospectus Supplement(s), and by such corporate action, and (iv) the terms of the Debt Securities and of their issuance and sale have been duly established in conformity with the Indenture and as described in the Registration Statement and any required post-effective amendment thereto, the related prospectus and the applicable Prospectus Supplement(s), and by such limited partnership action, do not violate any applicable law, do not result in a default under or breach of any agreement or instrument binding upon the Operating Partnership, are in conformity with the organizational documents of the Operating Partnership, and comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over the Operating Partnership, then such Guarantees will be legally valid and binding obligations of the Guarantor, enforceable against the Guarantor in accordance with their terms. |
| Honigman LLP • 2290 First National Building • 660 Woodward Avenue • Detroit, Michigan 48226-3506 |
May 27, 2020
Page 3
| 2. | When (i) all necessary corporate action has been taken by the Company to approve the creation, the terms and the issuance of Depositary Shares, and (ii) the terms of the Depositary Shares and of their issuance and sale have been duly established in conformity with the Deposit Agreement and as described in the Registration Statement and any required post-effective amendment thereto, the related prospectus and the applicable Prospectus Supplement(s), and by such corporate action, and (iii) the Depositary Shares have been duly executed, authenticated, issued and delivered against payment therefor in accordance with such Deposit Agreement and in the manner contemplated by the Registration Statement and any required post-effective amendment thereto, the related prospectus and the applicable Prospectus Supplement(s), and by such corporate action (assuming the underlying Preferred Stock has been validly issued and deposited with the Depositary), then such Depositary Shares will be legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. |
| 3. | When (i) a Prospectus Supplement and any related offering material with respect to Warrants have been filed with the Commission and become effective in compliance with the Securities Act and the rules and regulations thereunder, (ii) all necessary corporate action has been taken by the Company to approve the creation, the terms and the issuance of the Warrants and the underlying securities, the terms of the offering of the Warrants and related matters, including the consideration to be received therefor, if any, and for the underlying securities, and, if applicable, to authorize the form, terms, execution and delivery of a Warrant Agreement or Warrant Agreements (including a form of certificate evidencing the Warrants, if applicable) relating to the Warrants, (iii) the Warrant Agreement or Warrant Agreements, if applicable, relating to the Warrants have been duly authorized and validly executed and delivered by the Company and the warrant agent, if any, appointed by the Company, (iv) the Warrants have been issued under a valid and legally binding Warrant Agreement, or agreements relating to the Warrants that conforms to the description thereof provided in a Prospectus Supplement and any related offering material and do not violate any applicable law, do not result in a default under or breach of any agreement or instrument binding upon the Company, are in conformity with the certificate of incorporation and bylaws of the Company, and comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over the Company and (v) the Warrants or certificates representing the Warrants have been duly executed, countersigned and registered, if applicable, issued and delivered in accordance with the prospectus and applicable Prospectus Supplement relating to the Registration Statement and in accordance with the appropriate Warrant Agreement and the applicable valid and legally binding purchase, underwriting or similar agreement, as applicable, and such corporate action, in exchange for payment of the consideration for such Warrants, if any, provided for in such agreement, such Warrants will be legally issued and binding obligations of the Company. |
| 4. | When (i) a Prospectus Supplement and any related offering materials with respect to Debt Securities have been filed with the Commission and become effective in compliance with the Securities Act and the rules and regulations thereunder, (ii) all necessary limited partnership action has been taken by the Operating Partnership to approve the creation, the terms and the issuance of such Debt Securities and the consideration to be received therefor in accordance with the Indenture, (iii) the Indenture is qualified under the United States Trust Indenture Act of 1939, as amended, (iv) the terms of the Debt Securities and of their issuance and sale have been duly established in conformity with the Indenture and as described in the Registration Statement and any required post-effective amendment thereto, the related prospectus and the applicable Prospectus Supplement(s), and by such limited partnership action, do not violate any applicable law, do not result in a default under or breach of any agreement or instrument binding upon the Operating Partnership, are in conformity with the organizational documents of the Operating Partnership, and comply with any requirement or restriction imposed by any court or governmental body having jurisdiction over the Operating Partnership; and (v) notes, certificates