C. Brophy Christensen, Esq.
Jeeho M. Lee, Esq.
O’Melveny & Myers LLP
Times Square Tower
7 Times Square
New York, New York 10036
(212) 326-2000
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Christopher Bellini, Esq.
Seth Popick, Esq.
Cozen O’Connor P.C.
33 South 6th Street, Suite 3800
Minneapolis, Minnesota 55402
(612) 260-9000
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated filer
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☒
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Smaller reporting company
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☐
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Emerging growth company
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☒
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Title of Each Class of
Securities to be Registered
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Proposed Maximum
Aggregate Offering
Price(1)(2)
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Amount of
Registration Fee(3)
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Common stock, $0.01 par value per share
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$115,000,000
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$12,546.50
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(1)
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Estimated solely for purposes of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.
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(2)
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Includes the aggregate offering price of additional shares that the underwriters have the option to purchase.
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(3)
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This registration fee was previously paid by the registrant in connection with the filing of its Registration Statement on Form S-11 on December 28, 2020.
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We were recently formed and have limited operating history, and may not be able to successfully operate our business, integrate new assets and/or manage our growth or to generate sufficient revenue to make or sustain distributions to our stockholders.
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Competition for the capital that we provide may reduce the return of our loans, which could adversely affect our operating results and financial condition.
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We are externally managed by AFC Management, LLC (our “Manager”) and our growth and success depends on our Manager, its key personnel and investment professionals, and our Manager’s ability to make loans on favorable terms that satisfy our investment strategy and otherwise generate attractive risk-adjusted returns; thus, if our Manager overestimates the yields or incorrectly prices the risks of our loans or if there are any adverse changes in our relationship with our Manager, we may experience losses.
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We provide loans to established companies operating in the cannabis industry which involves significant risks, including the risk to our business of strict enforcement against our borrowers of the federal illegality of cannabis, and such loans lack liquidity, and we could lose all or part of any of our loans.
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Our ability to grow our business depends on state laws pertaining to the cannabis industry. New laws that are adverse to our borrowers may be enacted, and current favorable state or national laws or enforcement guidelines relating to cultivation, production and distribution of cannabis may be modified or eliminated in the future, which would impede our ability to grow our business under our current business plan and could materially adversely affect our business.
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As a debt investor, we are often not in a position to exert influence on borrowers, and the stockholders and management of such companies may make decisions that could decrease the value of loans made to such borrower.
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Our growth depends on external sources of capital, which may not be available on favorable terms or at all.
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Interest rate fluctuations could increase our financing costs, which could lead to a significant decrease in our results of operations, cash flows and the market value of our loans.
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There are various conflicts of interest in our relationship with our Manager, including conflicts created by our Manager’s compensation arrangements with us, which could result in decisions that are not in the best interests of our stockholders.
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Maintenance of our exemption from registration under the Investment Company Act of 1940, as amended (the “Investment Company Act”), may impose significant limits on our operations. Your investment return in our Company may be reduced if we are required to register as an investment company under the Investment Company Act.
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We may be deemed to be Closely Held (as defined below), which, subject to our ability to redeem certain shares of our capital stock, would result in us failing to qualify as a REIT and, subject to any required approvals by our Board and our stockholders, would trigger our dissolution and windup process.
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Failure to qualify as a REIT for U.S. federal income tax purposes would cause us to be taxed as a regular corporation, which would substantially reduce funds available for distributions to our stockholders.
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We may incur significant debt, and our governing documents and current credit facility contain no limit on the amount of debt we may incur.
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We may in the future pay distributions from sources other than our cash flow from operations, including borrowings, offering proceeds or the sale of assets, which means we will have less funds available for investments or less income-producing assets and your overall return may be reduced.
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There is currently no public market for our common stock and the value of our common stock may be volatile and could decline substantially.
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Price to Public
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Underwriting Discounts
and Commissions(1)
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Proceeds to
Company
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Per Share
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$
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$
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$
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Total
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$
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$
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$
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(1)
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See “Underwriting” for additional disclosure regarding of the compensation payable to the underwriters.
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Joint Book-Running Managers
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JMP Securities
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Ladenburg Thalmann
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Seaport Global Securities
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Manager
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Lake Street
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Page
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Origination
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Underwriting
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Investment Committee
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Legal Documentation and
Post-Closing
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Direct origination platform works to create enhanced yields by originating and structuring loans, as well as putting in enhanced controls
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•
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Disciplined underwriting process leads to a highly selective approach
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•
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Focused on managing credit risk through comprehensive investment review process
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•
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Investment team works alongside external counsel to negotiate credit agreements and collateral liens
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•
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Platform drives increased deal flow, which provides for improved loan selectivity
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•
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Potential loans are screened based on four key criteria: company profile, state dynamics, regulatory matters and real estate asset considerations
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•
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The Investment Committee must approve each loan before commitment papers are issued
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•
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Emphasis is placed on financial covenants and limitations on actions that may be adverse to lenders
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•
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Allows for specific portfolio construction and a focus on higher quality companies
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•
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Other tools that we frequently use to verify data include, but are not limited to: appraisals, quality of earnings, environmental reports, site visits, comparable company analyses and background checks
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Members of the Investment Committee currently include: Leonard M. Tannenbaum, Jonathan Kalikow and Robyn Tannenbaum. It is intended that the Investment Committee will be expanded to five members consisting of the three current members and our to-be named Managing Director, Portfolio Management and General Counsel
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•
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Portfolio is proactively managed to monitor ongoing performance, in some instances, through seats on borrowers’ boards of directors or board observer rights
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As of December 26, 2020, we had 34 active loans in our pipeline at various stages in the diligence process, and we had passed on 185 of 229 sourced loans due to, among other reasons, lack of collateral, lack of cash flow, stage of company, no previous experience and state dynamics
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(1)
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All loans originated prior to July 31, 2020 were purchased from an affiliated entity at fair value plus accrued interest on July 31, 2020.
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(2)
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Loans originated before July 31, 2020 were acquired by us, net of unaccreted OID, which we accrete to income over the remaining term of the loan.
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(3)
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Assumes no prepayment penalties or early payoffs.
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(4)
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On December 28, 2020, this loan was repaid in full by Public Company B at par value.
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(5)
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Loan to Subsidiary of Public Company C includes a $3.0 million initial funding of a $15.0 million aggregate loan commitment, which has interest that includes 3.0% PIK interest. The amortization of the loan exceeds PIK interest. The loan also includes two early advances totaling $9.0 million against the $15.0 million aggregate loan commitment, with a 19.0% interest rate. Statistics shown are for the $15.0 million loan commitment, except the weighted average interest rate, which is based on the weighted average interest rate as of December 26, 2020.
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(6)
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Loan to Subsidiary of Public Co. D does not reflect the borrower's option to request a maturity extension for an additional 364 days from the original loan maturity date, which we are not obligated to grant.
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(7)
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YTM IRR for Public Company A, subsidiary of Public Company C, Private Company A and Private Company D is enhanced by purchase discounts attributed to the fair value of equity warrants that were separated from the loans prior to our acquisition of such loans. The purchase discounts accrete to income over the respective remaining terms of such loans.
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Real Estate
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Borrower
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Date
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Our
Total
Commitment
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Percentage
of
Total
Portfolio
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Total
Funded
Debt
Issuance
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Our
Percentage
of the
Total Loan
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Estimated
Real
Estate
Value(1)
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Real Estate
Collateral
Coverage
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Implied Real
Estate
Collateral
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Our
Real
Estate
Collateral
Coverage
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Public Co. A - Real Estate Loan(2)
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7/3/2019
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$2,940,000
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2.6%
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$30,000,000
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9.8%
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$72,000,000
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2.40x
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$7,056,000
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2.40x
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Public Co. A - Equipment Loan
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8/5/2019
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$4,000,000
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3.5%
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$20,000,000
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20.0%
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—
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—
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—
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—
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Public Co. B(3)(4)
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1/31/2020
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$5,000,000
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4.4%
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$20,000,000
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25.0%
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$53,100,000
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2.66x
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$13,275,000
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2.66x
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Subsidiary of Public Co. C(5)
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2/12/2020
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$15,000,000
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13.3%
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$15,000,000
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100.0%
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$30,723,143
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2.05x
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$30,723,143
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2.05x
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Private Co. A(6)
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5/8/2020
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$34,000,000
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30.1%
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$42,500,000
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80.0%
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$51,384,281
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1.21x
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$41,107,425
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1.21x
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Private Co. B(7)
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9/10/2020
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$8,000,000
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7.1%
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$8,000,000
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100.0%
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$19,536,098
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2.44x
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$19,536,098
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2.44x
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Private Co. C(8)
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11/5/2020
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$22,000,000
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19.5%
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$22,000,000
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100.0%
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$23,733,032
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1.08x
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$23,733,032
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1.08x
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Subsidiary of Public Co. D(9)
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12/18/2020
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$10,000,000
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8.9%
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$120,000,000
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8.3%
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$26,058,332
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0.22x
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$2,171,528
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0.22x
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Private Co. D(10)
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12/23/2020
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$12,000,000
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10.6%
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$12,000,000
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100.0%
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$7,500,000
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0.63x
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$7,500,000
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0.63x
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$112,940,000
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100.0%
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$289,500,000
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39.0%
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$284,034,885
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0.98x
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$145,102,225
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1.28x
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(1)
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To the extent the applicable loan is intended to fund any acquisitions and/or construction, the applicable figure includes expected total basis on such future construction and/or acquisitions plus appraised value.
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(2)
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Public Company A real estate is based on cost basis.
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(3)
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Public Company B real estate is based on cost basis.
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(4)
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On December 28, 2020, this loan was repaid in full by Public Company B at par value.
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(5)
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Subsidiary of Public Company C real estate is based on an existing cultivation property and the completed and stabilized value of a to-be-built facility. The anticipated completion date for the to-be-built facility is November 2021.
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(6)
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Private Company A real estate is based on the cost basis of various facilities constituting real estate collateral, plus anticipated capital expenditures for one facility that is being converted for cannabis cultivation purposes. The conversion is anticipated to be completed in February 2021.
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(7)
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Private Company B real estate is based on the expected total cost basis of a to-be-built facility, as completed. The anticipated completion date for the to-be-built facility is July 2021.
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(8)
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Private Company C real estate is based on the costs basis of two facilities, including the capital expenditures for one facility that is being converted for cannabis cultivation purposes. The construction of the to-be-converted facility is divided into six phases. The first phase was completed in December 2020, and the anticipated completion date for the remaining phases of construction is November 2021.
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(9)
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Subsidiary of Public Company D real estate based on total cost basis.
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(10)
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Private Company D real estate is based on appraised value.
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Type
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Description
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Payment
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Base Management Fees
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An amount equal to 0.375% of our Equity (as defined below), determined as of the last day of each quarter. The Base Management Fees are reduced by the Base Management Fee Rebate. Under no circumstances will the Base Management Fee be less than zero. Our Equity, for purposes of calculating the Base Management Fees, could be greater than or less than the amount of stockholders’ equity shown on our financial statements. The Base Management Fees are payable independent of the performance of our loan portfolio.
For additional information, see “Management Compensation—Base Management Fees.”
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Quarterly in arrears in cash.
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Base Management Fee Rebate
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An amount equal to 50% of the aggregate amount of any other fees earned and paid to our Manager during the applicable quarter resulting from the investment advisory services and general management services rendered by our Manager to us under our
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Reduces the Base Management Fees on a quarterly basis.
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Type
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Description
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Payment
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Management Agreement, including any agency fees relating to our loans, but excluding the Incentive Compensation and any diligence fees paid to and earned by our Manager and paid by third parties in connection with our Manager’s due diligence of potential loans.
For additional information, see “Management Compensation—Base Management Fees.”
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Incentive Compensation
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An amount with respect to each fiscal quarter (or portion thereof that our Management Agreement is in effect) based upon our achievement of targeted levels of Core Earnings. No Incentive Compensation is payable with respect to any fiscal quarter unless our Core Earnings for such quarter exceed the amount equal to the product of (i) 2% and (ii) Adjusted Capital (as defined below) as of the last day of the immediately preceding fiscal quarter (such amount, the “Hurdle Amount”). The Incentive Compensation for any fiscal quarter will otherwise be calculated as the sum of (i) the product of (A) 50% and (B) the amount of our Core Earnings for such quarter, if any, that exceeds the Hurdle Amount, but is less than or equal to 166-2/3% of the Hurdle Amount and (ii) the product of (A) 20% and (B) the amount of our Core Earnings for such quarter, if any, that exceeds 166-2/3% of the Hurdle Amount. Such compensation is subject to Clawback Obligations (as defined below), if any.
For additional information, see “Management Compensation—Incentive Compensation” and “Management Compensation—Incentive Compensation—Incentive Compensation Clawback.”
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Quarterly in arrears in cash.
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Expense Reimbursement
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We pay all of our costs and expenses and reimburse our Manager or its affiliates for expenses of our Manager and its affiliates paid or incurred on our behalf, excepting only those expenses that are specifically the responsibility of our Manager pursuant to our Management Agreement. Pursuant to our Management Agreement, we reimburse our Manager or its affiliates, as applicable, for our fair and equitable allocable share of the compensation, including annual base salary, bonus, any related withholding taxes and employee benefits, paid to (i) subject to review by the Compensation Committee of our Board, our Manager’s personnel serving as our Chief Executive Officer (except when the Chief Executive Officer serves as a member of the Investment Committee prior to the consummation of an internalization transaction of our Manager by us), General Counsel, Chief Compliance Officer, Chief Financial Officer, Chief Marketing Officer, Managing Director and any of our other officers, based on the percentage of his or her time spent devoted to our affairs and (ii) other corporate finance, tax, accounting, internal audit, legal, risk management, operations, compliance and other non-investment personnel of the Manager and its affiliates who spend all or a portion of their time managing our affairs, with the allocable share of the compensation of such personnel described in this clause (ii) being as reasonably determined by our Manager to appropriately reflect the amount of time spent devoted by such personnel to our affairs. The service by any personnel of our Manager and its affiliates as a member of the
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Monthly in cash.
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Type
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Description
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Payment
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Investment Committee will not, by itself, be dispositive in the determination as to whether such personnel is deemed “investment personnel” of our Manager and its affiliates for purposes of expense reimbursement. Under our Management Agreement, we are not obligated to reimburse our Manager or its affiliates, as applicable, for any compensation paid to Mr. Tannenbaum, Mr. Kalikow or Mrs. Tannenbaum prior to the consummation of this offering. For the 2021 fiscal year, we anticipate that our Manager will not seek reimbursement for our allocable share of Mr. Kalikow’s compensation, but will seek reimbursement for our allocable share of Mrs. Tannenbaum’s compensation.
For additional information, see “Management Compensation—Expense Reimbursement.”
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Termination Fee
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Equal to three times the sum of (i) the annual Base Management Fee and (ii) the annual Incentive Compensation, in each case, earned by our Manager during the 12-month period immediately preceding the most recently completed fiscal quarter prior to the date of termination. Such fee shall be payable upon termination of our Management Agreement in the event that (i) we decline to renew our Management Agreement, without cause, upon 180 days prior written notice and the affirmative vote of at least two-thirds of our independent directors that there has been unsatisfactory performance by our Manager that is materially detrimental to us taken as a whole, or (ii) our Management Agreement is terminated by our Manager (effective upon 60 days’ prior written notice) based upon our default in the performance or observance of any material term, condition or covenant contained in our Management Agreement and such default continuing for a period of 30 days after written notice thereof specifying such default and requesting that the same be remedied in such 30-day period.
For additional information, see “Management Compensation—Termination Fee.”
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Upon specified termination in cash.
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•
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Targeting loans for origination and investment that typically have the following characteristics:
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○
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principal balance greater than $10 million;
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○
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real estate collateral coverage of at least one times the principal balance;
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○
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secured by commercial real estate properties, including cannabis cultivation facilities, processing facilities, and dispensaries; and
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○
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well-capitalized sponsors with substantial experience in particular real estate sectors and geographic markets.
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•
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Diversifying our financing sources with increased access to equity and debt capital, which may provide us with a lower overall cost of funding and the ability to hold larger loan sizes, among other things.
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For the period from July 31, 2020
(date of commencement of
operations) to September 30, 2020
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Net Income
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$2,106,250
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Adjustments to net income
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Non-cash equity compensation expense
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—
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Incentive Compensation to Manager(1)
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—
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Depreciation and amortization
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—
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Unrealized (gain), losses or other non-cash items
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(1,563,800)
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One-time events pursuant to changes in GAAP and certain non-cash charges
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—
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Core Earnings
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$542,450
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Adjustments to Core Earnings
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|
Certain organizational expenses
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616,190
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Adjusted Core Earnings
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$1,158,640
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Basic weighted average shares of common stock outstanding
(in shares, on a post-split basis)
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5,376,411
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Adjusted Core Earnings per Weighted Average Share (on a post-split basis)
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$0.22
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(1)
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Our Manager has agreed to waive the Incentive Compensation for the period from July 31, 2020 (date of commencement of operations) through December 31, 2020.
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•
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We were recently formed and have limited operating history, and may not be able to successfully operate our business, integrate new assets and/or manage our growth or to generate sufficient revenue to make or sustain distributions to our stockholders.
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•
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Competition for the capital that we provide may reduce the return of our loans, which could adversely affect our operating results and financial condition.
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•
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We are externally managed by our Manager and our growth and success depends on our Manager, its key personnel and investment professionals, and our Manager’s ability to make loans on favorable terms that satisfy our investment strategy and otherwise generate attractive risk-adjusted returns; thus, if our Manager overestimates the yields or incorrectly prices the risks of our loans or if there are any adverse changes in our relationship with our Manager, we may experience losses.
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•
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We provide loans to established companies operating in the cannabis industry which involves significant risks, the risk to our business of strict enforcement against our borrowers of the federal illegality of cannabis, and such loans lack liquidity, and we could lose all or part of any of our loans.
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•
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Our ability to grow our business depends on state laws pertaining to the cannabis industry. New laws that are adverse to our borrowers may be enacted, and current favorable state or national laws or enforcement guidelines relating to cultivation, production and distribution of cannabis may be modified or eliminated in the future, which would impede our ability to grow our business under our current business plan and could materially adversely affect our business.
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•
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As a debt investor, we are often not in a position to exert influence on borrowers, and the stockholders and management of such companies may make decisions that could decrease the value of loans to such borrower.
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•
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Our growth depends on external sources of capital, which may not be available on favorable terms or at all.
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•
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Interest rate fluctuations could increase our financing costs, which could lead to a significant decrease in our results of operations, cash flows and the market value of our loans.
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•
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There are various conflicts of interest in our relationship with our Manager, including conflicts created by our Manager’s compensation arrangements with us, which could result in decisions that are not in the best interests of our stockholders.
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•
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Maintenance of our exemption from registration under the Investment Company Act may impose significant limits on our operations. Your investment return in our Company may be reduced if we are required to register as an investment company under the Investment Company Act.
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•
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We may be deemed to be “closely held” within the meaning of Section 856(a)(6) (without regard to Section 856(h)(2)) of the Code (“Closely Held”), subject to our ability to redeem certain shares of our capital stock, would result in us failing to qualify as a REIT and, subject to any required approvals by our Board and our stockholders, would trigger our dissolution and windup process.
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•
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Failure to qualify as a REIT for U.S. federal income tax purposes would cause us to be taxed as a regular corporation, which would substantially reduce funds available for distributions to our stockholders.
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•
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We may incur significant debt, and our governing documents and current credit facility contain no limit on the amount of debt we may incur.
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•
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We may in the future pay distributions from sources other than our cash flow from operations, including borrowings, offering proceeds or the sale of assets, which means we will have less funds available for investments or less income-producing assets and your overall return may be reduced.
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•
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There is currently no public market for our common stock and the value of our common stock may be volatile and could decline substantially.
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•
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an exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”);
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•
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exemption from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements;
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•
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reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and
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•
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an extended transition period to defer compliance with new or revised accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards.
