DEFA14A: Hannon Armstrong Amends Reincorporation Proposal to Address ISS Concerns, Limits Tax Benefit Preservation

Hannon Armstrong is modifying its proposed conversion to a Delaware corporation, specifically addressing concerns raised by Institutional Shareholder Services (ISS) by limiting the duration of tax benefit preservation provisions.

Summary

• Hannon Armstrong is providing supplemental information regarding Proposal 4, the Reincorporation Proposal, for its 2024 Annual Meeting of Stockholders.
• The company is seeking approval to convert from a Maryland corporation to a Delaware corporation under the name HA Sustainable Infrastructure Capital, Inc.
• In response to input from Institutional Shareholder Services (ISS), Hannon Armstrong is amending the new Delaware certificate of incorporation.
• The amendment limits the Tax Benefits Preservation Provisions of the Delaware Charter to expire three years after the filing and effectiveness of the Delaware Certificate.
• The Expiration Date in Section 10.1(k) of the Delaware Certificate will be updated to reflect this change.
• The board can terminate the restrictions earlier if they are no longer necessary or in the best interests of the corporation.
• Abstentions and broker non-votes on the Reincorporation Proposal will have the same effect as a vote against the proposal.
• The document includes the complete text of the proposed Delaware Charter, including the revisions.

Sentiment

Score: 7

Explanation: The sentiment is neutral to positive. The company is proactively addressing concerns raised by ISS, which is a positive sign. However, the need for an amendment suggests some initial challenges with the proposal.

Positives

• The company is responsive to shareholder concerns, as evidenced by the amendment to the reincorporation proposal.
• Limiting the duration of the tax benefit preservation provisions may address concerns about potential restrictions on stock transfers.
• The board retains flexibility to terminate the restrictions earlier if circumstances warrant.

Negatives

• The document highlights a potential point of contention with ISS regarding the original reincorporation proposal.
• The need for an amendment suggests that the initial proposal may not have been well-received by all stakeholders.

Risks

• Failure to obtain stockholder approval for the reincorporation proposal could have implications for the company's strategic flexibility.
• The tax benefit preservation provisions, even with the three-year limit, could still potentially restrict stock transfers and affect shareholder value.
• There is a risk that the amended proposal may still not fully address all stakeholder concerns.

Future Outlook

The company is seeking stockholder approval for the reincorporation proposal at the 2024 Annual Meeting. The success of this proposal will determine the company's corporate structure and the applicability of the tax benefit preservation provisions.

Management Comments

• After a review of the input from Institutional Shareholder Services (ISS) with respect to the Reincorporation Proposal, we have determined to add language to the new Delaware certificate of incorporation to be adopted as part of the Reincorporation Proposal.

Industry Context

Corporate reincorporation is a common practice, with Delaware being a popular choice due to its well-established corporate law and court system. Companies often reincorporate to take advantage of more favorable legal and regulatory environments.

Comparison to Industry Standards

• Many companies choose to incorporate or reincorporate in Delaware due to its business-friendly legal framework.
• The tax benefit preservation provisions are designed to protect the company's ability to utilize net operating losses and other tax attributes, which is a common concern in corporate transactions.
• The specific ownership thresholds and transfer restrictions are tailored to the company's individual circumstances and tax profile.

Corporate Governance

Stakeholder Impact

• Shareholders may be impacted by the tax benefit preservation provisions, which could potentially restrict stock transfers.
• Employees are unlikely to be directly impacted by the reincorporation, but it could have indirect effects on the company's long-term strategy.
• The reincorporation is unlikely to have a significant impact on customers, suppliers, or creditors.

Next Steps

• Stockholders will vote on the reincorporation proposal at the 2024 Annual Meeting.
• The company will implement the amended Delaware Charter if the proposal is approved.
• The board will monitor the tax benefit preservation provisions and may take further action as needed.

Key Dates

Keywords

reincorporation, Delaware, proxy statement, tax benefits, ISS, corporate governance, stockholders