or other evidence of the Debt Securities have been duly executed, issued and delivered by the Operating Partnership and authenticated by the Trustee pursuant to the Indenture and delivered to the purchasers thereof against payment therefor in accordance with such limited partnership action and the prospectus and applicable Prospectus Supplement relating to the Registration Statement, and in accordance with any applicable valid and legally binding purchase, underwriting or similar agreement, or Warrant Agreement and any related Warrant, as applicable, such Debt Securities will be legally issued and binding obligations of the Operating Partnership. For purposes of rendering the opinions set forth in this paragraph 4, we have assumed that immediately prior to the issuance of any Debt Securities, the Indenture and any applicable supplemental indenture will be in full force and effect, with no unwaived Events of Default or breaches thereunder and will constitute the legal, valid and binding obligation of the Operating Partnership, enforceable against the Operating Partnership in accordance with its terms. |
| Honigman LLP • 2290 First National Building • 660 Woodward Avenue • Detroit, Michigan 48226-3506 |
May 27, 2020
Page 4
In giving the opinions set forth above, with respect to each Security opined on in this opinion letter we have assumed that (i) at or prior to the time of the delivery of such Security, the authorization of such Security will not have been modified or rescinded, and there will not have occurred any change in law affecting such Security, including its validity or enforceability and (ii) none of the terms of any such Security to be established subsequent to the date hereof, nor the issuance and delivery of such Security nor the compliance by the applicable Opinion Party, with the terms of such Security, will violate any applicable law or will result in a violation of any provision of any instrument or agreement then binding upon the applicable Opinion Party or any restriction imposed by any court or governmental body having jurisdiction over the applicable Opinion Party.
Our opinions set forth above are subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law relating to or affecting creditors’ rights generally (including, without limitation, fraudulent conveyance and voidable transaction laws), general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law and limitations regarding the availability of indemnification and contribution where such indemnification or contribution may be limited by applicable law or the application of principles of public policy.
We express no opinion as to the validity, binding effect or enforceability of (i) provisions that relate to choice of law, forum selection or submission to jurisdiction (including, without limitation, any express or implied waiver of any objection to venue in any court or of any objection that a court is an inconvenient forum), (ii) waivers by the Company or Operating Partnership of any statutory or constitutional rights or remedies, (iii) terms which excuse any person or entity from liability for, or require the Company or Operating Partnership to indemnify such person or entity against, such person’s or entity’s negligence or willful misconduct, (iv) obligations to pay any prepayment premium, default interest rate, early termination fee or other form of liquidated damages, if the payment of such premium, interest rate, fee or damages may be construed as unreasonable in relation to actual damages or disproportionate to actual damages suffered as a result of such prepayment, default or termination, usury and other interest-related restrictions, or (v) provisions providing that the terms of agreement may not be waived or modified except in writing.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. We also hereby consent to the use of our name under the heading “Legal Matters” in the prospectus included in the Registration Statement. In giving such consents, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission under the Securities Act.
|
Very truly yours,
/s/ Honigman LLP |
| Honigman LLP • 2290 First National Building • 660 Woodward Avenue • Detroit, Michigan 48226-3506 |
Exhibit 8.1
 |
Office 313.465.7000 www.honigman.com |
May 27, 2020
|
Agree Realty Corporation 70 East Long Lake Road Bloomfield Hills, Michigan 48304 |
|
| Re: | Certain U.S. Federal Income Tax Matters |
Ladies and Gentlemen:
We have acted as counsel to Agree Realty Corporation, a Maryland corporation (the “Company”), and Agree Limited Partnership, a Delaware limited partnership (the “Operating Partnership”), in connection with the filing with the Securities and Exchange Commission (the “SEC”) on May 27, 2020, of a Registration Statement on Form S-3 ASR (the “Registration Statement”) under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to which the Company may offer, from time to time, shares of common stock, shares of preferred stock, depositary shares, guarantees of debt securities of the Operating Partnership, warrants, or any combination of the foregoing, and pursuant to which the Operating Partnership may offer, from time to time, debt securities. This opinion letter, regarding certain U.S. federal income tax matters, is being delivered to the Company pursuant to the Company’s request.
We have also acted as counsel to the Company in connection with the preparation of the section captioned “Material Federal Income Tax Considerations” in the Base Prospectus (as defined below).