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(i)
|
67,586 shares of common stock (on a pre-split basis, or 473,102 shares, on a post-split basis) expected to be reserved for future grant or issuance under our 2020 Stock Incentive Plan (after giving effect to the issuance of options referenced in clause (iii) below), which shares will automatically increase as described in “Management—2020 Stock Incentive Plan”;
|
(ii)
|
132,414 shares of common stock (on a pre-split basis, or 926,898 shares, on a post-split basis) issuable upon exercise of options outstanding as of December 26, 2020, having a weighted-average exercise price of approximately $103.59 per share; and
|
(iii)
|
up to 100,000 shares of common stock (on a pre-split basis, or 700,000 shares on a post-split basis) issuable upon exercise of options authorized as of December 26, 2020, to be issued immediately prior to the consummation of this offering at an exercise price equal to the per share price to the public in this offering on a post-split basis.
|
(i)
|
882,770 shares of common stock (on a pre-split basis, or 6,179,392 shares, on a post-split basis) outstanding as of December 26, 2020;
|
(ii)
|
the underwriters will not exercise their over-allotment option in this offering;
|
(iii)
|
no issuance or exercise of stock options on or after December 26, 2020;
|
(iv)
|
no purchases of Reserved Shares by existing stockholders or their affiliates pursuant to the indications of interest, described above or pursuant to the directed share program;
|
(v)
|
the seven-for-one stock split of our common stock, which will occur on January 25, 2021; and
|
(vi)
|
the effectiveness of our Articles of Amendment and Restatement, which will occur prior to the completion of this offering.
|
|
| |
As of and for the period from July 31,
2020 (date of commencement of
operations) to September 30, 2020
|
Statement of Operations Data:
|
| |
|
Revenue
|
| |
|
Interest Income
|
| |
$1,594,769
|
Total revenue
|
| |
1,594,769
|
|
| |
|
Expenses
|
| |
|
Management fees, net (less rebate of $84,167)
|
| |
142,067
|
General and administrative expense
|
| |
204,262
|
Organizational expense
|
| |
616,190
|
Professional fees
|
| |
89,800
|
Total expenses
|
| |
1,052,319
|
|
| |
|
Net realized and change in unrealized gains / (losses) on loans at fair value
|
| |
|
Change in unrealized gains / (losses) on loans at fair value, net
|
| |
1,563,800
|
Total net realized and change in unrealized gains / (losses) on loans at fair value
|
| |
1,563,800
|
|
| |
|
Net Income / (loss) before income taxes
|
| |
2,106,250
|
Income tax expense
|
| |
—
|
Net Income / (loss)
|
| |
2,106,250
|
|
| |
|
Earnings per common share:
|
| |
|
Basic earnings per common share (in dollars per share, on a post-split basis)
|
| |
$0.39
|
|
| |
|
Weighted average number of common shares outstanding:
|
| |
|
Basic weighted average shares of common stock outstanding (in shares, on a post-split basis)(1)
|
| |
5,376,411
|
|
| |
|
Balance Sheet Data:
|
| |
|
Total assets(1)
|
| |
$82,717,823
|
Total liabilities
|
| |
$1,862,641
|
Total stockholders’ equity(1)
|
| |
$80,855,182
|
|
| |
|
Other Financial Data:
|
| |
|
Core Earnings(1)(2)
|
| |
$542,450
|
Adjusted Core Earnings(1)(2)
|
| |
$1,158,640
|
Adjusted Core Earnings per weighted average share of common stock (on a post-split basis)(1)(2)
|
| |
$0.22
|
(1)
|
Does not give effect to the Additional Closing or the Series A Offering, the changes to our loan portfolio, the sale of Assigned Rights or the dividends to our stockholders subsequent to September 30, 2020. See “—Recent Developments” for additional information.
|
(2)
|
We use Core Earnings and Adjusted Core Earnings to evaluate our performance excluding the effects of certain transactions and non-GAAP adjustments we believe are not necessarily indicative of our current loan activity and operations. Each of Core Earnings and Adjusted Core Earnings is a measure that is not prepared in accordance with GAAP. We define Core Earnings as, for a given period, the net income (loss) computed in accordance with GAAP, excluding (i) non-cash equity compensation expense, (ii) Incentive Compensation, (iii) depreciation and amortization, (iv) any unrealized gains, losses or other non-cash items recorded in net income (loss) for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income (loss); provided that Core Earnings does not exclude, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash, and (v) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case after discussions between our Manager and our independent directors and after approval by a majority of such independent directors. We define Adjusted Core Earnings, for a specified period, as Core Earnings excluding certain non-recurring organizational expenses (such as one-time expenses related to our formation and start-up). We believe providing Core Earnings and Adjusted Core Earnings on a supplemental basis to our net income as determined in accordance with GAAP is helpful to stockholders in assessing the overall performance of our business. Core Earnings and Adjusted Core Earnings should not be considered as substitutes for GAAP net income. We caution readers that our methodology for calculating Core Earnings and Adjusted Core Earnings may differ from the methodologies employed by other REITs to calculate the same or similar supplemental performance measures, and as a result, our reported Core Earnings and Adjusted Core Earnings may not be comparable to similar measures presented by other REITs. We also use Core Earnings to determine the fees we pay our Manager. For information on the fees we pay our Manager, see “Management Compensation.” The following table provides a reconciliation of GAAP net income to Core Earnings and Adjusted Core Earnings (in thousands, except per share data):
|
|
| |
For the period from July 31, 2020
(date of commencement of
operations) to September 30, 2020
|
Net Income
|
| |
$2,106,250
|
Adjustments to net income
|
| |
|
Non-cash equity compensation expense
|
| |
—
|
Incentive Compensation to Manager(1)
|
| |
—
|
Depreciation and amortization
|
| |
—
|
Unrealized (gains), losses or other non-cash items
|
| |
(1,563,800)
|
One-time events pursuant to changes in GAAP and certain non-cash charges
|
| |
—
|
Core Earnings
|
| |
$542,450
|
Adjustments to Core Earnings
|
| |
|
Certain organizational expenses
|
| |
616,190
|
Adjusted Core Earnings
|
| |
$ 1,158,640
|
Basic weighted average shares of common stock outstanding (in shares, on a
post-split basis)
|
| |
5,376,411
|
Adjusted Core Earnings per Weighted Average Share (on a post-split basis)
|
| |
$0.22
|
(1)
|
Our Manager has agreed to waive the Incentive Compensation for the period from July 31, 2020 (date of commencement of operations) through December 31, 2020.
|
•
|
the development and growth of applicable state cannabis markets;
|
•
|
the responsibility of complying with multiple and likely conflicting state and federal laws, including with respect to retail sale, distribution, cultivation and manufacturing of cannabis, licensing, banking, and insurance;
|
•
|
unexpected changes in regulatory requirements and other laws;
|
•
|
difficulties and costs of managing operations in certain locations;
|
•
|
potentially adverse tax consequences;
|
•
|
the impact of national, regional or state specific business cycles and economic instability; and
|
•
|
access to capital may be more restricted, or unavailable on favorable terms or at all in certain locations.
|
•
|
these companies may have limited financial resources and may be unable to meet their obligations, which may be accompanied by a deterioration in the value of any collateral securing our loan and a reduction in the likelihood of us realizing a return on our loan;
|
•
|
they typically have shorter operating histories, narrower product lines and smaller market shares than larger and more established businesses, which tend to render them more vulnerable to competitors’ actions and market conditions (including conditions in the cannabis industry), as well as general economic downturns;
|
•
|
they typically depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse effect on such borrower and, in turn, on us;
|
•
|
there is generally less public information about these companies. Unless publicly traded, these companies and their financial information are generally not subject to the regulations that govern public companies, and we may be unable to uncover all material information about these companies, which may prevent us from making a fully informed lending decision and cause us to lose money on our loans;
|
•
|
they generally have less predictable operating results and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position;
|
•
|
we, our executive officers and directors and our Manager may, in the ordinary course of business, be named as defendants in litigation arising from our loans to such borrowers and may, as a result, incur significant costs and expenses in connection with such litigation;
|
•
|
changes in laws and regulations, as well as their interpretations, may have a disproportionate adverse effect on their business, financial structure or prospects compared to those of larger and more established companies; and
|
•
|
they may have difficulty accessing capital from other providers on favorable terms or at all.
|
•
|
a complete or partial closure of, or other operational issues at, one or more of our borrowers’ locations resulting from government or such company’s actions;
|
•
|
the temporary inability of consumers and patients to purchase our borrowers’ cannabis products due to a number of factors, including, but not limited to, illness, dispensary closures or limitations on operations, quarantine, financial hardship, and “stay at home” orders;
|
•
|
difficulty accessing equity and debt capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations and our borrowers’ ability to fund their business operations and meet their obligations to us;
|
•
|
workforce disruptions for our borrowers, as a result of infections, quarantines, “stay at home” orders or other factors, could result in a material reduction in our borrowers’ cannabis cultivation, manufacturing, distribution and/or sales capacity;
|
•
|
because of the federal regulatory uncertainty relating to the regulated cannabis industry, our borrowers have not been, and in the future likely will not be eligible, for financial relief available to other businesses;
|
•
|
restrictions on public events for the regulated cannabis industry limit the opportunity for our borrowers to market and sell their products and promote their brands;
|
•
|
delays in construction at the properties of our borrowers may adversely impact their ability to commence operations and generate revenues from projects;
|
•
|
a general decline in business activity in the regulated cannabis industry would adversely affect our ability to grow our portfolio of loans to cannabis companies; and
|
•
|
the potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, would result in a deterioration in our ability to ensure business continuity during a disruption.
|
•
|
general economic or market conditions;
|
•
|
the market’s view of the quality of our assets;
|
•
|
the market’s perception of our growth potential;
|
•
|
the current regulatory environment with respect to our business; and
|
•
|
our current and potential future earnings and cash distributions.
|
•
|
our cash flow from operations may be insufficient to make required payments of principal of and interest on the debt we incur or we may fail to comply with all of the other covenants contained in such debt, which is likely to result in (i) acceleration of such debt (and any other debt containing a cross-default or cross-acceleration provision) that we may be unable to repay from internal funds or to
|
•
|
we may be unable to borrow additional funds as needed or on favorable terms, or at all;
|
•
|
to the extent we borrow debt that bears interest at variable rates, increases in interest rates could materially increase our interest expense;
|
•
|
our default under any loan with cross-default provisions could result in a default on other indebtedness;
|
•
|
incurring debt may increase our vulnerability to adverse economic and industry conditions with no assurance that loan yields will increase with higher financing costs;
|
•
|
we may be required to dedicate a substantial portion of our cash flow from operations to payments on the debt we may incur, thereby reducing funds available for operations, future business opportunities, stockholder distributions, including distributions currently contemplated or necessary to satisfy the requirements for REIT qualification, or other purposes; and
|
•
|
we are not able to refinance debt that matures prior to the loan it was used to finance on favorable terms, or at all.
|
•
|
authorize our Board, without your approval, to cause us to issue additional shares of our common stock or to raise capital through the creation and issuance of our preferred stock, debt securities convertible into common stock, options, warrants and other rights, on terms and for consideration as our Board in its sole discretion may determine;
|
•
|
authorize “blank check” preferred stock, which could be issued by our Board without stockholder approval, subject to certain specified limitations, and may contain voting, liquidation, dividend and other rights superior to our common stock;
|
•
|
establish a classified Board such that not all members of the Board are elected at one time, which may delay the ability of our stockholders to change the membership of a majority of our Board;
|
•
|
specify that only our Board, the chairman of our Board, our chief executive officer or president or, upon the written request of stockholders entitled to cast not less than a majority of the votes entitled to be cast, our secretary can call special meetings of our stockholders;
|
•
|
establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our Board;
|
•
|
provide that a majority of directors then in office, even though less than a quorum, may fill any vacancy on our Board, whether resulting from an increase in the number of directors or otherwise;
|
•
|
specify that no stockholder is permitted to cumulate votes at any election of directors; and
|
•
|
provide our Board the exclusive power to adopt, alter or repeal any provision of the Bylaws and to make new Bylaws.
|
•
|
require supermajority votes of the holders of our common stock to amend specified provisions of our Charter.
|
•
|
80% of the votes entitled to be cast by holders of the then-outstanding shares of voting stock of such corporation; and
|
•
|
two-thirds of the votes entitled to be cast by holders of voting stock of such corporation, other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected, or held by an affiliate or associate of the interested stockholder.
|
•
|
we would not be allowed a deduction for distributions paid to stockholders in computing our taxable income and would be subject to U.S. federal income tax at regular corporate rates;
|
•
|
we could be subject to increased state and local taxes; and
|
•
|
unless we are entitled to relief under statutory provisions, we would not be able to re-elect to be taxed as a REIT for four taxable years following the year in which we were disqualified.
|
•
|
our actual or projected operating results, financial condition, cash flows and liquidity or changes in business strategy or prospects;
|
•
|
changes in governmental policies, regulations or laws;
|
•
|
loss of a major funding source or inability to obtain new favorable funding sources in the future;
|
•
|
equity issuances by us, or share resales by our stockholders, or the perception that such issuances or resales may occur;
|
•
|
actual, anticipated or perceived accounting or internal control problems;
|
•
|
publication of research reports about us, the real estate industry or the cannabis industry;
|
•
|
our value of the properties securing our loans;
|
•
|
changes in market valuations of similar companies;
|
•
|
adverse market reaction to any increased indebtedness we may incur in the future;
|
•
|
additions to or departures of the executive officers or key personnel supporting or assisting us from our Manager or its affiliates, including our Manager’s investment professionals;
|
•
|
speculation in the press or investment community about us or other similar companies;
|
•
|
our failure to meet, or the lowering of, our earnings estimates or those of any securities analysts;
|
•
|
increases in market interest rates, which may lead investors to demand a higher distribution yield for our common stock (if we have begun to make distributions to our stockholders) and which could cause the cost of our interest expenses on our debt to increase;
|
•
|
failure to qualify or maintain our qualification as a REIT or exclusion from the Investment Company Act;
|
•
|
price and volume fluctuations in the stock market generally; and
|
•
|
general market and economic conditions, including the state of the credit and capital markets.
|
•
|
use of proceeds of this offering;
|
•
|
our business and investment strategy;
|
•
|
the impact of COVID-19 on our business and the global economy;
|
•
|
the ability of our Manager to locate suitable loan opportunities for us, monitor and actively manage our loan portfolio and implement our investment strategy;
|
•
|
allocation of loan opportunities to us by our Manager;
|
•
|
our projected operating results;
|
•
|
actions and initiatives of the U.S. or state governments and changes to government policies and the execution and impact of these actions, initiatives and policies, including the fact that cannabis remains illegal under federal law;
|
•
|
the estimated growth in and evolving market dynamics of the cannabis market;
|
•
|
the demand for cannabis cultivation and processing facilities;
|
•
|
shifts in public opinion regarding cannabis;
|
•
|
the state of the U.S. economy generally or in specific geographic regions;
|
•
|
economic trends and economic recoveries;
|
•
|
the amount and timing of our cash flows, if any, from our loans;
|
•
|
our ability to obtain and maintain financing arrangements;
|
•
|
our expected leverage;
|
•
|
changes in the value of our loans;
|
•
|
our expected portfolio of loans;
|
•
|
our expected investment and underwriting process;
|
•
|
rates of default or decreased recovery rates on our loans;
|
•
|
the degree to which any interest rate or other hedging strategies may or may not protect us from interest rate volatility;
|
•
|
changes in interest rates and impacts of such changes on our results of operations, cash flows and the market value of our loans;
|
•
|
interest rate mismatches between our loans and our borrowings used to fund such loans;
|
•
|
the departure of any of the executive officers or key personnel supporting and assisting us from our Manager or its affiliates;
|
•
|
impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters;
|
•
|
our ability to maintain our exclusion or exemption from registration under the Investment Company Act;
|
•
|
our ability to qualify and maintain our qualification as a REIT for U.S. federal income tax purposes;
|
•
|
estimates relating to our ability to make distributions to our stockholders in the future;
|
•
|
our understanding of our competition; and
|
•
|
market trends in our industry, interest rates, real estate values, the securities markets or the general economy.
|
(1)
|
The above table provides a summary of various unfunded commitments and fully-executed, non-binding term sheets relating to current financing arrangements we intend to fund utilizing proceeds from this offering, subject to the closing of the loans subject to term sheets. Other than the unfunded commitments to existing borrowers, Public Company C, Private Company A, Private Company B and Private Company C, representing an aggregate principal amount of approximately $19.8 million, we have not entered into binding definitive commitments relating to these loans. As of December 26, 2020, we had executed non-binding term sheets in connection with three loans representing approximately $62.7 million of anticipated loan commitments and had each entered into a period of exclusivity (ranging from 45 to 60 days) with respect to such proposed loans with two of the three prospective borrowers paying us expense deposits to cover the direct costs of our due diligence and underwriting process. Subsequent to December 26, 2020, we executed a non-binding term sheet with a prospective borrower for an additional loan representing approximately $21.0 million of anticipated loan commitments. In connection with this additional fully-executed, non-binding term sheet, the prospective borrower agreed to enter into a 60-day period of exclusivity with us with respect to such proposed loan and paid us an expense deposit to cover the direct costs of our due diligence and underwriting process. We are currently completing our underwriting process and negotiating definitive loan documents for each of the four potential loan investments related to these fully-executed, non-binding term sheets. Historically, approximately 90% of our fully-executed, non-binding term sheets have converted into loans. However, these four potential loans remain subject to satisfactory completion of our underwriting and due diligence processes, definitive documentation and final approval by the Investment Committee. As a result, no assurance can be given that any of these potential loans will close on the anticipated terms or at all. If these potential loans do not close, we intend to use at least 75% of the net proceeds from this offering to originate and participate in other commercial loans to companies operating in the cannabis industry that are consistent with our investment strategy, which we would expect to have similar characteristics as the terms reflected in this table.
|
•
|
on an actual basis;
|
•
|
on a pro forma basis, giving effect to (i) the sale and issuance by us of shares of our common stock in connection with the Additional Closing for consideration of approximately $15.19 per share (on a post-split basis), after giving effect to the reallocation of organizational costs, (ii) the sale and issuance by us of shares of our Series A Preferred Stock in connection with the Series A Offering for consideration of $1,000 per share, (iii) the seven-for-one stock split of our common stock, which will occur on January 25, 2021, and (iv) the effectiveness of our Articles of Amendment and Restatement, which will occur prior to the completion of this offering;
|
•
|
on a pro forma as adjusted basis, giving effect to (i) the sale and issuance by us of shares of our common stock in connection with the Additional Closing for consideration of approximately $15.19 per share (on a post-split basis), after giving effect to the reallocation of organizational costs, (ii) the sale and issuance by us of shares of our Series A Preferred Stock in connection with the Series A Offering for consideration of $1,000 per share, (iii) the seven-for-one stock split of our common stock, which will occur on January 25, 2021, (iv) the effectiveness of our Articles of Amendment and Restatement, which will occur prior to the completion of this offering and (v) the sale and issuance by us of shares of our common stock in this offering, based upon the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us and giving effect to the use of proceeds described herein.
|
|
| |
As of September 30, 2020
|
||||||
|
| |
Actual
|
| |
Pro Forma
|
| |
Pro Forma as
Adjusted(1)
|
|
| |
(in dollars except share data)
|
||||||
Cash and cash equivalents
|
| |
$31,247,004
|
| |
$43,652,004
|
| |
|
Debt:
|
| |
|
| |
|
| |
|
Revolving Credit Facility
|
| |
—
|
| |
—
|
| |
|
Stockholders’ equity:
|
| |
|
| |
|
| |
|
Preferred stock, $0.01 par value per share: 10,000 shares authorized and no shares issued and outstanding (actual); 10,000 shares authorized and 125 shares of Series A Preferred Stock issued and outstanding (pro forma and pro forma as adjusted)
|
| |
—
|
| |
1
|
| |
|
Common stock: $0.01 par value per share: 15,000,000 shares authorized, 768,059 shares (on a pre-split basis) issued and outstanding (actual); 25,000,000 shares authorized, 6,179,392 shares issued and outstanding (pro forma); 25,000,000 shares authorized, shares issued and outstanding (pro forma as adjusted)
|
| |
7,681
|
| |
61,794
|
| |
|
Additional paid-in capital
|
| |
78,741,251
|
| |
91,092,136
|
| |
|
Accumulated earnings
|
| |
2,106,250
|
| |
2,106,250
|
| |
|
Total stockholders’ equity
|
| |
80,855,182
|
| |
93,260,182
|
| |
|
Total Capitalization
|
| |
80,855,182
|
| |
93,260,182
|
| |
|
(1)
|
Each $1.00 increase or decrease in the assumed initial public offering price of $ per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease, as applicable, the amount of
|
Assumed initial public offering price per share of our common stock
|
| |
|
| |
$
|
Historical net tangible book value per share of our common stock as of September 30, 2020 (on a post-split basis)
|
| |
$15.04
|
| |
|
Increase in net tangible book value per share of our common stock attributable to the pro forma transactions
|
| |
$0.05
|
| |
|
Increase in net tangible book value per share of our common stock attributable to this offering
|
| |
$
|
| |
|
Pro forma as adjusted net tangible book value per share of our common stock, as adjusted to give effect to the pro forma transactions and this offering
|
| |
|
| |
|
Dilution per share to new investors participating in this offering (1)
|
| |
|
| |
$
|
(1)
|
Dilution is determined by subtracting the pro forma as adjusted net tangible book value per share from the assumed initial public offering price paid by a new investor for a share of our common stock.
|
(1)
|
Number of shares in this table reflects the seven-for-one stock split of our common stock, which will occur on January 25, 2021, but does not reflect the number of shares of common stock sold to investors in connection with the Additional Closing in November 2020. Number of actual shares purchased by existing common stockholders as of September 30, 2020 was 768,059 shares.
|
|
| |
Shares Purchased
|
| |
Total Consideration
|
| |
Average
Price Per
Share
|
||||||
|
| |
Number
|
| |
Percent
|
| |
Amount
|
| |
Percent
|
| ||
Existing common stockholders as of December 26, 2020
|
| |
6,179,392(1)
|
| |
|
| |
$89,085,875(2)
|
| |
|
| |
$14.42
|
New investors
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
Total
|
| |
|
| |
|
| |
|
| |
|
| |
|
(1)
|
Number of shares in this table reflects the seven-for-one stock split of our common stock, which will occur on January 25, 2021. Number of actual shares purchased by existing stockholders as of December 26, 2020 was 882,770 shares.
|
(2)
|
Total consideration of existing common stockholders as of December 26, 2020 reflects the gross purchase price without giving effect to the reallocation of organizational costs.
|
|
| |
As of and for the period from July 31,
2020 (date of commencement of
operations) to September 30, 2020
|
|
| |
(in dollars except share data)
|
Statement of Operations Data:
|
| |
|
Revenue
|
| |
|
Interest Income
|
| |
$1,594,769
|
Total revenue
|
| |
1,594,769
|
|
| |
|
Expenses
|
| |
|
Management fees, net (less rebate of $84,167)
|
| |
142,067
|
General and administrative expense
|
| |
204,262
|
Organizational expense
|
| |
616,190
|
Professional fees
|
| |
89,800
|
Total expenses
|
| |
1,052,319
|
|
| |
|
Net realized and change in unrealized gains / (losses) on loans at fair value
|
| |
|
Change in unrealized gains / (losses) on loans at fair value, net
|
| |
1,563,800
|
Total net realized and change in unrealized gains / (losses) on loans at fair value
|
| |
1,563,800
|
|
| |
|
Net Income / (loss) before income taxes
|
| |
2,106,250
|
Income tax expense
|
| |
—
|
Net Income / (loss)
|
| |
$2,106,250
|
|
| |
|
Earnings per common share:
|
| |
|
Basic earnings per common share (in dollars per share, on a post-split basis)
|
| |
$0.39
|
|
| |
|
Weighted average number of common shares outstanding:
|
| |
|
Basic weighted average shares of common stock outstanding (in shares, on a post-split basis)(1)
|
| |
5,376,411
|
|
| |
|
Balance Sheet Data:
|
| |
|
Assets
|
| |
|
Loans held at fair value (cost of $45,539,161 net)
|
| |
$47,102,961
|
Loan receivable at carrying value (less allowance of $0 at September 30, 2020)
|
| |
3,559,156
|
Cash and cash equivalents
|
| |
31,247,004
|
Interest receivable
|
| |
783,673
|
Prepaid expenses and other assets
|
| |
25,029
|
Total assets(1)
|
| |
$82,717,823
|
|
| |
As of and for the period from July 31,
2020 (date of commencement of
operations) to September 30, 2020
|
|
| |
(in dollars except share data)
|
|
| |
|
Liabilities
|
| |
|
Interest reserve
|
| |
$1,400,000
|
Accrued management fees, net
|
| |
142,067
|
Accrued direct administrative expenses
|
| |
202,534
|
Accounts payable and other liabilities
|
| |
118,040
|
Total liabilities
|
| |
1,862,641
|
|
| |
|
Stockholders’ Equity
|
| |
|
Preferred stock, par value $0.01 per share, 10,000 shares authorized at September 30, 2020 and no shares issued and outstanding at September 30, 2020
|
| |
—
|
Common stock, par value $0.01 per share, 15,000,000 shares authorized at September 30, 2020 and 5,376,411 shares (on a post-split basis) issued and outstanding at September 30, 2020
|
| |
53,764
|
Additional paid-in-capital
|
| |
78,695,168
|
Accumulated earnings / (deficit)
|
| |
2,106,250
|
Total stockholders’ equity(1)
|
| |
80,855,182
|
Total liabilities and stockholders’ equity
|
| |
$82,717,823
|
|
| |
|
Net cash provided by / (used in) operating activities
|
| |
$(56,428)
|
Net cash provided by / (used in) investing activities
|
| |
$(642,660)
|
Net cash provided by / (used in) financing activities
|
| |
$31,946,092
|
(1)
|
Does not give effect to the Additional Closing or the Series A Offering, the changes to our portfolio investments, the sale of Assigned Rights or the dividends to our stockholders subsequent to September 30, 2020. See “Prospectus Summary—Recent Developments” for additional information.
|
•
|
organizational and offering expenses;
|
•
|
quarterly valuation expenses;
|
•
|
fees payable to third parties relating to, or associated with, making loans and valuing loans (including third-party valuation firms);
|
•
|
fees and expenses associated with investor relations and marketing efforts (including attendance at investment conferences and similar events);
|
•
|
federal and state registration fees;
|
•
|
any exchange listing fees;
|
•
|
federal, state and local taxes;
|
•
|
independent directors’ fees and expenses;
|
•
|
brokerage commissions;
|
•
|
costs of proxy statements, stockholders’ reports and notices; and
|
•
|
costs of preparing government filings, including periodic and current reports with the SEC.
