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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant ☒
Filed by a party other than the Registrant
Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material under § 240.14a-12
HERSHA HOSPITALITY TRUST
(Name of Registrant as Specified In Its Charter)
 
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check all boxes that apply):

No fee required

Fee paid previously with preliminary materials

Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11

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44 Hersha Drive
Harrisburg, Pennsylvania 17102
October 3, 2023
Dear Fellow Shareholder,
You are cordially invited to attend a special meeting of shareholders (the “Special Meeting”) of Hersha Hospitality Trust, a Maryland real estate investment trust (the “Company”), to be held on Wednesday, November 8, 2023, at 9:00 a.m., Eastern Time, virtually via an Internet webcast at https://web.lumiagm.com/212424894. At the Special Meeting, you will be asked to consider and vote on the merger of the Company with and into 1776 Portfolio REIT Merger Sub, LLC (“REIT Merger Sub”), a Delaware limited liability company and wholly owned subsidiary of 1776 Portfolio Investment, LLC (“Parent”), with REIT Merger Sub being the surviving entity (the “Company Merger”), pursuant to the Agreement and Plan of Merger, dated as of August 27, 2023 (the “Merger Agreement”), by and among Parent, REIT Merger Sub, 1776 Portfolio OP Merger Sub, LP, a Virginia limited partnership and subsidiary of Parent (“OP Merger Sub”), Hersha Hospitality Limited Partnership, a Virginia limited partnership and subsidiary of the Company (“Company OP”), and the Company. Immediately preceding the Company Merger, OP Merger Sub will be merged with and into Company OP, with Company OP as the surviving entity (the “Partnership Merger” and, together with the Company Merger, the “Mergers”). If the Mergers and the other transactions contemplated by the Merger Agreement are completed, you, as a holder of Priority Class A common shares of beneficial interest, par value $0.01 per share (“Company Common Shares”), of the Company will be entitled to receive $10.00 in cash, without interest, subject to certain adjustments as further described in the enclosed proxy statement, in exchange for each Company Common Share you own as of immediately prior to the effective time of the Company Merger, as more fully described in the enclosed proxy statement.
Our board of trustees has, acting upon the unanimous recommendation of a transaction committee (the “Transaction Committee”) consisting solely of three independent trustees, unanimously (i) determined that the Merger Agreement, the Company Merger, and the other transactions contemplated by the Merger Agreement are advisable, and in the best interests of the Company and its shareholders, (ii) duly and validly authorized and approved, and declared advisable, the execution, delivery and performance of the Merger Agreement and the consummation of the Company Merger and the other transactions contemplated by the Merger Agreement, (iii) directed that the Company Merger and the other transactions contemplated by the Merger Agreement be submitted for consideration at a Special Meeting of the Company’s shareholders and (iv) resolved to recommend that the Company’s shareholders vote in favor of the approval of the Company Merger and the other transactions contemplated by the Merger Agreement and to include such recommendation in the proxy statement accompanying this letter. Our board of trustees recommends that you vote “FOR” the approval of the Company Merger.
The Company Merger must be approved by the affirmative vote of the holders of a majority of the outstanding Company Common Shares entitled to vote on the matter. The Notice of Special Meeting and proxy statement accompanying this letter provide you with more specific information concerning the Special Meeting, the Company Merger, the Merger Agreement and the other transactions contemplated by the Merger Agreement. The Company encourages you to read carefully the enclosed proxy statement, including the annexes. You may also obtain more information about the Company from it or from documents filed with the U.S. Securities and Exchange Commission (the “SEC”).
Your vote is very important regardless of the number of Company Common Shares that you own. Whether or not you plan to virtually attend the Special Meeting, the Company requests that you authorize a proxy to vote your shares by either completing and returning the enclosed proxy card as promptly as possible or authorizing your proxy (or submitting voting instructions to your bank, broker or other nominee) by telephone or through the Internet. The enclosed proxy card contains instructions regarding voting. If you attend the Special Meeting, you may continue to have your shares voted as instructed in your proxy, or you may withdraw your proxy at the Special Meeting and vote your shares virtually. If you fail to authorize a proxy to vote your shares, fail to vote virtually, or fail to instruct your broker on how to vote, it will have the same effect as a vote “AGAINST” approval of the Company Merger.

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On behalf of the board of trustees, thank you for your continued support.
Sincerely, 

/s/ Neil H. Shah
Neil H. Shah
President and Chief Executive Officer
This proxy statement is dated October 3, 2023, and is first being mailed to our shareholders on or about October 6, 2023.

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44 Hersha Drive
Harrisburg, Pennsylvania 17102
October 3, 2023
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To the Shareholders of Hersha Hospitality Trust:
NOTICE IS HEREBY GIVEN that the special meeting of shareholders of Hersha Hospitality Trust (the “Special Meeting”), a Maryland real estate investment trust (the “Company”), will be held on Wednesday, November 8, 2023, at 9:00 a.m., Eastern Time, virtually via an Internet webcast at https://web.lumiagm.com/212424894, for the following purposes:
1.
To consider and vote on a proposal to approve the merger (the “Company Merger”) of the Company with and into 1776 Portfolio REIT Merger Sub, LLC (“REIT Merger Sub”), a Delaware limited liability company and wholly owned subsidiary of 1776 Portfolio Investment, LLC, a Delaware limited liability company (“Parent”), and the other transactions contemplated by the Agreement and Plan of Merger, dated as of August 27, 2023, by and among Parent, REIT Merger Sub, 1776 Portfolio OP Merger Sub, LP, a Virginia limited partnership and subsidiary of Parent (“OP Merger Sub”), Hersha Hospitality Limited Partnership, a Virginia limited partnership and subsidiary of the Company (“Company OP”), and the Company (the “Merger Agreement” and such proposal, the “Merger Proposal”);
2.
To consider and vote on a proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to our named executive officers in connection with the Company Merger (the “Advisory Compensation Proposal”); and
3.
To consider and vote on a proposal to approve any adjournment of the Special Meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the Special Meeting to approve the Merger Proposal (the “Adjournment Proposal”).
The foregoing items of business are more fully described in the attached proxy statement, which forms a part of this notice and is incorporated herein by reference. Pursuant to the Company’s bylaws, only the matters set forth in this Notice of Special Meeting may be brought before the Special Meeting. The board of trustees has fixed the close of business on October 2, 2023 as the record date (the “Record Date”) for the determination of shareholders entitled to notice of and to vote at the Special Meeting or any postponement or adjournment thereof. The Company knows of no other matters to come before the Special Meeting. Only holders of record of Priority Class A common shares of beneficial interest, par value $0.01 per share, of the Company (“Company Common Shares”) on the Record Date are entitled to notice of, and to vote at, the Special Meeting or at any postponements or adjournments thereof. Holders of record of the Company’s 6.875% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share, 6.50% Series D Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share, and 6.50% Series E Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share, on the Record Date are entitled to notice of, but may not vote at, the Special Meeting. On or around October 6, 2023, the Company intends to commence mailing of this Notice to all shareholders entitled to notice of the Special Meeting.
The board of trustees has, acting upon the unanimous recommendation of a transaction committee consisting solely of three independent trustees, unanimously determined that the Merger Agreement, the Company Merger, and the other transactions contemplated by the Merger Agreement, are advisable and in the best interests of the Company and its shareholders, and has duly and validly authorized and approved, and declared advisable, the execution, delivery, and performance of the Merger Agreement, and the consummation of the Company Merger and the other transactions contemplated by the Merger Agreement. The board of trustees recommends that you vote “FOR” the Merger Proposal, “FOR” the Advisory Compensation Proposal, and “FOR” the Adjournment Proposal.
The Company Merger must be approved by the affirmative vote of the holders of a majority of the outstanding Company Common Shares entitled to vote on the matter. Accordingly, your vote is very important

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regardless of the number of Company Common Shares that you own. Whether or not you plan to attend the Special Meeting virtually, the Company requests that you authorize a proxy to vote your shares by either marking, signing, dating and promptly returning the enclosed proxy card in the postage-paid envelope or authorizing your proxy (or submitting voting instructions to your bank, broker or other nominee) by telephone or through the Internet. If you attend the Special Meeting, you may continue to have your shares voted as instructed in your proxy, or you may withdraw your proxy at the Special Meeting and vote your shares virtually. If you fail to authorize a proxy to vote your shares, fail to vote virtually, or fail to instruct your broker, bank or other nominee on how to vote, the effect will be that the Company Common Shares that you own will not be counted for purposes of determining whether a quorum is present at the Special Meeting and will have the same effect as a vote “AGAINST” the Merger Proposal. The approval of the Advisory Compensation Proposal and the approval of the Adjournment Proposal each require the affirmative vote of a majority of the votes cast on the matter. If you fail to authorize a proxy to vote your shares, fail to vote virtually, or fail to instruct your broker on how to vote, it will have no effect on the outcome of such proposals. Abstentions, while present for purposes of determining presence of a quorum, are not considered votes cast and therefore will have no effect on the outcome of the Advisory Compensation Proposal and the Adjournment Proposal. Abstentions will have the same effect as voting “AGAINST” the Merger Proposal.
Any proxy may be revoked at any time prior to its exercise by authorizing a proxy to vote again over the Internet or by telephone prior to 11:59 p.m., Eastern Time, on November 7, 2023, signing and returning another proxy card with a later date, provided the Company receives the updated proxy card before the date of the Special Meeting, or voting virtually at the Special Meeting. Attendance alone will not be sufficient to revoke a previously authorized proxy.
The Company encourages you to read the accompanying proxy statement in its entirety and to submit a proxy or voting instructions so that your Company Common Shares will be represented and voted even if you do not virtually attend the Special Meeting. If you have any questions or need assistance in submitting a proxy or your voting instructions, please call the Company’s proxy solicitor, Okapi Partners, toll-free at (877) 629-6356.
Regardless of the number of Company Common Shares you hold, as a shareholder your role is very important, and the board of trustees strongly encourages you to exercise your right to vote.
BY ORDER OF THE BOARD OF TRUSTEES,
/s/ David L. Desfor
David L. Desfor
Corporate Secretary