In rendering the opinions stated below, we have examined and, with your consent, relied upon the following documents:
| (i) | the Company’s Articles of Incorporation, as amended; |
| (ii) | the Registration Statement and the base prospectus filed as part of the Registration Statement (“Base Prospectus”); |
| (iii) | the Limited Partnership Agreement of the Operating Partnership, as amended to the date hereof; |
| (iv) | a letter of even date to us from Clayton Thelen, Chief Financial Officer of the Company, containing certain written representations of the Company (“Certificate of Representations”); |
Honigman LLP • 2290 First National Building • 660 Woodward Avenue • Detroit, Michigan 48226-3506 |
May 27, 2020
Page 2
| (v) | the tax opinion issued by Hunton & Williams LLP, dated November 27, 2013 (the “Prior REIT Opinion”), regarding the Company’s qualification as a real estate investment trust for U.S. federal income tax purposes (a “REIT”); and |
| (vi) | such other records, certificates and documents as we have deemed necessary or appropriate for purposes of rendering the opinions set forth herein. |
In our examination of the foregoing documents, we have assumed, with your consent and without independent investigation, that:
| (i) | each of the documents referred to above has been duly authorized, executed, and delivered; is authentic, if an original, or is accurate, if a copy; has not been amended; and the signatures on each original document are genuine; |
| (ii) | where any such document required execution by a person, the person who executed the document had proper authority and capacity; |
| (iii) | all representations and statements set forth in such documents are and will be true and correct; |
| (iv) | where any such document imposes obligations on a person or entity, such obligations have been or will be performed or satisfied in accordance with their terms; |
| (v) | the Company is a corporation validly existing and in good standing under the laws of the State of Maryland; |
| (vi) | the Company has the requisite corporate power and authority, under Maryland law, to own and lease the properties owned and leased by it and to carry on its business as is now being conducted by it; |
| (vii) | during its taxable year ending December 31, 2020, and subsequent taxable years, the Company will continue to operate in a manner that has made and will make the representations contained in the Certificate of Representations true for such years, without regard to any qualifications as to knowledge or belief; |
| (viii) | the Company will not make any amendments to its organizational documents after the date of this opinion that would adversely affect the Company’s qualification as a REIT for any taxable year; and |
Honigman LLP • 2290 First National Building • 660 Woodward Avenue • Detroit, Michigan 48226-3506 |
May 27, 2020
Page 3
| (ix) | no action will be taken by the Company after the date hereof that would have the effect of altering the facts upon which the opinions set forth below are based. |
We have not independently verified all of the representations, facts or assumptions set forth in such documents or any other documents. We consequently have assumed that the information presented in such documents or otherwise furnished to us accurately and completely describes all facts stated therein. In connection with the opinions rendered below, we have assumed the correctness of the Prior REIT Opinion with respect to all periods prior to January 1, 2013, subject only to our limited independent investigation with respect to the periods before January 1, 2013. We also have relied upon the correctness, without regard to any qualification as to knowledge or belief, of the factual representations and covenants contained in the Certificate of Representations and the factual matters discussed in the Base Prospectus that relate to the Company’s status as a REIT. Where the factual representations in the Certificate of Representations involve terms defined in the Internal Revenue Code of 1986, as amended (the “Code”), the Treasury regulations thereunder (the “Regulations”), published rulings of the Internal Revenue Service (the “Service”), or other relevant authority, we have reviewed with the individual making such representations the relevant provisions of the Code, the applicable Regulations, the published rulings of the Service, and other relevant authority. We are not aware of any facts that are inconsistent with the representations contained in the Certificate of Representations. It should be noted, however, that the Code, Regulations, judicial decisions, and administrative interpretations are subject to change at any time and, in some circumstances, with retroactive effect. We can give no assurance, therefore, that legislative enactments, administrative changes or court decisions may not be forthcoming that would modify or supersede the opinions stated herein. In addition, there can be no assurance that positions contrary to our opinions will not be taken by the Service, or that a court considering the issues will not hold contrary to such opinions. The Service has not issued Regulations or administrative interpretations with respect to various provisions of the Code relating to REIT qualification. No assurance can be given that the law will not change in a way that will prevent the Company from qualifying as a REIT.