|
•
|
we manage our portfolio through an interactive process with our Manager and service our self-originated loans through our Manager’s servicer;
|
•
|
we invest in a mix of floating- and fixed-rate loans to mitigate the interest rate risk associated with the financing of our portfolio;
|
•
|
we actively employ portfolio-wide and asset-specific risk measurement and management processes in our daily operations, including utilizing our Manager’s risk management tools such as software and services licensed or purchased from third-parties and proprietary analytical methods developed by our Manager; and
|
•
|
we seek to manage credit risk through our due diligence process prior to origination or acquisition and through the use of non-recourse financing, when and where available and appropriate. In addition, with respect to any particular target investment, prior to origination or acquisition our Manager’s investment team evaluates, among other things, relative valuation, comparable company analysis, supply and demand trends, shape-of-yield curves, delinquency and default rates, recovery of various sectors and vintage of collateral.
|
|
| |
As of September 30, 2020
|
|||||||||
|
| |
Fair Value(2)
|
| |
Carrying
Value(1)
|
| |
Outstanding
Principal(1)
|
| |
Weighted
Average
Remaining Life
(Years)(3)
|
Senior Term Loan
|
| |
$47,102,961
|
| |
$45,539,161
|
| |
$48,660,311
|
| |
2.7
|
Total loans held at fair value
|
| |
$47,102,961
|
| |
$45,539,161
|
| |
$48,660,311
|
| |
2.7
|
(1)
|
The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted purchase discount, deferred loan fees and loan origination costs.
|
(2)
|
Refer to footnote 12 to our financial statements titled “Fair Value.”
|
(3)
|
Weighted average remaining life is calculated based on the fair value of the loans as of September 30, 2020.
|
|
| |
Principal
|
| |
Origination
Costs and
Loan Fees
|
| |
Fair Value
|
Loans
|
| |
$46,080,604
|
| |
$(2,974,054)
|
| |
$43,106,550
|
Change in unrealized gains / (losses) on loans at fair value, net
|
| |
—
|
| |
—
|
| |
1,563,800
|
Additional funding
|
| |
2,500,000
|
| |
(320,000)
|
| |
2,180,000
|
Accretion of original issue discount
|
| |
—
|
| |
172,904
|
| |
172,904
|
PIK Interest
|
| |
79,707
|
| |
—
|
| |
79,707
|
Total loans held at fair value
|
| |
$48,660,311
|
| |
$(3,121,150)
|
| |
$47,102,961
|
|
| |
Principal
|
| |
Origination
Costs and
Loan Fees
|
| |
Carrying
Value
|
Loan receivable
|
| |
$3,700,718
|
| |
$(4,428)
|
| |
$3,696,290
|
Principal repayment of loans
|
| |
(137,340)
|
| |
—
|
| |
(137,340)
|
Accretion of original issue discount
|
| |
—
|
| |
206
|
| |
206
|
Total loans receivable at carrying value
|
| |
$3,563,378
|
| |
$(4,222)
|
| |
$3,559,156
|
|
| |
For the period from July 31, 2020
(date of commencement of
operations) to September 30, 2020
|
Net Income
|
| |
$2,106,250
|
Adjustments to net income
|
| |
|
Non-cash equity compensation expense
|
| |
—
|
Incentive Compensation to Manager (1)
|
| |
—
|
Depreciation and amortization
|
| |
—
|
Unrealized (gain), losses or other non-cash items
|
| |
(1,563,800)
|
One-time events pursuant to changes in GAAP and certain non-cash charges
|
| |
—
|
Core Earnings
|
| |
$542,450
|
|
| |
|
Adjustments to Core Earnings
|
| |
|
Certain organizational expenses
|
| |
616,190
|
Adjusted Core Earnings
|
| |
$1,158,640
|
Basic weighted average shares of common stock outstanding (in shares, on a post-split basis)
|
| |
5,376,411
|
Adjusted Core Earnings per weighted Average Share (on a post-split basis)
|
| |
$0.22
|
(1)
|
Our Manager has agreed to waive the Incentive Compensation for the period from July 31, 2020 (date of commencement of operations) through December 31, 2020.
|
|
| |
Period from
July 31,
2020 to
September 30,
2020
|
Net Income / (loss)
|
| |
$2,106,250
|
Adjustments to reconcile net income / (loss) to net cash provided by / (used in) operating activities
|
| |
(2,162,678)
|
Net cash provided by / (used in) operating activities
|
| |
(56,428)
|
Net cash provided by / (used in) investing activities
|
| |
(642,660)
|
Net cash provided by / (used in) financing activities
|
| |
31,946,092
|
Change in cash, cash equivalents and restricted cash
|
| |
$31,247,004
|
|
| |
Less than
1 year
|
| |
1-3 years
|
| |
3-5 years
|
| |
More than
5 years
|
| |
Total
|
Unfunded Commitments
|
| |
$21,561,105
|
| |
—
|
| |
—
|
| |
—
|
| |
$21,561,105
|
Total
|
| |
$21,561,105
|
| |
—
|
| |
—
|
| |
—
|
| |
$21,561,105
|
•
|
Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access.
|
•
|
Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
|
•
|
Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
|
|
| |
Restricted Stock
Options Granted
|
Non-vested
|
| |
16,474
|
Vested
|
| |
98,734
|
Forfeited
|
| |
—
|
Balance at September 30, 2020
|
| |
115,208
|
•
|
Market Drivers:
|
○
|
Increasing numbers of patients and customers purchasing cannabis in state legal programs
|
○
|
Increasing legalization of cannabis, including the recent legalization of medicinal and/or adult use cannabis, as applicable, by Arizona, Mississippi, Montana, New Jersey, and South Dakota in each of their most recent respective state elections.
|
○
|
Wide range of benefits for both medical and adult use
|
○
|
Growing medical applications
|
•
|
Market Challenges:
|
○
|
Stringent state-by-state regulation and lengthy license approval process
|
○
|
Requires significant capital expenditure and generally involves high costs and complex distribution channels
|
○
|
Large illicit market
|
•
|
Market Opportunities:
|
○
|
U.S. cannabis industry is estimated to have a total economic impact of greater than $106 billion by 2024
|
○
|
Constrained public and private equity markets including lack of access to traditional debt capital
|
•
|
The Secure and Fair Enforcement (“SAFE”) Banking Act of 2019 would allow financial institutions legally to provide services to state-licensed and compliant.
|
○
|
The HEROES Act, passed by the House of Representatives for COVID-19 relief, includes those provisions from the SAFE Banking Act.
|
•
|
The Marijuana Opportunity, Reinvestment and Expungement Act would remove cannabis entirely from the list of scheduled substances under the Controlled Substances Act and eliminate criminal penalties for manufacturing, distributing, or possessing cannabis, and among other measures would also establish certain measures for social and criminal justice and impose a federal tax on cannabis products.
|
•
|
The Strengthening the Tenth Amendment Through Entrusting States (“STATES”) Act provides that the CSA's prohibitions “shall not apply to any person acting in compliance with state law relating to the manufacture, production, possession, distribution, dispensation, administration, or delivery of marijuana.” While cannabis would remain a CSA schedule I controlled substance, the STATES Act would permit state legal cannabis activities by creating a carve-out to the CSA, which in turn would remove the risk of federal anti-money-laundering and RICO claims. The STATES Act would not fully legalize cannabis on a national level, and would allow states to continue to prohibit cannabis or limit its legality.
|
•
|
Targeting loans for origination and investment that typically have the following characteristics:
|
○
|
principal balance greater than $10 million;
|
○
|
real estate collateral coverage of at least one times the principal balance;
|
○
|
secured by commercial real estate properties, including cannabis cultivation facilities, processing facilities and dispensaries; and
|
○
|
well-capitalized sponsors with substantial experience in particular real estate sectors and geographic markets.
|
•
|
Diversifying our financing sources with increased access to equity and debt capital, which may provide us with a lower overall cost of funding and the ability to hold larger loan sizes, among other things.
|
Origination
|
Underwriting
|
Investment Committee
|
Legal Documentation and
Post-Closing
|
||||
•
|
Direct origination platform works to create enhanced yields by originating and structuring loans, as well as putting in enhanced controls
|
•
|
Disciplined underwriting process leads to a highly selective approach
|
•
|
Focused on managing credit risk through comprehensive investment review process
|
•
|
Investment team works alongside external counsel to negotiate credit agreements and collateral liens
|
|
|
|
|
|
|
|
|
•
|
Platform drives increased deal flow, which provides for improved loan selectivity
|
•
|
Potential loans are screened based on four key criteria: company profile, state dynamics, regulatory matters and real estate asset considerations
|
•
|
The Investment Committee must approve each loan before commitment papers are issued
|
•
|
Emphasis is placed on financial covenants and limitations on actions that may be adverse to lenders
|
|
|
|
|
|
|
|
|
•
|
Allows for specific portfolio construction and a focus on higher quality companies
|
•
|
Other tools that we frequently use to verify data include, but are not limited to: appraisals, quality of earnings, environmental reports, site visits, comparable company analyses and background checks
|
•
|
Members of the Investment Committee currently include: Leonard M. Tannenbaum, Jonathan Kalikow and Robyn Tannenbaum. It is intended that the Investment Committee will be expanded to five members consisting of the three current members and our to-be-named Managing Director, Portfolio Management and General Counsel
|
•
|
Portfolio is proactively managed to monitor ongoing performance, in some instances, through seats on borrowers’ boards of directors or board observer rights
|
|
|
|
|
|
|
|
|
•
|
As of December 26, 2020, we had 34 active loans in our pipeline at various stages in the diligence process, and we had passed on 185 of 229 sourced loans due to, among other reasons, lack of collateral, lack of cash flow, stage of company, no previous experience and state dynamics
|
|
|
|
|
|
|
•
|
Borrower and Operations
|
○
|
Type of operations – cultivation, processing, manufacturing and distribution
|
○
|
Mix analysis – wholesale vs. retail
|
○
|
State regulatory approval
|
○
|
Quality of management – cultivation experience and financial expertise, among other factors
|
○
|
Brand analysis – owned brands or produce for others
|
○
|
Quality control analysis – testing, operational procedures, remediation procedures
|
○
|
Construction projects – historical ability to hit budget and timeline
|
•
|
Real Estate and Structure
|
○
|
Type of cultivation (outdoor, greenhouse, indoor), processing capabilities, and distribution abilities
|
○
|
Size, construction, and suitability of the facility
|
○
|
Total land and hard/soft costs analysis to determine total basis and estimate replacement costs
|
○
|
Visual and/or physical site visit to inspect the land, facilities, and specific systems in use
|
○
|
Real estate metrics:
|
•
|
Loan to Cost
|
•
|
Loan to Value (appraised for cannabis use)
|
•
|
Loan to Value (alternative use)
|
•
|
State by State Analysis
|
○
|
Legislative environment of every state a company operates in
|
○
|
Probability analysis of legislative changes in each state
|
○
|
Growing conditions and seasonality within the state
|
○
|
Local planning and permits
|
○
|
Current political climate and importance of cannabis
|
○
|
License dynamics – number and type (vertical, single)
|
•
|
Loan Analysis
|
○
|
Loan size and capital structure overview – current and pro forma
|
○
|
Loan economics – interest rate, OID, exit fees, prepayment penalties, etc.
|
○
|
Loan security – real estate, licenses, parent and/or subsidiary guarantees, cash flow, trademarks, etc.
|
○
|
Thorough covenant analysis and remedies to breach
|
○
|
Review of the agent and participants in the syndication process
|
○
|
Risks and mitigants of the loan – credit risk, business risk, structure risk, etc.
|
○
|
If the borrower offers us an Assigned Right to acquire warrants and/or equity of the borrower as part of the consideration for us to provide a loan to such borrower, we will sell the Assigned Right to a third-party buyer on the market or to one of our affiliates, subject to such affiliate’s separate approval process and our related transactions policy.
|
•
|
Financial Analysis and Metrics
|
○
|
Historical and projected cash flow analysis
|
○
|
Capital structure analysis – current and pro forma for the loan
|
○
|
Loans are structured with covenants such as maximum leverage ratio, debt service coverage ratio, fixed charge coverage ratio, minimum EBITDA, and minimum cash
|
○
|
Cost per gram of the product
|
○
|
Full financial model – vertically integrated, wholesaler, distributor, etc.
|
•
|
License Analysis
|
○
|
Fully examine the licenses owned in each state
|
○
|
Review the licenses under application in each state
|
○
|
Evaluate the transferability of license(s) held by the company
|
○
|
Analyze the valuation and marketplace for licenses in each state
|
•
|
Appraisal. An independent appraisal, or an update of an independent appraisal, that meets the requirements of the “Uniform Standards of Professional Appraisal Practice” as adopted by the Appraisal Standards Board of the Appraisal Foundation, or the guidelines in Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, is generally required in connection with the origination or acquisition of each loan. In some cases, however, the value of the subject property collateral may be established based on total cost basis, a cash flow analysis, a recent sales price or another method or benchmark of valuation, without reference to any appraisal report.
|
•
|
Environmental Assessment. A Phase I environmental assessment is performed by a qualified third- party consultant to identify and evaluate potential environmental issues in connection with the subject property collateral. Depending on the findings of the initial environmental assessment, any of the following may be required: additional environmental testing and review, such as a Phase II environmental assessment with respect to the property; an environmental insurance policy; remediation activities; the establishment of an operations and maintenance plan by the borrower; and/or a guaranty or reserve with respect to environmental matters. If a Phase I or Phase II report already exists from a qualified consultant, we may utilize the information in that report along with a reliance letter from the consultant who performed the report.
|
•
|
Engineering Assessment. In general, our Manager requires that an engineering firm inspect the subject property collateral to assess the structure, exterior walls, roofing, interior structure, parking, fire suppression systems, ADA compliance, and/or mechanical and electrical systems. Based on the resulting report, our Manager determines the appropriate response, which may include, but is not limited to, modifications to the contemplated loan terms, or additional reserve requirements for any recommended immediate repairs, corrections or replacements and any identified deferred maintenance.
|
•
|
Seismic Report. For investments in geographic regions that are known to be seismically active, we may retain third-party consultants to determine if earthquake insurance is required and, if required, the appropriate amount for the asset and situation.
|
•
|
Insurance. The borrower is required to provide to us evidence of, and our Manager typically reviews (with the assistance of both counsel and an independent insurance consultant), various forms of insurance, including: (i) title insurance insuring the lien of the subject property collateral; (ii) casualty insurance; (iii) flood insurance, if applicable and available; and (iv) business interruption or rent loss insurance. In addition, our Manager typically requires the borrower to maintain comprehensive general liability insurance against claims for personal and bodily injury, death or property damage occurring on, in or about the property in an amount customarily required by institutional lenders
|
(1)
|
All loans originated prior to July 31, 2020 were purchased from an affiliated entity at fair value plus accrued interest on July 31, 2020.
|
(2)
|
Loans originated before July 31, 2020 were acquired by us, net of unaccreted OID, which we accrete to income over the remaining term of the loan.
|
(3)
|
Assumes no prepayment penalties or early payoffs.
|
(4)
|
On December 28, 2020, this loan was repaid in full by Public Company B at par value.
|
(5)
|
Loan to Subsidiary of Public Company C includes a $3.0 million initial funding of a $15.0 million aggregate loan commitment, which has interest that includes 3.0% PIK interest. The amortization of the loan exceeds PIK interest. The loan also includes two early advances totaling $9.0 million against the $15.0 million aggregate loan commitment, with a 19.0% interest rate. Statistics shown are for the $15.0 million loan commitment, except the weighted average interest rate, which is based on the weighted average interest rate as of December 26, 2020.
|
(6)
|
Loan to Subsidiary of Public Co. D does not reflect the borrower's option to request a maturity extension for an additional 364 days from the original loan maturity date, which we are not obligated to grant.
|
(7)
|
YTM IRR for Public Company A, subsidiary of Public Company C, Private Company A and Private Company D is enhanced by purchase discounts attributed to the fair value of equity warrants that were separated from the loans prior to our acquisition of such loans. The purchase discounts accrete to income over the respective remaining terms of such loans.
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Real Estate
|
| |
|
|||||||||
Borrower
|
| |
Date
|
| |
Our
Total
Commitment
|
| |
Percentage
of
Total
Portfolio
|
| |
Total
Funded
Debt
Issuance
|
| |
Our
Percentage
of the
Total Loan
|
| |
Estimated
Real
Estate
Value(1)
|
| |
Real Estate
Collateral
Coverage
|
| |
Implied Real
Estate
Collateral
|
| |
Our
Real
Estate
Collateral
Coverage
|
| |
|
Public Co. A - Real Estate Loan(2)
|
| |
7/3/2019
|
| |
$2,940,000
|
| |
2.6%
|
| |
$30,000,000
|
| |
9.8%
|
| |
$72,000,000
|
| |
2.40x
|
| |
$7,056,000
|
| |
2.40x
|
| ||
Public Co. A - Equipment Loan
|
| |
8/5/2019
|
| |
$4,000,000
|
| |
3.5%
|
| |
$20,000,000
|
| |
20.0%
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| ||
Public Co. B(3)(4)
|
| |
1/31/2020
|
| |
$5,000,000
|
| |
4.4%
|
| |
$20,000,000
|
| |
25.0%
|
| |
$53,100,000
|
| |
2.66x
|
| |
$13,275,000
|
| |
2.66x
|
| ||
Subsidiary of Public Co. C(5)
|
| |
2/12/2020
|
| |
$15,000,000
|
| |
13.3%
|
| |
$15,000,000
|
| |
100.0%
|
| |
$30,723,143
|
| |
2.05x
|
| |
$30,723,143
|
| |
2.05x
|
| ||
Private Co. A(6)
|
| |
5/8/2020
|
| |
$34,000,000
|
| |
30.1%
|
| |
$42,500,000
|
| |
80.0%
|
| |
$51,384,281
|
| |
1.21x
|
| |
$41,107,425
|
| |
1.21x
|
| ||
Private Co. B(7)
|
| |
9/10/2020
|
| |
$8,000,000
|
| |
7.1%
|
| |
$8,000,000
|
| |
100.0%
|
| |
$19,536,098
|
| |
2.44x
|
| |
$19,536,098
|
| |
2.44x
|
| ||
Private Co. C(8)
|
| |
11/5/2020
|
| |
$22,000,000
|
| |
19.5%
|
| |
$22,000,000
|
| |
100.0%
|
| |
$23,733,032
|
| |
1.08x
|
| |
$23,733,032
|
| |
1.08x
|
| ||
Subsidiary of Public Co. D(9)
|
| |
12/18/2020
|
| |
$10,000,000
|
| |
8.9%
|
| |
$120,000,000
|
| |
8.3%
|
| |
$26,058,332
|
| |
0.22x
|
| |
$2,171,528
|
| |
0.22x
|
| ||
Private Co. D(10)
|
| |
12/23/2020
|
| |
$12,000,000
|
| |
10.6%
|
| |
$12,000,000
|
| |
100.0%
|
| |
$7,500,000
|
| |
0.63x
|
| |
$7,500,000
|
| |
0.63x
|
| ||
|
| |
|
| |
$112,940,000
|
| |
100.0%
|
| |
$289,500,000
|
| |
39.0%
|
| |
$284,034,885
|
| |
0.98x
|
| |
$145,102,225
|
| |
1.28x
|
| ||
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
(1)
|
To the extent the applicable loan is intended to fund any acquisitions and/or construction, the applicable figure includes expected total basis on such future construction and/or acquisitions plus appraised value.
|
(2)
|
Public Company A real estate is based on cost basis.
|
(3)
|
Public Company B real estate is based on cost basis.
|
(4)
|
On December 28, 2020, this loan was repaid in full by Public Company B at par value.
|
(5)
|
Subsidiary of Public Company C real estate is based on an existing cultivation property and the completed and stabilized value of a to-be-built facility. The anticipated completion date for the to-be-built facility is November 2021.
|
(6)
|
Private Company A real estate is based on the costs basis of various facilities constituting real estate collateral, plus anticipated capital expenditures for one facility that is being converted for cannabis cultivation purposes. The conversion is anticipated to be completed in February 2021.
|
(7)
|
Private Company B real estate is based on the expected total cost basis of a to-be-built facility, as completed. The anticipated completion date for the to-be-built facility is July 2021.
|
(8)
|
Private Company C real estate is based on the cost basis of two facilities, including the capital expenditures for one facility that is being converted for cannabis cultivation purposes. The construction of the to-be-converted facility is divided into six phases. The first phase was completed in December 2020, and the anticipated completion date for the remaining phases of construction is November 2021.
|
(9)
|
Subsidiary of Public Company D real estate based on total cost basis.
|
(10)
|
Private Company D real estate is based on appraised value.
|
Directors and Executive Officers
|
| |
Age
|
| |
Position/Title
|
Thomas L. Harrison
|
| |
73
|
| |
Lead Independent Director (Class I)
|
Leonard M. Tannenbaum
|
| |
49
|
| |
Chief Executive Officer, Chairman and Director (Class I)
|
Jonathan Kalikow
|
| |
50
|
| |
Head of Real Estate and Director (Class II)
|
Robert Levy
|
| |
55
|
| |
Independent Director (Class II)
|
Jodi Hanson Bond
|
| |
50
|
| |
Independent Director (Class II)
|
Alexander C. Frank
|
| |
62
|
| |
Independent Director (Class III)
|
Tomer J. Tzur
|
| |
49
|
| |
Independent Director (Class III)
|
Thomas Geoffroy
|
| |
46
|
| |
Chief Financial Officer and Treasurer
|
Robyn Tannenbaum
|
| |
35
|
| |
Managing Director, Origination, Investor Relations and Marketing
|
•
|
Class I, consisting of Mr. Harrison and Mr. Tannenbaum, with initial terms expiring at the annual meeting of stockholders to be held in 2021;
|
•
|
Class II, consisting of Mr. Kalikow, Mr. Levy and Ms. Bond, with initial terms expiring at the annual meeting of stockholders to be held in 2022; and
|
•
|
Class III, consisting of Mr. Frank and Mr. Tzur, with initial terms expiring at the annual meeting of stockholders to be held in 2023.
|
•
|
the integrity of our financial statements;
|
•
|
the qualifications and independence of any independent registered public accounting firm engaged by us;
|
•
|
the performance of our internal audit function (to the extent such function is required by applicable rules and regulations) and any independent registered public accounting firm;
|
•
|
the determination of the fair value of assets that are not publicly traded or for which current market values are not readily available; and
|
•
|
the entry and monitoring of related party transactions.
|
•
|
discharging the Board’s responsibilities relating to the compensation, if any, of our executive officers and directors;
|
•
|
overseeing the expense reimbursement of our Manager and its affiliates for compensation paid by such entities to their respective employees pursuant to our Management Agreement;
|
•
|
administering and implementing our incentive and equity-based compensation plans, including the 2020 Stock Incentive Plan; and
|
•
|
preparing reports on or relating to executive compensation required by the rules and regulations of the SEC.
|
•
|
identifying individuals to become members of the Board, consistent with the procedures and selection criteria established by the Nominating and Corporate Governance Committee;
|
•
|
periodically reviewing the size and composition of the Board and recommending to the Board such modifications to its size and/or composition as are determined by the Nominating and Corporate Governance Committee to be necessary or desirable;
|
•
|
recommending to the Board the director nominees for the next annual meeting of stockholders;
|
•
|
recommending to the Board individuals to fill vacant Board positions;
|
•
|
recommending to the Board committee appointments and chairpersons;
|
•
|
developing and recommending to the Board a set of corporate governance principles, a Code of Business Conduct and Ethics and related corporation policies, practices and procedures;
|
•
|
periodically reviewing and recommending to the Board updates to our corporate governance principles, Code of Business Conduct and Ethics and related corporation policies, practices and procedures;
|
•
|
monitoring the Corporation's compliance with applicable corporate governance requirements; and
|
•
|
overseeing an annual evaluation of the Board, its committees and individual directors.
|
•
|
honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
|
•
|
full, fair, accurate, timely and understandable disclosure in our SEC reports and other public communications;
|
•
|
compliance with applicable laws, rules and regulations;
|
•
|
prompt internal reporting of violations of the code of business conduct and ethics or applicable laws to appropriate persons identified in the code;
|
•
|
accountability for adherence to the code of business conduct and ethics;
|
•
|
the protection of our legitimate interests, including its assets and corporate opportunities; and
|
•
|
confidentiality of information entrusted to directors, officers and employees, if any, by us and our borrowers.
|
•
|
any present or former director or officer who is made or threatened to be made a party to, or witness in, a proceeding by reason of his or her service in that capacity; or
|
•
|
any individual who, while a director or officer of our Company and at our request, serves or has served as a director, officer, partner, trustee, member or manager of another corporation, real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity.
|
Name and Principal Position
|
| |
Year
|
| |
Salary
($)
|
| |
Bonus
($)
|
| |
Stock
Awards
($)
|
| |
Option
Awards
($)
|
| |
Non-Equity
Incentive Plan
Compensation
($)
|
| |
Nonqualified
Deferred
Compensation
Earnings ($)
|
| |
All Other
Compensation
($)
|
| |
Total
($)
|
Thomas Geoffroy(1)(2)
|
| |
2020
|
| |
$18,750
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
—
|
| |
$18,750
|
(Chief Financial Officer)
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
(1)
|
Mr. Geoffroy is an employee of our Manager and is not paid compensation by us. Amounts in the column entitled “Salary” represent the compensation expense, which consists of annual base salary, that is allocable to us based on the percentage of time he spent devoted to our affairs in 2020 in his capacity as Chief Financial Officer.
|
(2)
|
Mr. Geoffroy was granted a total of 3,090 options (on a pre-split basis, or 21,630 options, on a post-split basis), but the grant date fair market value of these awards were estimated at zero dollars per share. Mr. Geoffroy will be granted up to an additional 500 options (on a pre-split basis, or 3,500 options, on a post-split basis) immediately prior to the consummation of this offering.
|
Type
|
| |
Description
|
| |
Payment
|
Base Management Fees
|
| |
An amount equal to 0.375% of our Equity (as defined below), determined as of the last day of each quarter. The Base Management Fees are reduced by the Base Management Fee Rebate. Under no circumstances will the Base Management Fee be less than zero. Our Equity, for purposes of calculating the Base Management Fees, could be greater than or less than the amount of stockholders’ equity shown on our financial statements. The Base Management Fees are payable independent of the performance of our loan portfolio.