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SUMMARY
This summary highlights only selected information from this proxy statement relating to (i) the merger of 1776 Portfolio OP Merger Sub, LP (“OP Merger Sub”) with and into Hersha Hospitality Limited Partnership (“Company OP” and such transaction, the “Partnership Merger”) and (ii) the merger of Hersha Hospitality Trust (the “Company”) with and into 1776 Portfolio REIT Merger Sub, LLC (“REIT Merger Sub” and such transaction, the “Company Merger”) and certain related transactions contemplated by the Agreement and Plan of Merger (the “Merger Agreement”), dated as of August 27, 2023, by and among 1776 Portfolio Investment, LLC (“Parent” and, together with REIT Merger Sub and OP Merger Sub, the “Parent Parties”), REIT Merger Sub, OP Merger Sub, the Company and Company OP. This summary does not contain all of the information about the Partnership Merger and the Company Merger (collectively, the “Mergers”) and related transactions contemplated by the Merger Agreement that may be important to you. As a result, to understand the Mergers and the related transactions fully and for a more complete description of the terms of the Mergers and related transactions, you should read carefully this proxy statement in its entirety, including the annexes and the other documents to which the Company has referred you, including the Merger Agreement attached as Annex A. This proxy statement is first being mailed to the Company’s shareholders on or about October 6, 2023.
The Parties to the Mergers (See Page 29)
Hersha Hospitality Trust
Corporate Headquarters:
44 Hersha Drive
Harrisburg, Pennsylvania 17102
(717) 236-4400
Hersha Hospitality Limited Partnership
Corporate Headquarters:
44 Hersha Drive
Harrisburg, Pennsylvania 17102
(717) 236-4400
The Company is a self-advised Maryland real estate investment trust that was formed in 1998 and completed its initial public offering in January of 1999. The Company invests primarily in institutional grade hotels in major urban gateway markets, including New York, Washington, DC, Boston, Philadelphia, South Florida and California. The Company’s primary strategy is to continue to own high quality luxury, upscale, and upper midscale hotels in metropolitan markets with high barriers to entry and independent boutique hotels in markets with similar characteristics.
The Company is structured as an umbrella partnership real estate investment trust, or UPREIT, and the Company owns its hotels and investments in joint ventures through its operating partnership, Hersha Hospitality Limited Partnership, or Company OP, for which the Company serves as the sole general partner. As of December 31, 2022, the Company owned an approximate 85.1% partnership interest in the Company OP including all of the general partnership interest.
Company OP is a Virginia limited partnership and a subsidiary of the Company.
As of the date of the Merger Agreement, the Company’s portfolio consisted of 22 wholly-owned limited and full service properties with a total of 3,392 rooms, one hotel owned through a consolidated joint venture with a total of 115 rooms, and interests in two limited service properties owned through joint venture investments with a total of 304 rooms. These 25 properties, with a total of 3,811 rooms, are located in California, Connecticut, District of Columbia, Florida, Maryland, Massachusetts, New York, and Pennsylvania, and operate under leading brands owned by Marriott International, Inc., Hilton Worldwide, Inc., InterContinental Hotels Group, and Hyatt Corporation. In addition, some of the Company’s hotels operate as independent hotels.
The Company’s website address is www.hersha.com. The information found on, or otherwise accessible through, the Company’s website is not incorporated into, and does not form a part of, this proxy statement or any other report or document the Company files with or furnishes to the U.S. Securities and Exchange Commission (“SEC”). Company Common Shares are traded on the New York Stock Exchange (the “NYSE”), under the
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symbol “HT”; Company 6.875% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $.01 per share (“Company Series C Preferred Shares”), trade on the NYSE under the symbol “HT-PC”; Company 6.50% Series D Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $.01 per share (“Company Series D Preferred Shares”), trade on the NYSE under the symbol “HT-PD”, and Company 6.50% Series E Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $.01 per share (“Company Series E Preferred Shares” and, together with the Company Series C Preferred Shares and Company Series D Preferred Shares, the “Company Preferred Shares”), trade on the NYSE under the symbol “HT-PE.”
For additional information about the Company and its business, please refer to “Where You Can Find Additional Information.”
1776 Portfolio Investment, LLC
1776 Portfolio OP Merger Sub, LP
1776 Portfolio REIT Merger Sub, LLC
c/o KSL Capital Partners, LLC
100 St. Paul Street, Suite 800
Denver, Colorado 80206
(720) 284-6400
1776 Portfolio Investment, LLC (“Parent”) is a Delaware limited liability company that was formed to enter into the Merger Agreement and related agreements and to consummate the transactions contemplated thereby and related thereto. Parent has not engaged in any business activities other than activities incidental to its formation in connection with the Merger Agreement and the transactions contemplated thereby and related thereto, including arranging the financing in connection with the Mergers. Upon completion of the Mergers, the Surviving Entity will be a wholly-owned subsidiary of Parent.
1776 Portfolio OP Merger Sub, LP (“OP Merger Sub”), a Virginia limited partnership and subsidiary of Parent, and 1776 Portfolio REIT Merger Sub, LLC (“REIT Merger Sub”), a Delaware limited lability company and wholly-owned subsidiary of Parent, were formed to facilitate the acquisition of the Company and have not engaged in any business activities other than activities incidental to their formation or in connection with the Merger Agreement and the transactions contemplated thereby and related thereto, including arranging the financing in connection with the Mergers.
Parent, OP Merger Sub, and REIT Merger Sub are at times referred to in this proxy statement as the “Parent Parties.”
The Parent Parties are affiliates of KSL Capital Partners, LLC (the “Sponsor” or “KSL”). The Sponsor is a private equity firm specializing in travel and leisure enterprises in five primary sectors: hospitality, recreation, clubs, real estate and travel services. The Sponsor has offices in Denver, Colorado; New York City; Stamford, Connecticut; and London, England. Since 2005, the Sponsor has raised in excess of $21 billion of capital across its equity, credit and tactical opportunities funds. The Sponsor’s current and past portfolio contains some of the premier properties in travel and leisure. For more information, please visit ww.kslcapital.com.
The Special Meeting (See Page 31)
The Proposals (See Page 26)
The special meeting of the Company’s shareholders (the “Special Meeting”) will be held on Wednesday, November 8, 2023, at 9:00 a.m., Eastern Time, virtually via an Internet webcast at https://web.lumiagm.com/212424894. At the Special Meeting, holders of Priority Class A common shares of beneficial interest, par value $0.01 per share (the “Company Common Shares”), as of the close of business on October 2, 2023 (the “Record Date”), will be asked to consider and vote on (1) a proposal to approve the Company Merger and the other transactions contemplated by the Merger Agreement in accordance with the terms of the Merger Agreement (the “Merger Proposal”), (2) a proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to the Company’s named executive officers in connection with the Mergers (the “Advisory Compensation Proposal”), and (3) a proposal to approve any adjournment of the Special Meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the Special Meeting to approve the Merger Proposal (the “Adjournment Proposal”).
Pursuant to the Company’s bylaws, only the matters set forth in the Notice of Special Meeting may be brought before the Special Meeting.
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Record Date, Notice and Quorum (See Page 31)
Record holders of outstanding Company Common Shares as of the Record Date are entitled to vote at the Special Meeting on all matters to be voted upon. As of the Record Date, there were 40,104,916 Company Common Shares outstanding. On each matter presented to the Company’s shareholders for a vote at the Special Meeting, the holders of outstanding Company Common Shares are entitled to one vote per share held as of the Record Date. All holders of record of Company Preferred Shares on the Record Date are entitled to notice of, but may not vote at, the Special Meeting.
A quorum will be established for purposes of the Special Meeting if holders of a majority of all the votes entitled to be cast at such meeting on any matter are present, either in person or by proxy. Abstentions and broker non-votes, if any, will be counted as shares present for the purposes of determining the presence of a quorum. If a quorum is not present at the Special Meeting, the Company expects that the Special Meeting will be adjourned to a later date.
The Mergers; Effective Time; Closing Date (See Page 71)
Pursuant to the Merger Agreement, on the date of closing, or the Closing Date, (i) first, OP Merger Sub will be merged with and into Company OP, with Company OP surviving the merger (such continuing entity, the “Surviving Partnership”) and (ii) second, the Company will be merged with and into REIT Merger Sub, the separate existence of the Company will cease, and REIT Merger Sub will survive the merger as a wholly owned subsidiary of Parent (such continuing entity, the “Surviving Entity”).
The closing of the Mergers (the “Closing”) will take place (a) on the fifth (5th) business day after the satisfaction or waiver of the last of the conditions set forth in the Merger Agreement to be satisfied or waived (other than any such conditions that, by their nature, are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions at the Closing), or (b) such other place or date as may be agreed in writing by the Company and Parent. In no event will the Closing be required to occur prior to November 28, 2023, unless otherwise notified by Parent in writing to the Company.
The Partnership Merger will become effective as set forth in the certificate of merger issued by the Virginia State Corporation Commission, or the VSCC, and at such time (i) as the articles of partnership merger are filed with the VSCC or (ii) on such other date and time, not to exceed five business days from the date the articles of partnership merger are filed with the VSCC, as will be agreed to by the Company and Parent and specified in the articles of partnership merger (such date and time, the “Partnership Merger Effective Time”). The parties will cause the Partnership Merger Effective Time to occur immediately prior to the effective time of the Company Merger, or the Company Merger Effective Time.
The Company Merger Effective Time will be such time as (i) the articles of merger are accepted for record by the State Department of Assessments and Taxation of Maryland, or the SDAT, and the filing of the certificate of merger with the Secretary of State of the State of Delaware, or (ii) on such other date and time (not to exceed five business days from the date the articles of merger are accepted for record by the SDAT) as will be agreed to by the Company and REIT Merger Sub (such date and time, the “Company Merger Effective Time”). The parties have agreed to cause the Company Merger Effective Time to occur immediately after the Partnership Merger Effective Time.
Reasons for the Mergers (See Page 47)
In reaching its unanimous decision to (a) authorize and approve, and declare advisable, the delivery and performance of the Merger Agreement and the consummation of the Company Merger and the other transactions contemplated by the Merger Agreement, (b) direct that the Company Merger and the other transactions contemplated by the Merger Agreement each be submitted for consideration at the Special Meeting and (c) recommend that the Company’s shareholders vote in favor of the approval of the Company Merger and the other transactions contemplated by the Merger Agreement and to include such recommendation in this proxy statement, the board of trustees, or the Board, considered the recommendations of the transaction committee established by the Board, or the Transaction Committee. Prior to making its recommendation, the Transaction Committee consulted with its independent legal and financial advisors. In reaching their respective determinations regarding the Merger Agreement, the Company Merger and the other transactions contemplated by the Merger Agreement, the Board and the Transaction Committee considered a number of factors, including the factors that the Board and the Transaction Committee viewed as
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supporting their respective decisions with respect to the Merger Agreement, the Company Merger and the other transactions contemplated by the Merger Agreement. The Board and the Transaction Committee also considered a variety of risks and other potentially negative factors in considering the Merger Agreement, the Company Merger and the other transactions contemplated by the Merger Agreement.
For a discussion of certain material factors considered by the Transaction Committee and the Board in reaching their decisions to approve the Merger Agreement, the Company Merger and the other transactions contemplated by the Merger Agreement, see the sections “The Mergers-Reasons for the Mergers” and “The Mergers-Recommendation of the Board” in this proxy statement.
Recommendation of the Board (See Page 51)
The Board at a duly held meeting has, acting upon the unanimous recommendation of the Transaction Committee, unanimously:
determined that the Merger Agreement, the Company Merger and the other transactions contemplated by the Merger Agreement are advisable, and in the best interests of the Company and its shareholders;
duly and validly authorized and approved, and declared advisable, the execution, delivery and performance of the Merger Agreement, and the consummation of the Company Merger and the other transactions contemplated by the Merger Agreement;
directed that the Company Merger and the other transactions contemplated by the Merger Agreement be submitted for consideration at the Special Meeting; and
recommended that you vote “FOR” the Merger Proposal, “FOR” the Advisory Compensation Proposal and “FOR” the Adjournment Proposal.
Opinion of Goldman Sachs & Co. LLC (See Page B-1)
Goldman Sachs & Co. LLC (“Goldman Sachs”) delivered its oral opinion, subsequently confirmed in writing, to the Transaction Committee that, as of August 27, 2023 and based upon and subject to the factors and assumptions set forth therein, the Merger Consideration to be paid to the holders (other than Parent and its affiliates) of Company Common Shares pursuant to the Merger Agreement was fair from a financial point of view to such holders.
The full text of the written opinion of Goldman Sachs, dated August 27, 2023, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B. The summary of Goldman Sachs’ opinion contained in this Proxy Statement is qualified in its entirety by reference to the full text of Goldman Sachs’ written opinion. Goldman Sachs provided advisory services and its opinion for the information and assistance of the Transaction Committee in connection with its consideration of the transactions contemplated by the Merger Agreement. Goldman Sachs’ opinion is not a recommendation as to how any holder of Company Common Shares should vote with respect to the transactions contemplated by the Merger Agreement or any other matter. Pursuant to an engagement letter between the Company and Goldman Sachs, the Company has agreed to pay Goldman Sachs a transaction fee that is estimated, based on the information available as of the date of announcement of the transactions contemplated by the Merger Agreement, to be an amount not to exceed approximately $14.3 million, all of which is payable upon the consummation of the transactions contemplated by the Merger Agreement.
Material U.S. Federal Income Tax Consequences (See Page 65)
If you are a U.S. holder (as defined in this proxy statement in “The Mergers-Material U.S. Federal Income Tax Consequences”), the exchange of your Company Common Shares for Merger Consideration (including any amounts required to be withheld for tax purposes) pursuant to the Company Merger will generally require you to recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of Merger Consideration you receive pursuant to the Merger Agreement (including any amounts required to be withheld for tax purposes) and your adjusted tax basis in such surrendered shares. A non-U.S. holder (as defined in this proxy statement in “The Mergers-Material U.S. Federal Income Tax Consequences”) will generally be subject to U.S. federal income tax with respect to the exchange of such non-U.S. holder’s Company Common Shares for Merger Consideration in the Company Merger unless (1) such non-U.S. holder
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does not have certain connections to the United States, (2) Company Common Shares do not constitute United States real property interests with respect to such non-U.S. holder, and (3) subject to certain exceptions, the payment received by such non-U.S. holder is not attributable to gain from the Company’s deemed sale of United States real property interests. Because particular circumstances may differ, you should consult your tax advisor to determine the U.S. federal income tax consequences to you of the Company Merger in light of your particular circumstances and any consequences arising under the laws of any state, local, or foreign taxing jurisdiction. A more complete description of the U.S. federal income tax consequences of the Company Merger is provided in this proxy statement at “The Mergers-Material U.S. Federal Income Tax Consequences.”
Delisting and Deregistration of Company Common Shares and Company Preferred Shares (See Page 70)
If the Mergers are completed, Company Common Shares and Company Preferred Shares will be delisted, will no longer be traded on the NYSE and will be deregistered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
The Merger Agreement (See Page 71)
Treatment of Securities (See Page 73)
Company Common Shares
At the Company Merger Effective Time, each Company Common Share issued and outstanding immediately prior to the Company Merger Effective Time (other than Excluded Shares, as defined below) will be automatically converted into the right to receive an amount in cash equal to $10.00 per share (the “Merger Consideration”), without interest, subject to the terms and conditions set forth in the Merger Agreement.
Company Preferred Shares
At the Company Merger Effective Time, each Company Series C Preferred Share, Company Series D Preferred Share, and Company Series E Preferred Share issued and outstanding immediately prior to the Company Merger Effective Time (other than any Excluded Shares) will be automatically converted into the right to receive an amount in cash equal to $25.00 per share plus accrued and unpaid dividends, if any, up to and including the Closing Date, without interest (the “Preferred Merger Consideration”).
Following the completion of the Mergers, the Company Common Shares and Company Preferred Shares will be delisted, will no longer be traded on the NYSE and will be deregistered under the Exchange Act.
REIT Merger Sub Membership Interests
At the Company Merger Effective Time, each membership interest of REIT Merger Sub issued and outstanding immediately prior to the Company Merger Effective Time will survive the Company Merger and remain issued and outstanding following the Company Merger Effective Time as a membership interest of the Surviving Entity, and no consideration will be exchanged therefor.
Excluded Shares
At the Company Merger Effective Time, each issued and outstanding Company Common Share and/or Company Preferred Share that is owned by Parent, REIT Merger Sub or any subsidiary of Parent or the Company or any subsidiary of the Company immediately prior to the Company Merger Effective Time (collectively, the “Excluded Shares”), if any, will be automatically cancelled and retired and cease to exist, and no consideration will be delivered in exchange therefor.
Company Partnership Units
At the Partnership Merger Effective Time, except as set forth below, each Company Partnership Unit (as defined in the Merger Agreement) issued and outstanding immediately prior to the Partnership Merger Effective Time (other than Excluded Units, as defined below) will be converted into the right to receive an amount in cash equal to $10.00 per unit, without interest, subject to the terms and conditions set forth in the Merger Agreement (the “OP Merger Consideration”).
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Each Company Partnership Unit (including for the avoidance of doubt, any Company Preferred Partnership Units (as defined in the Merger Agreement)) owned by the Company or any subsidiary of the Company (including Company OP), in each case, as of immediately prior to the Partnership Merger Effective Time (collectively, the “Continuing Units”), will be unaffected by the Partnership Merger and will remain outstanding as a partnership unit of the Surviving Partnership held by the Company or relevant subsidiary of the Company and no consideration will be delivered in exchange therefor. Each Company Partnership Unit owned by Parent, OP Merger Sub or any of their respective subsidiaries, in each case, as of immediately prior to the Partnership Merger Effective Time (together with the Continuing Units, the “Excluded Units”) will be cancelled and will cease to exist, and no consideration will be delivered in exchange therefor.
Company Restricted Share Awards
At the Company Merger Effective Time, each award of restricted Company Common Shares (each a “Company Restricted Share Award”) granted under the Company’s Amended and Restated 2012 Equity Incentive Plan that is outstanding as of immediately prior to the Company Merger Effective Time will vest and all restrictions thereupon shall lapse, and each Company Restricted Share Award will be canceled and converted into the right to receive a payment (without interest and subject to applicable tax withholding) equal to $10.00 per Company Common Share underlying such Company Restricted Share Award as of immediately prior to the Company Merger Effective Time, subject to the terms and conditions of the Merger Agreement.
Company LTIP Units
At the Partnership Merger Effective Time, each Company LTIP Unit (as defined in the Merger Agreement) that is outstanding and unvested as of immediately prior to the Partnership Merger Effective Time will vest and become transferable and immediately thereafter, effective as of the Partnership Merger Effective Time, the Company will cause a Forced Conversion (as defined in the Merger Agreement) with respect to all Company LTIP Units then eligible for conversion (after giving effect to the vesting of all Company LTIP Units as contemplated by the Merger Agreement) such that, as of the Partnership Merger Effective Time, each then outstanding Company LTIP Unit will be converted into an equal number of Company Partnership Units (with such converted Company Partnership Units treated in the same manner under the Merger Agreement as other outstanding Company Partnership Units).
Company Permitted Dividends and Adjustments to the Merger Consideration
Under the terms of the Merger Agreement, subject to the restrictions set forth therein, the Company may declare or pay regular cash dividends and Company OP may declare and pay regular quarterly distributions to the holders of Company Common Shares, Company Preferred Shares and Company Partnership Units, consistent with past practice of the Company and Company OP, as applicable, in each case, in an amount not to exceed $0.05 per Company Common Share or Company Partnership Unit, as applicable, $0.4297 per Company Series C Preferred Share, $0.40625 per Company Series D Preferred Share, and $0.40625 per Company Series E Preferred Share, during the term of the Merger Agreement without reducing the Merger Consideration to be paid to you (each a “Company Permitted Dividend”).
The amount in cash payable to the shareholders and unit holders is subject to decrease in the event the Company declares and pays any additional dividends or other distributions (other than the Company Permitted Divided) prior to the Closing, which the Company may do without the consent of Parent if and only if the making of such dividends or other distributions prior to the Closing is necessary to maintain the Company’s tax status as a real estate investment trust, or REIT, and to avoid the imposition of any entity level income or excise tax. No such dividends or distributions are currently anticipated by the Company.
Financing of the Mergers (See Page 58)
Parent has entered into an equity commitment letter with certain entities affiliated with the Sponsor, dated August 27, 2023 (the “Equity Commitment Letter”), pursuant to which such affiliates have committed to contribute to Parent an aggregate amount in cash equal to $400 million substantially simultaneously with the Closing, which will be used by Parent, to fund the amounts required to be funded by Parent, REIT Merger Sub, or OP Merger Sub pursuant to the Merger Agreement at the Closing, including, without limitation, (a) the aggregate amounts to be paid as Merger Consideration, Preferred Merger Consideration, OP Merger
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Consideration and in exchange for the Company equity awards, (b) the related expenses required to be paid by the Parent Parties pursuant to the Merger Agreement and (c) any repayment or refinancing of any outstanding indebtedness of the Company or the Company subsidiaries that is required in connection with the Closing as contemplated by the Merger Agreement, collectively called the “Payment Obligations.” Funding of the equity commitments is subject to the terms set forth in the Equity Commitment Letter, which include (i) the satisfaction or waiver by the Parent Parties of all conditions precedent to the Parent Parties’ obligations to effect the Closing set forth in the Merger Agreement (other than those conditions that by their nature cannot be satisfied other than at the Closing, but subject to the satisfaction or waiver of such conditions), (ii) the prior or substantially simultaneous funding of the debt financing (or, if applicable, any alternative debt financing), and (iii) the substantially simultaneous consummation of the Closing. See “The Mergers-Financing of the Mergers-Equity Financing” for additional information.
In connection with the execution of the Merger Agreement, certain entities affiliated with the Parent have guaranteed certain Payment Obligations of Parent, including with respect to the Parent Termination Payment under the Merger Agreement and certain collection costs related thereto if and when due in accordance with the Merger Agreement. See “The Merger Agreement-Specific Performance; Remedies” for additional information.
Parent also has entered into a debt commitment letter with Wells Fargo Bank, National Association and Citigroup Global Markets Inc. (collectively, the “Lenders”), dated August 27, 2023 (the “Debt Commitment Letter”), pursuant to which the Lenders have committed to provide, jointly but not severally, upon the terms and subject to the conditions set forth in the Debt Commitment Letter, debt financing in an aggregate principal amount up to $1.05 billion, the proceeds of which will be used by Parent to (i) pay a portion of the consideration due under the Merger Agreement in order to directly or indirectly acquire the properties that will secure such debt financing (the “Properties”), (ii) repay existing indebtedness that encumbers the Properties, (iii) pay carrying costs with respect to the Properties, (iv) fund any required upfront reserves (if any), (v) pay costs and expenses incurred in connection with the debt financing, the operation of the Properties and other transaction costs, (vi) fund any working capital requirements of the Properties, and (vii) fund such other general purposes as the borrower will determine in its sole discretion. See “The Financing of the Mergers-Debt Financing Commitment” for additional information.
Interests of the Company’s Trustees and Executive Officers in the Mergers (See Page 60)
In considering the recommendation of the Board that you vote “FOR” the Merger Proposal, you should be aware that certain of our trustees and executive officers may have interests in the Mergers that may be different from, or in addition to, your interests as a shareholder. The Board was aware of these interests in, among other matters, approving the Merger Agreement and the Mergers and in recommending that the Company Merger be approved by the shareholders of the Company. These interests include the following, among others:
The Merger Agreement provides that each outstanding Company Restricted Share Award and Company LTIP Unit, including those held by the Company’s trustees and executive officers, will vest in full (to the extent unvested) and be cancelled and converted into the right to receive $10.00 per Company Common Share underlying each Company Restricted Share Award or $10.00 per Company LTIP Unit that is converted into a Company Partnership Unit, in each case subject to the terms and conditions of the Merger Agreement, and as discussed in more detail in the section of this proxy statement captioned “The Merger Agreement-Treatment of Securities”;
Pursuant to their employment agreements, the Company’s executive officers are eligible to receive certain severance payments and benefits in the event of a qualifying termination or resignation of their employment within one year following the consummation of the Mergers; and
Our trustees and executive officers are entitled to continued indemnification and insurance coverage.
These interests are discussed in more detail in the section of this proxy statement captioned “The Mergers-Interests of the Company’s Trustees and Executive Officers in the Mergers.” The members of the Board and the Transaction Committee were aware of the different or additional interests described in such section and considered these interests, among other matters, in evaluating and negotiating the Merger Agreement and the Mergers, and in recommending to the Board and the shareholders, as applicable, that the Merger Proposal be approved.
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Financing Cooperation (See Page 91)
Prior to the Closing Date, the Company agrees to, and will cause the Company subsidiaries to, use reasonable best efforts to provide, and will use reasonable best efforts to cause its representatives to provide such cooperation as is necessary or reasonably requested by Parent for financings of the type contemplated in connection with the arrangement of the debt financing contemplated by the debt financing commitments. Such requested cooperation may not unreasonably disrupt or interfere with the day-to-day business or the operations of the Company or its subsidiaries. For more information, please see the section of this proxy statement captioned “The Merger Agreement-Financing Cooperation.”
No Solicitation of Transactions (See Page 84)
Under the terms of the Merger Agreement, the Company, its subsidiaries, and their respective officers, managers, trustees and other representatives are subject to restrictions on its and their ability to solicit any competing proposals, or Company Alternative Proposals, including, among others, restrictions on its and their ability to furnish to any third parties any non-public information in connection with any Company Alternative Proposal, to solicit, initiate, knowingly encourage or facilitate the making or submission of any Company Alternative Proposal or inquiry (or proposal or offer that would reasonably be expected to lead to a Company Alternative Proposal or inquiry), and to engage or participate in any discussions or negotiations regarding a Company Alternative Proposal or inquiry. Subject to the terms of the Merger Agreement, the Company may furnish non-public information to, and engage in discussions or negotiations with, a third party if the Company receives a bona fide written Company Alternative Proposal from such third party after the date of the Merger Agreement and that did not result from a breach of the Company’s obligations as specified in the Merger Agreement in any material respect, and the Board or the Transaction Committee, after consultation with outside legal and financial advisors, determines in good faith that such Company Alternative Proposal constitutes or could reasonably be expected to lead to a Company Superior Proposal (as defined in the Merger Agreement). Under certain circumstances and after following certain procedures and adhering to certain restrictions, the Company is permitted to terminate the Merger Agreement in order to enter into a definitive agreement relating to a Company Superior Proposal (subject to payment of the Company Termination Payment (as described below)).
Conditions to the Mergers (See Page 95)
Completion of the Mergers depends upon the satisfaction or waiver of a number of conditions, including, among others, that:
the Company shareholder approval must be obtained;
no law has been enacted or promulgated by any governmental entity of competent jurisdiction (whether temporary, preliminary or permanent) which prohibits, restrains, enjoins or makes illegal the consummation of the Mergers and there is no order (whether temporary, preliminary or permanent) of a court of competent jurisdiction in effect preventing, restraining or enjoining the consummation of the Mergers;
the Company’s, Company OP’s and the Parent Parties’ respective representations and warranties in the Merger Agreement must be true and correct in the manner described under the section entitled “The Merger Agreement-Conditions to the Mergers”;
Parent must have received a written opinion of Hunton Andrews Kurth LLP or such other nationally recognized REIT counsel as may be reasonably acceptable to the Company and Parent, dated as of the Closing Date (as described in the section entitled “The Merger Agreement-Conditions to the Mergers”);
the Company and Parent must have delivered closing certificates to each other, each dated as of the Closing Date, each signed by an applicable executive or senior officer, certifying that certain specified conditions have been satisfied;
from the date of the Merger Agreement through the Closing Date, there must not have occurred a Company Material Adverse Effect (as described in the section entitled “The Merger Agreement-Representations and Warranties”); and
the Company and the Parent Parties must have performed and complied in all material respects with its and their respective covenants required by the Merger Agreement to be performed or complied with on or prior to the Company Merger Effective Time.
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Termination of the Merger Agreement (See Page 96)
The Company and Parent may mutually agree to terminate the Merger Agreement and abandon the Mergers and the other transactions contemplated by the Merger Agreement at any time prior to the Company Merger Effective Time, even after the Company has obtained the Company shareholder approval.
Termination by Either the Company or Parent (See Page 97)
In addition, the Company, on the one hand, or Parent, on the other hand, may terminate the Merger Agreement, if:
the Company Merger Effective Time has not occurred on or before 5:00 p.m., Eastern Time, on the End Date, February 27, 2024; provided, that the party seeking to terminate the Merger Agreement under this provision has not breached or failed to perform or comply with in any material respect its obligations under the Merger Agreement in any manner that was the primary cause of or primarily resulted in the failure to consummate the Mergers on or before the End Date (and, in the case of Parent, including the failure of the other Parent Parties, and, in the case of the Company, including the failure of the Company OP);
any court or other governmental entity of competent jurisdiction has issued a final, non-appealable order in each case permanently enjoining or otherwise prohibiting the consummation of the Mergers; provided, however, that the party seeking to terminate the Merger Agreement under this provision will not have otherwise breached or failed to perform or comply with in any material respect its obligations under the Merger Agreement in any manner that has been the primary cause of or primarily resulted in such order (and, in the case of Parent, including the failure of the other Parent Parties, and, in the case of the Company, including the failure of the Company OP); or
the Special Meeting (including any adjournments or postponements thereof) will have been held and been concluded and the Company shareholder approval will not have been obtained.
Termination by Parent
Parent may also terminate the Merger Agreement if:
the Company or Company OP has breached or failed to perform or comply with in any material respect any of its representations, warranties, covenants or other agreements contained in the Merger Agreement, which such breach or failure to perform or comply (1) would result in a failure of any of the mutual conditions to the Company and Parent’s obligations to effect the Mergers or the additional conditions to the obligations of Parent to effect the Mergers and (2) cannot be cured by the End Date or, if curable, is not cured by the earlier of (x) 30 days following Parent’s delivery of written notice to the Company stating Parent’s intention to terminate the Merger Agreement under this provision and the basis for such termination and (y) five business days before the End Date, provided, that Parent will not have a right to terminate the Merger Agreement under this provision if any Parent Party is then in material breach of any representation, warranty, agreement or covenant contained in the Merger Agreement such that the mutual conditions to the Company and Parent’s obligations to effect the Mergers or the additional conditions to the obligations of the Company to effect the Mergers would not be satisfied; or
(1) at any time prior to receipt of the Company shareholder approval, if the Board or the Transaction Committee has effected a Company Change of Recommendation (as discussed below in the section of this proxy statement captioned “The Merger Agreement-Acquisition Proposals and Obligations of the Board with Respect to its Recommendation-Obligations of the Board with Respect to its Recommendation”), (2) at any time prior to the receipt of the Company shareholder approval, the Board will have failed to publicly reaffirm the Board Recommendation within 10 business days following the date that a Company Alternative Proposal will have been first publicly announced and Parent has requested in writing that the Company reaffirm the Board Recommendation (or if the Special Meeting is scheduled to be held within 10 business days after the date a Company Alternative Proposal will have been publicly announced, as promptly as is reasonably practicable), or (3) the Company enters into an alternative acquisition agreement (other than an acceptable confidentiality agreement entered into in compliance with the Merger Agreement).
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Termination by the Company
The Company may also terminate the Merger Agreement if:
any Parent Party has breached or failed to perform or comply with in any material respect any of their representations, warranties, covenants or other agreements contained in the Merger Agreement, which breach or failure to perform or comply (1) would result in a failure of any of the mutual conditions to the Company and Parent’s obligations to effect the Mergers or the additional conditions to the obligations of the Company to effect the Mergers and (2) cannot be cured by the End Date, or if curable, is not cured by the earlier of (x) 30 days following the Company’s delivery of written notice to Parent stating the Company’s intention to terminate the Merger Agreement under this provision and the basis for such termination and (y) five business days before the End Date, provided, that the Company will not have a right to terminate the Merger Agreement under this provision if the Company or Company OP is then in material breach of any representation, warranty, agreement or covenant contained in the Merger Agreement such that the mutual conditions to the Company and Parent’s obligations to effect the Mergers or the additional conditions to the obligations of Parent to effect the Mergers would not be satisfied;
prior to receipt of the Company shareholder approval, if the Board (or a committee thereof) has effected a Company Change of Recommendation (as discussed below in the section of this proxy statement captioned “The Merger Agreement-Acquisition Proposals and Obligations of the Board with Respect to its Recommendation-Obligations of the Board with Respect to its Recommendation”) in respect of a Company Superior Proposal in accordance with the terms and conditions of the Merger Agreement; provided, however, that the Merger Agreement may not be so terminated unless concurrently with the occurrence of such termination, the Company Termination Payment is made in full to Parent and the definitive agreement relating to the Company Superior Proposal is entered into by the Company, and in the event that such definitive agreement is not concurrently entered into and/or such payment is not concurrently made, such termination will be null and void; or
all of the following requirements are satisfied:
the mutual conditions to the Company and Parent’s obligations to effect the Mergers and the additional conditions to the obligations of Parent to effect the Mergers (other than those conditions that by their nature are to be satisfied at the Closing, which conditions are capable at the time of termination of being satisfied if the Closing were to occur at such time) have been satisfied or (to the extent permissible under applicable law) waived in accordance with the Merger Agreement;
on or after the date on which the Closing should have occurred pursuant to the Merger Agreement, the Company has irrevocably notified Parent in writing that the Company is ready and willing to consummate the Mergers and ready, willing, and able to take all action within its control to consummate the Mergers;
Parent fails to consummate the Mergers within one business day of the date of delivery of such notice; and
during such one business day period, the Company stood ready, willing and able to consummate the Mergers and the other transactions contemplated by the Merger Agreement.
Termination Payments (See Page 98)
Company Termination Payment
The Company has agreed to pay Parent or its designee the Company Termination Payment of $30.0 million (the “Company Termination Payment”), if:
Parent terminates the Merger Agreement pursuant to the provision described herein in the second summarization paragraph in the section entitled “The Merger Agreement-Termination of the Merger Agreement-Termination by Parent”;
