Item 1.01. Entry into a Material Definitive Agreement.
On October 6, 2018, Hyatt Hotels Corporation (the “Company”) entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) with Two Roads Hospitality LLC, a Delaware limited liability company (the “Acquired Entity”), CL Vie Hospitality, LLC, a Delaware limited liability company and an affiliate of Geolo Capital LP (“CL VIE”), Lowe Hospitality Group, Inc. a California corporation (“Lowe” and, together with CL VIE, the “Sellers”) and Lowe, in its capacity as a representative of the Sellers, pursuant to which the Company has agreed to, or to cause one or more of its affiliates to, acquire all of the outstanding equity interests of the Acquired Entity (the “Transaction”).
Under the terms of the Purchase Agreement, the consideration to be paid by the Company is $480,000,000, subject to customary adjustments set forth in the Purchase Agreement relating to the working capital, cash and indebtedness of the Acquired Entity and its subsidiaries, as of the closing of the Transaction. In addition, the consideration may be increased prior to the closing of the Transaction by a variable amount up to an aggregate increase of $120,000,000, in the event that the Acquired Entity is able to complete certain actions with respect to certain of its hotel management agreements. To the extent any such actions have not been completed as of the closing of the Transaction, the Sellers will have a limited period post-closing to cause the Acquired Entity to complete such actions, and if it is able to do so, the consideration to be paid by the Company will be increased by the same amount as it would have been had such actions been completed prior to closing (but in no event will the aggregate consideration (inclusive of the payments made by the Company at the closing) exceed $600,000,000). In addition, management of certain hotels managed by subsidiaries of the Acquired Entity prior to the closing of the Transaction (the “Retained Hotel Management Business”) will continue to be managed by an affiliate of the Sellers following the closing and not by the Company or its affiliates.
The Purchase Agreement provides that the closing of the Transaction is subject to the satisfaction or waiver of customary closing conditions, including, among other things, (i) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (ii) the absence of any governmental order prohibiting the consummation of the Transaction, (iii) the absence of a material adverse effect with respect to the Acquired Entity and its subsidiaries (taken as a whole), (iv) customary conditions regarding the accuracy of the representations and warranties contained in the Purchase Agreement (subject to certain materiality qualifications) and (v) compliance with the covenants and agreements contained in the Purchase Agreement in all material respects. Additionally, the Purchase Agreement provides that the closing of the Transaction is subject to (i) the completion of certain restructuring transactions to be undertaken by the Sellers, the Acquired Entity and certain of its subsidiaries prior to closing of the Transaction, and (ii) the consummation of the transactions contemplated by an unaffiliated member equity purchase agreement prior to the closing of the Transaction, which provides for the acquisition by a subsidiary of the Acquired Entity of equity interests in one of the Acquired Entity’s subsidiaries which are currently held by certain third parties.
The Purchase Agreement contains customary representations, warranties and covenants related to the Company, the Acquired Entity, the Sellers and the Transaction. Between the date of the Purchase Agreement and the closing of the Transaction, subject to certain exceptions, the Acquired Entity has agreed, and will cause its subsidiaries, to (i) operate in the ordinary course of business, (ii) use commercially reasonable efforts to, among other things, preserve in all material respects its present business operations and business relationships, and (iii) not engage in specified types of transactions unless agreed to in writing by the Company. The Purchase Agreement otherwise contains customary covenants for transactions of this nature.
The Purchase Agreement contains customary indemnification provisions, in each case subject to certain survival periods and other customary limitations.
The Purchase Agreement contains customary termination rights for both the Company and the Acquired Entity, whereby such parties may terminate the Purchase Agreement (i) by mutual consent, (ii) following a permanent legal prohibition to consummating the Transaction, or (iii) following a breach of the representations, warranties, agreements or covenants contained in the Purchase Agreement which would, or would be reasonably expected to, cause the closing conditions not to be satisfied by January 4, 2019 (subject to certain cure rights). Moreover, both the Company and the Acquired Entity shall have the right to terminate the Purchase Agreement if the closing of the Transaction has not occurred by January 4, 2019.
In connection with the closing of the Transaction, the Company or an affiliate of the Company and a newly-formed affiliate of the Sellers will enter into a transition services agreement, pursuant to which such newly-formed affiliate of the Sellers will provide the Company and its affiliates with certain services for a transitional period following the closing the of the Transaction. In addition, prior to or at the closing of the Transaction, the Acquired Entity and one or more of its subsidiaries that will not be transferred to the Company in connection with the Transaction will enter into a license, cooperative marketing and distribution agreement, pursuant to which the Acquired Entity will grant the other party thereto anon-exclusive license to use certain intellectual property and will provide certain marketing, distribution and other services for portions of the Retained Hotel Management Business.
Mr. Thomas J. Pritzker, Executive Chairman of the Company, is the brother of Mr. John A. Pritzker,Co-Chairman of the Acquired Company, and Founding Partner and Director of Geolo Capital, which is an affiliate of CL VIE.