For additional information, see “—Base Management Fees.”
|
| |
Quarterly in arrears in cash.
|
|
| |
|
| |
|
Base Management Fee Rebate
|
| |
An amount equal to 50% of the aggregate amount of any other fees earned and paid to our Manager during the applicable quarter resulting from the investment advisory services and general management services rendered by our Manager to us under our Management Agreement, including any agency fees relating to our loans, but excluding the Incentive Compensation and any diligence fees paid to and earned by our Manager and paid by third parties in connection with our Manager’s due diligence of potential loans.
For additional information, see “—Base Management Fees.”
|
| |
Reduces the Base Management Fees on a quarterly basis.
|
|
| |
|
| |
|
Incentive Compensation
|
| |
An amount with respect to each fiscal quarter (or portion thereof that our Management Agreement is in effect) based upon our achievement of targeted levels of Core Earnings. No Incentive Compensation is payable with respect to any fiscal quarter unless our Core Earnings for such quarter exceed the amount equal to the product of (i) 2% and (ii) Adjusted Capital (as defined below) as of the last day of the immediately preceding fiscal quarter (such amount, the “Hurdle Amount”). The Incentive Compensation for any fiscal quarter will otherwise be calculated as the sum of (i) the product of (A) 50% and (B) the amount of our Core Earnings for such quarter, if any, that exceeds the Hurdle Amount, but is less than or equal to 166-2/3% of the Hurdle Amount and (ii) the product of (A) 20% and (B) the amount of our Core Earnings for such quarter, if any, that exceeds 166-2/3% of the Hurdle Amount. Such compensation is subject to Clawback Obligations (as defined below), if any.
For additional information, see “—Incentive Compensation” and “—Incentive Compensation—Incentive Compensation Clawback.”
|
| |
Quarterly in arrears in cash.
|
|
| |
|
| |
|
Expense Reimbursement
|
| |
We pay all of our costs and expenses and reimburse our Manager or its affiliates for expenses of our Manager and its affiliates paid or incurred on our behalf, excepting only those expenses that are specifically the responsibility of our Manager pursuant to our Management Agreement. Pursuant to our Management Agreement, we reimburse our Manager or its affiliates, as applicable, for our fair and equitable allocable share of the compensation, including annual
|
| |
Monthly in cash.
|
Type
|
| |
Description
|
| |
Payment
|
|
| |
base salary, bonus, any related withholding taxes and employee benefits, paid to (i) subject to review by the Compensation Committee of our Board, our Manager’s personnel serving as our Chief Executive Officer (except when the Chief Executive Officer serves as a member of the Investment Committee prior to the consummation of an internalization transaction of our Manager by us), General Counsel, Chief Compliance Officer, Chief Financial Officer, Chief Marketing Officer, Managing Director and any of our other officers, based on the percentage of his or her time spent devoted to our affairs and (ii) other corporate finance, tax, accounting, internal audit, legal, risk management, operations, compliance and other non-investment personnel of the Manager and its affiliates who spend all or a portion of their time managing our affairs, with the allocable share of the compensation of such personnel described in this clause (ii) being as reasonably determined by our Manager to appropriately reflect the amount of time spent devoted by such personnel to our affairs. The service by any personnel of our Manager and its affiliates as a member of the Investment Committee will not, by itself, be dispositive in the determination as to whether such personnel is deemed “investment personnel” of our Manager and its affiliates for purposes of expense reimbursement. Under our Management Agreement, we are not obligated to reimburse our Manager or its affiliates, as applicable, for any compensation paid to Mr. Tannenbaum, Mr. Kalikow or Mrs. Tannenbaum prior to the consummation of this offering. For the 2021 fiscal year, we anticipate that our Manager will not seek reimbursement for our allocable share of Mr. Kalikow’s compensation, but will seek reimbursement for our allocable share of Mrs. Tannenbaum’s compensation.
For additional information, see “—Expense Reimbursement.”
|
| |
|
|
| |
|
| |
|
Termination Fee
|
| |
Equal to three times the sum of (i) the annual Base Management Fee and (ii) the annual Incentive Compensation, in each case, earned by our Manager during the 12-month period immediately preceding the most recently completed fiscal quarter prior to the date of termination. Such fee shall be payable upon termination of our Management Agreement in the event that (i) we decline to renew our Management Agreement, without cause, upon 180 days prior written notice and the affirmative vote of at least two-thirds of our independent directors that there has been unsatisfactory performance by our Manager that is materially detrimental to us taken as a whole, or (ii) our Management Agreement is terminated by our Manager (effective upon 60 days’ prior written notice) based upon our default in the performance or observance of any material term, condition or covenant contained in our Management Agreement and such default continuing for a period of 30 days after written notice thereof specifying such default and requesting that the same be remedied in such 30-day period.
For additional information, see “—Termination Fee.”
|
| |
Upon specified termination in cash.
|
|
| |
For the period from July 31, 2020
(date of commencement of operations)
to September 30, 2020(1)
|
Gross Base Management Fee
|
| |
$226,234
|
Base Management Fee Rebate(2)
|
| |
84,167
|
Base Management Fees
|
| |
$142,067
|
Incentive Compensation(3)
|
| |
$—
|
Expense Reimbursement
|
| |
$165,434
|
Total
|
| |
$307,501
|
(1)
|
Does not reflect the amendment and restatement to our Management Agreement, which will occur upon consummation of this offering. Upon consummation of this offering, our Management Agreement shall be amended and restated such that (A) the Base Management Fees (i) shall be in an amount equal to 0.375% of our Equity, determined as of the last day of each quarter, and (ii) will be reduced by only 50% of the aggregate amount of any applicable Outside Fees counted toward the Base Management Fee Rebate; and (B) the Hurdle Amount used in calculating the Incentive Compensation will equal the product of (i) 2% and (ii) Adjusted Capital as of the last day of the immediately preceding fiscal quarter.
|
(2)
|
For the period from July 31, 2020 (date of commencement of operations) to September 30, 2020, our Base Management Fee was reduced by a Base Management Fee Rebate equal to 100% of the aggregate amount of any other fees earned and paid to our Manager during the applicable period resulting from the investment advisory services and general management services rendered by it to us under our Management Agreement, including any syndication, structuring, diligence, monitoring or agency fees relating to our loans, but excluding the Incentive Compensation. Upon the consummation of this offering, the Management Agreement will be amended and restated such that the Base Management Fee Rebate will only equal 50% of the aggregate any Outside Fees, including any agency fees relating to our loans, but excluding the Incentive Compensation and any diligence fees paid to and earned by the Manager and paid by third parties in connection with the Manager's due diligence of potential loans. Syndication fees include any advisory fees paid by a borrower to our Manager up front to arrange and distribute a loan to a syndicate group of lenders. Structuring fees are fees owed by a borrower to our Manager as consideration, in part, for our Manager’s assistance to such borrower in structuring the loan transaction. Monitoring fees include any fees a borrower may pay our Manager for ongoing management and advisory services after the closing of a loan. Agency fees include any fees earned, typically annually, by our Manager for its performance as the administrative agent on behalf of the lenders of a loan and for acting as an intermediary between the borrower of such loan and its lenders. Administrative agent duties typically involve, among other things, maintaining the loan register, calculating principal amortization, fees and interest, sending payment notices, facilitating borrowings, collecting payments from the borrower, preparing remittance advice, and collecting compliance materials from the borrower. If our Manager were to receive syndication fees, structuring fees, monitoring fees and/or agency fees with respect to a loan that we originate or acquire, then only the portion of those fees attributable to our portion of such loan would be included in the Base Management Fee Rebate calculation. Diligence fees include any fees paid by a borrower to our Manager for performing investment due diligence on such borrower and are separate from any reimburse obligations owed by such borrower to our Manager for third-party expenses associated with its due diligence process (which may from time to time include allocated portions of costs and miscellaneous expenses such as travel, lodging, meals, meetings, dues and subscriptions, supplies and
|
(3)
|
Our Manager has agreed to waive the Incentive Compensation for the period from July 31, 2020 (date of commencement of operations) through December 31, 2020.
|
•
|
we issue approximately $ million of our common stock in this offering, with net proceeds to us of approximately $ million, after deducting underwriting discounts and commissions and other estimated offering expenses payable by us, based on an assumed initial public offering price of $ per share, which is the mid-point of the estimated offering price range set forth on the front cover of this prospectus (or approximately $ million if the underwriters exercise their over-allotment option in full);
|
•
|
we distribute all of our net income to holders of our common stock;
|
•
|
our Manager does not earn or receive any fees for the 12 months following this offering resulting from the investment advisory services and general management services rendered by it to us under our Management Agreement, including any agency fees relating to our loans, but excluding the Incentive Compensation and any diligence fees paid to and earned by the Manager and paid by third parties in connection with the Manager’s due diligence of potential loans;
|
•
|
there are no unrealized gains or losses, other non-cash items that have impacted stockholders’ equity, or one-time events pursuant to changes in GAAP, in each case during the 12 months following this offering; and
|
•
|
we do not repurchase or sell any shares of our capital stock during the 12 months following this offering.
|
•
|
“Adjusted Capital” means the sum of (i) cumulative gross proceeds generated from issuances of the shares of our capital stock (including any distribution reinvestment plan), less (ii) distributions to our investors that represent a return of capital and amounts paid for share repurchases pursuant to any share repurchase program.
|
•
|
“Core Earnings” means, for a given period, the net income (loss) for such period, computed in accordance with GAAP, excluding (i) non-cash equity compensation expense, (ii) Incentive Compensation, (iii) depreciation and amortization, (iv) any unrealized gains or losses or other non-cash items that are included in net income for the applicable reporting period, regardless of whether such items are included in other comprehensive income or loss, or in net income and (v) one-time events pursuant to changes in GAAP and certain non-cash charges, in each case as determined after discussions between our Manager and our independent directors and approval by a majority of our independent directors. For the avoidance of doubt, Core Earnings shall not exclude under clause (iv) above, in the case of investments with a deferred interest feature (such as OID, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash.
|
•
|
Adjusted Capital as of the last day of the immediately preceding fiscal quarter of $100 million; and
|
•
|
Core Earnings before the Incentive Compensation for the specified quarter representing a quarterly yield of 20.9% on Adjusted Capital as of the last day of the immediately preceding fiscal quarter.
|
|
| |
|
| |
Illustrative
Amount
|
| |
Calculation
|
1.
|
| |
What are the Core Earnings?
|
| |
$5,225,000
|
| |
Assumed to be a 5.2% quarterly or 20.9% per annum return on Adjusted Capital as of the last day of the immediately preceding fiscal quarter ($100 million).
|
|
| |
|
| |
|
| |
|
2.
|
| |
What is the Hurdle Amount?
|
| |
$2,000,000
|
| |
The hurdle rate (2.0% quarterly or 8.0% per annum) multiplied by Adjusted Capital as of the last day of the immediately preceding fiscal quarter ($100 million).
|
|
| |
|
| |
|
| |
|
3.
|
| |
What is the Catch-Up Amount?
|
| |
$666,667
|
| |
The catch-up incentive rate (50.0%) multiplied by the amount that Core Earnings ($5.2 million) exceeds the Hurdle Amount ($2 million), but is less than or equal to 166-2/3% of the Hurdle Amount (approximately $3.3 million).
|
|
| |
|
| |
|
| ||
4.
|
| |
What is the Excess Earnings Amount?
|
| |
$378,333
|
| |
The excess earnings incentive rate (20%) multiplied by the amount of Core Earnings ($5.2 million) that exceeds 166-2/3% of the Hurdle Amount (approximately $3.3 million).
|
|
| |
|
| |
|
| |
|
5.
|
| |
What is the Incentive Compensation?
|
| |
$1,045,000
|
| |
The sum of the Catch-Up Amount (approximately $666,667) and the Excess Earnings Amount (approximately $378,333).
|
•
|
each person known by us to beneficially own 5% or more of the outstanding shares of our common stock;
|
•
|
each member of our Board upon the consummation of this offering;
|
•
|
all of our current directors and executive officers as a group; and
|
•
|
the members of our Board upon the consummation of this offering and our executive officers as a group.
|
|
| |
Shares
Beneficially
Owned Before
Offering
|
| |
Shares
Beneficially
Owned After
Offering
Assuming No
Exercise of the
Underwriters’
Option
|
| |
Shares
Beneficially
Owned After
Offering
Assuming Full
Exercise of the
Underwriters’
Option
|
|||||||||
Name of Beneficial Owner
|
| |
Shares
|
| |
%
|
| |
Shares
|
| |
%
|
| |
Shares
|
| |
%
|
5% Stockholders:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Leonard M. Tannenbaum(1)
|
| |
4,749,458
|
| |
62.6%
|
| |
|
| |
|
| |
|
| |
|
Gamma Lending Holdco LLC(2)
|
| |
668,500
|
| |
10.8%
|
| |
|
| |
|
| |
|
| |
|
AFCG RM1, LLC(3)
|
| |
531,615
|
| |
8.6%
|
| |
|
| |
|
| |
|
| |
|
Miramar Group LLC(4)
|
| |
334,250
|
| |
5.4%
|
| |
|
| |
|
| |
|
| |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Directors and Executive Officers:
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
Leonard M. Tannenbaum(1)
|
| |
4,749,458
|
| |
62.6%
|
| |
|
| |
|
| |
|
| |
|
Jonathan Kalikow(2)
|
| |
668,500
|
| |
10.8%
|
| |
|
| |
|
| |
|
| |
|
Thomas L. Harrison(5)
|
| |
11,428
|
| |
*
|
| |
|
| |
|
| |
|
| |
|
Tomer J. Tzur(6)
|
| |
7,939
|
| |
*
|
| |
|
| |
|
| |
|
| |
|
Alexander C. Frank(7)
|
| |
8,085
|
| |
*
|
| |
|
| |
|
| |
|
| |
|
Jodi Hanson Bond(8)
|
| |
11,208
|
| |
*
|
| |
|
| |
|
| |
|
| |
|
Thomas Geoffroy
|
| |
3,269
|
| |
*
|
| |
|
| |
|
| |
|
| |
|
Robert Levy(9)
|
| |
1,400
|
| |
*
|
| |
|
| |
|
| |
|
| |
|
Robyn Tannenbaum(10)
|
| |
34,160
|
| |
*
|
| |
|
| |
|
| |
|
| |
|
All directors and executive officers as a group (9 persons)
|
| |
5,495,447
|
| |
72.0%
|
| |
|
| |
|
| |
|
| |
|
(*)
|
Represents beneficial ownership of less than 1%.
|
(1)
|
Includes (i) 3,342,500 shares of common stock, (ii) 776,958 shares of common stock which Mr. Tannenbaum has the right to acquire pursuant to outstanding and vested stock options that will be exercisable upon the consummation of this offering and (iii) up to 630,000 shares of common stock which Mr. Tannenbaum will have the right to acquire pursuant to stock options that will be granted immediately prior to the consummation of this offering and will become vested upon such grant and exercisable upon consummation of this offering.
|
(2)
|
Gamma Lending Holdco LLC is a Delaware limited partnership (“GLO”), whose sole General Partner is GRE Lending Opportunities LLC, a Delaware limited liability company (“GLO GP”). GLO GP is a wholly owned subsidiary of Gamma Real Estate LLC (“GRE”), Jonathan Kalikow owns 50% of the economic and voting interests in GRE and N. Richard Kalikow, father of Jonathan Kalikow, owns the remaining 50% of the economic and voting interests of GRE.
|
(3)
|
AFCG RM1, LLC is a Delaware limited liability company and Gabriel Katz, our Director of Legal and an employee of our Manager, serves as its manager. There are approximately 85 members of AFCG RM1, LLC, each of whom beneficially own less than 1% of the shares of our common stock. Mr. Katz disclaims beneficial ownership of those shares.
|
(4)
|
Miramar Group, LLC is a Florida limited liability company whose sole beneficial owner is Frank Rodriguez.
|
(5)
|
Includes (i) 10,028 shares of common stock and (ii) 700 shares of common stock which Mr. Harrison has the right to acquire pursuant to outstanding and vested stock options that will be exercisable upon the consummation of this offering and (iii) up to 700 shares of common stock which Mr. Harrison will have the right to acquire pursuant to stock options that will be granted immediately prior to the consummation of this offering and will become vested upon such grant and exercisable upon consummation of this offering.
|
(6)
|
Includes (i) 6,539 shares of common stock and (ii) 700 shares of common stock which Mr. Tzur has the right to acquire pursuant to outstanding and vested stock options that will be exercisable upon the consummation of this offering and (iii) up to 700 shares of common stock which Mr. Tzur will have the right to acquire pursuant to stock options that will be granted immediately prior to the consummation of this offering and will become vested upon such grant and exercisable upon consummation of this offering.
|
(7)
|
Includes (i) 6,685 shares of common stock and (ii) 700 shares of common stock which Mr. Frank has the right to acquire pursuant to outstanding and vested stock options that will be exercisable upon the consummation of this offering and (iii) up to 700 shares of common stock which Mr. Frank will have the right to acquire pursuant to stock options that will be granted immediately prior to the consummation of this offering and will become vested upon such grant and exercisable upon consummation of this offering.
|
(8)
|
Includes (i) 9,808 shares of common stock and (ii) 700 shares of common stock which Ms. Bond has the right to acquire pursuant to outstanding and vested stock options that will be exercisable upon the consummation of this offering and (iii) up to 700 shares of common stock which Ms. Bond will have the right to acquire pursuant to stock options that will be granted immediately prior to the consummation of this offering and will become vested upon such grant and exercisable upon consummation of this offering.
|
(9)
|
Includes the up to 1,400 shares of common stock which Mr. Levy will have the right to acquire pursuant to stock options that will be granted immediately prior to the consummation of this offering and will become vested upon such grant and exercisable upon consummation of this offering.
|
(10)
|
Includes (i) 20,160 shares of common stock which Mrs. Tannenbaum has the right to acquire pursuant to outstanding stock options that will be exercisable upon the consummation of this offering and (iii) up to 14,000 shares of common stock which Mrs. Tannenbaum will have the right to acquire pursuant to stock options that will be granted immediately prior to the consummation of this offering and will become vested upon such grant and exercisable upon consummation of this offering.
|
•
|
the holders of our common stock shall have the exclusive right to vote for the election of directors and on all other matters requiring stockholder action, each share entitling the holder thereof to cast one vote on each matter submitted to a vote of stockholders;
|
•
|
dividends or other distributions may be declared and paid or set apart for payment upon our common stock out of any assets or our funds legally available for the payment of distributions, but only when, as, and if, authorized by our Board; and
|
•
|
upon our voluntary or involuntary liquidation, dissolution or winding up, our net assets legally available for distribution shall, after the payment of or adequate provision for all known debts and liabilities and any preferential rights of the holders of any then-outstanding shares of our preferred stock, be distributed pro rata to the holders of our common stock.
|
•
|
After June 30, 2021, (i) no person, other than a Qualified Institutional Investor or an Excepted Holder, shall Beneficially Own or Constructively Own shares of our capital stock in excess of the “Aggregate Stock Ownership Limit,” which is defined as 4.9% in value or number of shares, whichever is more restrictive, of the aggregate outstanding shares of our capital stock, (ii) no Qualified Institutional Investor, other than an Excepted Holder, shall Beneficially Own or Constructively Own shares of our capital stock in excess of the “Qualified Institutional Investor Aggregate Stock Ownership Limit” which is defined as 9.8% in value or number of shares, whichever is more restrictive, of the aggregate outstanding shares of our capital stock and (iii) no Excepted Holder shall Beneficially Own or Constructively Own shares of our capital stock in excess of the Excepted Holder Limit for such Excepted Holder.