Moreover, the opinions set forth below represent our conclusions based upon the documents, facts, assumptions and representations referred to above. Any material amendments to such documents or changes in any significant facts after the date hereof, or inaccuracy of such assumptions or representations, could affect the opinions stated herein.
We express no opinion as to the laws of any jurisdiction other than the federal income tax laws of the United States of America to the extent specifically referred to herein.
Honigman LLP • 2290 First National Building • 660 Woodward Avenue • Detroit, Michigan 48226-3506 |
May 27, 2020
Page 4
Based on the documents and assumptions set forth above, the representations and covenants set forth in the Certificate of Representations, and the factual matters discussed in the Base Prospectus under the caption “Material Federal Income Tax Considerations” (which are incorporated herein by reference), we are of the opinion that:
| 1. | since the commencement of the Company’s taxable year that began January 1, 2016 through December 31, 2019, the Company has qualified to be taxed as a REIT under the Code and its current and proposed method of operation will enable it to continue to qualify as a REIT under the Code. The Company’s qualification as a REIT under the Code will depend upon the Company’s ability to meet, through actual operating results, the applicable asset composition, source of income, stockholder diversification, distribution and other requirements of the Code and Regulations necessary for REIT qualification; and |
| 2. | the description of the law and the legal conclusions contained in the Base Prospectus under the caption “Material Federal Income Tax Considerations” is correct in all material respects. |
We will not review on a continuing basis the Company’s compliance with the documents or assumptions set forth above, or the representations set forth in the Certificate of Representations. Accordingly, no assurance can be given that the actual results of the Company’s operations for any given taxable year will satisfy the requirements for qualification and taxation as a REIT. Although we have made such inquiries and performed such investigations as we have deemed necessary to fulfill our professional responsibilities as counsel, we have not undertaken an independent investigation of all the facts referred to in this opinion letter or the Certificate of Representations. In particular, we note that the Company has engaged in transactions in connection with which we have not provided legal advice and which we may not have reviewed.
The foregoing opinions are limited to the U.S. federal income tax matters addressed herein, and no other opinions are rendered with respect to other U.S. federal tax matters or to any issues arising under the tax laws of any other country, or any state or locality. We undertake no obligation to update the opinions expressed herein after the date of this opinion letter.
Other than as expressly stated above, we express no opinion as to any other U.S. federal income tax issue or matter relating to the Company. This opinion is expressed as of the date hereof, and we disclaim any undertaking to advise you of any subsequent changes of matters stated, represented, covenanted, or assumed herein or any subsequent changes in applicable law.
This opinion is being issued to you in connection with the Registration Statement and may not be used or relied upon by any other person or for any other purpose without our express written consent. We consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name therein. In giving such consent, we do not admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the SEC thereunder, nor do we thereby admit that we are experts with respect to any part of the Registration Statement within the meaning of the term “experts” as used in the Securities Act or the rules and regulations of the SEC promulgated thereunder.
Honigman LLP • 2290 First National Building • 660 Woodward Avenue • Detroit, Michigan 48226-3506 |
May 27, 2020
Page 5
| Very truly yours, | |
| /s/ Honigman LLP |
Honigman LLP • 2290 First National Building • 660 Woodward Avenue • Detroit, Michigan 48226-3506 |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated February 20, 2020, with respect to the consolidated financial statements and internal control over financial reporting of Agree Realty Corporation included in the Annual Report on Form 10-K for the year ended December 31, 2019, which are incorporated by reference in this Registration Statement. We consent to the incorporation by reference of the aforementioned reports in this Registration Statement, and to the use of our name as it appears under the caption “Experts”.