the Company terminates the Merger Agreement pursuant to the second termination right described in the section entitled “The Merger Agreement-Termination of the Merger Agreement-Termination by the Company”; or
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all of the following requirements are satisfied:
after the date of the Merger Agreement, a Company Alternative Proposal (provided, that for purposes of this requirement, each percentage in the definition of “Company Alternative Proposal” will be increased to “50%”) is publicly proposed or publicly disclosed or becomes publicly known and, in each case, will not have been withdrawn, prior to the Special Meeting (or any adjournment or postponement thereof) (a “Qualifying Transaction”);
the Merger Agreement is terminated by the Company or Parent pursuant to the first or third termination rights described in the section entitled “The Merger Agreement-Termination of the Merger Agreement-Termination by Either the Company or Parent” (and at the time of such termination the Company would not have been entitled to terminate the Merger Agreement pursuant to the third termination right described in the section entitled “The Merger Agreement-Termination of the Merger Agreement-Termination by the Company”) or by Parent pursuant to the first termination right described in the section entitled “The Merger Agreement-Termination of the Merger Agreement-Termination by Parent”; and
within 12 months after the date of the termination referred to above, the Company enters into a definitive agreement with respect to or providing for such Qualifying Transaction, or a Qualifying Transaction is consummated within 12 months of the date of such termination.
Parent Termination Payment
Parent has agreed to pay to the Company or its designee the Parent Termination Payment of $67.5 million, if the Company terminates the Merger Agreement pursuant to the provisions described in the first or third termination rights described above in the section entitled “The Merger Agreement -Termination of the Merger Agreement-Termination by the Company” or pursuant to the first termination right described in the section entitled “The Merger Agreement -Termination of the Merger Agreement-Termination by Either the Company or Parent.” In no event will the Company be entitled to (1) payment of monetary damages prior to the termination of the Merger Agreement or in amounts in excess of (x) the Parent Termination Payment plus (y) any Recovery Costs (as defined in the Merger Agreement) plus (z), if applicable, Parent’s indemnification obligation, payment and reimbursement obligations to the Company in connection with the Debt Financing; (2) payment of both monetary damages and the Parent Termination Payment or (3) both (x) payment of any monetary damages or the Parent Termination Payment and (y) a grant of specific performance of the Merger Agreement or any other equitable remedy against Parent or any Parent Parties that results in the Closing.
Specific Performance; Remedies
The Merger Agreement provides that the parties are entitled to specific performance, including specific performance of the Parent Parties’ obligations to consummate the Mergers. However, the Company is entitled to specific performance to cause Parent to consummate the Closing if, and only if, (i) Parent is required to consummate the Closing pursuant to the Merger Agreement and Parent fails to consummate the Closing by the date the Closing is required to have occurred pursuant to the Merger Agreement, (ii) the financing provided for by the debt financing commitments (taking into account any funding of the “Gap Facility” contemplated thereby) (or, if applicable, the alternative debt financing) has been funded or will be funded at the Closing if the equity financing is funded at the Closing and (iii) the Company has irrevocably confirmed in writing to Parent that the mutual conditions to the Company and Parent’s obligations to effect the Mergers and the additional conditions to the obligations of the Company to effect the Mergers have been satisfied or validly waived (to the extent permitted) (other than those conditions that by their nature are to be satisfied by the taking of actions or delivery of documents on the Closing date but each of which is capable of being satisfied at the Closing), and the Company has irrevocably confirmed in writing to Parent that if specific performance is granted and the equity financing and debt financing (including any alternative debt financing that has been obtained in accordance with the Merger Agreement) are funded, then the Closing would occur and the Company would cause the Closing to occur in accordance with the terms of the Merger Agreement (and the Company has not revoked, withdrawn, modified or conditioned such confirmation). Notwithstanding anything else to the contrary in the Merger Agreement, for the avoidance of doubt, while the Company may concurrently seek (i) specific performance or other equitable relief, subject in all respects to the terms of the Merger Agreement and (ii) payment of the Parent Termination Payment and/or monetary damages if, as and when required pursuant to and in accordance with the terms of the Merger Agreement, under no circumstances will the Company be permitted or
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entitled to receive both a grant of specific performance or other equitable relief, on the one hand, and payment of the Parent Termination Payment and/or monetary damages, on the other hand.
Efforts Obligations
Each party to the Merger Agreement has agreed, subject to the terms and conditions set forth in the Merger Agreement, to use its reasonable best efforts to promptly take, or cause to be taken, all actions, and to promptly do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable under applicable laws to consummate and make effective the Mergers and the other transactions contemplated by the Merger Agreement as promptly as practicable after the date of the Merger Agreement and in any event prior to the End Date, including (i) the obtaining of all necessary actions or nonactions, authorizations, permits, waivers, consents, clearances, approvals and expirations or terminations of waiting periods (collectively, “Consents”), including the Company approvals and the Parent approvals, from governmental entities and the making of all necessary registrations and filings and the taking of all steps as may be necessary to obtain an approval, clearance or waiver from, or to avoid an action or proceeding by, any governmental entity, (ii) the obtaining of all necessary Consents from third parties, (iii) the defending of any actions, lawsuits or other legal proceedings, whether judicial or administrative, challenging the Merger Agreement or the consummation of the Mergers and the other transactions contemplated by the Merger Agreement, and (iv) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by the Merger Agreement; provided, that in no event will the Company or any Company subsidiary be required to pay prior to the Company Merger Effective Time any fee, penalty or other consideration to any third party for any Consent required for or triggered by the consummation of the transactions contemplated by the Merger Agreement under any contract or agreement or otherwise.
Voting Agreements (See Page 101)
Concurrently with the execution and delivery of the Merger Agreement, each of Neil Shah, Jay Shah, Ashish Parikh and Michael Gillespie, in their individual capacities and as trustees of certain trusts named therein (collectively, the “Subject Equityholders”), entered into separate voting agreements (the “Voting Agreements”), with Parent.
Pursuant to the terms of the Voting Agreements, each Subject Equityholder agreed, among other things, to vote certain issued and outstanding Company Common Shares and Company Partnership Units currently beneficially owned or thereafter acquired by such Subject Equityholder (i) in favor of (A) the approval of the Mergers and any other matters expressly contemplated by the Merger Agreement or necessary or reasonably requested by Parent for the consummation of the Mergers and the other transactions contemplated thereby and (B) any proposal to adjourn or postpone such meeting of the shareholders of the Company or the limited partners of Company OP to a later date if there are not sufficient votes to approve the Mergers, and (ii) against (A) any Company Alternative Proposal, alternative acquisition agreement or any of the transactions contemplated thereby, and (B) any action which would reasonably be expected to prevent, materially delay or materially adversely affect the consummation of the transactions contemplated by the Merger Agreement, including the Mergers, in each case, subject to the limitations set forth in the applicable Voting Agreement.
As of the date of the Merger Agreement, Company Common Shares and Company Partnership Units beneficially owned and subject to the Voting Agreements represented, in the aggregate, approximately 3.81% of the outstanding Company Common Shares and 13.71% of the outstanding Company Partnership Units.
For more information, please see the section of this proxy statement captioned “The Mergers-Voting Agreements.”
Market Price of Company Common Shares (See Page 102)
Company Common Shares are listed on the NYSE under the trading symbol “HT.” On August 25, 2023, the last trading day prior to the date of the public announcement of the Merger Agreement, the reported closing price per Company Common Share on the NYSE was $6.28. On October 2, 2023 the last trading day before the date of this proxy statement, the reported closing price per Company Common Share on the NYSE was $9.86. You are encouraged to obtain current market quotations for Company Common Shares.
No Dissenters’ Rights of Appraisal (See Page 107)
The Company’s shareholders will not have appraisal rights in connection with the Company Merger. See “No Dissenters’ Rights of Appraisal” for more information.
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Litigation Related to the Mergers
On September 27, 2023, the Company received a demand letter on behalf of purported shareholder Marc Waterman alleging that the Company's preliminary proxy statement omits material information with respect to the Mergers. On September 28, 2023, the Company received a demand letter on behalf of purported shareholder Sandy Heng asserting similar allegations. The Company believes the allegations in the demand letters are without merit and vigorously denies that the preliminary proxy statement is deficient in any respect.
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGERS
The following questions and answers briefly address some questions you may have regarding the Special Meeting and the proposed Mergers. These questions and answers may not address all questions that may be important to you as a shareholder. Please refer to the more detailed information contained elsewhere in this proxy statement, as well as the additional documents to which it refers or which it incorporates by reference, including the Merger Agreement, a copy of which is attached to this proxy statement as Annex A.
Q.
What is the proposed transaction?
A.
The proposed transaction is (i) the merger of 1776 Portfolio OP Merger Sub, LP, a Virginia limited partnership (“OP Merger Sub”), with and into Hersha Hospitality Limited Partnership, a Virginia limited partnership and subsidiary of Hersha (“Company OP”, and such merger, the “Partnership Merger”), and (ii) the merger of Hersha Hospitality Trust, a Maryland real estate investment trust (the “Company” or “Hersha”), with and into 1776 Portfolio REIT Merger Sub, LLC, a Delaware limited liability company (“REIT Merger Sub,” and such merger, the “Company Merger”), pursuant to that certain Agreement and Plan of Merger, dated as of August 27, 2023, by and among the Company, Company OP, 1776 Portfolio Investment, LLC, a Delaware limited liability company (“Parent”), REIT Merger Sub and OP Merger Sub (the “Merger Agreement”). If the Company Merger is approved by the Company’s shareholders and the other closing conditions under the merger agreement have been satisfied or waived, the Company will merge with and into REIT Merger Sub, with REIT Merger Sub surviving as the surviving entity and a wholly owned subsidiary of Parent.
Under the terms of the Merger Agreement, at the effective time of the Company Merger, the holders of Priority Class A common shares (the “Company Common Shares”) of beneficial interest of Hersha, or Company Common Shares, will receive $10.00 in cash, without interest and subject to certain adjustments described in the Merger Agreement and herein, for each Company Common Share issued and outstanding immediately prior to the effective time of the Company Merger, or the Company Merger Effective Time. Holders of the Company’s 6.875% Series C Cumulative Redeemable Preferred Shares (the “Company Series C Preferred Shares”), 6.50% Series D Cumulative Redeemable Preferred Shares (the “Company Series D Preferred Shares”), and 6.50% Series E Cumulative Redeemable Preferred Shares (the “Company Series E Preferred Shares,” and, together with the Company Series C Preferred Shares and Company Series D Preferred Shares, the “Company Preferred Shares”), will receive $25.00 in cash, plus any accrued and unpaid dividends to which they are entitled, for each Company Preferred Share issued and outstanding immediately prior to the Company Merger Effective Time. In addition, at the effective time of the Partnership Merger, each Company Partnership Unit (as defined in the Amended and Restated Agreement of Limited Partnership of Company OP, as amended, modified or supplemented from time to time (the “Company OP Agreement”)), issued and outstanding immediately prior to the effective time of the Partnership Merger, or the Partnership Merger Effective Time, will be converted into the right to receive an amount in cash equal to $10.00, without interest and subject to certain adjustments described in the Merger Agreement and herein.
The Mergers will occur at the times provided in the Merger Agreement. For additional information about the Mergers, please review with your advisors the Merger Agreement attached to this proxy statement as Annex A and incorporated by reference into this proxy statement. The Company encourages you to read the Merger Agreement carefully and in its entirety, as it is the principal document governing the Mergers.
Q.
As a shareholder, what will I receive in the Mergers?
A.
For each outstanding Company Common Share that you own immediately prior to the Company Merger Effective Time, you will receive $10.00 in cash, without interest, subject to certain adjustments as set forth in the Merger Agreement. For each outstanding Company Preferred Share that you own immediately prior to the Company Merger Effective Time, you will receive $25.00 in cash, plus any accrued and unpaid dividends, without interest. For each outstanding Company Partnership Unit that you own immediately prior to the Partnership Merger Effective Time, you will receive $10.00 in cash, without interest, subject to certain adjustments as set forth in the Merger Agreement.
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Q.
Will I receive dividends with respect to the Company Common Shares that I own?
A.
Under the terms of the Merger Agreement, subject to the restrictions set forth therein, the Company may declare or pay regular cash dividends and Company OP may declare and pay regular quarterly distributions to the holders of Company Common Shares, Company Preferred Shares and Company Partnership Units, consistent with past practice of the Company and Company OP, as applicable, in each case, in an amount not to exceed $0.05 per Company Common Share or Company Partnership Unit per quarter, as applicable, $0.4297 per Company Series C Preferred Share, $0.40625 per Company Series D Preferred Share, and $0.40625 per Company Series E Preferred Share, during the term of the Merger Agreement without reducing the Merger Consideration to be paid to you. The amount in cash payable to the shareholders and unit holders is also subject to decrease in the event the Company declares and pays any additional dividends or distributions above the amounts described above, prior to the closing of the Mergers (the “Closing”), which the Company may do without the consent of Parent if and only if the making of such dividends or distributions prior to the Closing is necessary to maintain the Company’s tax status as a REIT and to avoid the imposition of any entity level income or excise tax.
Q.
When do you expect the Mergers to be completed?
A.
If the Company’s shareholders vote to approve the Company Merger, and assuming that the other conditions to the Mergers are satisfied or waived, it is anticipated that the Mergers will be completed in the fourth quarter of 2023. However, there can be no assurances that the conditions will be satisfied or waived, or that the Mergers will be completed on the anticipated timeline, or at all. Pursuant to the Merger Agreement, the Closing will take place (1) on the fifth (5th) business day after all Closing conditions are satisfied or waived (other than those conditions that, by their nature, are to be satisfied at the Closing) or (2) at such other date as is agreed to in writing by the Company and Parent.
Pursuant to the Merger Agreement, the Closing may not occur prior to November 28, 2023, unless Parent otherwise notifies the Company in writing.
In addition, the Merger Agreement provides that the Company or Parent may terminate the agreement if the Company Merger Effective Time has not occurred on or before 5:00 p.m., Eastern Time on February 27, 2024. For further information regarding the timing of the Closing, see “The Merger Agreement-Effective Time; Closing Date.”
Q.
What happens if the Mergers are not completed?
A.
If the Company Merger is not approved by the Company’s shareholders, or if the Mergers are not completed for any other reason, the Company’s shareholders will not receive any payment for their Company Common Shares or Company Preferred Shares (or for any Company Partnership Units, as applicable) pursuant to the Merger Agreement. Instead, the Company will remain a public company, and Company Common Shares and Company Preferred Shares will continue to be registered under the Exchange Act and listed on the NYSE. Upon a termination of the Merger Agreement, under certain circumstances and pursuant to the terms of the Merger Agreement, the Company will be required to pay Parent the Company Termination Payment. In certain other circumstances, Parent will be required to pay the Company the Parent Termination Payment upon termination of the Merger Agreement. For further information regarding the circumstances giving rise to payment of these termination payments, see “The Merger Agreement-Termination Payments.”
Q.
If the Mergers are completed, how do I obtain the Merger Consideration and Preferred Merger Consideration for my Company Common Shares and my Company Preferred Shares, as applicable?
A.
Following the completion of the Mergers, your Company Common Shares and Company Preferred Shares will automatically be converted into the right to receive your portion of the Merger Consideration and the Preferred Merger Consideration, as applicable.
Shortly after the Mergers are completed, if you are the record holder of certificated Company Common Shares or certificated Company Preferred Shares, as applicable, you will receive a letter of transmittal and instructions describing how you may exchange your Company Common Shares or Company Preferred Shares, as applicable, for the Merger Consideration or the Preferred Merger Consideration, as applicable. Holders of certificated Company Common Shares or certificated Company Preferred Shares will need to surrender related certificate(s) together with a duly completed and validly executed letter of transmittal and such other documents as may be required pursuant to the instructions.
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If you are the record holder of book-entry Company Common Shares or Company Preferred Shares, as applicable, you will receive a letter of transmittal and instructions describing how you may exchange your book-entry Company Common Shares or Company Preferred Shares, as applicable, for the Merger Consideration or the Preferred Merger Consideration, as applicable. Holders of book-entry Company Common Shares or book-entry Company Preferred Shares held through The Depository Trust Company need not return an executed letter of transmittal in order to receive the Merger Consideration or the Preferred Merger Consideration, as applicable, and will receive the applicable payment as promptly as practicable after the Company Merger Effective Time.
If your Company Common Shares or Company Preferred Shares are held in “street name” by your broker, bank or other nominee, you may receive instructions from your broker, bank or other nominee as to what action, if any, you need to take to effect the surrender of your “street name” shares in exchange for the Merger Consideration or Preferred Merger Consideration, as applicable.
Q.
When and where is the Special Meeting?
A.
The Special Meeting will be held on Wednesday, November 8, 2023, at 9:00 a.m., Eastern Time, virtually via an Internet webcast at https://web.lumiagm.com/212424894. The password for the Special Meeting is ht2023.
Q.
Who can vote at and attend the Special Meeting?
A.
All holders of record of Company Common Shares as of the Record Date, which was the close of business on October 2, 2023, are entitled to receive notice of and attend and vote at the Special Meeting or any postponement or adjournment of the Special Meeting. Each shareholder will be entitled to cast one vote on each matter presented at the Special Meeting for each Company Common Share that such holder owned as of the Record Date. All holders of record of Company Preferred Shares on the Record Date are entitled to notice of, but may not vote at, the Special Meeting.
Q.
What is the quorum requirement?
A.
The presence in person virtually or by proxy of holders entitled to cast a majority of all the votes entitled to be cast at a Special Meeting will constitute a quorum for purposes of the Special Meeting. Abstentions and broker non-votes, if any, will be included in determining whether a quorum is present. A broker non-vote is a vote that is not cast on a non-routine matter because the shares entitled to cast the vote are held in the name of a broker, bank or other nominee, the broker, bank or other nominee lacks discretionary authority to vote the shares and the broker, bank or other nominee has not received voting instructions from the beneficial owner of the shares. Because all of the proposals to be voted on at the Special Meeting are “non-routine” matters, brokers, banks and other nominees will not have authority to vote on any proposals unless instructed, so the Company does not expect there to be any broker non-votes at the Special Meeting.
Q.
What vote of shareholders is required to approve the Company Merger?
A.
Approval of the Merger Proposal requires the affirmative vote of the holders of a majority of all outstanding Company Common Shares entitled to vote on the matter. Because the required vote for the Merger Proposal is based on the number of votes the Company’s shareholders are entitled to cast rather than on the number of votes cast, failure to vote your shares (including failure to give voting instructions to your broker, bank or other nominee) and abstentions will have the same effect as voting “AGAINST” the Merger Proposal. Holders of Company Preferred Shares and Company Partnership Units are not entitled to vote on the Merger Proposal.
Concurrently with the execution and delivery of the Merger Agreement, each of Neil Shah, Jay Shah, Ashish Parikh and Michael Gillespie, in their individual capacities and as trustees of certain trusts named therein (the “Subject Equityholders”), entered into separate voting agreements with Parent.
Pursuant to the terms of the voting agreements, each Subject Equityholder agreed, among other things, to vote certain issued and outstanding Company Common Shares and Company Partnership Units currently beneficially owned or thereafter acquired by such Subject Equityholder (i) in favor of (A) the approval of the Mergers and any other matters expressly contemplated by the Merger Agreement or necessary or
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reasonably requested by Parent for the consummation of the Mergers and the other transactions contemplated thereby and (B) any proposal to adjourn or postpone such meeting of the shareholders of the Company or the limited partners of Company OP to a later date if there are not sufficient votes to approve the Mergers, and (ii) against (A) any Company Alternative Proposal, alternative acquisition agreement or any of the transactions contemplated thereby, and (B) any action which would reasonably be expected to prevent, materially delay or materially adversely affect the consummation of the transactions contemplated by the Merger Agreement, including the Mergers, in each case, subject to the limitations set forth in the applicable voting agreement.
As of the date of the Merger Agreement, Company Common Shares and Company Partnership Units beneficially owned and subject to the voting agreements represented, in the aggregate, approximately 3.81% of the outstanding Company Common Shares and 13.71% of the outstanding Company Partnership Units.
Q.
What vote of shareholders is required to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to the Company’s named executive officers in connection with the Mergers?
A.
Approval, on a non-binding, advisory basis, of the compensation that may be paid or become payable to the Company’s named executive officers in connection with the Mergers requires the affirmative vote of a majority of the votes cast on the Advisory Compensation Proposal. For the purpose of the Advisory Compensation Proposal, failure to vote your shares (including failure to give voting instructions to your broker, bank or other nominee) and abstentions will have no effect on the proposal. Holders of Company Preferred Shares are not entitled to vote on the Advisory Compensation Proposal.
Q.
What vote of shareholders is required to approve adjournments of the Special Meeting?
A.
Approval of any adjournment of the Special Meeting to solicit additional proxies if there are not sufficient votes at the Special Meeting to approve the Company Merger requires the affirmative vote of a majority of the votes cast on the Adjournment Proposal. For the purpose of this proposal, failure to vote your shares (including failure to give voting instructions to your broker, bank or other nominee) and abstentions will have no effect on the proposal. The Company does not intend to call a vote on this proposal if the Merger Proposal is approved at the Special Meeting. Pursuant to the Company’s bylaws, the chairman of the meeting may also adjourn the Special Meeting from time to time without the approval of the shareholders, subject to the terms of the Merger Agreement. Holders of Company Preferred Shares are not entitled to vote on the Adjournment Proposal.
Q.
Why is my vote important?
A.
If you do not authorize your proxy (or submit voting instructions to your bank, broker or other nominee) or vote virtually at the Special Meeting, it will be more difficult for the Company to obtain the necessary quorum to hold the Special Meeting. In addition, because the Merger Proposal must be approved by the affirmative vote of the holders of a majority of all the votes entitled to be cast on the matter, your failure to authorize your proxy, submit voting instructions or vote in person virtually at the Special Meeting will have the same effect as a vote “AGAINST” the approval of the Company Merger.
Q.
How does the proposed Merger Consideration of $10.00 per Company Common Share compare to the market price of Company Common Shares?
A.
The proposed Merger Consideration of $10.00 per Company Common Share provides a premium of approximately 60% over the closing price of Company Common Shares of $6.28 per share on August 25, 2023, the last trading day prior to the public announcement of the Merger Agreement, and a premium of approximately 58% as compared to the Company’s unaffected 30-day volume-weighted average share price as of August 25, 2023.
Q.
What factors did the Transaction Committee and the Board consider in deciding to enter into the Merger Agreement and recommending the approval of the Merger Proposal, the Advisory Compensation Proposal and the Adjournment Proposal?
A.
A Transaction Committee, established by the Board and consisting solely of three independent trustees, after consulting with our management and legal and financial advisors, and considering the various factors
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described under “The Mergers-Reasons for the Mergers” beginning on page 47 of this proxy statement, the terms of the proposed Merger Agreement and the transactions contemplated thereby, including the Company Merger, as well as other alternatives, unanimously recommended that the Board approve the Merger Agreement and the transactions contemplated thereby, including the Company Merger.
The Board, after considering the various factors described under “The Mergers-Reasons for the Mergers” and “The Mergers-Recommendations of the Board” beginning on pages 47 and 51 of this proxy statement, including the unanimous recommendation of the Transaction Committee, consulting with our management, as well as legal and financial advisors, and considering the terms of the proposed Merger Agreement and the transactions contemplated thereby, including the Company Merger, as well as other alternatives, unanimously (i) determined that the Merger Agreement, the Company Merger and the other transactions are advisable, and in the best interests of the Company and its shareholders, (ii) duly and validly authorized and approved, and declared advisable, the execution, delivery and performance of the Merger Agreement, and the consummation of the Company Merger and the other transactions contemplated by the Merger Agreement, (iii) directed that the Company Merger and the other transactions contemplated by the Merger Agreement be submitted for consideration at the Special Meeting, and (iv) subject to the Merger Agreement, resolved to recommend that the Company’s shareholders vote in favor of the approval of the Company Merger and the other transactions contemplated by the Merger Agreement and to include such recommendation in this proxy statement.
Thus, the Board recommends that you vote “FOR” the Merger Proposal, “FOR” the Advisory Compensation Proposal, and “FOR” the Adjournment Proposal.
Q.
Do any of the Company’s trustees and executive officers have any interest in the Mergers that is different than mine?
A.
The Company’s trustees and executive officers have certain interests in the Mergers that are different from, or in addition to, the interests of the Company’s shareholders generally, including accelerated vesting of certain Company equity awards and the cancellation and conversion of such awards into the right to receive the Merger Consideration, potential severance benefits and rights to ongoing indemnification and insurance coverage. See “The Mergers-Interests of the Company’s Trustees and Executive Officers in the Mergers” for additional information about interests that the Company’s trustees and executive officers have in the Mergers that are different than yours.
Q.
What do I need to do now?
A.
After carefully reading and considering the information contained in this proxy statement and the annexes attached to this proxy statement, please vote your Company Common Shares or authorize a proxy to vote your Company Common Shares in one of the ways described below as soon as possible. You will be entitled to one vote for each Company Common Share that you owned as of the Record Date.
Q.
How do I cast my vote?
A.
If you are a shareholder of record on the Record Date, you may vote at the Special Meeting or authorize a proxy to vote your shares at the Special Meeting. You can authorize your proxy by completing, signing, dating and returning the enclosed proxy card, or, if you prefer, by following the instructions on your proxy card for telephonic or Internet proxy authorization. If the telephone or Internet option is available to you, the Company strongly encourages you to use it because it is faster and less costly. Registered shareholders can transmit their voting instructions by telephone by calling 1-800-776-9437 or on the Internet at www.proxyvote.com. Telephone and Internet proxy authorization are available 24 hours a day until 11:59 p.m., Eastern Time, the day immediately prior to the Special Meeting. You will need the control number included on your proxy card or your paper voting instruction form (if you received a paper copy of the proxy materials) if you are going to authorize your proxy by telephone or through the Internet. To authorize your proxy by mail, please complete sign, date and mail your proxy card. If you attend the virtual Special Meeting, you may vote online even if you previously authorized a proxy by one of the methods described above.
Q.
How do I cast my vote if my Company Common Shares are held of record in “street name”?
A.
If you own Company Common Shares through a broker, bank or other nominee (i.e., in “street name”), you must provide voting instructions in accordance with the instructions on the voting instruction card that your
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broker, bank or other nominee provides to you, since brokers, banks and other nominees do not have discretionary voting authority with respect to any of the proposals described in this proxy statement. If you have not received such voting instructions or require further information regarding such voting instructions, contact your broker, bank or other nominee, who can give you directions on how to vote your Company Common Shares. If you hold your Company Common Shares through a broker, bank or other nominee and wish to vote virtually at the Special Meeting, you must obtain a “legal proxy,” executed in your favor, from the broker, bank or other nominee (which may take several days).
Q.
What will happen if I abstain from voting or fail to vote?
A.
With respect to the Merger Proposal, if you abstain from voting, fail to cast your vote virtually at the Special Meeting or by proxy or if you hold your shares in “street name” and fail to give voting instructions to your broker, bank or other nominee, it will have the same effect as a vote “AGAINST” the Company Merger.
With respect to the Advisory Compensation Proposal and the Adjournment Proposal, if you abstain from voting, fail to cast your vote virtually at the Special Meeting or by proxy or if you hold your shares in “street name” and fail to give voting instructions to your broker, bank or other nominee, it will not have any effect on the outcome of such proposals, assuming a quorum is otherwise present at the Special Meeting.
Q.
How will proxy holders vote my Company Common Shares?
A.
If you properly authorize a proxy prior to the Special Meeting, your Company Common Shares will be voted as you direct. If you properly authorize a proxy but no direction is otherwise made, your Company Common Shares will be voted “FOR” the Merger Proposal, “FOR” the Advisory Compensation Proposal, and “FOR” the Adjournment Proposal. Pursuant to the Company’s bylaws and consistent with applicable law, only the matters set forth in the Notice of Special Meeting may be brought before the Special Meeting.
Q.
What happens if I sell my Company Common Shares before the Special Meeting?
A.
If you held Company Common Shares on the Record Date but transfer them prior to the Company Merger Effective Time, you will retain your right to vote at the Special Meeting, but not the right to receive the Merger Consideration for those shares. The right to receive such Merger Consideration when the Company Merger becomes effective will pass to the person who at that time owns the Company Common Shares you previously owned.
Q.
Can I change my vote or revoke my proxy after I have mailed my proxy card?
A.
Yes. If you own Company Common Shares as a record holder on the Record Date, you may revoke a previously authorized proxy at any time before it is exercised by authorizing a proxy to vote again over the Internet or by telephone prior to 11:59 p.m., Eastern Time, on November 7, 2023, signing and returning another proxy card with a later date, provided the Company receives the updated proxy card before the date of the Special Meeting, or voting virtually at the Special Meeting. Attendance at the Special Meeting will not, in itself, constitute revocation of a previously authorized proxy. If you have instructed a broker to vote your shares, the foregoing options for changing your vote do not apply and instead you must follow the applicable instructions received from such broker to change your vote.
Q.
What are the material U.S. federal income tax consequences of the Company Merger?
A.
If you are a U.S. holder (as defined in “The Mergers-Material U.S. Federal Income Tax Consequences” on page 65 of this proxy statement), the exchange of your Company Common Shares for Merger Consideration (including any amounts required to be withheld for tax purposes) pursuant to the Company Merger will generally require you to recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between the amount of Merger Consideration you receive pursuant to the Company Merger (including any amounts required to be withheld for tax purposes) and your adjusted tax basis in such surrendered shares. A non-U.S. holder (as defined in “The Company Merger-Material U.S. Federal Income Tax Consequences” on page 65 of this proxy statement) will generally be subject to U.S. federal income tax with respect to the exchange of such non-U.S. holder’s Company Common Shares for Merger Consideration
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in the Company Merger unless (1) such non-U.S. holder does not have certain connections to the United States, (2) the Company Common Shares do not constitute United States real property interests with respect to such non-U.S. holder, and (3) subject to certain exceptions, the payment received by such non-U.S. holder is not attributable to gain from the Company’s deemed sale of United States real property interests. Because particular circumstances may differ, you should consult your tax advisor to determine the U.S. federal income tax consequences to you of the Company Merger in light of your particular circumstances and any consequences arising under the laws of any state, local, or foreign taxing jurisdiction. A more complete description of the U.S. federal income tax consequences of the Company Merger is provided in “The Mergers-Material U.S. Federal Income Tax Consequences” on page 65 of this proxy statement.
Q.
What rights do I have if I oppose the Mergers?
A.
If you are a shareholder of record on the Record Date, you can vote against the Merger Proposal.
Q.
Where can I find the voting results of the Special Meeting?
A.
The Company intends to announce preliminary voting results at the Special Meeting and publish final results in a Current Report on Form 8-K that will be filed with the SEC following the Special Meeting. All reports that the Company files with the SEC are publicly available on the SEC’s website at www.sec.gov.
Q.
Can I participate if I am unable to attend the Special Meeting?
A.
If you are unable to attend the meeting virtually, the Company encourages you to complete, sign, date and return your proxy card, or authorize your proxy (or submit voting instructions to your bank, broker or other nominee) by telephone or through the Internet.
Q.
Have any shareholders already agreed to approve the Company Merger?
A.
Yes. Concurrently with the execution and delivery of the Merger Agreement, each of the Subject Equityholders entered into separate voting agreements with Parent.
Pursuant to the terms of the voting agreements, each Subject Equityholder agreed, among other things, to vote certain issued and outstanding Company Common Shares and Company Partnership Units currently beneficially owned or thereafter acquired by such Subject Equityholder (i) in favor of (A) the approval of the Mergers and any other matters expressly contemplated by the Merger Agreement or necessary or reasonably requested by Parent for the consummation of the Mergers and the other transactions contemplated thereby and (B) any proposal to adjourn or postpone such meeting of the shareholders of the Company or the limited partners of Company OP to a later date if there are not sufficient votes to approve the Mergers, and (ii) against (A) any Company Alternative Proposal, alternative acquisition agreement or any of the transactions contemplated thereby, and (B) any action which would reasonably be expected to prevent, materially delay or materially adversely affect the consummation of the transactions contemplated by the Merger Agreement, including the Mergers, in each case, subject to the limitations set forth in the applicable voting agreement.
As of the date of the Merger Agreement, Company Common Shares and Company Partnership Units beneficially owned and subject to the voting agreements represented, in the aggregate, approximately 3.81% of the outstanding Company Common Shares and 13.71% of the outstanding Company Partnership Units.
Q.
Where can I find more information about the Company?
A.
The Company files certain information with the SEC. You may read and copy this information at the SEC’s public reference facilities. You may call the SEC at 1-800-SEC-0330 for information about these facilities. This information is also available on the SEC’s website at www.sec.gov and on the Company’s website at https://www.hersha.com/. The information found on, or otherwise accessible through, the Company’s website is not incorporated into, and does not form a part of, this proxy statement or any other report or document the Company files with or furnishes to the SEC. You can also request copies of these documents from the Company. See “Where You Can Find Additional Information.”
Q.
Who will solicit and pay the cost of soliciting proxies?
A.
The Company will bear the full cost of solicitation of proxies for the Special Meeting. The Board is soliciting your proxy on the Company’s behalf. In addition to the use of mails, proxies may be solicited by
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personal interview, telephone, facsimile, e-mail or otherwise, by the Company’s trustees, officers and other employees. The Company has engaged Okapi Partners to assist in the solicitation of proxies for a fee of $15,000, plus reimbursement of reasonable expenses. The Company also will request persons, firms and corporations holding Company Common Shares in their names, or in the names of their nominees, that are beneficially owned by others to send or cause to be sent proxy materials to, and obtain proxies from, such beneficial owners and will reimburse such holders for their reasonable expenses in so doing.
Q.
Who can help answer my other questions?
A.
If after reading this proxy statement you have more questions about the Special Meeting or the Company Merger, you should contact Okapi Partners, the Company’s proxy solicitor, as follows:

1212 Avenue of the Americas, 17th Floor
New York, NY 10036

Banks and Brokerage Firms, Please Call: (212) 297-0720
Shareholders and All Others Call Toll-Free: (877) 629-6356
E-mail: info@okapipartners.com
If your broker holds your shares, you should also contact your broker for additional information.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement and the documents that the Company incorporates by reference herein contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act), including, without limitation, statements containing the words, “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may,” “could,” “will,” “would,” “forecast,” “project,” “potential,” “likely,” or the negative of these words and words of similar import. Such forward-looking statements relate to future events, the Company’s plans, strategies, prospects and future financial performance, and involve known and unknown risks that are difficult to predict, uncertainties and other factors that are, in some cases, beyond the Company’s control and which could materially affect its actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Readers should specifically consider the various factors identified in this proxy statement and other reports filed by the Company with the SEC, including, but not limited to those discussed in the sections entitled “Risk Factors” and “Management's Discussion and Analysis of Financial Conditions and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and the Company’s subsequent periodic reports filed with the SEC that could cause actual results to differ.
Statements regarding the following subjects are forward-looking by their nature:
the Company’s business or investment strategy;
the Company’s projected operating results;
the Company’s ability to generate positive cash flow from operations;
the Company’s distribution policy;
the Company’s liquidity and management’s plans with respect thereto;
completion of the proposed transactions, including the Mergers;
the Company’s expected benefits from the Mergers;
the Company’s ability to maintain existing financing arrangements, including compliance with covenants and its ability to obtain future financing arrangements or refinance or extend the maturity of existing financing arrangements as they come due;
the Company’s ability to negotiate with lenders;
the Company’s understanding of its competition;
market trends;
projected capital expenditures;
the impact of inflation and the change in interest rates;
the potential effects of disasters, pandemics or epidemics;
the supply and demand factors in the Company’s markets or sub-markets, or a potential recessionary environment;
the Company’s access to capital on the terms and timing expected;
the restoration of public confidence in domestic and international travel;
permanent structural changes in demand for conference centers by business and leisure clientele; and
the Company’s ability to dispose of selected hotel properties on the terms and timing expected, if at all.
Forward-looking statements are based on the Company’s beliefs, assumptions, projections and expectations, taking into account all information currently available. These beliefs, assumptions, projections and expectations are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances, many of which are beyond the Company’s control, and which can change as a result of many possible events or factors, not all of which are known to the Company. If a change occurs, the Company’s business, financial
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condition, liquidity and results of operations may vary materially from those expressed in forward-looking statements. Readers should not place undue reliance on forward-looking statements.
Important factors that the Company thinks could cause actual results to differ materially from expected results are summarized below. New factors emerge from time to time, and it is not possible for the Company to predict which factors will arise. In addition, the Company cannot assess the impact of each factor on its business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
The following non-exclusive list of factors could also cause actual results to vary from our forward-looking statements:
uncertainties associated with the proposed Mergers;
the ability to complete the Mergers on the proposed terms or on the anticipated timeline, or at all, including risks and uncertainties related to securing the Company's shareholder approval, governmental or regulatory approvals or consents (if any), and satisfaction of other closing conditions to consummate the Mergers;
the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement relating to the Mergers;
risks that the Mergers could disrupt the Company’s current plans and operations or divert the attention of the Company’s management or employees from ongoing business operations;
the risk of potential difficulties with the Company’s ability to retain and hire key personnel and maintain relationships with third parties as a result of the Mergers;
the failure to realize the expected benefits of the Mergers;
the risk that the Mergers may involve unexpected costs and/or unknown or inestimable liabilities, whether the Mergers will be consummated or not;
the risk that the Company’s business may suffer as a result of uncertainty surrounding the Mergers;
the outcome of any legal proceedings that have been or may be instituted against the parties to, and others related to, the Mergers and the Merger Agreement;
the risk that litigation initiated by shareholders or others in connection with the Mergers may affect the timing or occurrence of the Mergers or result in significant costs of defense, indemnification and liability;
risks associated with the Company’s ability to obtain the shareholder approval required to consummate the Mergers and the timing of the Closing, including the risks that a condition to Closing will not be satisfied within the expected timeframe or at all or that the Closing will not occur;
restrictions on the Company’s ability to pay dividends pursuant to the Merger Agreement;
any restrictions imposed on the Company’s business during the pendency of the Mergers;
the occurrence of any change, effect, event, circumstance, occurrence or state of facts that could give rise to the termination of the Merger Agreement;
effects relating to the announcement of the Mergers or any further announcements or the consummation of the transaction on the market price of Company Common Shares and the Company’s relationships with customers, employees, operating results and business generally;
unanticipated difficulties or expenditures relating to the Mergers, the response of business partners and competitors to the announcement of the Mergers and/or potential difficulties in the Company’s ability to retain and hire key personnel and maintain relationships with third parties as a result of the Mergers;
the limitation on the Company’s right to recover from Parent an amount equal to the $67.5 million Parent Termination Payment in circumstances in which such fee is payable, which may not be adequate to cover the Company’s damages;
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risk associated with the Company’s investments are concentrated in a single segment of the hotel industry, and it owns a limited number of hotels that are geographically concentrated in a limited number of markets;
the franchise licenses under which the Company operates its hotels may be terminated or not renewed;
the seasonal and cyclical nature of the hotel industry may cause fluctuations in the Company’s operating performance;
the Company’s non-compliance with environmental laws and regulations could result in fines and liabilities which could adversely affect operating results;
costs of compliance with or liabilities under environmental laws could significantly reduce the Company’s profitability;
real estate investments can be illiquid;
general volatility of the capital markets and the market price of the Company Common Shares;
changes in the Company’s business or investment strategy;
availability, terms and deployment of capital;
changes in the Company’s industry and the market in which it operates, interest rates, or the general economy;
national, international, regional and local economic climates;
decreased international travel because of geopolitical events, including armed conflicts, terrorism and current U.S. government policies such as immigration policies, border closings, and travel bans related to a pandemic, epidemic or disease outbreak or other comparable event;
widespread adoption of teleconference and virtual meeting technologies could reduce the number of in person business meetings and demand for travel and the Company’s services;
uncertainty surrounding the financial stability of the United States, Europe and China;
the degree and nature of competition;
financing risks, including (i) the risk of leverage and the corresponding risk of default on the Company’s mortgage loans and other debt, including default with respect to applicable covenants, (ii) potential inability to obtain waivers of covenants or refinance or extend the maturity of existing indebtedness and (iii) the Company’s ability to negotiate with lenders;
levels of spending in the business, travel and leisure industries, as well as consumer confidence;
declines in occupancy, average daily rate and RevPAR and other hotel operating metrics;
disruptions to our operations by the occurrence of a natural disaster, hostilities, including armed conflicts, future terrorist attacks, or fear of hostilities, or other catastrophic events that affect travel;
financial condition of, and relationships with, the Company’s joint venture partners, third-party property managers, and franchisors;
increased interest rates and operating costs and the impact of inflation;
ability to complete development and redevelopment projects;
risks associated with potential dispositions of hotel properties;
availability of and the Company’s ability to retain qualified personnel;
decreases in tourism due to armed conflicts, pandemics, geopolitical instability or changes in foreign exchange rates;
the Company’s failure to maintain its qualification as a REIT, under the Internal Revenue Code of 1986, as amended, or the Code;
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the impact of changes in the Code as a result of U.S. federal tax legislation and uncertainty as to how such changes may be applied;
environmental uncertainties and risks related to natural disasters and increases in costs to insure against those risks;
changes in real estate and zoning laws and increases in real property tax rates;
the uncertainty and economic impact of pandemics, epidemics, or other public health emergencies or fear of such events, and the measures that international, federal, state and local governments, agencies and/or health authorities may implement to address such events, which may have adverse effects on the Company’s financial conditions, results of operations, cash flows, and performance for an indefinite period of time;
world events impacting the ability or desire of people to travel, which may lead to a decline in demand for hotels; and
the factors discussed in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 under the headings “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations” and in other reports the Company files with the SEC from time to time.
These factors are not necessarily all of the important factors that could cause the Company’s actual results, performance or achievements to differ materially from those expressed in or implied by any of the Company’s forward-looking statements. Other unknown or unpredictable factors, many of which are beyond the Company’s control, also could harm the Company’s results, performance or achievements.
All forward-looking statements contained in this proxy statement are expressly qualified in their entirety by the cautionary statements set forth above. Forward-looking statements speak only as of the date they are made, and the Company disclaims any obligation to update publicly any of these statements to reflect actual results, new information, or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If the Company updates one or more forward-looking statements, no inference should be drawn that the Company will make additional updates with respect to those or other forward-looking statements.
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PROPOSAL 1
MERGER PROPOSAL
The Company is asking its shareholders to vote on a proposal to approve the merger of the Company with and into REIT Merger Sub and the other transactions contemplated by the Merger Agreement in accordance with the terms of the Merger Agreement (the “Merger Proposal”).
For detailed information regarding the Merger Proposal, see the information about the Company Merger and the Merger Agreement throughout this proxy statement, including the information set forth in the sections entitled “The Mergers” and “The Merger Agreement.” A copy of the Merger Agreement is attached as Annex A to this proxy statement.
Approval of the Merger Proposal requires the affirmative vote of the holders of a majority of the outstanding Company Common Shares entitled to vote on the Merger Proposal at the Special Meeting. If you properly authorize your proxy by mail, by telephone or through the Internet, but do not indicate instructions to vote your shares “FOR,” “AGAINST” or “ABSTAIN” on this Proposal 1, your shares will be voted in accordance with the recommendation of the Board, which is “FOR” this Proposal 1. Because the required vote for the Merger Proposal is based on the number of votes the Company’s shareholders are entitled to cast rather than on the number of votes cast, if you abstain from voting or fail to authorize a proxy to vote your shares or vote at the Special Meeting, or fail to instruct your broker, bank or other nominee on how to vote, such abstention or failure to vote will have the same effect as voting “AGAINST” the Merger Proposal.
Shareholder approval of the Merger Proposal is a condition to the completion of the Mergers. In the event the Merger Proposal does not receive shareholder approval, the Mergers cannot be completed.
Recommendation of the Board
THE BOARD RECOMMENDS THAT THE COMPANY’S SHAREHOLDERS VOTE “FOR” THE MERGER PROPOSAL.
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PROPOSAL 2
ADVISORY COMPENSATION PROPOSAL
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Rule 14a-21(c) under the Exchange Act, the Company is asking its shareholders to vote at the Special Meeting on a non-binding, advisory basis regarding the compensation that may be paid or become payable to its named executive officers in connection with the Mergers (the “Advisory Compensation Proposal”). Information intended to comply with Item 402(t) of Regulation S-K concerning this compensation, subject to certain assumptions described therein, is presented in the section of this proxy statement entitled “The Mergers-Interests of the Company’s Trustees and Executive Officers in the Mergers-Quantification of Potential Payments and Benefits.”
The shareholder vote on this Advisory Compensation Proposal is an advisory vote only, and it is not binding on the Company or the Board. Further, the underlying arrangements are contractual in nature and are not, by their terms, subject to shareholder approval. Accordingly, regardless of the outcome of the advisory vote, if the Mergers are completed, the Company’s named executive officers will be eligible to receive the compensation that may be paid or become payable to them that is based on or otherwise relates to the Mergers.
The Company is asking its shareholders to vote “FOR” the following resolution:
“RESOLVED, that Hersha Hospitality Trust shareholders approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to the named executive officers of Hersha Hospitality Trust that is based on or otherwise relates to the Mergers, as disclosed pursuant to Item 402(t) of Regulation S-K under the heading “The Mergers-Interests of the Company’s Trustees and Executive Officers in the Mergers” (which disclosure includes the Golden Parachute Compensation Table required pursuant to Item 402(t) of Regulation S-K).”
Adoption of the above resolution, on a non-binding, advisory basis, requires the affirmative vote of a majority of the votes cast on the Advisory Compensation Proposal. If you properly authorize your proxy by mail, by telephone or through the Internet, but do not indicate instructions to vote your shares “FOR,” “AGAINST” or “ABSTAIN” on this Proposal 2, your shares will be voted in accordance with the recommendation of the Board, which is “FOR” this Proposal 2. If you abstain from voting or fail to authorize a proxy to vote your shares or vote at the Special Meeting, or fail to instruct your broker, bank or other nominee on how to vote, such abstention or failure to vote will have no effect on the outcome of the Advisory Compensation Proposal (assuming a quorum is present).
Shareholder approval of the Advisory Compensation Proposal is not a condition to the completion of the Mergers.
Recommendation of the Board
THE BOARD RECOMMENDS THAT THE COMPANY’S SHAREHOLDERS VOTE “FOR” THE ADVISORY COMPENSATION PROPOSAL.
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PROPOSAL 3
ADJOURNMENT PROPOSAL
The Company is asking its shareholders to vote on a proposal to approve any adjournments of the Special Meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the Special Meeting to approve the Merger Proposal (the “Adjournment Proposal”).
Approval of the Adjournment Proposal requires the affirmative vote of a majority of the votes cast on the proposal. If you properly authorize your proxy by mail, by telephone or through the Internet, but do not indicate instructions to vote your shares “FOR,” “AGAINST” or “ABSTAIN” on this Proposal 3, your shares will be voted in accordance with the recommendation of the Board, which is “FOR” this Proposal 3. If you abstain from voting or fail to authorize a proxy to vote your shares or vote at the Special Meeting, or fail to instruct your broker, bank or other nominee on how to vote, such abstention or failure to vote will have no effect on the outcome of the Adjournment Proposal (assuming a quorum is present).
Shareholder approval of the Adjournment Proposal is not a condition to the completion of the Mergers.
Recommendation of the Board
THE BOARD RECOMMENDS THAT THE COMPANY’S SHAREHOLDERS VOTE “FOR” THE ADJOURNMENT PROPOSAL.
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THE PARTIES TO THE MERGERS
Hersha Hospitality Trust
Corporate Headquarters:
44 Hersha Drive
Harrisburg, Pennsylvania 17102
(717) 236-4400
Hersha Hospitality Limited Partnership
Corporate Headquarters:
44 Hersha Drive
Harrisburg, Pennsylvania 17102
(717) 236-4400
The Company is a self-advised Maryland real estate investment trust that was formed in 1998 and completed its initial public offering in January of 1999. The Company invests primarily in institutional grade hotels in major urban gateway markets, including New York, Washington, DC, Boston, Philadelphia, South Florida and California. The Company’s primary strategy is to continue to own high quality luxury, upscale, and upper midscale hotels in metropolitan markets with high barriers to entry and independent boutique hotels in markets with similar characteristics.
The Company is structured as an umbrella partnership REIT, or UPREIT, and the Company owns its hotels and investments in joint ventures through its operating partnership, Hersha Hospitality Limited Partnership, or Company OP, for which the Company serves as the sole general partner. As of December 31, 2022, the Company owned an approximate 85.1% partnership interest in the Company OP including all of the general partnership interest.
Company OP is a Virginia limited partnership and a subsidiary of the Company.
As of the date of the Merger Agreement, the Company’s portfolio consisted of 22 wholly-owned limited and full service properties with a total of 3,392 rooms, one hotel owned through a consolidated joint venture with a total of 115 rooms, and interests in two limited service properties owned through joint venture investments with a total of 304 rooms. These 25 properties, with a total of 3,811 rooms, are located in California, Connecticut, District of Columbia, Florida, Maryland, Massachusetts, New York, and Pennsylvania, and operate under leading brands owned by Marriott International, Inc., Hilton Worldwide, Inc., InterContinental Hotels Group, and Hyatt Corporation. In addition, some of the Company’s hotels operate as independent hotels.
The Company’s website address is www.hersha.com. The information found on, or otherwise accessible through, the Company’s website is not incorporated into, and does not form a part of, this proxy statement or any other report or document the Company files with or furnishes to the SEC. Company Common Shares are traded on the NYSE, under the symbol “HT”; Company Series C Preferred Shares trade on the NYSE under the symbol “HT-PC”; Company Series D Preferred Shares trade on the NYSE under the symbol “HT-PD”, and Company Series E Preferred Shares trade on the NYSE under the symbol “HT-PE.”
For additional information about the Company and its business, please refer to “Where You Can Find Additional Information.”
1776 Portfolio Investment, LLC
1776 Portfolio OP Merger Sub, LP
1776 Portfolio REIT Merger Sub, LLC
c/o KSL Capital Partners, LLC
100 St. Paul Street, Suite 800
Denver, Colorado 80206
(720) 284-6400
1776 Portfolio Investment, LLC (“Parent”) is a Delaware limited liability company that was formed to enter into the Merger Agreement and related agreements and to consummate the transactions contemplated thereby and related thereto. Parent has not engaged in any business activities other than activities incidental to its formation in connection with the Merger Agreement and the transactions contemplated thereby and related
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thereto, including arranging the financing in connection with the Mergers. Upon completion of the Mergers, the Surviving Entity will be a wholly-owned subsidiary of Parent.
1776 Portfolio OP Merger Sub, LP (“OP Merger Sub”), a Virginia limited partnership and subsidiary of Parent, and 1776 Portfolio REIT Merger Sub, LLC (“REIT Merger Sub”), a Delaware limited lability company and wholly-owned subsidiary of Parent, were formed to facilitate the acquisition of the Company and have not engaged in any business activities other than activities incidental to their formation or in connection with the Merger Agreement and the transactions contemplated thereby and related thereto, including arranging the financing in connection with the Mergers.
Parent, OP Merger Sub, and REIT Merger Sub are at times referred to in this proxy statement as the “Parent Parties.”
The Parent Parties are affiliates of KSL Capital Partners, LLC (the “Sponsor”). The Sponsor is a private equity firm specializing in travel and leisure enterprises in five primary sectors: hospitality, recreation, clubs, real estate and travel services. The Sponsor has offices in Denver, Colorado; New York City; Stamford, Connecticut; and London, England. Since 2005, the Sponsor has raised in excess of $21 billion of capital across its equity, credit and tactical opportunities funds. The Sponsor’s current and past portfolio contains some of the premier properties in travel and leisure. For more information, please visit ww.kslcapital.com.
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THE SPECIAL MEETING
Date, Time and Purpose of the Special Meeting
Your proxy is solicited on behalf of the Board of the Company for exercise at the Company’s Special Meeting to be held on Wednesday, November 8, 2023, at 9:00 a.m., Eastern Time, virtually via an Internet webcast at https://web.lumiagm.com/212424894, or at any postponement or adjournment thereof, for the purposes discussed in this proxy statement and in the accompanying Notice of Special Meeting. The password for the Special Meeting is ht2023. Proxies are solicited to give all shareholders of record an opportunity to vote on matters properly presented at the Special Meeting.
The purpose of the Special Meeting is for you to consider and vote on the following matters:
1.
a proposal to approve the merger of the Company with and into REIT Merger Sub and the other transactions contemplated by the Merger Agreement in accordance with the terms of the Merger Agreement (the “Merger Proposal”);
2.
a proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to the Company’s named executive officers in connection with the Mergers (the “Advisory Compensation Proposal”); and
3.
a proposal to approve any adjournment of the Special Meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the Special Meeting to approve the Merger Proposal (the “Adjournment Proposal”).
Pursuant to the Company’s bylaws, only the matters set forth in the Notice of Special Meeting may be brought before the Special Meeting. The affirmative vote of the holders of a majority of all outstanding Company Common Shares entitled to vote at the Special Meeting on the Company Merger is required to approve the Company Merger and for the Mergers to occur. A copy of the Merger Agreement is attached as Annex A to this proxy statement, which the Company encourages you to read carefully in its entirety.
The Special Meeting will be a completely virtual meeting of the shareholders, which will be conducted exclusively online via webcast.
Record Date, Notice and Quorum
Record holders of outstanding Company Common Shares as of the close of business on October 2, 2023, the Record Date for the Special Meeting, are entitled to vote at the Special Meeting on all matters to be voted upon. As of the Record Date, there were 40,104,916 Company Common Shares outstanding. On each matter presented to the Company’s shareholders for a vote at the Special Meeting, the holders of outstanding Company Common Shares are entitled to one vote per share held as of the Record Date. All holders of record of Company Preferred Shares on the Record Date are entitled to notice of, but may not vote at, the Special Meeting.
A quorum will be established for purposes of the Special Meeting if holders of a majority of all the votes entitled to be cast at such meeting on any matter are present, either in person or by proxy.
Required Vote
Completion of the Mergers requires approval of the Company Merger by the affirmative vote of the holders of a majority of all outstanding Company Common Shares entitled to vote at the Special Meeting on the Company Merger. Each shareholder is entitled to cast one vote on each matter presented at the Special Meeting for each Company Common Share owned by such shareholder on the Record Date. Because the required vote for the Merger Proposal is based on the number of votes holders of Company Common Shares are entitled to cast rather than on the number of votes cast, if you fail to authorize a proxy to vote your shares or fail to vote in person via webcast, or fail to instruct your broker on how to vote, such failure will have the same effect as voting “AGAINST” the Merger Proposal. Abstentions will have the same effect as a vote “AGAINST” the Merger Proposal.
The approval of the Advisory Compensation Proposal and the approval of the Adjournment Proposal each requires the affirmative vote of a majority of the votes cast on the proposal. Approval of either or both of these proposals is not a condition to completion of the Mergers. For the purpose of each of these proposals, if you fail
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to authorize a proxy to vote your shares, fail to vote in person via webcast, or fail to instruct your broker on how to vote, it will not have any effect on the outcome of such proposals, assuming a quorum is otherwise present at the meeting. Abstentions, while present for purposes of determining presence of a quorum, are not considered votes cast and therefore will have no other effect on the outcome of these two proposals.
In order for your Company Common Shares to be voted, if you are a shareholder of record, you must either return the enclosed proxy card, authorize your proxy by telephone or through the Internet or vote in person at the Special Meeting via webcast.
As of the Record Date, the Company’s trustees and executive officers owned and are entitled to vote an aggregate of approximately 2,477,922 of the outstanding Company Common Shares, entitling them to exercise approximately 6.18% of the voting power of Company Common Shares entitled to vote at the Special Meeting. Certain of the Company’s trustees and executive officers have executed Voting Agreements, agreeing to vote the Company Common Shares that they own in favor of the Merger Proposal, in favor of the Advisory Compensation Proposal and in favor of the Adjournment Proposal, comprising in the aggregate as of the Record Date approximately 3.81% of the voting power of Company Common Shares entitled to vote at the Special Meeting.
Votes cast by proxy or in person via webcast at the Special Meeting will be counted by the person appointed by the Company to act as inspector of election for the Special Meeting. The inspector of election will also determine the number of Company Common Shares represented at the Special Meeting, in person via webcast or by proxy.
Solicitation of Proxies
The Board is soliciting proxies for the Special Meeting from the Company’s shareholders. The Company will bear the entire cost of soliciting proxies from its shareholders. The Company has retained the services of Okapi Partners to assist with the solicitation of proxies in connection with the Special Meeting, and it will pay $15,000 for these services, plus reimbursement of reasonable expenses. In addition to the solicitation of proxies by delivery of the proxy statement by mail, the Company will request that brokers, banks and other nominees that hold Company Common Shares, which are beneficially owned by its shareholders, send proxies and proxy materials to those beneficial owners and secure those beneficial owners’ voting instructions. The Company may also use several of its regular employees, who will not be specially compensated, to solicit proxies from its shareholders, either personally or by telephone, Internet, facsimile or special delivery letter.
Voting of Shares
You may vote by attending the Special Meeting via webcast and voting in person virtually, or you may vote by authorizing a proxy to vote on your behalf. The method of voting by proxy differs for shares held as a record holder and shares held in “street name.” If you hold your Company Common Shares as a record holder and you are reviewing a paper copy of this proxy statement, you may authorize a proxy to vote your shares by completing, dating and signing the proxy card that was included with the proxy statement and promptly returning it, or by submitting a proxy over the Internet or by telephone by following the instructions on the proxy card. You will also be able to vote your shares online by attending the Special Meeting via webcast.
The Special Meeting will be a completely virtual meeting of the shareholders, which will be conducted exclusively online via webcast. You are entitled to participate in the Special Meeting only if you were a shareholder on the Record Date, or if you hold a valid proxy for the Special Meeting. No physical meeting will be held and members of our Board and management will also attend online via webcast.
You will be able to attend the Special Meeting online and submit your questions during the Special Meeting by visiting https://web.lumiagm.com/212424894. The password for the Special Meeting is ht2023.
If you plan on virtually attending the Special Meeting, you will need to enter the Control Number on your proxy card. We encourage you to access the Special Meeting prior to the start time leaving ample time for the check-in.
If you hold your Company Common Shares in “street name,” which means your shares are held of record by a broker, bank or nominee, you will receive a Notice from your broker, bank or other nominee that includes instructions on how to vote your shares. Your broker, bank or nominee will allow you to deliver your voting
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instructions over the Internet and may also permit you to authorize your vote by telephone. In addition, you may request paper copies of the proxy statement and proxy card from your broker by following the instructions on the Notice provided by your broker.
All of the proposals in this proxy statement are non-routine matters, so there can be no broker non-votes at the Special Meeting. A broker non-vote occurs when shares held by a bank, broker, trust or other nominee are represented at a meeting, but the bank, broker, trust or other nominee has not received voting instructions from the beneficial owner and does not have the discretion to direct the voting of the shares on a particular proposal but has discretionary voting power on other proposals at such meeting. Accordingly, if you own Company Common Shares through a broker, bank or other nominee (i.e., in “street name”), you must provide voting instructions in accordance with the instructions on the voting instruction card that your broker, bank or other nominee provides to you, as brokers, banks and other nominees do not have discretionary voting authority with respect to any of the three proposals described in this proxy statement. You should instruct your broker, bank or other nominee as to how to vote your Company Common Shares following the directions contained in such voting instruction card. If you have not received such voting instructions or require further information regarding such voting instructions, contact your broker, bank or other nominee who can give you directions on how to vote your Company Common Shares. If you hold your Company Common Shares through a broker, bank or other nominee and wish to vote in person at the Special Meeting via webcast, you must obtain a “legal proxy,” executed in your favor, from the broker, bank or other nominee (which may take several days). Because the Merger Proposal requires the affirmative vote of the holders of a majority of the outstanding Company Common Shares entitled to vote on the matter, the failure to provide your bank, broker, trust or other nominee with voting instructions will have the same effect as a vote “AGAINST” the Merger Proposal. Because the approval of each of (1) the Advisory Compensation Proposal and (2) the Adjournment Proposal requires the affirmative vote of a majority of the votes cast on such proposal, and because your bank, broker, trust or other nominee does not have discretionary authority to vote on either proposal, the failure to provide your bank, broker, trust or other nominee with voting instructions will have no effect on approval of either proposal, assuming a quorum is otherwise present.
If you vote through the Internet, you should be aware that you may incur costs to access the Internet, such as usage charges from telephone companies or Internet service providers and that these costs must be borne by you. If you vote by Internet or telephone, then you need not return a written proxy card by mail.
YOUR VOTE IS VERY IMPORTANT. Regardless of whether you plan to attend the Special Meeting, the Company requests that you authorize a proxy for your Company Common Shares as described above as promptly as possible. If you properly give your proxy and submit it to the Company in time to vote, one of the individuals named as your proxy will vote your shares as described below.
All shares entitled to vote and represented by properly submitted proxies (including those submitted electronically, telephonically and in writing) received before the polls are closed at the Special Meeting, and not revoked or superseded, will be voted at the Special Meeting in accordance with the instructions indicated on those proxies. If no direction is indicated on a proxy, your shares will be voted as follows: “FOR” the Merger Proposal, as described in the proxy statement, “FOR” the Advisory Compensation Proposal, and “FOR” the Adjournment Proposal. The proxy gives each of David Desfor and Ashish Parikh authority to vote your shares in accordance with his discretion with respect to all additional matters that might come before the Special Meeting.
Proxies and Revocation
If you authorize a proxy, your Company Common Shares will be voted at the Special Meeting as you indicate on your proxy. If no instructions are indicated when you authorize your proxy, your Company Common Shares will be voted in accordance with the recommendations of the Board. The Board recommends that you vote “FOR” the Merger Proposal, “FOR” the Advisory Compensation Proposal and “FOR” the Adjournment Proposal.
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If you are a shareholder of record, you may revoke your proxy at any time before your proxy is voted at the Special Meeting by taking any of the following actions:
delivering to the Company Secretary a signed written notice of revocation, bearing a date later than the date of the proxy, stating that the proxy is revoked;
signing and delivering a new paper proxy, relating to the same shares and bearing a later date than the original proxy;
submitting another proxy by telephone or over the Internet (your latest telephone or Internet voting instructions are followed); or
attending the Special Meeting and voting in person, although attendance at the Special Meeting will not, by itself, revoke a proxy.
Written notices of revocation and other communications with respect to the revocation of proxies should be addressed to:
Hersha Hospitality Trust
44 Hersha Drive
Harrisburg, Pennsylvania 17102
Attention: Michael R. Gillespie
E-mail: mike.gillespie@hersha.com
If your shares are held in “street name,” you may change your vote by submitting new voting instructions to your broker, bank or other nominee. You must contact your broker, bank or other nominee to find out how to do so. See above regarding how to vote in person if your shares are held in “street name.”
Pursuant to the Company’s bylaws, only the matters set forth in the Notice of Special Meeting may be brought before the Special Meeting.
Availability of Proxy Materials for the Special Meeting
The Company’s proxy materials, including this proxy statement and the Company’s annual report for the fiscal year ended December 31, 2022, are available online at https://investors.hersha.com/sec-filings/default.aspx. You are encouraged to access and review all of the important information contained in the proxy materials before voting.
Adjournments and Postponements
Although it is not currently expected, the Special Meeting may be adjourned for the purpose of soliciting additional proxies if the holders of a sufficient number of Company Common Shares are not present at the Special Meeting, in person via webcast or by proxy, to constitute a quorum or if the Company believes it is reasonably likely that the Merger Proposal will not be approved at the Special Meeting when convened on Wednesday, November 8, 2023, or when convened or reconvened following any postponement or adjournment. Pursuant to the Company’s bylaws, if a quorum is not present with respect to any vote to be taken by a particular class or series of shares, the chairman of the meeting or the holders of a majority of such class or series of shares, excluding abstentions, who are present in person or by proxy may adjourn the meeting with respect to the vote(s) to be taken by any class or series of shares. The chairman of the meeting may determine the date, time and place that a meeting so adjourned is to reconvene, and notice of adjournment of the Special Meeting need not be given (other than announcement at the Special Meeting) if the date, time and place to which it is adjourned is not more than 120 days after the original Record Date.
Any adjournments may be made to a date not more than 120 days after the original Record Date without notice (other than by an announcement at the Special Meeting), subject to certain restrictions in the Merger Agreement, including that the Special Meeting (as so postponed or adjourned) may not be held on a date that is (x) more than 30 days after the date on which the Special Meeting was originally scheduled (excluding any adjournments, recesses or postponements required by applicable law) or (y) more than 120 days from the Record Date for the Special Meeting, in each case, without Parent’s written consent. See “Proposal 3 - Adjournment Proposal.”
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Voting in Person, Attendance at the Special Meeting
If you plan to attend the Special Meeting and wish to vote in person at the Special Meeting, you will be able to vote virtually via an Internet webcast at https://web.lumiagm.com/212424894. The password for the Special Meeting is ht2023. If you plan on virtually attending the Special Meeting, you will need to enter the Control Number on your proxy card. We encourage you to access the Special Meeting prior to the start time leaving ample time for the check-in. Please note that if your shares are held in “street name,” which means your shares are held of record by a broker, bank or other nominee, and you wish to vote at the Special Meeting, you must obtain a legal proxy from the record holder of the shares, which is the broker, bank or other nominee, authorizing you to vote at the Special Meeting.
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THE MERGERS
General Description of the Mergers
Pursuant to and in accordance with the terms of the Merger Agreement, affiliates of the Parent Parties will acquire the Company and its subsidiaries, through the merger of (i) the Company with and into REIT Merger Sub, with REIT Merger Sub continuing as the surviving entity and (ii) OP Merger Sub with and into Company OP, with Company OP continuing as the surviving entity.
Background of the Mergers
The Board, together with senior management (“Management”), regularly reviews and, when advisable, revises the Company’s long-term strategies and objectives in light of developments in real estate and lodging markets, debt financing and capital market conditions and its business and capabilities. While reviewing the Company’s long-term strategies and objectives, the Board and Management have considered various potential strategic alternatives with the goal of maximizing shareholder value, including potential asset purchases and dispositions, and business combination transactions, and have recognized that the Company continues to face challenges as a public company. These challenges include the cyclical nature of the hotel industry, the challenging market for hotel industry equity securities, the risk of a slowdown of the economy, upcoming debt maturities and the limited availability of financing and refinancing options, expected continuing high interest rates, including potential further increases in interest rates which could further increase the cost of debt, the uncertainty surrounding the return of business travel and the increase in supply in the hotel industry, which over time could drive down both hotel occupancy and room rates, the Company’s smaller size than many of its competitors, limited liquidity in the Company’s common shares, and the ongoing challenges of acquiring assets on an accretive basis in light of the foregoing conditions. Also, the Board and Management have discussed the intensely competitive environment in the Company’s core markets. The Board and Management have considered the potential negative impact of such factors on the operating results of the hotel industry, including the Company, and the related downside risks in the Company common share price. The Board and Management have also considered the discount to estimated net asset value at which shares of the Company common shares have recently traded and the implications of this discount on the cost of obtaining capital to fund future acquisitions or growth and to repay the Company’s existing debt obligations.
In furtherance of its consideration of these types of potential strategic alternatives, the Board, its Strategic Review Committee (the “SRC”) (comprised of Tom Hutchison as chairman, Jackson Hsieh and John Sabin, all of whom are existing independent trustees of the Board) and, at the Board’s direction, Management, have had regular discussions with various third party advisors regarding the hotel industry, the real estate industry including both the general REIT industry and the hospitality REIT industry, the market for asset sales and other potential transactions and strategic alternatives. The Company formally engaged Goldman Sachs for such purposes pursuant to an engagement letter, dated September 9, 2017 (the “Existing Engagement Letter”) for a number of reasons that include Goldman Sachs’ experience and expertise as a financial advisor in a wide variety of transactions and familiarity with the Company’s business.
During ordinary course discussions with Goldman Sachs in late 2021, members of Management and the SRC determined that, given the Company’s ongoing recovery from the substantial decrease in travel during the COVID-19 pandemic and the Company’s upcoming debt maturities, it was advisable to have representatives of Goldman Sachs speak with the Board regarding potential strategic alternatives and the best course of action for the Company moving forward.
On February 28, 2022, the SRC held a meeting with other members of the Board, representatives of Goldman Sachs and representatives of Latham & Watkins LLP (“Latham”), who had historically acted as the Company’s legal counsel from time to time. Representatives of Goldman Sachs discussed, based on publicly available information, the state of the hospitality market, the Company’s performance relative to its peers and the value of its assets relative to its share price. The SRC determined that, in light of the Company’s recovering performance and its upcoming debt maturities, it would recommend to the Board that the Company explore strategic alternatives in a formal sale process for the whole Company or one or more of its hotel portfolios. The SRC also recommended that the Board form a transaction committee to lead the strategic process, to be
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comprised of independent trustees to ensure any existing or potential conflicts of interest, particularly in light of Management’s significant ownership interest in the Company and its minority interest in the Company’s primary hotel operator, HHM Hotels (“HHM”), could be appropriately addressed in connection with a potential strategic transaction involving the Company.
On March 10, 2022, the Board met with Management and representatives of Goldman Sachs and Latham to discuss the SRC’s recommendations. Representatives of Goldman Sachs discussed, based on publicly available information, the state of the hospitality market, the Company’s performance relative to its peers and the value of its assets relative to its share price. Following that discussion, the Board discussed possible options for the Company with Management, representatives of Goldman Sachs and Latham and determined to pursue a strategic process and form a transaction committee of independent trustees (the “Transaction Committee”).
On March 16, 2022, the Board formally resolved to form the Transaction Committee, to be comprised of Tom Hutchison as chairman, Jackson Hsieh and John Sabin, all of whom are existing independent trustees of the Board, to explore a potential sale of the whole Company or a select portfolio of assets or other strategic transactions.
Following its formation, the Transaction Committee determined that Latham’s prior limited engagement by the Company was not material and would not impact Latham’s ability to act as independent counsel to the Transaction Committee, and further determined to engage Latham as its legal counsel based on its expertise in strategic transactions and prior experience with the Company. After review of Goldman Sachs’ prior engagement by the Company, the Transaction Committee determined that such engagement would not impact Goldman Sachs’ ability to act effectively as financial advisor to the Transaction Committee, and further determined to engage Goldman Sachs as financial advisor to the Transaction Committee for a number of reasons that include Goldman Sachs’ experience and expertise as a financial advisor in a wide variety of transactions and familiarity with the Company’s business.
Throughout March and April 2022, the Transaction Committee met on multiple occasions, including meetings involving members of Management and representatives of Goldman Sachs and Latham, and determined that, in light of the Company’s short track record of performance following COVID-19, the strategic processes should be limited to the potential sale of its Urban Select Service portfolio (the “USS Portfolio”, and such strategic process, the “2022 Process”). The Transaction Committee determined to reassess a potential sale of the whole Company after the Company had built a sufficient post-COVID performance track record.
In connection with the 2022 Process, the Transaction Committee assumed the Company’s obligations under the Existing Engagement Letter by entering into that certain letter agreement, dated June 22, 2022, with Goldman Sachs which, among other matters, assigned the Existing Engagement Letter to the Transaction Committee and amended certain terms of the Existing Engagement Letter.
During the course of the 2022 Process, Goldman Sachs, at the direction of the Transaction Committee, conducted outreach to ten potential bidders for the USS Portfolio, consisting of nine financial sponsors and two strategic parties, including KSL, a financial sponsor referred to herein as “Party A”, a financial sponsor referred to herein as “Party B” and a financial sponsor referred to herein as “Party C”. Each of KSL and Party B entered into a confidentiality agreement with the Company, but neither party engaged materially in the 2022 Process.
Ultimately, at the recommendation of the Transaction Committee, the Board approved the sale of the USS Portfolio to an affiliate of Blackstone Inc. for gross proceeds of approximately $505 million, which was consummated on August 4, 2022 and October 26, 2022.
Following the conclusion of the 2022 Process, the Board and the Transaction Committee determined not to actively pursue a strategic transaction at that time, but continued to monitor the hospitality markets and the possibility of a strategic transaction, including a sale of the Company or one or more of its portfolios, and received market updates from Goldman Sachs at each of the Board’s quarterly meetings.
On March 30, 2023, the Transaction Committee met with representatives of Goldman Sachs to further discuss the Company’s strategic alternatives, including the potential sale of the whole Company and the process and timing considerations related thereto.
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On May 18, 2023, the Board met with members of Management and representatives of Goldman Sachs to discuss the Company’s performance track record in relation to its peers in the hospitality sector and to discuss Management’s standalone plans for the Company moving forward.
On June 5, 2023, members of Management and representatives of Goldman Sachs separately attended the Annual NYU International Hospitality Industry Investment Conference (the “NYU Conference”). Beginning at the NYU Conference and continuing throughout the following week, representatives of each of KSL, Party A and a financial sponsor referred to herein as “Party D” separately approached members of Management, and representatives of Party B and Party C separately approached representatives of Goldman Sachs, to express interest in opening a dialogue related to a potential transaction involving the Company. Members of Management directed the representatives of each of KSL, Party A and Party D to discuss their respective interest in a transaction involving the Company with representatives of Goldman Sachs.
On June 16, 2023, a meeting of the Transaction Committee was held, and representatives of Goldman Sachs and Latham and members of Management were present. Representatives of Goldman Sachs provided an update to the Transaction Committee regarding the informal approaches received by Goldman Sachs and Management at and following the NYU Conference regarding a potential transaction involving the Company. Representatives of Goldman Sachs then provided an overview of (i) the current equity and debt environment and highlighted a resurgent interest from the private equity community to deploy equity even with a persistently difficult real estate financing market and (ii) a potential plan for a sale process for all of the Company or a portion of its assets should the Transaction Committee choose to proceed. After further discussion with its advisors regarding the improved debt markets, the Company’s upcoming debt maturities and the Company’s performance track record following COVID, the Transaction Committee approved a recommendation to the Board that the Company should undertake a strategic process in connection with a potential transaction involving the sale of the whole Company or certain assets of the Company.
On June 20, 2023, a meeting of the Transaction Committee was held, and representatives of Latham were present. Representatives of Latham discussed the procedural aspects of the Transaction Committee’s exploration of a potential transaction involving the Company and provided an overview of certain legal considerations involved in a potential sale process, including certain duties of trustees under applicable law.
Also on June 20, 2023, a meeting of the Board was held, and representatives of Goldman Sachs and Latham and members of Management were present. Representatives of Goldman Sachs provided an update to the Board regarding certain informal approaches received by Goldman Sachs and Management from KSL, Party A, Party B, Party C and Party D regarding a potential transaction involving the Company. In respect of the informal approach received from KSL, Mr. Hutchison’s prior relationship with KSL, including former service as a senior advisor to KSL from 2007 to 2014, was brought to the attention of the other members of the Board and the Transaction Committee. The Transaction Committee recommended to the Board that the Transaction Committee should proceed with the process of conducting a market check in connection with any proposed transaction involving the Company. Representatives of Goldman Sachs then provided an overview of current market conditions and various process considerations, including, among other matters, the timing of a potential transaction and the Company’s ability to conduct a market check to obtain the highest offer for the Company to maximize shareholder value. Representatives of Goldman Sachs also indicated their view that there was a possible window through August and September 2023 to seek a potential transaction while debt markets were expected to become more stable as compared to recent months. Representatives of Latham then discussed certain duties of trustees under applicable law in connection with a potential sale of the whole Company or a select portfolio of assets of the Company, and also discussed the procedural mechanisms to address any potential conflicts of interest when exploring a potential sale process. After further discussions, the Transaction Committee and the Board instructed representatives of Goldman Sachs to proceed with outreach to potential bidders identified to the Board by Goldman Sachs that were either interested in acquiring the Company or, in light of potential limitations on the number of bidders who may be interested in the Company's New York portfolio, a select portfolio of assets of the Company.
Beginning on June 21, 2023, and continuing over the following week, Goldman Sachs commenced formal outreach to ten potential bidders as directed by the Transaction Committee and the Board, including KSL, Party A, Party B, Party C and Party D. Over the following several weeks Goldman Sachs conducted formal outreach to two additional potential bidders and received unsolicited interest from seven potential bidders. Of the 19 potential bidders with whom Goldman Sachs had contact, 12 entered into a confidentiality agreement with the
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Company, including KSL, Party A, Party B, Party C and Party D. Among other customary terms, the confidentiality agreements each included a standstill provision as well as a provision that prevented each counterparty from making any request to the Board to amend or waive the standstill provision, but permitting confidential submissions to the Board that would not require public disclosure.
On June 23, 2023, a meeting of the Transaction Committee was held, and representatives of Latham were present. Representatives of Latham discussed formally reauthorizing the Transaction Committee to lead such exploration, including the amendment and restatement of the charter of the Transaction Committee to authorize its mandate regarding a potential sale process of the Company (the “Charter Amendment”). Representatives of Latham also discussed with the Transaction Committee the adoption of certain guidelines regarding communications between members of Management and any potential bidder (such guidelines, the “Rules of the Road Memorandum”), given Management’s significant ownership interest in the Company and minority ownership of HHM. The guidelines included in the Rules of the Road Memorandum instructed members of Management and HHM not to discuss any potential participation in a proposed transaction involving the Company or their respective post-closing roles with any potential bidder, in each case, unless authorized by the Transaction Committee, in order to ensure an independent process in connection with the exploration of a potential transaction involving the Company. Discussions ensued with members of the Transaction Committee and, after further discussion, the Transaction Committee unanimously recommended that the Board should adopt the Charter Amendment and the Rules of the Road Memorandum and provide the Rules of the Road Memorandum to Management and HHM.
On June 27, 2023, a meeting of the Board was held, and representatives of Goldman Sachs and Latham and members of Management were present. The Board discussed the importance of the Transaction Committee being comprised of independent trustees of the Board. Following such discussion, the Board formally reauthorized the Transaction Committee to formally explore the market and manage any resulting potential sale of, or other significant strategic transaction involving, the Company. The Board also approved the Charter Amendment to authorize the Transaction Committee’s current mandate regarding a potential sale process of the Company and the adoption of the Rules of the Road Memorandum. The Transaction Committee and the Board also reviewed with members of Management and representatives of Goldman Sachs the Management Projections, including, among other matters, the assumptions underlying such Management Projections, which are discussed in further detail in the section of this proxy statement captioned “The Mergers – Unaudited Prospective Financial Information” beginning on page 51. The Management Projections were consistent with projections that Management had presented to the Board at the most recent quarterly meeting of the Board, other than updates to account for the Company’s most recent financial results and changes in interest rates. The Board authorized the use of the Management Projections in the potential sale process of the Company, including by Goldman Sachs in connection with its financial analyses and potential delivery of a fairness opinion, and authorized that the Management Projections through 2028 be shared with the potential bidders.
Over the course of June and July 2023, at the direction of the Transaction Committee, Goldman Sachs continued its outreach to potential bidders that were either interested in acquiring the Company or a select portfolio of assets of the Company, and continued to engage with potential acquirors, negotiate confidentiality agreements and prepare information materials. In addition, Goldman Sachs established a virtual data room and conducted management presentations and site visits.
Beginning on June 30, 2023, Goldman Sachs provided potential bidders that had entered into confidentiality agreements with the Company access to the virtual data room and first-round due diligence information, including the Management Projections.
On July 10, 2023, a meeting of the Transaction Committee was held, and representatives of Goldman Sachs and Latham and members of Management were present, pursuant to which, among other matters, representatives of Goldman Sachs provided an update to the Transaction Committee on the interest received from prospective bidders, including the interest in a sale of the whole Company, a sale of a portfolio of assets of the Company and/or a combination of the two. Representatives of Goldman Sachs also provided an update on the overall status of each potential bidder’s diligence efforts and their views with respect to the likelihood that such bidders would be prepared to submit non-binding proposals by the proposed bid submission date at the end of July. Following discussion, the Transaction Committee instructed Goldman Sachs to send a formal process letter to potential bidders requesting initial bid offers to be submitted by July 28, 2023.