|
•
|
No person shall Beneficially Own or Constructively Own shares of our capital stock to the extent that such Beneficial Ownership or Constructive Ownership of our capital stock would result in us (i) being Closely Held (defined below) after June 30, 2021 (without regard to whether the ownership interest is held during the last half of a taxable year), or (ii) otherwise failing to qualify as a REIT (including, but not limited to, Beneficial Ownership or Constructive Ownership that would result in us owning (actually or Constructively) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income derived by us from such tenant would cause us to fail to satisfy any of the gross income requirements of Section 856(c) of the Code).
|
•
|
Any transfer of shares of our capital stock that, if effective, would result in our capital stock being beneficially owned by less than 100 persons (determined under the principles of Section 856(a)(5) of the Code) after January 15, 2021 shall be void ab initio, and the intended transferee shall acquire no rights in such shares of our capital stock.
|
•
|
Any transfer of shares of our capital stock that, if effective, would cause our assets to be deemed “plan assets” within the meaning of Department of Labor regulation 20 C.F.R. 2510.3-101 for purposes of ERISA or Section 4975 of the Code shall be void ab initio, and the intended transferee shall acquire no rights in such shares of our capital stock.
|
•
|
then that number of shares of our capital stock the Beneficial Ownership or Constructive Ownership of which otherwise would cause such person to violate the ownership limitations (rounded up to the next whole share) shall be automatically transferred to a trust for the benefit of a charitable beneficiary, as described in the Charter, effective as of the close of business on the business day prior to the date of such transfer, and such person shall acquire no rights in such shares; or
|
•
|
if the transfer to the trust described in the preceding clause would not be effective for any reason to prevent violation of the Aggregate Stock Ownership Limit, the Qualified Institutional Investor Aggregate Stock Ownership Limit or the Excepted Holder Limit, as applicable, our being Closely Held or our otherwise failing to qualify as a REIT, then the transfer of that number of shares of our capital stock that otherwise would cause any person to violate such provisions of the Charter, shall be void ab initio, and the intended transferee shall acquire no rights in such shares of our capital stock.
|
•
|
to the extent that, upon a transfer of shares of our capital stock pursuant to the Charter, a violation of any provision of the Charter would nonetheless be continuing (for example, where the ownership of shares of our capital stock by a single trust would violate the 100 stockholder requirement applicable to REITs), then shares of our capital stock shall be transferred to that number of trusts, each having a distinct trustee and a charitable beneficiary or charitable beneficiaries that are distinct from those of each other trust, such that there is no violation of any provisions of the Charter.
|
•
|
Shares of our capital stock held in the trust will be issued and outstanding shares. The prohibited owner will not benefit economically from ownership of any shares of our capital stock held in the trust and will have no rights to distributions and no rights to vote or other rights attributable to the shares of our capital stock held in the trust. The trustee of the trust will exercise all voting rights and receive all distributions with respect to shares held in the trust for the exclusive benefit of the charitable beneficiary of the trust. Any distribution made before we discover that the shares have been transferred
|
•
|
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.
|
•
|
a classified board of directors;
|
•
|
a two-thirds vote requirement for removing a director;
|
•
|
a requirement that the number of directors be fixed only by vote of the board of directors;
|
•
|
a requirement that a vacancy on the board of directors be filled only by a vote of the remaining directors in office and for the remainder of the full term of the class of directors in which the vacancy occurred and until a successor is elected and qualifies; and
|
•
|
a majority requirement for the calling of a stockholder-requested special meeting of stockholders.
|
•
|
the act or omission of the director or officer was material to the matter giving rise to the proceeding and (a) was committed in bad faith or (b) 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.
|
•
|
a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by us; and
|
•
|
a written undertaking by or on behalf of the director or officer to repay the amount paid or reimbursed by us if it is ultimately determined that the director or officer did not meet the standard of conduct.
|
•
|
any present or former director or officer who is made or threatened to be made a party to, or witness in, a proceeding by reason of his or her service in that capacity; or
|
•
|
any individual who, while a director or officer of our Company and at our request, serves or has served as a director, officer, partner, member, manager or trustee of another corporation, REIT, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity.
|
•
|
a citizen or resident of the United States;
|
•
|
a corporation or entity treated as a corporation for U.S. federal income tax purposes created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;
|
•
|
an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or
|
•
|
a trust if it (1) is subject to the primary supervision of a court within the United States, and one or more U.S. persons have authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person.
|
•
|
we will be taxed at normal corporate rates on any undistributed net income (including undistributed net capital gains);
|
•
|
if we fail to satisfy either the 75% or the 95% gross income tests (discussed below), but nonetheless maintain our qualification as a REIT because other requirements are met, we will be subject to a 100% tax on the greater of (1) the amount by which we fail the 75% test and (2) the amount by which we fail the 95% test, in either case, multiplied by a fraction intended to reflect our profitability;
|
•
|
if we should fail to satisfy the asset tests or other requirements applicable to REITs, as described below, yet nonetheless maintain our qualification as a REIT because there is reasonable cause for the failure and other applicable requirements are met, we may be subject to an excise tax;
|
•
|
we will be subject to a tax of 100% on net income from any “prohibited transaction;”
|
•
|
we will be subject to tax, at the highest corporate rate, on net income from (1) the sale or other disposition of “foreclosure property” (generally, property acquired by us through foreclosure or after a default on a loan secured by the property or a lease of the property and for which an election is in effect) that is held primarily for sale to customers in the ordinary course of business or (2) other non-qualifying income from foreclosure property;
|
•
|
if we fail to distribute during each calendar year at least the sum of (1) 85% of our REIT ordinary income for the year, (2) 95% of our REIT capital gain income for the year and (3) any undistributed taxable income from prior years, we will be subject to a 4% excise tax on the excess of the Required Distribution over the sum of (a) the amounts actually distributed plus (b) the amounts with respect to which certain taxes are imposed on us;
|
•
|
if we acquire any asset from a “C corporation” (that is, a corporation generally subject to the full corporate level tax) in a transaction in which the basis of the asset in our hands is determined by
|
•
|
if we fail to qualify for taxation as a REIT because we failed to distribute by the end of the relevant year any earnings and profits we inherited from a taxable C corporation during the year (e.g., by tax-free merger or tax-free liquidation), and the failure is not due to fraud with intent to evade tax, we generally may retain our REIT status by paying a special distribution, but we will be required to pay an interest charge on 50% of the amount of undistributed non-REIT earnings and profits;
|
•
|
a 100% tax may be imposed on certain transactions between us and our taxable REIT subsidiaries (“TRSs”) that do not reflect arm’s length terms;
|
•
|
we may be required to pay monetary penalties to the IRS in certain circumstances, including if we fails to satisfy the record keeping requirements intended to monitor our compliance with rules relating to the ownership of our common stock, as described below in “—Requirements for Qualification—Organizational Requirements”;
|
•
|
certain of our subsidiaries, if any, may be subchapter C corporations, the earnings of which could be subject to federal corporate income tax; and
|
•
|
we and our subsidiaries, if any, may be subject to a variety of taxes, including state, local and foreign income taxes, property taxes and other taxes on our assets and operations and could also be subject to tax in situations and on transactions not presently contemplated.
|
(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 Sections 856 through 860 of the Code;
|
(4)
|
that is neither a financial institution nor an insurance company subject to specified provisions of the Code;
|
(5)
|
the beneficial ownership of which is held by 100 or more persons;
|
(6)
|
during the last half of each taxable year not more than 50% in value of the outstanding stock of which is owned, directly or indirectly, or by application of certain constructive ownership rules, by five or fewer individuals (as defined in the Code to include some entities that would not ordinarily be considered “individuals”); and
|
(7)
|
that meets other tests, described below, regarding the nature of its income and assets.
|
•
|
75% Gross Income Test. At least 75% of our gross income (excluding gross income from prohibited transactions, income from certain hedging transactions and certain foreign currency gains) must consist of income derived directly or indirectly from investments relating to real property or mortgages on real property (generally including rents from real property, dividends from other REITs, and, in some circumstances, interest on mortgages), or some types of temporary investment income.
|
•
|
95% Gross Income Test. At least 95% of our gross income (excluding gross income from prohibited transactions, income from certain hedging transactions and certain foreign currency gains) must consist of items that satisfy the 75% gross income test and certain other items, including dividends, interest and gain from the sale or disposition of stock or securities (or from any combination of these types of income).
|
•
|
following our identification of the failure to meet the 75% or 95% gross income tests for any taxable year, we file a schedule with the IRS setting forth each item of our gross income for purposes of the 75% or 95% gross income tests for such taxable year; and
|
•
|
our failure to meet these tests was due to reasonable cause and not willful neglect.
|
•
|
at least 75% of the value of our total assets must be represented by real estate assets (including (1) our allocable share of real estate assets held by partnerships in which we own an interest, (2) stock or debt instruments held for not more than one year purchased with the proceeds of our stock offering or long-term (at least five years) debt offering, cash, cash items and government securities, (3) stock in other REITs and (4) certain mortgage-backed securities and loans);
|
•
|
not more than 25% of our total assets may be represented by securities other than those in the 75% asset class;
|
•
|
of the investments included in the 25% asset class, the value of any one issuer’s securities owned by us may not exceed 5% of the value of our total assets (unless the issuer is a TRS), and we may not own more than 10% of the vote or value of any one issuer’s outstanding securities (unless the issuer is a TRS or we can avail ourselves of the rules relating to certain securities and “straight debt” summarized below);
|
•
|
not more than 20% of the value of our total assets may be represented by securities of one or more TRS; and
|
•
|
not more than 25% of the value of our total assets may be represented by debt instruments of publicly offered REITs that are not secured by mortgages on real property or interests in real property.
|
•
|
Distributions out of current or accumulated earnings and profits (and not designated as capital gain dividends) generally constitute ordinary dividend income to U.S. Holders and will generally not be eligible for the dividends received deduction for corporations or the preferential tax rate for “qualified dividend income” (other than ordinary dividends attributable to dividends from taxable corporations, such as TRSs and to income upon which we have paid corporate income tax). However, under the Tax Cuts and Jobs Act of 2017 (“TCJA”), stockholders that are individuals, trusts or estates generally may deduct up to 20% of certain qualified business income, including “qualified REIT dividends” (generally, dividends received by a REIT shareholder that are not designated as capital gain dividends or qualified dividend income), subject to certain limitations.
|
•
|
Distributions in excess of current and accumulated earnings and profits are not taxable to a U.S. Holder to the extent that they do not exceed the adjusted basis of the U.S. Holder’s shares, but rather reduce the adjusted basis of those shares. To the extent that distributions in excess of current and accumulated earnings and profits exceed the adjusted basis of a U.S. Holder’s shares, they are to 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).
|
•
|
Distributions designated as capital gain dividends constitute long-term capital gains (to the extent they do not exceed our actual net capital gain for the taxable year) without regard to the period for which the U.S. Holder has held our stock. Corporate U.S. Holders may be required to treat up to 20% of some capital gain dividends as ordinary income. Capital gains dividends attributable to the sale of depreciable real property held for more than 12 months are subject to a 25% U.S. federal income tax rate for U.S. Holders who are individuals, trusts or estates, to the extent of previously claimed depreciation deductions.
|
•
|
If we elect to retain and pay income tax on our net long-term capital gain, each holder of our common stock would: (1) include our proportionate share of our undistributed long-term capital gain (to the extent we make a timely designation of such gain to the stockholder) in our income, (2) be deemed to have paid our proportionate share of the tax that we paid on such gain and (3) be allowed a credit for our proportionate share of the tax deemed to have been paid, with an adjustment made to increase the holder’s basis in our stock by the difference between (a) the amount of capital gain included in income and (b) the amount of tax deemed paid by the holder.
|
•
|
Distributions declared by us in October, November or December of any year payable to a U.S. Holder of record on a specified date in October, November or December will be treated as both paid by us and received by the U.S. Holder on December 31 of that year, provided that the distribution is actually paid by us during January of the following calendar year.
|
•
|
evidencing that such Non-U.S. Holder is eligible for an exemption or reduced rate under an applicable income tax treaty, generally an IRS Form W-8BEN or Form W-8BEN-E (in which case we will withhold at the lower treaty rate); or
|
•
|
claiming that the distribution is income that is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States, generally an IRS Form W-8ECI (in which case we will not withhold tax).
|
•
|
the gain is effectively connected with the Non-U.S. Holder’s U.S. trade or business, in which case, unless an applicable income tax treaty provides otherwise, the Non-U.S. Holder will be subject to the same treatment as U.S. holders with respect to such gain and may be subject to the 30% branch profits tax on its effectively connected earnings and profits, subject to adjustments, in the case of a foreign corporation; or
|
•
|
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 meets certain other criteria, in which case the Non-U.S. Holder will incur a 30% tax on his or her capital gains derived from sources within the United States (net of certain losses derived from sources within the United States), unless an applicable income tax treaty provides otherwise.
|
Underwriter
|
| |
Number of
Shares
|
JMP Securities LLC
|
| |
|
Ladenburg Thalmann & Co., Inc.
|
| |
|
Seaport Global Securities LLC
|
| |
|
Lake Street Capital Markets, LLC
|
| |
|
Total
|
| |
|
|
| |
Per
Share
|
| |
Without
Option
|
| |
With
Option
|
Public offering price
|
| |
$
|
| |
$
|
| |
$
|
Underwriting discount
|
| |
$
|
| |
$
|
| |
$
|
Proceeds, before expenses, to us
|
| |
$
|
| |
$
|
| |
$
|
•
|
offer, pledge, sell or contract to sell any common stock;
|
•
|
sell any option or warrant to purchase any common stock;
|
•
|
purchase any option or warrant to sell any common stock;
|
•
|
grant any option or warrant for the sale of any common stock;
|
•
|
lend or otherwise transfer or dispose of any common stock;
|
•
|
exercise any right with respect to the registration of any common stock or other securities; or
|
•
|
enter into any swap or other agreement or transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of any common stock whether any such swap, agreement or transaction is to be settled by the delivery of shares of common stock or other securities, in cash or otherwise.
|
•
|
estimates of the business potential and earnings prospects of our Company;
|
•
|
the history of, and the prospects for, our Company and the industry in which we compete;
|
•
|
an assessment of our management, its past and present operations, and the prospects for, and timing of, our future revenues;
|
•
|
the present state of our development; and
|
•
|
the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.
|
|
| |
September 30,
2020
|
Assets
|
| |
|
Loans held at fair value (cost of $45,539,161, net)
|
| |
$47,102,961
|
Loan receivable at carrying value (less allowance for credit loss of $0 at September 30, 2020)
|
| |
3,559,156
|
Cash and cash equivalents
|
| |
31,247,004
|
Interest receivable
|
| |
783,673
|
Prepaid expenses and other assets
|
| |
25,029
|
Total assets
|
| |
$82,717,823
|
|
| |
|
Liabilities
|
| |
|
Interest reserve
|
| |
$1,400,000
|
Accrued management fees, net
|
| |
142,067
|
Accrued direct administrative expenses
|
| |
202,534
|
Accounts payable and other liabilities
|
| |
118,040
|
Total liabilities
|
| |
1,862,641
|
|
| |
|
Stockholders’ Equity
|
| |
|
Preferred stock, par value $0.01 per share, 10,000 shares authorized at September 30, 2020 and 0 shares issued and outstanding at September 30, 2020
|
| |
—
|
Common stock, par value $0.01 per share, 15,000,000 shares authorized at September 30, 2020 and 768,059 shares issued and outstanding at September 30, 2020
|
| |
7,681
|
Additional paid-in-capital
|
| |
78,741,251
|
Accumulated earnings / (deficit)
|
| |
2,106,250
|
Total stockholders’ equity
|
| |
80,855,182
|
Total liabilities and stockholders’ equity
|
| |
$82,717,823
|
|
| |
Period from
July 31,
2020 to
September 30,
2020
|
Revenue
|
| |
|
Interest Income
|
| |
$1,594,769
|
Total revenue
|
| |
1,594,769
|
|
| |
|
Expenses
|
| |
|
Management fees, net (less rebate of $84,167)
|
| |
142,067
|
General and administrative expense
|
| |
204,262
|
Organizational expense
|
| |
616,190
|
Professional fees
|
| |
89,800
|
Total expenses
|
| |
1,052,319
|
|
| |
|
Net realized and change in unrealized gains / (losses) on loans at fair value
|
| ||
Change in unrealized gains / (losses) on loans at fair value, net
|
| |
1,563,800
|
Total net realized and change in unrealized gains (losses) on loans at fair value
|
| |
1,563,800
|
|
| |
|
Net Income / (loss) before income taxes
|
| |
2,106,250
|
Income tax expense
|
| |
—
|
Net Income / (loss)
|
| |
$2,106,250
|
|
| |
|
Earnings per common share:
|
| |
|
Basic earnings per common share (in dollars per share)
|
| |
$2.74
|
|
| |
|
Weighted average number of common shares outstanding:
|
| |
|
Basic weighted average shares of common stock outstanding (in shares)
|
| |
768,059
|
|
| |
Common Stock
|
| |
Additional
Paid-In-
Capital
|
| |
Accumulated
Earnings (Deficit)
|
| |
Total
Stockholders’
Equity
|
|||
|
| |
Shares
|
| |
Amount
|
| ||||||||
Balance at July 31, 2020 (commencement of operations)
|
| |
—
|
| |
$—
|
| |
$—
|
| |
$—
|
| |
$—
|
Issuance of common stock
|
| |
768,059
|
| |
7,681
|
| |
78,741,251
|
| |
—
|
| |
78,748,932
|
Net income / (loss)
|
| |
—
|
| |
—
|
| |
—
|
| |
2,106,250
|
| |
2,106,250
|
Balance at September 30, 2020
|
| |
768,059
|
| |
$7,681
|
| |
$78,741,251
|
| |
$2,106,250
|
| |
$80,855,182
|
|
| |
Period from
July 31,
2020 to
September 30,
2020
|
Operating activities:
|
| |
|
Net income / (loss)
|
| |
$2,106,250
|
|
| |
|
Adjustments to reconcile net income / (loss) to net cash provided by / (used in) operating activities:
|
| |
|
Change in unrealized gains / (losses) on loans at fair value, net
|
| |
(1,563,800)
|
Accretion of deferred loan origination fees and other discounts
|
| |
(173,110)
|
PIK interest
|
| |
(79,707)
|
|
| |
|
Changes in operating assets and liabilities
|
| |
|
Interest receivable
|
| |
(783,673)
|
Prepaid expenses and other assets
|
| |
(25,029)
|
Accrued management fees, net
|
| |
142,067
|
Accrued direct administrative expenses
|
| |
202,534
|
Accounts payable and other liabilities
|
| |
118,040
|
Net cash provided by / (used in) operating activities
|
| |
(56,428)
|
|
| |
|
Cash flows from investing activities:
|
| |
|
Issuance of and fundings on loans
|
| |
(780,000)
|
Principal repayment of loans
|
| |
137,340
|
Net cash provided by / (used in) investing activities
|
| |
(642,660)
|
|
| |
|
Cash flows from financing activities:
|
| |
|
Issuance of common stock
|
| |
31,946,092
|
Net cash provided by / (used in) financing activities
|
| |
31,946,092
|
|
| |
|
Change in cash, cash equivalents and restricted cash
|
| |
31,247,004
|
Cash, cash equivalents and restricted cash, beginning of period
|
| |
—
|
Cash, cash equivalents and restricted cash, end of period
|
| |
$31,247,004
|
|
| |
|
Supplemental disclosure of non-cash financing and investing activity
|
| |
|
Loans acquired for issuance of shares of common stock
|
| |
$46,802,840
|
Interest reserve withheld from funding of loan
|
| |
$1,400,000
|
|
| |
|
Supplemental information:
|
| |
|
Interest paid during the period
|
| |
$—
|
Income taxes paid during the period
|
| |
$—
|
1.
|
2.
|
SIGNIFICANT ACCOUNTING POLICIES
|
•
|
Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
|
•
|
Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
|
•
|
Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
|
3.
|
LOANS HELD AT FAIR VALUE
|
|
| |
As of September 30, 2020
|
|||||||||
|
| |
Fair Value(2)
|
| |
Carrying
Value(1)
|
| |
Outstanding
Principal(1)
|
| |
Weighted Average
Remaining Life
(Years)(3)
|
Senior Term Loan
|
| |
$47,102,961
|
| |
$45,539,161
|
| |
$48,660,311
|
| |
2.7
|
Total loans held at fair value
|
| |
$47,102,961
|
| |
$45,539,161
|
| |
$48,660,311
|
| |
2.7
|
(1)
|
The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted purchase discount, deferred loan fees and loan origination costs
|
(2)
|
Refer to Footnote 12
|
(3)
|
Weighted average remaining life is calculated based on the fair value of the loans as of September 30, 2020
|
|
| |
Principal
|
| |
Origination
Costs and Loan
Fees
|
| |
Fair Value
|
Loans
|
| |
$46,080,604
|
| |
$(2,974,054)
|
| |
$43,106,550
|
Change in unrealized gains / (losses) on loans at fair value, net
|
| |
—
|
| |
—
|
| |
1,563,800
|
Additional funding
|
| |
2,500,000
|
| |
(320,000)
|
| |
2,180,000
|
Accretion of original issue discount
|
| |
—
|
| |
172,904
|
| |
172,904
|
PIK Interest
|
| |
79,707
|
| |
—
|
| |
79,707
|
Total loans held at fair value
|
| |
$48,660,311
|
| |
$(3,121,150)
|
| |
$47,102,961
|
|
| |
Location
|
| |
Fair Value(2)
|
| |
Carrying
Value(1)
|
| |
Outstanding
Principal(1)
|
| |
Interest
Rate
|
| |
Maturity
Date(3)
|
| |
Payment
Terms(4)
|
Private Co. A
|
| |
Multi State
|
| |
$21,841,606
|
| |
$20,986,986
|
| |
$23,220,311
|
| |
17.0%(6)
|
| |
5/8/2024
|
| |
P/I
|
Private Co. B
|
| |
MI
|
| |
2,414,370
|
| |
2,188,889
|
| |
2,500,000
|
| |
17.0%(7)
|
| |
9/1/2023
|
| |
P/I
|
Public Co. A
|
| |
NV
|
| |
2,856,210
|
| |
2,894,484
|
| |
2,940,000
|
| |
10.5%(8)
|
| |
6/27/2021
|
| |
I/O
|
Public Co. B
|
| |
Multi State
|
| |
5,007,500
|
| |
4,944,444
|
| |
5,000,000
|
| |
16.0%
|
| |
7/31/2021
|
| |
P/I
|
Sub. of Public Co. C
|
| |
FL
|
| |
7,668,275
|
| |
7,524,358
|
| |
8,000,000
|
| |
18.1%(9)
|
| |
2/18/2025
|
| |
P/O
|
Public Co. E(5)
|
| |
Multi State
|
| |
7,315,000
|
| |
7,000,000
|
| |
7,000,000
|
| |
13.0%
|
| |
1/10/2024
|
| |
I/O
|
Total loans held at fair value
|
| |
|
| |
$47,102,961
|
| |
$45,539,161
|
| |
$48,660,311
|
| |
|
| |
|
| |
|
(1)
|
The difference between the Carrying Value and the Outstanding Principal amount of the loans consists of unaccreted purchase discount, deferred loan fees and loan origination costs
|
(2)
|
Refer to Footnote 12
|
(3)
|
Certain loans are subject to contractual extension options and may be subject to performance based or other conditions as stipulated in the loan agreement. Actual maturities may differ from contractual maturities stated herein as certain borrowers may have the right to prepay with or without paying a prepayment penalty. The Company may also extend contractual maturities and amend other terms of the loans in connection with loan modifications.