/s/ Grant Thornton LLP
Philadelphia, Pennsylvania
May 27, 2020
Exhibit 25.1
securities and exchange commission
Washington, D.C. 20549
__________________________
FORM T-1
Statement of Eligibility Under
The Trust Indenture Act of 1939 of a
Corporation Designated to Act as Trustee
Check if an Application to Determine Eligibility of
a Trustee Pursuant to Section 305(b)(2)
_______________________________________________________
U.S. BANK NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
31-0841368
I.R.S. Employer Identification No.
|
800 Nicollet Mall Minneapolis, Minnesota |
55402 |
| (Address of principal executive offices) | (Zip Code) |
James Kowalski
U.S. Bank National Association
535 Griswold Street, Suite 550
Detroit, MI 48226
(313) 234-4716
(Name, address and telephone number of agent for service)
Agree Limited Partnership
(Issuer with respect to the Securities)
| Delaware | 38-3170055 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
|
70 East Long Lake Road Bloomfield Hills, Michigan |
48304 |
| (Address of Principal Executive Offices) | (Zip Code) |
Notes
(Title of the Indenture Securities)
FORM T-1
| Item 1. | GENERAL INFORMATION. Furnish the following information as to the Trustee. |
| a) | Name and address of each examining or supervising authority to which it is subject. |
Comptroller of the Currency
Washington, D.C.
| b) | Whether it is authorized to exercise corporate trust powers. |
Yes
| Item 2. | AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of the Trustee, describe each such affiliation. |
None
| Items 3-15 | Items 3-15 are not applicable because to the best of the Trustee's knowledge, the obligor is not in default under any Indenture for which the Trustee acts as Trustee. |
| Item16. | LIST OF EXHIBITS: List below all exhibits filed as a part of this statement of eligibility and qualification. |
| 1. | A copy of the Articles of Association of the Trustee.* |
| 2. | A copy of the certificate of authority of the Trustee to commence business, attached as Exhibit 2. |
| 3. | A copy of the certificate of authority of the Trustee to exercise corporate trust powers, attached as Exhibit 3. |
| 4. | A copy of the existing bylaws of the Trustee.** |
| 5. | A copy of each Indenture referred to in Item 4. Not applicable. |
| 6. | The consent of the Trustee required by Section 321(b) of the Trust Indenture Act of 1939, attached as Exhibit 6. |
| 7. | Report of Condition of the Trustee as of March 31, 2020 published pursuant to law or the requirements of its supervising or examining authority, attached as Exhibit 7. |
* Incorporated by reference to Exhibit 25.1 to Amendment No. 2 to registration statement on S-4, Registration Number 333-128217 filed on November 15, 2005.
** Incorporated by reference to Exhibit 25.1 to registration statement on form S-3ASR, Registration Number 333-199863 filed on November 5, 2014.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the Trustee, U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Detroit, State of Michigan on the 27th of May, 2020.
| By: | /s/ James Kowalski |
| James Kowalski | |
| Vice President |
Exhibit 2
Exhibit 3
Exhibit 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939, the undersigned, U.S. BANK NATIONAL ASSOCIATION hereby consents that reports of examination of the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor.
Dated: May 27, 2020
| By: | /s/ James Kowalski |
| James Kowalski | |
| Vice President |
Exhibit 7
U.S. Bank National Association
Statement of Financial Condition
As of 3/31/2020
($000’s)
| 3/31/2020 | ||||
| Assets | ||||
| Cash and Balances Due From Depository Institutions | $ | 46,699,020 | ||
| Securities | 122,149,987 | |||
| Federal Funds | 2,807 | |||
| Loans & Lease Financing Receivables | 316,711,655 | |||
| Fixed Assets | 9,075,777 | |||
| Intangible Assets | 12,477,802 | |||
| Other Assets | 26,012,043 | |||
| Total Assets | $ | 533,129,091 | ||
| Liabilities | ||||
| Deposits | $ | 405,823,094 | ||
| Fed Funds | 1,428,527 | |||
| Treasury Demand Notes | 0 | |||
| Trading Liabilities | 1,392,214 | |||
| Other Borrowed Money | 55,078,404 | |||
| Acceptances | 0 | |||
| Subordinated Notes and Debentures | 3,850,000 | |||
| Other Liabilities | 14,338,298 | |||
| Total Liabilities | $ | 481,910,537 | ||
| Equity | ||||
| Common and Preferred Stock | 18,200 | |||
| Surplus | 14,266,915 | |||
| Undivided Profits | 36,132,907 | |||
| Minority Interest in Subsidiaries | 800,532 | |||
| Total Equity Capital | $ | 51,218,554 | ||
| Total Liabilities and Equity Capital | $ | 533,129,091 | ||