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On July 28, 2023, the Company received non-binding proposals from Party A, KSL and Party B. Party A proposed to acquire the 100% of the equity interests of the Company for $10.62 per share in cash, representing a premium of 69.9% to the per share price of the Company common shares as of the close of trading on July 28, 2023. KSL proposed to acquire 100% of the equity interests of the Company for $9.50 per share in cash, representing a premium of 52% to the per share price of the Company common shares as of the close of trading on July 28, 2023. Party B proposed to acquire the Company’s luxury and lifestyle portfolio (with certain limited exceptions) for approximately $700 million in cash.
On July 30, 2023, Party C submitted a non-binding proposal to acquire the whole Company for $7.50 per share in cash, representing a premium of 20% to the per share price of the Company common shares as of the close of trading on July 28, 2023.
On August 1, 2023, a meeting of the Transaction Committee was held with members of Management and representatives of Goldman Sachs and Latham present. Representatives of Goldman Sachs provided an update on the status of the strategic process, and reviewed with the Transaction Committee the first-round non-binding proposals that were received from KSL, Party A, Party B and Party C. Mr. Hutchison reminded the Transaction Committee that he had immaterial investments in a fund affiliated with KSL, had served as a director of ClubCorp Inc., a former portfolio company of funds affiliated with KSL, and as a senior advisor to KSL, in each case, between 2007 and 2014. Mr. Hutchison also confirmed that any current relationship with KSL and its representatives was not material and that he had not had any contact with members of KSL during the process. Members of the Transaction Committee discussed with the Company’s advisors the terms of the proposals as well as various requests from certain bidders for permission to cooperate with other counterparties, including potential equity or debt financing sources or operating partners, and the potential impact thereof on second-round proposals. Also included in the proposals received by the Company were requests to speak with Management regarding the potential transaction, which requests the Transaction Committee determined, and Management agreed, to delay until the financial and other material terms of the potential transaction were agreed. Representatives of Goldman Sachs discussed with the Transaction Committee certain considerations relating to timing and strategy for the potential second round of the process and proposed responses to be delivered to the various bidders. Representatives of Latham then reminded the members of the Transaction Committee of their duties under applicable law in connection with a sale process of the Company. The Transaction Committee considered risks and benefits of a potential sale of the whole Company as compared to risks and benefits associated with other strategic alternatives, including a sale of a portfolio of assets of the Company, and the Company’s long-term strategic plan as an independent public company. Following discussion, the Transaction Committee instructed Goldman Sachs to invite two bidders, KSL and Party A, whose bids represented the highest proposed valuations and reflected an offer to acquire the whole Company, to proceed to the second round of the process. The Transaction Committee also instructed Goldman Sachs to continue engaging with Party B regarding its proposal to acquire most of Company’s luxury and lifestyle portfolio (with certain limited exceptions), including by encouraging Party B to work with another counterparty to acquire additional assets not included in Party B’s original bid. The Transaction Committee instructed Goldman Sachs to cease negotiations with Party C unless Party C demonstrated a willingness to present an offer comparable to the offers received by each of Party A, KSL and Party B. The Transaction Committee further instructed Latham to prepare a draft merger agreement for KSL and Party A, and to prepare a draft asset purchase agreement for Party B.
On August 1, 2023, representatives of Goldman Sachs reached out telephonically to KSL, Party A and Party B to inform them they have been invited to participate in the second round of the bid process.
Between August 1, 2023 and August 7, 2023, representatives of Goldman Sachs held discussions with Party B regarding Party B’s ability to improve its offer, the asset pricing underlying Party B’s offer and key structuring considerations with respect to Party B’s offer. Party B discussed with representatives of Goldman Sachs the possibility of partnering with a strategic party, and representatives of Goldman Sachs authorized Party B to hold discussions in an attempt to partner with such strategic party, to improve Party B’s offer. Party B further expressed a willingness to work with HHM on a go-forward basis should the Company elect to proceed with a transaction involving Party B.
On August 2, 2023, at the request of Goldman Sachs, representatives of Latham and Simpson Thacher & Bartlett LLP (“Simpson Thacher”), counsel to KSL, held a telephonic meeting to discuss overall process and timeline.
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Also, on August 2, 2023, a draft merger agreement was made available to KSL and Party A, and representatives of Goldman Sachs requested KSL and Party A to submit their respective markups of the merger agreement and copies of their financing commitments by August 11, 2023 and their second-round proposals by August 15, 2023.
After initiating the second round of the bid process, the Company provided additional information to the second-round bidders in the Company’s virtual data room in response to diligence requests received from the bidders. Further, over the course of the week of August 7, 2023, Goldman Sachs organized several diligence information sessions with representatives of the Company, KSL and Party A, and their respective counsel.
On August 7, 2023, a joint meeting of the Transaction Committee and the Board was held, and representatives of Goldman Sachs, Latham and Venable LLP, the Company’s Maryland counsel (“Venable”), and members of Management, were in attendance. Representatives of Goldman Sachs provided a status update on the overall sale process involving a potential sale of the whole Company or a select portfolio of assets of the Company, and provided an overview of the four preliminary proposals received from bidders and the recommendation of the Transaction Committee to invite KSL, Party A and Party B to the second round of the bid process. Representatives of Goldman Sachs then discussed certain process considerations with respect to requests received from certain bidders that had expressed an interest in speaking directly to HHM as part of the second round diligence process and potentially providing for a co-investment opportunity for HHM in connection with their bids. Representatives of Latham and Venable reminded the trustees of their duties under applicable law as trustees, in connection with a sale process of the Company. Latham also reviewed topics of discussion that could arise during any proposed meetings between representatives of HHM and potential bidders, and recommended that meetings between HHM and bidders be attended by Goldman Sachs, and any requests for information or sharing of documents prior to or following such meetings be coordinated through Latham, in order to ensure oversight by the trustees and their advisors in any such meetings or through any such information requests. Latham further recommended that the Transaction Committee provide each of HHM and the bidders with a memorandum setting forth guidelines for any such meetings, which included, among other things, (i) that any members of Management or trustees holding a minority interest in HHM should be separated entirely from any discussions at HHM regarding HHM’s role in the transaction or with the post-Closing Company, (ii) that in no event should HHM be permitted to disclose the identity of any bidder or information regarding any other bidder, or bidders permitted to request such information from HHM, and (iii) that HHM and bidders should not be permitted to discuss the details of any potential co-investment. At the conclusion of the joint meeting, each of the Board and the Transaction Committee resolved, among other things, to approve Latham’s recommendations and instructed Latham and Goldman Sachs to provide such instructions and memoranda to Management, HHM and bidders.
Between August 11, 2023 and August 12, 2023, outside legal counsel to Party A and Simpson Thacher submitted draft markups of the merger agreement to Goldman Sachs and Latham. In their respective markups, each of KSL and Party A requested that certain significant shareholders of the Company enter into a voting and support agreement with the bidders pursuant to which such shareholders would agree to vote their shares in favor of the Mergers, and significantly expanded the Company’s obligations to cooperate with the bidders in connection with their proposed financing. Party A’s draft markup of the merger agreement also proposed a Company termination fee equal to 3.75% of the Company’s equity value, and a buyer termination fee equal to 5.25% of the Company’s equity value. KSL’s draft markup of the merger agreement proposed a Company termination fee equal to 4% of the Company’s equity value, and a buyer termination fee equal to 5% of the Company’s equity value. It was not specified in the KSL or Party A proposals whether “equity value” consisted of common stock equity value or combined common and preferred equity value (“Total Equity Value”).
On August 12, 2023, a draft purchase and sale agreement with respect to a sale of a portfolio of assets of the Company was provided to Party B.
During the first two weeks of August, members of Management met with representatives of the remaining bidders, together with representatives of Goldman Sachs, to answer diligence questions relating to the Company’s portfolio of assets, capital spending and projected future performance.
On August 15, 2023, each of KSL and Party A submitted a second-round non-binding proposal, together with their respective financing commitment papers, to representatives of Goldman Sachs. Party B informed representatives of Goldman Sachs that it did not intend to submit a second-round proposal but was still interested
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in the process. The proposal from KSL at this time was for $9.50 per share in cash, representing a premium of 46.8% to the per share price of the Company common shares as of the close of trading on August 17, 2023, funded by an equity commitment from KSL funds and a commercial mortgage-backed security debt commitment. KSL’s proposal also reiterated its desire to speak with Management regarding their participation in the proposed transaction. The valuation proposed by Party A was $10.70 per share, representing a premium of 65.4% to the per share price of the Company common shares as of the close of trading on August 17, 2023; however, Party A had only obtained commitments for a minority of its required equity financing, and its proposal indicated that it would require an additional month in order to obtain binding commitments from its co-investment partners for the remaining portion of the required equity financing. Party A further informed representatives of Goldman Sachs that, even if afforded an additional month, Party A could not guarantee that it would be able to secure the required equity financing. As part of its revised offer, Party A indicated that in the event the Company elected not to proceed with a sale of the whole Company, Party A would be interested in acquiring for $420 million the Company’s New York portfolio of hotels, excluding those hotels that were under ongoing negotiations to be sold (the “Excluded Hotels”), which Excluded Hotels Party A expected the Company to continue pursuing independent sales.
On August 16, 2023, representatives of Latham and outside legal counsel to Party A held a telephonic meeting during which Latham asked clarifying questions regarding the merger agreement markup submitted by Party A.
On August 18, 2023, a meeting of the Transaction Committee was held, and representatives of Goldman Sachs, Latham and Venable and members of Management were in attendance. Representatives of Venable and Latham reminded the members of the Transaction Committee of their respective duties in connection with a proposed sale process of the Company. Representatives of Goldman Sachs reviewed with the Transaction Committee the second-round non-binding proposals received from KSL and Party A, the initial non-binding proposal received from Party B, and the proposed valuations from each party, including the estimated (i) liquidation value of the Company based on Party B’s proposal and (ii) the implied value of Party A's proposal when combined with Management’s estimated sale value of the Excluded Hotels. Members of the Transaction Committee discussed with representatives of Goldman Sachs and Latham and members of Management the terms of the proposals, the terms of the proposed financing commitments from the bidders and their respective impact on deal conditionality and potential strategy relating to responses to the bidders. Representatives of Latham also provided a summary of the two merger agreement markups received from KSL and Party A, and outlined the material issues therein. At the request of the Transaction Committee, members of Management excused themselves from the meeting as the Transaction Committee deliberated on the proposed response to bidders. During such discussion, the Transaction Committee determined that a sale of the whole Company would be superior to an alternative transaction involving a sale of just the luxury and lifestyle portfolio of assets (with certain limited exceptions) at the valuation proposed by Party B, as such a sale would not guarantee a greater aggregate return to the Company’s shareholders when combined with a subsequent sale of the Company’s remaining assets. Additionally, the resulting concentration of assets and need to find a buyer for such assets would present significant risk in obtaining appropriate value for shareholders.
The Transaction Committee further determined that although Party A’s proposal to acquire the whole Company was not currently viable, the Company should continue to engage with Party A to maintain for the Company the optionality of various strategic alternatives. To that end, the Transaction Committee determined to encourage Party A to continue to (i) seek committed equity financing for its bid to purchase the whole Company and (ii) progress its alternative proposal to acquire the Company’s portfolio of New York City assets (except for the Excluded Hotels). The Transaction Committee additionally determined that it was in the best interests of the Company’s shareholders to continue to negotiate with KSL as the best available and actionable offer in light of Party A’s lack of sufficient equity financing and uncertainty surrounding whether such equity financing could be obtained. The Transaction Committee also noted that KSL’s proposal included more favorable terms in its debt commitment and proposed less conditionality than Party A’s proposal. The Transaction Committee also discussed with representatives of Latham and Goldman Sachs KSL’s request to speak with members of Management about the participation of members of Management in rolling over certain of their equity interests in connection with the proposed transaction and Management’s participation in the business post-closing. The Transaction Committee concluded that such discussions were premature, but that KSL should be offered such discussions if it met the Transaction Committee’s proposed deal terms. The Transaction Committee instructed representatives of Goldman Sachs to inform KSL that the Company had received a higher offer but that KSL’s bid had a timing
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advantage over the other bidders, and that in order to utilize that advantage and have the opportunity for discussions with Management, KSL should (i) increase its proposed offer to $10.50 per share, and (ii) generally meet the Company’s termination fee and contractual requirements, which would include a buyer termination fee of $90 million and a Company termination fee equal to 3% of the Company’s Total Equity Value. Goldman Sachs was further instructed to inform Party A that it should continue finalizing its due diligence and exploring potential equity financing sources for its $10.70 per-share proposal as quickly as possible, and that the Company may be interested in pursuing a sale of a certain portfolio of assets to Party A. The Transaction Committee also directed representatives of Latham to negotiate the merger agreement and other ancillary agreements with Party A’s counsel and to share with Party A a draft purchase and sale agreement with respect to the sale of the Company’s portfolio of New York assets (other than the Excluded Hotels).
On August 19, 2023, representatives of Latham sent a revised draft merger agreement, the initial draft disclosure schedules and revised drafts of other ancillary transaction documents to representatives of Simpson Thacher. The revised drafts included the termination fees proposed by the Transaction Committee, increased flexibility in the Company’s non-solicitation obligations and the Board’s ability to change its recommendation and decreased conditionality related to the Company’s cooperation obligations with respect to KSL’s debt financing.
On August 20, 2023, representatives of Goldman Sachs sent Party A and its counsel a draft purchase and sale agreement with respect to the sale of the Company’s portfolio of New York assets (other than the Excluded Hotels).
During the week of August 20, 2023, representatives of Goldman Sachs held telephonic meetings with representatives of Party A to discuss the Company’s potential interest in pursuing a sale to Party A of the Company’s portfolio of New York assets (other than the Excluded Hotels). Representatives of Goldman Sachs additionally discussed with representatives of Party A whether Party A would be able to accelerate the timeframe required for Party A to obtain binding commitments from its co-investment partners to finance the remaining portion of the equity financing needed to fund Party A’s proposal to purchase the whole company for $10.70 per share. Representatives of Party A reiterated to representatives of Goldman Sachs that it would require an additional month to obtain the remaining portion of the required equity financing, and even with the additional month could not guarantee that such equity financing would be obtained.
Also during the week of August 20, 2023, members of Management and representatives of KSL participated in a diligence meetings attended by representatives of Goldman Sachs to discuss the Company’s current operating performance, projected future performance and operating priorities, among other aspects of the business.
On August 21, 2023, representatives of Simpson Thacher sent a draft voting and support agreement to representatives of Latham, which provided, among other matters, that certain members of Management and their respective trusts, as applicable, would agree to vote their shares in favor of the Mergers.
On August 22, 2023, KSL submitted to representatives of Goldman Sachs an increased price proposal of $9.85 per share in cash, representing a premium of 52% to the per share price of the Company common shares as of the close of trading on August 22, 2023.
Also on August 22, 2023, representatives of Simpson Thacher shared revised drafts of the merger agreement and other ancillary transaction documents with representatives of Latham, which included, among other terms, a buyer termination fee equal to $60 million, a Company termination fee equal to $35 million, and improved terms with respect to the scope of the Company’s cooperation obligations with respect to KSL’s debt financing. On the same day, representatives of Latham and Simpson Thacher held a video-conference meeting to discuss issues raised by Simpson Thacher’s latest revised drafts. Over the course of the following days, representatives of Latham and Simpson Thacher worked together towards finalizing the definitive merger agreement, voting agreement, disclosure schedules and other ancillary transaction documents.
On August 23, 2023, a meeting of the Transaction Committee was held, and representatives of Goldman Sachs, Latham and Venable and members of Management were in attendance. Representatives of Goldman Sachs provided an update on the process to date, presented the improved offer of $9.85 per share in cash received from KSL and discussed the implied financial metrics and comparable premiums received in recent REIT take-private transactions, including the range of buyer termination fees and target company termination fees in recent
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comparable transactions, as compared to the latest termination fee proposals from KSL which included a buyer termination fee equal to $60 million (which represented approximately 7.1% of the Company’s Total Equity Value and a Company termination fee of $35 million (which represented approximately 4.2% of the Company’s Total Equity Value). Representatives of Venable and Latham also reminded the members of the Transaction Committee of their respective duties in connection with a proposed sale of the whole Company. Following a discussion with members of Management regarding their go-forward role upon the closing of a proposed transaction with KSL and their potential participation in the transaction, the Transaction Committee determined to allow KSL to engage in discussions with Management on such topics only after KSL had further increased its price and otherwise agreed to the material terms proposed by the Company. Following extensive discussions, including regarding whether the Company should provide Party A with additional time to obtain the equity financing required for its higher offer, the Transaction Committee determined, given the greater certainty of the KSL financing and the risks of waiting in an uncertain financing market to determine if Party A could find the necessary equity financing, to instruct representatives of Goldman Sachs to inform KSL that it should improve its offer to $10.00 per share in cash, accept a buyer termination fee of $75 million (which represented approximately 8.9% of the Company’s Total Equity Value) and a Company termination fee of $25 million (which represented approximately 3% of the Company’s Total Equity Value) and provide an increased equity commitment in order to secure the transaction and be permitted to engage in discussions with Management regarding their post-closing roles and any potential equity rollover.
Later on August 23, 2023, representatives of Goldman Sachs relayed to KSL the position of the Transaction Committee on the key open terms.
On August 24, 2023, KSL submitted to representatives of Goldman Sachs an increased price proposal of $10.00 per share in cash, together with a Company termination fee of $30 million (which represented approximately 3.5% of the Company’s Total Equity Value), a buyer termination fee of $67.5 million (which represented approximately 8% of the Company’s Total Equity Value) and an equity commitment of $320 million.
On August 25, 2023, representatives of KSL and representatives of Goldman Sachs discussed KSL’s proposed equity commitment of $320 million and, following such discussions, KSL agreed to raise its proposed equity commitment to $400 million.
Also on August 25, 2023, a meeting of the Transaction Committee was held, and representatives of Goldman Sachs, Latham and Venable and members of Management were in attendance. Representatives of Venable and Latham reminded the members of the Transaction Committee of their respective duties in connection with a proposed sale of the whole Company. Representatives of Goldman Sachs provided an update on the process to date, presented the August 24th offer from KSL and discussed the implied financial metrics and comparable premiums received in recent REIT take-private transactions. Representatives of Latham discussed the remaining issues in the latest draft transaction documents from Simpson Thacher, including, among other matters, with respect to the scope of the Company’s financing cooperation covenants, the proposed amounts of the termination fees, and the equity commitment amount and limited guarantee amounts. Following significant discussion among the Transaction Committee and its advisors, taking into account the outreach, negotiations, transaction terms, KSL’s offer price and its existing financing compared to other alternatives, the Transaction Committee expressed its support for accepting KSL’s latest improved offer price and revised terms of the termination fees, and directed representatives of Goldman Sachs to communicate the same to KSL. As a result of the agreement with KSL of the fundamental economic and other material transaction terms, the Transaction Committee authorized members of Management to have preliminary discussions with representatives of KSL with respect to Management’s potential future roles and investment arrangements in connection with a proposed transaction.
Later on August 25, 2023, certain members of Management and representatives of KSL participated in a telephonic meeting attended by representatives of Goldman Sachs. KSL expressed its interest in Management’s continuation with the Company following the transaction and in Management’s potential rollover of a portion of their equity interests in the Company, but declined to discuss any specific rollover or employment terms until the Company shareholder approval was obtained and the parties were closer to closing.
Also on August 25, 2023, representatives of Simpson Thacher informed Latham that Parent required that the Company obtain a waiver from its lenders to confirm the Company’s entry into the merger agreement would not
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constitute a default under that certain Credit Agreement (the “Credit Agreement”), dated as of August 4, 2022, by and among the Company, Company OP, certain subsidiaries of Company OP, Citibank, N.A. and certain other lender parties thereto (such waiver, the “Credit Agreement Waiver”).
During the course of August 25, 2023 through August 27, 2023, representatives of Latham and Simpson Thacher continued to negotiate the terms of the merger agreement, equity commitment letter, limited guarantee and other ancillary documents.
On August 26, 2023, a meeting of the Transaction Committee was held, and representatives of Goldman Sachs, Latham and Venable and members of Management were in attendance at the meeting. Representatives of Venable and Latham reminded the members of the Transaction Committee of their respective statutory duties in connection with a proposed sale of the whole Company. Representatives of Latham provided an update on the status of negotiations with KSL and the remaining open issues in the merger agreement and other ancillary agreements, including noting that KSL had proposed a limited guarantee amount of $72.5 million, representing a $5 million cushion for fees potentially payable by KSL in excess of the $67.5 million buyer termination fee. Following a brief discussion of such terms, the Transaction Committee instructed Latham and Goldman Sachs to propose a $75 million limited guarantee amount to KSL. Representatives of Latham then previewed for the Transaction Committee that, in connection with finalizing the Company’s disclosure schedules, Simpson Thacher raised concerns, with which Latham agreed, that the Company’s employment agreements and equity awards did not address with sufficient clarity (i) the treatment of, and mechanism for granting, ungranted performance-based long-term incentive awards upon an involuntary termination of employment in connection with a change of control of the Company, and (ii) that a change in the executive’s position, discretion or responsibilities that materially diminishes those in effect immediately prior to a change of control of the Company, including any change in the executive’s status as an officer of a public company following a change of control, constitutes “good reason” for purposes of the employment agreements. Latham explained to the Transaction Committee that, subject to the confirmation of the Compensation Committee of the Board (the “Compensation Committee”) that the proposed amendments were limited to address only the foregoing concerns and aligned with the original intent of the Company’s employment agreements and equity awards, the Company’s employment agreements could be amended to eliminate such ambiguities and ensure that the agreements would function in the manner described in the Company’s historical disclosures in prior proxy statements (collectively, the “Employment Agreement Amendments”). During a discussion among the Transaction Committee, each member of which was also a member of the Compensation Committee, the Transaction Committee agreed that the Employment Agreement Amendments reflected the original intent of the Compensation Committee and should be discussed with the other members of the Compensation Committee. Representatives of Goldman Sachs then provided a brief update on the discussions between members of Management and representatives of KSL that it attended, a summary of the overall process and a preliminary financial analysis of the proposed merger consideration. Representatives of Latham also reviewed with the Transaction Committee and members of Management the relationship between Latham and KSL and its affiliates, and each member of the Transaction Committee also confirmed that he did not have any existing material relationships with KSL or its affiliates. Mr. Hutchison further reminded the Transaction Committee of his prior relationship with KSL, but confirmed that any continuing relationship was not material and that he had not had any contact with members of KSL during the process. The Transaction Committee reviewed a customary relationship disclosure letter made available by representatives of Goldman Sachs to the Transaction Committee with respect to KSL, among other things. Following review of the information in such relationship disclosure letter, the Transaction Committee determined that the disclosed information would not impact Goldman Sachs’ ability to act effectively as financial advisor to the Transaction Committee. The Transaction Committee then directed representatives of Latham to finalize the terms of the merger agreement and ancillary documents for the consideration of the Transaction Committee and the Board on August 27, 2023.
Immediately following the Transaction Committee meeting, a meeting of the Compensation Committee and the Board was held, and representatives of Goldman Sachs, Latham and Venable and members of Management were in attendance. During the meeting of the Compensation Committee, members of Management were excused and representatives of Latham discussed the basis for the proposed Employment Agreement Amendments. Following discussions, the Compensation Committee agreed that the proposed Employment Agreement Amendments reflected the original intent of the Compensation Committee and authorized representatives of Latham to share the draft Employment Agreement Amendments with representatives of Simpson Thacher. Members of Management were then invited to rejoin the Board meeting. Representatives of Goldman Sachs then
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discussed the overall sale process to date, including summarizing the material terms of the four initial proposals that were received at the beginning of the process, provided an overview of the negotiations and discussions with KSL to date, and reviewed its financial analysis of the merger consideration. Representatives of Latham then discussed in detail the proposed final terms of the merger agreement and the related ancillary agreements and any remaining open issues in the documents. Representatives of Venable provided an overview of each trustee’s duties under applicable law in connection with the proposed transaction. Representatives of Latham then summarized the earlier discussion with the Transaction Committee that neither Latham nor any member of the Transaction Committee had any existing relationship with KSL or its affiliates that would impact their judgement, and each member of the Board confirmed the same. Representatives of Latham further explained to the Board that the Transaction Committee had the opportunity to review a customary relationship disclosure letter made available by representatives of Goldman Sachs to the Transaction Committee and that, following such review, the Transaction Committee determined that the disclosed information would not impact Goldman Sachs’ ability to act effectively as financial advisor to the Transaction Committee.
Throughout the evening on August 26, 2023 and throughout the day on August 27, 2023, Simpson Thacher and Latham continued to work to finalize the definitive agreements reflecting the proposed transaction.
On August 27, 2023, the Company received the requested Credit Agreement Waiver.
Later on August 27, 2023, a meeting of the Transaction Committee was held, and representatives of Goldman Sachs, Latham and Venable and members of Management were in attendance. Representatives of Latham updated the Transaction Committee on the status of negotiations with KSL, including that the merger agreement and ancillary agreements were in substantially final form and that Simpson Thacher and Latham were working to finalize a few remaining items on the disclosure schedules. Latham identified changes in the definitive documentation during the preceding 24 hours, including noting that KSL had agreed to the Transaction Committee’s proposed $75 million limited guarantee amount. Representatives of Goldman Sachs then reviewed its financial analysis of the merger consideration (which was previously shared at the prior meeting of the Transaction Committee), and rendered to the Transaction Committee an oral opinion, subsequently confirmed in writing, that, as of the date of its written opinion and based upon and subject to the factors and assumptions set forth therein, the Merger Consideration to be paid to the holders (other than Parent and its affiliates) of Company Common Shares pursuant to the Merger Agreement was fair from a financial point of view to such holders. For a detailed discussion of Goldman Sachs’ opinion, please see “The Mergers - Opinion of the Company’s Financial Advisor” beginning on page 53 of this proxy statement. The Transaction Committee considered the risks and benefits of the proposed Mergers as compared to the possible strategic alternatives that the Transaction Committee had considered throughout the process leading up to the announcement of the proposed Mergers, as well as the Company’s long-term strategic plan as an independent public company and the risks associated with executing such plan, which are discussed in further detail in the section of this proxy statement captioned “The Mergers – Reasons for the Mergers” beginning on page 47. After further discussion, the Transaction Committee unanimously determined at the meeting that the transactions contemplated by the merger agreement were advisable and in the best interest of the Company and its shareholders, and approved the recommendation to the Board to adopt the merger agreement and approve the consummation of the transactions contemplated by the merger agreement.
Immediately following the Transaction Committee meeting, a meeting of the Compensation Committee and the Board was held, and representatives of Goldman Sachs, Latham and Venable and members of Management were in attendance. Representatives of Latham informed the Compensation Committee that Simpson Thacher was generally in agreement with the proposed Employment Agreement Amendments subject to certain drafting clarifications. The Compensation Committee then moved to adopt the Employment Agreement Amendments and authorized Latham to finalize the Employment Agreement Amendments with Simpson Thacher and Management’s counsel. Representatives of Latham then updated the Board on the status of negotiations with KSL and the resolution of the remaining open issues discussed at the prior Board meeting, confirmed that the Transaction Committee had unanimously recommended that the Board should adopt the merger agreement and approve the consummation of the transactions contemplated by the merger agreement, and discussed the final terms of the merger agreement and the related ancillary agreements and changes in the terms since the prior Board meeting. Representatives of Venable then reviewed with the Board their duties as trustees under applicable law in connection with the proposed transaction. The Board, led by the members of the Transaction Committee together with representatives from Latham, then discussed the various reasons to approve the Mergers considered
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by the Transaction Committee, and certain countervailing factors, which are discussed in further detail in the section of this proxy statement captioned “The Mergers – Reasons for the Mergers” beginning on page 47. For a detailed description of the various reasons considered by the Board, see “- Recommendation of the Board of Trustees and the Transaction Committee” beginning on page 51 of this proxy statement. Representatives of Goldman Sachs then presented its financial analysis and confirmed that it had rendered to the Transaction Committee an oral opinion, subsequently confirmed in writing, that, as of the date of its written opinion and based upon and subject to the factors and assumptions set forth therein, the Merger Consideration to be paid to the holders (other than Parent and its affiliates) of Company Common Shares pursuant to the Merger Agreement was fair to such holders from a financial point of view. After further discussion, including a review of the status of the Company’s business, the process that led to the proposed Mergers, the alternatives available to the Company, including remaining as a public company, and the risks and benefits associated with the proposed transaction and taking into account the opinion rendered by Goldman Sachs to the Transaction Committee, and the recommendation from the Transaction Committee, the Board unanimously (i) determined that the merger agreement and the transactions contemplated thereby, were advisable and in the best interests of the Company and its shareholders, on the terms and subject to the conditions set forth in the merger agreement, (ii) duly and validly authorized and approved, and declared advisable, the execution, delivery and performance of the merger agreement and the consummation of the Company Merger and the other transactions contemplated by the merger agreement, (iii) directed that the Company Merger and the other transactions contemplated by the merger agreement be submitted for consideration at a special meeting of the Company’s shareholders, and (iv) recommended that the Company’s shareholders vote in favor of the approval of the Company Merger and the other transactions contemplated by the merger agreement and to include such recommendation in this proxy statement.
During the late evening on August 27, 2023, representatives of Latham and Simpson Thacher finalized all transaction documents and the Company and KSL executed the Merger Agreement and all signatories to the ancillary agreements executed such agreements.
Before the NYSE opened on August 28, 2023, the Company and KSL issued a press release announcing the entry into the Merger Agreement.
Reasons for the Mergers
In reaching its unanimous decision to (a) authorize and approve, and declare advisable, the delivery and performance of the Merger Agreement and the consummation of the Company Merger and the other transactions contemplated by the Merger Agreement, (b) direct that the Company Merger and the other transactions contemplated by the Merger Agreement each be submitted for consideration at the Special Meeting and (c) recommend that the Company’s shareholders vote in favor of the approval of the Company Merger and the other transactions contemplated by the Merger Agreement and to include such recommendation in this proxy statement, the board of trustees, or the Board, considered the recommendations of the Transaction Committee established by the Board and consisting solely of three independent trustees (the “Transaction Committee”). The Transaction Committee, prior to making its recommendation, consulted with its independent legal and financial advisors. In reaching their respective determinations regarding the Merger Agreement, the Company Merger and the other transactions contemplated by the Merger Agreement, the Board and the Transaction Committee considered a number of factors, including the following material factors that supported their respective decisions with respect to the Merger Agreement, the Company Merger and the other transactions contemplated by the Merger Agreement.
Merger Consideration represents a significant premium to the Company’s Common Share price: As of August 25, 2023, the final trading day prior to the execution and announcement of the Merger Agreement, the Merger Consideration represented a premium of approximately (x) 60% as compared to the closing price of the Company Common Shares and (y) 58% as compared to the Company’s unaffected 30-day volume-weighted average share price, making the transaction economically attractive.
Cash Consideration: All-cash Merger Consideration without a financing contingency, when compared to non-cash consideration, provides the Company’s shareholders with certainty, immediate liquidity and value, and does not expose them to any future risks related to the business or the financial markets generally, in each case, upon and assuming closing of the Mergers.
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Market Conditions: The Board’s and the Transaction Committee’s knowledge of the operations, financial condition, earnings and prospects of the Company, as well as its knowledge of the current and prospective environment in which the Company operates, including economic, market and capital raising conditions, including inflation, the Company’s size relative to its peers (including relative disadvantages with respect to scale), the Company’s concentrated property locations and its resulting susceptibility to down seasons and weather events and trends.
Upcoming Debt Maturity: The fact that the Company’s credit facility matures on August 4, 2024, and the challenges to accessing at attractive rates new capital or debt required to refinance the Company’s debt and support its future growth (including the Company’s ability to acquire assets or drive growth opportunities).
Thorough and Independent Process: The Transaction Committee conducted a thorough, independent and targeted strategic review process, which included conducting formal outreach to 12 potential bidders, receiving unsolicited interest from seven additional potential bidders, executing nondisclosure agreements with 12 potential bidders and providing to each interested bidder equal access to information and the Company.
Best Available Option: The Transaction Committee reviewed possible alternatives to a merger transaction, and consulted with its financial advisor regarding the possible alternatives, which included continuing to operate the Company on a stand-alone basis and seeking a business combination with another party or pursuing a sale of certain assets or portfolios of the Company, and believed that the Mergers and the other transactions contemplated by the Merger Agreement are the best available option for the Company and its shareholders.
Trading Price Relative to Asset Value: The high relative value of the Company’s assets as compared to its market capitalization, including how the Company has traded at a discount to real estate net asset value for a prolonged period, and the fact that the Merger Consideration was negotiated taking into account the value of the Company’s assets.
Successful Negotiation: The fact that the Merger Consideration reflects an increase of $0.50 per share of the Company Common Shares over the initial non-binding proposal received from Parent and the Company was able to negotiate for other terms that the Board believes were meaningfully more favorable than Parent's initial proposal.
Opinion of Financial Advisor: The oral opinion of Goldman Sachs, subsequently confirmed in writing, that, as of August 27, 2023 and based upon and subject to the factors and assumptions set forth therein, the Merger Consideration to be paid to the holders (other than Parent and its affiliates) of Company Common Shares pursuant to the Merger Agreement was fair from a financial point of view to such holders.
Commitment to and Likelihood of Consummation: Commitment on the part of both parties to complete the Mergers as reflected in their respective obligations under the terms of the Merger Agreement, the fact that there are no financing or diligence conditions to closing the Mergers, the fact that the End Date of six months after the execution of the Merger Agreement allows for sufficient time to complete the Mergers and the fact that the terms and conditions of the Merger Agreement were the product of extensive arm’s-length negotiations among the parties.
Necessity of Termination Payments: The understanding, after extensive negotiations with Parent and discussions with legal and financial advisors, that the termination payments payable to Parent were necessary as part of the deal protection provisions in order to reach an agreement with Parent in light of the significant resources that Parent has committed and will commit to the transactions contemplated by the Merger Agreement, and are a small risk in comparison to the Company’s shareholders losing the option, subject to the limitations in the Merger Agreement, to accept a transaction offering substantial value and liquidity.
Ability of the Company to Continue to Pay Dividends / Operate in the Ordinary Course: The Merger Agreement permits the Company to continue to pay its shareholders regular quarterly dividends consistent with past practice and otherwise to continue to conduct its business in the ordinary course in the period between the execution of the Merger Agreement and the Company Merger Effective Time, subject only to limitations and restrictions on the taking of certain prescribed actions.
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Unsolicited Acquisition Proposals: The Merger Agreement provides the Company with the ability, under certain specified circumstances, to consider an alternative acquisition transaction if the Transaction Committee determines it is reasonably expected to lead to a Company Superior Proposal and provides the Board with the ability, under certain specified circumstances, to change its recommendation in favor of the Company Merger and to terminate the Merger Agreement following such Company change in recommendation and/or in order to enter into an agreement with respect to a Company Superior Proposal upon payment of a termination payment of $30 million to Parent.
Intervening Event: The Board may also change or withdraw its recommendation in the instance of certain events or developments which first arises after the date of the Merger Agreement and becomes known to the Board after the date of the Merger Agreement and prior to the receipt of the Company shareholder approval.
Parent Termination Payment: In the event the Company terminates the Merger Agreement due to Parent’s failure to close the transaction after the Company indicates it is ready to close, under certain circumstances, the Company is entitled to collect a termination payment from Parent of $67.5 million. At the time of signing the Merger Agreement, certain affiliated funds of the Sponsor entered into a limited guarantee with the Company with respect to Parent's obligation to pay such termination fee in such circumstances.
Arms’ Length Negotiations: The Merger Agreement, the Mergers and the transactions contemplated by the Merger Agreement were negotiated on an arm’s length basis between the Transaction Committee and its advisors, on the one hand, and Parent and its advisors, on the other hand.
Parent Financing Commitment: The terms of the debt financing obtained by Parent from major commercial banks with significant experience in similar lending transactions and strong reputations for honoring their commitments and the terms of the committed equity financing provided to Parent by affiliated funds of the Sponsor, including the nature and conditions to the debt financing and equity financing, the obligation of Parent to use reasonable best efforts to satisfy the conditions to the equity financing and debt financing and the fact that the committed equity financing is in an amount that, together with the debt financing, would be sufficient to consummate the Mergers and the transactions contemplated by the Merger Agreement.
Specific Performance: The Merger Agreement provides the Company with, under certain circumstances, the right to seek specific performance of Parent’s obligation to cause, and, pursuant to the Equity Commitment Letter, to seek specific performance to directly cause, the equity financing sources to fund their contributions as contemplated by the Merger Agreement and the Equity Commitment Letter.
Shareholder Approval: The fact that the Company Merger is subject to the Company’s receipt of the Company shareholder approval, and that the Company’s shareholders are free to vote against the Company Merger for any reason, including if a higher offer were to be made prior to the Special Meeting (in certain cases subject to the payment by the Company of a termination payment in the amount of $30.0 million if the Company subsequently were to enter into a definitive agreement relating to, or to consummate, any alternative acquisition agreement).
Risks to remaining a standalone public company: The risks and uncertainties of remaining as an independent public company, including, among other things, the cyclical nature of the hospitality industry and the advanced stage of the lodging industry's current economic recovery cycle, the risk of a slowdown of the economy, potential increases in interest rates which could increase the cost of debt, the increase in supply in the hospitality industry, which over time could drive down both hotel occupancy and room rates, and the challenges of acquiring assets on an accretive basis to expand the portfolio in light of the intensely competitive environment and strong price appreciation for luxury, upper upscale and upscale hotels in our core markets.
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The Board and the Transaction Committee also considered a variety of risks and other potentially negative factors in considering the Merger Agreement, the Company Merger and the other transactions contemplated by the Merger Agreement, including the following potentially negative factors:
Effect of Potential Non-Consummation or Delay in Consummation of the Transactions: The risk that, notwithstanding the likelihood of the Mergers being completed, the Mergers may not be completed, or that completion may be unduly delayed, including the effect such failure to be completed may have on the Company’s operating results, particularly in light of the costs incurred in connection with the proposed transactions.
No Future Upside Participation: The fact that, following the Mergers, the Company will no longer exist as an independent public company and that its existing shareholders will not participate in any future earnings or growth.
Termination Payments: The Merger Agreement provides that the Company will pay Parent the Company Termination Payment if:
the Merger Agreement is terminated for a Company Superior Proposal (which termination payment may deter potential third party bidders),
the Merger Agreement is terminated by Parent because (i) the Board has effected a Company change in recommendation, (ii) the Board failed to publicly reaffirm the Board Recommendation within 10 business days following the public announcement of a Company Alternative Proposal and after Parent has requested in writing that such Board Recommendation be reaffirmed, or (iii) the Company entered into an alternative acquisition agreement, or
the Merger Agreement is terminated because (i) (x) the Company has breached the Merger Agreement causing certain closing conditions not to be satisfied, (y) the Company failed to obtain the Company shareholder approval, or (z) the Closing has not occurred by the End Date, (ii) prior to such breach, shareholder vote or End Date, as applicable, an alternative transaction proposal has been made and not withdrawn, and (iii) within 12 months of such termination, the Company enters into a definitive agreement with respect to an alternative transaction or consummates an alternative transaction.
Shareholder Vote: The Company Merger is subject to approval by the Company’s shareholders, which requires the affirmative vote of a majority of the votes entitled to be cast on the Company Merger, and there can be no assurance that approval by the Company’s shareholders will be obtained.
Risk of Diverting Management Attention: The risk of diverting management’s focus and resources from operational matters and other strategic opportunities while working to implement the Mergers.
Transaction Expenses: The substantial costs to be incurred in connection with the transactions contemplated by the Merger Agreement, including the transaction expenses arising from the Mergers.
Post-Signing Restrictions on the Company’s Conduct of Business: The restrictions on the conduct of the Company’s business prior to the completion of the Mergers, which could delay or prevent the Company from undertaking business opportunities that may arise or any other action it would otherwise take with respect to the operations of the Company absent the pending completion of the Mergers.
Non-Solicit: The Company’s inability, after entry into the Merger Agreement, to solicit Company Alternative Proposals and the possibility that the Company Termination Payment payable by the Company upon the termination of the Merger Agreement under certain circumstances could discourage other potential bidders from making a Company Alternative Proposal.
Alternative Transactions: The risk that an alternative transaction or different strategic alternative potentially could be more beneficial to the Company’s shareholders than the Mergers.
Risk of Failure to Close: The risk that Parent fails to close or breaches the Merger Agreement.
Taxable Transaction: The fact that this transaction will be taxable to the Company and its taxable shareholders.
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No Appraisal Rights: The Company’s shareholders are not entitled to dissenters or appraisal rights in connection with the Company Merger.
Potential Litigation: There may be increased risk of litigation in connection with the execution of the Merger Agreement and the consummation of the Mergers.
Parent Financing: While the Merger Agreement is not by its terms subject to a financing condition, if Parent fails to obtain sufficient financing (notwithstanding the terms of the debt commitments and equity commitments), the Mergers may not be consummated and the Parent Termination Payment in such event may not be sufficient to compensate the Company for potential losses it may incur under such circumstances.
The foregoing discussion of the factors considered by the Board and the Transaction Committee is not intended to be exhaustive, but rather includes the material factors considered by the Board and the Transaction Committee. Neither the Board nor the Transaction Committee quantified or assigned any relative weights to, or made specific assessments of, the factors considered, and individual trustees may have given different weights to different factors. Neither the Board nor the Transaction Committee reached any specific conclusion with respect to any of the factors or reasons considered.
The above factors are not presented in any order of priority. The explanation of the factors and reasoning set forth above contains forward-looking statements and should be read in conjunction with the section of this proxy statement entitled “Cautionary Statement Regarding Forward-Looking Statements.”
Recommendation of the Board
The Board at a duly held meeting has, acting upon the unanimous recommendation of the Transaction Committee, unanimously:
determined that the Merger Agreement, the Company Merger and the other transactions contemplated by the Merger Agreement are advisable, and in the best interests of the Company and its shareholders;
duly and validly authorized and approved, and declared advisable, the execution, delivery and performance of the Merger Agreement, and the consummation of the Company Merger and the other transactions contemplated by the Merger Agreement;
directed that the Company Merger and the other transactions contemplated by the Merger Agreement be submitted for consideration at the Special Meeting; and
recommended that you vote “FOR” the Merger Proposal, “FOR” the Advisory Compensation Proposal and “FOR” the Adjournment Proposal.
Unaudited Prospective Financial Information
While the Company has from time to time provided limited financial guidance to investors, the Company has not, as a matter of course, otherwise publicly disclosed internal projections as to future performance, earnings or other results beyond the then-current annual period due to, among other reasons, the uncertainty, unpredictability and subjectivity of the underlying assumptions and estimates.
However, in connection with the negotiation and execution of the Merger Agreement, Company management prepared and provided to each of the Transaction Committee and the Board, in connection with its evaluation of the Mergers, and the Company’s financial advisor, Goldman Sachs, for its use and reliance in connection with its financial analyses and opinion, certain non-public, internal, unaudited, financial projections regarding the Company’s future operations for fiscal years ending December 31, 2023 through December 31, 2028 (the “management projections”). The Company also provided a subset of the management projections to Parent and other potential bidders who executed confidentiality agreements as part of the Company’s strategic sale process in connection with the evaluation by Parent and other bidders of a potential transaction with the Company. Specifically, Parent and the other bidders were provided the management projections for the fiscal years ending December 31, 2023 through December 31, 2027.
The management projections are subjective in many respects. As a result, the forecasted results may not be realized and the actual results may be significantly different than the forecasted results. Since the management projections cover multiple years, that information by its nature becomes less predictive with each successive year.
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Company shareholders are urged to review the Company’s SEC filings for a description of risk factors with respect to the Company’s business. See “Cautionary Statement Concerning Forward-Looking Information” beginning on page 22 of this proxy statement and “Where You Can Find Additional Information” beginning on page 108 of this proxy statement. The management projections were not prepared with a view toward public disclosure, nor were they prepared with a view toward compliance with U.S. generally accepted accounting principles, which we refer to as “GAAP” in this proxy statement, published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. In addition, the management projections require significant estimates and assumptions that make them inherently less comparable to the similarly titled GAAP measures in the Company’s historical GAAP financial statements.
Neither the Company’s independent registered public accounting firm, nor any other independent accountants, have compiled, examined or performed any procedures with respect to the management projections contained herein, nor have they expressed any opinion or any other form of assurance on the information or its achievability. The report of the Company’s independent registered public accounting firm contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 relates to the Company’s historical financial information. It does not extend to the management projections and should not be read to do so. Furthermore, the management projections do not take into account any circumstances or events occurring after the date they were prepared.
The following table summarizes selected management projections for the fiscal years ending 2023 through 2028 for the Company:
 