|
(4)
|
I/O = interest only, P/I = principal and interest. P/I loans may include interest only periods for a portion of the loan term.
|
(5)
|
As of September 30, 2020, this senior term loan was held for sale.
|
(6)
|
Base interest rate of 13% and PIK interest rate of 4%
|
(7)
|
Base interest rate of 13% and PIK interest rate of 4%
|
(8)
|
Base interest rate of 8% plus LIBOR (LIBOR floor of 2.5%)
|
(9)
|
Base interest rate of 13.5% and PIK interest rate of 3%
|
4.
|
LOAN RECEIVABLE AT CARRYING VALUE
|
|
| |
Principal
|
| |
Origination
Costs and Loan
Fees
|
| |
Carrying
Value
|
Loan receivable
|
| |
$3,700,718
|
| |
$(4,428)
|
| |
$3,696,290
|
Principal repayment of loans
|
| |
(137,340)
|
| |
—
|
| |
(137,340)
|
Accretion of original issue discount
|
| |
—
|
| |
206
|
| |
206
|
Total loans receivable at carry value
|
| |
$3,563,378
|
| |
$(4,222)
|
| |
$3,559,156
|
5.
|
INTEREST RECEIVABLE
|
|
| |
As of
September 30,
2020
|
Interest receivable
|
| |
$660,545
|
PIK receivable
|
| |
91,984
|
Unused fees
|
| |
31,144
|
Total interest receivable
|
| |
$783,673
|
6.
|
INTEREST RESERVE
|
|
| |
For the
period from
July 31,
2020 to
September 30,
2020
|
Initial reserves
|
| |
$—
|
New reserves
|
| |
1,400,000
|
Reserves disbursed
|
| |
—
|
Total Interest reserve
|
| |
$1,400,000
|
7.
|
DEBT
|
8.
|
COMMITMENTS AND CONTINGENCIES
|
|
| |
As of
September 30,
2020
|
Total original loan commitments
|
| |
$73,940,000
|
Less: drawn commitments
|
| |
(52,378,895)
|
Total undrawn commitments
|
| |
$21,561,105
|
9.
|
STOCKHOLDERS’ EQUITY
|
|
| |
Restricted
Stock Options
Granted
|
Non-vested
|
| |
16,474
|
Vested
|
| |
98,734
|
Forfeited
|
| |
—
|
Balance at September 30, 2020
|
| |
115,208
|
10.
|
EARNINGS PER SHARE
|
|
| |
Period from
July 31,
2020 to
September 30,
2020
|
Net income / (loss) attributable to common stockholders
|
| |
$2,106,250
|
Divided by:
|
| |
|
Basic weighted average shares of common stock outstanding
|
| |
768,059
|
Basic earnings per common share
|
| |
$2.74
|
11.
|
INCOME TAX
|
12.
|
FAIR VALUE
|
|
| |
As of September 30, 2020
|
||||||||||||
|
| |
Fair Value
|
| |
Primary
Valuation
Techniques
|
| |
Input
|
| |
Unobservable Input
|
|||
|
Estimated Range
|
| |
Weighted Average
|
|||||||||||
Senior Term Loan
|
| |
$47,102,961
|
| |
Yield analysis
|
| |
Market Yield
|
| |
14.5% - 22.54%
|
| |
19.8%
|
Total loans at fair value
|
| |
$47,102,961
|
| |
|
| |
|
| |
|
| |
|
|
| |
Fair Value Measurement Using
|
|||||||||
|
| |
Total
|
| |
Level 1
|
| |
Level 3
|
| |
Level 3
|
Loans held at fair value
|
| |
$47,102,961
|
| |
—
|
| |
—
|
| |
$47,102,961
|
Total
|
| |
$47,102,961
|
| |
—
|
| |
—
|
| |
$47,102,961
|
|
| |
For the
period from
July 31,
2020 to
September 30,
2020
|
Loans
|
| |
$43,106,550
|
Change in unrealized gains / (losses) on loans at fair value, net
|
| |
1,563,800
|
Additional funding
|
| |
2,500,000
|
Origination fees and discounts, net of costs
|
| |
(320,000)
|
Accretion of original issue discount
|
| |
172,904
|
PIK Interest
|
| |
79,707
|
Total loans using Level 3 inputs
|
| |
$47,102,961
|
13.
|
RELATED PARTY TRANSACTIONS
|
|
| |
Incurred for
the period
from
July 31,
2020 to
September 30,
2020
|
| |
Payable as of
September 30,
2020
|
Affiliate Payments
|
| |
|
| |
|
Management fees
|
| |
$226,234
|
| |
$226,234
|
Less other fees earned and paid to the Manager
|
| |
(84,167)
|
| |
(84,167)
|
General and administrative expenses reimbursed to Manager
|
| |
165,434
|
| |
165,434
|
Total
|
| |
$307,501
|
| |
$307,501
|
14.
|
DIVIDENDS AND DISTRIBUTIONS
|
15.
|
SUBSEQUENT EVENTS
|
Item 31.
|
Other Expenses of Issuance and Distribution
|
|
| |
Amount to be
Paid
|
SEC Registration Fee
|
| |
$12,546.50
|
FINRA filing fee
|
| |
$17,750.00
|
Nasdaq listing fee
|
| |
*
|
Printing
|
| |
*
|
Legal fees and expenses
|
| |
*
|
Accounting fees and expenses
|
| |
*
|
Transfer agent and registrar fees
|
| |
*
|
Miscellaneous expenses
|
| |
*
|
Total:
|
| |
$*
|
*
|
To be filed by amendment.
|
Item 32.
|
Sales to Special Parties.
|
Item 33.
|
Recent Sales of Unregistered Securities.
|
Item 34.
|
Indemnification of Directors and Officers.
|
•
|
the act or omission of the director or officer was material to the matter giving rise to the proceeding and (a) was committed in bad faith or (b) 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.
|
•
|
any present or former director or officer who is made or threatened to be made a party to, or witness in, a proceeding by reason of his or her service in that capacity; or
|
•
|
any individual who, while a director or officer of our Company and at our request, serves or has served as a director, officer, partner, trustee, member or manager of another corporation, real estate investment trust, limited liability company, partnership, joint venture, trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity.
|
Item 35.
|
Treatment of Proceeds from Stock Being Registered.
|
Item 36.
|
Financial Statement and Exhibits.
|
(a)
|
Financial Statements. See page F-1 for an index of the financial statements included in the registration statement.
|
(b)
|
Exhibit Index.
|
Exhibit No.
|
| |
Document
|
| |
Form of Underwriting Agreement.
|
|
| |
Articles of Incorporation of AFC Gamma, Inc.
|
|
| |
Form of Articles of Amendment and Restatement of AFC Gamma, Inc.
|
|
| |
Bylaws of AFC Gamma, Inc., as currently in effect.
|
|
| |
Form of Amended and Restated Bylaws of AFC Gamma, Inc., to be effective upon completion of this offering.
|
|
| |
Form of Common Stock Certificate of the Registrant.
|
|
5.1*
|
| |
Opinion of Venable LLP
|
8.1*
|
| |
Opinion of O’Melveny & Myers LLP with respect to tax matters.
|
| |
Amended and Restated Management Agreement, January 14, 2021 by and between AFC Gamma, Inc. and AFC Management, LLC.
|
|
| |
Form of Indemnification Agreement between the Registrant and each of its directors and officers.
|
|
| |
Form of Indemnification Agreement between Registrant and each of the Investment Committee members.
|
|
| |
Form of Registration Rights Agreement, by and among AFC Gamma, Inc. and the holders thereto.
|
|
| |
2020 Stock Incentive Plan
|
|
| |
Secured Revolving Credit Agreement, dated August 18, 2020, by and among AFC Gamma, Inc., as borrower, AFC Finance, LLC, as agent, and AFC Finance, LLC and Jonathan Kalikow, as lenders.
|
|
| |
List of Subsidiaries of the Registrant.
|
|
| |
Consent of CohnReznick LLP, independent registered public accounting firm.
|
|
23.2*
|
| |
Consent of Venable LLP (included in Exhibit 5.1).
|
23.4*
|
| |
Consent of O’Melveny & Myers (included in Exhibit 8.1).
|
| |
Power of Attorney (reference is made to the signature page to the Registration Statement).
|
*
|
To be filed by amendment.
|
§
|
Management contract or compensatory plan or arrangement
|
†
|
Previously filed.
|
Item 37.
|
Undertakings.
|
1.
|
For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
|
2.
|
For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
|
|
| |
AFC GAMMA, INC.
|
|||
|
| |
|
| |
|
|
| |
By:
|
| |
/s/ Leonard M. Tannenbaum
|
|
| |
|
| |
Name: Leonard M. Tannenbaum
|
|
| |
|
| |
Title: Chief Executive Officer and Chairman
|
Signature
|
| |
Title
|
| |
Date
|
|
| |
|
| |
|
/s/ Leonard M. Tannenbaum
|
| |
Chief Executive Officer and Director
(Principal Executive Officer)
|
| |
January 22, 2021
|
Leonard M. Tannenbaum
|
| |||||
|
| |
|
| |
|
/s/ Thomas Geoffroy
|
| |
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
|
| |
January 22, 2021
|
Thomas Geoffroy
|
| |||||
|
| |
|
| |
|
*
|
| |
Head of Real Estate and Director
|
| |
January 22, 2021
|
Jonathan Kalikow
|
| |||||
|
| |
|
| |
|
*
|
| |
Director
|
| |
January 22, 2021
|
Robert Levy
|
| |||||
|
| |
|
| |
|
*
|
| |
Director
|
| |
January 22, 2021
|
Jodi Hanson Bond
|
| |||||
|
| |
|
| |
|
*
|
| |
Director
|
| |
January 22, 2021
|
Thomas Harrison
|
| |||||
|
| |
|
| |
|
*
|
| |
Director
|
| |
January 22, 2021
|
Alexander Frank
|
| |||||
|
| |
|
| |
|
*
|
| |
Director
|
| |
January 22, 2021
|
Tomer Tzur
|
| |||||
|
| |
|
| |
|
* By: /s/ Leonard M. Tannenbaum
Leonard M. Tannenbaum
Attorney-in-Fact
|
| |
|
Board of Directors
|
Class
|
|
Leonard Tannenbaum
|
I
|
|
Thomas Harrison
|
I
|
|
Robert Levy
|
II
|
|
Jodi Hanson Bond
|
II
|
|
Jonathan Kalikow
|
II
|
|
Alexander Frank
|
III
|
|
Tomer Tzur
|
III
|
ATTEST:
|
AFC GAMMA, INC.
|
||
|
By:
|
|
|
Gabriel Katz
|
Leonard M. Tannenbaum
|
||
Secretary
|
Chief Executive Officer
|
Number *0*
|
Shares *0* |
|
|
|
|
SEE REVERSE FOR IMPORTANT
NOTICE ON TRANSFER RESTRICTIONS
AND OTHER INFORMATION
|
|
|
|
(SEAL) |
Thomas Geoffroy |
|
Leonard M. Tannenbaum | |
Chief Financial Officer and Treasurer
|
|
Chief Executive Officer |
TEN COM
|
- as tenants in common
|
UNIF GIFT MIN ACT | Custodian | ||
TEN ENT
|
- as tenants by the entireties |
|
(Custodian)
|
(Minor) | |
JT TEN
|
- as joint tenants with right of |
under Uniform Gifts to Minors Act of
|
|||
|
survivorship and not as tenants |
|
|||
in common
|
(State) | ||||
Additional abbreviations may also be used though not in the above list.
|
FOR VALUE RECEIVED, | HEREBY SELLS, ASSIGNS AND TRANSFERS UNTO | |
(Please Print or Typewrite Name and Address, Including Zip Code, of Assignee)
|
||
(Please Insert Social Security or other Identifying Number of Assignee)
|
||
Dated |
|
||
|
NOTICE: The Signature To This Assignment Must Correspond With The Name As Written Upon The Face Of The Certificate In
Every Particular, Without Alteration Or Enlargement Or Any Change Whatsoever.
|
AFC GAMMA, INC.
|
||
By:
|
/s/ Thomas Geoffroy | |
Name: Thomas Geoffroy
|
||
Title: Chief Financial Officer
|
||
AFC MANAGEMENT, LLC
|
||
By:
|
/s/ Leonard Tannenbaum | |
Name: Leonard Tannenbaum
|
||
Title: Chief Executive Officer
|
|
1. |
Introduction
|
|
2. |
General Overview of the Advisers Act
|
|
2.1 |
Fiduciary Duty
|
|
• |
A duty to have a reasonable, independent basis for its investment decisions;
|
|
• |
A duty to ensure that its investment decisions are suitable and appropriate given each client’s objectives, needs, and circumstances;
|
|
• |
A duty to refrain from entering into transactions, including personal securities transactions, that are inconsistent with client interests;
|
|
• |
A duty to permit clients to benefit from investment opportunities before the investment adviser; and
|
|
• |
An obligation to be loyal to clients.
|
|
2.2 |
Conflicts of Interest
|
|
• |
When an adviser receives compensation, directly or indirectly, from a source other than the Client for recommending a security, the adviser must disclose the nature
and extent of the compensation;
|
|
• |
When an adviser or an affiliate of the adviser has an interest (e.g., deal-related fees, etc.) in an investment being recommended, the extent of the adviser’s
interest must be disclosed; and
|
|
• |
When an adviser or related party compensates a third party for referring a client, the material terms of the arrangement must be disclosed to, and acknowledged, by
the Client.
|
|
2.3 |
Antifraud Provisions – General
|
|
• |
To employ any device, scheme, or artifice to defraud any client or prospective client;
|
|
• |
To engage in any transaction, practice, or course of business that operates as a fraud or deceit upon any client or prospective client;
|
|
• |
To act as a principal for its own account, knowingly to sell any security to or purchase any security from a client, or act as broker for a person other than such
client, knowingly to effect any sale or purchase of any security for the account of any such client, without disclosing to such client in writing before the completion of such transaction the capacity in which the adviser is acting and
obtaining consent of the client to such transaction; or
|
|
• |
To engage in any act, practice, or course of business that is fraudulent, deceptive, or manipulative.
|
|
3. |
Portfolio Management Process
|
|
3.1 |
Compliance with Investment Strategy and Restrictions
|
|
3.2 |
Procedures for Complying with Investment Strategy and Restrictions
|
|
• |
the terms and conditions of the transaction (buy or sell);
|
|
• |
any instruction, modification or cancellation;
|
|
• |
the person connected with the Manager who initiated the transaction;
|
|
• |
the person(s) who executed the transaction;
|
|
• |
the Client for which the transaction was entered;
|
|
• |
the date of entry;
|
|
• |
the bank, broker or dealer by or through whom executed (if applicable), and
|
|
• |
whether the transaction is entered into pursuant to the exercise of the Manager’s discretionary authority.
|
|
3.3 |
Principal and Cross Trades
|
|
4. |
Allocation of Investment Opportunities
|
|
5. |
Outside Activities and Other Potential Conflicts of Interest
|
|
6. |
Confidential Information
|
AFC GAMMA, INC.
|
||
By:
|
||
Name:
|
||
Title:
|
||
[INDEMNITEE]
|
||
Name:
|
||
Address:
|
[Name]
|
AFC GAMMA, INC.
|
||
By:
|
||
Name:
|
||
Title:
|
||
[INDEMNITEE]
|
||
Name:
|
||
Address:
|
[Name]
|
1. |
PURPOSE OF THE PLAN.
|
2. |
ADMINISTRATION.
|
|
2.1 |
Administrator. This Plan shall be administered
by and all Awards under this Plan shall be authorized by the Administrator. The “Administrator” means the Board or one or more committees appointed by the Board or another committee (within its
delegated authority) to administer all or certain aspects of this Plan. Any such committee shall be comprised solely of one or more directors or such number of directors as may be required under applicable law. A committee may delegate
some or all of its authority to another committee so constituted. The Board or a committee comprised solely of directors may also delegate, to the extent permitted by applicable law, to one or more officers of the Corporation, its powers
under this Plan (a) to designate the officers and employees of the Corporation and its Affiliates who will receive grants of Awards under this Plan, and (b) to determine the number of shares subject to, and the other terms and conditions
of, such Awards. The Board may delegate different levels of authority to different committees with administrative and grant authority under this Plan. Unless otherwise provided in the Bylaws of the Corporation or the applicable charter of
any Administrator: (a) a majority of the members of the acting Administrator shall constitute a quorum, and (b) the vote of a majority of the members present assuming the presence of a quorum or the unanimous written consent of the members
of the Administrator shall constitute action by the acting Administrator.
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2.2 |
Plan Awards; Interpretation; Powers of Administrator. Subject to the express provisions of this Plan, the Administrator is authorized and empowered to do all things necessary or desirable in connection with the authorization of Awards and the administration of this Plan (in the case
of a committee or delegation to one or more officers, within the authority delegated to that committee or person(s)), including, without limitation, the authority to:
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|
(a) |
determine eligibility and, from among those persons determined to be eligible, the particular Eligible Persons who will receive Awards;
|
|
(b) |
grant Awards to Eligible Persons, determine the price and number of securities to be offered or awarded to any of such persons, determine the other specific terms and conditions of Awards consistent with the express limits of this Plan,
establish the installments (if any) in which such Awards will become exercisable or will vest (which may include, without limitation, performance and/or time-based schedules) or determine that no delayed exercisability or vesting is required,
establish any applicable performance targets, and establish the events of termination or reversion of such Awards;
|
|
(c) |
approve the forms of Award Agreements, which need not be identical either as to type of Award or among Participants;
|
|
(d) |
construe and interpret this Plan and any Award Agreement or other agreements defining the rights and obligations of the Corporation, its Affiliates, and Participants under this Plan, make factual determinations with respect to the
administration of this Plan, further define the terms used in this Plan, and prescribe, amend and rescind rules and regulations relating to the administration of this Plan or the Awards;
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|
(e) |
cancel, modify, or waive the Corporation’s rights with respect to, or modify, discontinue, suspend, or terminate any or all outstanding Awards, subject to any required consent under Section 7.7.4;
|
|
(f) |
accelerate or extend the vesting or exercisability or extend the term of any or all outstanding Awards (within the maximum ten-year term of Awards under Sections 5.4.2 and 6.5) in such circumstances as the Administrator may deem
appropriate (including, without limitation, in connection with a termination of employment or services or other events of a personal nature);
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|
(g) |
determine Fair Market Value for purposes of this Plan and Awards;
|
|
(h) |
determine the duration and purposes of leaves of absence that may be granted to Participants without constituting a termination of their employment for purposes of this Plan; and
|
|
(i) |
determine whether, and the extent to which, adjustments are required pursuant to Section 7.3 hereof and authorize the termination, conversion, substitution or succession of awards upon the occurrence of an event of the type described in
Section 7.3.
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|
2.3 |
Binding Determinations. Any action taken by,
or inaction of, the Corporation, any Affiliate, the Board or the Administrator relating or pursuant to this Plan and within its authority hereunder or under applicable law shall be within the absolute discretion of that entity or body and
shall be conclusive and binding upon all persons. Neither the Board nor the Administrator, nor any member thereof or person acting at the direction thereof, shall be liable for any act, omission, interpretation, construction or
determination made in good faith in connection with this Plan (or any Award), and all such persons shall be entitled to indemnification and reimbursement by the Corporation in respect of any claim, loss, damage or expense (including,
without limitation, attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under any directors and officers liability insurance coverage that may be in effect from time to time.
|
|
2.4 |
Reliance on Experts. In making any
determination or in taking or not taking any action under this Plan, the Administrator may obtain and may rely upon the advice of experts, including employees of and professional advisors to the Corporation. No director, officer or agent
of the Corporation or any of its Affiliates shall be liable for any such action or determination taken or made or omitted in good faith.
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|
2.5 |
Delegation. The Administrator may delegate ministerial, non-discretionary functions to individuals who are
officers or employees of the Corporation or any of its Affiliates or to third parties.
|
3.
|
ELIGIBILITY.
|
|
(a) |
an officer (whether or not a director) or employee of the Corporation or any of its Affiliates;
|
|
(b) |
any member of the Board; or
|
|
(c) |
any director of one of the Corporation’s Affiliates, or any individual consultant or advisor who renders bona fide services (other than services in connection with the offering or sale of securities of the Corporation or one of its
Affiliates, as applicable, in a capital raising transaction or as a market maker or promoter of that entity’s securities) to the Corporation or one of its Affiliates.
|
4.
|
STOCK SUBJECT TO THE PLAN.
|
|
4.1 |
Shares Available. Subject to the provisions of
Section 7.3.1, the capital stock that may be delivered under this Plan will be shares of the Corporation’s authorized but unissued Common Stock. The shares of Common Stock issued and delivered may be issued and delivered for any lawful
consideration.
|
|
4.2 |
Share Limit. Subject to the provisions of Section 7.3.1 and further subject to the share counting rules
of Section 4.3, the maximum number of shares of Common Stock that may be delivered pursuant to Awards granted under this Plan will not exceed 300,000 shares (the “Share Limit”) in the aggregate. In addition, the Share Limit will automatically increase (A) upon the sale and consummation of any offering of the Corporation’s Common Stock other than, for the avoidance of doubt, the initial public
offering (each such sale and offering, an “Equity Offering”), in an amount equal to ten percent (10.0%) of the total number of shares of Common Stock sold by the Corporation in connection with such
Equity Offering and (B) if on the last day of the Corporation’s fiscal year, the Share Limit has not increased during such fiscal year by an aggregate amount equal to or greater than two percent (2.0%) of the total number of shares of
Common Stock outstanding on the first day of such fiscal year (the “Minimum Annual Increase”), then in an amount equal to the difference between the Minimum Annual Increase and the aggregate amount in
which the Share Limit increased during such fiscal year, effective as of the last day of such fiscal year. Notwithstanding the foregoing, the Board may act prior to the sale and consummation of the
applicable Equity Offering or the last day of such fiscal year, as applicable, to provide that an increase in the Share Limit will be a lesser number of shares of Common Stock than would otherwise occur
pursuant to the preceding sentence. As required under Treasury Regulation Section 1.422-2(b)(3)(i), in no event will the number of shares of Common Stock that may be delivered pursuant to Incentive Stock Options granted under
this Plan exceed the Share Limit.
|
|
4.3 |
Replenishment and Reissue of Unvested Awards.
