| Item 1.01. | Entry into a Material Definitive Agreement. |
Agreement and Plan of Merger
On May 5, 2019, Park Hotels & Resorts Inc., a Delaware corporation (“Park”), PK Domestic Property LLC, a Delaware limited liability company and an indirect subsidiary of Park (“Domestic”), PK Domestic Sub LLC, a Delaware limited liability company and a direct subsidiary of Domestic (“Merger Sub,” and together with Park and Domestic, the “Park Parties”), and Chesapeake Lodging Trust, a Maryland real estate investment trust (“Chesapeake”), entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein and in accordance with applicable law, Chesapeake will merge with and into Merger Sub (the “Merger”) with Merger Sub continuing as the surviving entity after the Merger. The board of directors of Park approved the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement.
Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger:
| | • | | each outstanding common share of beneficial interest, par value $0.01 per share, of Chesapeake (“Chesapeake Common Shares”) (other than shares held by Chesapeake, any wholly-owned subsidiary of Chesapeake or by any of the Park Parties or any of their respective wholly-owned subsidiaries) will be converted into the right to receive 0.628 of a share of Park common stock, par value $0.01 per share (“Park Common Stock”), and $11.00 in cash (collectively, the “Merger Consideration”); and |
| | • | | all unvested awards of Chesapeake Common Shares granted under the Chesapeake equity plan will become one hundred percent (100%) vested and all restrictions and forfeiture conditions thereon will lapse, and thereafter, such Chesapeake Common Shares will be considered outstanding and the holders thereof will only have the right to receive the Merger Consideration with respect to such Chesapeake Common Shares. |
No fractional shares of Park Common Stock will be issued in the Merger. The value of any fractional interests of shares of Park Common Stock to which a holder would otherwise be entitled will be paid in cash. The Merger will be treated as a taxable sale by Chesapeake of all of its assets to Domestic in exchange for the Merger Consideration and the assumption of all of Chesapeake’s liabilities, immediately followed by a distribution of the Merger Consideration to the holders of Chesapeake Common Shares in liquidation of Chesapeake.
Pursuant to the Merger Agreement, the parties have agreed that immediately following the effective time of the Merger, Park’s board of directors will consist of ten members, eight of whom will be the current directors of Park and two of whom will be designated by Chesapeake and approved by Park.
Park will prepare and file with the Securities and Exchange Commission (the “SEC”) a FormS-4 registering the Park Common Stock issuable as part of the Merger Consideration, and Chesapeake will prepare a proxy statement with respect to a special meeting of its shareholders to be convened for purposes of obtaining approval of the proposed transaction by holders of a majority of the outstanding Chesapeake Common Shares as promptly as reasonably practical after the date of the Merger Agreement, which proxy statement will be included in the FormS-4 and will contain, subject to certain exceptions, the recommendation of the Chesapeake board of trustees that Chesapeake shareholders vote in favor of the Merger.
Pursuant to the terms and subject to the conditions in the Merger Agreement, the Park Parties may undertake, with Chesapeake’s reasonable assistance but at the expense of the Park Parties, a marketing and sales process with respect to (i) the Hyatt Place New York Midtown South and the Hyatt Herald Square New York (the “New York Disposition Properties”), in order to permit their disposition on the closing date of the Merger or the day before the Merger closing date and (ii) certain of Chesapeake’s other properties designated by the Park Parties, in order to permit their disposition after the closing date of the Merger. It is not a condition to the completion of the Merger that any of these dispositions be completed. However, if all other conditions to consummation of the Merger have been satisfied or validly waived (other than those conditions that by their terms are required to be satisfied at the closing), but the sale of the New York Disposition Properties has not been completed, the closing of the Merger will be automatically extended to the earlier of (i) the date that is one business day after the date on which the sales of both New York Disposition Properties have been completed and (ii) October 10, 2019.
The Park Parties and Chesapeake have made certain customary representations and warranties in the Merger Agreement and have agreed to customary covenants, including, among others, a representation by the Park Parties that Domestic and Merger Sub have or at the effective time of the Merger will have all funds necessary for the payment of the cash portion of the Merger Consideration and any cash in lieu of any fractional shares of Park Common Stock, covenants by both parties with respect to the conduct of their respective businesses during the period between execution of the Merger Agreement and the closing of the Merger, and covenants prohibiting Chesapeake and its subsidiaries from soliciting, providing information or engaging in negotiations or discussions concerning proposals relating to alternative business combination transactions, subject to limited exceptions. The board of trustees of Chesapeake is also prohibited from changing its recommendation that Chesapeake’s shareholders vote in favor of the Merger, subject to certain limited exceptions relating to the ability of Chesapeake’s board of trustees to change its recommendation (i) in order to terminate the Merger Agreement and enter into an alternative acquisition agreement with respect to a superior proposal or (ii) in connection with a material fact, event, circumstance, development or change that materially affects the business, assets or operations of Chesapeake, was not known to, or reasonably foreseeable by the Chesapeake board and becomes known to the Chesapeake board prior to the receipt of the approval of the Merger by Chesapeake’s shareholders (subject to the limitations described in the Merger Agreement).
The completion of the Merger is subject to various customary closing conditions, including, among others: (i) approval by Chesapeake’s common shareholders; (ii) the absence of a material adverse effect on either Chesapeake or the Park Parties; and (iii) the receipt of tax opinions relating to REIT status of each of Chesapeake and two of its subsidiaries and of Park.