Fiscal Year Ending December 31,
 
2023E
2024E
2025E
2026E
2027E
2028E
 
(dollar amounts in millions)
Total Revenue
$374
$403
$417
$431
$444
$459
Gross Operating Profit(1)
$153
$175
$182
$189
$195
$202
Cons. Adj. Corporate EBITDA(2)(3)
$102
$118
$123
$128
$132
$137
Unlevered Free Cash Flow(4)(5)
$34
$82
$83
$83
$93
$97
(1)
As used in this table and footnotes, “Gross Operating Profit” is defined as total hotel revenue, less hotel operating expenses.
(2)
As used in this table and footnotes “Consolidated Adjusted Corporate EBITDA” is defined as Gross Operating Profit, less fixed charges (including property taxes, property insurance, base management fees and hotel ground rent) and corporate general and administrative expenses, and adjusted for insurance proceeds, other revenue, corporate property hotel operating expenses, corporate hotel ground rent, corporate property taxes and insurance, amortization of ground leases, net operating loss incurred on non-operating properties and real estate taxes. Consolidated Adjusted Corporate EBITDA is a non-GAAP financial measure and should not be considered as an alternative to operating income or net income as a measure of operating performance or cash flows or as a measure of liquidity.
(3)
Consolidated Adjusted Corporate EBITDA for 2029, as used by Goldman Sachs in its Illustrative Discounted Cash Flow Analysis (see the section captioned “The Merger - Opinion of the Company's Financial Advisor - Opinion of Goldman Sachs & Co. LLC”), was estimated by Management to be $140 million.
(4)
As used in this table and footnotes, “Unlevered Free Cash Flow” is defined as Consolidated Adjusted Corporate EBITDA, less the change in net working capital, maintenance capital expenditures, project and lifecycle capital expenditures, and tax expense, which assumes an illustrative tax rate of 4% based on the Company's average quarterly effective tax rate in 2018, 2019, 2022, and the second half of 2023 per Company management; 2023E reflects the Unlevered Free Cash Flow for the second half of 2023.
(5)
A calculation of Unlevered Free Cash Flow that did not include adjustments for changes in net working capital or tax expense was provided to KSL and other potential bidders, as described in the section captioned “The Mergers – Background of the Mergers”, with the following values (dollar amounts in millions): $59 for 2023E, $84 for 2024E, $85 for 2025E, $86 for 2026E and $96 for 2027E.
These management projections were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of the Company’s management. They are not a guarantee of future financial performance. The management projections also do not take into account any circumstances or events occurring after the date on which they were prepared and do not give effect to the transactions contemplated by the Merger Agreement, including the Mergers. The management projections also reflect assumptions as to certain business decisions that are subject to change. As a result, actual results may differ materially from those contained in these management projections. Accordingly, there can be no assurance that the management projections will be realized or that actual results will not be significantly different than projected.
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None of the Company, Parent or their respective affiliates, advisors, officers, employees, directors, trustees or their respective representatives undertakes any obligation to update or otherwise revise or reconcile these management projections to reflect circumstances existing after the date the management projections were generated or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying the projections are shown to be in error. Except as may be required by applicable securities laws, the Company does not intend to make publicly available any update or other revision to these management projections, even in the event that any or all of the assumptions are shown to be in error. None of the Company, Parent or their respective affiliates, advisors, officers, employees, directors, trustees or their respective representatives has made or makes any representation to any Company shareholder or other person regarding the Company’s ultimate performance compared to the information contained in these management projections or that projected results will be achieved. The Company has made no representation to Parent, in the Merger Agreement or otherwise, concerning these management projections.
Opinion of the Company’s Financial Advisor
Opinion of Goldman Sachs & Co. LLC
Goldman Sachs delivered its oral opinion, subsequently confirmed in writing, to the Transaction Committee that, as of August 27, 2023 and based upon and subject to the factors and assumptions set forth therein, the Merger Consideration to be paid to the holders (other than Parent and its affiliates) of Company Common Shares pursuant to the Merger Agreement was fair from a financial point of view to such holders.
The full text of the written opinion of Goldman Sachs, dated August 27, 2023, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B. The summary of Goldman Sachs’ opinion contained in this Proxy Statement is qualified in its entirety by reference to the full text of Goldman Sachs’ written opinion. Goldman Sachs provided advisory services and its opinion for the information and assistance of the Transaction Committee in connection with its consideration of the transactions contemplated by the Merger Agreement. Goldman Sachs’ opinion is not a recommendation as to how any holder of Company Common Shares should vote with respect to the transactions contemplated by the Merger Agreement or any other matter.
In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:
the Merger Agreement;
annual reports to shareholders and Annual Reports on Form 10-K of the Company for the five years ended December 31, 2022;
certain interim reports to shareholders and Quarterly Reports on Form 10-Q of the Company;
certain other communications from the Company to its shareholders;
certain publicly available research analyst reports for the Company; and
the management projections and certain internal financial analyses for the Company prepared by its management, as approved for Goldman Sachs’ use by the Transaction Committee (such management projections and internal financial analyses are referenced in this section as the “Forecasts”, for more information, see the section captioned “The Mergers—Unaudited Prospective Financial Information”).
Goldman Sachs also held discussions with members of the senior management of the Company regarding their assessment of the past and current business operations, financial condition and future prospects of the Company; reviewed the reported price and trading activity for the Company Common Shares; compared certain financial and stock market information for the Company with similar information for certain other companies the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the real estate investment trusts industry; and performed such other studies and analyses, and considered such other factors, as it deemed appropriate.
For purposes of rendering this opinion, Goldman Sachs, with the Transaction Committee’s consent, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by it, without assuming any responsibility for
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independent verification thereof. In that regard, Goldman Sachs assumed with the Transaction Committee’s consent that the Forecasts have been reasonably prepared on a basis reflecting the best then available estimates and judgments of the Transaction Committee. Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of the Company or any of its subsidiaries and, except for certain third-party appraisal reports with respect to certain real estate assets of the Company provided by the Company, Goldman Sachs has not been furnished with any such evaluation or appraisal. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the transactions contemplated by the Merger Agreement will be obtained without any adverse effect on the expected benefits of the transactions contemplated by the Merger Agreement in any way meaningful to its analysis. Goldman Sachs also assumed that the transactions contemplated by the Merger Agreement will be consummated on the terms set forth in the Merger Agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to its analysis.
Goldman Sachs’ opinion does not address the underlying business decision of the Company to engage in the transactions contemplated by the Merger Agreement, or the relative merits of the transactions contemplated by the Merger Agreement as compared to any strategic alternatives that may be available to the Company, including a non-binding indication of interest from a third party for a possible transaction at a price per Company Common Share greater than the price per Company Common Share to be paid pursuant to the Merger Agreement, which non-binding indication of interest the Transaction Committee determined not to further pursue because of risks and uncertainties concerning such third party’s ability to secure the financing necessary to consummate the transaction contemplated by the non-binding indication of interest (for additional information on such non-binding indication of interest, see the section entitled “The Mergers – Background of the Mergers”); nor does it address any legal, regulatory, tax or accounting matters. Goldman Sachs’ opinion addresses only the fairness from a financial point of view to the holders (other than Parent and its affiliates) of Company Common Shares, as of the date of its opinion, of the Merger Consideration to be paid to such holders pursuant to the Merger Agreement. Goldman Sachs’ opinion does not express any view on, and does not address, any other term or aspect of the Merger Agreement or the transactions contemplated by the Merger Agreement or any term or aspect of any other agreement or instrument contemplated by the Merger Agreement or entered into or amended in connection with the transactions contemplated by the Merger Agreement, including, any allocation of the aggregate consideration payable pursuant to the Merger Agreement among the holders of the various classes of shares of beneficial interest of the Company, the Partnership Merger and the OP Merger Consideration and the fairness of the transactions contemplated by the Merger Agreement to, or any consideration received in connection therewith by, the holders of any other class of securities (including the Company Preferred Shares and the Company Partnership Units), creditors, or other constituencies of the Company or its subsidiaries; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, trustees or employees of the Company, or class of such persons, in connection with the transactions contemplated by the Merger Agreement, whether relative to the Merger Consideration to be paid to the holders (other than Parent and its affiliates) of Company Common Shares pursuant to the Merger Agreement or otherwise. Goldman Sachs does not express any opinion as to the prices at which the Company Common Shares will trade at any time or, as to the potential effects of volatility in the credit, financial and stock markets on the Company, or the transactions contemplated by the Merger Agreement, or as to the impact of the transactions contemplated by the Merger Agreement on the solvency or viability of the Company or the ability of the Company to pay its obligations when they come due. Goldman Sachs’ opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Goldman Sachs as of, the date of its opinion and Goldman Sachs assumes no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. Goldman Sachs’ advisory services and its opinion were provided for the information and assistance of the Transaction Committee in connection with its consideration of the transactions contemplated by the Merger Agreement and such opinion does not constitute a recommendation as to how any holder of Company Common Shares should vote or act with respect to the transactions contemplated by the Merger Agreement or any other matter. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.
Summary of Material Financial Analysis
The following is a summary of the material financial analyses delivered by Goldman Sachs to the Transaction Committee in connection with rendering the opinion described above. The following summary,
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however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before August 25, 2023, the last trading day before the public announcement of the transactions contemplated by the Merger Agreement, and is not necessarily indicative of current market conditions.
Illustrative Discounted Cash Flow Analysis. Using the Forecasts, Goldman Sachs performed an illustrative discounted cash flow analysis on the Company to derive a range of illustrative present values per Company Common Share. Using discount rates ranging from 9.00% to 11.00% reflecting estimates of the Company’s weighted average cost of capital, Goldman Sachs discounted to present value as of June 30, 2023 (i) estimates of unlevered free cash flow for the Company for the second half of 2023 through calendar year 2028 as reflected in the Forecasts and (ii) a range of illustrative terminal values for the Company, which were calculated by applying 1-year forward earnings before interest, taxes, depreciation and amortization (“EBITDA”) multiples ranging from 9.5x to 11.5x, to a 1-year forward estimate of the adjusted EBITDA to be generated by the Company in calendar year 2029, as reflected in the Forecasts (which analysis implied perpetuity growth rates ranging from 1.3% to 4.4%). The range of EBITDA multiples was estimated by Goldman Sachs utilizing its professional judgment and experience, taking into account historical trading multiples of the Company and of certain publicly traded companies, as described below in the section captioned “Selected Publicly Traded Companies Trading Multiples”. Goldman Sachs derived such discount rates utilizing its professional judgment and experience by application of the Capital Asset Pricing Model (“CAPM”).
Goldman Sachs derived a range of illustrative enterprise values for the Company by adding the ranges of present values it derived above. Goldman Sachs then subtracted from the range of illustrative enterprise values it derived for the Company the amount of the Company’s net debt, as provided by the management of the Company and approved for Goldman Sachs’ use by the Transaction Committee, to derive a range of illustrative equity values for the Company. Goldman Sachs then divided the range of illustrative equity values it derived by the number of fully diluted outstanding shares of the Company, as provided by the management of the Company and approved for Goldman Sachs’ use by the Transaction Committee, using the treasury stock method, to derive a range of illustrative present values per Company Common Share ranging from $6.19 to $11.81.
Illustrative Present Value of Future Share Price Analysis. Using the Forecasts, Goldman Sachs performed an illustrative analysis of the implied present value of an illustrative future value per Company Common Share. For this analysis, Goldman Sachs first calculated the implied enterprise value for the Company as of December 31 for each of the calendar years 2023 through 2025, by applying a range of illustrative enterprise value (“EV”) to next twelve month (“NTM”) adjusted EBITDA (“Adjusted EBITDA”) multiples (which multiples are referred to in this section as “EV/NTM EBITDA”) of 9.5x to 11.5x to estimates of the Company’s NTM Adjusted EBITDA for each of the calendar years 2023 through 2025. This illustrative range of EV/NTM EBITDA multiple estimates was derived by Goldman Sachs utilizing its professional judgment and experience, taking into account current and historical EV/NTM EBITDA multiples for the Company and of certain publicly traded companies, as described below in the section captioned “Selected Publicly Traded Companies Trading Multiples.
Goldman Sachs then subtracted the amount of the Company’s net debt for each of the calendar years 2023 to 2025, each as provided by the management of the Company and approved for Goldman Sachs’ use by the Transaction Committee, from the respective implied enterprise values in order to derive a range of illustrative equity values as of December 31 for the Company for each of the calendar years 2023 to 2025. Goldman Sachs then divided these implied equity values by the projected year-end number of fully diluted outstanding Company Common Shares each as of calendar years 2023 to 2025, calculated using information provided by the management of the Company and approved for Goldman Sachs’ use by the Transaction Committee, to derive a range of implied future values per Company Common Share. Goldman Sachs then added the cumulative dividends per Company Common Share expected to be paid to holders of Company Common Shares through the end of each of calendar years 2023 to 2025, using the Forecasts. Goldman Sachs then discounted these implied future equity values per Company Common Share and the cumulative dividends per Company Common Share to
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June 30, 2023, using an illustrative discount rate of 12.0%, reflecting an estimate of the Company’s cost of equity. Goldman Sachs derived such discount rate utilizing its professional judgment and experience by application of the CAPM. This analysis resulted in a range of implied present values of $6.50 to $11.58 per Company Common Share.
Premia Paid Analysis. Goldman Sachs reviewed and analyzed, using publicly available information, the acquisition premia for all-cash acquisition transactions announced from January 1, 2018 through August 25, 2023 involving a public company in the real estate investment trusts industry based in the United States as the target where the disclosed enterprise values for the transaction were $800 million and above (excluding related party transactions, mergers of equals, spin-offs, and tri-party combination transactions). For the entire period, using publicly available information, Goldman Sachs calculated the median, mean, 25th percentile and 75th percentile average premia of the price paid in the 23 observed transactions relative to the target’s last undisturbed closing share price prior to announcement of the respective transaction. This analysis indicated a median premium of 20.9%, a mean premium of 28.3%, a 25th percentile premium of 16.5% and a 75th percentile premium of 28.7% across the period. Using this analysis, and utilizing its professional judgment and experience, Goldman Sachs applied a reference range of illustrative premia of 16.5% to 28.7% to the closing price per Company Common Share of $6.28 as of August 25, 2023 and calculated a range of implied equity values per Company Common Share of $7.32 to $8.08.
Selected Publicly Traded Companies Trading Multiples. Goldman Sachs reviewed and compared certain financial information for the Company to corresponding publicly available financial information and valuation multiples for the following publicly traded REITs in the lodging industry, which are referred to in this section as the “selected companies”:
Ryman Hospitality Properties, Inc.
Sunstone Hotel Investors, Inc.
Braemar Hotels & Resorts Inc.
Host Hotels & Resorts, Inc.
Xenia Hotels & Resorts, Inc.
DiamondRock Hospitality Company
Pebblebrook Hotel Trust
Park Hotels & Resorts Inc.
RLJ Lodging Trust
Although none of the selected companies are directly comparable to the Company, the selected companies were chosen because they are publicly traded REITs in the lodging industry with certain operations or financial characteristics that, for purposes of analysis, may be considered similar to certain operations or financial characteristics of the Company.
For each of the Company and, using publicly available information, the selected companies, Goldman Sachs calculated and compared the average of EV/NTM EBITDA multiples for the one-month, six-month and one-year periods ended August 25, 2023, for the period since January 1, 2022 and for the period from August 25, 2015 through February 20, 2020 (which is referred to in the table below as “1-Month,” “6-Months,” “1-Year,” “Post-COVID,” and “Pre-COVID,” respectively).
The results of these calculations are summarized as follows:
 
Pre-COVID
Post-COVID
1-Year
6-Months
1-Month
Company
10.5x
11.0x
10.6x
10.2x
10.5x
Selected Companies
11.5x
11.6x
10.2x
10.0x
10.2x
General
The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without
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considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to the Company or Parent or the transactions contemplated by the Merger Agreement.
Goldman Sachs prepared these analyses for purposes of Goldman Sachs’ providing its opinion to the Transaction Committee as to the fairness from a financial point of view of the Merger Consideration to be paid to the holders (other than Parent and its affiliates) of Company Common Shares pursuant to the Merger Agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of the Company, Parent, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.
The Merger Consideration was determined through arm’s-length negotiations between the Company and Parent and was approved by the Transaction Committee. Goldman Sachs provided advice to the Transaction Committee during these negotiations. Goldman Sachs did not, however, recommend any specific amount of consideration to the Company or the Transaction Committee or that any specific amount of consideration constituted the only appropriate consideration for the transactions contemplated by the Merger Agreement.
As described above, Goldman Sachs’ opinion to the Transaction Committee was one of many factors taken into consideration by the Transaction Committee in making its determination to approve the Merger Agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Annex B.
Goldman Sachs and its affiliates are engaged in advisory, underwriting, lending and financing, principal investing, sales and trading, research, investment management and other financial and non-financial activities and services for various persons and entities. Goldman Sachs and its affiliates and employees, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of the Company, Parent, any of their respective affiliates and third parties, including the Sponsor, and any of their respective affiliates and, as applicable, portfolio companies, or any currency or commodity that may be involved in the transactions contemplated by the Merger Agreement. Goldman Sachs acted as financial advisor to the Transaction Committee in connection with, and participated in certain of the negotiations leading to, the Transaction. Goldman Sachs has provided certain financial advisory and/or underwriting services to the Company and its affiliates from time to time for which Goldman Sachs Investment Banking has received, and may receive, compensation, including having acted as financial advisor to the Transaction Committee of the Company in connection with the sale of seven of its non-core Urban Select Service properties, in August 2022. During the two-year period ended August 27, 2023, Goldman Sachs has recognized compensation for financial advisory and/or underwriting services provided by Goldman Sachs Investment Banking to the Company and/or its affiliates of approximately $5 million. During the two-year period ended August 27, 2023, Goldman Sachs Investment Banking has not been engaged by Parent or its affiliates to provide financial advisory or underwriting services for which Goldman Sachs has recognized compensation. During the two-year period ended August 27, 2023, Goldman Sachs Investment Banking has not been engaged by the Sponsor or its affiliates to provide financial advisory or underwriting services for which Goldman Sachs has recognized compensation. Goldman Sachs may also in the future provide financial advisory and/or underwriting services to the Company, Parent, the Sponsor and their respective affiliates and, as applicable, portfolio companies, for which Goldman Sachs Investment Banking may receive compensation. Affiliates of Goldman Sachs also may have co-invested with the Sponsor and its affiliates from time to time and may have invested in limited partnership units of affiliates of the Sponsor from time to time and may do so in the future.
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The Transaction Committee selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the transactions contemplated by the Merger Agreement. Pursuant to an engagement letter between the Transaction Committee and Goldman Sachs, the Transaction Committee engaged Goldman Sachs to act as its financial advisor in connection with the transactions contemplated by the Merger Agreement. The engagement letter between the Transaction Committee and Goldman Sachs provides for a fee that is estimated, based on the information available as of the date of announcement of the transactions contemplated by the Merger Agreement, to be an amount not to exceed approximately $14.3 million, all of which is payable upon the consummation of the transactions contemplated by the Merger Agreement. In addition, the Company has agreed to reimburse Goldman Sachs for certain of its expenses, including attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against various liabilities, including certain liabilities under federal securities laws.
Financing of the Mergers
General
The Merger Agreement does not contain a financing contingency or condition to the Closing. The Company has agreed to provide, and to cause its subsidiaries to use reasonable best efforts to provide, and to use reasonable best efforts to cause its representatives to provide, such cooperation necessary or reasonably requested by Parent for financings of the type contemplated in connection with the arrangement of the debt financing contemplated by the debt financing commitments. For more information, see the sections entitled “The Merger Agreement-Financing Cooperation” and “The Merger Agreement-Conditions to the Mergers.”
The Company anticipates that the total amount of funds necessary to complete the Mergers and the other transactions contemplated by the Merger Agreement will be less than $1.405 billion. Parent has informed the Company that Parent has secured both equity financing and debt financing to be provided in connection with the Mergers.
Equity Financing
On August 27, 2023, certain entities affiliated with the Sponsor entered into an equity commitment letter (the “Equity Commitment Letter”) with Parent pursuant to which such affiliates committed to contribute (or cause to be contributed) to Parent up to $400 million in cash in the aggregate (on a several and not joint basis) (each such commitment, an “Equity Commitment”) on the terms and subject to the conditions set forth in the Equity Commitment Letter. The Equity Commitments are subject to certain customary conditions, including, among others, the consummation of the Mergers in accordance with the Merger Agreement substantially simultaneously with or immediately following the funding of the Equity Commitments, the satisfaction or waiver of the conditions to the obligations of the Parent Parties to consummate the Mergers and the substantially simultaneous funding of the debt commitment (discussed below). The Company is an express third-party beneficiary under the Equity Commitment Letter with the ability to cause Parent to enforce the Equity Commitments when due pursuant to the terms of the Equity Commitment Letter.
Limited Guarantee
In addition, certain entities affiliated with the Sponsor have agreed to guarantee certain Payment Obligations of Parent, including the obligation to pay the Parent Termination Payment (as described in more detail under “The Merger Agreement-Termination Payment”), certain obligations to pay the Company’s expenses and costs (including reasonable fees and disbursements of counsel) relating to any legal proceeding brought by the Company against Parent if Parent fails to pay the Parent Termination Payment or such expenses and costs, together with interest, if the Company prevails in such legal proceeding, and certain expenses for which Parent agrees to reimburse the Company pursuant to the Merger Agreement in respect of financing cooperation or the repayment of certain funded indebtedness (the “Payment Obligations”). The Payment Obligations of each of the affiliated entities are subject to a cap in an amount equal to such entity’s specified percentage share of the Payment Obligations, if and when due pursuant to the Merger Agreement, with an aggregate cap of $75,000,000.
Debt Financing Commitment
Parent also has entered into a debt commitment letter with Wells Fargo Bank, National Association and Citigroup Global Markets Inc. (collectively, the “Lenders”), dated as of August 27, 2023 (the “Debt Commitment Letter”), pursuant to which the Lenders have committed to provide, severally but not jointly, debt
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financing in an aggregate principal amount up to $1.05 billion (the “Loans”), on the terms and subject to the conditions set forth in the Debt Commitment Letter. The “Borrower” refers to existing or to-be-formed special-purpose, bankruptcy-remote, limited liability companies that will own the properties that will secure the Loans (the “Properties”).
The proceeds of the Loans will be used to (i) pay a portion of the consideration due under the Merger Agreement in order to directly or indirectly acquire the Properties, (ii) repay existing indebtedness that encumbers the Properties, (iii) pay carrying costs with respect to the Properties, (iv) fund any required upfront reserves (if any), (v) pay costs and expenses incurred in connection with the Loans, the operation of the Properties and other transaction costs, (vi) fund any working capital requirements of the Properties, and (vii) fund such other general purposes as the Borrower will determine in its sole discretion.
The Debt Commitment Letter permits the Lenders to terminate the obligations to fund the Loans in certain circumstances, including, but not limited to the following (in most instances, but only after giving effect to the provisions in the Debt Commitment Letter describing the limitations and rights related to the special reserve (the “Special Reserve Provisions”)):
following the expiration of the Lenders’ commitment on December 27, 2023, subject to the option of Parent, in its sole discretion (subject to the payment of certain fees), to exercise up to two 30-day extension options;
if the Borrower or the guarantor under the Loans makes, in writing, any “specified representations” to the Lenders in the definitive documentation for the Loans which are untrue or false when made and which, in each case, individually or in the aggregate, could reasonably be expected to materially and adversely affect the transactions contemplated in the Debt Commitment Letter or the validity and priority of the Lenders’ liens on the Properties and the other collateral for the Loans;
the filing of any petition of bankruptcy, insolvency or reorganization by or against the Sponsor, Parent, the Borrower or the Company, provided, however, if such filing was involuntary and not consented to by the applicable party, the Lenders may only terminate its commitments if such filing has not been discharged, stayed or dismissed as of the date on which its commitment expires in accordance with the terms of the Debt Commitment Letter;
any condition precedent to the consummation of the loan as set forth in the mortgage commitment letter fails to be satisfied by the date on which the commitment expires in accordance with the terms of the Debt Commitment Letter, including the Borrower providing each Lender with customary “know your customer” information that satisfies such Lender’s “know your customer” requirements; and
if the Merger Agreement is terminated in whole for any reason prior to the closing of the Loans.
The obligation of the Lenders to make the Loans is subject to certain conditions, including, but not limited to the following (but only after giving effect to the Special Reserve Provisions):
the entry into loan documentation in accordance with the terms set forth in the Debt Commitment Letter and the delivery of customary borrowing notices, customary opinions of counsel (including non-consolidation opinions) and other customary ancillary documentation, including customary organizational documents and resolutions, and customary incumbency and secretary certificates, and a customary solvency certificate with respect to the Borrower on a consolidated basis and otherwise in customary form;
the Lenders’ satisfactory completion of UCC, lien, judgment, litigation and bankruptcy searches with respect to the Borrower and the guarantors under the Loans;
the Lenders’ satisfactory review and approval of real estate, property and other due diligence items relating to the Company, the guarantors and the Properties, each of which is described in a schedule to the Debt Commitment Letter; and
other conditions customary for a mortgage backed financing set forth in the Debt Commitment Letter.
To the extent there exists prior to the Closing of the Loans any material defects, environmental conditions or other shortfalls of the Lenders’ required due diligence (other than with respect to the Lender’s “know-your-customer” diligence, as described above), including ground lease matters, casualty or condemnation,
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title, survey, zoning, the license agreement or the management agreement, with respect to any Property whereby such Property would not otherwise meet the customary standards for a securitization and/or syndication of a loan secured by a portfolio of hotel properties similar in size and character to the Properties, the Lenders may establish special reserves at Closing, and such special reserves may impact the total amount of loan proceeds available at Closing.
Parent is required under the Merger Agreement to use reasonable best efforts to take, or cause to be taken, as promptly as practicable after the date of the Merger Agreement, all actions and to do, or cause to be done, all things necessary, proper or advisable to arrange, obtain and consummate the debt financing on the terms and conditions described in or contemplated by the Debt Commitment Letter (including complying with any request requiring the exercise of so-called “market flex” provisions in the related fee letter). In the event that any portion of the debt financing becomes unavailable on the terms and conditions of the Debt Commitment Letter, and such portion of the debt financing is necessary to fund the Payment Obligations, Parent will use its reasonable best efforts and as promptly as practicable after the occurrence of such event, to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to arrange and obtain alternative financing from the same or alternative sources in an amount sufficient, when added to the portion of the debt financing and equity financing that is and remains available to Parent, to consummate the transactions and to fund all Payment Obligations. The definitive documentation governing the debt financing contemplated by the Debt Commitment Letter has not been finalized and, accordingly, the actual terms of the debt financing may differ from those described in this proxy statement.
Interests of the Company’s Trustees and Executive Officers in the Mergers
In considering the recommendation of the Board to approve the Company Merger and the other proposals described above, the Company’s shareholders should be aware that the Company’s trustees and executive officers have certain interests in the Mergers that are different from, or in addition to, the interests of the Company’s shareholders generally. These interests may create potential conflicts of interest. The Board was aware of these interests and considered them, among other matters, in reaching its decision to approve the Company Merger, the Merger Agreement and the other transactions contemplated by the Merger Agreement and in recommending that the Company’s shareholders approve the Company Merger. You should take these interests into account in deciding whether to vote “FOR” the approval of the Company Merger.
These interests are described in more detail below and certain of the interests with respect to the Company’s named executive officers are also quantified herein under the subsection entitled “The Mergers-Interests of the Company’s Trustees and Executive Officers in the Mergers-Quantification of Potential Payments and Benefits” and are subject to a non-binding, advisory vote of the shareholders of the Company in the Advisory Compensation Proposal.
Treatment of Company Equity Awards
Company Restricted Share Awards. At the Company Merger Effective Time, each Company Restricted Share Award that is outstanding as of immediately prior to the Company Merger Effective Time, including those held by the Company’s trustees and executives, will vest and all restrictions thereupon shall lapse, and each Company Restricted Share Award will be canceled and converted into the right to receive a payment (without interest and subject to applicable tax withholding) equal to the product of (i) the number of Company Common Shares underlying such Company Restricted Share Award as of immediately prior to the Company Merger Effective Time and (ii) $10.00, subject to the terms and conditions of the Merger Agreement.
Company LTIP Units. At the Partnership Merger Effective Time, each Company LTIP Unit that is outstanding and unvested as of immediately prior to the Partnership Merger Effective Time, including those held by the Company’s trustees and executives, will vest and become transferable and immediately thereafter, effective as of the Partnership Merger Effective Time, the Company will cause a Forced Conversion (as defined in the Merger Agreement) with respect to all Company LTIP Units then eligible for conversion (after giving effect to the vesting of all Company LTIP Units as contemplated by the Merger Agreement) such that, as of the Partnership Merger Effective Time, each then outstanding Company LTIP Unit will be converted into an equal number of Company Partnership Units. For the avoidance of doubt, such converted Company LTIP Units will not convert into Company Preferred Partnership Units, and the Company Partnership Units issued in respect of such Company LTIP Unit conversion will be treated in the same manner under the Merger Agreement as other outstanding Company Partnership Units.
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Value of Payments. The table below sets forth (i) the aggregate number of Company Partnership Units, Company LTIP Units, Company Preferred Shares and Company Common Shares owned or underlying Company Restricted Share Awards, in each case, held by the Company’s executive officers and non-employee trustees, as applicable; and (ii) the estimated value of the payments that the Company’s executive officers and non-employee trustees are eligible to receive (before deduction of applicable tax withholding) in connection with the Mergers in respect of such shares, units and awards, in each case, based on the aggregate number of Company Partnership Units, Company Common Shares, Company Preferred Shares, Company Restricted Share Awards and Company LTIP Units held by the executive officers and non-employee trustees as of October 2, 2023. Solely for the purposes of the table below, we have assumed that the Company Merger Effective Time and Partnership Merger Effective Time each occur on October 2, 2023. These estimated values are based on (i) the proposed Merger Consideration and OP Merger Consideration of $10.00 per Company Common Share and per Company Partnership Unit, as applicable, and (ii) the proposed Preferred Merger Consideration of $25.00 per Company Preferred Share plus accrued and unpaid dividends up to and including the Closing Date, which is assumed for these purposes to occur on October 2, 2023. Further, these estimated values assume that all Company Partnership Units, Company Common Shares, Company Preferred Shares, Company Restricted Share Awards and Company LTIP Units held by the executive officers and non-employee trustees as of the Record Date remain outstanding as of the Company Merger Effective Time or the Partnership Merger Effective Time (as applicable). The table below does not take into account any vesting or forfeiture of equity awards, nor any additional equity awards that may be granted, between October 2, 2023 and the Company Merger Effective Time or the Partnership Merger Effective Time (as applicable).
Name
Number of
Shares
Subject to
Company
Restricted
Share
Awards
(#)
Value of
Company
Restricted
Share
Awards
($)(1)
Number of
Company
LTIP
Units
(#)
Value of
Company
LTIP
Units
($)(1)
Number of
Company
Common
Shares
(#)
Value of
Company
Common
Shares
($)(1)
Number of
Company
Partnership
Units
(#)
Value of
Company
Partnership
Units
($)(1)
Number of
Company
Preferred
Shares
(#)
Value of
Company
Preferred
Shares
($)(2)
Executive Officers
 
 
 
 
 
 
 
 
 
 
David L. Desfor
$
$
5,700
$57,000
52,976
$529,760
$
Michael R. Gillespie
$
511,200
$5,112,000
$
$
$
Ashish R. Parikh
$
805,673
$8,056,730
301,001
$3,010,010
$
$
Hasu P. Shah(3)
$
490,543
$4,905,430
224,556
$2,245,560
113,874
$1,138,740
9,400
$238,344
Jay H. Shah
$
2,299,250
$22,992,500
593,055
$5,930,550
405,380
$4,053,800
27,800
$704,826
Neil H. Shah
$
2,175,613
$21,756,130
633,811
$6,338,110
401,124
$4,011,240
26,800
$679,472
Non-Employee Trustees
 
 
 
 
 
 
 
 
 