To the extent that an Award is settled in cash or a form other than shares of Common Stock, the shares that would have been delivered had there been no such cash or other settlement shall not be counted against the shares available for
issuance under this Plan. No Award may be granted under this Plan unless, on the date of grant, the sum of (a) the maximum number of shares of Common Stock issuable at any time pursuant to such Award, plus (b) the number of shares of
Common Stock that have previously been issued pursuant to Awards granted under this Plan, plus (c) the maximum number of shares of Common Stock that may be issued at any time after such date of grant pursuant to Awards that are outstanding
on such date, does not exceed the Share Limit. Shares of Common Stock that are subject to or underlie Options or SARs granted under this Plan that expire or for any reason are canceled or terminated without having been exercised (or shares
of Common Stock subject to or underlying the unexercised portion of such Options or SARs in the case of Options or SARs that were partially exercised), as well as shares of Common Stock that are subject to Stock Awards made under this Plan
that are forfeited to the Corporation or otherwise repurchased by the Corporation prior to the vesting of such shares for a price not greater than the original purchase or issue price of such shares (as adjusted pursuant to Section 7.3.1)
will again, except to the extent prohibited by law or applicable listing or regulatory requirements, be available for subsequent Award grants under this Plan. Shares that are exchanged by a Participant or withheld by the Corporation as
full or partial payment in connection with any Award under this Plan, as well as any shares exchanged by a Participant or withheld by the Corporation or one of its Affiliates to satisfy the tax withholding obligations related to any Award,
shall be available for subsequent Awards under this Plan. In the case of an exercise of a SAR, only the number of shares actually issued in respect of such exercise shall be charged against this Plan’s Share Limit. Adjustments to the
Share Limit pursuant to this Section 4.3 are subject to any applicable limitations of the Code in the case of Awards intended to be Incentive Stock Options.
|
|
4.4 |
Reservation of Shares. The Corporation shall at all times reserve a number of shares of Common Stock
sufficient to cover the Corporation’s obligations and contingent obligations to deliver shares with respect to Awards then outstanding under this Plan.
|
5.
|
OPTION AND SAR GRANT PROGRAM.
|
|
5.1 |
Option and SAR Grants in General. Each Option
or SAR shall be evidenced by an Award Agreement in the form approved by the Administrator. The Award Agreement evidencing an Option or SAR shall contain the terms established by the Administrator for that Award, as well as any other terms,
provisions, or restrictions that the Administrator may impose on the Option or SAR or any shares of Common Stock subject to the Option or SAR; in each case subject to the applicable provisions and limitations of this Section 5 and the other
applicable provisions and limitations of this Plan. The Administrator may require that the recipient of an Option or SAR promptly execute and return to the Corporation his or her Award Agreement
evidencing the Award. In addition, the Administrator may require that the spouse of any married recipient of an Option or SAR also promptly execute and return to the Corporation the Award Agreement evidencing the Award granted to the
recipient or such other spousal consent form that the Administrator may require in connection with the grant of the Award.
|
|
5.2 |
Incentive Stock Option Status. The
Administrator will designate each Option granted under this Plan as either an Incentive Stock Option or a Nonqualified Stock Option, and such designation shall be set forth in the applicable Award Agreement. Any Option granted under this
Plan that is not expressly designated in the applicable Award Agreement as an Incentive Stock Option will be deemed to be designated a Nonqualified Stock Option under this Plan and not an “incentive stock option” within the meaning of
Section 422 of the Code. Incentive Stock Options shall be subject to the provisions of Section 5.5 in addition to the provisions of this Plan applicable to Options generally.
|
|
5.3 |
Option or SAR Price.
|
|
5.3.1 |
Option Pricing Limits. Subject to the following provisions of this Section
5.3.1, the Administrator will determine the purchase price per share of the Common Stock covered by each Option (the “exercise price” of the Option) at the time of the grant of the Option, which exercise price will be set forth in the
applicable Award Agreement. In no case will the exercise price of an Option be less than the greater of:
|
|
(a) |
the par value of the Common Stock;
|
|
(b) |
subject to clause (c) below, 100% of the Fair Market Value of a share of Common Stock on the date of grant; or
|
|
(c) |
in the case of an Incentive Stock Option granted to a Participant described in Section 5.5.4, 110% of the Fair Market Value of a share of Common Stock on the date of grant.
|
|
5.3.2 |
Payment Provisions. The Corporation will not be obligated to deliver
certificates for the shares of Common Stock to be purchased on exercise of an Option unless and until it receives full payment of the exercise price therefor, all related withholding obligations under Section 7.6 have been satisfied, and
all other conditions to the exercise of the Option set forth herein or in the Award Agreement have been satisfied. The purchase price of any shares of Common Stock purchased on exercise of an Option must be paid in full at the time of each
purchase in such lawful consideration as may be permitted or required by the Administrator, which may include, without limitation, one or a combination of the following methods:
|
|
(a) |
cash, check payable to the order of the Corporation, or electronic funds transfer;
|
|
(b) |
notice and third party payment in such manner as may be authorized by the Administrator;
|
|
(c) |
the delivery of previously owned shares of Common Stock;
|
|
(d) |
by a reduction in the number of shares of Common Stock otherwise deliverable pursuant to the Award;
|
|
(e) |
subject to such procedures as the Administrator may adopt, pursuant to a “cashless exercise”; or
|
|
(f) |
if authorized by the Administrator or specified in the applicable Award Agreement, by a promissory note of the Participant consistent with the requirements of Section 5.3.3.
|
|
5.3.3 |
Acceptance of Notes to Finance Exercise. The Corporation may, with the
Administrator’s approval in each specific case, accept one or more promissory notes from any Eligible Person in connection with the exercise of any Option; provided that any such note shall be subject to the following terms and conditions:
|
|
(a) |
The principal of the note shall not exceed the amount required to be paid to the Corporation upon the exercise, purchase or acquisition of one or more Awards under this Plan and the note shall be delivered directly to the Corporation in
consideration of such exercise, purchase or acquisition.
|
|
(b) |
The initial term of the note shall be determined by the Administrator; provided that the term of the note, including extensions, shall not exceed a period of five years.
|
|
(c) |
The note shall provide for full recourse to the Participant and shall bear interest at a rate determined by the Administrator, but not less than the interest rate necessary to avoid the imputation of interest under the Code and to avoid
any adverse accounting consequences in connection with the exercise, purchase or acquisition.
|
|
(d) |
If the employment or services of the Participant by or to the Corporation and its Affiliates terminates, the unpaid principal balance of the note shall become due and payable on the 30th business day after such termination; provided,
however, that if a sale of the shares acquired on exercise of the Option would cause such Participant to incur liability under Section 16(b) of the Exchange Act, the unpaid balance shall become due and payable on the 10th business day after
the first day on which a sale of such shares could have been made without incurring such liability assuming for these purposes that there are no other transactions (or deemed transactions) in securities of the Corporation by the Participant
subsequent to such termination.
|
|
(e) |
If required by the Administrator or by applicable law, the note shall be secured by a pledge of any shares or rights financed thereby or other collateral, in compliance with applicable law.
|
|
5.3.4 |
Base Price of SARs. The Administrator will determine the base price per share of the Common Stock covered by each SAR at the time of
grant of the SAR, which base price will be set forth in the applicable Award Agreement and will not be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant of the SAR.
|
|
5.4 |
Vesting; Term; Exercise Procedure.
|
|
5.4.1 |
Vesting. Except as provided in Section 5.8, an Option or SAR may be exercised
only to the extent that it is vested and exercisable. The Administrator will determine the vesting and/or exercisability provisions of each Option or SAR (which may be based on performance criteria, passage of time or other factors or any
combination thereof), which provisions will be set forth in the applicable Award Agreement. Unless the Administrator otherwise expressly provides, once exercisable an Option or SAR will remain exercisable until the expiration or earlier
termination of the Option or SAR.
|
|
5.4.2 |
Term. Each Option or SAR shall expire not more than 10 years after its date of
grant. Each Option or SAR will be subject to earlier termination as provided in or pursuant to Sections 5.6 and 7.3 or the terms of the applicable Award Agreement.
|
|
5.4.3 |
Exercise Procedure. Any exercisable Option or SAR will be deemed to be exercised when (a) the applicable exercise procedures in the
related Award Agreement have been satisfied (or, in the absence of any such procedures in the related Award Agreement, the Corporation has received written notice of such exercise from the Participant ), (b) in the case of an Option, the
Corporation has received any required payment made in accordance with Section 5.3, (c) in the case of an Option or SAR, all withholding obligations arising in connection with the exercise have been satisfied in accordance with Section 7.6,
and (d) in the case of an Option or SAR, the Corporation has received any written statement required pursuant to Section 7.5.1.
|
|
5.4.4 |
Fractional Shares/Minimum Issue. Fractional share interests will be
disregarded, but may be accumulated. The Administrator, however, may determine that cash, other securities, or other property will be paid or transferred in lieu of any fractional share interests. No Option or SAR may be exercised as to
fewer than 100 shares (subject to adjustment pursuant to Section 7.3.1) at one time unless the number as to which the Award is exercised is the total number at the time then subject to the vested and
exercisable portion of the Award.
|
|
5.5 |
Limitations on Grant and Terms of Incentive Stock Options.
|
|
5.5.1 |
$100,000 Limit. To the extent that the aggregate Fair Market Value of stock with respect to which incentive stock options (within the
meaning of Section 422 of the Code) first become exercisable by a Participant in any calendar year exceeds $100,000, taking into account both Common Stock subject to Incentive Stock Options under this Plan and stock subject to incentive
stock options under all other plans of the Corporation or any of its Affiliates, such options will be treated as nonqualified stock options. For this purpose, the Fair Market Value of the stock subject to options will be determined as of
the date the options were awarded. In reducing the number of options treated as incentive stock options to meet the $100,000 limit, the most recently granted options will be reduced (recharacterized as nonqualified stock options) first.
To the extent a reduction of simultaneously granted options is necessary to meet the $100,000 limit, the Administrator may, in the manner and to the extent permitted by law, designate which shares of Common Stock are to be treated as shares
acquired pursuant to the exercise of an incentive stock option.
|
|
5.5.2 |
Other Code Limits. Incentive Stock Options may only be granted to individuals
that are employees of the Corporation or one of its Affiliates and satisfy the other eligibility requirements of the Code. Any Award Agreement relating to Incentive Stock Options will contain or shall be deemed to contain such other terms
and conditions as from time to time are required in order that the Option be an “incentive stock option” as that term is defined in Section 422 of the Code.
|
|
5.5.3 |
ISO Notice of Sale Requirement. Any Participant who exercises an Incentive Stock Option shall give prompt written notice to the
Corporation of any sale or other transfer of the shares of Common Stock acquired on such exercise if the sale or other transfer occurs within (a) one year after the exercise date of the Option, or (b) two years after the grant date of the
Option.
|
|
5.5.4 |
Limits on 10% Holders. No Incentive Stock Option may be granted to any person
who, at the time the Incentive Stock Option is granted, owns (or is deemed to own under Section 424(d) of the Code) shares of outstanding stock of the Corporation (or any of its Affiliates) possessing more than 10% of the total combined
voting power of all classes of stock of the Corporation (or any of its Affiliates), unless the exercise price of such Incentive Stock Option is at least 110% of the Fair Market Value of the stock subject to the Incentive Stock Option and
the Incentive Stock Option by its terms is not exercisable more than five years after the date the Incentive Stock Option is granted.
|
|
5.6 |
Effects of Termination of Employment on Options and SARs.
|
|
5.6.1 |
Dismissal for Cause. Unless otherwise provided in the applicable Award Agreement and subject to earlier termination pursuant to or as
contemplated by Section 5.4.2 or 7.3, if a Participant’s employment by or service to the Corporation or any of its Affiliates is terminated by such entity for Cause, the Participant’s Option or SAR will
terminate on the Participant’s Severance Date, whether or not the Option or SAR is then vested and/or exercisable.
|
|
5.6.2 |
Death or Disability. Unless otherwise provided in the applicable Award Agreement (consistent with applicable securities laws) and subject
to earlier termination pursuant to or as contemplated by Section 5.4.2 or 7.3, if a Participant’s employment by or service to the Corporation or any of its Affiliates terminates as a result of the Participant’s death or Total Disability:
|
|
(a) |
the Participant (or his or her Personal Representative or Beneficiary, in the case of the Participant’s Total Disability or death, respectively), will have until the date that is twelve (12) months after the Participant’s Severance Date to
exercise the Participant’s Option or SAR (or portion thereof) to the extent that it was vested and exercisable on the Severance Date;
|
|
(b) |
the Option or SAR, to the extent not vested and exercisable on the Participant’s Severance Date, shall terminate on the Severance Date; and
|
|
(c) |
the Option or SAR, to the extent exercisable for the twelve (12)-month period following the Participant’s Severance Date and not exercised during such period, shall terminate at the close of business on the last day of the twelve
(12)-month period.
|
|
5.6.3 |
Other Terminations of Employment. Unless otherwise provided in the applicable Award Agreement (consistent with applicable securities
laws) and subject to earlier termination pursuant to or as contemplated by Section 5.4.2 or 7.3, if a Participant’s employment by or service to the Corporation or any of its Affiliates terminates for any reason other than a termination by
such entity for Cause or because of the Participant’s death or Total Disability:
|
|
(a) |
the Participant will have until the date that is three (3) months after the Participant’s Severance Date to exercise his or her Option or SAR (or portion thereof) to the extent that it was vested and exercisable on the Severance Date;
|
|
(b) |
the Option or SAR, to the extent not vested and exercisable on the Participant’s Severance Date, shall terminate on the Severance Date; and
|
|
(c) |
the Option or SAR, to the extent exercisable for the three (3)-month period following the Participant’s Severance Date and not exercised during such period,
shall terminate at the close of business on the last day of the three (3)-month period.
|
|
5.7 |
Option and SAR Repricing/Cancellation and Regrant/Waiver of Restrictions. Subject to Section 4 and Section 7.7 and the specific limitations on Options and SARs contained in this Plan, the Administrator from time to time may authorize, generally or in specific cases only, for the benefit
of any Eligible Person, any adjustment in the exercise or base price, the vesting schedule, the number of shares subject to, or the term of, an Option or SAR granted under this Plan by cancellation of an outstanding Option or SAR and a
subsequent regranting of the Option or SAR, by amendment, by substitution of an outstanding Option or SAR, by waiver or by other legally valid means. Such amendment or other action may result in, among other changes, an exercise or base
price that is higher or lower than the exercise or base price of the original or prior Option or SAR, provide for a greater or lesser number of shares of Common Stock subject to the Option or SAR, or provide for a longer or shorter vesting
or exercise period. In no event, however, may any such amendment or other action reduce the exercise or base price of the Option or SAR to less than the Fair Market Value of a share of Common Stock at the time of such change, or extend the
maximum term of the Option or SAR at a time when the exercise or base price of such Award is less than the Fair Market Value of a share of Common Stock.
|
|
5.8 |
Early Exercise Options and SARs. The
Administrator may, in its discretion, designate any Option or SAR as an “early exercise Option” or “early exercise SAR” which, by express provision in the applicable Award Agreement, may be exercised prior to the date such Option or SAR has
vested. If the Participant elects to exercise all or a portion of any early exercise Option or SAR before it is vested, the shares of Common Stock acquired under the Option or SAR which are attributable to the unvested portion of the
Option or SAR shall be Restricted Shares. The applicable Award Agreement will specify the extent (if any) to which and the time (if ever) at which the Participant will be entitled to dividends, voting and other rights in respect of such
Restricted Shares prior to vesting, and the restrictions imposed on such shares and the conditions of release or lapse of such restrictions. Unless otherwise expressly provided in the applicable Award Agreement, such Restricted Shares
shall be subject to the provisions of Sections 6.6 through 6.9, below.
|
6.
|
STOCK AWARD PROGRAM.
|
|
6.1 |
Stock Awards in General. Each Stock Award
shall be evidenced by an Award Agreement in the form approved by the Administrator. The Award Agreement evidencing a Stock Award shall contain the terms established by the Administrator for that Stock Award, as well as any other terms,
provisions, or restrictions that the Administrator may impose on the Stock Award; in each case subject to the applicable provisions and limitations of this Section 6 and the other applicable provisions and limitations of this Plan. The Administrator may require that the recipient of a Stock Award promptly execute and return to the Corporation his or her Award Agreement evidencing the Stock Award. In addition, the Administrator may
require that the spouse of any married recipient of a Stock Award also promptly execute and return to the Corporation the Award Agreement evidencing the Stock Award granted to the recipient or such other spousal consent form that the
Administrator may require in connection with the grant of the Stock Award.
|
|
6.2 |
Types of Stock Awards. The Administrator shall designate whether a Stock Award shall be a Restricted
Stock Award, and such designation shall be set forth in the applicable Award Agreement.
|
|
6.3 |
Purchase Price.
|
|
6.3.1 |
Pricing Limits. Subject to the following provisions of this Section 6.3, the Administrator will determine the purchase price per share of
the Common Stock covered by each Stock Award at the time of grant of the Award. In no case will such purchase price be less than the par value of the Common Stock.
|
|
6.3.2 |
Payment Provisions. The Corporation will not be obligated to issue certificates evidencing shares of Common Stock awarded under this
Section 6 unless and until it receives full payment of the purchase price therefor and all other conditions to the purchase, as determined by the Administrator, have been satisfied. The purchase price of any shares subject to a Stock Award
must be paid in full at the time of the purchase in such lawful consideration as may be permitted or required by the Administrator, which may include, without limitation, one or a combination of the methods set forth in clauses (a) through
(f) in Section 5.3.2 and/or past services rendered to the Corporation or any of its Affiliates.
|
|
6.4 |
Vesting. The restrictions imposed on the shares of Common Stock subject to a Restricted Stock Award
(which may be based on performance criteria, passage of time or other factors or any combination thereof) will be set forth in the applicable Award Agreement.
|
|
6.5 |
Term; Settlement of Awards. A Stock Award shall either vest or be forfeited not more than 10 years after
the date of grant. Each Stock Award will be subject to earlier termination as provided in or pursuant to Sections 6.8 and 7.3. Payment of Awards may be in the form of cash, shares of Common Stock, other Awards or combinations thereof as
the Administrator shall determine, and with such restrictions as it may impose. The Administrator may also require or permit Participants to elect to defer the issuance of shares or the settlement of Awards in cash under such rules and
procedures as it may establish under this Plan. The Administrator may also provide that deferred settlements include the payment or crediting of interest or other earnings on the deferral amounts, or the payment or crediting of dividend
equivalents where the deferred amounts are denominated in shares.
|
|
6.6 |
Stock Certificates; Fractional Shares. Stock
certificates evidencing Restricted Shares will bear a legend making appropriate reference to the restrictions imposed hereunder and will be held by the Corporation or by a third party designated by the Administrator until the restrictions
on such shares have lapsed, the shares have vested in accordance with the provisions of the Award Agreement and Section 6.4, and any related loan has been repaid. Fractional share interests will be disregarded, but may be accumulated. The
Administrator, however, may determine that cash, other securities, or other property will be paid or transferred in lieu of any fractional share interests.
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6.7 |
Dividend and Voting Rights. Unless otherwise
provided in the applicable Award Agreement, a Participant receiving Restricted Shares will be entitled to cash dividend and voting rights for all Restricted Shares issued even though they are not vested, but such rights will terminate
immediately as to any Restricted Shares which cease to be eligible for vesting.
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6.8 |
Termination of Employment; Return to the Corporation. Unless the Administrator otherwise expressly provides, Restricted Shares subject to an Award that remain subject to vesting conditions that have not been satisfied by the time specified in the applicable Award Agreement (which may
include, without limitation, the Participant’s Severance Date), will not vest and will be reacquired by the Corporation in such manner and on such terms as the Administrator provides, which terms shall include, to the extent not prohibited
by law, return or repayment of the lower of (a) the Fair Market Value of the Restricted Shares at the time of the termination, or (b) the original purchase price of the Restricted Shares, without interest, to the Participant. The
Award Agreement shall specify any other terms or conditions of the repurchase if the Award fails to vest. Any other Stock Award that has not been exercised or paid as of a Participant’s Severance Date shall terminate on that date unless
otherwise expressly provided by the Administrator in the applicable Award Agreement.
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6.9 |
Waiver of Restrictions. Subject to Sections
4 and 7.7 and the specific limitations on Stock Awards contained in this Plan, the Administrator from time to time may authorize, generally or in specific cases only, for the benefit of any Eligible Person, any adjustment in the vesting
schedule, or the restrictions upon or the term of, a Stock Award granted under this Plan by amendment, by substitution of an outstanding Stock Award, by waiver or by other legally valid means.
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7.
|
PROVISIONS APPLICABLE TO ALL AWARDS.
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7.1 |
Rights of Eligible Persons, Participants and Beneficiaries.
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7.1.1 |
Employment Status. No person shall have any claim or rights to be granted an Award (or additional Awards, as the case may be) under this
Plan, subject to any express contractual rights (set forth in a document other than this Plan) to the contrary.
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7.1.2 |
No Employment/Service Contract. Nothing contained in this Plan (or in any
other documents under this Plan or related to any Award) shall confer upon any Eligible Person or Participant any right to continue in the employ or other service of the Corporation or any of its Affiliates, constitute any contract or
agreement of employment or other service or affect an employee’s status as an employee at will, nor shall interfere in any way with the right of the Corporation or any Affiliate to change such person’s compensation or other benefits, or to
terminate his or her employment or other service, with or without cause at any time. Nothing in this Section 7.1.2, or in Section 7.3 or 7.15, however, is intended to adversely affect any express independent right of such person under a
separate employment or service contract. An Award Agreement shall not constitute a contract of employment or service.
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7.1.3 |
Plan Not Funded. Awards payable under this Plan will be payable in shares of
Common Stock or from the general assets of the Corporation, and (except as to the share reservation provided in Section 4.4) no special or separate reserve, fund or deposit will be made to assure payment of such Awards. No Participant,
Beneficiary or other person will have any right, title or interest in any fund or in any specific asset (including shares of Common Stock, except as expressly provided) of the Corporation or any of its Affiliates by reason of any Award
hereunder. Neither the provisions of this Plan (or of any related documents), nor the creation or adoption of this Plan, nor any action taken pursuant to the provisions of this Plan will create, or be construed to create, a trust of any
kind or a fiduciary relationship between the Corporation or any of its Affiliates and any Participant, Beneficiary or other person. To the extent that a Participant, Beneficiary or other person acquires a right to receive payment pursuant
to any Award hereunder, such right will be no greater than the right of any unsecured general creditor of the Corporation.
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7.1.4 |
Charter Documents. The Articles of Incorporation and Bylaws of the
Corporation, as either of them may lawfully be amended from time to time, may provide for additional restrictions and limitations with respect to the Common Stock (including additional restrictions and limitations on the voting or transfer
of Common Stock) or priorities, rights and preferences as to securities and interests prior in rights to the Common Stock. These restrictions and limitations are in addition to (and not in lieu of) those set forth in this Plan or any Award
Agreement, and are incorporated herein by this reference.
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7.1.5
|
REIT Status. The Plan shall be interpreted and construed in a manner consistent with the Corporation’s
status as a real estate investment trust under Sections 856 through 860 of the Code (a “REIT”). No Award shall be granted or awarded, and with respect to any Award granted under the Plan,
such Award shall not vest, be exercisable or be settled (i) to the extent that the grant, vesting, exercise or settlement of such Award could cause the Participant or any other person to be in violation of Section 7.2.1(a) of the
Corporation’s charter; or (ii) if, in the discretion of the Administrator, the grant, vesting, exercise or settlement of such Award could impair the Corporation’s status as a REIT.
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7.2 |
No Transferability; Limited Exception to Transfer Restrictions.
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7.2.1 |
Limit on Exercise and Transfer. Unless otherwise expressly provided in (or
pursuant to) this Section 7.2, by applicable law and by the Award Agreement, as the same may be amended:
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(a) |
all Awards are non-transferable and will not be subject in any manner to sale, transfer, anticipation, alienation, assignment, pledge, encumbrance or charge;
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(b) |
Awards will be exercised only by the Participant; and
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(c) |
amounts payable or shares issuable pursuant to an Award will be delivered only to (or for the account of) the Participant.
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7.2.2 |
Further Exceptions to Limits on Transfer. The exercise and transfer
restrictions in Section 7.2.1 will not apply to:
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(a) |
transfers to the Corporation;
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(b) |
transfers by gift or domestic relations order to one or more “family members” (as that term is defined in SEC Rule 701 promulgated under the Securities Act) of the Participant;
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(c) |
the designation of a Beneficiary to receive benefits if the Participant dies or, if the Participant has died, transfers to or exercises by the Participant’s Beneficiary, or, in the absence of a validly designated Beneficiary, transfers by
will or the laws of descent and distribution; or
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(d) |
if the Participant has suffered a disability, permitted transfers or exercises on behalf of the Participant by the Participant’s duly authorized legal representative.
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7.3 |
Adjustments; Changes in Control.
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7.3.1 |
Adjustments. Subject to Section 7.3.2 below, upon (or, as may be necessary to
effect the adjustment, immediately prior to): any reclassification, recapitalization, stock split (including a stock split in the form of a stock dividend) or reverse stock split; any merger, combination, consolidation, conversion or other
reorganization; any split-up, spin-off, or similar extraordinary dividend distribution in respect of the Common Stock; or any exchange of Common Stock or other securities of the Corporation, or any similar, unusual or extraordinary
corporate transaction in respect of the Common Stock; then the Administrator shall equitably and proportionately adjust (1) the number and type of shares of Common Stock (or other securities) that thereafter may be made the subject of
Awards (including the specific share limits, maximums and numbers of shares set forth elsewhere in this Plan), (2) the number, amount and type of shares of Common Stock (or other securities or property) subject to any outstanding Awards,
(3) the grant, purchase, or exercise or base price of any outstanding Awards, and/or (4) the securities, cash or other property deliverable upon exercise or vesting of any outstanding Awards, in each case to the extent necessary to preserve
(but not increase) the level of incentives intended by this Plan and the then-outstanding Awards.
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7.3.2 |
Consequences of a Change in Control Event. Upon the occurrence of a Change in
Control Event, the Administrator may make provision for a cash payment in settlement of, or for the assumption, substitution or exchange of any or all outstanding Awards (or the cash, securities or other property deliverable to the
holder(s) of any or all outstanding Awards) based upon, to the extent relevant in the circumstances, the distribution or consideration payable to holders of the Common Stock upon or in respect of such event.
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7.3.3 |
Early Termination of Awards. Upon the occurrence of a Change in Control Event, each then-outstanding Award (whether or not vested and/or
exercisable) shall terminate, subject to any provision that has been expressly made by the Administrator, through a plan of reorganization or otherwise, for the survival, substitution, assumption, exchange or other continuation or
settlement of such Award and provided that, in the case of Options and SARs that will not survive or be substituted for, assumed, exchanged, or otherwise continued or settled in the Change in Control Event, the holder of such Award shall be
given reasonable advance notice of the impending termination and a reasonable opportunity to exercise his or her outstanding and vested Options and SARs in accordance with their terms before the termination of the Awards (except that in no
case shall more than ten days’ notice of the impending termination be required). For purposes of this Section 7.3, an Award shall be deemed to have been “assumed” if (without limiting other circumstances in which an Award is assumed) the
Award continues after the Change in Control Event, and/or is assumed and continued by a Parent (as such term is defined in the definition of Change in Control Event) following a Change in Control Event, and confers the right to purchase or
receive, as applicable and subject to vesting and the other terms and conditions of the Award, for each share of Common Stock subject to the Award immediately prior to the Change in Control Event, the consideration (whether cash, shares, or
other securities or property) received in the Change in Control Event by the stockholders of the Corporation for each share of Common Stock sold or exchanged in such transaction (or the consideration received by a majority of the
stockholders participating in such transaction if the stockholders were offered a choice of consideration); provided, however, that if the consideration offered for a share of Common Stock in the transaction is not solely the ordinary
common stock of a successor corporation or a Parent, the Board may provide for the consideration to be received upon exercise or payment of the Award, for each share subject to the Award, to be solely ordinary common stock of the successor
corporation or a Parent equal in Fair Market Value to the per share consideration received by the stockholders participating in the Change in Control Event.
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7.3.4 |
Other Acceleration Rules. The Administrator may override the provisions of this Section 7.3 as to any Award by express provision in the
applicable Award Agreement and may accord any Participant a right to refuse any acceleration, whether pursuant to the Award Agreement or otherwise, in such circumstances as the Administrator may approve. The portion of any Incentive Stock
Option accelerated in connection with a Change in Control Event (or such other circumstances as may trigger accelerated vesting of the Incentive Stock Option) shall remain exercisable as an Incentive Stock Option only to the extent the
applicable $100,000 limitation on Incentive Stock Options is not exceeded. To the extent exceeded, the accelerated portion of the Option shall be exercisable as a Nonqualified Stock Option.
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7.4 |
Termination of Employment or Services.
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7.4.1 |
Events Not Deemed a Termination of Employment. Unless the Administrator otherwise expressly provides with respect to a particular Award,
if a Participant’s employment by or service to the Corporation or an Affiliate terminates but immediately thereafter the Participant continues in the employ of or service to another Affiliate or the Corporation, as applicable, the
Participant shall be deemed to have not had a termination of employment or service for purposes of this Plan and the Participant’s Awards. Unless the express policy of the Corporation or the Administrator otherwise provides, a
Participant’s employment relationship with the Corporation or any of its Affiliates shall not be considered terminated solely due to any sick leave, military leave, or any other leave of absence authorized by the Corporation or any
Affiliate or the Administrator; provided that, unless reemployment upon the expiration of such leave is guaranteed by contract or law, such leave is for a period of not more than three months. In the case of any Participant
on an approved leave of absence, continued vesting of the Award while on leave from the employ of or service with the Corporation or any of its Affiliates will be suspended until the Participant returns to service, unless the Administrator
otherwise provides or applicable law otherwise requires. In no event shall an Award be exercised after the expiration of the term of the Award set forth in the Award Agreement.
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7.4.2 |
Effect of Change of Affiliate Status. For purposes of this Plan and any Award, if an entity ceases to be an Affiliate, a termination of
employment or service will be deemed to have occurred with respect to each Eligible Person in respect of such Affiliate who does not continue as an Eligible Person in respect of another Affiliate that continues as such after giving effect
to the transaction or other event giving rise to the change in status unless the Affiliate that is sold, spun-off or otherwise divested (or its successor or a direct or indirect parent of such Affiliate or successor) assumes the Eligible
Person’s award(s) in connection with such transaction.
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7.4.3 |
Administrator Discretion. Notwithstanding the provisions of Section 5.6 or 6.8, in the event of, or in anticipation of, a termination of
employment or service with the Corporation or any of its Affiliates for any reason, the Administrator may accelerate the vesting and exercisability of all or a portion of the Participant’s Award, and/or, subject to the provisions of
Sections 5.4.2 and 7.3, extend the exercisability period of the Participant’s Option or SAR upon such terms as the Administrator determines and expressly sets forth in or by amendment to the Award Agreement.
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7.4.4 |
Termination of Consulting or Affiliate Services. If the Participant is an
Eligible Person solely by reason of clause (c) of Section 3, the Administrator shall be the sole judge of whether the Participant continues to render services to the Corporation or any of its Affiliates, unless a written contract or the
Award Agreement otherwise provides.
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7.5 |
Compliance with Laws.
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7.5.1 |
General. This Plan, the granting and vesting of Awards under this Plan, and the offer, issuance and delivery of shares of Common Stock,
the acceptance of promissory notes and/or the payment of money under this Plan or under Awards are subject to compliance with all applicable federal and state laws, rules and regulations (including but not limited to state and federal
securities laws, and federal margin requirements) and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Corporation, be necessary or advisable in connection therewith. The
person acquiring any securities under this Plan will, if requested by the Corporation, provide such assurances and representations to the Corporation as the Administrator may deem necessary or desirable to assure compliance with all
applicable legal and accounting requirements.
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7.5.2 |
Compliance with Securities Laws. No Participant shall sell, pledge or
otherwise transfer shares of Common Stock acquired pursuant to an Award or any interest in such shares except in accordance with the express terms of this Plan and the applicable Award Agreement. Any attempted transfer in violation of this
Section 7.5 shall be void and of no effect. Without in any way limiting the provisions set forth above, no Participant shall make any disposition of all or any portion of shares of Common Stock acquired or to be acquired pursuant to an
Award, except in compliance with all applicable federal and state securities laws and unless and until:
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(a) |
there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement;
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(b) |
such disposition is made in accordance with Rule 144 under the Securities Act; or
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(c) |
such Participant notifies the Corporation of the proposed disposition and furnishes the Corporation with a statement of the circumstances surrounding the proposed disposition, and, if requested by the Corporation, furnishes to the
Corporation an opinion of counsel acceptable to the Corporation’s counsel, that such disposition will not require registration under the Securities Act and will be in compliance with all applicable state securities laws.
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7.5.3 |
Share Legends. All certificates evidencing shares of Common Stock issued or
delivered under this Plan shall bear the following legends and/or any other appropriate or required legends under applicable laws:
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7.5.4 |
Confidential Information. Any financial or other information relating to the
Corporation obtained by Participants in connection with or as a result of this Plan or their Awards shall be treated as confidential.
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7.6 |
Tax Withholding. Upon any exercise, vesting,
or payment of any Award or upon the disposition of shares of Common Stock acquired pursuant to the exercise of an Incentive Stock Option prior to satisfaction of the holding period requirements of Section 422 of the Code, or upon any other
tax withholding event with respect to any Award, the Corporation or any of its Affiliates shall have the right at its option to:
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(a) |
require the Participant (or the Participant’s Personal Representative or Beneficiary, as the case may be) to pay or provide for payment of the amount of any taxes which the Corporation or Affiliate may be required to withhold with respect
to such Award event or payment;
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(b) |
deduct from any amount otherwise payable (in respect of an Award or otherwise) in cash to the Participant (or the Participant’s Personal Representative or Beneficiary, as the case may be) the amount of any taxes which the Corporation or
Affiliate may be required to withhold with respect to such Award event or payment; or
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(c) |
reduce the number of shares of Common Stock to be delivered by (or otherwise reacquire shares held by the Participant) the appropriate number of shares of Common Stock, valued at their then Fair Market Value, to satisfy the applicable
withholding obligation.
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7.7 |
Plan and Award Amendments, Termination and Suspension.
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7.7.1 |
Board Authorization. The Board may, at any time, terminate or, from time to
time, amend, modify or suspend this Plan, in whole or in part. No Awards may be granted during any period that the Board suspends this Plan.
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7.7.2 |
Stockholder Approval. To the extent then required by applicable law or any
applicable listing agency or required under Sections 162, 422 or 424 of the Code to preserve the intended tax consequences of this Plan, or deemed necessary or advisable by the Board, any amendment to this Plan shall be subject to
stockholder approval.
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7.7.3 |
Amendments to Awards. Without limiting any other express authority of the
Administrator under (but subject to) the express limits of this Plan, the Administrator by agreement or resolution may waive conditions of or limitations on Awards to Participants that the Administrator in the prior exercise of its
discretion has imposed, without the consent of a Participant, and (subject to the requirements of Sections 2.2 and 7.7.4) may make other changes to the terms and conditions of Awards.
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7.7.4 |
Limitations on Amendments to Plan and Awards. No amendment, suspension or
termination of this Plan or amendment of any outstanding Award Agreement shall, without written consent of the Participant, affect in any manner materially adverse to the Participant any rights or benefits of the Participant or obligations
of the Corporation under any Award granted under this Plan prior to the effective date of such change; provided, however, that an amendment that may cause an Incentive Stock Option to become a Nonqualified Stock Option shall not be treated
for these purposes as adversely affecting the rights or benefits of the Participant. Changes, settlements and other actions contemplated by Section 7.3 shall not be deemed to constitute changes or amendments for purposes of this Section
7.7.
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7.8 |
Privileges of Stock Ownership. Except as
otherwise expressly authorized by the Administrator, a Participant will not be entitled to any privilege of stock ownership as to any shares of Common Stock not actually delivered to and held of record by the Participant. Except as
expressly required by Section 7.3.1, no adjustment will be made for dividends or other rights as a stockholder for which a record date is prior to such date of delivery.
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7.9 |
Stock-Based Awards in Substitution for Awards Granted by Other Corporation. Awards may be granted to
Eligible Persons in substitution for or in connection with an assumption of employee stock options, stock appreciation rights, restricted stock or other stock-based awards granted by other entities to persons who are or who will become
Eligible Persons in respect of the Corporation or one of its Affiliates, in connection with a distribution, merger or other reorganization by or with the granting entity or an affiliated entity, or the acquisition by the Corporation or one
of its Affiliates, directly or indirectly, of all or a substantial part of the stock or assets of the employing entity. The Awards so granted need not comply with other specific terms of this Plan, provided the Awards reflect only
adjustments giving effect to the assumption or substitution consistent with the conversion applicable to the Common Stock in the transaction and any change in the issuer of the security. Any shares that are delivered and any Awards that
are granted by, or become obligations of, the Corporation, as a result of the assumption by the Corporation of, or in substitution for, outstanding awards previously granted by an acquired company (or previously granted by a predecessor
employer (or direct or indirect parent thereof) in the case of persons that become employed by the Corporation or one of its Affiliates in connection with a business or asset acquisition or similar transaction) shall not be counted against
the Share Limit or other limits on the number of shares available for issuance under this Plan.
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7.10 |
Effective Date of the Plan. This Plan is
effective upon the Effective Date, subject to approval by the stockholders of the Corporation within twelve months after the date the Board approves this Plan.
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7.11 |
Term of the Plan. Unless earlier terminated by the Board, this Plan will terminate at the close of
business on the day before the 10th anniversary of the Effective Date. After the termination of this Plan either upon such stated expiration date or its
earlier termination by the Board, no additional Awards may be granted under this Plan, but previously granted Awards (and the authority of the Administrator with respect thereto, including the authority to amend such Awards) shall remain
outstanding in accordance with their applicable terms and conditions and the terms and conditions of this Plan.
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7.12 |
Governing Law/Severability/Construction.
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7.12.1 |
Choice of Law. This Plan, the Awards, all documents evidencing Awards and all
other related documents will be governed by, and construed in accordance with, the laws of the state of Maryland.
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7.12.2 |
Severability. If it is determined that any provision of this Plan or an Award Agreement is invalid and unenforceable, the remaining
provisions of this Plan and/or the Award Agreement, as applicable, will continue in effect provided that the essential economic terms of this Plan and the Award can still be enforced.
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7.12.3 |
Construction. It is intended that this Plan, and any Award under this Plan, will be exempt from, or comply with, Section 409A of the Code
so as to not result in any tax, penalty or interest thereunder, and this Plan and each Award shall be construed and interpreted consistent with that intent.
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7.13 |
Captions. Captions and headings are given to
the sections and subsections of this Plan solely as a convenience to facilitate reference. Such headings will not be deemed in any way material or relevant to the construction or interpretation of this Plan or any provision thereof.
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7.14 |
Non-Exclusivity of Plan. Nothing in this Plan
will limit or be deemed to limit the authority of the Board or the Administrator to grant awards or authorize any other compensation, with or without reference to the Common Stock, under any other plan or authority.
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7.15 |
No Restriction on Corporate Powers. The existence of this Plan, the Award Agreements, and the Awards
granted hereunder, shall not limit, affect or restrict in any way the right or power of the Board or the stockholders of the Corporation to make or authorize: (a) any adjustment, recapitalization, reorganization or other change in the
Corporation’s or any Affiliate’s capital structure or its business; (b) any merger, amalgamation, consolidation or change in the ownership of the Corporation or any Affiliate; (c) any issue of bonds, debentures, capital, preferred or prior
preference stocks ahead of or affecting the Corporation’s capital stock or the rights thereof; (d) any dissolution or liquidation of the Corporation or any Affiliate; (e) any sale or transfer of all or any part of the Corporation or any
Affiliate’s assets or business; or (f) any other corporate act or proceeding by the Corporation or any Affiliate. No Participant, Beneficiary or any other person shall have any claim under any Award or Award Agreement against any member of
the Board or the Administrator, or the Corporation or any employees, officers or agents of the Corporation or any Affiliate, as a result of any such action.
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7.16 |
Other Company Compensation or Benefit Programs. Payments and other benefits received by a Participant
under an Award made pursuant to this Plan shall not be deemed a part of a Participant’s compensation for purposes of the determination of benefits under any other employee welfare or benefit plans or arrangements, if any, provided by the
Corporation or any Affiliate, except where the Administrator or the Board expressly otherwise provides or authorizes in writing. Awards under this Plan may be made in addition to, in combination with, as alternatives to or in payment of
grants, awards or commitments under any other plans or arrangements of the Corporation or any Affiliate.
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8.
|
DEFINITIONS.
|
|
(a) |
has been negligent in the discharge of his or her duties to the Corporation or any Affiliate, has refused to perform stated or assigned duties or is incompetent in or (other than by reason of a disability or analogous condition) incapable
of performing those duties;
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(b) |
has been dishonest or committed or engaged in an act of theft, embezzlement or fraud, a breach of confidentiality, an unauthorized disclosure or use of inside information, customer lists, trade secrets or other confidential information;
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(c) |
has breached a fiduciary duty, or willfully and materially violated any other duty, law, rule, regulation or policy of the Corporation or any of its Affiliates; or has been convicted of, or pled guilty or nolo contendere to, a felony or
misdemeanor (other than minor traffic violations or similar offenses);
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(d) |
has materially breached any of the provisions of any agreement with the Corporation or any of its Affiliates;
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(e) |
has engaged in unfair competition with, or otherwise acted intentionally in a manner injurious to the reputation, business or assets of, the Corporation or any of its Affiliates; or
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(f) |
has improperly induced a vendor or customer to break or terminate any contract with the Corporation or any of its Affiliates or induced a principal for whom the Corporation or any Affiliate acts as agent to terminate such agency
relationship.
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(a) |
Approval by stockholders of the Corporation (or, if no stockholder approval is required, by the Board alone) of the complete dissolution or liquidation of the Corporation, other than in the context of a Business Combination that does not
constitute a Change in Control Event under paragraph (c) below;
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(b) |
The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a “Person”)) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 50% or more of either (1) the then-outstanding shares of common stock of the Corporation (the “Outstanding Company Common Stock”) or (2) the combined voting power
of the then-outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that, for purposes
of this paragraph (b), the following acquisitions shall not constitute a Change in Control Event; (A) any acquisition directly from the Corporation, (B) any acquisition by the Corporation, (C) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Corporation or any Affiliate or a successor, (D) any acquisition by any entity pursuant to a Business Combination, (E) any acquisition by a Person described in and satisfying the conditions of
Rule 13d-1(b) promulgated under the Exchange Act, or (F) any acquisition by a Person who is the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the Outstanding Company Common Stock
and/or the Outstanding Company Voting Securities on the Effective Date (or an affiliate, heir, descendant, or related party of or to such Person);
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(c) |
Consummation of a reorganization, merger, statutory share exchange or consolidation or similar corporate transaction involving the Corporation or any corporation or other entity a majority of whose outstanding voting stock or voting power
is beneficially owned directly or indirectly by the Corporation (a “Subsidiary”), a sale or other disposition of all or substantially all of the assets of the Corporation, or the acquisition of assets
or stock of another entity by the Corporation or any of its Subsidiaries (each, a “Business Combination”), in each case unless, following such Business Combination, (1) all or substantially all of the
individuals and entities that were the beneficial owners of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than
50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business
Combination (including, without limitation, an entity that, as a result of such transaction, owns the Corporation or all or substantially all of the Corporation’s assets directly or through one or more subsidiaries (a “Parent”)), and (2) no Person (excluding any individual or entity described in clauses (C), (E) or (F) of paragraph (b) above) beneficially owns (within the meaning of Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, more than 50% of, respectively, the then-outstanding shares of common stock of the entity resulting from such Business Combination or the combined voting power of the then-outstanding voting securities
of such entity, except to the extent that the ownership in excess of 50% existed prior to the Business Combination;
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(a) |
If the Common Stock is listed or admitted to trade on the New York Stock Exchange or other national securities exchange (the “Exchange”), the Fair Market Value shall equal the closing price of a
share of Common Stock as reported on the composite tape for securities on the Exchange for the date in question, or, if no sales of Common Stock were made on the Exchange on that date, the closing price of a share of Common Stock as reported
on said composite tape for the next preceding day on which sales of Common Stock were made on the Exchange. The Administrator may, however, provide with respect to one or more Awards that the Fair Market Value shall equal the closing price
of a share of Common Stock as reported on the composite tape for securities listed on the Exchange on the last trading day preceding the date in question or the average of the high and low trading prices of a share of Common Stock as reported
on the composite tape for securities listed on the Exchange for the date in question or the most recent trading day.
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(b) |
If the Common Stock is not listed or admitted to trade on a national securities exchange, the Fair Market Value shall be the value as reasonably determined by the Administrator for purposes of the Award in the circumstances.
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(a) |
if the Participant is an Eligible Person under clause (a) of Section 3 and the Participant’s employment by the Corporation or any of its Affiliates terminates (regardless of the reason), the last day that the Participant is actually
employed by the Corporation or such Affiliate (unless, immediately following such termination of employment, the Participant is a member of the Board or, by express written agreement with the Corporation or any of its Affiliates, continues to
provide other services to the Corporation or any Affiliate as an Eligible Person under clause (c) of Section 3, in which case the Participant’s Severance Date shall not be the date of such termination of employment but shall be determined in
accordance with clause (b) or (c) below, as applicable, in connection with the termination of the Participant’s other services);
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(b) |
if the Participant is not an Eligible Person under clause (a) of Section 3 but is an Eligible Person under clause (b) thereof, and the Participant ceases to be a member of the Board (regardless of the reason), the last day that the
Participant is actually a member of the Board (unless, immediately following such termination, the Participant is an employee of the Corporation or any of its Affiliates or, by express written agreement with the Corporation or any of its
Affiliates, continues to provide other services to the Corporation or any Affiliate as an Eligible Person under clause (c) of Section 3, in which case the Participant’s Severance Date shall not be the date of such termination but shall be
determined in accordance with clause (a) above or (c) below, as applicable, in connection with the termination of the Participant’s employment or other services);
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(c) |
if the Participant is not an Eligible Person under clause (a) or clause (b) of Section 3 but is an Eligible Person under clause (c) thereof, and the Participant ceases to provide services to the Corporation or any of its Affiliates as
determined in accordance with Section 7.4.4 (regardless of the reason), the last day that the Participant actually provides services to the Corporation or such Affiliate as an Eligible Person under clause (c) of Section 3 (unless, immediately
following such termination, the Participant is an employee of the Corporation or any of its Affiliates or is a member of the Board, in which case the Participant’s Severance Date shall not be the date of such termination of services but shall
be determined in accordance with clause (a) or (b) above, as applicable, in connection with the termination of the Participant’s employment or membership on the Board).
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