 
Jackson Hsieh
18,026
$180,260
$
148,789
$1,487,891
$
$
Thomas J. Hutchison III
18,026
$180,260
$
176,058
$1,760,580
$
$
Donald J. Landry
5,899
$58,990
$
188,872
$1,888,720
$
2,250
$57,042
Michael A. Leven
11,963
$119,630
$
136,091
$1,360,910
$
45,000
$1,140,844
Dianna F. Morgan
5,899
$58,990
$
109,478
$1,094,780
$
$
John M. Sabin
5,899
$58,990
$
119,355
$1,193,550
$
$
(1)
Dollar values are calculated based on the Merger Consideration and OP Merger Consideration of $10.00 per Company Common Share and Company Partnership Unit, as applicable.
(2)
Dollar values are calculated based on the Preferred Merger Consideration of $25.00 per Company Preferred Share plus accrued but unpaid dividends as of October 2, 2023.
(3)
Mr. Hasu P. Shah retired from his position as Chairman of the board as of January 1, 2023.
Executive Officer Employment Agreements
Each of Messrs. Jay Shah, Neil Shah, Parikh and Gillespie is a party to an employment agreement with the Company, effective as of August 4, 2020 and as subsequently amended (each, an “Employment Agreement”). On August 27, 2023, the Company and each executive entered into an amendment to the Employment Agreements which, consistent with the original intent of the Employment Agreements as determined by the compensation committee of the Board, (i) clarified the treatment of ungranted performance-based long-term incentive awards upon an involuntary termination of employment in connection with a change of control of the Company, and (ii) clarified that a change in the executive’s position, discretion or responsibilities that materially diminishes those in effect immediately prior to a change of control of the Company, including any change in the executive’s status as an officer of a public company following a change of control, constitutes “good reason” for
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purposes of the Employment Agreements. Mr. Hasu Shah retired from the Company effective as of December 31, 2022, and his Employment Agreement with the Company is no longer in effect.
Each of the Employment Agreements provides for certain severance payments and benefits in the event of a qualifying termination or resignation of the executive’s employment with the Company, including a termination by the Company without “cause” or by the executive for “good reason” that occurs within 12 months following a “change of control” of the Company, or in the event of a termination of the executive’s employment due to death or disability. If consummated, the Mergers will constitute a change of control of the Company for purposes of the Employment Agreements.
Termination Without Cause or Resignation for Good Reason within 12 Months following a Change of Control
Each Employment Agreement provides that upon a termination without cause or a resignation for good reason within 12 months following a change of control, the executive will be entitled to receive (i) a lump sum payment equal to the executive’s “severance multiple” multiplied by the sum of (A) the amount of the executive’s annual base salary then in effect and (B) the executive’s maximum annual bonus under the Company’s short-term incentive plan (“STIP”) for the year in which such termination occurs, (ii) full accelerated vesting of the executive’s outstanding unvested equity-based awards (and to the extent that such change of control occurs on or prior to March 31st of a calendar year or prior to the grant of one or more awards in respect of performance periods that commenced prior to the date of such change of control, then the grant of the equity award(s) that would have otherwise been granted to the executive on or around such March 31st or following the completion of such performance period(s) will be accelerated and granted to the executive prior to such change of control (or cash or change of control transaction consideration paid in lieu thereof), with performance-based awards granted or vesting based on target performance (“Target LTIP Payments”)), and (iii) redemption of the executive’s Company LTIP Units in accordance with the Company OP Agreement. In addition, the Company shall cause the executive’s insurance benefits, as in effect immediately prior to the termination, to remain in effect for 18 months following the date of termination on the same terms, and at the same cost to the executive, as in effect immediately prior to termination. The executives’ “severance multiples” are as follows: Jay H. Shah–2.99x; Neil H. Shah–2.99x; Ashish R. Parikh–2x; and Michael R. Gillespie–1x.
Termination Due to Death or Disability
Each Employment Agreement provides that in the event of the death or disability of the executive, the Company will continue to pay the executive or his heirs, devisees, executors, legatees, or personal representatives, as appropriate, the executive’s base salary then in effect through the month following the month in which such event occurs plus an amount equal to four weeks accrued but unused vacation.
Continuing Employee Benefits
The Merger Agreement requires Parent to provide or cause to be provided certain compensation, severance and benefits for a period of one year following the Closing Date for Continuing Employees, including executive officers, of the Company and its subsidiaries, and to take certain actions in respect of employee benefits provided to such employees, including providing service credit, credit for co-payments and deductibles and waivers of certain employee benefit plan limitations. For a detailed description of these requirements, please see the section entitled “The Merger Agreement–Employee Benefits” of this proxy statement.
New Compensation Arrangements with Parent
Any executive officers and trustees who become officers, trustees, directors or employees or who otherwise are retained to provide services to Parent and/or the Surviving Entity following the Closing may enter into new individualized compensation arrangements and may participate in cash or equity incentive or other benefit plans maintained by Parent and/or the Surviving Entity. As of the date of this proxy statement, no compensation arrangements between such persons and Parent and/or its affiliates have been established.
Indemnification; Directors’ and Officers’ Insurance
The Merger Agreement provides that for a period of six (6) years from the Company Merger Effective Time, Parent will cause to be maintained in effect the current policies of directors’ and officers’ liability insurance and fiduciary liability insurance maintained by the Company and its subsidiaries with respect to
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matters arising on or before the Company Merger Effective Time; provided, that after the Company Merger Effective Time, Parent will not be required to pay annual premiums in excess of 300% of the last annual premium paid by the Company and its subsidiaries prior to the date of the Merger Agreement in respect of the coverage required to be obtained pursuant to the Merger Agreement, but in such case will purchase as much coverage as reasonably practicable for such amount. At the Company’s option, the Company may purchase, prior to the Company Merger Effective Time, a six-year prepaid “tail” policy on terms and conditions providing substantially equivalent benefits as the current policies of directors’ and officers’ liability insurance and fiduciary liability insurance maintained by the Company and its subsidiaries with respect to matters arising on or before the Company Merger Effective Time, covering without limitation the transactions contemplated by the Merger Agreement; provided, that the Company will not commit or spend on such “tail” policy, in the aggregate, more than 300% of the last aggregate annual premium paid by the Company and its subsidiaries prior to the date of the Merger Agreement for the Company’s current policies of directors’ and officers’ liability insurance and fiduciary liability insurance, and if the cost of such “tail” policy would otherwise exceed such limit, the Company will be permitted to purchase as much coverage as reasonably practicable for up to such limit; provided, further, that the Company will reasonably cooperate and consult with Parent prior to the purchase of any such tail policy; provided, further, that if Parent can procure a “tail” policy on superior terms or on equivalent terms, but at a lower price, as compared to any such policy that may be procured by the Company, with insurers of equal or better A.M. Best financial strength ratings and outlooks and with full continuity, then Parent may, with the prior written consent of the Company (not to be unreasonably withheld, conditioned or delayed) obtain such policy effective as of the Company Merger Effective Time, in which case the Company will not obtain any such policy; provided, further, that such tail policy will be in lieu of the obligation to insure, and maintain in effect insurance policies, for a period of six (6) years from and after the Company Merger Effective Time. If such prepaid “tail” policy has been obtained by the Company prior to the Company Merger Effective Time, Parent will cause such policy to be maintained in full force and effect, for its full term, and cause all obligations thereunder to be honored by the Surviving Entity and the Surviving Partnership, and no other party will have any further obligation to purchase or pay for insurance pursuant to the Merger Agreement.
To the fullest extent permitted by applicable law, for a period commencing as of the Company Merger Effective Time and ending on the sixth (6th) anniversary of the Company Merger Effective Time, each of Parent, the Surviving Entity and the Surviving Partnership will indemnify and hold harmless (and advance funds in respect of each of the foregoing or any related expenses) each current and former trustee, director or officer of the Company or any of its subsidiaries and each such person who served as a manager, trustee, director, officer or fiduciary of a joint venture or other entity at the request of and for the benefit of the Company or any of its subsidiaries (each, together with such person’s heirs, executors or administrators, and successors and assigns, an “Indemnified Party”) against any costs or expenses (including advancing attorneys’ fees and expenses in advance of the final disposition of any proceeding to each Indemnified Party to the fullest extent permitted by law), judgments, fines, losses, claims, damages, obligations, costs, liabilities and amounts paid in settlement in connection with any actual or threatened claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of, relating to or in connection with any action or omission or alleged to have occurred at or prior to the Company Merger Effective Time (including acts or omissions in connection with such persons serving as a manager, trustee, director, officer or fiduciary of any joint venture or other entity if such service was at the request of and for the benefit of the Company or any of its subsidiaries), whether asserted or claimed prior to, at or after the Company Merger Effective Time. In the event of any such proceeding, Parent, the Surviving Entity and the Surviving Partnership will cooperate with the Indemnified Party in the defense of any such proceeding, and Parent will pay all reasonable expenses, including reasonable attorneys’ fees, that may be incurred by any Indemnified Party in enforcing the indemnity and other obligations under the related provisions of the Merger Agreement; provided, however, that Parent will not be obligated to pay the fees and expenses of more than one legal counsel (selected by a plurality of the applicable indemnified parties) for all indemnified parties in any jurisdiction with respect to any single legal action, except to the extent that, on the advice of any such Indemnified Party’s counsel, two or more of such indemnified parties will have conflicting interests in the outcome of such action.
The parties have agreed that all rights to exculpation, indemnification and advancement of expenses now existing in favor of the current or former trustees, directors, officers or employees, as the case may be, of the Company or any Company subsidiary as provided in its respective Declaration of Trust of the Company (as amended, if applicable) (each a “Company Declaration”), certificates of incorporation or bylaws or other
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organizational documents or in any agreement, will survive the Mergers and will continue at and after the Company Merger Effective Time in full force and effect for a period of six years after the Company Merger Effective Time. For a period of six years after the Company Merger Effective Time, Parent will cause to be maintained in effect the exculpation, indemnification and advancement of expenses provisions of the Company’s and its subsidiaries’ respective Company Declaration, certificates of incorporation and bylaws or similar organizational documents as in effect immediately prior to the Company Merger Effective Time or in any indemnification agreements of the Company or any of its subsidiaries with any of their respective trustees, directors, officers or employees as in effect immediately prior to the Company Merger Effective Time, and will not amend, repeal or otherwise modify any such provisions in any manner that would adversely affect the rights thereunder of any individuals who at the Company Merger Effective Time were current or former trustees, directors, officers or employees of the Company or any of its subsidiaries; provided, that all rights to indemnification in respect of any proceeding pending or asserted or any claim made within such period will continue until the final disposition of such proceeding or resolution of such claim, even if beyond such six-year period. From and after the Company Merger Effective Time, Parent will assume, be jointly and severally liable for, and honor, guarantee and stand surety for, and will cause the other Parent Parties to honor, in accordance with their respective terms, each of the indemnification covenants contained in the Merger Agreement. In the event that Parent, the Surviving Entity or the Surviving Partnership or any of their respective successors or assigns (i) consolidates with or merges into any other person and will not be the continuing or surviving corporation or entity in such consolidation or merger or (ii) transfers all or substantially all of its properties and assets to any person, then, and in either such case, proper provision will be made so that the successors and assigns of Parent, the Surviving Entity or the Surviving Partnership, as the case may be, will assume the indemnification obligations set forth in the Merger Agreement.
The rights of each Indemnified Party under the Merger Agreement are in addition to, and not in limitation of, any other rights such Indemnified Party may have under the Company Declaration, certificates of incorporation or bylaws or other organizational documents of the Company or any of its subsidiaries, the Surviving Entity or the Surviving Partnership, any other indemnification arrangement, the MRL, the DLLCA, the VRULPA (each as hereinafter defined) or otherwise.
Quantification of Potential Payments and Benefits
The information set forth in the table below is intended to comply with Item 402(t) of Regulation S-K, which requires disclosure of information about certain compensation for each of the Company’s named executive officers that is based on or otherwise relates to the Mergers. The amounts in the table were calculated using outstanding Company Partnership Units and Company LTIP Units held by each named executive officer as of October 2, 2023 and a per-share or per-unit price for Company Common Shares and Company Partnership Units, as applicable, of $10.00, and assumes the Mergers closed on October 2, 2023. The compensation summarized in the table and footnotes below is subject to a non-binding, advisory vote of the shareholders of the Company, as described in the Advisory Compensation Proposal.
The amounts in the following table are estimates based on multiple assumptions that may not actually occur, including assumptions described in this proxy statement, and do not include amounts that were vested as of October 2, 2023. In addition, certain amounts will vary depending on the actual date of Closing, which is presently expected to be in the fourth quarter of 2023, but assumed for purposes of the calculations underlying this table to occur on October 2, 2023. As a result, the actual amounts, if any, to be received by a named executive officer may differ in material respects from the amounts set forth below. In the footnotes to the table below, we refer to payments that are conditioned on the occurrence of both the Mergers and the named executive officer’s qualifying termination or resignation of employment as being payable on a “double trigger” basis and payments or benefits that are conditioned only upon the occurrence of the Mergers as being payable on a “single trigger” basis.
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Golden Parachute Compensation(1)
Name
Cash(2)
($)
Equity(3)
($)
Perquisites /
Benefits(4)
($)
Total
($)(5)
Michael R. Gillespie
$1,387,000
$5,752,050
$40,087
$7,179,137
Ashish R. Parikh
$5,612,000
$9,557,380
$47,572
$15,216,952
Jay H. Shah
$9,717,500
$25,359,575
$3,352
$35,080,427
Neil H. Shah
$11,960,000
$24,249,005
$41,230
$36,250,235
(1)
As of January 1, 2023, Mr. Hasu Shah, one of our named executive officers, retired and resigned as Executive Chairman of the Board. Mr. Hasu Shah is not eligible to receive any compensation related to the Mergers that may have become payable in connection with the Mergers.
(2)
The amounts in this column represent aggregate cash severance payments that each named executive officer would be entitled to receive under his applicable Employment Agreement if his employment were terminated by the Company without “cause” or by the named executive officer for “good reason” assuming that the Mergers and termination of employment occurred on October 2, 2023. These amounts are payable on a double-trigger basis. Lesser cash amounts are payable in the event of an employment termination due to the named executive officer’s death or disability or due to a termination by the Company without cause absent the occurrence of the Mergers. See “The Mergers—Interests of the Company’s Trustees and Executive Officers in the Mergers—Executive Officer Employment Agreements” of this proxy statement for a description of each named executive officer’s severance rights under the executive’s applicable Employment Agreement. Amounts in this column do not include Target LTIP Payments, which are included in the “Equity” column.
(3)
The amounts in this column represent (i) the value of Company LTIP Units held by each named executive officer as of October 2, 2023 that will each be canceled and converted into the right to receive the OP Merger Consideration, as described above in “The Mergers—Interests of the Company’s Trustees and Executive Officers in the Mergers—Treatment of Company Equity Awards” of this proxy statement, and (ii) the value of Target LTIP Payments that each named executive officer would be entitled to receive under his applicable Employment Agreement if the Closing and the termination of the executive’s employment by the Company without cause or by the named executive officer for good reason occurred on October 2, 2023, as described above in “The Mergers—Interests of the Company’s Trustees and Executive Officers in the Mergers—Executive Officer Employment Agreements” section of this proxy statement. The amounts in the table below in respect of Company LTIP Units are single-trigger payments. The amounts in the table below in respect of Target LTIP Payments are double-trigger payments.
Name
Company
LTIP Units
($)
Target LTIP
Payments
($)
Michael R. Gillespie
$5,112,000
$640,050
Ashish R. Parikh
$8,056,730
$1,500,650
Jay H. Shah
$22,992,500
$2,367,075
Neil H. Shah
$21,756,130
$2,492,875
(4)
The amounts in this column represent the value of continued insurance benefits for each named executive officer for 18 months, which each named executive officer would be entitled to receive under his applicable Employment Agreement if his employment were terminated by the Company without cause or by the named executive officer for good reason on the Record Date. These amounts are payable on a double-trigger basis. Each named executive officer is entitled to a lesser benefit (for a period of 12 months) upon a termination of employment by the Company without cause absent the occurrence of the Mergers.
(5)
The total amounts do not reflect any reductions to “parachute payments” (as defined by Section 280G of the Code) that may be economically beneficial to the named executive officers in order to avoid the excise tax imposed on individuals receiving excess parachute payments under Sections 280G and 4999 of the Code.
Litigation Related to the Mergers
On September 27, 2023, the Company received a demand letter on behalf of purported shareholder Marc Waterman alleging that the Company’s preliminary proxy statement omits material information with respect to the Mergers. On September 28, 2023, the Company received a demand letter on behalf of purported shareholder Sandy Heng asserting similar allegations. The Company believes the allegations in the demand letters are without merit and vigorously denies that the preliminary proxy statement is deficient in any respect.
Material U.S. Federal Income Tax Consequences
The following discussion is a summary of the material U.S. federal income tax consequences of the Company Merger to common shareholders whose shares are surrendered in the Company Merger in exchange for Merger Consideration as described herein. This discussion is based on current law, is for general information only and is not tax advice. This discussion is based on the Code, applicable Treasury Regulations promulgated thereunder, and administrative and judicial interpretations thereof, each as in effect as of the date hereof, all of which are subject to change or to different interpretations, possibly with retroactive effect. Any such change
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could affect the accuracy of the statements and conclusions set forth in this discussion. The Company has not requested, and does not plan to request, any rulings from the Internal Revenue Service (the “IRS”), concerning the Company’s tax treatment or the tax treatment of the Company Merger, and the statements in this proxy statement are not binding on the IRS or any court. The Company can provide no assurance that the tax consequences contained in this discussion will not be challenged by the IRS, or if challenged, will be sustained by a court.
This discussion does not address (1) U.S. federal taxes other than income taxes, (2) state, local or non-U.S. taxes, (3) tax reporting requirements (other than certain information reporting requirements), (4) the Medicare contribution tax on net investment income, (5) the alternative minimum tax or (6) withholding taxes under Sections 1471 through 1474 of the Code (such Sections commonly referred to as FATCA). This discussion assumes that Company Common Shares are held as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment), does not address all aspects of taxation that may be relevant to particular holders in light of their personal investment or tax circumstances or to persons that are subject to special tax rules and does not address the tax consequences of the Company Merger to holders of restricted shares or other awards received as compensation. In addition, this discussion does not address the tax treatment of special classes of common shareholders, including, for example:
banks, insurance companies and other financial institutions;
regulated investment companies;
REITs;
tax-exempt organizations or governmental organizations;
persons holding Company Common Shares in a tax-deferred or tax advantaged account;
persons acting as nominees or otherwise not as beneficial owners;
mutual funds;
S corporations, partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes (and investors therein);
brokers, dealers or traders in securities or currencies;
U.S. holders whose functional currency is not the U.S. dollar;
persons holding Company Common Shares as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment;
persons deemed to sell Company Common Shares under the constructive sale provisions of the Code;
U.S. expatriates and former citizens or long-term residents of the United States;
persons subject to special tax accounting rules as a result of any item of gross income with respect to Company Common Shares being taken into account in an applicable financial statement;
holders who acquired Company Common Shares pursuant to the exercise of any employee share option or otherwise as compensation;
qualified foreign pension funds, as defined in Section 897(l) of the Code;
qualified shareholders, as defined in Section 897(k) of the Code; and
“controlled foreign corporations,” “passive foreign investment companies,” or corporations that accumulate earnings to avoid U.S. federal income tax.
If any entity or arrangement that is treated as a partnership for U.S. federal income tax purposes holds Company Common Shares, the tax treatment of its partners or members generally will depend upon the status of the partner or member and the activities of the partnership. If you are a partner of a partnership or a member of a limited liability company or other entity classified as a partnership for U.S. federal income tax purposes and
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that entity is holding Company Common Shares, you should consult your tax advisor. Moreover, each holder should consult its tax advisor regarding the U.S. federal income tax consequences to it of the Company Merger in light of its own particular situation, as well as any consequences of the Company Merger to such holder arising under the laws of any other taxing jurisdiction.
For purposes of this section, a “U.S. holder” means a beneficial owner of Company Common Shares that, for U.S. federal income tax purposes, is or is treated as:
an individual who is a citizen or resident of the United States;
a corporation created or organized in or under the laws of the United States, any state thereof, or the District of Columbia;
a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more “United States persons” (within the meaning of Section 7701(a)(30) of the Code) or (2) has a valid election in effect to be treated as a United States person for U.S. federal income tax purposes; or
an estate the income of which is subject to U.S. federal income taxation regardless of its source.
As used in this section, a “non-U.S. holder” means a beneficial owner of Company Common Shares that is neither a U.S. holder nor an entity treated as a partnership for U.S. federal income tax purposes.
This discussion of material U.S. federal income tax consequences is not binding on the IRS. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any described herein.
THE U.S. FEDERAL INCOME TAX RULES APPLICABLE TO THE COMPANY MERGER AND DISPOSING OF COMPANY COMMON SHARES, AND TO REITS GENERALLY, ARE HIGHLY TECHNICAL AND COMPLEX. HOLDERS OF COMPANY COMMON SHARES ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE COMPANY MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF U.S. FEDERAL, STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX LAWS, AND POTENTIAL CHANGES IN APPLICABLE TAX LAWS, IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.
Tax Consequences of the Company Merger to the Company
The Company Merger will be a taxable transaction to the Company. The Company will be treated as selling all of its assets to REIT Merger Sub in exchange for the Merger Consideration and Preferred Merger Consideration and then making a liquidating distribution of the Merger Consideration and Preferred Merger Consideration to Company shareholders in exchange for their Company shares. The Company believes its net operating losses and certain other deductions, including the dividends paid deduction, should be available to offset substantially all of the Company’s gain from the deemed sale of its assets. The Company cannot make any assurance that it will have sufficient net operating losses and other deductions available to offset gain realized as a result of the deemed sale of its assets.
Tax Consequences of the Company Merger to U.S. Holders
The receipt of Merger Consideration by a U.S. holder in exchange for Company Common Shares in the Company Merger will generally be a taxable transaction for U.S. federal income tax purposes. The amount of any taxable gain or loss realized by a U.S. holder who receives Merger Consideration for Company Common Shares in the Company Merger will generally equal the difference, if any, between the amount of Merger Consideration received for such shares (determined before the deduction of any applicable withholding taxes) and the U.S. holder’s adjusted tax basis in such shares. The amount and character of such gain or loss and the holding period of shares will be determined separately for each block of Company Common Shares (that is, shares acquired at the same cost in a single transaction) exchanged for Merger Consideration in the Company Merger. Any gain or loss realized by a U.S. holder upon the receipt of Merger Consideration in exchange for a Company Common Share in the Company Merger will generally be capital gain or loss, and, except as provided below, will be long-term capital gain or loss if the U.S. holder has held such share for more than one year at the effective time of the Company Merger. However, if a U.S. holder recognizes a loss on shares it has held for six months or less, after applying certain holding period rules, the loss recognized will be treated as a long-term capital loss to the extent the U.S. holder received distributions from the Company that were required to be treated as long-term capital gains. Otherwise, such gain or loss will be short-term capital gain or loss which is subject to U.S. federal income tax at the same rates as ordinary income. Long-term capital gains recognized by certain non-corporate U.S. holders, including individuals, are generally taxable at a reduced rate. The deductibility of capital losses is subject to limitations.
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Tax Consequences of the Company Merger to Non-U.S. Holders
The U.S. federal income tax consequences of the Company Merger to a non-U.S. holder will depend on various factors, including whether the receipt of Merger Consideration in exchange for Company Common Shares is treated as a distribution from the Company to its shareholders that is attributable to gain from the sale of “United States real property interests,” or USRPIs. The IRS has announced in Notice 2007-55 that it intends to take the position that under current law a non-U.S. holder’s receipt of a liquidating distribution from a REIT is generally subject to tax under the Foreign Investment in Real Property Tax Act, which is referred to as “FIRPTA,” as a distribution to the extent attributable to gain from the sale of USRPIs. The Company intends to take the position that the non-U.S. holders whose Company Common Shares are exchanged for Merger Consideration in connection with the Company Merger will be subject to tax in accordance with Notice 2007-55, and accordingly, to the extent Merger Consideration received by a non-U.S. holder in the Company Merger is attributable to gain from the Company’s deemed sale of USRPIs (which the Company expects a substantial portion of the Merger Consideration to be), the Company intends to take the position that the U.S. federal income tax consequences described below in “—Distribution of Gain from the Disposition of U.S. Real Property Interests” will apply. In general, the provisions governing the taxation of distributions by REITs can be less favorable to non-U.S. holders than the taxation of sales or exchanges of REIT shares by non-U.S. holders, and non-U.S. holders should consult their tax advisors regarding the application of these provisions.
Distribution of Gain from the Disposition of U.S. Real Property Interests. To the extent a non-U.S. holder’s receipt of Merger Consideration in exchange for Company Common Shares is treated as a distribution attributable to gain from the Company’s deemed sale of USRPIs, such amount will be treated as income effectively connected with the conduct of a U.S. trade or business of the non-U.S. holder and generally will be subject to U.S. federal income tax on a net basis in the same manner as a U.S. holder, subject to any applicable alternative minimum tax and a special alternative minimum tax in the case of nonresident alien individuals. The Company also will be required to withhold and to remit to the IRS 21% of any such amount. Such distribution may also be subject to a 30% branch profits tax in the hands of a non-U.S. holder that is a corporation. The amount withheld is creditable against the non-U.S. holder’s U.S. federal income tax liability. Notwithstanding the foregoing, if both (a) Company Common Shares are treated as regularly traded on an established securities market such as NYSE at the date of the Company Merger and (b) the non-U.S. holder did not own more than 10% of the Company Common Shares at any time during the one-year period ending on the date of the Company Merger, then the U.S. federal income tax consequences described in “—Taxable Sale of Company Common Shares Pursuant to the Company Merger” below would generally apply to such non-U.S. holder. The Company Common Shares are, and are anticipated to continue to be through the Company Merger Effective Time, regularly traded on an established securities market.
A non-U.S. holder may be entitled to a refund or credit against the non-U.S. holder’s U.S. tax liability, if any, with respect to any amount withheld pursuant to these rules, provided that the required information is furnished to the IRS on a timely basis. Non-U.S. holders should consult their tax advisors regarding withholding tax considerations.
Taxable Sale of Company Common Shares Pursuant to the Company Merger. To the extent a non-U.S. holder’s receipt of Merger Consideration in exchange for Company Common Shares is treated as a taxable sale of such shares, a non-U.S. holder will generally not be subject to U.S. federal income tax on any gain realized from such sale unless:
(i)
the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, such gain is also attributable to a permanent establishment or, in the case of an individual, a fixed base, maintained by the non-U.S. holder in the United States);
(ii)
the non-U.S. holder is a nonresident alien individual present in the United States for 183 days or more (calculated using certain assumptions) during the taxable year that includes the Company Merger Effective Time, and certain other requirements are met; or
(iii)
the Company Common Shares constitute a USRPI in the non-U.S. holder’s hands.
Gain described in item (i) listed above will generally be subject to U.S. federal income tax on a net income basis at the regular U.S. federal income tax rates in the same manner as if such non-U.S. holder were a U.S. holder. A non-U.S. holder that is a corporation also may be subject to a branch profits tax at a rate of 30% (or such lower rate
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as may be specified under an applicable income tax treaty) on after-tax profits effectively connected with a U.S. trade or business to the extent that such after-tax profits are not reinvested and maintained in the business.
A non-U.S. holder described in item (ii) listed above will generally be subject to U.S. federal income tax at a rate of 30% (or such lower rate as may be specified under an applicable income tax treaty) on gain realized upon the disposition of Company Common Shares in the Company Merger, which may be offset by U.S.-source capital losses of the non-U.S. holder (even though the individual is not considered a resident of the United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.
With respect to item (iii) listed above, if a non-U.S. holder’s Company Common Shares constitute USRPIs, any gain recognized by such holder in the Company Merger will be treated as income effectively connected with the conduct of a U.S. trade or business of the non-U.S. holder and generally will be subject to U.S. federal income tax on a net basis in the same manner as a U.S. holder. A non-U.S. holder’s shares generally will not constitute USRPIs if either (1) the Company is a “domestically controlled qualified investment entity” at the Company Merger effective time, or (2) both (a) Company Common Shares are treated as regularly traded on an established securities market such as NYSE at the date of the Company Merger and (b) the non-U.S. holder has owned, actually and constructively, 10% or less of the total fair market value of the Company Common Shares at all times during the shorter of (i) the five-year period ending with the effective time of the Company Merger and (ii) the non-U.S. holder’s holding period for the shares. A domestically controlled qualified investment entity includes a REIT in which at all times during the applicable testing period less than 50% in value of its stock is held directly or indirectly by non-United States persons. For purposes of determining whether a REIT is a domestically controlled qualified investment entity, among other ownership rules, a person who at all applicable times holds less than 5% of a class of stock that is “regularly traded” is treated as a United States person unless the REIT has actual knowledge that such person is not a United States person. Proposed Treasury regulations, if finalized, would provide additional guidance for determining whether a REIT is a domestically controlled qualified investment entity and clarify, among other things, that ownership by non-U.S. persons (other than persons treated as United States persons as described in the preceding sentence) will be determined by looking through pass-through entities and certain U.S. corporations. The Company believes, but cannot guarantee, that it has been and currently is domestically controlled as of the date of this proxy statement, but because the Company Common Shares are, and are anticipated to continue to be through the Company Merger Effective Time, publicly traded, no assurances can be given that the Company will continue to qualify as a domestically controlled qualified investment entity at the Company Merger Effective Time. Even if the Company does not qualify as a domestically controlled qualified investment entity at the Company Merger Effective Time, gain realized by a non-U.S. holder on the receipt of Merger Consideration in exchange for Company Common Shares in the Company Merger may not be subject to U.S. federal income tax under item (iii) listed above if the requirements of clause (2) above, relating to the “regularly traded” exception, are met.
Information Reporting and Backup Withholding
Backup withholding, currently at a rate of 24%, and information reporting may apply to the cash received pursuant to the exchange of Company Common Shares in the Company Merger. Backup withholding will not apply, however, to a holder who:
in the case of a U.S. holder, furnishes a correct taxpayer identification number and certifies that it is not subject to backup withholding on an IRS Form W-9 or successor form;
in the case of a non-U.S. holder, furnishes an applicable IRS Form W-8 or successor form; or
is otherwise exempt from backup withholding and complies with other applicable rules and certification requirements.
Backup withholding is not an additional tax. Any amount withheld under these rules may be credited against the holder’s U.S. federal income tax liability and may entitle the holder to a refund if required information is timely furnished to the IRS.
THE FOREGOING DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OF THE POTENTIAL TAX CONSEQUENCES RELATING TO THE COMPANY MERGER AND IS NOT TAX ADVICE. THEREFORE, COMMON SHAREHOLDERS ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE COMPANY MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF U.S. FEDERAL, STATE, LOCAL, NON-U.S. INCOME AND OTHER TAX LAWS IN THEIR PARTICULAR CIRCUMSTANCES.
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Delisting and Deregistration of Company Common Shares and Company Preferred Shares
If the Mergers are completed, Company Common Shares and Company Preferred Shares will be delisted, will no longer be traded on the NYSE and will be deregistered under the Exchange Act, and the Company will no longer file periodic reports with the SEC on account of the Company Common Shares.
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THE MERGER AGREEMENT
The following summarizes the material provisions of the Merger Agreement. This summary does not purport to be complete and may not contain all of the information about the Merger Agreement that is important to you. The summary of the material terms of the Merger Agreement below and elsewhere in this proxy statement is qualified in its entirety by reference to the Merger Agreement, a copy of which is attached to this proxy statement as Annex A and which the Company incorporates by reference into this proxy statement. The Company recommends that you read the Merger Agreement attached to this proxy statement as Annex A carefully and in its entirety, as the rights and obligations of the parties are governed by the express terms of the Merger Agreement and not by this summary or any other information contained in this proxy statement.
The Merger Agreement contains representations and warranties made by, and to, the Company, Company OP, Parent, REIT Merger Sub, and OP Merger Sub. These representations and warranties, which are set forth in the copy of the Merger Agreement attached to this proxy statement as Annex A, were made for the purposes of negotiating and entering into the Merger Agreement between the parties, or may have been used for the purpose of allocating risk between the parties instead of establishing such matters as facts. In addition, these representations and warranties may be subject to important qualifications and limitations agreed to by the parties in connection with negotiating the terms of the Merger Agreement, were made as of specified dates, and may be subject to standards of materiality different from what may be viewed as material to the Company’s shareholders. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the Merger Agreement and subsequent developments or new information qualifying a representation or warranty may have been included in this proxy statement. You are not third-party beneficiaries under the Merger Agreement, and should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or conditions of the Company or its affiliates.
The Mergers; Effective Time; Closing Date
Pursuant to the Merger Agreement, on the Closing Date, (i) OP Merger Sub will be merged with and into Company OP, the separate existence of OP Merger Sub will cease, and Company OP will survive the merger (such continuing entity, the “Surviving Partnership” and such merger, the “Partnership Merger”) and (ii) immediately following the consummation of the Partnership Merger, the Company will be merged with and into REIT Merger Sub, the separate existence of the Company will cease, and REIT Merger Sub will survive the merger (such continuing entity, the “Surviving Entity”), and the Surviving Entity will be a wholly owned subsidiary of Parent (such merger, the “Company Merger”, and together with the Partnership Merger, the “Mergers”).
The Closing will take place (a) electronically by exchange of documents via email on the fifth business day after the satisfaction or waiver of the last of the conditions set forth in the Merger Agreement to be satisfied or waived (other than any such conditions that, by their nature, are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions at the Closing), or (b) such other place or date as may be agreed in writing by the Company and Parent; provided, however, that in no event will the Closing be required to occur prior to November 28, 2023, unless otherwise notified by Parent in writing to the Company.
On the Closing Date, the Company, Company OP, Parent, REIT Merger Sub and OP Merger Sub will (i) cause articles of merger with respect to the Partnership Merger, or the Articles of Partnership Merger, to be duly executed and filed with the Virginia State Corporation Commission, or the VSCC, as provided under the Virginia Revised Uniform Limited Partnership Act, or the VRULPA, and (ii) make any other filings, recordings or publications required to be made by Company OP or OP Merger Sub under the VRULPA in connection with the Partnership Merger. On the Closing Date, and immediately after the filing of the Articles of Partnership Merger, the Company and REIT Merger Sub will (a) cause articles of merger, or the Articles of Merger, with respect to the Company Merger to be duly executed, filed with and accepted for record by the State Department of Assessments and Taxation of Maryland, or the SDAT, in accordance with the Maryland REIT Law, or MRL, (b) duly execute and file a certificate of merger with the Secretary of State of the State of Delaware in accordance with the Delaware Limited Liability Company Act, or the DLLCA, and (c) make any other filings, recordings or publications required to be made by the Company or REIT Merger Sub under the MRL and the DLLCA in connection with the Company Merger.
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The Partnership Merger will become effective as set forth in the certificate of merger issued by the VSCC and at such time (i) as the Articles of Partnership Merger are filed with the VSCC or (ii) on such other date and time, not to exceed five business days from the date the Articles of Partnership Merger are filed with the VSCC, as will be agreed to by the Company and Parent and specified in the Articles of Partnership Merger (such date and time, the “Partnership Merger Effective Time”). The parties will cause the Partnership Merger Effective Time to occur immediately prior to the effective time of the Company Merger, or the Company Merger Effective Time.
The Company Merger Effective Time will be such time as (i) the Articles of Merger are accepted for record by the SDAT and the filing of the certificate of merger with the Secretary of State of the State of Delaware, or (ii) on such other date and time (not to exceed five business days from the date the Articles of Merger are accepted for record by the SDAT) as will be agreed to by the Company and REIT Merger Sub (such date and time, the “Company Merger Effective Time”). The parties have agreed to cause the Company Merger Effective Time to occur immediately after the Partnership Merger Effective Time.
Organizational Documents
At the Company Merger Effective Time, the certificate of formation of REIT Merger Sub, as in effect immediately prior to the Company Merger Effective Time, will be and become the certificate of formation of the Surviving Entity, and the limited liability company agreement of REIT Merger Sub will be and become the limited liability company agreement of the Surviving Entity, until thereafter amended or restated as provided therein and in accordance with applicable law, in each case consistent with the obligations set forth in the Merger Agreement.
At the Partnership Merger Effective Time, the certificate of limited partnership of Company OP, as in effect immediately prior to the Partnership Merger Effective Time, or the certificate of limited partnership, will be the certificate of limited partnership of the Surviving Partnership until thereafter amended as follows. At the Partnership Merger Effective Time, the Amended and Restated Agreement of Limited Partnership of the Company OP, as in effect immediately prior to the Partnership Merger Effective Time, or the Company OP Agreement, will be amended in a form determined by Parent, subject to the Merger Agreement (such amendments, the “Partnership Agreement Amendments”). At the Partnership Merger Effective Time, the Company OP Agreement, as amended by the Partnership Agreement Amendments, will be the limited partnership agreement of the Surviving Partnership, or the Amended Partnership Agreement, until thereafter amended as provided therein or by applicable law, in each case consistent with the obligations set forth in the Merger Agreement. On the Closing Date, following the Company Merger Effective Time, the Surviving Entity will file a certificate of amendment to the certificate of limited partnership to reflect the Surviving Entity’s admission to the Surviving Partnership as the new sole general partner of the Surviving Partnership. From and after the Company Merger Effective Time, the certificate of limited partnership, as so amended, will be the certificate of limited partnership of the Surviving Partnership until thereafter amended as provided therein or by applicable law. Promptly following the Company Merger Effective Time, the Surviving Entity will execute and deliver to the Surviving Partnership such documents or instruments as may be required to effect its admission as the successor sole general partner of the Surviving Partnership and as a limited partner of the Surviving Partnership, and it will be admitted to the Surviving Partnership as the successor sole general partner and a limited partner of the Surviving Partnership at the Company Merger Effective Time and will carry on the business of the Surviving Partnership without dissolution as provided in the Amended Partnership Agreement.
Officers, General Partner and Limited Partners of the Surviving Entities
Parent will be the sole holder of common units of the Surviving Entity following the Company Merger Effective Time, entitling Parent to such rights, duties and obligations as more fully set forth in the limited liability company agreement of the Surviving Entity.
The officers of the Company immediately prior to the Company Merger Effective Time will be the officers of the Surviving Entity from and after the Company Merger Effective Time, until such time as their resignation or removal or such time as their successors will be duly elected and qualified.
The Company shall be the sole general partner and a limited partner of the Surviving Partnership following the Partnership Merger Effective Time and prior to the Company Merger Effective Time, entitling the Company to such rights, duties and obligations as are more fully set forth in the Amended Partnership Agreement.
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Following the Company Merger Effective Time, the Surviving Entity will be the sole general partner and a limited partner of the Surviving Partnership, entitling the Surviving Entity to such rights, duties and obligations as are more fully set forth in the Amended Partnership Agreement (as it may be further amended, including to reflect the Surviving Entity as the sole general partner of the Surviving Partnership following the Company Merger Effective Time).
Treatment of Securities
Company Common Shares
At the Company Merger Effective Time, each Priority Class A common share of beneficial interest of the Company (the “Company Common Shares”) issued and outstanding immediately prior to the Company Merger Effective Time (other than Excluded Shares, as defined below) will be automatically converted into the right to receive an amount in cash equal to $10.00 per share (the “Merger Consideration”), without interest, subject to the terms and conditions of the Merger Agreement.
Company Preferred Shares
At the Company Merger Effective Time, each Company Series C Preferred Share, Company Series D Preferred Share, and Company Series E Preferred Share (collectively, the “Company Preferred Shares”) issued and outstanding immediately prior to the Company Merger Effective Time (other than any Excluded Shares) will be automatically converted into the right to receive an amount in cash equal to $25.00 per share plus accrued and unpaid dividends, if any, up to and including the Closing Date, without interest, subject to the terms and conditions of the Merger Agreement (the “Preferred Merger Consideration”).
Following the completion of the Mergers, the Company Common Shares and Company Preferred Shares will be delisted, will no longer be traded on the NYSE and will be deregistered under the Exchange Act.
REIT Merger Sub Membership Interests
At the Company Merger Effective Time, each membership interest of REIT Merger Sub issued and outstanding immediately prior to the Company Merger Effective Time will survive the Company Merger and remain issued and outstanding following the Company Merger Effective Time as a membership interest of the Surviving Entity, and no consideration will be delivered in exchange therefor.
Excluded Shares
At the Company Merger Effective Time, each issued and outstanding Company Common Share and/or Company Preferred Share that is owned by Parent, REIT Merger Sub or any subsidiary of Parent or the Company or any subsidiary of the Company immediately prior to the Company Merger Effective Time (collectively, the “Excluded Shares”), if any, will be automatically cancelled and retired and cease to exist, and no consideration will be delivered in exchange therefor.
Company Partnership Units
At the Partnership Merger Effective Time, except as set forth below, each Company Partnership Unit (as defined in the Merger Agreement) issued and outstanding immediately prior to the Partnership Merger Effective Time (other than Excluded Units, as defined below) will be converted into the right to receive an amount in cash equal to $10.00 per unit, without interest, subject to the terms and conditions of the Merger Agreement (the “OP Merger Consideration”).
Each Company Partnership Unit (including for the avoidance of doubt, any Company Preferred Partnership Units (as defined in the Merger Agreement)) owned by the Company or any subsidiary of the Company (including Company OP), in each case, as of immediately prior to the Partnership Merger Effective Time (collectively, the “Continuing Units”), will be unaffected by the Partnership Merger and will remain outstanding as a partnership unit of the Surviving Partnership held by the Company or relevant subsidiary of the Company and no consideration will be delivered in exchange therefor. Each Company Partnership Unit owned by Parent, OP Merger Sub or any of their respective subsidiaries, in each case, as of immediately prior to the Partnership Merger Effective Time (together with the Continuing Units, the “Excluded Units”) will be cancelled and will cease to exist, and no consideration will be delivered in exchange therefor.
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At the Company Merger Effective Time, each award of restricted Company Common Shares granted under the Company’s Amended and Restated 2012 Equity Incentive Plan (each, a “Company Restricted Share Award”) that is outstanding as of immediately prior to the Company Merger Effective Time will vest and all restrictions thereupon will lapse, and each such Company Restricted Share Award will be canceled and converted into the right to receive a payment (without interest and subject to applicable tax withholding) equal to the product of (i) the number of Company Common Shares underlying such Company Restricted Share Award as of immediately prior to the Company Merger Effective Time and (ii) $10.00, subject to the terms and conditions of the Merger Agreement.
Company LTIP Units
At the Partnership Merger Effective Time, each Company LTIP Unit (as defined in the Merger Agreement) that is outstanding and unvested as of immediately prior to the Partnership Merger Effective Time will vest and become transferable, and all restrictions thereupon will lapse. Immediately thereafter, effective as of the Partnership Merger Effective Time, the Company will cause a Forced Conversion (as defined in the Company OP Agreement) with respect to all Company LTIP Units then eligible for conversion (after giving effect to the vesting of all Company LTIP Units contemplated by the Merger Agreement) such that, as of the Partnership Merger Effective Time, each then outstanding Company LTIP Unit will be converted into an equal number of Company Partnership Units, in accordance with the Company OP Agreement. For the avoidance of doubt, such converted Company LTIP Units will not convert into Company Preferred Partnership Units, and the Company Partnership Units issued in respect of such Company LTIP Unit conversion will be treated in the same manner under the Merger Agreement as other outstanding Company Partnership Units.
Company Permitted Dividends and Adjustments to the Merger Consideration
Under the terms of the Merger Agreement, subject to the restrictions set forth therein, the Company may declare or pay regular cash dividends and Company OP may declare and pay regular quarterly distributions to the holders of Company Common Shares, Company Preferred Shares and Company Partnership Units, consistent with past practice of the Company and Company OP, as applicable, in each case, in an amount not to exceed $0.05 per Company Common Share or Company Partnership Unit, as applicable, $0.4297 per Company Series C Preferred Share, $0.40625 per Company Series D Preferred Share, and $0.40625 per Company Series E Preferred Share, during the term of the Merger Agreement without reducing the Merger Consideration to be paid to you (each a “Company Permitted Dividend”).
The amount in cash payable to the shareholders and unit holders is subject to decrease in the event the Company declares and pays any additional dividends or other distributions (other than the Company Permitted Divided) prior to the Closing, which the Company may do without the consent of Parent if and only if the making of such dividends or other distributions prior to the Closing is necessary to maintain the Company’s tax status as a REIT and to avoid the imposition of any entity level income or excise tax.
No Further Ownership Rights
From and after the Company Merger Effective Time, the holders of Company Common Shares and/or Company Preferred Shares outstanding immediately prior to the Company Merger Effective Time will cease to have any rights with respect to such Company Common Shares or Company Preferred Shares, as applicable, except as otherwise provided for in the Merger Agreement or by applicable law. From and after the Partnership Merger Effective Time, the holders of Company Partnership Units outstanding immediately prior to the Partnership Merger Effective Time (other than the Company) will cease to have any rights with respect to such Company Partnership Units, except as otherwise provided for in the Merger Agreement or by applicable law.
Payment Procedures
Prior to the Partnership Merger Effective Time, Parent will, at its sole cost and expense, designate and appoint Equiniti Trust Company, LLC (or such other bank or trust company reasonably satisfactory to the Company and Parent) to act as the paying agent, or the Paying Agent, in connection with the Mergers. At or prior to the Company Merger Effective Time, Parent will deposit with the Paying Agent cash in immediately available funds in an amount that sufficient to pay the Merger Consideration, the Preferred Merger Consideration and the OP Merger Consideration (such deposited cash amounts, the “Exchange Fund”) for the benefit of the
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holders of Company Common Shares, Company Preferred Shares, Company Partnership Units and the Surviving Entity (solely to the extent any amounts in the Exchange Fund are in excess of the amounts payable pursuant to the Merger Agreement). The Paying Agent will make delivery of the Merger Consideration, the Preferred Merger Consideration, and the OP Merger Consideration out of the Exchange Fund in accordance with the Merger Agreement. The cash portion of the Exchange Fund will be invested by the Paying Agent as reasonably directed by Parent; provided, however, that no such investment or loss thereon shall affect the amounts payable to holders of certificates or book-entry shares pursuant to the Merger Agreement and in the event any losses arising from such investment cause the Exchange Fund to be insufficient to pay the Merger Consideration, the Preferred Merger Consideration and the OP Merger Consideration, Parent will, or will cause the Surviving Entity to, promptly deposit additional funds with the Paying Agent in an amount equal to the deficiency in the amount required to make such payment.
Promptly after the Company Merger Effective Time (but in no event later than five (5) business days after the Company Merger Effective Time), Parent and the Surviving Entity will cause the Paying Agent to mail or email (and make available for collection by hand) to each holder of record of (x) a certificate or certificates which immediately prior to the Company Merger Effective Time represented outstanding Company Common Shares or Company Preferred Shares, or the certificates, or (y) non-certificated Company Common Shares or Company Preferred Shares represented by book-entry, or book-entry shares, and, in each case, whose Company Common Shares or Company Preferred Shares, as applicable, were converted pursuant to the Merger Agreement into the right to receive the Merger Consideration or the Preferred Merger Consideration, as applicable: (A) a letter of transmittal, which (i) will specify that delivery will be effected, and risk of loss and title to the certificates (or affidavits of loss in lieu thereof) will pass, only upon delivery of the certificates to the Paying Agent and (ii) will be in such form and have such other provisions as Parent may reasonably specify and (B) instructions for effecting the surrender of the certificates (or affidavits of loss in lieu thereof) or book-entry shares in exchange for payment of the Merger Consideration or the Preferred Merger Consideration, as applicable.
Upon surrender to the Paying Agent of such certificates (or an affidavit of loss in lieu thereof) or book-entry shares for cancellation to the Paying Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal duly completed and validly executed in accordance with the instructions thereto, and such other documents as may be required pursuant to such instructions (including a validly issued IRS Form W-9 or applicable IRS Form W-8), the holder of such certificate or book-entry share will be entitled to receive in exchange therefor the applicable per share Merger Consideration and the per share Preferred Merger Consideration for each Company Common Share or Company Preferred Share, as applicable, formerly represented by such certificate and book-entry share, to be mailed (or made available for collection by hand if so elected by the surrendering holder) within five business days following the later of (i) the Company Merger Effective Time or (ii) the Paying Agent’s receipt of such certificate (or affidavit of loss in lieu thereof) or book-entry share. Such certificates and book-entry shares so surrendered will be cancelled. Acceptance of certificates (or affidavits of loss in lieu thereof) or book-entry shares will be effected in compliance with such reasonable terms and conditions as the Paying Agent may impose to effect an orderly exchange thereof in accordance with normal exchange practices. In the event that any certificates will have been lost, stolen or destroyed, the Paying Agent will issue in exchange for such lost, stolen or destroyed certificates, upon the making of an affidavit of that fact by the holder thereof in a form reasonably satisfactory to Parent and the Paying Agent and, if required by Parent or the Paying Agent, the posting by the holder thereof of a bond in the amount and the form reasonably required by Parent or the Paying Agent as indemnity against any claim that may be made against Parent with respect to such certificates, the Merger Consideration or Preferred Merger Consideration, as applicable, payable in respect thereof pursuant to the Merger Agreement.
If payment of the Merger Consideration or the Preferred Merger Consideration is to be made to a person or entity other than the person or entity that registered the surrendered certificate, it will be a condition precedent of payment that (i) the certificate so surrendered will be properly endorsed or will be otherwise in proper form for transfer and (ii) the person or entity requesting such payment will have paid any transfer and other similar taxes required by reason of the payment of the Merger Consideration or Preferred Merger Consideration, as applicable, to a person or entity other than the registered holder of the certificate surrendered or will have established to the satisfaction of Parent that such tax either has been paid or is not required to be paid. Payment of the Merger Consideration or Preferred Merger
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Consideration, as applicable, with respect to book-entry shares will only be made to the person or entity that registered such book-entry shares. Until surrendered, each certificate and book-entry share will be deemed at any time after the Company Merger Effective Time to represent only the right to receive the Merger Consideration or Preferred Merger Consideration, as applicable, without interest thereon.
No holder of book-entry shares held through The Depository Trust Company will be required to deliver an executed letter of transmittal to the Paying Agent to receive the Merger Consideration or Preferred Merger Consideration, as applicable, that such holder is entitled to receive pursuant to the terms of the Merger Agreement. In lieu thereof, each holder of record of one or more book-entry shares held through The Depository Trust Company whose Company Common Shares or Company Preferred Shares were converted into the right to receive the Merger Consideration or the Preferred Merger Consideration, as applicable, at the Company Merger Effective Time, subject to and in accordance with The Depository Trust Company’s customary procedures (including receipt by the Paying Agent of an “agent’s message” (or such other evidence of transfer or surrender as the Paying Agent may reasonably request)) and such other procedures as agreed by the Company, Parent, the Paying Agent and The Depository Trust Company, will be entitled to receive, and Parent and the Surviving Entity will cause the Paying Agent to pay and deliver to The Depository Trust Company or its nominee, for the benefit of the holder of such book-entry shares held through it, as promptly as practicable after the Company Merger Effective Time, the Merger Consideration or the Preferred Merger Consideration, as applicable, out of the Exchange Fund for each such book-entry share (after giving effect to any required tax withholdings) and such book-entry shares of such holder will forthwith be cancelled.
As promptly as practicable following the Company Merger Effective Time (but in no event later than five business days thereafter), Parent and the Surviving Entity will cause the Paying Agent to issue and deliver to each holder of Company Partnership Units (other than the Excluded Units) as of immediately prior to the Partnership Merger Effective Time a check or wire transfer representing the applicable OP Merger Consideration that such holder has the right to receive pursuant to the Merger Agreement, without such holder being required to deliver an executed letter of transmittal to the Paying Agent, but subject to and in accordance with the Paying Agent’s customary procedures and such other procedures as agreed by the Company, Parent and the Paying Agent, and such Company Partnership Units will be automatically cancelled in accordance with the Merger Agreement.
At the Company Merger Effective Time, the Company’s share transfer books will be closed and thereafter there will be no further registration of transfers of Company Common Shares and Company Preferred Shares on the Company’s records. If, after the Company Merger Effective Time, certificates or book-entry shares are presented to Parent for any reason, they will be cancelled and exchanged as provided in the Merger Agreement. From and after the Company Merger Effective Time, the holders of Company Common Shares and/or Company Preferred Shares outstanding immediately prior to the Company Merger Effective Time will cease to have any rights with respect to such Company Common Shares or Company Preferred Shares, as applicable, except as otherwise provided for by the Merger Agreement or by applicable law.
At any time following twelve (12) months after the Company Merger Effective Time, Parent will be entitled to cause the Paying Agent to deliver it or its designee any funds (including any interest received with respect thereto) remaining in the Exchange Fund that have not been disbursed, or for which disbursement is pending subject only to the Paying Agent’s routine administrative procedures, to holders of Company Common Shares, Company Preferred Shares and Company Partnership Units, and thereafter, such holders will be entitled to look only to Parent as a general creditor thereof with respect to the Merger Consideration, the Preferred Merger Consideration, or the OP Merger Consideration, as applicable, payable upon due surrender of their certificates or book-entry shares and/or in compliance with the requirements and procedures under the Merger Agreement (including payment for Company Partnership Units), as applicable, without any interest thereon. None of Parent, the Surviving Entity, the Surviving Partnership or the Paying Agent or any other person will be liable to any holder of Company Common Shares, Company Preferred Shares or Company Partnership Units, as applicable, for any Merger Consideration, Preferred Merger Consideration or OP Merger Consideration or other amounts properly delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.
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Representations and Warranties
The Company and Company OP have made customary representations and warranties in the Merger Agreement that are subject, in some cases, to specified exceptions and qualifications contained in the Merger Agreement or in the disclosure letters delivered in connection therewith. These representations and warranties relate to, among other things:
the organization, valid existence, good standing, qualification to do business and power and authority to own, lease and operate the properties, rights and assets and to conduct the Company’s business as presently conducted by the Company and its subsidiaries (including Company OP);
the Company’s declaration and bylaws and the similar organizational documents of the Company and its subsidiaries (including Company OP);
the capital structure of the Company and its subsidiaries, including the Company’s equity awards;
consents and approvals required in connection with execution, delivery and performance of the Merger Agreement or the consummation of the Company Merger and the other transactions contemplated by the Merger Agreement;
the Company’s compliance with current listing requirements of the NYSE;
the Company’s SEC filings since January 1, 2021, and the financial statements contained in those filings;
the Company’s system of internal control over financial reporting and disclosure controls and procedures;
the conduct of business in all material respects in the ordinary course of business, the absence of any material adverse effect and certain other changes and events with respect to the Company and its subsidiaries since June 30, 2023 through the date of the Merger Agreement;
the absence of certain undisclosed liabilities;
the absence of certain actions, claims, charges, demands, suits in equity or at law, administrative or related proceedings threatened against the Company or its subsidiaries or any of their respective assets or properties;
tax matters affecting the Company and its subsidiaries;
labor matters related to the Company and its subsidiaries;
the Company and its subsidiaries’ employee benefit plans;
environmental matters relating to the Company and its subsidiaries;
the Company and its subsidiaries’ material contracts and the absence of certain breaches or defaults under the provisions of such material contracts;
ownership of or rights with respect to the intellectual property of the Company and its subsidiaries;
possession of all permits necessary for the Company and its subsidiaries to own, lease and operate the Company and its subsidiaries’ properties and assets and to carry on and operate the Company and its subsidiaries’ businesses as presently conducted;
the conduct by the Company and its subsidiaries of the Company and its subsidiaries’ businesses in compliance with applicable laws and the absence of a failure by the Company or its subsidiaries to comply with such permits or applicable law;
real property owned and leased by the Company and its subsidiaries;
the Company and its subsidiaries’ leases;
the accuracy of the information supplied by the Company in this proxy statement;
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the receipt by the Transaction Committee from Goldman Sachs of its oral opinion, to be subsequently confirmed in writing, providing that based upon and subject to the factors and assumptions set forth therein, the Merger Consideration to be paid to the holders (other than Parent and its affiliates) of Company Common Shares pursuant to the Merger Agreement is fair from a financial point of view to such holders;
the Company and its subsidiaries’ insurance policies;
Company related-party agreements (as defined in the Merger Agreement);
the absence of any investment banking, broker’s, financial advisor’s, finder’s or similar fees or commissions, other than those payable to Goldman Sachs, in connection with the transactions contemplated by the Merger Agreement;
the Board, acting upon the unanimous recommendation of the Transaction Committee, having taken all action necessary to render inapplicable to the Company Merger and the transactions contemplated by the Merger Agreement certain Maryland law takeover statutes; and
the required Company shareholder and Company OP approvals.
Many of the Company’s representations and warranties are qualified by the concept of a “Material Adverse Effect.” Under the Merger Agreement, a “Company Material Adverse Effect” means an event, fact, circumstance, change, condition, occurrence, effect or development that (A) has, or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the business, assets, liabilities, operations or financial or other condition of the Company and the Company subsidiaries, taken as a whole or (B) would prevent or materially impair the ability of the Company and/or Company OP to consummate the Mergers before 5:00 p.m. Eastern Time, on February 27, 2024; provided, however, that for purposes of the foregoing clause (A) only, will not include events, changes, conditions, occurrences, effects or developments relating to or resulting from:
(i)
changes in general economic or political conditions or the securities, equity, credit or financial markets in general, or changes in or affecting domestic or foreign interest or exchange rates;
(ii)
any decline in the market price or trading volume of the Company Common Shares or the Company Preferred Shares or any change in the credit rating of the Company or any of its securities (provided, that the facts and circumstances underlying any such decline or change may be taken into account in determining whether a Company Material Adverse Effect has occurred to the extent not otherwise excluded by the definition thereof);
(iii)
changes or developments in the same industries in which the Company or the Company subsidiaries operate;
(iv)
changes in law or the interpretation or enforcement thereof, after the date of the Merger Agreement;
(v)
the execution and delivery of, or the compliance with, the Merger Agreement, or the public announcement of the Mergers or other transactions contemplated hereby, including the impact thereof on the relationships, contractual or otherwise, of the Company or any of the Company subsidiaries with employees, partnerships, customers or suppliers or governmental entities;
(vi)
compliance with the terms of, or the taking or omission of any action expressly required by, the Merger Agreement or consented to or requested in writing by Parent;
(vii)
any act of civil unrest, civil disobedience, war, terrorism, cyberterrorism, military activity, sabotage or cybercrime, including an outbreak or escalation of hostilities involving the United States or any other governmental entity or the declaration by the United States or any other governmental entity of a national emergency or war, or any worsening or escalation of any such conditions threatened or existing on the date of the Merger Agreement;
(viii)
any hurricane, tornado, flood, earthquake, natural disasters, acts of God or other comparable events;
(ix)
any pandemic, epidemic or disease outbreak (including COVID-19) or other comparable events;
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(x)
changes in generally accepted accounting principles or the interpretation or enforcement thereof after the date of the Merger Agreement;
(xi)
any failure to meet internal or published projections, forecasts, guidance or revenue or earning predictions (provided, that the facts and circumstances underlying any such failure may be taken into account in determining whether a Company Material Adverse Effect has occurred to the extent not otherwise excluded by the definition thereof); or
(xii)
any litigation involving any of the parties or their respective subsidiaries relating to or resulting from the Merger Agreement or the other transactions contemplated by the Merger Agreement brought by or on behalf of any current or former equityholders of the Company or Company OP.
With respect to items (i), (iii), (vii), (viii), (ix) and (x) listed above, if the impact thereof is disproportionately adverse to the Company and its subsidiaries, taken as a whole, relative to other companies in the industries in which the Company and its subsidiaries operate, the incremental disproportionate impact may be taken into account in determining whether there has been a Company Material Adverse Effect.
The Merger Agreement also contains customary representations and warranties made, jointly and severally, by the Parent Parties that are subject, in some cases, to specified exceptions and qualifications contained in the Merger Agreement or in the disclosure letters delivered in connection therewith. These representations and warranties relate to, among other things:
their organization, valid existence, good standing, qualification to do business and power and authority to own, lease and operate their properties and to conduct their businesses as presently conducted;
their power and authority to enter into and perform their obligations under the Merger Agreement and to consummate the Company Merger and the other transactions contemplated by the Merger Agreement;
the enforceability of the Merger Agreement against them, with certain identified exceptions;
filings with or consent of any person in connection with the execution, delivery and performance of the Merger Agreement or the consummation of the transactions contemplated by the Merger Agreement;
the absence of violations of organizational or governing documents or any applicable law, in each case, in connection with the execution, delivery and performance of the Merger Agreement or consummation of the transactions contemplated by the Merger Agreement;
the absence of certain actions, claims, charges, demands, suits in equity or at law, administrative or related proceedings threatened against Parent or any of its subsidiaries, other than those which would not reasonably be expected, individually or in the aggregate, to have a Parent Material Adverse Effect;
the accuracy of the information supplied by the Parent Parties in this proxy statement;
the absence of ownership of Company Common Shares, Company Preferred Shares, or any securities convertible into Company Common Shares or Company Preferred Shares by the Parent Parties;
the absence of any investment banking, broker’s, financial advisor’s, finder’s or similar fees or commission in connection with the Mergers and the other transactions contemplated by the Merger Agreement based upon arrangements made by and on behalf of Parent or any of the Parent Parties;
the delivery of the Debt Commitment Letter, the Equity Commitment Letter and the Parent guarantee and the enforceability thereof;
the solvency of the Surviving Entity and the Surviving Partnership immediately following the Company Merger Effective Time and after giving effect to all of the transactions contemplated by the Merger Agreement, including the financing;
the absence of prior conduct of business of REIT Merger Sub and OP Merger Sub; and
the absence of certain contracts or any commitments to enter into any such contracts between the Parent Parties, the Company, on the one hand, and any of the Company’s trustees, shareholders, or
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management, on the other hand, that relate in any way to, or are in connection with, the transactions contemplated by the Merger Agreement or with respect to the business or operation of the Surviving Entity or any of its subsidiaries after the Company Merger Effective Time.
The representations and warranties of each of the parties to the Merger Agreement will expire at the Company Merger Effective Time. Many of the Company’s representations and warranties are qualified by the concept of a “Material Adverse Effect.” Under the Merger Agreement, a “Parent Material Adverse Effect” means an event, change, condition, occurrence, effect or development that, individually or in the aggregate, would prevent or materially impair the ability of the Parent Parties to consummate the Mergers.
Conduct of the Company’s Business Pending the Mergers
The Company has agreed that, subject to certain exceptions (including certain actions or omissions taken in connection with COVID-19, after (to the extent reasonably practicable) good faith consultation with Parent on such actions or omissions) in the Merger Agreement and the disclosure letters delivered in connection therewith, from and after the date of the Merger Agreement until the earlier of the Company Merger Effective Time or termination of the Merger Agreement, the Company will, and will cause each of its subsidiaries to, use commercially reasonable efforts to:
conduct its business in the ordinary course of business consistent with past practices;
maintain in all material respects its business organization, goodwill and ongoing businesses and significant relationships with tenants and other third parties;
maintain all insurance policies in all material respects; and
maintain the status of the Company as a REIT.
The Company has also agreed that, subject to certain exceptions in the Merger Agreement and the disclosure letters delivered in connection therewith, from the date of the Merger Agreement until the earlier of the Company Merger Effective Time and the termination of the Merger Agreement, it will not, and will not cause or permit any of its subsidiaries (or authorize or approve any management company or third party managing member) to, directly or indirectly, do any of the following without the prior written consent of Parent (which consent will not be unreasonably withheld, delayed, or conditioned):
authorize, effect or adopt any amendments, modifications or waivers to the Company governing documents or Company OP governing documents or any similar organizational documents of any other Company subsidiaries or any joint ventures, in each case, in a manner adverse to the Company, the Company subsidiaries and the joint ventures, taken as a whole;
split, combine or reclassify any shares of beneficial interest of the Company or equity interests of any Company subsidiary, except as may be permitted by the Merger Agreement, and except for any such transaction by a wholly owned subsidiary of the Company that remains a wholly owned subsidiary after consummation of such transaction;
authorize, declare, set aside, establish a record date for or pay any dividend on or make any other distributions (whether in cash, stock, property or otherwise) with respect to shares of beneficial interest of the Company or other equity interests of any Company subsidiary or any rights, warrants or options to acquire any such shares or equity interests, except for (A) the authorization and payment by the Company of regular quarterly dividends and by Company OP of regular quarterly distributions pursuant to the Company governing documents and/or Company OP governing documents, as applicable, consistent with past practice of the Company and Company OP, as applicable, in each case, in an amount not to exceed $0.05 per Company Common Share per quarter or Company Partnership Unit, as applicable, $0.4297 per Company Series C Preferred Share (or Series C preferred unit), $0.40625 per Company Series D Preferred Share (or Series D preferred unit) and $0.40625 per Company Series E Preferred Share (or Series E preferred unit), (B) the declaration and payment of dividends or other distributions to the Company or to any Company subsidiary by any directly or indirectly wholly-owned Company subsidiary and (C) dividends or other distributions in the ordinary course of business by any Company subsidiary that is not wholly owned, directly or indirectly by the Company, or by any joint venture, in each case, in accordance with the terms of the organizational documents of such Company subsidiary or joint venture;
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(A) redeem, purchase or otherwise acquire, or offer to redeem, purchase or otherwise acquire, directly or indirectly, any shares of its beneficial interest or other equity interests or any rights, warrants or options to acquire any such shares or equity interests, except from (i) the withholding of Company Common Shares to satisfy tax withholding obligations with respect to Company equity awards, (ii) in accordance with Article VII of the Company Declaration, or (iii) with respect to the redemption or exchange of any Company Partnership Units of Company OP in accordance with the terms of the Company OP Agreement, (B) grant any person any Company equity award or any right or option to acquire any shares of beneficial interest or equity interests of the Company or any Company subsidiary or any rights, warrants or options to acquire any such shares or equity interests, (C) issue, deliver or sell or agree to commit to the foregoing with respect to any additional shares of beneficial interest or equity interests or other rights, warrants or options to acquire any such shares or equity interests, or (D) enter into any contract with respect to the sale, voting registration or repurchase of any shares of beneficial interest or equity interests or other rights, warrants or options to acquire any such shares or equity interests; provided, however, that the Company may issue Company Common Shares (A) upon the vesting and/or settlement of any Company equity award outstanding as of the date of the Merger Agreement, and (B) in connection with the redemption or exchange of any Company Partnership Units in accordance with the terms of the Company OP Agreement;
acquire (including by merger, consolidation or acquisition of stock or assets) any interest in any person (or equity interests thereof) or any real property or other material assets, other than (A) acquisitions of assets (other than real property, including a ground leasehold interest) in the ordinary course of business and (B) acquisitions of assets or real property;
other than in the ordinary course of business, enter into, renew, modify, amend, sell, transfer, dispose of, pledge or encumber (except in connection with the incurrence of any indebtedness permitted to be incurred by the Company under the Merger Agreement or as required under the terms of any existing indebtedness), or terminate, waive, release, compromise or assign any rights or claims under, any Company material contract (or any contract that, if existing as of the date of the Merger Agreement, would be a Company material contract under the Merger Agreement), other than (A) any termination in accordance with the terms of any existing Company material contract that occurs automatically without any action by the Company or any Company subsidiary, (B) any renewal that occurs automatically pursuant to the terms of an existing Company material contract without any action by the Company or any Company subsidiary, or (C) as may be reasonably necessary to comply with the terms of the Merger Agreement (provided, that, in no event will the Company or any Company subsidiary enter into any contract (or amend or modify any existing contract) that would be a material contract under the Merger Agreement, constitutes a related party agreement or that includes a “change of control” or similar provisions applicable to the transactions contemplated by the Merger Agreement);
(A) other than in the ordinary course of business, sell, transfer, dispose of, allow to lapse or expire, or encumber (other than permitted liens) any material personal property, equipment or assets (other than as set forth in clause (B) below) of the Company or any Company subsidiary or (B) except for encumbrances granted in connection with the incurrence of any indebtedness permitted to be incurred by the Company pursuant to the Merger Agreement, sell, transfer, dispose of or encumber (other than permitted liens) any real property (including Company real property), except, in the case of each of clause (A) and (B), for (x) the execution of easements, covenants, rights of way, restrictions and other similar instruments in the ordinary course of business that would not reasonably be expected to materially impair the existing use, value or operation of the property, right or asset affected by the applicable instrument, (y) sales, transfers or dispositions of property, equipment, assets or real property pursuant to pending sale contracts and (z) expirations of Company registered intellectual property in accordance with their statutory terms;
(i) incur, assume, or guarantee, any indebtedness for borrowed money, except for (A) any indebtedness solely among the Company and wholly owned Company subsidiaries or solely among wholly owned Company subsidiaries, (B) indebtedness incurred pursuant to the existing Company debt in the ordinary course of business (including any extensions in accordance with the terms thereof) and (C) indebtedness not to exceed $5,000,000 in the aggregate which is not secured, directly or indirectly, by Company real property (provided that in the cases of (B) and (C), such indebtedness must be prepayable at any time without penalty
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or premium), or (ii) prepay, refinance, modify or amend the terms of any indebtedness, except for (A) any indebtedness solely among the Company and wholly owned Company subsidiaries or solely among wholly owned Company subsidiaries, (B) prepayments of the existing Company debt in the ordinary course of business and (C) mandatory payments under the terms of any indebtedness in accordance with its terms;
make any loans, advances or capital contributions to, or investments in, any other person in excess of $10 million in the aggregate, other than (A) solely between the Company and a Company subsidiary or among the Company subsidiaries or (B) required by existing contracts for advancement of expenses under existing indemnification obligations as set forth in the disclosure letters or the applicable governing documents of the Company and the Company subsidiaries;
(A) enter into any ground lease, material space lease, material Company lease, management agreement or franchise agreement, or (B) amend, supplement or modify in any material respect, or terminate, or waive compliance with any material terms or material breaches under, or assign, any ground lease, material space lease, material Company lease, management agreement or franchise agreement except to the extent consented to in writing by Parent (which consent will not be unreasonably withheld, delayed or conditioned);
other than with respect to any shareholder litigation governed by the Merger Agreement or any actions related to taxes or tax matters governed by the Merger Agreement, settle, pay, discharge or satisfy any action, other than any action that involves only the payment of monetary damages not in excess of $5 million individually or $10 million in the aggregate over the amount reflected or reserved against in the balance sheet (or the notes thereto) included in the Company SEC documents relating to actions;